is represented by Rolf Habben Jansen, CEO, Mark Frese, CFO, and Heiko Hoffmann, Head of Investor Relations. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Rolf Habben Jansen, CEO. Please go ahead, sir.
Thank you very much and welcome everybody, and thank you for making the time to join us on this earnings call. As always, we'll try to give you an overview of where we are, how we look at the market, and be happy to take any questions that you may have. Maybe a couple of opening remarks. When we look at the situation today, the first half here, we still saw quite a lot of supply chain disruptions. I think they've moved a little bit around the globe, whereas in the beginning of the year it was the West Coast of the U.S., and then we had COVID lockdowns in China. I think right now most of the pressure is on the East Coast U.S. and particularly also in Northern Europe. That has certainly limited volume growth.
We also have seen that spot rates are starting to ease, which I think is in line with what we have been saying for quite a while, is that we will start seeing the first signs of easing in the first half of 2022 and probably more of that in the second half. When we look at our numbers, half one certainly above expectations. I think the two other points to highlight here is that costs are also still going up. On the one hand, driven by charter rates, but also storage costs are high and fuel is up significantly. Our cash position remains very healthy. In terms of market, effective capacity remains tight at this point in time, as you can also see from very low idle fleet and high chartering costs.
We're now starting to see some ships coming and being delivered that hopefully will ease the situation a bit. But of course, there's also on the other hand, the demand side where we definitely see signs of the economy cooling down and hopefully that will also help markets to normalize in the months and quarters to come. We've given an update on our outlook, which was higher than originally anticipated. Our cash flow will remain strong in this year, which will also help us to execute our strategy, which is very much around the key themes that we also introduced last time. Simplify our business, strengthen our business model where needed, and invest when the right things pop up.
When we look at congestion on the today, I think this graph indicates that congestion is currently at record high levels. I would still say that this doesn't tell you the entire picture because we do see some signs across the globe that things are easing. West Coast U.S., clear improvement. Med, running fairly smooth. Asia, clearly improved compared to a couple of months ago. When we look at container availability, clearly better than what it was some months ago. I think we see those signs, and I would also expect that this congestion index is going to show an improvement over the months to come.
When we look at volumes around the globe, we always look at CTS, and we see a small decline in the first half year of a little bit less than 2%. I think June in and of itself was a bit more positive. Also, when we look at the various trades, TP's still up, but nowhere near the increase that we have seen in the years before. The other markets, a bit more subdued. Of course, we also see when looking at the spot rates that while they are still at a high level, a decline of 27% is not small and we would also expect that trend is gonna continue in the remainder of the year. What have we been doing?
Before I hand it over to Mark, I think we've been doing a number of things to further strengthen our position and to pursue some of our strategic goals on the fleet side. We have certainly launched our Fleet Upgrade Program, which should help us on loadability but also on fuel efficiency. We bought a couple of secondhand vessels, nowhere near to what some of our competitors have been doing, but a few. We decided to start installing tracking devices on all our boxes, including the dry ones, where the first ones are being done as we speak. We've launched a couple of new services to respond to additional demand. I think that's off to a good start. We closed the acquisition of Deutsche Afrika-Linien, which you were all aware of.
Of course, also on the humanitarian front, we're trying to do whatever we can also in our push to, on the one hand, help and care for people, but also to develop a business model that is sustainable in the long run. With that, I would hand it over to Mark.
Yes, good morning. Thank you, Rolf. Also from my side, a warm welcome. As you can see, the exceptional freight rate environment continued to be the main driver of our financial performance in the first half. Transport volumes in the first half remained on the previous year's level. Mainly due to congestion, the average freight rate increased strongly at roundabout 77% to over $2,800 per TEU. As a result, our EBITDA increased to $10.9 billion after $4.2 billion in the prior-year period. Net profit reached $9.5 billion. With that, a free cash flow of over $9 billion in H1. We were able to grow our cash position again to $10.4 billion despite distributing the dividends of $6.6 billion in May.
Revenue grew by 76% to $18.6 billion in the first half. EBIT almost tripled to $9.9 billion with an EBIT of $5.1 billion in Q2. Q2 was another record quarter for us, and the return on invested capital continued to be above 100%. For sure, an unusual level for an asset-heavy business like ours. As already outlined, our transport volume in H1 remained on previous year level, while global markets overall declined by slightly to 1.7% or by 7.1%. Currently, markets are talking intensively about weakening demand. I think it's nevertheless important to know that despite all the bad news, demand remained robust in the reporting period. And further growth was primarily impeded by supply chain disruptions and capacity constraints.
Yes, as Rolf indicated, second half will look differently, and we will talk about that later. In particular, the Transpacific trades, but also to some extent, the Latin America and Europe trades were impacted by the lockdown measures in Shanghai and some port congestion. On the Africa side, we saw very pleasant development, which is for sure mainly driven by our acquisition of NileDutch in Q3. Last year, transport volumes increased by over 40%, 44% precisely in that trend, and we are very happy that we can further expand our service coverage in Africa with the recently acquired Deutsche Afrika-Linien. Average freight rate increased, as said, strongly by close to 80% year-over-year, and even quarter-over-quarter, the average freight rate increased moderately despite greatly declining spot rates, as said.
Positive development was mainly driven by higher rates for annual and multi-year contracts, which became effective in Q1 and Q2. Unfortunately, the horrible war in Ukraine and the resulting uncertainty on the international energy markets also drove oil and hence bunker prices up substantially. The strong increase of oil prices was therefore the main driver for rising unit costs, leading to a much higher bunker expense and indirectly affecting the other cost components due to higher hinterland and transportation costs, as it is very clear. At the same time, the line items handling and haulage and vessel and voyage were further impacted by higher congestions related, and these expenses related to that. Depreciation and amortization expenses were primarily up due to the rise in the percentage of vessels chartered in on a medium-term basis at simultaneously higher charter rates.
The exceptional earnings performance has led to a strong free cash flow, and you can see that here we generated $9.5 billion. We have used part of the available liquidity to pay out dividends of EUR 35, as you know, respectively $6.6 billion. Nevertheless, our liquidity reserve increased to $11.1 billion in that time period. Our balance sheet on that basis and our credit ratios remains on a very, very healthy level. Equity increased to $21.4 billion, and net liquidity increased to $4.5 billion. Net liquidity to $4.5 billion at the end of first half 2022.
As already mentioned in our last call, we have used the currently favorable financial position to increase our revolving credit facility, and we extended the terms, so the RCF volume is now $725 million, which is for sure undrawn at the moment. In June, Moody's has upgraded our credit outlook from Ba2 stable to Ba2 positive while raising our unsecured bonds rating by one notch from B1 to Ba3. As you know, and as a reminder, in February, Standard & Poor's has already raised our company and bond rating by one notch to BB+. That's it from the financial front, and with that, I would hand it back to Rolf for market update and additional remarks.
Thanks, Mark. Briefly on the market update, as always, a few comments on the order book. I think we have seen the order book going up further right now, standing at about 28% of global fleet. Quite high, in fairness, compared to the last couple of years and also in absolute terms, of course, a very significant order book, which means that we will get quite a lot of new vessels into the fleet going forward. In the end, how much of that will be absorbed by demand or by new environmental regulations, I think, and increased scrapping, that remains to be seen.
If we look at the idle fleet today, I think it's still very clear that today, the effectively available capacity is still very tight, as idle fleet is at a record low. Going forward, there's actually gonna be a little bit of a catch-up effect on ships that will need to go into dry dock. If we look ahead into supply and demand on balance, I think we clearly see that over the upcoming 24 months, that supply growth will outpace demand growth. I think that's good, because that means that markets will ease a bit.
It will also create a little bit more space to catch up on some of the dry dockings that need to be done to do modifications on ships to make them more environmentally friendly and to deploy, in some cases, also some extra ships to deal with the new IMO regulations that are gonna kick in from 2023 onwards. Looking at the outlook that we have already commented on earlier, we published that, I believe, on the 28th of July, where we said transport volume probably gonna be slightly up, yeah. Consumption price of fuel definitely going to be up. I mean, there we've seen a very significant increase, same goes for freight rates. On the back of that, this is the ranges that we have communicated that we expect to see on EBITDA and EBIT.
Looking ahead and looking at our way forward, what's our focus? Make sure that we continue to do our utmost to improve service quality and drive customer satisfaction. We have seen some good progress on that in the first half of 2022, both in the feedback we get from our customers, but also objectively in the KPIs that we can meet and measure across our entire organization compared to the objectives that we've set ourselves. We'll continue to invest in fleet and in a competitive cost base going forward. We're working hard to seamlessly integrate Deutsche Afrika-Linien. Our financial policy will remain prudent. We will step up our efforts further on sustainability and decarbonization.
Of course, we will also continue to do everything within our power to take care of our people and also to invest in developing them further as they, in the end, remain our most important asset, and are absolutely critical to deliver the results that we would like to see going forward also at Hapag. With that, I think we wrap it up from our end, and then we hand it over to you, Jiruna, I think, to moderate the questions, if there are any.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question comes from the line of Sathish Sivakumar from Citigroup. Please go ahead.
Thanks again for the presentation. I actually got three questions. Rolf, you mentioned at the start about congestion easing and you expect things to improve as we go into the year. Obviously, you flagged one of the reasons might be the vessels coming on board would help to ease the congestion. Where do you see the congestion will start to actually ease or normalize, apart from the West Coast, which is more of a shift from east to west, right? In your view, what are you seeing right now? Where do you think which part of the market will start to see normalization? Then the second one is actually on the Rhine River level, right? Obviously there has been news flow around that, impacting the flow of commodities.
What does it mean for container ship trade, and especially within your network? Would it actually result in, say, bottleneck on the short sea route? Then the third one is around the contract rates. Just to get a sense that on the Transpacific is there any percentage of the volumes that are still left to be renegotiated? Then if you had actually negotiated some contract volumes in the last, say, couple of months, how does those contracts have been signed versus, say, the ones that have been negotiated back in April or May? Thank you. Those are my three questions.
In terms of the easing, which part of the market will see normalization? I think in general, yes, there's been a little bit of a shift, if you want, from east to west. I would say that we also see, though, that some of the receiving markets, if you want, are coping with it better in the meantime. I mentioned the Med and also West Coast U.S., where things are definitely better. I would also say situation in Latin America is a little bit better than it was some months ago. Today, the real issues we still have are on the East Coast of the U.S., where things are not deteriorating but not improving rapidly.
Then in Europe, where this is also driven by a number of, let's say labor, also driven very much by labor tension in a number of the big ports. I would expect that once we have that behind us, that we will actually see further easing there. On the Rhine River, yes, that has an impact on the carrying capacity of the barges, because they simply can carry less boxes or they can go less far. That means, in reality, that those boxes need to move to rail or predominantly truck. Of course, as capacity there is tight, that doesn't make things easier. On TP contract negotiations, I mean, this is typically a very condensed part of condensed period where all the contracts are negotiated.
I mean, we have not closed anything substantial on the Transpacific in the last couple of months. This is all about the contracts that have been closed, say, between January and April. Yeah.
Thank you. Got it. Yeah. Thank you.
The next question comes from the line of Sam Bland from J.P. Morgan. Please go ahead.
Hi. Thanks for taking the question. It's Sam Bland. I have two questions, please. The first one is, I think I'm right in saying about 50% of your volume is on these long-term contracts. What proportion of those reset on a calendar year basis versus, you know, some way through the year? And the second question is, you know, I guess we're seeing. Well, I know we've talked about it, but we're seeing some evidence of congestion going up, but spot rates still coming down. Just wanna get an idea of, you know, how weak is demand. Is it sort of substantially weaker, would you say, demand than it was a few months ago or, you know, only a more modest weakening? Thank you.
Well, I mean, first point, I think, yes, your point is right. If we look at what do we have as long-term commitments, that's between 45% and 50%, on average of our overall business. Yes, that's correct. The vast majority of that is being renewed throughout the year. The percentage that really switches on the first of January is relatively small. Most of it is first of April or first of May, first of June in that part of the year. There is also some on first of January. I wouldn't know the exact percentage, but I would, I think it's less than 25% of the contract rates. When you look at spot rates, I think you are right. I mean, there is a fairly material easing of demand.
I mean, we used to be multiple times oversubscribed on every ship system. We are still oversubscribed today, but not as strong anymore as it was. That's also why you see the spot rates indeed coming down with something like, you know, 27% or so I mentioned earlier. We shouldn't forget though that the spot rates by historical standards are still at a very high level. It's not that there is no tension whatsoever. There are certainly some signs that market is easing somewhat. We also see that in the bookings and the quotations that are being requested.
Understood. Thank you very much.
The next question comes from the line of Anders Karlsson from Kepler Cheuvreux. Please go ahead.
Yes. Congratulations on the good result. My question is a little bit on fleet flexibility and also a little bit on the contract rates. First of all, fleet flexibility. How much of your capacity is rolling off and needs to be replaced with new tonnage in this year and in the coming years just to get a feel of your expenses on charter in tonnage? The second part is, you know, can you give any guidance in terms of what level are your contracts entered into as of a recent date compared to, you know, current spot rates? And are you also seeing any needs for or questions from customers in order to, you know, give rebates to the current contract rates?
Well, in terms of flexibility, if you look ahead for the next 12 months, I wouldn't know it exactly, but it's fairly limited. I mean, we have seen that in today's market, a lot of contracts have been extended for longer period of time than they typically do, which means that our ability to reduce tonnage, I mean, it's not nothing, but it's certainly also not 20% or 25% of our overall fleet. In terms of rates, I mean, yes, you are right that, I mean, in essence, you have two types of rates. One is spot and the other one is contract. I mean, spot means you pay whatever the market does on that specific day.
Then contract means you commit yourself for a year or for half a year or for three years, whatever you agree at a certain rate. Then there is always the risk that during some period the spot rate is lower than the contract rate. That's not a reason though to, you know, then all of a sudden say, "Okay, then we also lower the contract rate," because then we don't need to make any contracts anymore. Then we just do spot rates. Yeah. Because that would mean that the contract in future is then a combination of a rate plus a downward adjustment if the spot rate is lower. That doesn't make any sense. I mean, that's why you have these two types of contracts.
Okay.
As a reminder, if you would like to ask a question, please press star followed by one. The next question is from the line of Mark Kappel from Stifel. Please go ahead.
Thank you for taking my questions. One quick follow-up on the demand side. I guess it's pretty clear that container volumes into Europe are quite weak. I believe that container volumes into the U.S. and actually spot freight rates into the U.S. have held up quite well in the second quarter, I guess. Could you comment a bit on the U.S. consumer, what you see for let's say peak season or back-to-school season right now from the U.S. consumer? Thank you.
I think when you look at the U.S. consumer seems to be holding up reasonably well. I mean, even if you look at volumes in the first half year, we still see that Transpacific volumes have been growing, which is quite remarkable if you look at the steep increase that we saw in 2021 versus 2020. From all we see, U.S. consumer demand seems to be holding up reasonably well.
Yeah.
Whereas certainly in Europe and some other places there's probably more nervousness and uncertainty, even if we don't see demand falling off a cliff anywhere.
Thank you. My second question would be, let's say on the EBITDA or earnings development, third and fourth quarter. Is it fair to assume that, by and large, the third quarter will look not too different from the second quarter, and that any, say, decline spot freight rates will mostly then be within the fourth quarter?
I think if we see markets weakening throughout the second half of the year, then I think your assumption that the third quarter will be better than the fourth quarter is not so far from how we read the market as well.
Thank you. I guess my last question then would be on the impact from environmental regulation comes in place next year, and you briefly touched on it already. I guess we heard from your competitors and freight forwarders that they expect that probably 5%-15% of the current fleet of capacity might be taken out due to slow steaming and replacement of vessels. Would you put your estimate in the same, let's say, ballpark, or do you see a significant higher or lower number?
Yeah, I think what you can see from the comments that have been made is that the range that people estimate is fairly wide, yeah. The rules are fairly new and everybody is still trying to come to grips with it. It depends on what you can actually do on the Fleet Upgrade Program, for example, that we are running. I think the bandwidth that I've seen so far is indeed 5%-15%. If I look at the impact that we expect in 2023 and 2024, which is probably the most relevant, then we are probably more in the 5%-10% type of range than above 10%. You know, this is also we gain more insight as we move forward.
If you would have asked us half a year ago, we probably would have assessed the impact smaller for 2023 and 2024. Now we're probably looking at, yeah, something between 5% and 10% as our best guesstimate at this point in time, but that's also one where we will learn as we go. We also know that some of those formulas will still change over time. So it may mean that we have to adjust that, a little bit upward or downward, but we would currently assume high single digit.
Thank you so much.
We have a follow-up question from Sam Bland from J.P. Morgan. Please go ahead.
Thanks. Thanks for the follow-up. It was a question on infrastructure. You know, there's a lot of data in the presentation about supply of new ships coming through. There's been some talk from elsewhere about how infrastructure, both at the ports and maybe inland might be another quite relevant bottleneck, and that might be a bottleneck over the longer term. Just wondered if you have any thoughts on that, particularly around ports. Thank you.
Yeah. Yeah, I think we see that as well, and we believe that getting controlled access to infrastructure is important. That's why we have a number of those investments also in Hamburg, in Wilhelmshaven, in Tangier, in Damietta. Many of them done over the last years. One can certainly not rule out that we're gonna do a bit more on that, because in order to run a good network, we have also learned again over the last two years that having control over the transshipment ports and over some of your hubs and also over a number of the main gateways is critical. That is something that we are working on, and we'll probably still do more on that over the upcoming couple of years.
Okay, thank you.
This was the last question today. Please direct any further questions to the investor relations team. I hand the conference call back to Rolf Habben Jansen for closing remarks.
Not much to add from our end. Thank you very much for taking the time. Highly appreciate it and hope it was informative for you and hope to hear or see you again soon. Thank you.
Ladies and gentlemen, the conference is now concluded and you may disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.