Good morning, everyone, and thank you all for listening in to our earnings call for the Q2 of and half year of twenty twenty. I'm Soren Skoll. I'm the CEO of AB Model Maersk, and I'm joined here today by Patrick Janney, our Chief Financial Officer. So we are now 6 months into the COVID-nineteen pandemic. Right from the start, we decided that we would have 3 objectives during the pandemic that would guide us guide all of our actions.
The first one was protect our people. The second was serve our customers. And the third one was to help the societies that we are part of fight the virus. There's been many challenges throughout the quarter, but I'm very proud of the fact that we have been able to keep our global network running, keep the ports open, keep the warehouses and inland transportation operating throughout the pandemic. We have never been closed for business.
The challenges that our customers have had with their global supply chains have not been driven by an inability to get goods transported across the world, but rather a lack of buffer inventory and single vendor reliability. Our single biggest challenge has been the difficulties with getting our seafarers relieved when their tours were up due to travel restrictions, closed borders and lack of flights. And we continue to battle this problem, but we have started to make some real progress. All through the pandemic, our business has been negatively impacted by lower demand. In the Q2, our volumes were down 14% in our terminals and 16% in ocean year on year.
April was the worst month with ocean volumes being down 20%. Volumes have sequentially improved since then, and we are now in August in mid to high single digits down year on year. A consequence of lower volumes, our revenue was down 6.5% in the Q2 of 2020. Despite the negative development in turnover, however, our results continued to improve. The 2nd quarter was the 8th consecutive quarter with year on year improvements in operating earnings.
EBITDA was up 25% year on year, and we again delivered strong cash flow, with cash flow from operations at $1,900,000,000 and free cash flow from before dividends, share buybacks and acquisitions of $1,100,000,000 Our net result in the 2nd quarter almost tripled to 443,000,000 euros With this backdrop, we reiterate our previously announced intention to share a material part of the proceeds from the sale of the Total shares with the shareholder, with the shareholders through a share buyback. The first phase share buyback is complete was completed in July. And as we said when we announced that back in May of 2019, when the program had ended, we would review the capital structure with the intention of distribute further. And we will do that in Q4 and come out with a statement latest as part of the full year report in February of 2021. Despite the fact that we are in the middle of a pandemic with continued higher uncertainty, We are today reinstating our full year guidance for 2020 with an EBITDA expectation of CHF 6,000,000,000 to CHF 7,000,000,000, which should be compared with our initial guidance back in February of an EBITDA around €5,500,000,000 Now moving on to the next slide.
On this slide, we illustrate the strong trend that we now have in terms of improving earnings, returns and cash flow over the last 8 quarters. While we are not yet where we want to be in terms of return on invested capital, we were at 4.7% return on invested capital on a last 12 months basis in the 2nd quarter. And in the quarter itself, our return on invested capital was actually 6.6 percent annualized. Free cash flow before distributions to shareholders and acquisitions came in at SEK3.2 billion on a last 12 months basis, which is more than 10% of our market cap and more than the net interest bearing debt that we have before lease liabilities. Along with the strong cash flow generation, we kept our capital discipline, which enabled our cash return on invested capital to reach 12.5%.
I'm frankly quite proud of the continued progress over the last 2 years where we have not had the wind in our back. Actually, markets have been against us. Accelerating trade tensions have slowed down global trade. We have had to deal with an IMO 2020 that required us to pass on substantial costs to our customers. And we are now dealing with a pandemic which has caused a sharp reduction in demand.
But all of that has not slowed our rate of progress over the last 8 quarters. While we are a cyclical business or considered a cyclical business, I think it's fair to say that our financial performance has been countercyclical in the last 2 years. We've shown that our product offerings and the agility we have in balancing supply and demand as well as our approach to cost in general means that we can meet customer needs and positively impact our performance at the same time. Our focus on profits and cash flow over market share in Ocean is paying off. The fact that we have kept our capacity steady around 4,000,000 TEU for the last couple of years, the fact that we've become better at adjusting deployed capacity to match demand in an agile way and the fact that we do not have a large order book neither on ships nor on terminals under construction has helped us through the pandemic.
And with that, I will hand over to Patrick, who will walk you through the financials.
Good morning to all of you also from my side. Turning to Slide 8. We can certainly say that the financial highlight of the Q2 was the increase in profitability, with the profit from Q2 rising to $443,000,000 compared to $254,000,000 a year ago. This improvement came exclusively from a higher operational profitability, which is all the more remarkable as it was achieved despite a 6 point 5% revenue decrease as a consequence of lower volumes in all businesses, especially in ocean and terminals and storage, given the impact of COVID-nineteen. Our continuous focus on profitability implied significant efforts in terms of capacity deployment, cost measures and pricing across the whole organization, especially Ocean and Logistics and Services contributed significantly to the 25% increase in EBITDA, leading to an EBITDA margin of 18.9%, up from 14.1% a year ago.
It is also worth mentioning the resilience of terminals and storage, which managed to fully offset a large decline in volumes. Consequently, EBIT increased 81 percent to $751,000,000 compared to 4 $16,000,000 in Q2 2019, leading to an EBIT margin of 8.3% compared to 4.3% last year. The other positions had a fairly small impact on profitability. The increased depreciation, amortization and impairments was mainly caused by some impairments and the higher depreciation due to the Performance Team acquisition. This was offset by the income from disposals, namely the disposal of our factory in Maersk Container Industry in Dongguang, the PPVAF consolidation and other minor disposals.
Financial expenses increased €62,000,000 mainly caused by negative foreign exchange impact, partly offset by lower net interest expense from lower debt. And tax decreased slightly, which is mainly due to lower dividends received. All in all, profitability was therefore significantly up with an underlying profit of €359,000,000 compared to €134,000,000 in the previous year. Now turning to Slide 9. Cash flow from operations was strong, improving 60% to €1,900,000,000 on the back of an increase in EBITDA of €340,000,000 an improvement in net working capital of €124,000,000 and a positive noncash impact of €204,000,000 dollars Cash conversion, therefore, reached 110% compared to 86% last year.
Free cash flow in the quarter was €1,100,000,000 after considering capitalized lease, installments, gross CapEx and net financial expenses. Please note that we remained strict on our capital discipline and maintain our accumulated CapEx guidance of EUR 3,000,000,000 to EUR 4,000,000,000 in total for this year and the next. Now looking at the use of cash. We have made the acquisition of Performance Team and paid dividends and share buyback, cumulating to a total of almost €600,000,000 all covered by the free cash flow of the quarter. Finally, we took some defensive decisions towards our balance sheet in the light of the risk of COVID-nineteen and secured additional facilities of €1,000,000,000 that you can see having a net impact of €900,000,000 This brings us to a €1,200,000,000 increase cash and cash equivalents over the quarter.
The improved free cash flow led to a decrease in net interest bearing debt of €400,000,000 in the quarter to €11,600,000,000 below the year end 2019 level. It is also worth mentioning that excluding these liabilities, net interest bearing debt equals just EUR 3,100,000,000 on par with the year end 2019. Let us now turn to the business development and starting with Ocean on Slide 10. Revenue in Ocean declined 8.7% due to a 16% decline in volumes caused by the COVID-nineteen triggered reduction in demand. However, the cost base improved significantly, led by lower cost due to the agile capacity deployment and lower bunker prices.
This, combined with improved freight rates, led to a 26% increase in EBITDA and an EBITDA margin of 20.7%. Please note that in this quarter, Maersk Oil Trading contributed negatively to EBITDA, mainly led by unrealized loss on derivatives due to the increasing oil price during the quarter. Further progress was made in offering new solutions to our customers. As an example, Maersk Spot once again gained further traction and by the end of the quarter accounted for more than 40% of spot volumes, allowing us to better optimize the utilization of our vessels and to provide a better service to our spot customers. On Slide 11, we have again this quarter illustrated in a waterfall bridge the main movements in EBITDA compared to the previous year.
As you can see on the graph, the biggest movement is the 16% volume decline, which implied a negative impact of $634,000,000 This impact was in effect mostly compensated by the freight rate and the bunker price effect, which amounted to €305,000,000 €255,000,000 respectively. To offset the negative impact from the declining demand, we have been deploying an active capacity strategy. That means that we took our capacity in April to match the expected demand decline of 20% to 24% and have thereafter cautiously increased capacity where demand was stronger than expected. Going forward, we will continue with our strategy to closely match capacity with demand during these uncertain times. The agile capacity deployment meant that we idled more than 166 sailings in Q2, which led to a decline in container handling cost of €80,000,000 as well as a decline in network cost and bunker consumption of €151,000,000 Further cost reductions, mainly in SG and A, were achieved and significantly contributed to the profitability improvement.
The last post on the graph shows that due to an increase in oil price over the quarter, we have in this quarter the opposite effect as shown in Q1. We now do report a negative impact from unrealized derivatives of €79,000,000 this quarter, which is purely a timing effect. Assuming a stable oil price, this position will neutralize in the coming months. Turning to Slide 12. Our total cost in Ocean declined 16% from the lower capacity, lower bunker costs and reduced time charter cost.
We had a small positive impact from Mefix, and if you adjust for this, the total operating cost declined 15%. We held a tight capacity deployment, which led to a decrease in offered capacity, which was slightly more than the decline in the actual volumes as we expected the decline in volumes to be steeper. We deployed the capacity progressively back into the market throughout the quarter as a response to slowly increasing demand. Our total bunker costs declined 37%, led by a 25% bunker price decline, lower total consumption and further improvements in bunker efficiency. Given the significant volume decline, our unit cost increased 7.3% at a fixed bunker price.
On the next slide, we are showing 3 graphs portraying the global demand growth, the effective supply and demand balance and the freight rate index CCFI. What is key for us in Maersk is to focus on profitability and margins to managing our cost base by using an active capacity deployment strategy. This has since February meant that we have carefully watched demand and deployed capacity to match demand to the best of our ability given the rapidly changing circumstances and support our customers. If we compare our own situation today with our situation after the financial crisis, we have been much more agile in the way we balance supply to meet the decline in demand and manage cost. And therefore, we have not, to the same extreme degree, seen such a negative demand supply imbalance.
Our tools to be more agile in our capacity deployment, so we can balance it to demand to the movements, both up and down, include that we have a larger network, so we have more flexibility to adjust capacity downwards, while still offer a strong product to our customers. Also, the fact that our business has turned more digitalized, like with Merck's Spot, which increases transparency and gives us better tools in utilizing our vessels. Turning to Slide 14. Our average freight rates increased by 4.5% in the quarter, driven by higher short term freight rates as our contracts rates decreased because we are lowering the bath element to the contract rates as a consequence of the lower bunker price. Total volume has decreased by 16% as oil trades contracted, but led by Latin America and Inter Americas, where volumes declined 24% 21%, respectively.
As it looks today, we expect that the Q2 of 2020 was a trough in terms of volume, and we did see a gradual improvement over the quarter, with April being mostly affected with volumes down close to 20% and June just short of a 10% decline. On Slide 15, we turn our attention to logistics and services, which despite the negative impacts from COVID-nineteen reported unchanged revenue. This is led by airfreight forwarding that saw a temporary increase in the Asia Pacific region due to the shortage of cargo capacity and by the inclusion of performance teams from early April. This growth compensated our supply chain management, intermodal and inland services businesses, which were negatively hit by the effects of COVID-nineteen. Gross profit increased 22% with GP margin improving by 4.3% to 23%, and EBITDA more than doubled to CHF 97,000,000 due to higher margins in air freight forwarding, profitability improvements in intermodal and the inclusion of Performance Team.
As mentioned earlier, we are excited about our upcoming acquisition of KEH Custom Services, and we look forward to improving our offering within custom services in Europe even further. The deal is expected to close latest in Q4 2020, pending regulatory approval. Slide 16 shows the development of gross profit and EBIT conversion in our Logistics and Services segment, which has showed a clear improvement in the last year as we have improved profitability in the segment, especially within intermodal and now also in warehousing and distribution, despite the negative COVID-nineteen has on this type of businesses. A part of the improvement in this quarter is Performance Team, which contributed with EUR 11,000,000 to the EBITDA. The integration is progressing well despite of COVID-nineteen, and we are already now seeing additional customers because of our increased warehousing distribution services in North America.
Finally, our EBIT conversion improved in the quarter. You can see on the graph on the right that when you exclude impairment and restructuring costs, we have an EBIT conversion in the high single digit area. We are now working on improving this, which you can already see some indication of. To further improve these metrics, we will continue to focus on growing our business as we gain scale, but also constantly review cost and structural measures. On Page 17, we turn to terminals and torch, which showed great resilience to the decline in demand due to the strong cost control.
Revenue declined 9.6%, but EBITDA increased by 3% with a margin of 27%. Both businesses contributed to the strong performance. EBITDA in gateway terminals was on par with last year, with an EBIT margin increasing by 2.9 percent to 25.7%, while EBITDA in storage increased by 11%, mainly due to lower costs. Turning to the next slide, Slide 18, we have visualized the effects from volumes, revenue and costs on EBITDA of gateway terminals. Volumes declined a severe 14% in gateway terminals.
The volume impact varied significantly across regions, with Asia impacted the most with a 23% volume reduction and North America with a 17% reduction. Latin American, Africa and Middle East decreased the least by 9.3% and 6.2%, respectively. The lower volumes led to a 15% lower utilization, which had a negative impact on EBITDA of €64,000,000 However, this was fully offset by 3 factors. First, an improvement mix, which means that we had higher volumes in the most profitable ports. Secondly, because of the challenges to the global supply chains in the quarter, we saw more storage income with positive contribution to EBITDA.
And thirdly, we have managed to work on the cost base, for example, on SG and A, which has a €34,000,000 impact on the EBITDA. On the next slide, we show the equity weighted EBITDA of our gateway terminals, both consolidated LGBs and associates, which was largely on par with last year and underlines the stability of earnings of this business. In the last 12 months, the total equity weighted EBITDA was 1 point €3,000,000,000 of which GVs and associated contributed with €551,000,000 The cash contribution through divest through dividends in the last 12 months has been €161,000,000 or 29% of EBITDA with a payout ratio of 87% of net result. Turning to Manufacturing and Others. We reported a 17% increase in revenue in Maersk Container Industry and a 87% increase in EBITDA.
This is partly due to cost reductions and partly due to some Q1 2020 production pushed into the Q2 as the factory was closed for some weeks because of COVID-nineteen. With that, I pass the word to Soren for the full year guidance.
Thank you, Patrick. And yes, as I already stated, despite the fact the pandemic still poses significant uncertainty on demand, we are reinstating our full year guidance for 2020, expecting an EBITDA between €6,000,000,000 and 7 €1,000,000,000 before restructuring and integration costs. Global demand growth for containers is overall still expected to contract in 2020. But for and for the Q3, which we are now halfway through, we expect demand to progressively recover and end for the Q3 in a mid single digit contraction. Organic growth in Ocean.
Our own organic growth in Ocean is expected to be in line with or slightly lower than the average market growth. We also maintain our 2 year CapEx guidance of €3,000,000,000 to €4,000,000,000 with steps being taken to reduce CapEx in 2020. And we expect high cash conversion still for both years. And with this, we will open for questions.
Thank you. We will now begin the question and answer session. The session will end no later than 12. Our first question comes from the line of Neil Glynn from Credit Suisse. Please go ahead.
Good morning, everybody. If I could ask two questions, please. The first one on the Ocean business. You've seen a high teen EBITDA margin in the first half, and that seems to be implied for the full year. And that mirrors Maersk Lines' 2010 performance, which obviously proved quite temporary.
So just interested in your views on capacity management. Those parts are clear, but as competitor capacity comes back, to what extent do you feel you can better control your margins now than in the past and how? Then the second question on free cash flow. I think your comments are very well understood. But I'm interested to what extent is each division steered based on free cash flow targets at the moment and potentially in the future?
And do you expect to eventually guide on group free cash flow to put the pieces of your overall messages together as a free cash flow to the market as some of your peers do?
Yes. Thanks, Neil. This is Soren here. I think many things are obviously different between the global financial crisis and this pandemic, and that was what we also sought to illustrate in the charts where we compared those two time periods. I think, 1st of all, we don't have any plans to change our approach in terms of matching capacity to demand in an agile fashion.
In 2,009, we actually kept the network operating for a long time and lowered prices instead in order to fill a network that was too big. Another thing that I think that is very different today is that in 2,009, the industry and for that matter also ourselves had an order book which was probably equal to 50% or 60% of the existing capacity. Today, the order book is 9%, the last number I saw. So it's a much different capacity outlook coming at us. So I think at least for us, our own part, we in 2009, we actually we went after market share.
And this time, we are saying very clearly and I have been saying for a couple of years, and the pandemic has just strengthened our resolve that we want to focus on profitability and serving our customers basically.
I'll take the second question. Yes, so as you have seen, we obviously focus on profitability and on cash flow, right? And we took the liberty now to change the definition of free cash flow this quarter to make it simpler and to really show the free cash flow generation, which is quite tremendous this quarter and we expect to continue in the coming quarters as we maintain a very strict discipline. I think this discipline on and focus on cash is across the whole organization. Thereby, I would say, all businesses contribute to this cash.
There will have different levels of performance depending obviously on the quarter, sometimes different ROIC levels as well in cash ROICs. But we are quite happy to actually show an improvement across the board. And I think we'll continue to show it at group level if there would be a significant, I would say, evolution in one segment. Obviously, we'll provide this transparency, but I think it's important to see it as a group figure and a group achievement as well.
Perhaps I can just very quickly add. This is really an extension of the strategy that we have been working on for the last 4 years. I mean, we said 4 years ago that we would we wanted the terminals business to actually generate cash. It had been investing a lot over the previous decade, reporting good earnings but never generating any cash. That situation has reversed.
We have also been very clear that we will have a very disciplined approach to ordering of new ships. And today, we don't have an order book. And therefore, of course, we're generating a lot of free cash flow. Thank you.
Thank you, both.
And the next question comes from the line of Lars Heindorff from SEB. Please go ahead.
Good morning. Thank you for taking my questions. Two questions also from my part regarding the Ocean part of the business. The first one is on the rates. Ferrystone rate development, also what we can see from the CCFI and FCFI index here into the peak season.
But you did have or report a sequential decline in your average rate in the Q2. I assume that, that was partly caused by lower buffer because of the bunker element has been going down. That is likely to continue to go down into the Q3. So the question is if you could give us an indication about which direction sequentially on average rate and also the element of bunker going into the Q3? That's the first part.
So you're right that we have if you look at our contract portfolio, which you know is about half of our business, some of the contracts are monthly adjusting above and some are quarterly. So obviously, those that are monthly, they have started to adjust downward during the quarter. The situation right now is that though that on average, we have been able to, if you will, make up make that up with increasing spot freight
rates. And the contract element of your rates, is that sort of diverting stable? Or can you give us indication on that?
So we don't have many contract rates that are being negotiated at this time during the year. So the contracts that we have are fairly stable. And given the big difference between the spot market and the contract market, then I'm sure our customers are very happy with the contracts.
Maybe to complete your question on the next quarters, I think we will see this evolution continue, right, as the structure is what Soren described. And therefore, you will see on the contract rates a progressive reduction because of the bath and also a slight increase in bunker price, which was the second part of your question as bunker prices have come up a little bit.
Okay. And then the other question what you call other revenue in Ocean. I realized that there's an element of MOTS in there, which is, if I understood it correctly, it was negative in the quarter. But the number still is fairly high, around SEK 1,000,000,000 on a quarterly basis. Now with the decline in the capacity and the change in I don't know if the attitude, if you call it that, to a synergy where you've been becoming a net seller rather than buyer.
I would have thought that the VSA income would sort of gradually and slowly decline. But this number appears to still be fairly high. And I'm just wondering if you could give us maybe a little bit of help on that part of the revenue line.
Maybe to help you on the components, there are different components here. So you have obviously some the income of MOT, which was, yes, fairly similar compared to the previous quarter, and it's not the major part here. The bigger part here is as well the revenue from the hubs, which we are having with other carriers and charges for demerger and so on, which also were quite a significant element. So overall, this has been actually quite a stable development compared to previous year, pretty much I think the same figure as far as I recall. And it's the order of magnitude you should count on as well for the coming quarters.
Okay. Thank you very much.
And the next question comes from the line of Patrick Rousseff from Goldman Sachs.
First of all, congrats on strong performance and success of your strategy in recent years. I've got three questions, please. The first one is just a follow-up on your rate comments. If you could go into a little bit more detail, 1st of all, on the Pacific, I think the contracts were implemented a bit later this year. The trade is doing very well.
So perhaps give a bit of color there whether we should expect those contracts to go up despite the falling back in the second half. And then also specifically on the North South network and how you see current trading evolving into H2?
No, no, Patrick. We will we're honoring the contracts that we have made. So we don't so there will be a stable development on that irrespective of what happens in the spot market. I think on the I'm not 100% sure on your question on north south, but obviously, as the pandemic has moved around in the world, it kind of got last to South America and hasn't really hit Africa to any dramatic extent. And that's why we have a very massive decline in this quarter and right now in Latin American trades where we are overweight.
Should
we expect the Mozart rate to continue to go down in the second half?
I can't give you any prediction on the rate developments in that trade. We, of course, hope that also in Latin America, the pandemic will get under control in the coming months, but we are not experts on that.
Okay. 2nd on CapEx. You've guided for 2020 'twenty one, maximum of €2,000,000,000 growth. Without guiding beyond 'twenty one, can you give us an idea of the sustainable CapEx level essentially keep these agents terminal concession life constant? Would it be materially higher than the €2,000,000,000 before we dive to 21,000,000?
Yes. To your question on CapEx, I mean, we have guide, as you mentioned, for 2021. We are totally within that guidance on the good side of it, as you see from the pace that we have in 2020. I think to your question on the midterm, I think we obviously will come back on with the next guidance when the year develops by Q3 or early in 20 21 to give you a guidance precisely on the next few years. But from the order of magnitude, I think we are not expecting an explosion of CapEx.
We actually have, with the current framework, quite a stable CapEx in the coming years as well. So think it's quite a regular expense just in the magnitude of what we have announced as well.
And then last one, it tends
to be used with that
free cash flow you're generating at this time. Can you just remind us the with all the priorities and fees of cash to delevering further, going back to perhaps larger M and A and then buybacks and CDs? Well, I
think first of all, the priority is to generate the cash, right? So we are quite happy on the quarter. The $1,000,000,000 is a nice number. And then when it comes to use of cash, clearly, I think we have now guided as well that we will come back latest with the full year results on the next plan of further share buybacks and return of capital to the shareholders. Our dividend policy is unchanged as well of 30% to 40% of profit.
So these are strong elements which are there and will continue to be present for the future. Given the cash flow generation that we have and we expect to have, we will hopefully have significant means as well to continue to develop our strategy. But as you have seen, we have been very disciplined. We are looking at buying capabilities to really build up the integration of our logistics business with our container business, allowing our current Ocean customers to benefit from our services as well on the inland. And therefore, it's a very targeted capability building that you should expect as well.
Thank you.
And the next question comes from the line of Sam Bland from JPMorgan. Please go ahead.
Good morning. I really only have one question. Just through, I guess, the Q2, the industry and industry profitability levels have benefited from blank sailings and other capacity measures. To what extent do you think those tools are really just something that we've seen in this extraordinary environment? Or do you think those similar tools could be deployed on a more kind of business as usual basis going forward in subsequent years to help support freight rates and profitability?
Yes. In 2,009, the thinking in Borscan, I think, for the whole industry was that if you had a network, then you would have to keep sailing it and then fill it up at all costs. And obviously, that approach has completely changed, and we are now operating our network in a much in a fashion which is very similar to what the Korea Express and package guys are doing in terms of UPS and FedEx. And there, we are not sitting and discussing how many airplanes are on order and the capacity in the network. There, they deploy the flights when there's a demand.
And when there's not, they don't. And that's really what we have been doing through this crisis. And so I can say, certainly for Maersk, that will be our approach going forward. And since it has worked so well for us, why should we change that? It's a structural capability that we didn't have to the same extents in 2,009, not just because of the way we the culture here and the way of thinking, but also the fact that we now have a much bigger network makes it much simpler to take capacity out.
If you are operating 2 services from Asia to Europe a week, then it's a huge decision to take out one string because you cannot cover all the ports then and some customers will not be served. If you're operating 13 or 14 as we did before the crisis between then it's quite a simple proposition to take out capacity and still serve all customer demand. So in my view, this is a structural change.
And the next question comes from the line of Dantu Carnegie.
And also a couple of questions from my side. In terms of markets and how volumes has progressed, it seems like they are surprised a bit on the positive side and it's compared to how we viewed it during or just during the pandemic. Is there any element of windfalls in volumes right now coming back here during July, August due to restocking air cargo volume still being extremely low and seeking different modes. And these will turn a bit more negative later on this element of windfall? So that's the first question.
Our visibility is not fantastic. I mean, on the positive side, you have seen the U. S. Market, the Pacific market rebound very strongly after the country started to reopen. The fact that the stimulant packages, the $600 check has really meant that the consumer has spent a lot of money once the economy opened up again.
We today have more capacity deployed in the Pacific serving the U. S. Than we had in the same period last year to cater to a demand that is up between 5% 10% year on year right now. That's, of course, we are getting some benefit from the fact that the consumers are spending more of their dollars on goods as opposed to services. So the money that they cannot spend in restaurants and on travel and vacations and events, part of that is being spent on a new flat screen and a new patch of furniture.
So that is, of course, to our benefits. In other markets, such as, particularly, Latin America, I mean, volumes are down 25%, and it is looking really, really, really difficult. So I think this development is likely that you have a big drop in demand while the country is fighting the virus. And when the economy starts to reopen again, then you see a bounce back, which I'm sure also includes some restocking.
Okay. And then just a question on the digitalization because it seems to move very fast at the moment. I guess, 20% per quarter is not the run rate. But how far can you take it, the digitalization here on the spot volumes? And where can we see the benefits?
Can you be a bit more concrete on what the benefits are for you here on the cost side? Thanks.
So we see plenty of progress plenty of potential for expansion. And eventually, it will be close to 100%. I think what is a complication right now is to how to implement it in the U. S. Where there are a lot of rules for how to file with the Federal Maritime Commission and so on that we need to resolve.
The big benefits for us are that it's a commitment product. So it means that the customer makes a booking and actually has to show up with a container or pay a penalty. And that, of course, makes it easier and simpler for us to plan utilization, and we can avoid a lot of last minute downfalls that we have to kind of plan in, and then we risk rolling our customers when we get it wrong. So there's that benefit. And obviously, there's a cost benefit for us because the customer is doing all the work in terms of getting a price online, making a booking, doing the documentation and so on.
So there's an SG and A benefit for us as well.
Okay. And then just lastly on Roark and how we should see that developing. There is definitely some underlying improvement here. And Soren, you mentioned clear type deposit service industry, and you mentioned it again here. Is this an industry we should look forward to see where you will see returns, so to say, in the container industry going forward?
Yes. I think we obviously can only talk about our performance. I think that ROIC is a key priority for us. We show regularly, I think, the improvement on ROIC and cash ROIC. The cash ROIC gives you a bit of a lead indication on whether the ROIC is going, right?
So you've seen that we are now at more than 10% to 12%, which is a good performance. Clearly, it's what is more important is really the consistency of the improvement over the quarters, and we are building upon that. So clearly, I think there's a wish here to improve returns to reduce volatility of those returns through the cycle and earn your cost of capital, right? So there's still a way to go, but I think we start to see a real improvement quarter by quarter.
Sounds good. Thanks a lot.
And the next question comes from the line of Perus Cheyne from HSBC. Please go ahead.
Thank you and congratulations, first of all, on a great set of results. I have two questions. Firstly, your guidance with respect to demand not only in the Q3, but the expectation that first half 'twenty one perhaps will be something to the level that we have seen in 2019 is very reassuring. But can I quickly check your thoughts around supply? I mean, what could possibly go wrong or right in the sense that we are hearing articles talking about equipment shortage.
But more importantly, I was more curious to understand how are you managing your crew changes? I mean, will it at any point can lead to further capacity constraint as from the crew member we continue to find it difficult to change in between as the lockdown surges with respect to international travel? And second question is more around if you can share your thoughts about the freight development in intra regional trade, which has seen a decline versus positive development in East, West and North, South? And is it more because of some changes in the routes or backhaul versus circle? Or you are seeing a genuine weakness in the intra regional route?
Thank you.
Look, crude change has been a big really big issue for us or problem because and it built up over the Q2 in July. We had twothree of our crews. We have around 6,500 people on board at any given time. And in July, twothree of those were now were out longer than the longest period they were allowed out under their contract. We have since then been able to deal with the issue or start dealing with the issue.
We are now down to about onethree that are out longer than their contract allows, And we're making progress every day. It will still be a while before the problem is resolved. But of course, we are doing all that we can, including we have rented hotels capacity in Mumbai and in Manila. We bring in our seafarers. We quarantine them there.
We test them, and then we fly them to Denmark and distribute them from Denmark to the ships. We've also some arrangements in Singapore and Hong Kong. And I believe that our crews on board understand that we take this problem very seriously. We spent a lot of money to help them get back home for their vacations so they could see their families. And we are not expecting, if you will, if you what if that's your question, a kind of tools down or strikes or anything.
But of course, we cannot guarantee anything. But we don't think it will impact our capability to run our network.
And your second question was on the interregional volumes. I think we have seen very mixed situation. Yes,
development rather, yes.
Sorry?
And intra regional freight rate trends, I mean, volume decline was understandable.
Yes, correct. Well, clearly, I think it's a bit correlated, right? I mean, clearly, we have seen very mixed volumes in the evolution of the volumes. Also this has an impact on the rates. I think we mentioned clearly the example of Latin America before, which is a very strong region for us, also in the intra region, under the cabotage in Brazil and so on.
And clearly, there we do have a real impact on the COVID-nineteen crisis, which has depressed volumes and therefore as well rates. I think this will solve itself region by region as flows stabilize. And I think we're confident here that as the crisis progressively is resolved, we'll have a normalization both on the volumes and on the rates. But we don't see the structural issue. It is really a circumstantial correlation now because of COVID-nineteen.
And the next question comes from the line of Markus Bellander from Nordea. Please go ahead.
Some questions about Maersk spot. Do you think that the desire for guaranteed loading has been unusually high in Q2 due to the supply chain turmoil. And is there a risk that volumes will move away again from Maersk's spot when things come down a little?
More? It's possible that there has been a bit of, if you will, flight to safety that has been benefited us. But we actually we are 100% convinced that the ease of use of the product is such that the uptake is driven by this just being a good product and that we will continue to see growth in the usage of that product.
Okay. And I've heard some freight forwarders complain that you do not differentiate prices on Maersk spot, which I would think would mean a higher average price for you. Is that the case?
Well, it's in the nature of a product that you buy online that there's no differentiation on the price, but the price changes, so to speak, all the time. It's being priced with help of algorithms. And of course, we are looking at the uptick curve. Just it's very similar to how it works for airlines and the price setting for airline tickets.
Okay, okay. But you did say that costs were lower on Maersk spot. And I think I saw that Hapag Lloyd launched a similar product recently. So I'm wondering is Maersk spot another phenomenon where Maersk kind of leads and makes a bit more money on it for a while, but competitors then catch up eventually?
Yes. We have noticed that a number of our competitors actually now offer a version of a product like MERSK SPOT. And frankly, I think that it would be very strange if our industry would not develop in a direction that our customers buy online and then just like we do in business to consumer industries. And therefore, a version of a spot product, in my view, will be table stakes in 2 to 3 years. And yes, that's how I see it.
And the next question comes from the line of Satish Sivakumar from Citigroup. Please go ahead.
Good morning. Thanks for taking my questions. I have three questions. So firstly, could you please touch upon the cost savings that have been materialized this year as a result of pandemic? How much of it has to be structural and how much it is volume driven, I.
E, how much of those costs are likely to come back up when we see a recovery in volumes? And the second one regarding the net debt to EBITDA, what is the ideal range in the near term and into next year? And how does this fit with your buyback and CapEx plans for next few years beyond 2021? And lastly, are you seeing any pressure on credit terms or working capital from your customers and suppliers as to speak during the peak of prices in Q2?
All right. Thanks for your question. So when you look at the cost savings, clearly, if you take the example of Q2, we had a significant reduction of cost. But obviously, volumes do play a part, right? That is clear as well as lower bunker costs.
So the element here, as we have tried to show it on the slide is really related the majority of volume linked or indirectly linked. But clearly, you save on the bunker consumption, you save on container handling costs, which if you assume that volumes rebound and those costs will come back. But we have also improved on bunker efficiency, and we have also improved significantly on SG and A as well. And here, hereby not only, let's say, the COVID-nineteen related travel expense reduction, which probably everybody has in every company. So we would expect, if you look at the normalization of volumes, that a good part of the savings is actually repeatable and therefore sustainable.
I think if you take a first view of around, I would say, probably a couple of 100,000,000 dollars is surely not a false number. And again, as we highlighted, we will be working constantly on the cost measures and on further structural measures. So expect certainly more from us in terms of cost savings and simplifications, yes. When we look at the net debt development to EBITDA, our main goal here is to be investment grade. Clearly, the first objective is to generate the cash, reduce, I would say, the volatility here, have a solid EBITDA and cash flow generation and net debt will obviously decline as we have highlighted it.
If you relook at the financial debt, right, without the leasing, which frankly is part of operations because we can always return the ships, but that's not the purpose, we are €3,100,000,000 which is already, say, quite a small number compared to the EBITDA. So from that point of view, we have a solid position in our view, which we will maintain. Clearly, any future move in terms of investments, acquisitions and share buyback and so on, the financing capacity, so to serve the group, is always measured against investment grade and the solidity of that rating. Your third question was on the pressure on the working capital from our customers. I think we have actually done a tremendous job in the segments here.
Our people have been very close to our customers. And if you see actually we have an improvement of working capital in Q2, which means we have a net inflow, which shows that we have been very aware of our receivables and payables positions. We have actually this quarter have not increased any provisions in trade receivables because we feel that collection is coming well and we have a good contact here with our customers. So for now, I think we have seen actually a very disciplined organization and collection. So no specific pain in that element.
If I could just follow-up on the investment grade comment that you made. So the investment grade comment on your net debt to EBITDA, what is the actual range that you look at excluding the leases?
Well, you see that's always depending on the rating agencies. You do have, as you know, for S and P, it's more free cash flow to net debt definition and not the multiple. So I think it's a multi dimensional one. But I think it looks good actually on all the metrics from that point of view. I think we are convinced that it's good.
And the last question comes from the line of Franz Hojer from Handelsbanken. Please go ahead.
Thank you very much. Thanks for the comments on near term demand. That's really helpful. Also about the on the equipment side and any imbalances on the equipment side, are they a factor right now in terms of influencing rates in the market, please?
Yes. I think it's really hard to say, but there are plenty of reports out there that a lot of equipment, I mean, I'm not just talking for Maersk, but for the industry, if you will, has been stuck in Europe and the U. S. And other importing regions and is slow in finding its way back to Asia. I think the leasing market is a good indicator, and it's very hard to lease equipment in Asia, which does suggest that the equipment needs to get back from Europe and the U.
S. To Asia in the coming months.
Okay. I noticed also that Maersk Ocean has reduced its fleet quite significantly in the quarter during the Q2. And I was wondering if there is much more to be done there without shrinking the service network discernibly?
Well, I mean, we started out the pandemic basically taking 20% of our capacity out for April. And then we have been, if you will, reinstating capacity, and we are probably 95% back to where we started before the pandemic. So we have plenty of opportunity to adjust back down again if we need to, hopefully. However, we are right in our predictions that volumes are sequentially improving, not the opposite, but that's that we will have to see how the world fares in a second wave. Our guidance assumes that there's not going to be there will not be a new global lockdown phase, but that lockdowns from a second wave will be local or regional in nature as we have seen in the last months or so in Europe.
As there are no further questions, I'll hand it back to the speakers.
Yes. Thank you. I think this has been a very, for us, what we consider to be a strong quarter in terms of improvements. We are confirming an already existing trend of constant progress now over 8 quarters. We have done really well in Ocean this quarter.
This is the reason for why we're doing better than the same quarter last year predominantly and driven very much by our active approach on capacity managing our capacity and costs in general. I think we can we also are very pleased with the resilience that our terminals business, our Switzer business has shown. Despite a 14% reduction in volumes, we still managed to keep earnings flat in terminals. So that's quite positive. We are, as we just discussed, coming out of this quarter with very strong balance sheet, strong cash performance.
And not only have we improved the profitability of the business, but we also continue to transform with 2 transactions and in the logistics space. And we are ready to do more in the coming quarters and years on our transformation. So with all that, thank you very much for listening in, and I hope you have a good rest of the day.