Good morning, ladies and gentlemen, and welcome to ABMala Mersk's conference call on the Q1 result. My name is Soren Skow. I'm joined here, by, Martin English Tuft, who is the CEO of APMT by Vincent Clark, our Chief Operating Officer, our, and then Sorenjof, our Chief Operating Officer as well as Jesper Ritter Olsen, our Head of Accounting. Getting started on the presentation. As always, I invite you to review our statement about forward looking statements.
Moving on to the results. The, if we start with the with a positive story, then it's about growth. It's about the fact that we are, we are replacing the the revenue that is leaving the group, along with the energy companies, and we're not becoming a smaller company as a result of this, this transfer transformation. Revenue is up 30%, driven by the acquisition of Hamburg Sud, but also, driven by organic growth across the business, including in the non Ocean segments. We improved EBITDA by 5% during the year, during the quarter, impacted significantly by Hamburg Sud and also by very strong performance in terminals and towage.
We saw quite some headwinds from, from, rate of exchange during the quarter. The real negative story this quarter is, that our margins in the Ocean segment were significantly impacted by higher unit costs, partly by, adverse developments in the fuel price and exchange rates, but also partly due to our own cost, cost management. The underlying result is is negative, in a quarter of with $239,000,000 in a quarter where we report a profit of, $2,800,000,000 driven by the closing of the Maersk Oil transaction. Operating cash flow was on par with last year, We have a very high conversion rate. The reason for why operating cash was not upward turnover, was was really because we had an adjustment or a one off payment of export VAT in Denmark due to a change in the scheme for payment of, VHC.
Gross CapEx was as planned 1,000,000,000.2 We reiterate our guidance for the year of a result above 2017. And and EBITDA in the range of $4,000,000,000 to $5,000,000,000. Moving on to the energy separation, as I said, we reported a very strong profit of $3,000,000,000. That includes an accounting gain of 2.6 1,000,000,000 related to the sale of Maersk Oil, which we closed much. We now own 97,500,000 shares, almost 4% of Total SA and those shares have a value of $1,000,000,000 right now.
They have, of course, benefited significantly from the increase in the oil price in recent months. We plan and continue to plan to return a material part of the value of those shares to the shareholders during 2018. And 2019, as we have previously stated that we would do either in the form of an extraordinary dividend, a share buyback, or direct distribution of the shares. We continue to work on solutions for mass drilling and mass supply, and we will And we expect that we will find such solutions before the end of the year as we have previously stated that we that we would. Finally, moving to the an update on where we are with our transformation.
We are, for this quarter, we are, introducing our new segment reporting with the 4 segments of, ocean terminals and Towage, logistics and services and manufacturing and all of us. And I believe that we're with this change in the, in the, in the reporting and with the, with the change of Maersk Oil leaving Hamburg Sud arriving, we are starting to see the contours of the company that we will become when we are fully focused container shipping ports and logistics company. Revenue was significantly higher, as I already said, also compared to last year when including Innogy, we are starting to see the benefits of, much better integration and collaboration between the the previous, independent units, in particular, you can see that in the segment results for terminals and towage because the ocean and, and gateway terminals have grown significantly during the quarter in terms of volume. That, of course, drive profitability in our terminals business. We're also starting, with now owned Hamburg Sud for 5 months, we are confident we will deliver on the, on the synergies.
They will be a little bit, or they will be arriving in the second half of the year in particular. We, as we are able to extract Hamburg Sud from all of the vessel sharing agreements that they have previously been partly, partly true. Strong cash conversion, during the quarter, as I said. And we have also this quarter, and I think this is an important point. Been able to bring down our committed CapEx significantly, from a year ago by $2,000,000,000 And we now have committed CapEx, going forward of less than $500,000,000 per year.
Through 2023. We are also progressing a lot on the digital agenda. Of course, it does not show up in the financial results list yet, but we see a significant customer uptake, in the digital offerings and and moving through digital transactions online. And that will, over time, result, both in lower costs and also in our ability to sell more products on our online platform. 60 percent of all bookings, 84% of all quotes $1,300,000 worth of business every hour is currently transacted on maastime.com.
Moving on to financial highlights. I have already given the main numbers what we do see a deterioration in the continuing business from $139,000,000 to 2.39 $1,000,000 year on year. That is, of course, not a result that we can be, in any way, satisfied with. On CapEx, we now have committed CapEx of $3,200,000,000 going going forward. And that include commitments in the terminal business that are beyond 2024 relating to concession agreements.
So all in all, we have less than $500,000,000 now in committed CapEx in the going per year going going forward. During the first quarter, we, I believe, we have bought 1 tugboat, but that's it. We have not ordered any ships, and we have not made any commitments to new terminals and the like. We plan, to keep capacity constant, and Sorenjov will talk more about this for the next 18 months and we also do not plan to order any new ships at least for the next 12 months. The inflow of the proceeds from, from Total meant that we were able to reduced debt by about $1,400,000,000 to $13,400,000,000.
And of course, we also now own around $6,200,000,000 worth of to Telstra's that are not included in the numbers. So with that, I will turn to to Ocean and ask Vincent Cair to take it from here.
Thank you, Sean. So our Ocean revenue grew by 38% year on year. Fueling this where mainly volume growth of 24% where most of it is attributable to Hamburg Sud who was, of course, not in our numbers last year. Without Hamburg Sud, volumes growth would have been 2.2% from Maersk Line in line with the guidance that we gave of growing slightly under the market this year as we integrate Hamburg Sud into our business. We see the market growing somewhere between 3% 4% at the moment and therefore feel that we are well within the guidance.
Rates have increased by 7% or $119, where some of it was attributable to contracts getting reset at higher rate. And some of it is attributable to Hamburg Sud coming into the mix Hambu should bring into the mix, business at a higher rate, but we will see also later a higher cost to serve. And out of the 11955 is directly attributable to Hamburg Sud coming into the mix and the rest is due to rate increases. On a like for like basis, overall, it has been difficult to pass on, to the full extent all fuel cost increase to customers in contracts. Especially also in a short term market in some areas where we have faced a strong capacity injection.
Other revenues also increased on the back of higher demerge and detention collection and also a higher level of slot sales to competitors out of the network. Getting the getting into more detail on volume and rate development, you can clearly see the impact of Hamburg Sud on the volumes, the way we see the growth in north south from Latin America and Oceania. And in intra regional, which is for the intra Americans. Headholds volume increased slightly faster than backhaul, reflecting the underlying demand which is stronger on headhaul at the moment than it is on backhaul, especially from Europe and North America into the Far East. We have seen weaker demand than what we have what we had expected.
Freight rates increased primarily in the north, south and intra regional, reflecting both stronger underlying supply and demand we see in those trades and the impact of Hamburg Sud, who is contributing volume as I mentioned at higher revenue, but also higher cost to serve as we will see later. The situation has been a bit more tense on east west where significant capacity injections in Q1 have been a big impediment in achieving the increase that, that we were targeting and and has not enabled us to pass on fully the higher fuel cost to our customers. North South has traditionally been higher, as traditionally seen, higher rates than East West in the past. Due to which reflects also the higher cost to serve that there is in these trades as we deploy a smaller tonnage and have generally also longer transit time This difference was temporarily disappeared in 2016 2017 as demand was impacted in some of the emerging markets by the lower oil price and cascading of tonnage. And we are right basically seeing right now a gradual recovery, in the north south where rates are regressing back to where they were before the price war.
So that's that's a positive development for this part of the business.
If we then jump to the Powder Brown cost, and this is on Tuft speaking, let me start out by saying that We and I, and by no means, satisfied with the current performance. It's very dissatisfactory. And we are, as we speak, putting in motion a number of initiatives to immediately change the course. Overall, as you can see from the numbers, our cost increased 8.6%, approximately 6 percent of that was due to rate of exchange and the mix effect that Hamburg Sud brings into the business. But obviously, we have no ambition of having a net increase as a residual of 2.6 percent to our cost base.
The cost base mainly increased in the areas of what we call variable expenses. So that's a terminal cost through the hops, also partly affected by rate of exchange. Featuring expenses both as a result of fuel increases and also as a matter of fact that the charter expenses year on year for so called liquid tonnage are up approximately 50% and also on SG And A expenses. If we look at capacity, then Vincent Clark explained that our volumes are up 24%. Our capacity is up 31 Here, I want to just refer back to a previous quarterly call where we also explained that slot sales to a Hyundai merchant marine, which started taking off in Q2 17, thereby not in the Q2, Q1 'seventeen numbers are about 6%.
So we are more or less aligned on the net capacity and the net volume increase. That being said, however, we have tender notice on all the existing VSAs in which Hambok should serve, there is a minimum notice period of 3 to 6 months. And that means also that in the first quarter, we have not been able to adjust capacity and that adjustment will now start in Q2, Q3 and Q4. On the bunker side, here, we have been impacted by higher prices. Of course, we have also been impacted by the fact that we have added Hamburg Sud, And then also like we have explained before, here, we are measuring the tons that we consume, but we're not dividing by the FFEs that we have sold to Hundheim Merchant Marine.
And again, that's about 6%. And therefore, 3.4% year on year deterioration is in fact a slight improvement, but we believe we can do more. We have put a number of plans in place right now ranging from the entire part of the cost toolbox. Let me explain a few. We will implement a number of capacity reductions over the next two quarters.
Capacity reductions in trades that are not yielding the desired results. We will optimize the landscape of feedering that means we will reduce the number of feeders that we have out there and generally channel more volume to direct ports. We will push harder on fuel efficiency over the coming quarters as we have now fully integrated the Hamburg Sud fleet since 2 weeks. We'll do a number of things on procurement, a number of things on improving our empty cost base and a number of things on improving utilization where it makes sense. On capacity, let me also say that in 2015, Masline ordered a total 27 vessels, 20 of them were large vessels.
They have, by and large, been delivered. And as Soren Skou said, let me repeat we have no plans of ordering any ships for at least the next 12 months equally with the initiatives we are putting in place we believe we can keep the present capacity unchanged for the next 18 months, even erring towards a slightly lower capacity in the next couple of quarters as we implement the Hamburg Sud synergies. If we turn to the next slide on Hamburg Sud, then let me say that we've had a strong start to the integration. The customer retention is in line or even slide better than the plan. But as we now move into the phase where we will emerge the networks, we will obviously also, in that process, do some cargo mixing as we move forward.
Hamburg Sud added 21.6% more volume an EBITDA of 1,000,000, including a 1,000,000 integration cost. The synergies are moving as planned. Basically in the first quarter here, mainly from procurement. So there's terminals and intermodal and also by putting more volume onto APM Terminals gateways. We have also done a few revenue synergies from basically aligning best practices between Hamburg Sud and Maersk Line.
We maintain the guidance that you see on the right hand side of the chart, but I can also say that based on what we know from the first quarter, we do believe that we will be able to outperform the 1,000,000 for 2018. For Q2, Q3 and Q4, the main network changes will happen. And in fact, also in 'nineteen, due to a long notice period between Asia and East Coast South America, there will also be changes happening then. The Hamburg Sud vessels have been fully re flagged. And during this quarter, quarter 2, operations will be fully integrated.
We're pleased with the progress so far, and we're working very hard on outperforming the numbers that you see on the on the chart. And let me turn the word back to Vincent Clark who will go through the logistics and services segment.
Thank you. For the logistics and service segment, our revenue grew by 6%. It was positively impacted by growth in volumes in our supply chain management business in damco and in inland haulage for Maersk Line. Especially in supply chain management for damco, we have seen a higher number of wins in the in our commercial pipeline and we see these projects coming online now gradually. This growth was more than offset has more than offset a slow start of the year in our air freight and ocean business where we drove a stronger focus on margin and had to let go of some of the lower yielding business.
But the focus on margin and mix and growth in more profitable business yielded improvement in our GP margin and SCM was up by 8% air was up by 5 and Ocean was up by 22%. Despite these positive developments, our under in the underlying business, the EBITDA increased by $9,000,000 and the business was impacted by continued investment in some of the wins that we have as we prepare for implementation of new customer solutions, including on the on our digital platforms, both in supply chain managed and in the ocean forwarding and also by exchange rates and higher sales, general and administration. This drop in our EBIT conversion is being addressed through different initiatives that we've taken to reverse it, reduce SG and A and fast track the implementation of some of the projects that we have. Noteworthy also is the improvement that we have in work capital, as we have driven a very strong focus on our conversion cycle to, from business to cash, and that has yielded very strong results for us in that front. And now I will pass it on to Morteningo stuff to talk about Terminals and Towage.
Thank you, Vincent. So some words on the Terminals and talk segments, we increased our revenue by 11% compared to Q1 last year, First and foremost, driven by strong volume in both our gateway terminals and, towage activities. Our EBITDA increased by 41 percent to close to $200,000,000 and to a 22% EBITDA margin. Supported by the strong volumes and also supported by lower costs, and higher margins in our controlled gateway terminals and in our towage business. And I also wish to mention that the income from our joint venture terminals where we have a minority share and which are not part of our EBITDA, numbers increased from $34,000,000 to $54,000,000.
If we turn to the next page, then I'll give a few comments on some of the selected key performance metrics. As mentioned, gateway terminal volumes were strong, up 9.3% compared to last year and well above the general market growth. We have had very good support from Maersk Line and Hamburg Sud at double digit increases. And we have also increased volumes from our other customers by as we during last year, one four times as many new services as we lost, and this has continued during Q1 this year. Both our revenue per move and our unit costs were impacted by rate of exchange in each a different direction.
If we adjust for rate of exchange, then both our revenue per move and our unit costs were about flat compared to a year ago. And then I also wish to emphasize that our Towage business, Switzerland, performed very well with an above market growth, with both, organic growth and also new terminal towage contracts taking effect in Australia and in, that's in America. And let me then give the word, on to Sean Toft again.
Thank you, Martin. Just very briefly on the Manufacturing and others segment, we can say that we have seen, improved sales and thereby, turnover and EBITDA in MCI, mainly as a result of MCI being able to improve significantly orders to third parties. This is also helpful as in this year, the integration year of Hamburg Sud into Maersk Line, we obviously are not going to need as many containers as we are improving efficiencies by combining the 2 fleets. And then I can say that in terms of other business, there, we have a significant increase in revenue, but EBITDA turned negative mainly due to losses from mainly physical positions in future periods. Let me give the word now to Sand Skol.
Very briefly on, on the, on our mass drilling and mass supply mass drilling, we are clearly seeing Increased activity rates are still low, but, but, idle fleet is going down. And we have been able to preserve most of our backlog by adding new new contracts. Overall, from ARS Drilling, we have an EBITDA of $166,000,000, which translates almost 100% to to free cash flow. Maersk Supply Service operates at EBITDA breakeven level in a very challenged situation. And we have, smaller operating cash flow positive, but free cash flow negative of $161,000,000 during the quarter.
Due to previously committed investments. So with that, I believe we will move to to the guidance, we want to simply reiterate our guidance of delivering a result this year above 2017 and EBITDA in the range of 4 to to, $2,000,000,000. We expect market growth of 2% to 4% and we reiterate guidance on CapEx around $3,000,000,000, high cash conversion. And, and we also would like to highlight the sensitivities that to the guidance. Thank you.
And I believe now we will move to Q And A.
And we will now begin the question and answer session. And the first question comes from the line of Robert Johnson from Exane BNP Paribas. Please go ahead. Your line is open.
Good morning everybody. I've got three questions. It's probably easier if we take them one to time. I'll start off with the unit cost given that that's the main reason why the share price is down by so much today. I appreciate what you provided a breakdown in the accounts of what drove the year on year increase in the fixed bunker unit cost in terms of the FX, the portfolio mix, etcetera.
But of course Q1 2017 was itself a relatively poor quarter for unit cost given that the problems that Aljis, there isn't Tanjang Pelep has already started. So the comp isn't particularly difficult in that respect. If we look at the fixed bunker unit on a quarter on quarter basis versus Q4, it was up by $151, which is a surprisingly large number, even if you will for the inclusion of Hamburg Sud over full 3 months. So it's the first question is really, could you just provide some more clarity on what drove that large increase in the fixed bunker unit cost versus Q4?
This is a Santosh, Rob. You're completely correct. As I said, also $150 is is the number, and you're probably referring to the previous statements we gave also on Maersk Line 2 thirds of it. So 6 out of the 8.6% is rate of exchange and the mix effect of Hamburg Sud. The rest is really within mainly the variable cost areas.
Let me explain. We have, as a result of also, you could say weather and reliability challenges, more moves to move the cargo. We have a higher feeder in cost. You don't really see that in the fixed bunker because when we do third party feedering, the bunker cost is part of the rates that we pay. We have higher TC expenses, which also hits the feeder in cost.
And on the intermodal side, which is also an element, Also, here, you will see some of the fuel, hitting through, which is not, you could see, equalized out in the fixed area. So about 2.6% of the 8.6% is related to variable expenses. Finally, the category SG and A, so administration costs, including IT, has gone up. Here, we are investing, as Soren Skou also explained in a number of digital solutions, but at the same time, we are working on improving the rest of the SG and A cost picture.
Second question on Hamburg Sud. Even if we add back the 1,000,000 integration costs to be reported EBITDA, we're still only getting about $100,000,000 EBITDA, which is equal to just 18% of the 554 that was reported for last year. Mean given that the north south rates are up quite materially versus last year and also I think I'm right in saying that Hamburg sued suffered negatively from its east west slot purchase agreements up until Q1 of last year when they were ended. It's a little bit surprising to see the EBITDA not doing better for Hamburg Sud because maybe you could just talk us through the moving parts versus Q1 of last year?
Yes, here, Vincent Clark, to take that question. There is no doubt that if you look at the seasonality of the business, we always see that impact in the first quarter being our lowest our lowest quarter, principally because of, of Chinese New Year. So whereas we have seen the nominal rates go up quite a bit, as you can see in the illustration. We still see this quarter as being, as the low quarter because of the volumes that we get specifically out of Asia, which is also the better paying part of the business.
Okay, thank you. And final question on the contract rates, on the full year conference call, it was mentioned that contract rates have been agreed at higher rates this year, even adjusting for the higher bunker expenses. Does that statement still stand?
The contracts have been closed. I would say, we have not been able to recover on average the totality of of the bunker increase. And that has had a lot to do with the contracts that we have negotiated recently on the Pacific. So you've had the double, the double impact of capacity introduction on the Pacific, which has pressed the depressed rates and the continued increase of the bunker, which has made the quantum that we needed to achieve, bigger than what we had anticipated. And, combination of those two factors, have landed a short.
So, for the stuff that we have negotiated early in the season, we have been able to retrieve it, but that our ability to pass this on has decreased as the season progressed.
And next question comes from the line of Simberg Peterson from Danske Bank. Please go ahead. Your line is now open. And the line of Finne Bianca Peterson. Please go ahead.
Your line is open.
A few questions from my side as well, unit cost if we start there and one on, expectation for the for the rest of the year. Unit cost, how much does VSA affect your unit cost calculations?
This is Sean Tuft. I'm not really sure what your question is. I mean, when we do, when we we do VSAs, we obviously provide sometimes capacity. In the case of we sell slots, but we get it as slot income. So on the overall unit cost, this is factored in.
But on the key metric that we share like the fuel price kilo per FFE there, Obviously, we need to adjust for that.
Yes. So it's not included in your bunker cost. But when you say you have a unit cost of 2 part 072 in the quarter, you include VSA income in that number. Is that correct?
That's correct.
How much is included?
We don't disclose that number other than, we can say that it's part of the overall unit cost.
Okay. Finally, the on the cost side, how long does it take you to get cover from for increased oil prices. 1 of your competitors were talking about a time horizon that it takes before you can factor increased oil prices into your prices. Do you have any statement on that of you and how long does it take you to cover the obvious unit bunker costs that came in through second quarter.
So in principle, Vincent here to answer the question, in principle, the, the lag is between 1 2 quarter, a little bit depending on how the increase phases in during the quarter, because the formula kind of takes average for a quarter. The only exception though is that when you renegotiate the contract, you basically reset the clock for the year to come. So that's where usually it's pretty dicey as we renegotiate the contract to make sure that we can capture that in full there while we are in the procurement cycle.
So that means that your contracts has not, there's no a bad clause in any of your contracts.
No, there is bath close in, in 80% of our, more than 80% of our contracts. What I'm saying is, as we're renegotiating the prices, whenever the contract needs to be renegotiated, we renegotiate the total package, including, the BAFE element. So you can have your bunker formula increase and then your ocean freight decreased so that the price stays the same on an overall basis. That's, and that doesn't happen during the life of the contract, but it can happen during negotiation.
Okay. A final question, looking at the market conditions in the second half of this year and 2009 seen, how do you see the supply side develop and also demand side and so is the general balance in the market?
Well, we continue to this is Sean's call here. We continue to have a view that we will see improving results, driven by, improvements in freight revenues and a better supply demand balance over the year. If you look at the long term picture on supply and demand then the industry has come from situation 10 years ago in 2008 where the order book of existing capacity was equal to 60% And now it's, it's 12. We've had to work through all of that excess capacity. Of the 12%, that is more or less in line with what we would need to meet demand when we also consider deletions of old ships.
So that seems like a very manageable, manageable number. A lot of that capacity, however, is being delivered in the first half of this year. Whereas things will taper off in the second half. So our view is that supply demand will continue to improve in the next 12 to 18 months.
So do you have any number for the supply growth in the sector in your budgets?
Somewhere around 2%.
Okay. Just could I have just one question more that you're not starting to talk about currency, which have not really been a question earlier in your in your cost talks. Is that associated with the is that's probably something to do with your hop that hop is coming into to Ocean?
No, no, no, no, no,
it's just because it was such a big effect this year, this quarter.
And
next question is from the line of Kasper Blogg from ABG Sundal Collier. Please go ahead. Your line is now open.
Thanks very much. A couple of questions from my side as well. I'm going to start by digging more into this unit cost question. You're very kind in breaking down the 8.60 8.6% increase into 3 different brackets. I understand that it's difficult to do anything about business mix and FX, but the remaining 2.7% Would you sort of expect that to disappear when we look into Q2 or how long will it take?
And what is sort of the scope of improvement that you see in these short term initiatives that you're doing? I mean, how much improvement could we really expect sequentially in the coming quarters? That's my first question.
Thank you, Casper. So on toft here, as I started out by saying, we are not we're not happy, but at the same time, we're also going to do something about it. And I outlined some of the plans that we have, We will, amongst others, improve the capacity equation and and the feeder equation. And that's going to ensure that we, for the remaining 3 quarters of the year, drive the cost down. We still expect that we can drive costs down for the year 1% to 2%, but we have to say that that is net of the FX effect because they are so significant at least they were for the first quarter, but we still have plans for the rest.
Okay. My second question then, Vincent, you mentioned that you sort of see in the, I can say, normal balance between North, South and East with rates a bit come back with North South, see higher rates than these with. Do you think we're done in that sort of return? Are things now they should be between the two trade lanes? Or should you we still expect to see north south bouncing back more?
So I think what is really driving, what is really driving this is that as the oil price recovers, actually, a lot of the weakness that we saw in 'sixteen and team was actually, as a result of lower demand from, a lot of economies that had, where oil is a big component in generating that demand. As this is coming back, we're seeing more strength in the, in the emerging markets demand. And as the the supply and demand situation becomes more benign as a certain outlined just before. I would expect that we see more progress across the board. And if you look at the delta between, north south and East West right now, it is still below what it was prior to, to the price war.
So, we had about $300 before it varied a little bit. Today we're closer to $200. So, So we would like to see it improve further.
Okay, great. Then just my last question, now you just mentioned the higher oil price And have you started seeing any signs of people starting to slow steam on the back of the higher bunker costs?
So on toft here, no, we have not, you could say, seen that, but, what, what we can share is that as a result of also this year unprecedented closures in Asia, basically at a level 3 times the level of Q1 'seventeen and the fact that there are a lot of issues around the world in ports. Also, we have had on a few trades to put in, to put in ships simply to safeguard, a weekly schedule, but also because given the current bunker price, there could be economics in doing so, but something structurally has not yet been seen.
Would you expect to sort of see it happening? I mean, now we're at $80 per barrel?
I think it's too early to say. I mean, we are reviewing certainly what makes sense for us.
And next question is from the line of Lars Heindl from SEB. Please go ahead. Your line is now open.
Thank you. Good morning. The first is regarding the bunker price. If you could give us any indication of what kind of what price you have assumed in the guidance for the full year?
We, we always assume the forward curve for the bunker price.
All right. Thank you. Secondly, regarding the outlook here into Q2, one of your competitors has mentioned on the conference call here recently. That they've seen some weakness in north south in the past couple of months. You have been mentioning that you've seen a gradual improve I just want to confirm that the view and that there hasn't been any signs of weakness in the north south volumes or rates for that matter recently?
Yes, Vincent here. So the I think how you will assess very much depends also on your exposure to, to different, to different geographies. One of the, and certainly not a uniform picture. So there's been a gradual recovery. I'd like to add also that the first quarter of 2017 was really the low point for the delta between north south and east west.
So right there, you already have some of the explanation for why it increases so much here. But in, on some of the geographies and especially on the Far East into the West Coast of Latin America and the Caribbean, we are facing, quite significant oversupply of tonnage and there is a pretty big price war ongoing and has been ongoing for the last couple of months there. So, without knowing exactly what was being referred to by, by the other carriers, I would, I would expect that this refers to, to something like this.
Okay. And then maybe a housekeeping question, because this relates to the transparency now that you've changed the reporting structure. I'm still missing a bit of a like for like numbers in terms of volumes. You can actually calculate that, but particularly on the rate side and also on the capacity side, well, how much is Hampostu and how much is Maersk Line? I don't know if you could share you have a fine table in the report showing the nominal capacity.
How much of that is Hamburg Sud and how much is Smash Van?
Last on toftier, maybe just repeating on capacity as we put in the slide on cost, the capacity is up 31% but here, first of all, you need to deduct approximately 6% to 7% that we have deployed specifically for the agreement into 2M. And then going forward, as we have said, we don't expect that we will be needing any more capacity than we have today for the next 18 months. And on the short term basis, in fact, we will work on reducing the number as a result of implementing the merged network between Hamburg Sud and Maersk Line.
Okay. I mean, I can see that you already reduced capacity post the end of the first quarter. You give us an indication of how much more you need to reduce debt towards the end of the second quarter?
We're not going to give detailed guidance on that. It's an integral part of our synergy case. So you could say you'll have to deduct it from the 1,000,000 to 1,000,000 that we are disclosing on the Hamburg Sud synergy case.
Okay. And regarding the rates, any chance if you could get rates separate for houses and mass plan?
Vincent here. No. I mean, and you have to you have also to realize that the more we go, the more is difficult to actually separate the 2, but we will not disclose the rate separately.
And next question is from the line of Neil Glynn from Credit Suisse. Please go ahead. Your line is open.
Good morning. If I could first ask a question on FX, it's the first time I remember, certainly, you quantifying an FX hit in the quarter, But just looking at rates going forward, if you had a $100,000,000 hit in the first quarter, it seems to me it may be feasible. You've had something like 300 or so for the full year. Just wanted to check that's sensible and certainly can we expect another hit in the second quarter at least Then on a second question, sorry, but back to the unit cost side, just interested. There's clearly a lot going on.
You've got the integration of Hamburg Foods. You've got difficult market as well as, clearly, the medium, long term initiatives you're pursuing. But can you give us some color as to how much of the unit cost development here the first quarter has been surprising. I mean, we've been hearing about disappointments, I guess, for a few quarters now. I'm just interested in the area where I guess you've been most in control of within the business now seems a little bit out of control.
So I would like some perspective on how big a risk distractions from other things maybe are to the cost control. And then the third point, again, on the cost side, it does seem the cost of operating a global logistics network is rising with inflation and other factors such as demand for infrastructure or assets. We've heard snippets of that elsewhere this quarter from other big global logistics players. Just interested is the challenge to avoid inflation getting larger for requiring and increasing array of initiatives to combat it?
So this is Soren Skou here. First of all, on rate of exchange sensitivity, I would like you to, to, I would just like to refer you to the guidance section on page, what is the page? I don't have that here. But anyway, it is in the rate of, oh, 8, Page 8, the rate of exchange, there we show the 9 months or the rest of the year guidance on rate of exchange sensitivities. On, On distractions, what I can say is that, Soren Toft and his team are fully focused on driving the, the ocean business, and the operations and the cost side of that, and are not involved in the, in, let's say, in all of the other, the corporate maneuvering on energy and so on to any significant degree other than as being part of the management board.
So So I'm confident that the team that needs to be focused on driving cost out will also be able to drive cost out for the rest of the year. And then finally, in terms of inflation, I mean, as an industry, we have been, of course, on I think, a 30 year or 35 or 40 year journey of slowly but surely every year, you know, mitigating in inflation and taking out 1 to 3 percentage points of costs and Of course, we will have, we have some, we have some headwinds right now that we need to figure out how to adjust to. I mean, the fuel oil price, the fuel increases does not only hit us on the ocean, it also hit hit us on land because trucking rates and stuff like that, you know, do, do become affected, but But here, again, while we may have some cost elements that go up, there will be others that will go down, not least, as we continue to digitize the business, we will see our sales general administration costs per container. Go down. I also do believe that there's plenty of opportunity for us yet to optimize, the way we design the network and, and the way we, we fill the network.
So we have quite a large, toolbox, and we are we remain confident that we will be able to drive deflationary costs as a trend, not necessarily quarter by quarter, but but as a general trend also in the coming years.
Thanks, Arun. Just to round out the FX question, I see the sensitivities, but Is it possible to confirm even broadly how much of an FX hit is in the guidance for the full year just to help us understand what quite a tricky bridge given the new reporting structure?
No, I don't think we want to give any more guidance on the guidance.
Okay. Thank you.
And next question comes from the line of Marcus Belender from Carnegie.
Thank you. Two questions regarding guidance for me. The upper end of your EBITDA guidance range in light of the Q1 results and in light of what freight rates have been doing thus far in Q3 too. It looks like there's a it looks far away simply. And I'm just curious what kind of assumptions you make regarding freight rates in the second half of the year to keep guidance unchanged?
No. I don't think we want to expand further. For further on the guidance. And we don't guide as such on specifics on freight rate, assumptions. We do believe that, that the year we'll see continuous improvement.
The first quarter is is a weak quarter to begin with from a seasonality point of view. Supply and demand will be, will be improving in, throughout the year, assuming that we don't have any let's say, major trade wars or other geopolitical things that gets in the way. And again, We have the, we have the sensitivities, and there you can see what needs to happen for us to hit the upper end of the range.
All right. Thank you. And second question regarding or at the Capital Markets Day earlier this year, you gave a preliminary CapEx guidance for 2019 of $2,500,000,000 to $3,000,000,000. But you've clearly stated that you don't plan on ordering any new ships in the coming 12 months. And one of you gentlemen also mentioned that you're not gonna need as many containers now that you've integrated or that you are integrating with Hamburg Seed as So I'm just wondering what's going to drive that CapEx figure in 2019?
And is it too high perhaps?
Well, I think it's too early for us in the year to really think about our CapEx guidance for 2019. It's a very important part of our strategy that we do become more disciplined in terms of CapEx. I mean, if we go back, just a few years, this was a company that used to invest somewhere between $6,000,000,000 $8,000,000,000 every year when we were a conglomerate, we're planning to build, a business or have a business of a similar size, but certainly with a lot more discipline on CapEx. And that is the journey we are we are on, it takes time because we do make in our industry commitments that last 2, 3 years before they are they're fully fulfilled, especially on the terminal side, but also when we order ships, it takes, you know, it takes a couple of years, to, to, to, to, to get their factors. We have reduced our committed CapEx by $2,000,000,000 year on years from $5,200,000 to $3,200,000,000.
We have only, less than $500,000,000 of committed CapEx per year for the next 5, 6 years or 6 years through 2023. And this is, should be and is a very clear signal that we will be much more disciplined when it comes to CapEx. We will get back to the, we will be get back to the guidance for CapEx in 2019 later in the year, but we are determined to be disciplined. And obviously, given returns right now, investing a lot more in more physical assets does not seem to make much sense. And that's also one of the reasons for Maestro and Tough clearly states that we are not going to, at least for the next 12 months order anymore new ships.
We will still need containers, we will still need to do maintenance CapEx, including on terminals. We have some automation projects and other that we probably will do, but the general picture should be, should be very disciplined on CapEx.
And the next question comes from the line of Joel Bunjian from Berenberg. Please go ahead. Your line is open.
Yes. Hi there. Good morning. Just a couple let me just take them one at a time. I mean, I appreciate you don't want to say too much about what your freight rate assumptions are in your guidance But I was wondering if you could maybe just provide some observations on what you've seen through the early part of the second quarter.
And then related to that, whether or not you can give us a sense, please, on whether you think given the move in the fuel prices and the fact that won't impact until later in the year, whether or not you think that will be compensated for?
Yes, Vincent here. We're not going to guide on, on developments that has risen as recent as this, for the simple fact that the quarter is far from being over and those are information of a higher sensitive value for the business right now.
Changing, changing tack a little bit. Just I wonder if I could come back on Neil's question earlier about FX because I'm as he said, a bit confused. You've never really spoken about FX much before. Could you maybe explain what how this what explains this FX? Is it related the fact that you're reporting dollars, but you have a disproportionate amount of cost in euro.
Is that the right way to think about it? Or is there something else going on there?
So, so, I mean, we have, basically I guess what we can say is that the effect, the FX effect is really in our ocean. Segment. I mean, there's positives and negatives in the other segments, but those are, you know, not something that, that, that in any way, I'm material. We've had a very big negative from, from the fact that in ocean from the fact that that most of our revenue is in, is in U. S.
Dollars, and a very large portion of our costs. Of course, is in local currencies when we, when we order a truck in, in Europe, we pay in euros and and the same goes for the container, the container terminals. So, we do have some hedging that has worked in the other direction, but it's it is generally, the situation for us that we have most most of our income in U. S. Is U.
S. Dollar denominated. Most of the freight rates are U. S. Dollar denominated.
And then we have a massive amount of a massive amount of local currency she costs. I think that the reason for why we decided to mention it this time is that it was so material.
And then maybe just one final question. I'm just thinking longer term about capacity. Obviously, as I understand that you're saying, you're committing to not placing any new vessel orders released in the next 12 months. And that you feel you have sufficient capacity for the next 18 months. Sort of thinking about the midterm view on a sort of maybe 3 year view, given lead times on new orders and so on and so forth.
If the market continues to sort of develop at a sort of 4 ish percent rate for the next year, How will you go about, growing with the market?
This is Sean Toft. I mean, 1st of all, we're not going to give any specific capacity guidance beyond what we have given today, but I can say that there are various ways of growing the capacity. One of them is, of course, that right now, we are deploying capacity, selling that to third parties. So we could, of course, also, not do that, and we could even become, in certain cases, where it makes sense, a net seller. We have a lot of focus on utilization and there are still a number of pockets where we will improve this.
And obviously, we'll continue to work with our design. We are now deploying capacity of around 4 1,000,000 to use. And that obviously gives us some more options. And then finally, as I mentioned already, we are short term going to optimize our feeder deployment because if we ship a container from one end of the world with one feeder through a main liner to the other end of the world, another way of moving that box can, of course, be without the feederings. So we are doing that to continue to optimize.
Finally, let me say of course, depending on what happens to the bunker price and one was already alluding to it, we will, of course, also close and look at where the cases for slow steaming and always have a positive notepad view on these decisions.
And the final question Handelsbanken. Please go ahead. Your line is open.
Thank you. Just a few ones back here. On Ocean, sir, and you mentioned early in the presentation that the probability currently is at an unsatisfactory level. Could you elaborate a bit on this? What would be a satisfactory level and what kind of measure would you use sort of say to get to that?
So ultimately, we measure ourselves on a return on invested invested capital. And we have a we have a target across the cycle of 8.5%. We have about 25,000,000,000 invested in the Ocean segment right now. So we have to get north north of $2,000,000,000 in in earnings from Ocean to be to call it satisfying.
Okay, understood. So that hasn't really changed on fungus, how should we think of that going into Q2? I understand that you are still on, so to say, a lagging curve on the price curve, basically, and the I. E. Prices will increase.
So how should we look at that bunker cost per TEU or per FAU? And what is your assumption of Panga recovery. Is that still around 50%?
Dan, it's Hart. As we said before, I mean, we, we have our assumptions based on the forward curve, obviously, the price right now you can see is steeply, steeply up compared to just Q1. We generally have an 8 week lag on what we put into the tanks and what we consume. That's the amount detail that we can give on this point.
And on the recovery parts, what are your assumptions there? Is that around 50% usually you can just sort of say pass through? So
as I mentioned here, as we mentioned before, the recovery through a bunker adjustment formula will be for increases that we see over and above what is already built into here because the contracts have been negotiated with the, the starting point being the bunker, the fuel costs that we had in, in, in base in the first quarter. So it's, I think the, with 1 to 2 quarters delay, we can recoup the increases, that will come over and above that level. And if the the bunkers was to stay stable, then, basically, there is no recovery mechanism for what is, if there is no volatility or no change.
And that was our final question for today. I will now hand the call back to the speakers. Please go ahead.
Yes. I just want to thank you for your participation today and all the all of the questions. We remain committed to delivering on our guidance, and we look forward to talking to you in the, at the end of the second quarter. Thank you.