Good morning, all, and thank you for listening into our Q3 earnings call today for Maersk. My name is Sarnsco. I'm the CEO, and I'm joined today with Bison Toft. Our Chief Operating Officer by Vincent Kirk, our Chief Commercial Officer and the CEO of APMT, Modern Engel Trust. So as always, I encourage you to read our disclaimer concerning forward looking statements.
Now before I dig into the financial highlights of Q3, I just want to talk a little bit about the transformation that we are going through. A number of important things happened during the last quarter. We announced in September, the reorganization of Maersklein and Damco, so that we per 1st January will be fully organized as 1 integrated company to be able to execute on the strategy of becoming the integrator of container logistics. We also continue to have solid development on our digital initiatives. Our customer transactions are now in Ocean by and large digitized.
More than 90% of our customer self serve price quotes now online. We launched our instant price app during the quarter. And we also have progress on, for instance, trade lanes, which we expect will release its general availability release during the month of December. Our customer satisfaction is on the increase. That's very positive.
West Drilling is on track to be demerged in 2019. We have a management in place. The company has been funded. And the company is ready to operate as an independent company from 1st January so that we can execute on the demerger as planned next year. Now let me turn to the highlights for Couture for the third quarter.
There are really 3 main headlines for me, 1st of all, a quarter of solid growth on the top line. Secondly, while we are not having with the absolute level of returns, we do have good earnings momentum. And finally, we had a quarter with strong cash flow generation. And let me just briefly talk to each of those 3 key messages. In terms of solid growth on the top line, we grew 31% as you can see to 10,100,000,000.
And that is, of course, much driven by the acquisition of Hamburg Sud. But also when we look out, excluding the Hamburg Sud transaction, we see good growth 7% year on year in Ocean growth. Driven by higher volumes and rates, 8% year on year growth in logistics And Services, which is quite good, but also hiding a story that we are actually growing a lot in supply chain management, 16% year on year. And our turnover in the forwarding part of the business is slightly declining as we focus on profit. And finally, we have 5% growth in on the top line in Terminals and Tools, driven by 7% growth in our Terminals business Overall, this means that our non Ocean business organically grows 15% versus organic growth in the ocean of around 7.
And that's exactly what we set out to do, grow non Ocean faster, significantly faster than Ocean. In terms of my second message around earnings momentum, then we deliver growth in the EBITDA of 16% compared to last year. Obviously, there was a quarter that had a significant impact from from cyber. So that may not be a fantastic result for us, but we do, I believe, have strong earnings momentum this year. We are up the EBITDA of 11.38 this quarter is up 70% compared to the 1st quarter where we were at 6.69 and it was also up 29% compared to the 2nd quarter where we were at 8.83 It's driven by the EBITDA improvements are driven by stronger freight rates, good controller costs and improving margins both in logistics and services and also in Terminals and Towage.
And then we have solid progress and it's hub for earnings. That we have solid progress on Hamburg Sud silences. And we are, as you have seen, upgrading synergy expectations to more than $500,000,000 in this quarter. Then finally, the final and third message I want to touch upon is the cash flow generation. We had in the quarter a cash flow from operations of 1,000,000 free cash flow from operations for 700,000,000 and also a cash conversion of 95%, which was good.
Combined with sale of Total shares, it means that we can deleverage the company by $2,000,000,000 during the quarter. We are also communicating that this quarter that we expect future investments to be lower and in about $2,000,000,000 to $2,500,000,000 for 20 19. And by that, I mean, growth CapEx expectations. If we look at the journey we have been on since 2016, we have significantly reduced our committed future investments. At the end of second quarter 2016, we were at 5.3 committed investments in what is today now the continuing business.
That was reduced to $4,100,000,000 a year ago in the end of Q3 last year and now $2,400,000,000. So that leaves us a lot of flexibility in the coming years. And I do expect also continued reductions in the net interest bearing debt for that reason in the coming quarters. Now let me turn to the actual numbers, as you've seen them. I just want to, on this page, highlight the fact that our underlying earnings are flat, driven by higher depreciations of Hamburg Sud and higher hired taxes.
But otherwise, I believe I have covered most of the points on this slide. As you can see, we only invested have CapEx of $400,000,000 during the quarter and then that's the journey that brings down committed CapEx that is playing out, you see our reduction in guidance for CapEx. And we now only have $1,100,000,000 committed CapEx for the 2 next year 2019 2020. We have added $80,000,000 of CapEx because of scrubbers. So that is a an element in this respect.
Then turning to our net interest bank debts. The free cash flow, including the sale of Total shares of 1,000,000,000 has allowed us to deleverage from 1,000,000,000 during the quarter to 1,000,000,000 U. S. Dollars and we will expect to continue to deliver in the coming quarters. On the consolidated financials information, I just want to highlight a few details.
Financial costs are well below the same quarter last year. It's really driven by dividends from Total And again, on the tax side, taxes are up a lot, again, driven by taxes on dividends. And then finally, the profit loss or the profit from continued from discontinued operations of 169 I just want to make sure that it's clear that we are not depreciating on our drilling rigs and supply ships and hence the relatively strong results. Finally, before I turn it over to Santosh, I just want to touch briefly on our financial metrics from our transformation metrics, if you will, revenue growth, up 31% non revenue, up 15% to 3.1 55, strong cash conversion CapEx low at only $400,000,000 and return while low and too low and clearly a progression since the third quarter last year. So with that, let me turn over to Sean Choft.
Thank you, Soren. Turning into the Ocean segment, We can see that the revenue for the quarter was up 32% and even excluding Hamburg Sud revenue was up 7% This was mainly driven by higher freight rates, a better cargo mix and then also slightly higher volumes. We saw that also spillover into EBITDA, which increased 16% and obviously also here partly offset by the higher bunker price, which we could not fully compensate for, but we have certainly made much better strides in the third quarter. Other revenue increased also because we managed to collect more to merge and sensing, we benefited from commercial synergies from Hamburg Sud, And we've seen more disruptions in Q3 in the overall network. So we will see, you can see a negative side effect of that in the cost but overall, this is a positive development for us.
Importantly, we have been able to grow the volume this quarter, but continue to deliver on the promise of reducing capacity, we reduced capacity 2.7 percent, meaning that we also improved our utilization for the quarter. We did see a worsening liability in the ocean performance. Maersk Line and Hamburg Sud are the number 1 and 2 in the industry for the quarter. We're very pleased with our relative progression. We're not yet pleased with our absolute progression, and this has our attention for the coming quarters.
Finally, I also want to say in line with SanSCO that we will continue the capital discipline in Ocean also in the coming quarters as we look ahead. If we then look at the unit costs, then for the quarter, we managed when we clean for all the effects and the fact that last year, we were not yet the owners of Hamburg Sud. We managed to reduce our cost base by 0.6%. When we compare quarter over quarter, so quarter 2 over quarter 3, it's correct. We had an increase of about 1.5%, mainly because we delivered slightly lower volumes than we expected, mainly on backhaul out of the United States where we also did appropriate cargo mix because we saw an increase in the third quarter on time charter prices, we have a very short book and that spills over there.
We had a few one offs. But I think what's most important to say is that when we compare these numbers and I know there are many of them, Then in Q1 twenty eighteen, we were the owners of Hamburg Sud, but we had not yet the opportunity to, you could say, influence the network, drive the changes, reduce capacity and so on and so forth. So what we really look at is the run rate from Q2 onwards. And there we can see that in Q2 and Q3, we are on a run rate of between 1 percent to 1.5 percent year on year unit cost reductions. And we also expect that to continue into the fourth quarter.
On fuel cost, we are very pleased with the progression, not on price, but on efficiency where we managed to reduce it also in the coming quarter, we're satisfied with performance. And this is an important metric for us as we also look into a 2019 2020 where an average the fuel price will increase. If we look at capacities, then one of the points that we mentioned continuously that we would work on was was to optimize the network and do something about capacity. We have now fully integrated Hamburg Sud's fleet into the ocean network we have fully integrated the equipment fleet. And in this quarter, managed to reduce our deployed capacity by 2.7%.
We have done that mainly by returning chartered capacity. And maybe as an interest for you, we are actually today deploying around 730 ships in the overall ocean network compared to 780 at the point that we took over Hamburg Sud. It's our ambition to reduce this number a little bit further and keep it stable around the 4,000,000 TEU. We have been proactive looking into fourth quarter by taking out a string on Asia Europe. That will not help our nominal capacity as we reporting here because these large ships are mainly laid up, but it will help our deployed and offered capacity in the market and thereby drive a higher utilization.
So in short, we continue we expect to continue to reduce the capacity slightly going to 4th quarter, so that we land around the 1,000,000 TEU mark. And we expect that capacity is what will be stable plus minus a little bit. When we look into 2019. We have a network of more than 700 ships. So I cannot guide on this down to the last 5 or 10,000 TEUs.
But the 4,000,000 TEU mark is what we are aiming for and what we absolutely believe we will deliver. Looking into Hamburg Sud, then what we can say is that we are progressing very well on the integration synergies are contributing positively to the overall revenue and the overall EBITDA of both the Ocean segment and the terminals and towage segment. Synergies are materializing faster than what we expected in the network, in the procurement and in the terminals. We recorded a slightly lower EBITDA this quarter versus quarter 2. It's mainly because we had a few one offs in quarter 2 and mainly because volumes also in Hamburg Sud were a little bit weaker as expected.
Looking into quarter 4, we are seeing a strong trend on volumes and generally expect to land the year strongly and we generally expect still to deliver an EBITDA for Hamburg Sud in 2018 that's higher than 2017. And then finally, we are raising the guidance on the synergies to minimum 500,000,000 for 2019. Let me turn the word over to Vincent Claire.
Thank you, sir. And for us, obviously, the third quarter has been very much in the same line of colors as what Son talked about in his introduction. Good progress, but still some ways still some ways to go for us to be satisfied. We have since the second quarter and through the throughout the third quarter focused enormously on margin improvement and yield optimization to make sure that we can weather the increase in fuel price. That we have witnessed since the beginning of the year.
And we can see some of the results of this already coming through compared to last year. Our freight rate increased by 5.5% and compared to the last quarter, they increased by 4.8%. This was due to the implementation of the emergency bunker surcharge, but also to having the normal contracts, bunker adjustment factor get amended for the third quarter on the 1st July. But also in some trades, some rate recovery that we have seen come through during the peak season. Excluding the positive effect from higher rate from Hamburg Sud, who came with a portfolio of higher rates due to the exposure to the north south trade, Our freight were up 2.5% compared to last quarter, which is still in excess of the bunker cost increase that we saw quarter on quarter.
However, the bunker cost, if we look at it year on year, were 47% higher than they were, in the Q3 of twenty seventeen, that represents $127 FFE. And if we look at it year on year, we've been managed to increase freight rate by $100 per FFE. So good progress, but we are not yet fully compensated for the increase that we have had in fuel cost and that remains a key focus area going forward. If you look at the last quarter, we actually managed to fully compensate the rates that we have taken there. So there is clearly a shift in the market towards the recovery of these costs and as usual with a bit of a lag in our capacity to push these us towards our customers.
If we exclude Hamburg Sud, our volumes grew 5% year on year, we have to I have to remind you that this has to be seen in the in a benchmark for last year for Maersk alone that was impacted by the cyber attack. Adjusted for the negative impact of the cyber attack on volumes in Q3 2017, we have a we assess our volume growth on a comparable level to be 2.7%, which is slightly below the 2.9%. We have assumed or we believe the market has been growing. So in line with the guidance, we believe a satisfactory performance on volumes, albeit a bit lower than than what we would have than what we anticipated. And as Sven mentioned on the unit cost, but still in line with the guidance that we had to the market that we would be slightly below market growth.
I just want to note that on the freight rates in the table here, the intra Latin America rates jumps a lot year on year and this has to do with the high presence that Hamburg Sud had in some of the longer corridors in the intra Americas the fact that the rates in those corridors are much higher than what we see on average in intra Europe and intra Asia. Moving on to logistics and services, here too, actually some good progress and the mix different things happening. So let me try to get through this for you. Revenue increased by 7.5% to 1.581 1,000,000,000 positively impacted by especially volume growth on supply chain management, but also increased in haulage cost as we have had also to face fuel cost increases on the inland side, which we have been able to pass on to our customers. This is a segment, as Saul mentioned, that is of high strategic importance to us and where we are also reorganizing right now to accelerate the growth But we see also that margins as a result of the, as a result of the efforts that we have put in place are improving.
They are partially offset by higher IT spends as we get a larger pipeline online as part of our our growth or the growth that we will see materialize in the coming quarter for startup supply chain management contract, but also, as I mentioned, a lot of the revenue growth on inland is due to fuel prices, which we have actually passed on to our customers, but which is not generating improvement in the average margin. Please bear in mind also that this is a segment which was heavily impacted by the cyber attack and probably more heavily than any other segment for us. The growth in supply chain management is actually something that that we take a lot of arrangement from and that we look at as a confirmation or an early confirmation for the direction that we're taking as a company we saw volumes increased 10% driven by both the new customers that we have acquired end of last year and beginning of coming online, but also volume growth from existing customers. Gross profit is up 12% to $290,000,000 supported by SCM and some of the other activities that are linked to supply chain management, such as warehousing and distribution.
The margin in Ocean And Air increased by 17% 12%. There, as Assern mentioned, we have seen actually a decrease in our presence as we have really focused on restoring margins to something that we think is satisfactory. We see the positive effect margin and we have had in the process to shed some business. Our EBIT conversion has improved to 14.7% versus 7.9 a year ago and also has improved from the second quarter of last year, where it was at 8.4 And that is that has a lot to do with the fact that despite the fact that the growth is still a bit subdued on the total numbers, we are changing the mix of the makeup of the revenue that we have in this segment towards the more core products that we have and where we can get more margin. With that, I will leave it to Terminal and Towage with modernized slot.
Thank you, Vincent. And let me give a few highlights from our Terminals and Towage segments. Our revenue overall increased by 4.7% and on an EBITDA level, we had a 19% improvement compared to a year ago. And this was supported, especially by a volume development well above the market, and by an increase in terminal utilization, which I will elaborate further on in just a moment. And then Q3 last year, of course, also for terminals, to some extent, was impacted by the cyber attack.
Our EBITDA margin improved by 2.5 percentage points compared to last year again due to strong volumes and utilization. Let me for the sake of good order also mention that our margins in Q3 actually fell slightly compared to earlier quarters this year. And there are 3 main reasons for that. First of all, we are spending more money right now on the new terminals that we are building as we're getting closer to completion So as an example in Maureen and Costa Rica, we have had the first 2, 3 vessel calls in now before the actual opening that we will have in February next year, but we are more or less employed the full organization there already. Secondly, we have had some extra costs this quarter in connection with the implementation of a new terminal system in some locations And finally, the margins in our Torch business has been under some pressure in Australia and Europe due to both the rate of exchange development and stronger competition.
Going a bit further into the volume developments, we have had volume increases, as I mentioned, well above the markets overall, we had a volume increase of 6.9% in moves. But since we compared to last year, had divested our terminals in Saporoger and in Tacoma, our actual increase on a like for like basis was 10.4%. We continued to see very strong support from Maersk Line and Hamburg Sud of more than 16% like for like and also our other customers had volume increases above the market at 7%. Revenue per move was up on a consolidated basis, mainly due to a mix effect from more business in North And Latin America as well as higher revenue from our land side customers whilst costs our costs per move was flat compared to third quarter last year, but up compared to last quarter, supported of by the stronger volumes and utilization, but also impacted by the same mix effects that I just talked about and higher costs in the terminals under construction. And to illustrate the mix effect quarter on quarter, our cost per move was up by $8 compared to last quarter but our revenue per move was up by $15.
The result from our joint ventures, which are not part of our EBITDA, was up by it was $53,000,000 this quarter, well above last year, which was impacted by an impairment and up slightly compared to last quarter. And let me then finally give a couple of comments on Switzer, our towage business, overall, our Activity increased both in Latin America and with our new towage business in Bangladesh being fully operational in Q3. Which together with an improved number of idle tugboats have increased the EBITDA per tugboat this year compared to last year. So that was it from my side for Terminals and Towage So, Sean, over to you again.
So, thank you, Morton. Very briefly on manufacturing and others. We saw a quarter, which grew significantly in revenue as we compared to Q3 last year, now included the bulk activities that we have bought from Hamburg Sud. They contributed very strongly on the revenue line, but They came in with a negative EBITDA. And as we have also said previously, we are currently in the process of divesting these activities.
On the container manufacturing side, Really, it's a tale of two stories. We have a dry business, a dry manufacturing business that's not doing very well. Very, very weak fundamentals and also impacted significantly by rate of exchange in this quarter. And our reefer business That is really a highlight for us where we've had the highest ever third party sales where profitability is strong and and improving. And for that reason, we've also decided to scale back production in the dry facility in China here during December.
Really as a result of that. So we are not pleased with the performance in this segment. We know why and we're doing something about it.
And then I will just check briefly mass drilling and mass supply service. As I've already said in my introduction, the listing of mass drilling is well on track and we expect that to happen during 2019. You will note in the numbers that we have made a fair value adjustment of a positive fair value adjustment of $445,000,000 during the quarter due to the improved market outlook of for mass drilling and we now carry the company in the books or the invested capital at 5,000,000,000 dollars. Also, as I said, when we look at the results here, we have to remember that, that we're not depreciating on the assets. And then when we move to Maersk Supply Service, the company's report a significant increase in revenue of 23% and also the EBITDA is up, but it's from very, very low levels.
And of course, this industry is still much challenged. And we have, for that reason, made a fair value adjustment negative fair value adjustment of $400,000,000 during the quarter so that the invested capital in mass supply service now is 600,000,000. We continue to work on finding a solution for this for Maersk Supply Service, how we can separate out the company, but it seems unlikely we will be able to have that concluded before the end of the year. Now turning to guidance. As I'm sure you will all have noticed, we are narrowing our guidance from $3,500,000,000 to $4,200,000,000 to a new guidance of $3,600,000,000 to $4,000,000 what that really means is that we expect the 4th quarter to be much of a repeat of the 3rd quarter, solid top line growth good earnings momentum.
Last year, we made $844,000,000 EBITDA and to reach the lower end of our now guidance, we need to make 900 and 1.3 to hit the high end. So we expect good earnings momentum. And finally, all So we expect a quarter another quarter of strong free cash flow in the 4th quarter. So with that, I believe we are getting ready to questions.
I'll begin the question and answer session.
The first
question comes from the line of Edward Stanford from HSBC. Please go ahead.
3 questions, please. First, you've indicated you're making some investments in scrubbers. Many of your competitors are doing so to What number of ships do you think you will have with scrubbers by 2020? Do you foresee some pricing difficulties on the Asia Europe route between those with and without scrubbers? That's the first question.
The second question you continue to sell Total shares. You continue to say shareholders will receive the majority of the remaining shares. What can they look forward to receiving? And finally, the could you just talk about the how you view the damco forwarding business going in future in terms of the way split it off and perhaps now deemphasizing it.
Yes. This is Soren Skou here first. Let me take the Total share issue. And then I'll turn over to Vincent and Turnitroft. So what we what we what you can expect is that we do exactly what we have set that we're going to do that we are going to distribute or demerged mass drilling during 2019.
By that, we mean we're going to not going to raise any capital. We have list the company and give the shares to our shareholders. And then you can expect that we will distribute a material part of the value from to the shareholders through either a dividend or share buyback or distributing the actual shares in some combination to be decided. We have also said that we expect that when we have announced the demerger of Maersk Drilling, we will be able to provide a liner site to the rest of the distribution of proceeds from the energy transactions.
I just ask that? I suppose I'm trying to get at what the starting point is in terms of the majority of the total shares. Is that the shares that remain after you have sold?
No, no, no, no, the starting point is the original transaction. So at the original transaction, we sold masked, mask oil for $7,450,000,002,500,000,000 was debt or well cash. And then the rest, that's the starting point for the material discussion.
Okay, thanks.
And for damco, so what we are what damco has to do now is continue the focus that they have margin so that they become competitive on cost and competitive on the business that they can sign up And we believe that the changes that we have made now to the organization by giving them a full focus on damco full focus on freight forwarding, both air and ocean and having really that play alone and not having to worry about selling 4PLs and supply chain management will give them the focus that they need to manage their cost more aggressively than they have so far, manage their margin positively. And from there on, they can start to move on a growth, but on a growth trajectory and prosper, but it's really important that the initial focus is on restoring margins and having a business where growth is actually your friend, if I may put it that way. On the scrubbers, let me just add before we talk to scrubbers from, from Santoft on the pricing, we have communicated what our bunker adjustment formula is going to look like. And the discussion with customers will be around that bunker adjustment formula.
Not a discussion around the number of scrubbers or how this is being impacted. We have no visibility on that at this stage anyway. So we have given, we have given the formula already to the market. We have had initial discussions with the customers. So far, the discussions have actually been quite positive.
All the people we talked to, we talked to are aware of the change coming in our ways aware of the materiality of the change and that's something needs to happen. So these discussions will be ongoing in the contracting season this year during next year and in the contracting season the following year as well.
And let me just complement Vincent by saying that the vast vast majority of the fuel and that we will burn will be 0.5. So we really need to make sure that that the compensation reflects the 0.5, which the industry will burn. Yes, we are looking at some scrubbers. We're not going to give a detailed number of how many scrubbers it is. But as I said, the vast majority of the consumption will continue or will be come 0.5 and that's what our bunker formula really reflects.
And the next question comes from the line of Dan Tbul from Carnegie. Please go ahead. Your line is open.
Yes, hello, and thank you. Question on the high unit cost we saw here in Q2. I understand it's a function of bigger volume and also on the cost side probably, but could you be more specific on which markets have been impacted by weaker volumes vis a vis Q2. And also, on the cost side, are you seeing any inflation here in time charter costs, terminal costs, etcetera?
So, Santosh here very quickly. I mean, on the volume side, as I said, it's mainly on what we call backhaul, mainly out of the U. S. Where volumes have been both weaker and we have cargo mix out of some volume. And the irony is that the volume out of the U.
S. Runs on a relatively short round trip with 5 or 6 ships. So it's actually the cargo that carries the lower unit cost, if you wish. So there's also a little bit of mix effect where it's very important that we talk profits at the end of the day and not so much mix effects on unit cost. Secondly, we have seen a higher time charter prices in Q3, As we're looking at it right now, time charter prices are, again, coming a little bit down as per the normal, you could say, quarterly fluctuations And finally, a couple of things.
I mean, there's been a lot of network disruptions that has made us, you could say, invoice and collect more demerits attention, but it hits adversely in the terminal cost in terms of storage or reefer monitoring cost or you would say, misconnection costs. So those are really the underlying elements.
The latter part that you mentioned here, Sean, is that easing now going into Q4
Well, you could say typically Q4 is the time where we have a worse weather. So we cannot yet say that that part is easing. But what we can say is that we have good momentum going into Q4. We have taken proactive steps on capacity with Asia Europe, which helps our actual utilization. And we'll continue to take proactive steps on capacity depending on how the markets will develop
Okay, thank you. And then just a quick question on Hamburg Sud and the increased synergies you see here. Can it be a bit more specific into what exactly the $100,000,000 lift is relating to?
Yes, I mean, it's really across the board. We are seeing more opportunities in optimizing the network than our original case. And obviously now that we have the detailed flows, we can do that. We have actually retained more or less all of the Hamburg Sud volumes. So the fact that we have retained all the volumes obviously spills through in the overall synergies We are seeing better synergies in APM terminals.
And we also done a little bit of a better job than what we expected on procurement. So it's a good range across the board.
And the next question comes from the line of Bob Johnson from Exane BNP. Please go ahead. Your line is open.
Good morning, everybody. I have three questions from me please, but maybe taken one by one. So I the first question is on the CapEx guidance for 2019. It's obviously good to see the guidance reduce if I look at the capital commitments for newbuild vessels, which are provided in the notes, they stand at just over 1,000,000 for 2019. So I guess the guided range for next year basically implies 1.6 to billion of CapEx for assets of the new ships, which still feels like quite a high range.
Could you maybe just provide some detail on what that CapEx on assets other than new ships is comprised of I'm thinking in particular in terms of CapEx on terminal investments, new containers and so forth.
Yes, Robert. This is Cern Skou here. So we have, for next year, a total committed CapEx at this point of just over 800,000,004100 for ships. And then the rest is containers. We're still building on 5 terminals, Avijan, Chaima, Changshia, Vardo and Maureen, we have a little bit of, of scrubber investments, $80,000,000, as you can and see.
And then we have some investments in new equipment in our hub terminals around the world to service to service the Maersk Line network. So that's the committed, that's how the committed investments break down the $800,000,000 We're going to need more CapEx, if you will, for upgrading equipment on on the terminals, we are going to need some CapEx probably for containers and general maintenance stuff.
Does the figure include any CapEx for secondhand vessels? No. Okay. The second question then is just on M And A. It's now almost a year since Hamburg Sud was validated and evidently the integration is going reasonably well.
Could you maybe just talk about your current thinking with respect to future M and A in the container shipping space?
Perhaps I should say, before I get to the M and A discuss and reiterate and repeat again that we're not planning to order. If you're trying to get whether we were planning to order a lot of large ships next year, then the answer is no. We're not planning to order any large ships before at the earliest 2020. So let me just repeat that for the sake of good order. In terms of M and A, then we have acquired Hamburg Sud.
We are well into the integration we are quite happy with that transaction. We acquired the company for just over $4,000,000,000 and we're going to have a good EBITDA on that this year and showing good progression on on synergies. So that was a good transaction for us, but we're not planning to do any acquisitions in the the ocean space, in 2019, if that's your, that's your question. We have now a market share, which is certainly on the long haul rates north of 20% and that gives us the scale that we need, we believe, to have a competitive cost structure and the other advantages from that. So there's not a strong need for us to do something on M and A in the ocean space.
Okay, thank you. And then the final question sailing speeds, we all know that fuel costs will be increasing significantly over the next year or so going into IMO 20 20. Could you maybe just talk about the implications for sailing speeds, I. E. Will the optimal sailing speed below giving the higher fuel costs and does Maersk Line have any plans in that respect to actually reduce sailing speeds over the next year or so?
Yes, so this is Sam Tuft here. I think as a general notion, what you can and what you should expect is that as bunker prices increase and also as the average vessel sizes over the years have increased and will to increase, the speed will go down. And as I said earlier, we have solved one of the two issues we've had reliability. 1 was a relative position in the industry. The other one was the nominal delivery to our customers.
We are not satisfied with what we are delivering to our customers. And there's a very good correlation between improving that, reducing sailing speed and becoming more reliable.
Okay. Thank you very much.
Laz Heindor from SV. Please go ahead. Your line is open.
Thank you very much. Firstly, regarding the payment, the tax rate in the quarter was fairly high. You mentioned yourself that it's partly caused by, I think it was dividend tax on some of its tel shares. Could you provide guidance in terms of a range for tax rate for the full year?
I don't think so. Last, this is Sean Skow here. I mean, the fundamental business we have today is, is has a very low tax rate because of tonnage and so on. We have a little bit of complexities now because of the 2 challenges, but that will be a that will not be a long term situation for us. So I can't give any more guidance on that.
Okay. And secondly, regarding Ocean business, you now starting up the new AA 2 loop again on AC Europe. And I don't know if you can shed some light on if this caused by competitive reasons or do you simply believe that volumes are strong enough for the trade to accommodate the loop again?
Vincent here. So what we are doing now is we, we are, as you mentioned, rightfully, we are starting again, the A2, because we're seeing demand pick up ahead of Chinese New Year, which is, which is quite normal. For this time of year, and we're meeting that demand as we go into the peak season.
Okay. Are you then planning to remove it again after the peak season or because I mean, when you look at most of the volume trends where we see at the moment, growth is trending downwards?
So it's difficult for me to guide on what we're going to do after Chinese New Year at this stage because this is obviously something that we constantly review If we feel that demand will not be there for the capacity, then we will withdraw it again. And if we see that the pickup after Chinese New Year is strong enough to justify we deploy the string, then we will deploy it. I mean, we have, this is part of the constant reviews that, that we're having. We had the clear expectations where we saw a slowdown of demand here over the third quarter on Asia Europe, which we met right away with the reduction in capacity. And as we see capacity, as we see demand pick up again, here and ahead of Chinese New Year, we meet that demand by capacity.
And we can continue actually to tack to demand like that as we move forward. And that has been our strategy. That's how we have we have to have that flexibility to improve the asset utilization and keep our cost as low as possible.
And the next question comes from the line of Mark McVicar from Barclays. Please go ahead. Your line is
Good morning. I have 2 questions. First question, really, I read with interest the market update section of the Q3 report. Where you say you think global container trade is likely to grow in the lower parts of 2% to 4% in 2019. And then you go on to say that the work you've done says that the tariffs could reduce that grows by between 0.5% 2% during 2019 2020.
When you put all those together, you're going through your planning process, what do you think net market volume growth is likely to be next year, less than 2%
No, so what we, what Vincent here, Mark, what we believe is the following as the tariff start to come into effect in January, we are likely to see we expect to see a significant slowdown in demand of imports into the U. S. A lot of customers have actually accelerated their purchase orders to get them into the U. S. Before the tariffs.
So as we see a stronger demand now, we expect to see a low as the tariff comes into effect while everybody is trying to figure out how they will, how they will structure the supply chain going forward. So we have here what I would call an assignable cost for a lower demand. And the way we're dealing with this on the Pacific is we will deal with it by proactively taking capacity out around Chinese New Year to make sure that we have rightsized our network for lower demand and and can keep ourselves in line with what our customers expect. The rest of the trades are mostly unaffected by trade tension yet. So when we say that we expect growth in the lower part of the bracket, it is mostly because we're building in the impact that we expect the trade war to have here at the beginning of the year.
Okay. So the lower parts of 2 to 4 include the expectation from the hip and parrot
Yes, yes. And let me just restate also that the fact that we are underweight market share wise in the Pacific is actually something that that comes in quite handy right now.
2nd question, could you just clarify why you continue to hold on to the Total shares and why not just sell them, put the cash on the balance sheet and then wait for the rest of the the mess drilling demerger process to happen. Is there any other than it's not a bad place to have money is there any particular reason to hold the shares not cash, particularly as I'm assuming? The rating agencies does give you full value for stock versus cash?
So Mark, this is Soren Skog here. We have sold by now, I believe, 1.7 $1,800,000,000 worth of total shares and I think you can expect us to see us continuing that direction. We have held on to a number to the total shares because we think a good company. They pay a high dividend, and we've also seen a good progression in the share price compared to when we did the transaction, but we are, we're moving in the other direction now.
Okay. So if we could expect, excuse me, to just say a sell down over the course of the next 6, 9 months or something like that.
Yes, I'm not going to give any more guidance than what I just did.
And the next question comes from the line of Casper Blom from ABG. Please go ahead. Your line is open.
Thanks a lot. Just first of all, just a follow-up here. Sean Charles, I think you said that you were retaining most of the volumes from all the volume from Hamburg Sud. Have you sort of now gone through contract negotiations with all of the clients that you took over so that you can sort of now conclude that there were no significant loss of clients here? And then secondly, on volumes, you mentioned that the unit cost here as impacted by volumes, maybe not being as strong as you were hoping for.
I think latest data show that there's been a little bit of pickup again in volumes on Asia Europe, that something that you can recognize? That's all from me.
Hi, Kasparo Vincent here. Let me start with the Let me start with the Asia Europe. I think it builds on also the answer that I had early on on why the A2 is coming back. We have seen also following the Golden Week in China, a rebounding demand after actually a deceleration in the third quarter, which was part of why the volumes were a bit lower in third quarter, but we've seen a good rebound of volumes here in the fourth quarter, and that's also supporting the redeployment of the AA2. So I can confirm that we have seen this.
With respect to the Hamburg Sud, to the Hamburg Sud volumes, Hamburg Sud has done, the Hamburg Sud team has done a fantastic job. As I to be retaining their business through the integration of the 2 companies through the integration of the networks here in the second quarter. And we can see that their customers are still with them and the volumes keep on coming as we expected them to. We have not gone to a full contract negotiation cycle with all the long term contracts that they have since we have had this A lot of the contracts are actually to be negotiated, I would say, in the next 3 months, And that will be the final milestone that we need to have. But with the discussions that we have with our customers, throughout the year here.
This is not something where we expect big surprises to come out of this round that we have yet to have.
Okay. If I may just follow-up, would that mean that let's say you are very successful in the renegotiation of these contracts, could we end up actually seeing further upside to the synergies that you've just upgraded?
I think at this stage, we had what we had not built in an expectation of losing a lot of volumes that we have made the architecture of how we have kept the brand and kept the organization and kept the separate value proposition was actually a trade off that we took to make sure that we would have a high retention and actually we're seeing this come through And that is part of the upgrade also that, that Santosh mentioned and Son Skol mentioned also on what we expect to synergy to look at.
That's very clear. Thank you.
Bank. Please go ahead.
Yes, good morning. A question to the unit cost on U. S. Slide 12. I'm just wondering if we look at the change from Q3 2017 to Q3 2018, it's a 1.1% and then we take out Hamburg Sud and the Forex that you're talking about in this on the same slide, then we end up with a reduction of 2.3%.
But you are improving your care your volumes excluding Hamburg Sud by 5%. Organically in the quarter. So it seems a little bit on the a little bit on the low side, what you're doing on the unit cost you explain how it develops year on year, excluding Hamburg?
Well, Finn, it's off to you. As we said, then the factors that are impacting the unit cost, they are, they are the volumes we planned and convinced that too, we had a cyber attack. So we plan to move a bit more volume in quarter 3 than we did, but we saw weaker demand fundamentals and we also de selected some cargill for the right reasons. On top of that, we saw time charter prices going up and we have had some disruption costs, but we have collected that through higher demers and detention collections. I think it's also important to look at this not too much quarter by quarter because there's a lot of noise in the numbers.
And that's why I I shared earlier also that when we look at the run rate post Q1 where we really, you would say, got our handle on the overall Hamburg Sud network of ships and containers. We have a run rate in Q2 and Q3 that resets costs between 1% and 1.5% and we expect we can continue that going into Q4. That's really, I think, the key message that we want to share But
I still kind of proud to understand it because you're talking about a run rate between Q2 and Q3 we are up 1.5%. Is that a positive run rate or how should I understand
the Q2 to Q3 development, that's what I said. That's mainly because time charter prices have gone up. It's because we had a couple of positive one offs in Q2 that we don't have in Q3. And then it's volume related compared to plan. That's what it is.
But it's important to look at it over not only a quarter, but over the longer period. And we will also share this information when we get into Q4. So do you have that perspective on the numbers?
I now hand back to group CEO, Sasco.
Yes. So just a few final remarks on Q3. It was a quarter where we believe we had solid progress on transformation. We had lots of top line growth. While we are not happy with the absolute level of earnings, we have earnings momentum now, especially since a very weak start through the year.
And we had a very strong cash flow generation. And Q4, with the guidance we have given, is likely to look very, very similar, top line growth, earnings momentum and strong cash flow. And if we give and when we deliver that, then we also have good momentum going into the first quarter of 2019. So with that, again, thanks for listening today.