Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome and thank you for joining the Hapag-Lloyd Analysts and Investors Q1 2020 Results Conference Call. Hapag-Lloyd 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.
Thank you very much, and thanks to everybody for taking the time to join us on this call. What we'll do is, after a few opening remarks and a couple of comments from my end, Mark will take us through all the financials of Q1, and then afterwards we'll talk a bit about the market as we go forward before we take your questions. A couple of opening remarks maybe. I mean, if you look at today's situation, of course, the personal health of all of our staff is priority number one. That's also why we have been working from home largely since quite some time. If we look at volumes, they've been definitely in line, as well as rates have been in Q1, but we start seeing some effects of that in Q2.
We did launch what we call the Performance Safeguarding Program to make sure that we are still going to come out of this year in a proper way, and that means we did all kinds of measures, not only on cost but also on liquidity and looking at investments, for instance. Overall, I believe our financials for Q1, which Mark will elaborate on, are solid, even if they were definitely impacted by a write-down on bunkers, which was quite significant. In terms of the market, I would say that the outlook as we have it today is probably not deteriorated materially compared to what we saw six or eight weeks ago, but the situation definitely remains very fluid. Solid Q1, clearly volumes down now in Q2.
We still think, though, that our scenario where we'll start seeing a gradual recovery somewhere in the course of the third quarter, with then a further pickup in Q4, is reasonable. If we look ahead, then we basically stick to our guidance. We do recognize, however, that there is more uncertainty than normal around this outlook, but nevertheless, when weighing everything in, and we'll talk about that a bit later on, we came to the conclusion that we uphold our guidance at this point in time. Our main focus for the upcoming weeks and months is definitely to execute the Performance Safeguarding Program, which we will need in order to deliver on our guidance, but we will also slowly but steadily start shifting again more to business as usual and start refocusing on the things that we have identified in the context of our Strategy 2023.
So overall, a good start to the year, I would say, but yes, COVID-19 is, of course, also affecting the shipping industry, and for us, I would say it's three key priorities. First one, our team. We need to make sure that we keep our employees both on land and at sea safe. We have the vast majority of our people working from home since the beginning of March. After an initial teething problem, that's actually working remarkably well. We have a crisis committee that still meets every other day to look at, to monitor things that are going on and take action if and when required. We look at our business. We think Q1 was solid. Volumes and rates as expected, but we do start seeing the first effects of especially exports out of China in the month of March.
Market prices in the beginning of this year, we were all talking about IMO 2020 and about the expected increase in fuel prices that indeed came. I think it's difficult to imagine today that two and a half months ago, we were paying between $600-$700 a ton for fuel in Singapore, and then we had, of course, a very sharp decline in the fuel price just before the end of the first quarter, which caused us to write down the bunkers with $64 million. And based on what we see today, I think our outlook is a little bit as I described it a bit earlier. We've taken all kinds of measures to make sure that we can weather the storm. We called it the Performance Safeguarding Program.
That means cost, but also look at investment and secure additional liquidity just in case the crisis lasts longer than we currently think. On the other hand, we have, however, also on hire some additional equipment because we see that boxes flow slower, and we need to make sure that we can continue to serve our customers also in these times. And apart from that, we've had to pause a couple of our projects in the context of our Strategy 2023, but we're now starting to pick those back up again towards the end of Q2 and certainly moving into Q3. And with that introduction, I would hand it over to Mark to talk about the numbers.
Thank you, Rolf. Also from my side, a very good morning to everyone. Let's have a deeper look on Q1. What we have seen is the solid operational performance with only minor COVID-19-related effect in the first quarter of 2020. Nevertheless, effects of the pandemic, especially on transport volumes, can be seen already, and I expect, as Rolf said, to become sharper in the second quarter. Our transport volumes rose in Q1 by 4.3% year on year, to slightly above 3 million TEU, while freight rates also increased slightly by 1.4%, mainly due to the MFR mechanism and good revenue management. So based on higher volumes and higher freight rates, revenues increased by roughly 6%. Average bunkers consumption price increased sharply by $98 per metric ton due to IMO transition costs, and valuation effect at the end of the quarter, which drove up transport costs disproportionately by almost 10%.
Despite the clearly negative bunkers effect, EBITDA declined only moderately by roughly 7% to almost $520 million, and I will shed a little bit more light later on on that. Exact effects were, in addition, impacted by negatively the non-cash devaluation of derivative financial instruments. More details to come a little bit later. The net debt neutral drawdown of our RCF, our revolving credit facilities, increased the balance sheet total by roughly $400 million, and the liquidity reserve remained very solid at $1.2 billion. Net debt to EBITDA remained at a three times, mainly due to the clearly positive free cash flow generation. Whereas return on invested capital turned out slightly lower due to the somewhat lower result compared to prior year, as that especially attributed, or more than that, attributed to the write-down of our stock of bunkers in our vessels.
Now, having a look at some important more operational KPIs, Q1 revenue increased noticeably on the back effect of higher transport volumes and slightly higher freight rates, and in spite of the good revenue trend, EBITDA and EBIT were below the previous year levels. This decline is exclusively attributable to very volatile bunkers price developments and respective valuation effects. As a direct result of the introduction of the IMO 2020, at the beginning of the year, our average bunkers consumption price increased sharply in the first quarter. Following the rapid drop in oil prices at the end of Q1, we incurred an extraordinary charge of $64 million due to the devaluation of bunkers stock to market value. Without the devaluation of bunkers stocks, EBIT would have been more or less at previous year levels.
In addition, the COVID-19-related financial market turbulences impacted our group profit as a non-cash effective devaluation of the call option on our outstanding bonds, and interest rate swaps resulted in a negative change of $37 million in total. Now, the transport volumes, which grew by 125,000 TEUs, or 4.3% compared to Q1 2019. Almost all trades contributed to that development, despite the fact that there was a coronavirus outbreak in China at the beginning of the year, especially the Middle East trades, mainly due to the start of two new services in October last year, as well as the Latin American trades have contributed to this positive development. North, Far East, and Intra-Asia volumes have been affected in Q1 due to the outbreak and spread of the virus, and therefore showed a negative growth compared to last year.
Nevertheless, at the end of Q1, we have also seen a starting slowdown of the volume development in other trades, which is already now clearly visible for the upcoming couple of weeks, at least. While average freight rates in Q1 increased marginally by 1.4% year on year to $1,094 per TEU, it was not sufficient to compensate entirely for the higher bunkers expenses. Our average bunkers consumption price increased sharply by 23% year on year to $523 per metric ton, resulting from the IMO-related higher price of used low sulfur fuel since the beginning of the year. Effects from the declining oil and bunkers prices will only be seen to a larger extent, we have to say, in Q2 this year.
Bunkers expenses per unit rose substantially by $61, or 40%, which was mainly driven by the IMO 2020-related use of low sulfur oil since the beginning of 2020, even though it seems almost eight years ago. But prices of low sulfur fuel oil peaked in Singapore, for instance, at around $700 in the first half of the quarter, which drove up average bunkers consumption price for Hapag-Lloyd quite significantly. In addition, the sharp decline in fuel oil prices and therefore in bunkers price at the end of the quarter led to a devaluation effect of our bunkers stocks on our vessels in the amount of $64 million, or $21 per TEU, respectively.
Except for the higher bunkers costs, transport expenses have been reduced by roughly 1%. Handling and haulage, as well as equipment and repossession costs, declined due to stronger U.S. dollar and favorable portfolio mix. Effects of the low share of Far East trades resulted in less inland business share and lower container repositioning costs. The decrease in expenses for vessel and voyage was mainly due to voyage savings on the Far East and Trans-Pacific trades, as well as lower share of ships chartered on a short-term basis. In contrast, depreciation and amortization increased slightly due to a higher number of ships chartered on a medium-term basis, and compared with the previous year, as the corresponding right of use had to be capitalized in line with IFRS 16. Pending transport expenses increased due to more pending voyages as compared to the prior year period.
Our underlying financial result improved thanks to interest rates and debt volume reductions. The interest rate effects were also related to a LIBOR reduction, for sure. However, the financial market turmoil in March led to a considerable drop in the price of our outstanding bonds. Consequently, the embedded early termination options lost strong in value. This negative valuation effect had to be recognized in our P&L. In addition, falling interest rates resulted in a negative valuation of our UASC legacy interest swaps. In total, the negative valuation effect summed up to around about $37 million in total. The free cash flow at $302 million, our cash generation in Q1, remained quite strong. Investments were primarily related to containers, ship equipment, and retrofitting of ships to ensure compliance with IMO 2020.
For reasons of financial prudence and safety, we decided to draw down $400 million out of our unutilized RCF in order to minimize risk from increased financial market volatility due to the crisis. The borrowed funds were invested with banks with high ratings and have no impact on net debt. With a reported liquidity reserve of slightly more than $1.2 billion, we are very well prepared for even worsening market conditions. Even though the RCF drawdown led to an increase in gross financial debt, net debt reduced slightly to a positive free cash flow generation and an increase in our cash position as a result of the drawdown. Net debt to EBITDA based on an LTM last 12 months calculation remained unchanged at three times due to a slightly reduced net debt and solid Q1 2020 results.
Equity increased slightly to EUR 7.5 billion, and equity ratio remained stable, slightly above 40%. In sum, we have done our homework, we can say. Our balance sheet remains very stable, and we have secured a strong liquidity position. So we are well prepared for a difficult time to come this week and months ahead of us. And with this, it's the right time, I would say. I would like to hand back to Rolf to comment on the recent market developments and present our present or forward-looking perspective.
Thank you, Mark. I think maybe a few words also on market and demand. I think it's pretty clear that the coronavirus is heavily affecting the world's economy. That's not a surprise to anyone. If we look at the latest forecasts that are out there, whether it's the IMF or Clarksons or also Drewry, he came out with some numbers, then I think it is not the consensus seems to be that we're going to see a decline in container volume this year of around about 10%. We tend to think that based on what we see, that that's not so far off. How do we expect to see that throughout the year? I think we see a pretty steep decline right now in the course of Q2.
We expect it to run somewhat into the third quarter, and hopefully we'll start seeing somewhat of a recovery in the course of the third quarter, and whether that's then going to be July, August, or September, I think is impossible to say at this point in time. With some further improvements throughout Q4 and quite likely a fairly solid recovery in 2021, although in fairness, we will only be able to judge that freely in about six months or so from today, so a pretty big challenge for everybody and certainly for this industry. I would say, though, that there are also some important differences to the crisis we had in 2008 and 2009, which makes us probably a little bit more optimistic when we look further ahead.
Because the big difference is definitely that the order book that we are having today, which is round about 10% of the global fleet today, is very, very different from what we had in 2008, 2009, when we had an order book of about half the global fleet, which, of course, then brought us into a long period of significant overcapacity post-2009. I think that situation is today very different, also because we at the moment see very few orders, if any, and one would expect that also to remain like this as nobody's looking forward to having a huge CapEx program in a situation like this. So all in all, I think the environment in which this unexpected crisis has been hitting us is very different from what we have seen 10 years ago.
And that still means that we have to do a lot over the upcoming months and quarters to manage this crisis. But I do think that the likelihood that we'll see a bit better recovery over the upcoming couple of years is higher. What do we do? We have to adjust capacity to lower demand, simply because we have to cut costs. If 10% or 15% of overall volume drops away, you have to take costs out. And it's very clear that that's also what we are doing together with our partners. And probably everybody sees more or less the same. So that's why we try to paint a picture here based on publicly available data about how much capacity is being removed. You can read all about the whole range of savings and everything in the press every day.
I think in reality, that also means that net capacity growth in the industry across 2020 is going to be negative in the end. If we also look at ourselves, we have a fair amount of charter ships in our fleet, and we do intend to return a double-digit number of ships until the end of this year, which in the end will also mean that the capacity that we deploy as Hapag-Lloyd towards the end of this year will clearly be lower than what we had in 2019. Does that mean that we cannot react? No, we can react. I think if you look at where we are right now, then I think we try to adjust our course pace to the demands that we see. We are, however, also prepared to scale up again quickly if and when things return.
The big question is, of course, how quick and when will that recovery come? Right now, our expectation is probably more that we're going to see a recovery, but it's not going to be V-shaped, so it's not going to come from today to tomorrow, but it will gradually come in the course of the second half year. What did we do to react to that? To react to that, we launched, as I mentioned in the beginning, what we call the Performance Safeguarding Program to protect us against the downside and to make sure we safeguard our earnings and liquidity. I would say four components here, and I'll talk mainly to the first three there. First and foremost, cost savings. We had to take costs out of the system because of the drop in demand.
That means that we have taken substantial capacity measures. I think in total, we have changed about 50 of the 120 services that we have. That's a big operation that is still ongoing right now, but it gives you a bit of a flavor of how substantial that is. Apart from that, we have been looking at every single cost category that we have to try and see what we can do together with our partners to bring those costs down. In the end, we do expect to see savings in the range of a mid-three-digit million U.S. dollar figure. And that is a number that is then excluding the effect that we see from a drop in the oil price. We also look at investments. Right now, clearly no commitment to purchase vessels.
I think it's not a secret that we have been looking at possibly ordering some ships at some point in time. We have not taken that off our agenda, but we are definitely not going to commit to an order at this point in time, as we first need to have more visibility about how and when we are all going to get out of this crisis. In addition to that, because we have lower volume, we can also curtail some of the other CapEx so that in the end, we will likely be able to curtail our CapEx program with a three-digit million, a small three-digit million U.S. dollar figure. In terms of financial contingencies, we have a little bit more on that on the next page.
We have drawn down some money from our RCFs, and we have taken also further actions to enhance our liquidity so that even if the crisis lasts longer than we think at this point in time, we are well prepared for that, and then we are also looking at what kind of government support there is, but at the moment, we don't expect to need any extraordinary government support, as the measures we've taken on profitability and liquidity should safeguard our financials in the weeks and months to come. Very quickly on the financial contingency measures, we reported a liquidity to you a little bit earlier of around EUR 1.2 billion. In addition to that, we can draw down on existing credit commitments if we want.
We have some additional funding in the meantime available and have also secured some additional credit commitments, which means that on top of the reported liquidity, we would, if we needed, have an additional liquidity available of round about $700 million. In order to optimize our short-term repayment profile, we've also extended the existing CES facility, which we had with six months. All in all, I guess the message here is that we've been proactive to create some additional buffering in our liquidity. We have been able to do that, but we're not drawing on all of that yet because for now, we don't expect to meet that in the upcoming months and quarters, but it's always better to be prepared if things come worse than we expect. That brings us to our earnings outlook.
We clearly need to point out that that outlook is subject to considerable uncertainty due to the crisis, but based on the premise that the pandemic will peak in the second quarter and that we will start seeing a gradual recovery from somewhere in the third quarter and then also a bit better towards the end of the year, we do believe that our guidance still holds, whereby the two things that we do see different today than before are that volume will go down if we look at the entire year, and we also expect, based on what we can see today, that our average bunker price will also be below what we have seen last year, and unless the recovery comes much earlier, then it's not likely that we will hit the upper end of our guidance.
We do feel, however, that we should uphold our guidance that we have given to you as we close the year, also because the outlook as it is today is probably not that different from what we saw six or eight weeks ago, as this quarter at least largely seems to unfold as we had expected. So what are our priorities for the upcoming couple of months? First and foremost, ensure the safety of our employees and make sure that we continue to support our customers to safeguard their supply chains. That's probably even more important these days than under normal circumstances. Make sure that we implement the Performance Safeguarding Program and take also the necessary measures to take out costs. Make sure that we keep on track to execute our strategy.
And we're now gradually going to pick up a number of projects again so that we can mitigate the delay in implementation of any of the projects to a maximum of six months. We'll continue to follow a conservative financial policy with a very clear focus on cash. And of course, we'll also continuously monitor what's the global economic impact of this pandemic and will adapt to changing market conditions if and when required. That brings us to the end of our introduction. And with that, we would hand it back over to you and to the participants for questions.
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 are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. Sathish Sivakumar with Citigroup, please go ahead.
Sathish, if you look at the pandemic, right, so all that progressed in different parts of the world in various stages. So now we are in some parts of the world, we are still locked down, but some parts of the world have come out of the lockdown measures. So on that point, what are you seeing as the volume trends by different trade lanes across markets? And also, are we seeing any modal shift in volumes between Air and Sea? Secondly, what is the exposure to reefer? And could you quantify the trends between dry cargo and reefer volumes? That would be helpful. Finally, an update on the shareholder structure. And also, there has been a recent news that local regulator is looking into the share price move. Could you just give an update on that? That would be helpful. Thank you.
Let me try and take your questions. I think your first point was on the COVID-19 pandemic and that it's affecting different parts of the world at different times. I think that's exactly the way we see it as well. What we saw, of course, that initially volumes out of China came almost to a standstill post-Chinese New Year. That took four to six weeks because before that, we recovered to more or less a normal level.
I think now we're going through a different phase of this pandemic as also Europe, the U.S., and South America get impacted, which means that rather than a supply issue, which we had in the beginning, as Asia is actually coming out of the crisis the way it looks right now, reasonably well, we now see that it's becoming more of a demand issue because we see consumer confidence and consumer spending in Europe and the U.S. going down. So to answer your question, we saw initially a lot of volumes down from China. Those have recovered four to six weeks after Chinese New Year. After that, we see more impact on the demand side, which means that demand from most of the mature markets and say Europe, U.S., Latin America, but of course also after the lockdown from India, the demand has come down.
That has now started to impact flows. If we look at what is the impact, I think the four-year outlook was surprisingly not so wrong. If we look at Hapag and Q2, we are looking at a small double-digit percentage when we look at how much volumes are down. Your question on reefer, what's our exposure to the reefer segment? I mean, our ambition on the reefer front is that we take about 10% of the global market. We are not entirely there yet. If you look at what it represents of our global flows, then I think we're hovering around 8% or something like that. Then there was a question on share price development. I can't comment on that because I know as much about that, about what is causing that as you do.
Okay. A couple of follow-ups. Following on my first question, where you said demand has actually come down, if you could comment on the inventory levels across your customer base that you are seeing right now, that would be helpful. And secondly, on the second question on the reefer, could you just help us to understand the volume growth between dry cargo and reefer volumes in the current quarter?
Yeah. I mean, I think on inventory levels, I mean, it's very difficult to judge the inventory levels at our customers. It's probably also very different when you look at it across multiple industries. I think there's quite a lot of disruption in supply chain. So I think inventory levels as such will not tell us all that much. I would suspect that most of the reefer inventory levels are fairly high because spending has just come down and goods have continued to come in. I think we've seen that on automotive, that volumes have been down very significantly as a number of factories have been shut down. I would expect that to slowly but steadily come up again. I think those are the main ones that would stand out.
As far as your question on reefer is concerned, if we look at year on year in the second quarter, then reefer volumes are not down, whereas dry volumes are down, as I said, in a small double-digit percentage
Okay. Thank you. That's helpful.
Next question. Thank you. It was coming out blank. Please go ahead.
Hi, gentlemen. Good morning. Actually, three, four questions from my side. First of all, on your outlook for Q2 volumes, it seems that you seem to be a little bit more optimistic than one of your main competitors, Maersk, is seeing the quarter developing to some degree. I mean, as we rightfully said before, the point is that the route mix is probably a bit shaken up by overall the situation. So I was nevertheless wondering if you see yourself more protected on the route mix that you still see going into Q2. What are the elements? Why should it fare comparably better? The second one is on consolidation in the industry. I mean, we're probably taking a hit in Q2 quite substantially. However, it seems that bunker is obviously support for everybody at the moment. Nevertheless, there might be some weaker players there.
I just wondered whether you had already a view on what you think consolidation would look like throughout the year in the industry overall, and then a question. I know it's very hard for you to comment on the share price development. I mean, there were some articles stating that BaFin is actually looking into development. I was just curious to hear whether you think that is kind of a, I'd say, routine and there's probably nothing that much that should come out of it. Have they contacted you? Is there already some communication ongoing between the company and BaFin or what's the proceeding here, and then I might have follow-up.
Maybe take the last one first. No, we have not been contacted, so there's no exchange going on, and I consider that a routine question that I will probably also ask in terms of if I were in that shoes. In terms of consolidation, I don't expect to see a lot of things happening there anytime soon. If the crisis is going to last more than six or nine months, then yes, then that situation might change, but I don't expect anything materially to happen there over the upcoming couple of months, but of course, we can be surprised in terms of Q2 volumes. Yeah, maybe. I don't know. I mean, I cannot comment on North obviously because you have to ask them.
If we look at how our bookings are and how our loadings are, then I think a small double-digit decline compared to previous year in terms of volume in Q2 looks likely. And yes, we're not at the end of June just yet, but quite a lot of it is being loaded or booked at this point in time. So I think that's a fairly accurate estimate from our camp.
Actually, do you think that already your initiatives towards a, let's say, full service on the hinterland transport actually just pay out for you already in the current situation? And the second question on what you were referring to, charter, I mean, how should we think of it? I'm just curious to hear how you ramp that potentially down because you probably have two options. One is really bringing all the charter volumes or supply volumes down that you currently have or phasing out some of your older vessels that you own. What is actually the prerequisite that you decide for one or the other?
I think your point on your first question on the hinterland, that actually in fairness does not play a major role at this point in time. If we are discussing the volume development, I don't think that has a major impact on it. Your point on charter, I mean, there in the end, what we try to do is because we need less ships at this point in time, so we try to return as many ships as we can, and that's where the charter ships were. Of course, most of them are chartered for a short time and give us the best opportunity to do that, and as we need to save cost at this point in time, whatever we can redeliver, we will redeliver.
What are the usual? Can you remind us on the usual charter term durations? Actually, how long is that?
It depends. I mean, we have charters that last several years, but we have also quite a large number of charters that is well below 12 months. And as such, we think that until the end of this year, we will be able to redeliver a double-digit number of ships, to be honest.
Right. All right. Perfect.
Which is not something we maybe want, but in the end, that's what we have to do. And there's no need to then extend the contracts beyond the terms that we have agreed right now.
Okay. Fully understood. Thank you.
The next question comes on from Sam Bland with J.P. Morgan. Please go ahead.
Good morning. Two questions from me, please. First one is, obviously, volumes so far, I think Q1 is okay, and I think you're giving a guide on Q2. But looking beyond that, I just wondered, you've got quite a large north-south or emerging market exposure. Do you think you could see some weakness in volumes maybe later on in the year from the low oil price rather than COVID as that flows through? And the second one is, if you think about certainly Q2, what's the main area of uncertainty left? I mean, I guess you've probably got a fairly good idea on volume and bunker. So is it mainly just the freight rate that's the sort of missing piece there? And I don't know if you'd be willing to, but if you extended current freight rates forward for the remainder of Q2, how do you think it would look?
Thanks.
I mean, I guess maybe your first point on volumes. I mean, there's a lot of speculation going on right now about what's going to happen on volumes. I think one of the things we see in this crisis is that it tends to sort of move around the globe. Initially, we started in China. Then we saw a pickup. Then it started to impact Europe, initially mainly Italy and Spain, where we now see again some early signs of life, that the economy is starting up again. I think we're going to see more of those types of patterns, and whether in the end, the north-south traffic will be impacted much by oil price, I don't know.
I do think that weighing in everything, that our assessment that we're going to see a gradual recovery in Q3 and then later on in Q4 with some further move, I still think that's a most likely scenario at this point in time. Then your second question was on freight rates. I mean, freight rates are always difficult to predict. I would say this time it's almost impossible to have a look at that also because we see patterns changing. We saw, for example, surprisingly strong volume from Europe to Asia, whereas it was weak the other way around. So right now, that's very difficult to predict and also somewhat volatile. So difficult for us to comment on that.
And as such, I think you can appreciate that under these circumstances, that nobody basically is able to give a decent estimate at this point in time about how the current quarter will look as we still have about six weeks to go. And just if you draw the parallel with the first quarter, if we would have had to make an outlook on the first quarter at the end of February, we probably would have been very far off. So with all the uncertainty that there is right now, we'd better stay on the cautious side.
Are the other inputs around volume and bunker price roughly known within some kind of level of certainty? So it's mainly the freight rate that's unclear, or is there still uncertainty on the other inputs?
There's also uncertainty on the other inputs because, I mean, people talk a lot about some of the areas where we have dealt with, like for example, with the bunker price, which has definitely come down, but we forget that there's also a lot of extra costs. I mean, we have ships idle. We've had to reroute ships. We have difficulties because we need to do port omissions because they close. I mean, there's a lot more disruption of the schedules, and the exact impact of all of that is, at this point, I'm actually not so easy to assess because that takes some time before it gets through the system, so I think to answer your question, there's certainly a bit more uncertainty around that as well. I mean, we also have this Performance Safeguarding Program that we talked about.
How much of those effects will already come in Q2 and how much of it will only come later? I think we're at the moment working through that. If we weigh that all in, we still think that our guidance for the full year holds. How that, however, will be spread across the various months and the various quarters, that certainly has a lot more uncertainty.
Okay. Understood. Thank you.
The next question comes from Frans Hoyer with Handelsbanken. Please go ahead.
Hi, this is Frans. Thank you very much. Just, I wanted to make sure I understood the slide with the fuel consumption. Was it 1.106 million tons of consumption in the first quarter? Also, a question regarding the deployed fleet you mentioned, blank sailings. Are you able to say how much your deployed fleet, how that developed in Q1 versus Q1 last year? Might as well just do the rest of my questions if you don't mind. You mentioned 64 million of write-down on the inventory. And I guess that will have. I'm thinking, where in the P&L does this show up in terms of the bunker bill? Therefore, the fuel price of 500 and something includes this charge in Q1, I guess, but maybe you can confirm. You talk about shortages of equipment and hiring in boxes. That's going to imply some costs, I suppose.
Are there any ways that you can mitigate that and offset it perhaps? And then I have a question on did you mention what your volumes did in April in terms of contraction versus April last year? That's it, really, for the moment. Thank you.
Okay. Let me try and maybe start from the back here. And then Mark will take, I think, the few questions. I mean, in terms of, we didn't comment on the month of April individually, and we will also not do that. I gave you a comment on what I expect for Q2. And you should assume I said a small double-digit percentage down. And I think you should assume that we do that based on the bookings and loadings that we see so far. Your second question was on the boxes that we on hire, whether that gives us extra costs. And the answer to that question is, of course, yes. Yes, that does give us extra costs.
I think it's just an illustration of what I said before, is that on the one hand, we see some costs coming down, for example, because we have lower fuel costs. On the other hand, we see costs going up because we take on more boxes. We have more idle vessels. We have more disruption of the schedule, etc., etc. So that's why it's a little bit difficult at this point in time, as we're just eight weeks into this, to give an accurate outlook for the entire quarter. And then in terms of fleet, before I hand it over to Mark on the fuel, I think the number of ships we deployed in Q1 was slightly higher than what we had a year ago. I don't know the exact number, but I believe it was about 10 ships more or less.
Okay. Thank you.
Mark
Yes, Frans. Coming back to your question on the $64 million write-down on our stock, on our fuel on the vessels, so to say. So overall, you can see that in overall transport expenses, they increase year on year over $200 million. And a big part of that is for sure the higher bunker price, especially for the north-south fuel. But also, and that's right in there, the devaluation of our stock, which is for $64 million. So in total, it's in transport and there's in the bunker cost overall.
And there was no offset by way of any derivatives gain? Did you offset this particular risk in the paper market?
Good question. Seeing the discussions over the last couple of days, but no.
Yep.
Okay. Thank you very much.
The next question comes on Parash Jain with HSBC. Please go ahead.
Hi. Thank you. I have two questions. Apologies if that has already been answered. First, looking at the second quarter's run rate with respect to volume and the capacity, can you give us some sense that it is fair to assume that second quarter likely will be a tough quarter, although there's not a great deal of visibility going into the third quarter? Secondly, with your discussions with your customers, do you get a sense that the global trade of the last four months is piling up in the ports or the warehouses or at the stores? Even going into the next few months, if the lockdown eases worldwide, probably that inventory will be consumed first before the global trade resumes. Does any sort of recovery push forward towards the later half of the year?
I mean, I think to your first point, I think your first question was, are you able to give an outlook on Q2? No, we're not able to give an outlook on Q2. The only things we can see right now is that bunker price is down, volume is down, and we face a fair amount of disruption also in our network. Having said that, when we look at where we are today, we've also said that we've also reconfirmed our guidance. So that should give you also those things. That's probably what I can say about it. Volume's down, bunker price is down. If we look at it overall as a full year, we still think that our guidance holds. In terms of customers and volumes, saying we'll store it and first be consumed. I mean, this is very difficult to say.
I mean, if you assume that transportation volume is down, indeed, a small double-digit percentage in Q2, and we also see that the economic growth is down with a similar percentage. That would not automatically mean that inventories are sky high. I think the challenge here is that it's going to be a very differentiated picture between various industries and various sectors. I mean, in the reefer sector, I would also not be surprised if there's some overstock here and there. On the other hand, if I look at the automotive sector, which came to pretty much a standstill over the last couple of months and a lot of factories closed, I would also not be surprised if at some point in time, they urgently need again their parts, and if we look at foodstuffs, I already commented earlier that when you look at perishables, that continues to flow.
I would not expect to see a major impact on that sector.
Perfect. Just a follow-up question. With respect to load factor, can you give us any sense how this quarter to date has been trending? Given the expectation of volume collapse dramatically, industry, including yourself, has managed to deliver blank sailing. Does it mean that load factor will hover around a similar level as of, let's say, same time last year, or we will see a material decline in load factor?
If you look at, I think one of the charts we shared on the market was an indication of how much capacity is being taken out on the major trades. You see that, I think if you look at it, it's probably 15%-17% or so. I indicated the volume is down a small double-digit percentage. So that means that utilizations are still reasonable. That's just some more outliers than normal because sometimes you have some more disruption. And so every now and then, you have an outlier. But on most of the services, the load factors are still reasonable. And we need that also because we cannot afford to sail with half-empty ships because then your unit cost for those boxes effectively doubles.
Got it. Okay. Thank you.
The next on the line is David Kerstens with Jefferies. Please go ahead.
Good morning, gentlemen. Three questions, please. First of all, your volume was much better than the overall market down 5%. I understand that's partly driven by geographical differences. Is that also the reason why the freight rate development was relatively weaker than the CCFI, or are there other factors that play a role there, for example, your contract positions? And then secondly, on the contract positions, how have discussions with your customers recently been, particularly on the Trans-Pacific in terms of pricing with the new contracts now being implemented? And then finally, on the free float in the appendix, you show had decreased to 3.6%, but I assume that's at the end of March. And I was wondering if you do know what the number is today. Thank you very much.
Maybe we start with the last one because we think that that's largely unchanged. So we don't think there's any change to the free float that we reported in March in terms of contract rates on the Trans-Pacific. I mean, from all that contract season is still ongoing. I think there we see rates around a similar level as we have seen last year. And in terms of your comment on volume and freight rates, I think you're spot on. I mean, one of the things we have seen in the first quarter is that we saw in a number of cases some lower headhaul volumes that were actually compensated by higher backhaul volumes. And backhaul typically has a lower rate, so that pushes the average somewhat down.
And that's also why it's always very difficult to look at volume, freight rates, and all these things in standard isolation, even if, of course, that's easier if you want to model where we want to go. But I think your point is spot on. There's a significant mixed effect in that as well.
Thank you very much.
The next question is from the line of Robert Joynson with Exane BNP Paribas. Please go ahead.
Good morning, everybody. Just a couple of questions from me, please. I noticed that you agreed a slot charter agreement with the 2M Alliance a few months ago, which provides access to its Asia services that sail directly to Scandinavia and the Baltics. Could you maybe just talk about the rationale for that? And in particular, is it partially intended to reduce costs by avoiding transshipment charges in North Europe? And then just a related question. Both the 2M Alliance and the Ocean Alliance have been sailing Asia services directly to Gdańsk in the Baltics for some time. THE Alliance potentially do the same in the future, or are you happy to continue to use feeders and slot charter agreements to continue to serve that market? Thank you.
Yeah, I guess the answer to questions actually is indeed somewhat related. I mean, we entered into the slot charter agreement with 2M because we felt that would give us better coverage indeed into some markets. And to your point, that gives us more direct connections, both at origin but also at destination. And as such, should allow us indeed to avoid some transshipment. So that has indeed been one of the important reasons to do that. In terms of what we will do THE Alliance, there's every now and then some talk about whether we should have a direct calling into those markets. I would say though that given the current market circumstances, the likelihood that that will come anytime soon right now is pretty low.
Okay. That's clear. Thank you.
The next question comes from Lars Heindorff with SEB. Please go ahead.
Yes, good morning. Also, a couple of questions from my side. It's a follow-up on the earlier capacity issues. The first one is regarding the deployed capacity in the first quarter. As far as I can calculate, your nominal capacity is up by 2%, but you've been quite explicit about it here on the call that you have actually been cutting out and idling quite a number of vessels. Can you say anything about how much the deployed capacity is down in the first quarter and also maybe what you expect it to be in the second quarter? And then the second one related to that is the cost of idling. Surely there are still some costs related to idling a vessel, but overall, if you can say any sort of rule of thumb about how much savings that you can generate from idling a vessel compared to operating it.
I think, first of all, your question was about how much capacity have we taken out. I don't, to be honest. The only thing I can do is, compared to the plan that we had for Q1, I think we took about 3% or so out, 3-4% of capacity. If we look at Q2, that will be considerably higher. I think we will be in a double-digit % there, and as far as your costs are for, if you want to have a proxy for what something still costs if you're idling, I mean, that's very hard to say because you have so many different ship classes. Also, when you look at charter rates and all these things, it depends on which trade they are active. So I think that's a very tough question to ask.
The thing I would say, though, that is when you look at the cost of a ship, then you would typically save between 50% and 60% of the annual cost if you idle it.
Okay. All right. That's helpful. Thank you.
That was the last question for today. Please direct any further questions to the investor relations team. I hand the conference call back to Rolf Habben Jansen for closing remarks.
Okay. Not much to add from my side. Thank you very much for taking the time, and look forward to speaking again soon. Thank you. Bye-bye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.