Good morning, all, and thank you for listening in to our Q3 earnings call today for Maersk. My name is Søren Skou, I'm the CEO, and I'm joined today by Søren Toft, our Chief Operating Officer, by Vincent Clerc, our Chief Commercial Officer, and the CEO of APM Terminals, Morten Engelstoft. 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 Maersk Line and Damco so that we, per 1st of January, will be fully organized as one 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 customers self-serve price quotes now online. We launched our instant price quote app during the quarter, and we also have progress on, for instance TradeLens, 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. Maersk Drilling is on track to be de-merged in 2019. We have management in place. Company has been funded, and the company's ready to operate as an independent company from 1st of January so that we can execute on the de-merger as planned next year. Now, let me turn to the highlights for the third quarter. There are really three main headlines for me.
First of all, a quarter of solid growth on the top line. Secondly, while we are not happy with the absolute level of returns, we do have good earnings momentum. Finally, we had a quarter with strong cash flow generation. Let me just briefly talk to each of those three key messages. In terms of solid growth on the top line, we grew 31%, as you can see, to DKK 10.1 billion. That is, of course, much driven by the acquisition of Hamburg Süd. Also when we look out, excluding the Hamburg Süd 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.
Our turnover in the forwarding part of the business is slightly declining as we focus on profit. Finally, we have 5% growth on the top line in terminals and towers, driven by 7% growth in our terminal business. Overall, this means that our non-ocean business organically grows 15% versus organic growth in ocean of around 7%. 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, we deliver a growth in the EBITDA of 16% compared to last year. Obviously, that was a quarter that had a significant impact from cyber. That may not be a fantastic result for us, but we do, I believe, have strong earnings momentum this year.
The EBITDA of 1,138 this quarter is up 70% compared to the first quarter where we were at 669, it was also up 29% compared to the second quarter where we were at 883. The EBITDA improvements are driven by stronger freight rates, good control over cost, and improving margins both in logistics and services and also in terminals and towage. Then we have solid progress, and it's helpful earnings that we have solid progress on Hamburg Süd synergies, we are, as you have seen, upgrading synergy expectations to more than $500 million in this quarter. 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 $ 700 million, free cash flow from operations for $ 700 million, 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 billion during the quarter. We are also communicating that this quarter that we expect future investments to be lower and in about $ 2 billion-$ 2.5 billion for 2019. 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 DKK 5.3 committed investments in what is today now the continuing business. That was reduced to $ 4.1 billion a year ago in the end of Q3 last year, now $ 2.4 billion. That leaves us with a lot of flexibility in the coming years. I do expect also continued reductions in the net interest-bearing debt for that reason in the coming quarters.
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 Süd and higher taxes. Otherwise, I believe I have covered most of the points on this slide. As you can see, we only invested, have CapEx of $ 400 million during the quarter. That's the journey that brings down the committed CapEx that is playing out. You see our reduction in guidance for CapEx. We now only have $ 1.1 billion of committed CapEx for the two next year, 2019 and 2020. We have add $ 80 million of CapEx because of scrubbers, that is a relatively non-event in this respect. Turning to our net interest-bearing debt.
The free cash flow, including the sale of Total shares of DKK 2 billion, has allowed us to delever from $ 14.3 billion during the quarter to $12.4 billion. We will expect to continue to delever 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. Again, on the tax side, taxes are up a lot. Again, driven by taxes on dividends. Finally, the profit loss or the profit from discontinued operations of DKK 169. I just want to make sure that it's clear that we are not depreciating on our drilling rigs and supply ships, hence the relatively strong result.
Finally, before I turn over to Søren Toft, 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 DKK 3.155. Strong cash conversion. CapEx low at only DKK 400 million. Return, while low and too low, clearly a progression since the third quarter last year. With that, let me turn over to Søren Toft.
Thank you, Søren. Turning into the Ocean segment, we can see that the revenue for the quarter was up 32%. Even excluding Hamburg Süd, revenue was up 7%. This was mainly driven by higher freight rates, a better cargo mix, and slightly higher volumes. We saw that also spill over into EBITDA, which increased 16%. 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 demurrage and detention. We benefited from commercial synergies from Hamburg Süd. We've seen more disruptions in Q3 in the overall network, so 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%, meaning that we also improved our utilization for the quarter. We did see a worsening reliability in the Ocean performance. Maersk Line and Hamburg Süd 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 Søren Skou that we will continue the capital discipline in Ocean also in the coming quarters as we look ahead.
If we look at the unit cost, 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 Süd, we managed to reduce our cost base by 0.6%. When we compare quarter-over-quarter, 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 U.S., where we also did appropriate cargo mix. 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.
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 2018, we were the owners of Hamburg Süd, but we had not yet the opportunity to, you could say, influence the network, drive the changes, reduce the capacity, and so on and so forth. What we really look at is the run rate from Q2 onwards. There we can see that in Q2 and Q3, we are on a run rate of between 1%-1.5% 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 are satisfied with that performance, and it's an important metric for us as we also look into 2019 and 2020, where on 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 to optimize the network and do something about capacity. We have now fully integrated the Hamburg Süd 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. 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 Süd.
It's our ambition to reduce this number a little bit further and keep it stable around the 4 million 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 are 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. In short, we expect to continue to reduce the capacity slightly going into fourth quarter, so that we land around the 4 million 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 5,000 or 10,000 TEUs, but the 4 million TEU mark is what we are aiming for and what we absolutely believe we will deliver. Looking into Hamburg Süd, 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 the 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 two. It's mainly because we had a few one-offs in quarter two, and mainly because volumes also in Hamburg Süd were a little bit weaker as expected.
Looking into quarter four, we are seeing a strong trend on volumes and generally expect to land the year strongly. We generally expect still to deliver an EBITDA for Hamburg Süd in 2018 that is higher than 2017. Finally, we are raising the guidance on the synergies to minimum DKK 500 million for 2019. Let me turn the word over to Vincent Clerc.
Thank you. Thank you, Søren. For us, obviously, the third quarter has been very much in the same line of colors as what Søren talked about in his introduction. Good progress, but still some ways to go for us to be satisfied. We have, since the second quarter and 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. We can see some of the results of this already coming through. Compared to last year, our freight rate increased by 5.5%. Compared to the last quarter, they increased by 4.8%. This was due to the implementation of the emergency bunker surcharge, also to having the normal contracts bunker adjustment factor get amended for the third quarter on the 1st of July.
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 Süd, who came with a portfolio of higher rates due to their 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. The bunker cost, if we look at it year-on-year, were 47% higher than they were in the Q3 2017. That represents $127 per FFE. If we look at it year-on-year, we have managed to increase our freight rate by DKK 100 per FFE. 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. There is clearly a shift in the market towards the recovery of this cost, as usual, with a bit of a lag in our capacity to push these costs towards our customers. If we exclude Hamburg Süd, our volumes grew 5% year-on-year. I have to remind you that this has to be seen 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 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.
In line with the guidance, we believe a satisfactory performance on volumes, albeit a bit lower than what we anticipated, and as Søren 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 rate jumps a lot year-on-year, and this has to do with the high presence that Hamburg Süd had in some of the longer corridors in the intra-Americas, and of 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 a mix of different things happening. Let me try to get through this for you.
Revenue increased by 7.5% to $ 1.581 billion. 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 Søren mentioned, that is of high strategic importance to us and where we are also reorganizing right now to accelerate the growth. We see also that margins, as a result of the efforts that we have put in place, are improving.
They are partially offset by higher IT spend as we get a larger pipeline online as part of 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 we take a lot of encouragement 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 increase 10%, driven by both the new customers that we have acquired end of last year and beginning of this year coming online, but also volume growth from existing customers. Gross profit is up 12% to $290 million , 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% and 12% there. As Søren 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 on 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%.
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 Morten Engelstoft.
Thank you, Vincent. 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. This was supported especially by a volume development well above the markets and by an increase in terminal utilization, which I will elaborate further on in just a moment. 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 three 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. As an example, in Moín in Costa Rica, we have had the first two, three vessel calls in now before the actual opening that we will have in February next year, but we have 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. Finally, the margins in our towage 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, have divested our terminals in Zeebrugge 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 Süd 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 landside customers. Whilst our costs per move was flat compared to third quarter last year, but up compared to last quarter.
Supported, of course, 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. 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, it was DKK 53 million this quarter. Above last year, which was impacted by an impairment, and up slightly compared to last quarter. Let me finally give a couple of comments on Svitzer, 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. That was it from my side for terminals and towage. Søren, over to you again.
Thank you, Morten. Very briefly on manufacturing and others. We saw a quarter which grew significantly on revenue as we, compared to Q3 last year, now included the bulk activities that we have bought from Hamburg Süd. They contributed very strongly on the revenue line, but they came in with a negative EBITDA. As we have also said previously, we are currently in the process of divesting these activities. On the container manufacturing side, 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. A reefer business that is really a highlight for us, where we've had the highest-ever third-party sales, where profitability is strong and improving.
For that reason, we have also decided to scale back production in the dry facility in China here during December, as a result of that. We are not pleased with the performance in this segment. We know why, and we're doing something about it. I will just take briefly Maersk Drilling and Maersk Supply Service. As I've already said in my introduction, the listing of Maersk Drilling is well on track, and we expect that to happen during 2019. You will note in the numbers that we have made a positive fair value adjustment of $445 million during the quarter due to the improved market outlook for Maersk Drilling, and we now carry the company in the books, or the invested capital at $5 billion.
As I said, when we look at the results here, we have to remember that we're not depreciating on the assets. When we move to Maersk Supply Service, the company's report significant increase in revenue of 23%, and also the EBITDA is up, but it's from very, very low levels. Of course, this industry is still much challenged. We have, for that reason, made a negative fair value adjustment of $400 million during the quarter, so that the invested capital in Maersk Supply Service now is $600 million. We continue to work on finding a solution for Maersk Supply Service, how we can separate out the company. 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 3.5-4.2 to a new guidance of 3.6-4. What that really means is that we expect the fourth quarter to be much of a repeat of the third quarter. Solid top-line growth, good earnings momentum. Last year, we made $844 million EBITDA, to reach the lower end of our now guidance, we need to make 900, and 1.3 to hit the high end. We expect good earnings momentum, finally, also, we expect another quarter of strong free cash flow in the fourth quarter. With that, I believe we are getting ready to questions.
I'll begin the question and answer session. This session will end no later than 12:00 P.M. If you have a question, please press zero, then one on your telephone keypad and you'll enter a queue. After you're announced, please ask your question. The first question comes from the line of Edward Stanford from HSBC. Please go ahead.
Good morning, everybody. Three questions, please. First, you've indicated you're making some investments in scrubbers. Many of your competitors are doing so, too. 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? Finally, could you just talk about how you view the Damco forwarding business going in future in terms of the way you've split it off and perhaps now de-emphasizing it?
Yes, this is Søren Skou here. First, let me take the Total share issue, and then I'll turn over to Vincent and Søren Toft. What you can expect is that we do exactly what we have said that we're going to do, that we are going to distribute or de-merge Maersk Drilling during 2019. By that, we mean we're not going to raise any capital. We'll list the company and give the shares to our shareholders. Then you can expect that we will distribute a material part of the value from the sale of Maersk Oil to the shareholders through either a dividend or a 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 de-merger of Maersk Drilling, we will be able to provide line of sight to the rest of the distribution of proceeds from the energy transactions.
Can I just ask there, 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, the starting point is the original transaction. At the original transaction, we sold Maersk Oil for $7.45 billion. $2.5 billion was debt, or, well, cash. The rest, that's the starting point for the material discussion.
Okay, thanks.
For Damco, what Damco has to do now is continue the focus that they have on margins so that they become competitive on cost and competitive on the business that they can sign up. We believe that the changes that we have made now to the organization, by giving them 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 trajectory and prosper.
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 scrubbers, let me just, before we talk scrubbers from Søren Toft, on the pricing, we have communicated what our bunker adjustment formula is going to look like. 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. We have given the formula already to the market. We have had initial discussions with customers. Far, the discussions have actually been quite positive. All the people we talked to are aware of the change coming and are aware of the materiality of the change and that something needs to happen.
These discussions will be ongoing in the contracting season this year, during next year, and in the contracting season the following year as well.
Let me just complement Vincent by saying that the vast majority of the fuel that the industry and that we will burn will be 0.5. We really need to make sure 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. As I said, the vast majority of the consumption will continue or will become 0.5, and that's what our bunker formula really reflects.
Thank you.
The next question comes from the line of Dan Togo 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 is a function of weaker 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? Also, on the cost side, are you seeing any inflation here in time charter costs, terminal costs, et cetera?
Søren Toft here. Very quickly, 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 mixed out of some volume. The irony is that the volume out of the U.S. runs on a relatively short round trip with five or six ships. It's actually the cargo that carries the lower unit cost, if you wish. 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 higher time charter prices in Q3. As we are looking at it right now, time charter prices are again coming a little bit down as per the normal, you could say, quarterly fluctuations.
Finally, a couple of things. There's been a lot of network disruptions that have made us, you could say, invoice and collect more demurrage and detention, but it hits adversely in the terminal cost in terms of storage or reefer monitoring cost or you could say misconnection costs. Those are really the underlying elements.
The latter part that you mentioned here, Søren, is that easing now going into Q4?
Well, you could say typically Q4 is the time where we have worse weather. We cannot yet say that that part is easing. What we can say is that we have good momentum going into Q4. We have taken proactive steps on capacity with Asia and 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. Then just a quick question on Hamburg Süd and the increased synergies you see here. Can you be a bit more specific into what exactly the DKK 100 million lift is relating to?
Yeah. It's really across the board. We are seeing more opportunities in optimizing the network than our original case. Obviously now that we have the detailed flows, we can do that. We have actually retained more or less all of the Hamburg Süd volumes. The fact that we retained all the volumes obviously spills through in the overall synergies. We are seeing better synergies in APM Terminals, and we also have done a little bit of a better job than what we expected on procurement. It's a good range across the board.
Thank you.
The next question comes from the line of Robert Joynson from Exane BNP. Please go ahead. Your line is open.
Good morning, everybody. Three questions from me, please, maybe let's take them one by one. The first question is on the CapEx guidance for 2019. It is obviously good to see the guidance reduce. If I look at the capital commitments for new build vessels which are provided in the notes, they stand at just over DKK 400 million for 2019. I guess the guided range for next year basically implies $ 1.6 billion-$ 2.1 billion of CapEx for assets other than 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 am thinking in particular in terms of CapEx on terminal investments, new containers and so forth.
Yes, Robert, this is Søren Skou here. We have for next year a total committed CapEx at this point of just over DKK 800 million. DKK 400 million for ships, the rest is containers. We are still building on five terminals, Abidjan, Tema, Tangier, Vado and Moín. We have a little bit of scrubber investments, DKK 80 million, as you can see. We have some investments in new equipment in our hub terminals around the world to service the Maersk Line network. That is how the committed investments break down, the DKK 800 million. We are going to need more CapEx, if you will, for upgrading equipment 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 is just on M&A. It is now almost a year since Hamburg Süd was consolidated and evidently the integration is going reasonably well. Could you maybe just talk about your current thinking with respect to future M&A in the container shipping space?
Perhaps I should say, before I get to the M&A discussion, 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, the answer is no. We're not planning to order any large ships before at the earliest 2020. Let me just repeat that for the sake of good order. In terms of M&A, we have acquired Hamburg Süd. We are well into the integration. We are quite happy with that transaction. We acquired the company for just over $4 billion, and we're going to have a good EBITDA on that this year and showing good progression on synergies.
That was a good transaction for us, but we're not planning to do any acquisitions in the ocean space in 2019, if that's your question. We have now a market share, which is certainly on the long haul trades 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. There's not a strong need for us to do something on M&A in the ocean space.
Okay, thank you. The final question on sailing speeds. We all know that fuel costs will be increasing significantly over the next year or so going into IMO 2020. Could you maybe just talk about the implications for sailing speeds, i.e., will the optimal sailing speed be lower given the higher fuel costs? Does Maersk Line have any plans in that respect to actually reduce sailing speeds over the next year or so?
Yeah. This is Søren Toft here. I think as a general notion, what you can expect and what you should expect is that as bunker prices increase, also as the average vessel sizes over the years have increased and will continue to increase, the speed will go down. As I said earlier, we have solved one of the two issues we've had on reliability. One 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, there's a very good correlation between improving that, reducing sailing speed, and becoming more reliable.
Okay. Thank you very much.
The next question comes from Lars Heindorff from SEB. Please go ahead, your line is open.
Thank you very much. Firstly, regarding the tax 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 the Total shares. Could you provide guidance in terms of range for tax rate for the full year?
I don't think so, Lars. This is Søren Skou here. The fundamental business we have today has a very low tax rate because of tonnage tax and so on.
Yeah.
We have a little bit of complexities now because of the Total shares, but that will not be a long-term situation for us. I can't give any more guidance on that.
Okay. Secondly, regarding ocean business, you're now starting up the new AE2 loop again on Asia Europe. I don't know if you can shed some light on, is 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. What we are doing now is, as you mentioned, rightfully, we are starting again the AE2, because we're seeing demand pick up ahead of Chinese New Year, 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? When you look at most of the volume trend that we see at the moment, growth is trending downwards.
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. If we see that the pickup after Chinese New Year is strong enough to justify that we deploy the string, then we will deploy it. This is part of the constant reviews 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. As we see demand pick up again here ahead of Chinese New Year, we meet that demand by deploying capacity.
We can continue actually to tack to demand like that as we move forward, that has been our strategy. We have to have that flexibility to improve the asset utilization and keep our cost as low as possible.
Okay. All right. Thank you.
The next question comes from the line of Mark McVicar from Barclays. Please go ahead. Your line is open.
Good morning. I have two 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%-4% in 2019. You go on to say that the work you've done says that the tariffs could reduce that growth by between 0.5% and 2% during 2019 and 2020. When you put all those together and 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. Vincent here, Mark. What we believe is the following: as the tariff start to come into effect in January, 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 tariff. As we see a stronger demand now, we expect to see a lull as the tariff comes into effect while everybody is trying to figure out how they will structure their supply chain going forward. We have here, what I would call an assignable cause for lower demand. 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 right-sized our network for lower demand, and can keep ourself in line with what our customers expect.
The rest of the trades are mostly unaffected by trade tension yet. 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. The lower part of 2%-4% include the expectation from the hit from tariff?
Yes. Let me just restate also that the fact that we are underweight, market share-wise in the Pacific is actually something that comes in quite handy right now.
It should help. Yeah. Second 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 Maersk Drilling de-merger process to happen? Other than it is not a bad place to have money, is there any particular reason to hold the shares, not cash? Particularly, as I am assuming the rating agencies don't give you full value, especially for stock versus cash.
Mark, this is Søren Skou here. We have sold by now, I believe $1.7 billion-$1.8 billion worth of Total shares. I think you can expect to see us continuing that direction. We have held on to a number of the Total shares because we think it is a good company. They pay a high dividend, and we have also seen good progression in the share price compared to when we did the transaction. We are moving in the other direction now.
Okay. We could expect, excuse me, to just see a gradual sell down over the course of the next six, nine months or something like that.
Yeah. I'm not going to give any more guidance than what I just did.
Okay. That's great. Thank you both very much.
The next question comes from the line of Kasper Blom from ABG. Please go ahead. Your line is open.
Thanks a lot. First of all, just to follow up here. Søren Toft, I think you said that you were retaining most of the volumes from, or all of the volume from Hamburg Süd. 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? Then secondly, on volumes, you mentioned that the unit cost here is 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. Is that something that you can recognize? That's all from me.
Hi, Kasper. Vincent here. Let me start with the Asia Europe. I think it builds on also the answer that I had early on why the AE2 is coming back. We have seen also following the Golden Week in China, a rebound in demand after actually a deceleration in the third quarter, which was part of why the volumes were a bit lower in the third quarter. We've seen a good rebound of volumes here in the fourth quarter, and that's also supporting the redeployment of the AE2. I can confirm that we have seen this. With respect to the Hamburg Süd volumes, the Hamburg Süd team has done a fantastic job as actually retaining their business through the integration of the two companies, through the integration of the networks here in the second quarter.
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 through 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 three months. That would be the final milestone that we need to have. 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?
No, I think at this stage, we had not built in an expectation of losing a lot of volumes. 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. Actually, we're seeing this come through, and that is part of the upgrade also that Søren Toft mentioned, and Søren Skou mentioned also on what we expect the synergies to look at.
That's very clear. Thank you.
The last question comes from the line of Finn Bjarke Petersen from Danske Bank. Please go ahead.
Yes, good morning. A question to the unit cost on your 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 Süd and the ForEx that you are talking about on the same slide, then we end up with a reduction of 2.3%. You are improving your volumes, excluding Hamburg Süd, by 5% organically in the quarter. It seems a little bit on the lower side, what you're doing on the unit cost. Could you explain how it develops year-on-year, excluding Hamburg?
Well, Finn, Søren Toft here. As we said, then the factors that are impacting the unit cost, they are the volumes. We planned, and Vincent Clerc said that, too, we had a cyber attack, so we planned to move a bit more volume in quarter three than we did, but we saw weaker demand fundamentals, and we also deselected some cargo for the right reasons. On top of that, we saw time charter prices going up, and we have had some disruption cost, but we have collected that through higher demurrage 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.
That's why I shared earlier also that when we look at the run rate post Q1, where we really, you could say, got our handle on the overall Hamburg Süd network of ships and containers. We have a run rate in Q2 and Q3 that resets cost between 1% and 1.5%, and we expect that we can continue that going into Q4. That's really, I think, the key message that we want to share on the cost development.
I still got a problem to understand it, because you're talking about a run rate, but between Q2 and Q3, we're up 1.5%. Is that a positive run rate, or how should I understand it?
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, then it's volume related compared to plan. That's what it is. It's important to look at it over not only a quarter, but over the longer period. We will also share this information when we get into Q4 so that you have that perspective on the numbers.
Okay, thank you.
I now hand back to Group CEO, Søren Skou.
Yes. Just a few final remarks on Q3. It was a quarter where we believe we had solid progress on our 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 to the year, and we had a very strong cash flow generation. Q4, with the guidance we are given, is likely to look very similar. Top line growth, earnings momentum, and strong cash flow. When we deliver that, then we also have good momentum going into the first quarter of 2019. With that, again, thanks for listening today.