Ladies and gentlemen, thank you for standing by. I am Haley, your Chorus Call operator. Welcome, and thank you for joining the Hapag-Lloyd Analyst and Investors Conference Call on the results for the first nine months, 2019. Hapag-Lloyd is represented by Rolf Habben Jansen, CEO, Nicolás Burr, CFO, Heiko Hoffmann, Head of Investor Relations, as well as Anna Neumark from the Investor Relations team. 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 thank you everybody for joining and welcome to this call. Let's get started. Maybe if we go directly to page 2 of the presentation, a couple of opening remarks from our side. I think in terms of highlights, we could say that when we talk about implementing our Strategy 2023, I believe we are on track. When we look at freight rates and volumes, we're about 4% up so far this year in terms of rates. Our transportation volume is up only 1.2%. I'd say, though, that if you exclude for a minute Intra-Asia, where we on purpose have reduced our exposure to some of the markets, we're actually looking at a growth of about 2.7%, which we think is roughly in line with market. When we look at unit costs, that is stable and despite some more higher bunker costs.
In terms of the market, I think it's clear that there is a weakening of the global market. Having said that, we don't see any volumes falling off a cliff. As such, we still think that the longer-term trends are intact. The order book remains healthy, with only a few orders placed this year. Of course, the net growth of capacity is also somewhat impacted by quite a lot of retrofits that are being done by us and some of our competitors. Looking at the financials, we see our EBIT roughly doubling compared to the same period of last year. Group profit up quite a lot and also worth highlighting very strong free cash flow with a cash conversion of even slightly above 100%. Looking ahead, we expect our EBITDA and EBIT to end up in the upper end of the guided ranges that we published earlier.
We expect to see a fairly smooth transition into IMO 2020, as we see that the fuel that we need is increasingly becoming available and being secured. Apart from that, we'll of course continue focusing on implementing and executing the strategy that we decided on last year. Looking at the highlights of the first nine months in numbers, I already mentioned transportation volume, freight rate, and group profit. Transportation expenses, pretty much flat. EBIT, very healthy. EBITDA margin, close to 16%. A solid liquidity reserve. Equity, slightly above 40%. Net debt coming down with us having paid back about $800 million or a little bit more than $800 million of debt in the course of the first nine months of 2019. When we look at our strategy, we've always set ourselves three overarching goals. One is to remain a global player.
The second one is to be profitable basically every year. Our aim to become number one for quality. We try to illustrate on this page a number of things to underline what we are actually doing. I'd say that our market share is fairly stable around the 10% that we are aiming for. Yes, we are strengthening our position in some markets where we believe that we can do a little bit more. On the other hand, we're also reducing our exposure in some places where we don't think we can make enough money. In terms of the financials, most of the numbers already mentioned. I would say, though, here that the fact that we have, again, been able to reduce our financial debt by about $800 million is a real highlight of 2019.
That also means that our net leverage has improved to 3.2, excluding the effects of IFRS 16, which is ahead of plan. In terms of cost management, we're definitely on track and we also see increasingly the benefits of doing revenue management. On the quality side, worthwhile mentioning good progress in establishing our quality service centers. We see this also now starting to be reflected in the scores that we get from our customers as we see that our the feedback on customer satisfaction has been very good recently, and we see also our Net Promoter Scores going up. In terms of cost management, there we are definitely on track. I would say when we look at our plan to achieve $350 million-$400 million in 2021, I think we're very confident that we are going to achieve that. Whether there will be upside on that remains to be seen.
I believe that we will be able to say something more about that after the closing of 2019. When we look at markets, I already mentioned that market growth is definitely slowing. Here we see an outlook for this year of around 2.2%. I guess we shouldn't forget that especially when we look at the second half of the year, we compare against some very strong numbers that we have seen in 2018, both globally but also for Hapag as a whole. If we end up the year with an underlying growth excluding Intra-Asia of 2.5% or 2.7%, I think that would actually be a good result, even if admittedly somewhat behind plan. Outlook for next year is slightly better at this point, but I'd also say that there's still a fair amount of uncertainty around that.
I mean, we all read the press, and it's certainly not all smooth sailing out there. Looking at the order book at an historic low of around 11%, with again very few orders being placed in 2019. Idle fleet creeping up a bit, mainly driven by scrubber retrofits. I think one should expect that the idle fleet remains fairly high over the next number of quarters, as we see that most of those retrofits actually take a little bit longer than originally planned. As such, that might actually drag into quite far into 2020, and probably also still into 2021. If we combine that with an expected increase in scrapping, I think the outlook for the industry, certainly when you look at the supply side of things, is actually fairly healthy. What will happen on the demand side is always the big question.
I'd still say that a growth of a couple of percentage points every year remains, I would say, still the consensus and also our expectation. That would mean that we should be in for a couple of reasonably healthy years. With that introduction, I'd hand it over to Nicolás, who will talk us through the numbers.
Thank you, Rolf. Good morning, everybody. Here we have a little bit more in detail the P&L on the main KPIs. In the first nine months of the year, we increased volumes, as Rolf commented, 1.2%, driven by Atlantic, the Far East, and EMEA trades. A little bit compensated by the Middle East, in which we have grown a little bit lower this year. The conscious decision of taking out capacity in the intra-Asia trades, as Rolf commented. Freight rates went up 4.2% compared to last year, and this is the reason why you see our revenue increasing around 5%, in an amount of $513 million. The bunker is up 5%, but the ex-bunker rate remains positive compared to last year. That's basically one of the reasons of the big jump in the result compared to 2018.
In summary, when you look at the EBIT result, which has a positive effect from IFRS 16 of around $26 million, as you will see in the next slide, million dollars. We have an important improvement of $365 million, almost double or even kind of roughly double the profit that we made last year. This is explained basically by a better ex-bunker rate and also higher volumes. This led us to an EAT of $333 million in the first nine months, which is still, as you know, affected by some one-off that we had in the last quarter due to the payment of the bonds. That amount is around $25 million plus an IFRS 16 effect of around minus $30 million in the bottom line. That is important to be considered when you compare to 2018. That's basically the explanation of the first nine months in terms of the results.
Here we have. In the next slide, we have the effects of IFRS 16 that I have already commented. Going to the next slide, a little bit on volumes. As I and Rolf commented, 1.2% volume growth. Here graphically, you see the effect, in the case we take out the intra-Asia trade. We grow 2.7%, which is roughly with the market, mainly driven by a healthy growth in the Atlantic, the Far East, and also EMEA trade, that are the North-South, Europe to Africa mainly, and Oceania. The next slide you see a little bit on a little bit more details on rate. You see the 4.2% nominal rate increase the first nine months of the year compared to last year. The bunker on the line below is the bunker evolution, going up 4.7% year on year.
As I just commented, the ex-bunker rate is still favorable compared to last year, when you look at the two components, the nominal rate increase and the bunker evolution. A little bit on the unit costs. I think it's a positive message. We have pretty much a flat unit cost compared to last year, despite the bunker going up $4 per TEU. We have here the IFRS 16 effects, and that's the reason why we have included depreciation in order to compare. Here you have handlings and haulage that went down $17 per TEU. Here, we don't have any IFRS 16 effect, but the reason for this is basically the fact that we have decided to make less. We have cut a little bit the volumes on inland in order to optimize the portfolio.
Of course, the intention of the company is to continue increasing that after we have optimized the portfolio. This year is a year of transition in that respect, and therefore led us to a slightly lower percentage of inland. That's something to be corrected in the future in as we optimize the portfolio of our portfolio business. Also we have some effects in that $17 per TEU. The reason why we have an increase in cost in equipment and repositioning is basically the IFRS 16 effect. Actually, in equipment and repositioning, we have had an increase in cost because the imbalances are higher in Europe and in North America. That is basically compensated by a higher depreciation compared to last year due to the fact that we have the IFRS 16. A lot of leases are classified as depreciation when we pay them. That's basically a summary on unit costs.
If we go to the cash, a couple of highlights that seem positive in general. Our operating cash flow is $1.72 billion. That represents basically 100% conversion from EBITDA. When you take out the IFRS 16 effect, we have $1.3 billion of cash generation, which is basically what has allowed us to continue repaying our debt and deleverage in the company. In the investment cash flow, you see a total of -$244 million, which is composed basically of fixed assets, $313 million, which is basically containers and some vessel investment. Compensated by some disinvestment that are related to sales of containers that we don't want to reposition, and also the dividend from some subsidiaries. On the financing cash flow, you see a little bit more activity, a lot of effort to pay debt. In total, the net effect is -$1.6 billion.
You see a bond repayment there, and you see some debt intake that is compensating the repayments. In total, we have repaid significant debt during the year in order to continue our path of deleveraging. You see there the interest of around $361 million that led us to a cash balance of $635 million and a regulated reserve of around $1.2 billion. Talking a little bit about the balance sheet. Here we have the fixed assets of around $15.5 billion. There is an increase compared to last year due to a right of use, which is currently at $1.18 billion. We have the equity base there, in which you can see the increase compared to last year due to a profit that we have made, partially compensated by some OCI effects related to pension liabilities, hedge accounting and the dividends that we have paid.
The financial debt also, going down when you take out the effect of IFRS 16, is around $800 million less this September compared to what we had in December last year. Final comment before I hand it over to Rolf for the outlook. I think we have improved even more our indebtedness and leverage ratio to 3.2 now at the end of September. It's a good development from the 5.7x that we had at the end of 2017 after the merger with UASC. We are happy with that result. We've committed 3.5x net debt to EBITDA by two years after the merger. We have fulfilled that target, and we continue working in order to fulfill the strategic target of going below 3x, hopefully very soon.
With that, thanks, Nicolás. With that, we come to the earnings outlook, which many of you will have read anyway. I think when we look at the various components, transportation volume, I think we now expect to see full year growth to be below 2%. As such, the official outlook then becomes on previous year's level. I think one should still expect a growth in line with what we have seen for the last nine months. Average freight rate is gonna be slightly up, bunker price roughly in line, and I think the most important being that we expect the EBITDA and the EBIT both to be in the upper part of the range that we have communicated earlier. That means that, when we then look at what are our major targets for the rest of the year, actually not much change, yeah.
We'll continue to work on increasing profitability and also on further deleveraging the company. We still don't earn back our cost of capital, despite some fairly solid results in the last years. We'll still have work to do there, yeah. We'll continue to also change and adjust if we see changing market conditions. Because in the end, the volume growth is one objective, but the most important objective is that we are also economically sound, and that means that if markets grow faster or slower, we will adjust to that. We're preparing for IMO 2020, as I mentioned in the beginning. We believe that we're in a good position to switch on the first of January or before the first of January, as required, as we see that the fuel is largely available and all the technical things that we need to do on our ships are on track.
As far as the contracts with our customers are concerned, we have secured the needed compensation for higher costs in all of the long-term contracts. We expect also that on the short-term contracts, that those will go up as from the first of December, simply because the fuel that needs to be burned will go up as from that date. That means that cost goes up, and I believe that the most of our customers will also understand and accept that. We'll continue to implement our Strategy 2023 that most of you are very familiar with. We will also continue to put money into digitized solutions, not only for our customers, but also to further improve internal efficiency. That brings us to the end of the presentation from our side, and we'd be happy to take any questions that you may have.
The first question comes from the line of Johan Eliason of Kepler Cheuvreux. Please go ahead.
Yes, good morning. Congratulations to the good numbers. I have just a short question on this shareholder situation. Can you remind us how long this shareholder agreement lasts for the three main owners?
Yeah. The shareholder agreement lasts until the end of 2024 because it was signed for ten years.
Okay, excellent. On the scrubbers, you say you will install 10 scrubbers, and then you have an LNG conversion. I guess these are for the biggest ships and that will basically be on the Far East trade. Do you have enough sort of share of scrubber on that trade to be competitive versus, for example, MSC with a huge scrubber program? I think Evergreen also has a big program, et cetera. CMA is obviously getting a number of LNG ships there. I guess the price model, I think you hinted earlier, was based on sort of the average ship used on that trade, and it might be that the average ship will be scrubber-fitted, implying that you will not get compensated for the 100% premium you need to pay for the low-sulfur fuel. How's the view?
No, it's important here to take a somewhat longer term view because, yes, there are a lot of programs out there. As we move into 2020, there are actually very few ships that are actually equipped with scrubbers today. A lot of ships are undergoing retrofits, also some of ours. That means that also when you look at Alphaliner and others, you'll see that the share of scrubber equipped ships in the beginning will be very low. We'll need to see how quickly that develops further down the stretch. That, I think that'll also be very much driven by what the spread is. This morning, the spread was very high, but it could very well be that in six months that picture is very, very different. As far as our position is concerned, as I mentioned, we have 10 of our own ships that are scheduled to go into retrofits.
We have also some charter ships that are being retrofitted, which means that when you look at our overall fleet, we will probably, based on the programs we have today, end up with 15% or so of our capacity being equipped with scrubbers. That is a percentage that could still change dependent on how markets will develop. As such, I think we're gonna be going through a transition period over the next, probably realistically 2 or 2.5 years, where depending on what happens with the spreads and depending on what happens with these programs and also how technically viable this solution is, and also looking a little bit at what the regulators think about it, we'll come to some kind of new equilibrium.
We are right now not very concerned that that will put us out of the market, if you want. As based on everything we can see, we will actually be competitive also going forward.
Okay, excellent. I think your Danish competitor tomorrow will start talking about the CapEx plans for 2020 and forward. What's your views for the time being?
I mean, I have no view on Maersk's CapEx plan, so.
Okay.
I'm curious to hear what they will say. I think you know we have not been ordering ships for quite a while. I think the last orders we have put in is in 2015. Of course, that will not last until 2040. You know we have always said that we will not order any ships for sure in 2017 to 2019. I also don't think that orders from Hapag are imminent. It would also not be illogical that at some point in time, whether it is then next year or the year after next, that we would be looking at possibly ordering some more ships to replace some of the existing ones or possibly to accommodate some of the growth. We would not be looking at delivery at the earliest in 2022, 2023, I think.
Okay. Thank you very much.
You're welcome.
The next question is from the line of Sathish Sivakumar of Citigroup. Please go ahead.
Yeah. Thanks again. I have three questions. Firstly, on the volumes. In Q3, obviously there is a slowdown in Intra-Asia. Could you just give some color on what is actually driving that slowdown in Intra-Asia? Looking into Q4, where are you seeing strength and weaknesses by trade lanes versus last year? That is, how has been the customer booking so far? That's the first one. Secondly, on the dividend, if you could just give some color on your dividend considering the substantial improvement in results versus last year. Finally, on the shareholding structure, just a follow-up there. What are the measures or conversations that has been taken place to improve the free float?
Okay, let me try and take them one by one. Maybe the first one around volume. I mean, we have seen Intra-Asia being fairly soft in our business. To be fair, that's mainly because we have reduced our exposure to that market. It does not have that much to do with the market as such, but it's more a decision that we have taken to deploy less capacity in some trades. If we look ahead into Q4, we saw the first couple of weeks of October were fairly soft, as we had Golden Week in China. Not softer than last year though, and I think over the last weeks, we've actually seen pretty decent bookings across the board. We have also seen that spot rates are recovering, and I think that's actually fairly encouraging sign.
I would also expect that volumes remain healthy at least until Chinese New Year, towards the end of January next year. In terms of dividend, I mean, we will make a proposal to our supervisory board on dividends in the course of Q1, and also once we know the full year results, so it's too early to speculate about that. In terms of shareholding, I mean, it's good and positive that our big shareholders are committed to Hapag-Lloyd, and as such, they are willing to invest more. Of course, the company would like to have a somewhat bigger free float if we look mid-term, but at the moment, you know, there's not that much that we can actually do to influence that.
Okay. Yeah. Thank you.
The next question is from Tobias Sittig of MainFirst Bank. Please go ahead.
Yes, good morning. Thank you for taking my questions. Two for me. Firstly, on the whole scrubber IMO 2020 discussion, do you have a read on how much capacity is currently taken out of the market due to scrubber retrofits? I mean, you said 4.9% is idle fleet, but not all of that is scrubber retrofits. Do you have any read on how much of the capacity is taken out of the market due to that? And then the technicality, you said you'll charge your clients from December 1, but my understanding is that you only expense the fuel really as of January in your P&L. Can you elaborate a little bit about the P&L and cash flow effects of that whole transition process there? Yeah, those were the two questions for me. Thank you.
I mean, in terms of the capacity effect of the scrubbers, I don't know the latest numbers off the top of my head, to be honest. I believe Alphaliner is actually quite a good source for it. In many cases, those shipments will only arrive in November because a typical voyage would take a month or in some cases even longer. Yes, you are right that in terms of P&L, you'll see it only largely, yes, from January, yeah. Of course, the cash out is earlier, yeah. I mean, how big that effect is, we also see that high sulfur fuel has actually come down, yeah. As such, I think the effect on working capital will be manageable.
Yes, if you are, if you have to buy, like we do, roughly 400,000 tons of fuel or 350,000 tons of fuel per month, and the average cost of that goes up with a couple hundred bucks, yeah, then that, of course, has an effect, and then you can calculate the amount.
Yeah. Thank you.
The next question is from Michael Boam of Sona. Please go ahead.
Hi. I just wondered if you could talk a bit more around guidance. It seems you're guiding to a weaker fourth quarter than last year. Is that sort of what you ultimately expect the outcome to be given, I guess, pre-stocking intra-Asia, so sorry, Trans-Pacific last year? Secondly, when you say the transition is going smoothly, when do you envisage actually putting prices up to reflect the higher fuel costs? Will that be a December event or not?
Maybe to take the last one first, I think, for all of the long-term contracts, we have the formulas agreed with our customers, so those will kick in as contracted, partly, and that generally is between December and January. In terms of the short-term rates, those will be up as from the 1st of December because that's basically when we start burning the fuel. In terms of the guidance, you know, Q4 is typically somewhat weaker than than Q3, which is the peak season. We would also expect that now. Apart from that, you know, we're probably taking into account that there may be some costs that are associated to the transition, IMO 2020. I do not think that you should expect a material deterioration of the result beyond what we had last year.
Thank you.
The next question is from Jayanth Kandalam of Lucror. Please go ahead.
Yes. Hi, thanks. Thanks for taking my questions. Actually, I just had two. One is on a more broader spectrum. Do you see any or do you have any update on how trade lanes are developing because of the U.S. China trade issues? I mean, I know in the past we have talked about it, but nothing much has seemed to have impacted. I just wanted to see if going into 2020 with also the IMO 2020 pressure on pricing to customers, is there anything which seems to be off mark? Second question is just trying to understand what were the changes in working capital in your cash flow. This seems to be quite a bit of cash inflow. A bit of reversal on provisions as well as quite a bit positive. Maybe you could just throw some light on that.
Last question is basically on CapEx. I'm not sure if I saw the CapEx guidance for the full year or for 2020. If you could provide that'll be great. Thank you.
Let me take the one on trade lane development, and then Nicolás will take working capital and CapEx. On trade lane development, I mean, there's not too much to single out there. I think as you rightfully point out, we have certainly not seen landslide changes in any of the trade lanes. If we look in particular at the Asia-U.S. trade, then we have seen some changes in the composition of the trade as volumes out of China have come down. But in return, we've seen volumes out of places like Vietnam, Indonesia and India come up quite a lot. All in all, I'd say that trade is, you know, sort of flattish. That would be what I can say to that. Apart from that, not that much irregularities as you also pointed out. With that, I hand it over to Nicolás.
Yes. In terms of the working capital, we have had a kind of a good quarter, but it's the reason why we had an inflow because of working capital is because less investment in inventory. A little bit is very balanced between the three main categories, I mean, inventory, accounts receivable, and accounts payable. So the three of them added a little bit to have a basically an inflow of around $90 million-$100 million. That's basically the reason. In terms of the CapEx, I'm sorry, but a little bit more, I elaborate a little bit more on that, on that reasons. Inventory is basically price. Accounts receivable is basically management and the procedures that we have implemented, I think improving a little bit, especially in North America.
Accounts payable is something that we also manage always, I mean, as a process. It's basically a balance improvement on the three items. In CapEx, we have said that we are more or less in the neighborhood of 50% depreciation, and I think this year we will not be far away from that guidance.
Thank you very much. It's quite helpful.
As a reminder, if you wish to ask a question, please press star and one on your telephone. The next question comes from the line of Lars Heindorff of SEB. Please go ahead.
Yes, morning. A couple questions from my part as well. First, regarding the pass-through of the low sulfur surcharge. I'm fully aware that you have announced already the formula and that there will be sort of a pass-through, at least for the longer term contract. But on the shorter term, and also on the spot, which you do have a bit on as well, how is the pass-through looking there and are there any customers that are actually demanding concessions on other parts of the package, if you can call it that, the base rate, i.e., in order to accept the higher low sulfur charges? That's the first part. Okay. I mean, in terms of the we announced on the short-term business, there will be what we call the ITC.
Which is the transition surcharge, which will be applicable to all business up to 90 days as from the first of December. Most of those deals are being made and, as we speak, and I expect that we will be able to get that increase. Which is also fair because if you look at a ship that goes today, you know, you basically are sailing on a ship that bunkers for $200 a ton. If you do it in two weeks, then you sail on a ship that goes for $450 a ton. I think that's also something that a lot of people can relate to. As such, I think the fairness of the increase is also there. Yeah. That's why I also expect a good acceptance there in the market.
Okay. The second is regarding maybe a little bit your strategy. You talked earlier in your presentation about the decline in Intra-Asia volumes, which is because you have been cutting capacity there. I mean, there's still quite a bit of growth out there. What is exactly the reasoning behind this change in deployment of capacity?
I mean, we've never been a big, Intra-Asia player, to be fair. Yeah. In this case, we talk about a couple of specific services that we have had and that we've operated for a number of years and where we have been unable to make them profitable. As such, we decided to reduce our exposure to those markets.
Okay. Can you also elaborate whether you have then been moving that capacity to other areas?
I mean, in general, that's why I think we see in most of the other markets, we've just been growing with the market. Yes, we have come up also with a couple of new services. We had a new service this year from South America to Europe. We had a service from the East Med into the UASC. I mean, that's a normal change. I mean, we operate about 120 different services. Every year you will have some that will be stopped and some that will be opened or that will be upgraded. I think we just try to stick there to what we had as a strategy. That's also what guides the decisions on where do we deploy extra capacity and where do we potentially take capacity out.
Okay. Then the last one is regarding a little bit the outlook and also the cooperation in the alliance now that HMM is coming in, and they have and will get quite a bit of new vessels. I think it's from early March onwards. Can you say anything maybe about, you know, how to cope with that kind of inflow of capacity into the alliance? I know that some of if I understand it correctly, some of the smaller routes on Asia Europe is operated by 9,000 TEU, which calls Japan, and I assume that Ocean Network Express will still have to call those. Maybe a few words on how you cope with that kind of capacity.
I mean, the product for 2020 is still being defined. In simple terms, what happens is that HMM will bring their capacity, their new ships into the alliance. All of us will after that roughly grow with the market. Yeah. That means that HMM will probably bring in a little bit more capacity than they will initially need, and that will then help the other partners to also grow with the market, as none of us really takes in a lot of new ships over the upcoming period.
Okay, all right. Thank you very much.
The next question is from Parash Jain of HSBC. Please go ahead.
Hi. Thanks. I have two questions. First, apologies if this has already been answered as I dialed in a bit late. Looking at the free float of the company, as of thirtieth September, it stands at 4.5%. Now, I understand it's the decision of the shareholders, but are the two large shareholders continue to remain active in terms of buying the shares from the market? What's management's recommendation to the shareholder with respect to establishing the free float back into the market? My second question is, looking at the space of M&A and your successful integration with CSAV and UASC in the past few years. Do you see that ONE and Hapag-Lloyd are compatible being part of the same alliance? Is there any reasonable case of Hapag-Lloyd and ONE working more closely going forward, i.e., in the form of mergers that you have done in the past? Thank you.
I mean, first point, we need to cover some of that before. I mean, the free float is around about 4.5%. I honestly cannot comment on whether our shareholders will continue to buy more or not. We just come out of a couple of days with meetings with them, and I can only say that we had some very fruitful and constructive and forward-looking discussions. I think they were all still very much supportive and committed to Hapag-Lloyd. What that means for a free float is not for us to comment on. In terms of cooperation between us and the Japanese, I think there's definitely room to work even closer together between us and the Japanese. I don't think, though, that it is very likely that that will lead to some kind of M&A type of transaction. I just don't see that.
Lovely. Thank you.
The next question is from Christian Cohrs of Warburg Research. Please go ahead.
Yes. Good morning, and thanks for taking my questions. A couple. First on rates. Shippers are said to be eyeing lower contract rates in light of the weaker spot market. Do you see that already negotiations for prospective contract rates adjusted for the IMO effect, of course, are getting tougher? Secondly, there were market rumors that you engage yourself in a new terminal in Tangier. Is that correct? Are you eyeing further terminal investments? Then a question on the GDP multiplier, which is now below one. Can you shed some light? What is the potential explanation? Also, do you expect this multiplier of below one to last into the future? Last but not least, your chart on the cost savings.
It seems that in 2020 there will not be much impact from the cost saving side, but that the remainder is pretty much back-end loaded to 2021. Can you first confirm? Can you secondly maybe point out what have you done already in all this, in all these period of activities like container steering, terminal, partnering, procurement, et cetera, and what is left?
Okay. Maybe let me try and take them one by one. I mean, in terms of rates, I think it's always in this time of year when the customers say that they would like rates to go down next year. I would say that I would like to see rates go up, yeah, next year. You know, not much to be said about that. The market, in the end, will determine what's going to happen. I think when you look at all of the things, then there is probably an equal number of arguments to say that things will go up and that things will go down. Way too early to say anything sensible about that. At Tangier, we did take a 10% stake in the new terminal three in Tangier, because we would like to secure the capacity that we need in that hub.
That does not mean that you should expect a lot more of those type investments from us anytime soon. I wouldn't rule another small one out here or there, but that is certainly not a big part of our strategy. In terms of the GDP multiplier, I think it's longer term, it's probably gonna hover around about one, and that means that sometimes it may be a little bit lower, sometimes maybe a little bit higher. Also a bit dependent on whose statistics you believe. I think to assume a multiplier around about one longer term is a fairly safe bet.
In terms of cost savings, I already hinted in the beginning of the presentation that we are on very good track in pretty much all of the categories that you also mentioned that we feel that there might actually be upside to what we have communicated so far, and we will be saying a bit more about that and maybe probably also a bit more specific when we disclose our full year numbers.
All right. Thank you.
The next question comes from the line of Sheharyar Malik of CQS. Please go ahead.
Hi there. Very quick question. I just wanted to ask in terms of your volume, could you give us a sense for the percentage of that's on long-term contracts, how much is on short-term contracts and how much is on spot? Secondly, if there are any major variations in that split across lanes, it'll be useful to know what that is.
Okay. I mean, yeah, we get this question regularly, and I'll still answer it in the same way. I mean, if you look at what we have as long-term contracts, that is typically between 35%-40%, and then the remaining 60% is fairly evenly split between mid-term and short-term rates. That tends to vary a little bit between trade lanes. You know, whereas, for example, the long-term piece on the Far East trade tends to be a little bit lower. On the Atlantic, it tends to be a little bit higher, where you have also a lot of 6-month rates. On the Pacific, it tends to be fairly high because you have very much there the contracting season and also a number of very large BCOs. In other trades, I would say it's probably round about the average that I indicated.
We have a follow-up question from Johan Eliason of Kepler Cheuvreux. Please go ahead.
Yes. Thank you for taking my follow-up. I was just wondering, considering that 85% of your capacity will be running with this more expensive fuel going forward, how are you thinking about ship speed, slow steaming, et cetera, into your networks next year?
I mean, for now, we don't anticipate any major changes, though in fairness, we have added a couple of ships to some services because we felt that we needed to sail too fast, so we'll slow down a little bit. If you look at the new regulations, I don't think they will result in a massive slowdown across the globe. Of course, you know, as costs go up, there is not a lot of incentive to go and sail faster. If anything, you'll see that we and also others may opt for adding a few ships here and there to loops on the one end work on schedule reliability, but to also minimize the risks of having to do speed ups and those type of things. I don't expect that you'll see a major impact on overall transit time.
Good. Longer term, to meet the carbon ambitions by the shipping industry, do you foresee slow steaming being a major driver on it? Are you expecting speed limits for ships to be introduced in a couple of years? Or how does that look like in your view?
I mean, that's very difficult to predict. I think, you know, what we do is we take all kinds of measures on the technical side to try and reduce emissions. I mean, if you compare the emissions today with what it was 10 years ago, then you'll see that also CO2 emissions per container are down with about 50%, not only with us, but pretty much across the industry. I still think we can do more, and if new types of fuel come in, that will certainly also help. Whether there will be regulations imposed on us around speed limits and those type of things, that's very difficult to judge. I think some of it might come, but then probably only in coastal waters or near Europe or something like that.
I mean, you would have to ask the IMO and other regulators what is going to happen there. There's a lot of talk out there and, but, you know, nothing very firm just yet.
Okay. Thank you very much.
The next question is from Tom Schwarz of Credit Suisse. Please go ahead.
Hi. Good morning. This is Tom Schwarz from Credit Suisse. I have a question concerning some rumors from the French competitor of yours that there were some terminal assets that potentially they wanted to dispose of. Is this something that you have been in discussions with them on this matter? Thank you.
No.
Okay, that settles that. Thank you very much.
We have a follow-up question from Lars Heindorff of SEB. Please go ahead.
Yes. Hi again. Just to follow up on, again, related to the IMO situation. I think you write in the report that 15% of your consumption for the first nine months is low sulfur bunker. Can you say anything about how much the share of low sulfur consumption was in the third quarter? Maybe, given the fact that you said that you're gonna start to burn the low sulfur from the first of December, what kind of magnitude share of low sulfur consumption you expect in the fourth quarter? Maybe a range, if you can give us that.
I don't think there's gonna be any major change in the third quarter compared to what we had earlier on in the year. Yeah. I think when you look at the last quarter, one should expect that goes up quite a lot. Yeah. Especially because that's from, you know, roughly the beginning of December, pretty much everything which we do today on high sulfur will then move to low sulfur. I mean, I wouldn't know exactly what the math would be, to be fair. I would not be surprised if that 15% that we have seen so far, yeah, goes to 25% or 30% when looking at the fourth quarter. To be honest, I haven't done the math. Yeah. I mean.
Okay.
The basic logic being roughly as from December first, we'll start taking in the low sulfur fuel. Of course, as from that moment, that percentage goes up a lot, and high sulfur piece goes down a lot because we will in the beginning only have very few ships that are fitted with scrubbers.
Okay, very helpful. Thank you very much.
Okay.
We have a follow-up question from Jayanth Kandalam of Lucror. Please go ahead.
Yes. Hi, just a quick one on, again, just touching upon the IMO 2020. Just to look at the timelines again, you just said that it's gonna be substantially higher in Q4, especially if you take the December month. Just thinking about the lag, what you usually base on your contracts. I mean, is it something which, I mean, I'm sure you've taken into consideration when you give the full year outlook, but is it something we should think about even going into the first quarter of 2020, especially with, you know, the CNY and the other holidays in Asia? Just trying to understand what would be the short term impact before. You know, assuming everything is fine in terms of pass-throughs.
No, I mean, it's gonna be quite a quick switch because the regulation is very clear. As from first of January, where you're no longer allowed to burn high sulfur fuel unless you have a scrubber. Yeah. What you will see is that the percentage of low sulfur fuel that will hit our books, yeah, will not be so high this year because we do things based on an end of voyage basis, and the number of voyages that ends within 30 days is not the majority. There will be some impact in December, but after that, it will be pretty much 100% as from January.
I get that part, but I'm just trying to understand in terms of the cost for you as well as the recovery from the customer's point of view in terms of, you know, any lags away from the spot contracts, the way you can recoup the costs, what kind of deviation should we see over the quarter?
There's never a zero risk with these things, but in and of itself, the short-term rates are being taken up as from first of December, so that should give us a recovery on the short-term piece. The 90-day rates will, in majority, be renewed as from first of January. For the long-term contracts, the clauses also kick in either in December or January. I don't expect a huge time lag there. Yeah. I mean, you can never completely rule that out. But whereas normally when you see bunker costs go up gradually over a period, you will see a one or two quarters delay before that's fully reflected in the rates. This time it's different because it's a sudden shift and it's a change of fuel type, which gets treated in a different way. I do not expect to see much of that delay this time.
All right. Yeah, that's quite helpful. Thank you very much.
Okay.
We have a follow-up question from Sheharyar Malik of CQS. Please go ahead.
Hi. Thanks for the follow-up. I just wanted to get a little bit of clarification on the vessels that you'll have from the first of December that will have scrubbers and how many will have LNG. Out of the 112 vessels that you own, what I got was that there will be 10 that will be operating on scrubbers from the first of December. I don't know how many will be on LNG. Combined, what percentage of your volume do scrubbers and LNG represent?
I mean, we will not have any ship on LNG until we have converted the first one, which will happen in Q2 next year. That percentage is zero. As far as the scrubbers are concerned, we have a program to go and do altogether up to 19, and I believe that at year-end, the expectation is that we will have 4 or 5 up and running. After that will gradually grow to the 19 that are in the overall program, 10 of our own and 9 on charter ships.
Okay. 10 owned, 9 on charter. That program is targeting 19 by the end of next year, right?
More or less, yeah.
By the end of next year, what percentage of the volume roughly would be on scrubbers and LNG?
Close to 15%.
Got it. Thank you.
This is 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. Thank you very much all for joining, and thanks for all of your questions. Appreciate it. Hope to see or speak to you again soon. Thank you very much. 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.