Hello, everybody. For those who don't know me, my name is Heiko Hoffmann. I'm heading the Investor Relations department of Hapag-Lloyd. It's my pleasure to welcome all of you today to Hapag-Lloyd's first Capital Markets Day. We've been going through an exciting couple of years of mergers and integrations, and now it's time to set our sails for a successful future. How are we gonna do this? Actually, we will present to you today. It's also my pleasure to welcome the entire executive board of Hapag-Lloyd, besides Rolf Habben Jansen, CEO, and Nicolás Burr, who most of you already know. It's also Anthony Firmin, our Chief Operating Officer, and also Joachim Schlotfeldt, our Chief Personnel and Global Procurement Officer, to be very precise on that.
All of them will present certain parts of our new strategy throughout the day related to their respective fields of responsibility. Firstly, I would like to hand over to Rolf and Nicolás to give you an overview over the corporate and financial development over the last couple of years, followed by a new strategy. Afterwards, you will have the opportunity to raise your questions if you have any. Rolf, the stage is yours.
Yep. Thank you. Good morning also on behalf of us, and thank you very much for coming out here in such big numbers. What we'd like to do, as Heiko already said, is first and foremost give you now a little bit of an overview of what actually has happened over the last couple of years, 'cause we do believe that it's important to understand a little bit the context not only of Hapag, but also of the industry when we start looking ahead into what do we want to do for the next five years. We'll take that first section, and afterwards we'll talk about what is gonna be our strategy for the next five years. We believe that that historical context is actually not unimportant.
I mean, as you know, you are visiting today a company that's 171 years young, yeah. Starting 1847, quite a few things happened over the years. We only highlighted a few here and of course you are very welcome to visit us here now in the Ballindamm. But certainly when looking at the somewhat more recent future, I would say that Hapag is continuing to help shape its own future, but certainly in the context also of the overall industry. If we look at what's happened over the last five years, I think there's a number of things to point out, and you can see them here. First of all, we merged with CSAV, which was the end of 2014.
We went public in 2015. We then signed a contract with UASC, a deal that in the end was put together in 2017. Throughout that process, you've also seen that we've done quite a lot to strengthen our balance sheet and to also work on the maturity profile of our debt, which brings us today in a materially stronger position than where we were some years ago. If you look at some key figures, I think that illustrates it actually quite nicely. If you look at the size of the organization, we were close to 7,000 people mid-2014. Now, four years later, we are almost double the size, yeah.
In terms of volume, we move roughly also double the number of containers that we did five years ago. Our ships are significantly bigger, also significantly younger and our revenue has also grown considerably. Of course, this has happened in the context of an overall industry that has changed a lot. Once more the perspective of what actually happened over the last five years. If you look at the last five years, you'll see many people have actually disappeared. The number of truly global players, I would say, is down to six or seven. Of course, those also have a materially bigger chunk of the overall global market than they had before.
Hapag has been very active throughout it, throughout those five years and if you look at where we were in 2013, that was definitely also needed. What did we do? I would say that over the last years, we have definitely leveraged our ability to, on the one hand, integrate efficiency, on the other hand, capture quite a lot of value out of those mergers. We also put out here the one that we did in 2005 with CP Ships. That showed you we delivered significant synergies there of over EUR 200 million on a much smaller scale. With CSAV, we delivered EUR 400 million, and with UASC, we'll even deliver a little bit more. In the end, those are quite impressive numbers.
They also illustrate, however, that when size gets bigger, that the incremental benefits of becoming bigger are actually declining quite rapidly, and we'll come back to that when we talk about our future strategy. What a lot of people have probably recognized less is that when you look at that process that has taken place over the last four years, where we did the two mergers, that we did not only gain scale, yeah, but in that process, we also renewed our fleet, yeah. That's something that you don't see so much because it happens in various steps. In the end, over the last three years, we have taken 31 new builds, which were either on order by Hapag or by CSAV or by UASC. In addition to that, we also took 26 ships out, yeah.
Because of that, we ended up now with a fleet of a little bit over 220 ships, which on average are significantly younger and also significantly bigger than they were some years ago. Beyond synergies, that is certainly also one of the reasons why today we believe we're actually in quite a good position, as also illustrated by a couple of key figures around that fleet, where you see that the average fleet age as we have it is today 7.5 years. Here you see the comparison with most of our major competitors. You also see average vessel size. In the end, vessel size is probably one of the things that drives unit cost the most, as bigger vessels simply means more economies.
Of course, there are limits to the size of the vessels that one can deploy. Depends also very much on the trade where you deploy them on. For us, moving from an average of a little bit over 5,000 to over 7,000 on average has certainly helped us a lot. Then the last point I'd mention is that we definitely have a very decent share of ownership, which means our operating leverage is actually fairly limited as you will, and you will, as a consequence of that, also see, but Nicolás will talk about that later. That when you compare our total leverage with others, and also if you read under the new rules, that the picture all of a sudden will look a little bit different than if you just look at the balance sheets today.
Apart from a young fleet and apart from capturing synergies, the other thing we also have been able to achieve is a much more balanced and sizable network, where if you look at the situation as we have it today, and here you see a comparison from what we did in the first nine months of 2014 and where we are today. That we have a very decent presence in most of the main trades, whether it's on the Pacific, where in and of itself our market share is not so huge, yeah. But if you look a little bit deeper, you'll actually see that our position into PNW and into the East Coast is quite strong. We're definitely one of the bigger players in and out of South America.
That's where the joining forces between Hapag and CSAV has helped us tremendously. We have a solid position in and out of the Middle East. We have a good position on the Far East trade. Historically, Hapag's always been one of the leaders on the Atlantic. Are there also trades where we are small? Yes, there are. I would say that when you look at Hapag's position in intra-Asia, I mean, our position has been small, and I don't think that is going to change materially going forward. It also shows you that our market share on a global basis is actually quite relevant, 'cause people tend to look only at standing capacity when we look at what are the players actually doing.
In fairness, you have to look at the market shares that you have in individual markets, because that determines whether you have sufficient scale, yes or no. Our market share in intra-Asia is very small, yeah. Probably 1% or something like that, and that in and of itself is about 20% of the global container market. That also implies that when you look at all the other markets, excluding intra-Asia, that our global market share is actually between 9%-10%, yeah, with many markets being between 10%-15% or even a bit more than that. I think you always need to take that into account when you want to judge, does the company have enough scale, yes or no?
I would say, when you look at the global market, there's probably two markets where we are significantly smaller, yeah, than our global capacity share. One of them is intra-Asia, the other one is the market into Southern California, yeah. Those are two of the most competitive markets that there are. Many of the other markets, if you look at European export, if you look at India or many other places, South America, you'll find our market share typically between 12, 13, 14, 15%, which is a scale that we believe over time is also very sustainable. That's also why we have, after the two mergers, taken some time over the last year to determine what is our strategy gonna be going forward, and we'll be very happy to talk a bit more about that, in a minute.
Finally, before I get to the market, as you know, we are a core member of THE Alliance. We believe that the three alliances that are currently out there are probably gonna be there to stay, yeah. They all seem also quite a lot more stable than the alliances used to be in the past. Of course, they are also simpler, yeah, because in all cases, you talk about a few players that work together on a large number of services. I'd also say that when you look at the coverage that we have on the three main trades, you can see that we have critical mass pretty much everywhere, which will allow us to be and remain competitive with our partners also in the years to come.
Briefly going to the industry, because I now try to paint a picture of what actually happened to Hapag over the last four years, and why do we believe that we are today actually we have a good starting point. Nicolás will in a minute talk a little bit more about what does that all mean in numbers and what has all happened there. Of course, we operate in a marine market, and the key question is what is going to happen there, mainly on the demand and on the supply side. If we start with the demand side of things, I know this is a picture that many of you will have seen many times.
This is all about what happens with container volume growth and what does that mean if you compare it also with real GDP. I think one of the most fascinating things about this industry is that it continues to grow despite all the skepticism that there may be around it every now and then. There's only been one year that there has not been volume growth in container shipping. That was 2009. Whereas you see that many economies have struggled ever since to get back to the levels of 2009 or above that. If you look today at where container volume is, you can see that we are again well ahead of what happened at that point in time.
If you look ahead into the 2019, 2020, and 2021, of course, there is a lot of question marks around what will happen and how strong will growth be. If you listen today to the experts, many of them will still predict that it's gonna be 4.5%-5% over the upcoming years. We're probably a little bit more cautious. You know, we would plan in our planning and also as we later on talk about our strategy, our assumption is more that we see a growth of somewhere between 3%-4%. Yeah. Will that fluctuate a bit? Yes, it will. If you look at the last two years, we've seen growth on the high end of what people expected.
It could very well be that we have a couple of quarters where it's a little bit less. There could certainly be some impact from the trade war between China and the U.S. That could easily have an impact of half a percentage point or a percentage point on global trade. We believe that's also why our outlook of 3%-4% is probably fairly realistic and certainly not too bullish. When you look at demand, you see that the order book today is at a historical low with 11%. To put that 11% in context, that order book covers about 2.5 years.
If you just take into account that, there's 4% growth on average, you would already need 10% to accommodate that growth. But we shouldn't forget that there will also be scrapping. Scrapping has been incredibly low, this year, but it will come up over the years to come. I mean, for a couple of reasons. One of them is that the average fleet is simply getting older, and the number of ships that's being deployed, which is well over 20 years, is simply not a lot. The other reason are the upcoming the changes in regulations as from 2020, which means that people will have to start using more expensive fuel, which especially for older ships, will make them even more uneconomical than they are, than they already are today.
Whether scrapping will then come up to 2%, 3% or 4% a year, that's probably difficult to predict, and that's probably anybody's guess. We believe that it will definitely come up, and over the next four or five years will steadily start approaching 4% or 4.5%, which is going to be the long-term average of what we need to see. In that context, the order book today, one could argue, is actually a little bit small, yeah. Because if you already need 10% to accommodate the growth over the next 2.5 years, and you also expect scrapping to be, say, 3%, 2.5% or 3% a year, then you would actually need an order book of between 15% and 20%.
Of course, there is still some overcapacity in the market, so it's not unhealthy that it's a little bit lower than that. I would say that today, the outlook of supply and demand coming ever closer together is probably better than it has been for many, many years. I would also point out here that on the right-hand bottom, where we see the estimate that we always use, which is Drewry's, for the supply growth in 2020. I would say that that number is highly unlikely because that assumes that there will be 1.7 million TEU of new ships being delivered in 2020. If you look at the order book today, then there is less than 1 million TEU ordered to be delivered for 2020.
If you still want to get a ship in 2020, you more or less need to order yesterday. Because otherwise it will simply not be delivered on time. The likelihood that we will see that roughly 800,000 TEU, which hasn't been ordered today, that we see that ordered between now and Christmas, I think is very low. As a consequence, you'll see that the balance between supply and demand in 2020, but also probably in 2021, will be more favorable than what we see today in the outlook. Of course, that still depends also, to some extent on what happens on the demand side.
If we assume that that's gonna remain between those 3%-4%, then I think the likelihood that we're gonna see a material improvement in the market over the upcoming couple of years is certainly today higher than it has been for a long, long time. Before we now dive into strategy going forward, I'd like to hand it over to Nicolás, who will give you a little bit of a perspective on the financial development in Hapag over the last number of years. Nicolás, over to you.
Thank you, Rolf. Good morning, everybody. I would like to talk a little bit about the history in numbers. In the last four years, as you know, we have been focused on, first of all, gaining scale, to really compete in a level playing field with the big ones. Since 2014, we have really significantly improved in unit cost, which has translated effectively in a leadership in profitability in the context of the industry, as you have seen in the last quarters and the last, I would say years.
At the same time, we have been also working on our balance sheet in order to make sure that we strengthen the company in that process and get prepared for the future, which is exactly what we are going to talk during the next section in the strategy section. I would like to in the next few slides give you some evidence of this with data of this positive development. So the sections are basically the four that you have there, and I will give you some pieces of areas and numbers supporting this development. The first slide, here you see, how we have doubled our capacity and volume in the last five years since 2014.
We have increased our revenue by two-thirds. It's really clearly evidenced in the numbers how rapidly we have grown on that with inorganic growth in the wake of this integration and consolidation of the industry with CSAV and UASC. That led us to a significant improvement in cost structure, as you see in this unit cost graph, transportation cost. You see a decrease in unit cost of 32% from 2014.
When you get the bunker out of the curve, you see an improvement of 28% on a unit basis, which is a significant improvement and gives you an idea of how the industry, but also in particular, how Hapag-Lloyd has evolved in this, and how much cost we have taken out of the system. When you look at the same, but on all the items, including personnel, you see also a substantial improvement, when you look at unit cost. 28% lower in cost of purchased services, the gray bar, 30% decrease in personnel, and 36% decrease in other and depreciation. Why has this effort become so important? Which is basically describing what the message is of this graph.
Simply because the gap between bunker and the freight rate has tightened as a consequence of the overcapacity of the last 10 years, and exacerbated by the crisis in 2009. Which is coming to an end and much more optimistic outlook as Rolf explained in his section a couple of slides ago. When you see and despite this difficulty of basically this overcapacity and the tightening of these two curves, we have shown basically an improvement and an upward trend in EBITDA and EBIT, as you see here in the graph from 2014 until today.
More important than that, we have maintained a consistent profitability, leadership, and performance against the industry. When you see the orange curve always and consistently above the average of the industry when you look at the EBIT margin development along and throughout the years. Just as an illustrative note on how radical the industry's consolidation has changed and how deep the effort has been in the last years. You can see here what would have been the profit in the case we would have had the bunker price and the freight rates of 2009 in the last twelve months in 2018. Here we put ourselves in September, the last twelve months.
If we would have had the freight rate and the bunker price of 2009, we would have had that pro forma EBITDA of EUR 4 billion and EAT of EUR 2.7 billion. Significantly higher and very impressive number just to illustrate the change and the deep transformation of this industry. But we have not forgotten our balance sheet. That's very important. We have also strengthened our capital base with the necessary capital increases made in 2014 in the context of the merger with CSAV, in 2015 with the IPO, in 2017 with the, in the context of the merger with UASC. Three capital increases.
At the same time, we have also restructured our debt with the goal of continuing optimizing the interest expenses, lowering it, and managing better our maturity profiles. We now have a much better, as you see here in the previous one. We have a much better maturity profile, as you will see in the next slide. Here, first, I would like to comment on, first of all, the maturity profile you see here on the left-hand side. You see the repayments that we have in 2019, EUR 848 million, and then much lower in 2020 and 2021.
The 459 that you have there in white, you don't have to concern about that because this is an automatic renewal from the ABS program. When you look at leverage, it's important to look at the total leverage, as Rolf commented in his presentation, because you have on the right-hand side here the operational leverage. That means that our leverage is between operational leverage, so what will be reflected in 2019 under IFRS 16, between EUR half a billion and EUR 1 billion, whereas our competitors operational leverage is significantly higher.
When you look at leverage, it's important to look also on the right-hand side of this slide and see how that part fraction of the leverage is in the context of what will happen in January 2019. As announced, we have kept our CapEx very low, around 50% of depreciation, which combined with a good operational cash flow and cash conversion from EBITDA, has allowed us to have one of the best free cash flows in the industry compared and adjusted to our size. As you can see here in the graph, it is a really clear conclusion. In sum, I would say, good equity base with an equity ratio and gear improving in the last quarter since the merger of UASC.
Net debt clearly improving with a net debt to EBITDA sliding below 5x, coming from 7.8 or even near eight at the moment we merged with UASC, so the improvement has been significant. But we stick to our clear target to go below 3.5x or arrive to 3.5x in 2019. With liquidity reserve, as you see here, around EUR 1.1 billion, and we have maintained that throughout this period. Our return on invested capital as one of the key profitability targets of Hapag-Lloyd, still low, but approaching, if you analyze Q3, you will see that we are approaching very quickly to that target in a very difficult industry.
All this effort has been recognized, of course, by the capital market. Our share has been performing very well since the IPO in a comparative basis. I think Hapag-Lloyd is the best share in terms of performance. The same you can say or we can see in the trading of our bonds on the bottom of this slide. In summary, our focus on achieving an adequate scale to compete in a level playing field with the biggest players has clearly paid out when you see our cost structure and when you see the unit cost. This has allowed us to obtain good relative performance when you compare our results and EBIT margins compared to the industry.
At the same time, we have maintained a very consistent financial policy and clear target aimed at maximizing cash, deleveraging, manage proactively our debt profile, and maintain a growing liquidity reserve. With that conclusion, which is this slide, I would like to hand over back to Rolf again, to go to the strategy section.
Thank you, Nicolás. I guess that gives you a little bit of a perspective of what we have been doing over the last couple of years and also how we look at the market and why we believe that today we're in a good position. Of course, having done two mergers in the last four years, one then also have to ask the question, okay, so what's next? Are we gonna continue on this path, or are there also other ways to be successful going forward?
We'd like to share with you know, some of the considerations that we have had, but also give you some guidance on where do we believe we need to focus on and what are we going to do over the next four or five years to make sure that we continue on a successful path going forward. Before we do that, probably good to talk a little bit about what do we actually assume, yeah. Because you can talk a lot about strategy, but you have to take some assumptions on what is going to happen. Of course, if some of that changes, you'll have to adjust your strategy. In terms of market, we said we expect actually reasonable growth, yeah.
Which means that if you look at the next four or five years, we would expect an annual growth on a global basis of, say, 3% or 4%. We do expect that there will be some further ships that will be ordered, but we also think that it's gonna be reasonably rational. That means we will not go back to an order book of 30 or 40%, but if you look at it long term, we would expect that to stabilize at some point in time around 15% or a little bit more than that. We don't see any further consolidation within the top six or seven carriers, so no mega mergers. That's at least that's our assumption for the next five years.
There will be smaller players, we believe, that will be picked up by one or the other, but not between the top six or seven. We do see definitely quite a lot of opportunities to de-commoditize this business. We will talk a lot more about that in the next 30 minutes or so. In terms of the external environment, we do believe that there will be increasing legislative and societal pressure on us, and especially also from the environmental side.
I think it is right, yeah, that the industry faces quite a lot of pressure over some of the fuels that we are using, and we believe it is right that we get new legislation as from 2020, and we believe that is not going to be the last new legislation that's gonna come, and we'll need to deal with that. We also believe that we're gonna continue to see three alliances on the main East-West trades. On the technological side, we do believe people will go and sell more online to target also smaller customers. We do believe that there is gonna be significant automation on back-end processes.
We do think there are gonna be all kinds of people that are gonna try and enter this space but mainly from the logistics side, as we believe that the barriers to entry and to become a large ocean carrier are actually quite high. We do not expect to see, say, Amazon all of a sudden buying 200 ships or something like that, yeah. The other important point around this, I guess that backs up one of my earlier points around do we still expect to see many more mergers between large players? I think here the point is that when you look at our industry, the incremental returns or the marginal returns from getting further scale have definitely diminished significantly. We try to illustrate it here also based on actuals, because they sometimes tell you a really good story.
If you look at this case and you go from the period where Hapag-Lloyd was standalone, we then merged with CSAV, then continued to improve and merged with UASC. You will see that from year -on- year, despite the fact that we added quite a lot of capacity, because in capacity terms and in terms of fleet, the addition of UASC was significantly bigger than CSAV, and it also brought us more in terms of modern fleet and size of the vessels. You still see that we were able to take costs out, but the amount, of course, is less on a per TEU basis than it was before.
We did a lot of work this year to try and understand how much more potential would there still be to take out unit costs if we would be twice the size.
We're not looking at something small, but if we would be twice the size. The answer to that question is that that's probably somewhere between 2% and 4%. Of course, if you do that in absolute numbers, that's still a lot of money, yeah. But the question is that really worth doing a mega merger or are there also other ways to take similar amounts of cost out of the system? We feel, based on this data and also the look forward on what would happen if you would double once more, that actually the incremental benefits of pursuing more large-scale M&A is not so big, yeah. I think also when you look today at our results over the last couple of years, they also illustrate that we have a scale where we can actually compete.
There you shouldn't forget the points that I made earlier, which is that scale is not only a global thing, but it is mainly relevant in markets where you are present. There it's much more relevant that we have 20% market share on the Atlantic because there, that's where we have scale, yeah. That we have only 1% on intra-Asia doesn't really matter all that much. The 20% and 1% in intra-Asia are more relevant than the absolute number we have only on a completely global scale.
When we started, when we drew this conclusion, we said, "Okay, but when we now look ahead for the next five years, what are actually the things that potentially make us different?" We felt that there are a number of strengths that Hapag has that we can definitely build on. I don't wanna go through all of them, but I'll point out some of them. I mean, if you start on the left-hand side, I do believe that Hapag, with our global blueprint and also the process quality that we definitely have and the efficiency that we have throughout our organization, that's a real strength. That's also evidenced by the way that we have been able to integrate CSAV and UASC.
That's also built on a very strong in-house developed IT, yeah, and great capabilities when it is around data management. We'll talk a bit more about that also in the afternoon. Our position is clearly a pure play carrier, yeah, which is different than some of the others, yeah. Our fleet is young and large, and I would also highlight our teams. If you look at Hapag, we've tried to build one very strong team, especially over the last years, by combining forces and strengths that we had within Hapag, within CSAV, and UASC, and to some extent even the people that also came from CP Ships, which has allowed us to build a very diverse team, yeah, with different strengths.
Many of those people, or pretty much all of them that have joined us, are there today and have brought in quite a lot of new talent, but also new ideas and other things that we can actually still improve on. By taking that, I think we have a little bit of an edge compared to some of the others. When looking ahead to 2023, we set ourselves three overarching goals. The first one, be profitable throughout the cycle, yeah. If you want to be able to reinvest in your business and you want to be able to make your business better, yeah, then we must be able to make money pretty much every year, even if we are in a cyclical industry.
Of course, the last 10 years, the industry has gone through a you know through a lot of difficult periods. I'd also say that, you know, if we would succeed in closing this year with black numbers, that would also mean that we have done that three out of the last four years, and that is certainly a good start going forward. We just need to make sure that we deliver on that year after year after year, in good years, but also in years that are not so good. Number one for quality. We believe that based on the strength that we have, that we have the possibility to be a true number one on quality in this industry.
The industry has certainly not invested a whole lot in the last years as a whole into delivering true value for our customers.
We believe that that's one of the areas where we can definitely make a difference. That's not gonna happen from today to tomorrow, because that will mean some fundamental changes to the way that we do business, and we'll talk a bit more about that in a minute. We believe that we can do that and, 'cause one of the strength that Hapag definitely has, is that once we set our objectives, we have a great ability to then also get that executed. I think this is a good example of something that we will want to achieve over the next three, four or five years, and we're also pretty sure that that will pay off. We will remain a global player. We have the scale to be a global player.
That means that we would be looking at getting to a market share where we would exclude for a minute intra-Asia, yeah, of round about 10% on a global basis. If you look at it today, we are also between 9% and 9.5%. That means no aggressive expansion, but maintain our market share and maybe grow it a little bit here and there over the upcoming five years. That as a starter, and then let me try and give you an overview of what in our view are the core elements to achieve our objectives by 2023. This picture gives you hopefully a reasonably simple overview, where it starts on the left-hand side, where we're saying this is an industry where cost matters, yeah, and getting the best paying cargo on board matters, too.
No matter what you want to do in terms of strategy, if you don't continuously earn and keep the right to play, you will not be successful. For us, that's two things. One is continuous cost management, and we'll talk a bit more about that later and also what we still believe is possible in that area. But also revenue management. If you compare our industry with some others, I mean, the airlines are always the easiest one to take. They are significantly more advanced when it is around yield management and optimizing revenue than we are in shipping. We believe that there is still a considerable opportunity there to ensure that we always have the best paying cargo on board.
Because when you look at a ship between Shanghai and Rotterdam, everybody says it's a commodity, but, you know, for some reason, if you look at the cargo that's being moved, even if you look only at 40-foot containers, dry cargo, contracts with a 3-month duration, you will still find a difference in price between the lowest and the highest paying of 10%-20%, which is a clear illustration that, you know, we're not talking that much about a true commodity. Because if you wanna buy a barrel of oil today, yeah, here in Europe, you will not find a price spread of 10%-20%. Mid and long term, we believe that we can differentiate, and we have six big buckets there. The one is the one I already mentioned, be number one on quality.
The second one is looking at our landside capabilities. Today, we have already a fair number of our containers where we do also the inland. We think we can still do more there. We believe that that would be good for our customers, and it would also still help us to over time become more efficient. We'll continue to focus on selected attractive markets and segments because there are some segments where we still think we can grow. There are some markets where today we have a good position, which we think we can strengthen further, and there may also be some markets that we, where we still want to build up a bigger position. We talk about environmental responsibility.
We are committed to make sure that we comply and where possible also exceed what is required from us by all the regulators, and we'll talk about that, or Tony will talk about that also in the afternoon, what the things are we intend to do in that space. There, the fact that we have a fleet which is young and fuel efficient and relatively large should also help us. When you look at something like LNG, we're probably one of the few that has a fairly sizable number of ships that could be converted if we would decide to do so. We'll talk about a best-in-class web channel. We'll show you this afternoon what we have been doing there so far.
I think if you look at the growth that we have seen in that channel, that's actually pretty impressive. I believe that there we are today, certainly one of those that's in the forefront, but now we need to make sure that we stay there. When it is around M&A, we said we'll only look at that opportunistically, which means that there may be one or the other smaller thing that comes by, and if it helps us to deliver on our strategy, we will look at it. It is definitely not at the core of the plans that we have from now for the next five years. Of course, digitization, automation will play a big role in all of this.
We'll build there on our capabilities in the field of IT, but we can do a lot more there. We believe that our workforce, in five years will look materially different from what we have today. As an organization, we have certainly become a lot more agile over the last number of years. Also going forward, as we are not the biggest in this industry, we'll have to make sure that we become at least one of the smartest and one of the quickest. Of course, the ultimate goal of that is that we do have a sustainable value creation for all of the stakeholders in Hapag-Lloyd. Our customers, our employees, but of course also our shareholders and investors, in the end.
Let me try and talk about a bit more detail on each of those blocks. Let me start by talking about cost, yeah. Because if we are not competitive, yeah, in this market, we will not be successful. If we want to enable a differentiation strategy, remaining cost competitive is a prerequisite, no doubt about it. That means that we need to look again and again at our network. That has changed a lot over the last years on the back of the two mergers. Because of that, we are now also uncovering new ways and additional measures that we can take to further optimize our cost position given the new size and scale that we have. Container steering, work on the empty repositioning.
Today, we have a cost block that is over $1 billion every year, which is linked to repositioning empty boxes. There is nobody who pays us a dime for that, yeah. So every dollar we can save in that space will go straight to the bottom line. The third element, collaboration. We need to work on partnerships. I think that goes not only for us, but probably also for many of our competitors in the colleagues in the industry. Given the size of the business that we have, we will not be able to do everything ourselves, which means that going forward, we will pursue more and sometimes also different partnerships with all kinds of players along the value chain, yeah. Traditionally, of course, we work together with our partners in the Alliance and in many of the VSAs.
We also work together with terminals, but one could also think of, other forms of cooperation, be it around inland or other parts of our business. We have terminal partnering. We spend several billion EUR every year on terminals. They play a key role in our overall network. Going forward, I don't think it's gonna be mainly about trying to negotiate the pick rate, but it is going to be about starting to drive total cost down, yeah. Making sure quality goes up, and where possible, optimizing port stay, which in and of itself will be good for the terminals and also for us and should help us to bring the total cost down. Of course, in the end, procurement for us will also be an important lever.
We've seen over the last five years that our own procurement has become more professional, but certainly many of our customers have also become a lot more professional in the way that they deal with us, and we believe that we can still make further steps there. What we have done is not to leave this with a concept, but we'd also like to give you a little bit of guidance on what are we actually going to do in that space. That means that, in the process of writing down the strategy, we have launched a cost management program, which is structured in five modules, which will have a savings run rate of between EUR 350 million and EUR 400 million by 2021. As a baseline, we'd have to use 2017.
That gives you a little bit of a flavor of what we believe is important. If you just look at the size of the number, it's quite. I think we were ourselves also a little bit surprised about how much we could still find because this is more or less the same type of number that you have also seen in the mergers that we did over the last few years. What you see is that because of the changed size, when you start looking then internally, you actually still find quite a lot of optimization potential. This is ongoing, but we will deliver on this within the next three years. To give you a little bit of a flavor on what are those type of things, many of them are being implemented already.
Here just a couple of examples, and I won't go into all of them. We talk here, for example, about transshipment. We believe that as the transshipment in itself can be a very good thing, but not all transshipment is good, because it certainly also adds complexity and cost to the system. We developed some tools to steer that better. To give you a bit of a flavor of that today, we transship about 35% of all the volume that we move. If we would be able to take some of that not so good transshipment out, then you can easily find a fairly significant improvement in your cost position.
Container steering, we can definitely do more there still to manage surplus and demand, and we've given our teams the task to still try and find new ways to take a significant chunk of cost out of that cost pocket. Work together with others. Here you may have seen the announcement that we did on joining forces with ONE on the feeder network. That's just one example of an area where you can work together with others and still optimize your cost position. I mentioned already earlier the point on terminal partnering, which is all about, in the end, reducing port stay.
Because if we can reduce port stay and make that more predictable, then we become a more attractive customer for the terminals, but it will also prevent us from having to do speed ups, and it will also help us to improve schedule reliability. That I think, first of all, on the cost side. Let me talk also on revenue management. If we look at revenue management here, I think there's basically three moments where you can influence the revenue that you generate. One is the moment you decide which is the product you're actually gonna sell to a customer. The second one is when you decide how to price that. The third one is when you decide whether to take that cargo on board, yes or no.
We will focus systematically on improving our business on each and every one of those points. Make sure we clearly define what is the product that you actually buy from us, yeah. Make sure that we use the best available tools to determine what is actually the price that we can charge today. If we look today at the tools that we deploy to manage cost and to manage ships, for example, and the level of detail at which we guide the captain based on which routing he should take, looking at the weather forecast and the current, yeah. You compare that with how we set the prices for boxes that we need to move next week, there is still a very considerable gap, and we need to work on that.
Then the decision on booking uptake, we need to make sure that we take the cargo on board that is the best available cargo at that point in time, provided it meets also the commitments that we have, of course, made to our customers. Also there, still quite a lot to be done. We've said we do that in a couple of phases. One is work on the basics, which is very much this year and next year. Going forward, establish also some foundations to get to better system support and more analytics and more data-driven pricing, which will help us over time to improve our margins. If we look at what we did to give you a bit of a flavor for 2018.
For 2018, we did an initiative which we called Contribution Boost, which were 10 short-term initiatives, where we said, "What can we do to improve yield?" Here you see just one example on the right-hand side, which is about reducing low contributing business. Here you see the example on a couple of ship systems, where compared to the baseline, we managed to reduce the chunk of low-paying business, for example, on the Atlantic with over 60%, on Latin America with over 30%, and on the Far East westbound come from Asia to Europe with 46%. I think those are very tangible numbers which have a direct impact also on the money that we generate.
We gave you some other examples here on the left-hand side, and there's certainly more to come there. If we then move on to how do we think we're gonna differentiate. I mentioned already earlier that we talk here about six blocks, and I'll try to talk to every one of them. It's about quality, landside, growth in selective markets, being environmentally responsible, the web channel, as well as possibly opportunistic M&A, which is the one that we won't cover here, obviously, because we have no news to report on that. Well, let's start with the first one, which is number one on quality.
I do believe that one of the most important things that came out of the market research that we did, and where in the end we had more than 4,000 responses from customers around the globe or in a number of key markets, is that when you do some sophisticated analysis on all their responses, you actually find out that for more than 50% of the market, getting quality and value really matters, yeah? That means that we need to make sure that we capture that willingness to pay from our customers, but that we also optimize that customer mix, and that we also try to get in some new ones that are especially in those segments.
I know it's it looks like a fairly simple picture, but not many people would have expected, you know, that when you ask customers that there's a fairly large chunk of people that is actually prepared to pay for value. I'll show you a couple of examples afterwards also that illustrate that people actually are prepared to pay for value. Are there also segments in the market that are very price sensitive? Yes, of course, yeah. That's the reality of it. The question is just how can you manage your own customer mix to make sure that you are properly exposed to all of those segments. What is gonna be our approach?
Our approach will be that we will deliver a clearly articulated core product, but we will also come up with specific additional value for people in segments that are willing to pay more, yeah. How will we do that? Well, we'll do that by first of all being clear about what we actually commit to our customers, because when you look at our industry today, in reality, the commitments that are being made between carriers and customers are in many cases, in reality, on a best effort basis. We will try to get the box to you, yeah, at that time, yeah. If that doesn't work, we will say sorry, yeah. That's of course a product, but there's certainly more that one can do.
If you try to look at what is important for customers, and that's also what comes back from speaking to them and asking many of them, then you see that on the left-hand side, the things that people typically value is a responsive service, timely and accurate documentation, making sure that we book and load the cargo as agreed, that we transport it reliably and on time, yeah, and that if there is an issue, we resolve that quickly. The interesting thing is that if you look at our industry nowadays, many of these things are, at least when you look at it from the eyes of the customer, not even properly measured, yeah. We are no exception there.
We also have work to do to define how we exactly will measure what the quality is that the customers perceive from us. We will go and put those measures in place, and we will then also take action to make sure that we can go and deliver on that. Of course, we also expect something from the customer. We expect also from the customers that they become better and more reliable when it is about delivering the volume and the bookings that they commit to, that they provide us with accurate information, and they do that also on time, and of course, that in the end they also pay their invoices.
Those things look very, very simple, but when you look at many of these things, and you look at where the quality level in the industry on pretty much each of those dimensions is today, then there is a huge opportunity to do that better, yeah? We believe that by doing that better, yeah, we will be able to attract more and better customers that will then be able to reward us by either giving us more volume or, you know, paying for the value that we actually create. We've taken already some first steps, but we are definitely clear that this is not something we will fix from today to tomorrow, yeah.
You just need to read the press about what the perception is of shippers on quality in this industry, and you know that we all have quite a way to go.
We do believe, however, that there, our execution ability to do large projects and to make changes to our organization will help us a lot, yeah. We will deliver on that and, but we'll also monitor it closely, even if we still have to put some of the measurements in place. We'll do that over the upcoming couple of quarters, and we'll then consistently report also on the progress that we make. We just illustrated that here with a couple of examples. I'd just like to illustrate to you because people say this is a commoditized industry that there are definitely segments in the market where people pay for value. We'll just give you three examples here, yeah, where you can see that people are willing to pay for value.
This afternoon, we'll show you a little bit more about the web channel, okay. The web channel gives you the opportunity to get a quote 24/7, yeah, on any OD combination that you want, and you get it within 30 seconds, yeah. It allows you to make the booking immediately, and that's just ease of business, yeah? What you see is that by doing that, we have been able to grow a channel like that to today between 5% and 6% of our overall business, and that has happened in the last 10 months, yeah. It's a very simple added value, but people are prepared to pay for that value. Through that channel, we achieve well above average margins.
Cherry Express, here we see, ships that we're gonna send from South America to Hong Kong, which is starting more or less now for 14-15 weeks. People are willing to pay multiple hundred dollars per container, sometimes more than $1,000 per container extra because we cut out 3-4 days of transit time. Why is that? Because the cherries, you know, then have a longer shelf life, yeah. That's what people pay for. A clear connection also between the value and then willing to pay for that. I'd say dangerous goods is another good example, where it's all about safety, high quality of documentation, and making sure that you have the right type of skilled and experienced staff.
If we look at the contribution that we get from dangerous goods, that is, of course, because of the value that is being provided also significantly above average. Those just as illustrations on the point of quality and value. We then move to inland, yeah. We think we can do more in that space. We believe also that that can be beneficial for all parties. We will be able to do more in that space with the idea to of course, on the one hand, achieve higher unit margins, but also, to provide better and more reliable service and get more control over our own cost and especially our equipment flows. That's where it ties into the container steering that we talked about earlier.
Having more control over your own boxes and over your own flows will allow you to steer that better, and that will result in better availability for the customers, but also in the end, hopefully higher margins but also lower cost, yeah. It also will allow us to steer the inland network better, and we shouldn't underestimate the amount of trucking that shipping companies and also Hapag already do today. If you look at today's situation, then more or less a little bit over 30% of all of the boxes that we move, yeah, already has an inland component to that today.
If you take into account that we move about 12 million TEUs, then you can see that there is actually quite a lot of inland moves that we do today, mainly in Europe and North America, be it either by rail, sometimes by barge and by truck. We'll talk about expanding also our position in some of the niche markets, which could be geographies, but could also be niche segments like reefer segment, where we are already strong today. We do believe that we have a good reputation on special cargo, where we see we have a very strong position in some markets, but certainly some untapped opportunities in a number of markets where we have strengthened our position considerably over the last years. DG, I already mentioned.
Traditionally a stronghold of ours and I would say also one that we can further build on. That gives you a little bit of a flavor on some of the points that we wanted to highlight. We'll get back in the afternoon on the environmental piece that Tony will talk to, and we'll also talk more about the web channel. Jochen will talk about the agile organization and what more we think we can do on automation to give you a more of a rounded picture on what can all be done here. I do believe that before we do that, it's good to also show you a little bit about how we believe we will then also create value for our investors.
Nicolás will take us through some of that before we get to Q&A.
Thank you, Rolf. Making a quick recap. We have three overarching goals that are somehow connected between them. Profitability, number one for quality and global player. I would like to talk a little bit about profitability and double down on that. What does it mean? First of all, we would like to generate economic value throughout the cycle. That means that our return on invested capital should be higher than our WACC, which is today around 8%. Secondly, we would like to deliver on all our financial KPIs and all our non-financial KPIs, and I would like to show you those briefly those KPIs. In terms of the financial KPIs, the first and the most important one is the one that I just mentioned, return on invested capital throughout the cycle over WACC.
This implies approximately an EBITDA margin of 12%. We would like also to continue this process of strengthening our balance sheet and reaching a net debt to EBITDA multiple to less than 3x during this period of time. The 3.5x or lower than 3.5x in 2019 is maintained, and we still want to achieve that. That is not enough, and we would like to deleverage the company more than that. The equity ratio more than 45%, which is consistent with the 3x. Finally, continue maintaining a liquidity reserve around EUR 1.1 billion. In terms of the non-financial KPIs, you see in the next slide.
We commit, as Rolf commented in his presentation, to continue and basically measuring the way we improve on-time delivery. We are going to go and measure it in the best way. We have to work a little bit on that, and then we will track how we deliver that improvement over time. We want to achieve also the best-in-class net promoter score, NPS, which is a measurement of customer fidelity and also indirectly quality. We want to achieve a superior landside capability by achieving 40% of our volume by 2023 with a component of inland in the land.
In attractive markets, we want to grow the volumes in the selected attractive markets and also achieve a market share of 10% in reefer market by 2023. This is excluding intra-Asia. In environmental, we want to comply or exceed the requirements of the IMO by 2020 and continue building on that. On the web channel, a very clear percentage of our volumes, 15% by 2023, which is a very important one because that also relates to profitability and increase in contributions. Making a wrap-up of this section, then I open the floor for your questions. Decreasing incremental benefits of continuing inorganic growth or increasing the scale of the company. We believe that the future today is more related to differentiation, more than size, and gaining more scale. That job, we already did it.
In this context, we have decided to become number one for quality. There are some segments in the market who are really willing to pay for value and for quality, and we are determined to go for that and capture those segments in the way Rolf explained a couple of minutes ago. In terms of the implementation, a little bit of a comment on that. I think we have demonstrated that we execute well, and we have done two mergers in a very good manner, very short time. The integration is there, and the synergies are there. I think we have to build on that capability of good executors to execute this strategy, and we are very confident that we will make it. We have tested our strategy. It's a robust strategy.
We have tested it in different possibilities or different scenarios of the industry. This is a very good test because we have basically been analyzing that this strategy is very robust and has a good result in different scenarios of the industry. That's basically a summary and the wrap-up, and I would like to open the floor for you and to make some questions in the case you have.
Yeah. Thank you very much, Nicolás. As you said yourself, thank you, Rolf, as well for the very comprehensive insight into Hapag-Lloyd's new strategy, 2023. As you both just mentioned, we're now opening the floor for your questions. If anybody wants to ask a question, please raise your hand as you already do. We have some colleagues around with microphones. I would also kindly ask you to say your name and the company you work for before you start your question. I think Edward, you're first.
Good morning, Edward Stanford from HSBC. You've talked a lot about the amount of business you do inland. You also talked about the fact that you're not really interested in buying a logistics company, but it sort of seems like you're heading in that direction one way or another. Could you explain how you might develop that capability? Do you think you have the necessary capabilities to do it in-house?
Yeah. Well, maybe quick response to that. I mean, if you look today, mainly in Europe and in North America, I mean, the share of the inland that we do today is about a little bit over 30%, yeah, of all the boxes. They already have an inland component. If you add that up, then you see that we have a very significant inland operation already today. We believe, though, that by focusing more on that, we can still grow that, but I don't think we need actually to make big organizational changes in order to do that, because we simply already have the scale. If you take 30% of 12 million TEUs, that means we are already today moving inland 3.5 million TEUs.
That means we have the operational scale also because most of that is actually in the U.S., Canada, Mexico, and on the other hand, in Europe. In other places, we may still have to do a bit more and may have to set up one of the other organizational unit. We have the systems, we have the structure, so that should not be that difficult, and we certainly don't need to, you know, go and buy someone in order to further develop that.
Thank you.
Hello. Neil Glynn from Credit Suisse. If I could ask two questions, please. The first one, Nicolás, you mentioned scenario testing, the strategy and the targets to 2023. Just wondering, can you give us some kind of a feeling for if your demand expectations disappoint, how willing, or indeed actually, if the bunker fuel price in 2020 proves too difficult to pass on, how do you think about potentially not growing the fleet? Or how much could we realistically expect your fleet to shrink by, if necessary? A second question for Rolf in terms of pricing into, well, 2020 and beyond. You mentioned you don't expect there. I think you mentioned you don't expect much more consolidation because of diminishing marginal returns.
I take that point on the cost side, but clearly the competitive nature and the yield discipline nature of the industry is still very much there based on the pricing experience to date. Do you think, with the bunker adjustment surcharges, the new mechanisms coming into play, there's still a risk that the ex-bunker freight rates are not managed in a disciplined fashion? Could IMO 2020 prove an agent for change in terms of how the industry manages freight rates in totality?
Okay. In terms of the scenarios, our default scenario is one that Rolf described in the beginning. We believe that we are going to continue growing at 1x to 1.3 x the GDP growth. We believe that the industry may have a second wave of consolidation, but the incremental benefits of big mergers or mergers among the big ones are not necessarily that beneficial as a couple of years ago in which the scale jump was significantly higher than today. That's basically the default scenario. The strategy plays and fits very good with that scenario. I think the way to continue growing and continue generating value in that scenario is pretty obvious.
In the case you imagine a different scenario, meaning, for example, that regulators are not anymore allowing alliances. Or for example, that we have a scenario in which growth goes significantly down compared to what we assume. I think to focus on quality, differentiation, and basically to double down in this kind of right to play, which is revenue management and continue optimizing in cost structure, is still a way to survive and to strengthen the company, even in those more, I would say, pessimistic scenarios. For example, another scenario is that, for example, people start ordering a lot of capacity in the future, and the order book goes to 40% again or 50% again.
Again, we have this kind of saving program, revenue management, enhancement of quality, try to capture segments that are willing to pay for value and quality, and that's a way to hedge against those scenarios in which the industry is commoditizing.
Maybe to your second question, which was around the additional fuel cost. I mean, I actually think that it's good that the fuel cost goes up so much, and that it's not a little bit. Because if it was only $50 a ton, then the likelihood that it will be negotiated away or not be accepted by customers or will be absorbed by some was actually there. If it is, like in this case, $250-$300 a ton, that for us means an additional cost of over $1 billion. For Maersk and CMA and MSC, that it's even more than that. Nobody can afford to absorb that amount of money.
I also would say that based on the discussions we've had with customers over the last couple of months, I would say that we see quite a good level of understanding and acceptance of what we have proposed on how to deal with that. I mean, we see in the contracts that we are closing as we speak, that even with some of the customers that traditionally were not easy on this topic, that there is an understanding for it, and that we managed to get to agreements which will help us to recover the additional costs that we have. I do believe also that it helps that the way that we have positioned it also to the market is very transparent, is very causal and can be validated by anyone.
I think the initial feedback from the customers on that is very positive. As such, I expect it to go reasonably smooth. Does that mean that there is no risk? There is always risk, yeah. But I don't think right now that risk is very substantial. Again, the big positive element there is that the jump in cost is so big. Everybody understands it, everybody knows something needs to happen with it, yeah. As such, we will be able to get that agreed in one way, shape, or form. Thank you.
Thanks, Neil. I've seen a couple of other hands. Satish, and Johan, and David, maybe in that order. Thanks.
Thanks, Heiko. Satish from Citigroup. I have a question on the product segmentation. You mentioned about the role of base versus premium product going forward. Just wanted to understand what is the mix today, and what is your likely target for 2023? Also, which segment of the market is going to offer you that opportunity for the premium product? Also, what will be the likely impact on margins?
I think it's still a little bit too early to give you all the data, but I think it's a very valid question and very aligned with the way that we think about it, too. If you look at what we will do is we will define a number of those segments where we believe that we can get above average margins, yeah. And then we will set ourselves a target on how much the share of that segment needs to grow in our overall portfolio, yeah. We haven't done that for all the segments just yet, but I mean, for online, for example, we've set ourselves a specific target. Nicolás already mentioned that. Today, we are between 5% and 6%. We believe that can grow up to 15%, yeah.
Well, that's a very clear objective because that's 10% more of our overall cargo, which is, so say, one point something million TEU that needs to move at a relatively high margin. I won't give us targets on those margins just yet, but the way that we will approach this is indeed identify those targets, probably give us a total saying, "This is the value-add segments. They are today X percent, and we want to grow them to Y." Then afterwards, you should be able to roughly model that as well. Today, we limit ourselves to a percentage on the web channel, but you can expect us to come up with more of those numbers also when looking at the other value-added segments in the quarters to come.
The web channel will have more of base products being migrated towards web channel, right?
Sorry, I didn't fully hear that.
On your web channel, it will be the products that you offer through the web channel will be the more commoditized or a base product that will move to.
Not really. I mean, we'll talk about it this afternoon, but I mean, we also offer specials on their open top containers. We also offer reefer containers there. You know, you'll actually get quite a lot of value add also being offered through that channel, yeah. Maybe we can come back to that in the afternoon. We have a special session on that digital piece, and then we'll try to explain a bit more on that and happy to answer any additional questions you may have after that.
Yeah, sure. Thank you.
Yeah. Hi, Johan Eliason from Kepler Cheuvreux. You mentioned you want to focus on quality, and you have asked the clients that they want to pay for this. You know, your previous employer obviously have a real-life experience from this, trying to provide the best quality and get clients to pay for this. At the end of the day, it showed that it was too costly and the customers were not willing to pay for this. In your strategy, can you somehow try to offer this quality without having the highest cost as well? Or how have you thought about this?
I think based on the work that we've done so far, I mean, if you are referring to, I mean, Maersk at some point in time came with Daily Maersk, which was, of course, an expensive product, yeah. In the end, I think they struggled to get people to pay for that. I don't think we are looking at those type of things. We are looking at other ways of, you know, providing better value. I'll give you a couple of examples. I mentioned timely and accurate documentation. If you provide timely and accurate documentation, that is actually cheaper, yeah, than provide late and incorrect documentation, because then you typically need to rework, yeah, all of that.
When we look at issue resolution, if you have a high first-time fix rate that is cheaper, yeah, than to actually do it in three, four, or five calls. There's many ways that what was interesting when looking at the market research is that people value things that we didn't probably realize all that much. I give you, again, the example of the online channel. The fact that you can get a quote within 30 seconds, I mean, we always felt, you know, they can call us, and then we give them a quote, right? Be it the next day or be it later the day. Well, that process generally works. One of the feedbacks from our customers, we would like to know exactly what we get and when.
We developed Quick Quotes, and now we provide, I don't know, 90,000 quotes a week.
Yeah.
Through that channel. We ship 13,000-14,000 TEUs a week through that channel, which just illustrates that that's a good example of value that we created, which actually is once you have it built, because it's difficult to build it, but once you have it built, the cost to operate it is actually rather low, yeah? The value that people attribute to that is rather high. That's just a couple of examples where I believe that providing better quality to customers does not always have to be expensive. In some cases, it is more expensive. We talked about DG. You want high quality documentation, additional safety, that costs us money to produce. We also see people are willing to pay for that.
You create value, and people are willing to pay more for that than it costs us to produce, yeah? I mentioned the Cherry Express. Going faster from South America to Hong Kong means you burn a lot more fuel. Okay, but if people are willing to pay for those additional days of shelf life, that's okay, yeah? If they're not, they're not. I don't think there is a one-size-fits-all to all of this, but I just wanted to give you a little couple practical examples which give us the confidence that we actually can deliver on that in many different areas.
All right. Thank you. Maybe David, then Tobias, and Joel.
Good morning. It's David Kerstens from Jefferies. I was wondering if you could talk a little bit about the benefits you see from the close collaboration between Maersk, MSC, CMA, and yourselves in terms of standardizing processes. Maersk has talked a lot about the potential benefits from the joint venture with IBM applying blockchain. Is that a potential technology that you could use as well in this collaboration with the other container lines?
I think when you look at that collaboration that we had that was announced last week, that is mainly around standardization of IT, yeah. And of messaging and those type of things. That's to make us all more efficient, yeah. It has nothing to do with blockchain, yeah. I think you know, the cooperation between IBM and Maersk is TradeLens, a very different initiative. We look at many of these initiatives as well, and we participate and talk to some, and then we will also define what we want and what we do not want. I don't know, Tony, whether you want to add anything to that.
No. I think you just need to see that TradeLens is a platform which is trying to earn money by putting the transactions on a.
Yeah.
On a platform. What we're trying to do with the other group you mentioned is to produce standards for the industry. Nothing more and nothing less. These are just purely standards which will enable it, enable people to work together easily in the future.
Okay. Tobias?
Oh, thank you.
Sorry.
Tobias Sittig from MainFirst. Three for me, please. Firstly, can you elaborate how that sits within the context of your alliances? So a lot of your containers aren't really on your own ships, so can you maintain the same quality promises in this, in that case, or do you have to take your alliance partners along with that? Secondly, in your mind, do you think a larger share of your business will then be direct with customers, or will the share between forwarders and direct client relationships not change in your strategic vision? Lastly, putting quotes online has always been something where people argued that would allow search engines, web crawlers to do some kind of least cost routing, like in the tourism industry.
Don't you see that risk happening to you and squeezing your margins or the margins of the overall industry then? Thank you.
Okay, maybe take them one by one. I think of course, when you work together with other people, you need to make sure that you continue to that they also provide good service. But there's more to the service than just moving it on a ship. In most cases, that's actually the piece where, from an operational perspective, things work fairly well, yeah? We're also pretty aligned with our alliance partners on many of that. I'm not so concerned about that because the quality that people perceive is very much around the documentation, responsiveness of customer service, the way we go about issue resolution, what we can do to route the cargo in the best possible way so that it gets delivered on time, end-to-end and then.
Yes, that's an element, but in all honesty, the quality that any company these days provides to its customers is in many cases also dependent on partners, and that's where the alliance partners are no different. We'll probably have more partners also going forward. In terms of the mix between direct customers and NVOs, I mean, that remains to be seen whether that changes or not, yeah. I think one of the things that surprised us on the online channel, for example, is, you know, how many forwarders also use it, yeah, actually shipping boxes with it, because it's certainly not the cheapest channel, but it's definitely easy to use. I do believe that for smaller forwarders, over time, when the market becomes more transparent, that surviving will not be easy.
The big ones, they will definitely remain there and may still be able to strengthen their position as well, and they will always be a part of our portfolio too. Your last point on transparency in markets. I don't think transparency in the markets is necessarily a bad thing, yeah. If you look at what we see today and also by opening up of doing online quotes, I think we offer good value, yeah, for what people actually can get from us, which is also illustrated by, you know, the number of people that actually ship through the online channel. I think so far that's been working well for us and then, you know, you also can't stop technology, yeah?
What you can do is you can make life easier for the customers and tell them, rather than calling five people and waiting three days for a quotation and then starting to hassle with them over the phone for another half a day and then being maybe $200 cheaper, you might also just get your quote and book it, yeah, and move on to the next piece of business where you can actually make some money. I think there's other types of value that you need to create, yeah. It is not only about price and transparency on that.
All right. Next question comes from Joel.
Hi, it's Joel Spungin from Berenberg. I sort of hear what you're saying in terms of the broad strategy. You explained how I think a lot of this hinges on the ability to improve service quality, which makes sense. I was wondering maybe if you could talk a little bit about why you think the industry has been so slow to improve service quality compared to other industries, why it's been so poor for so long. And since so much of the strategy seems to hinge on improving that, can you elaborate a little bit about what it is that Hapag is gonna do that if I went and asked Maersk or CMA, you know, they would not be able to do that you can do in that front?
Because it strikes me that a lot of the service stuff is stuff that any sensible carrier would be looking to improve.
Well, maybe first talk about why has the industry done so little on that? Well, if you look at how difficult the industry has been since the crisis in 2009, it's very clear that a lot of people have just been fighting for survival. When you're fighting for survival, and when there's a lot of overcapacity in the market, then you also when the market is still very fragmented on the supply side, you typically see that the first focus is on taking out costs and at some stage also going to a market that's a little bit more consolidated. That's pretty much what we have seen.
If you recall the picture that Nicolás showed, which illustrated that if you were to apply 2009 prices and bunker to today, then we would have an EBITDA of EUR 4 billion. That illustrates a little bit how much cost has been taken out of the system by everybody in this industry. It's all been about cost and gaining scale. We get to a situation where supply and demand are getting closer together. When there are fewer players, you'll also see more rational behavior in the market. That means that people start to, you know, rediscover a little bit that sometimes creating value for the customer and delivering good service is something that really adds value. Do we believe that we can do that better than others, and in which fields?
I think we have a couple of very strong elements that work to our advantage. One is the way that we are organized, which is very standardized, very structured, high process discipline, and I think generally, also respected for what we do on the field of IT. Those are things, you know, where I believe not everybody is exactly on the same page, and that will allow us to differentiate in some segments. Will that allow us to be better, everywhere than anyone else? No, it won't. That's also not needed. I think when you look at quality and differentiation, I mean, you won't be the best everywhere. I mean, I mentioned the two specific markets earlier, being intra-Asia. We will not be the leader in intra-Asia in five years from today.
I mentioned also, PSW, the Californian market. There, our share is relatively small. There, our starting point is probably not as good as it is in some other markets. We will remain present there, but we should not have the ambition to try and win in, say, intra-Asia, for example, if we don't have the tools and the means to be successful. What we do is we look in a differentiated way at our market, and we see plenty of segments where we have the tools and the means to truly differentiate from our competition, and those are the ones that we will focus on. There, we actually have the advantage that our market share globally is probably more like, excluding intra-Asia, close to 10% and not 20 or 25, because that'll make it much more difficult for people to.
If you have 25% market share, it's much more difficult to differentiate because in the end you will have to serve all market segments, whether you like it or not. It's a bit of a long answer to that question, but it is also not a simple thing. I'm just saying we have certain strength, which I believe we have more than others, which will make it easier for us to be successful. We will not do it everywhere, but only in those places where we have the means, tools, and the size to also put that in action. We gave you some examples of where it works today, and hopefully we'll be able to show you many more in the years to come.
Okay. I think I've already seen Venetia.
Yeah. Hi, Venetia from Goldman Sachs. Just two questions from my side. Firstly, on the dividend, I think you aim for a payout ratio of 20%-30%. Could you give us, is this still an aim, or could you give us some more guidance for over the next few years? Secondly, just on CapEx. Clearly, you're on a CapEx holiday at the moment. Can you give us an idea of when you expect that to end, and what level of CapEx commitments you'd expect? Thanks.
I think in terms of dividend, I mean, we paid the dividend once, which was very much to you know, to show a sign of appreciation to our shareholders. Yeah. Now let us first make sure that we make some money, yeah, for this year, and then we'll talk again about the dividend for 2019 and also going forward. In terms of CapEx, our CapEx has been low, yeah, the last few years and I think you will over the upcoming couple of years, you will see a gradual increase, yeah, of our CapEx. It will not jump very quickly to the level of the D&A that we currently have in the P&L.
Thanks.
All right. Dominic from UBS.
Hi, there. It's Dominic Edridge from UBS, and just a couple of questions. Firstly, can you just be clear in terms of all of the initiatives that you have in terms of the cargo mix, et cetera, can you achieve your financial targets in terms of meeting your cost of capital, just with where current freight rates are and where current bunker is? Or do you actually require higher net freight rates to hit your cost of capital going forward? It feels as though the cost stories in the whole industry are starting to come a little bit to an end, with some inflation coming back in.
Then the second question is: Isn't the big problem with revenue management, if I don't turn up for my flight back to London this evening, unless I've bought a very expensive ticket, you know, that's it, I have to buy a new ticket. Whereas, if I don't turn up tomorrow in Hong Kong to go on a Hapag-Lloyd ship, well, I'll just bring the box along tomorrow and you'll take it probably at the same rate. Thanks.
Well, first, to your first question, whether the actual freight rate level is of course a really good indicator for people that build a model, yeah. But it actually doesn't tell you all that much, yeah. Because it's all dependent on what's also the mix of things that you carry between short sea and long sea, back haul, head haul, all those type of things. If we look at the level of freight rates that we have seen in the third quarter, yeah, if we just look at our own business and we would optimize that further, then we should be able to get pretty close to our cost of capital, yeah. I think your second question was the difference between the airline ticket and what we do, yeah?
I do believe that you will see over the upcoming years that the way that we contract with customers will also change. Yeah. I like to draw the parallel with the airline or the air freight industry. If you look at the air freight industry, you can have a block space agreement, or you can have an allotment, or you can have a spot rate, yeah. You know, with the spot rate, you have basically no commitment from either side, and with the other two you have some level of commitment. What we will see going forward, I'm convinced, is that we'll start seeing more of those type of things also with others, yeah. I mean, there is no.
I mean, one of the things that we will probably introduce is a shipping guarantee, yeah. Today, you know, people don't. If you book a container with us, you don't get a shipping guarantee. We'll do our best to try and get it there. If you make that contract between us and the customer much more binding and much more committed, okay, then you also get a different type of relationship, because we guarantee you that it's going to be delivered the next date, and you have to guarantee us that you deliver the box and that you pay the money. If you then don't show up, it starts to look a little bit like your yeah, airline ticket to London, yeah. I think you will start seeing more of that. It's the same with.
That's where an industry that is maturing will typically move more in that type of direction. The same will go, I believe, when you look forward five years, not next year, around fuel surcharges. We in this industry have been very opaque, yeah, about fuel surcharges and what they actually are. We now try to come up with something which we believe is very transparent, yeah, and causal, and can be checked by anyone. Hopefully, that'll help to reinforce some confidence with the customers that what we do there is actually fair. Again, if you draw the airline parallel with air freight, if you buy a kilo of air freight from Asia, you pay $3 plus plus or something like that, where the plus plus just stands for fuel and security surcharge.
We need to get to a situation where in ocean freight you also buy a container from Asia at maybe $1,000 plus plus, yeah, where the plus stands for, okay, what happens with fuel and maybe one or two of the other things. Those are signs of maturing markets, which you also see in the airline industry, by the way, where there you have it with taxes and fuel and those type of things. I think it's not unlikely that we will start moving more in that direction.
Okay. Can I just comment on the first one? If you analyze the result of Q3, we are basically at 7%, which is 1% below the WACC of the company. We are not so far away from that. One percent is basically $10 in the ex bunker rate, just to give you. That's the gap that we have today, because if you analyze Q3, of course, which is a g ood part.
All right, Dan.
Dan Togo Jensen, Carnegie . If you want clients to pay more, you also probably need to add more. Can you do that without getting more control of the value chain? If you look at Maersk, for instance, they're taking the full step, basically. Are there any capabilities you need to add, for instance, on the terminal side?
I think in some cases yes, in some cases no. I mean, we named a number of the examples. In some cases you'll have to do more door-to-door. I don't think the terminals play such an important role in that, to be honest, yeah. I mean, for us the terminals is much more about making sure that we partner in a proper way with the terminals so that they support the quality of the product that we in the end, or the service that we deliver to the customer. I believe that you'll find that there are many pieces of additional value you can provide to the customer, whether it's some additional speed or, as we said, the instant quote, better documentation, other ways of paying, shipping guarantee, insurance.
There's all kinds of things that one can think of without having to add that much more control over the supply chain. I think we shouldn't forget that especially for bigger customers, many of them will also in the future have a multi-carrier strategy. That also from a risk perspective makes a lot of sense. That's why I believe that we need to look at those services that we can offer beyond what we do today, and we need to see them in many cases as options. In the end, it's all about deliver value. If you deliver value to the customer, in the end, he or she will pay for it.
We need to make sure that we can, of course, produce that value at a lower cost, yeah, than what, in the end, the company can sell this for.
As I said, you don't consider Maersk better positioned to actually add that through the fact that they control basically the whole value chain?
I mean, they don't control the whole value chain either, yeah. I think if you look at the share of inland transport between Maersk and us, I don't know their data, but I would suspect that their share is not materially higher than ours, yeah. In some markets, maybe even lower, yeah. Of course, they have more stakes in terminals and that means that we need to make sure that we organize ourselves properly around the terminals to make sure we get the right type of service. If we look at the access we have to terminals and the importance we have also as a customer to the terminals, then we typically can get the service that we want, yeah.
We believe that by working closer to them, we can actually make us an even more attractive customer to many of the terminals than we are today.
Okay. Christian Cohrs.
Christian Cohrs for Berenberg Research. Two questions from my side. First, you just mentioned the cooperation with terminals. You want to shorten the port stay. Does this actually mean that you're prepared to take more stakes in terminals? I think you're now engaged in Altenwerder here in Hamburg and also Aitanga. Is there more in the pipeline? The second question relates to the current review of the European Commission for the Consortia Block Exemption Regulation. I think the current regulation lasts until 2020. What is your expectation and how could the review affect the way the alliances work as of 2021 onwards?
Maybe on the first one, you should not expect us to do a significant amount of investments in terminals. We have a stake here in Altenwerder, and as you point out, I mean, we might look in one or the other case at some of the hub ports around our network on whether it makes sense to invest a little bit to secure controlled access to those ports. But those will be the exceptions to the rules. In terms of the block exemption, we sincerely hope that that is going to be extended. I do believe, though that also in future, it will be allowed to work together between shipping lines in VSAs and those type of arrangements.
Because not doing that would in the end result in significantly less competition and much higher cost for shippers, which would not make any sense. If they get rid of the block exemption and instead we again have to apply for every cooperation, that will add quite a lot of red tape, yeah. I don't think that it will change the way we work together. I don't know, Tony, whether you wanna add anything to that.
No, I don't think so. I think that's right. It was interesting, you probably already read, Drewry came out the last couple of days saying that they believe that the block exemption and the alliances have actually increased the competitive market for the customers by enabling smaller lines also to work with larger ships and larger services. It's not decided yet with the block exemption.
All right. Are there any further questions at this point in time? I mean, we'll have plenty of opportunities to raise your questions after the lunch break, which I think have already been prepared outside. I would kindly ask you to be here at 1:15 P.M. at latest that we can continue with the afternoon session. We've still plenty of topics that we would like to share with you. Please enjoy the lunch and maybe we can continue our discussion at the lunch.
Okay.
All right. We would like to continue. I hope you had some good discussions over the lunch break. Now we're entering into the afternoon session. Our CPO, Joachim Schlotfeldt, will elaborate a little bit more on that, what does it really mean, the new strategy for our organization, and what initiatives we have already implemented so far to support the strategy. In addition, we will also elaborate a little bit deeper on procurement as one of our core modules of our cost management program, as already explained by Rolf this morning. Joachim, please go ahead.
Good afternoon. Very warm welcome also from my side, and glad to meet you all here today. As just briefly mentioned by Heiko, I'm going to present to you now and guide you through the next two subjects, agile organization. I'm going to do this by addressing the organizational improvements in order to successfully also implement, of course, our strategy. Secondly, our procurement focus. By doing so, I would like also to focus here how to continuously earn and also to keep the right to play. I think we heard it earlier today, to keep the right to play as well. Now I'm getting multifunctional. I have a micro antenna. Here we go. Okay. Hapag-Lloyd became over time now a truly global company over the last couple of years.
We would like to illustrate a little bit some key data with you in terms of that we talk about a new Hapag-Lloyd. We do have a younger average age of our colleagues and of our employees, as you can rightly see. We are coming from a pre-CSAV situation over a pre-UASC situation and merger and acquisition now to the current status, with an average of 38.4 years. I think it's remarkable also to take note of that we became really truly global in terms of our nationalities being employed and working for Hapag-Lloyd. As you can see, we are now talking about 90 different nationalities working for Hapag-Lloyd around the globe.
Talking about the people, you see here a number of, sorry, 12,600 people, roughly. Out of this, please consider around 2,000 seafarers. Out of the seafarers, we have today 119 cadets on our two ships where we also do have a kind of learning program for future seafarers. If you allow me just to elaborate a few numbers. You know, we are structured into what we call five regions. The Asia region has around 1,600 people. The Middle East now at roughly 1,000 people. Europe, close to 2,500 people. North America, 1,100. In Latin America, we have more than 1,200 people working for Hapag-Lloyd.
We are present in 127 countries, and we do have by that 194 locations, sorry, 394 locations. Out of that, close to 200 own Hapag-Lloyd offices. This organization is now, of course, in a strong starting position in order to be ready and to master the challenges ahead of us. We do have a strong and recognized, I think, IT and process quality. To be honest, for me, IT and process belong very closely together. We are doing this. We are executing. Our ability to successfully manage the large scale of projects had been, I think, underlined when we did the merger acquisition with CSAV and lastly or recently with UASC. I think we saw the number before.
We were doing this, or we had done this in less than four months. Mind you, also, we had done this during the third quarter, really the peak season. Our sales and customer service is reachable basically around the globe. They're accessible, and I think they have a high knowledge level today. I think we are truly a global player, and we do have, I would say, our main home ports, obviously here in Germany, plus Italy and Canada, South America, and by now also in the Middle East. People. People and culture. Being responsible here also for our people in Hapag-Lloyd for my job title, I think I like to underline and stress that the highest value I would say we do have here are our people.
You can have hardware, you can have containers, but in the end, it's the people, and the people do make the difference. We have very loyal people, very committed and qualified people around the world, and they are also open. I think this is also quite important to take note of, that they are open for changes which are obviously ahead of us, and therefore, we very much look forward to these subjects. Yeah. To be able to execute this strategy successfully, of course, we need nevertheless to modernize our organization and to improve our agility. I think agile, agility is a word which is around these days. I think it's very important. In order to get there, our goal must be to have a faster decision process. I think it's very important.
To continuously learn and improve for success in future. Develop projects flexibly. I think we have proven this, but keep going the same way. To deal with risk earlier in order to allow to react also fast in case there is something coming around. To partner up with other players, I think this is also something which we should look at. We heard about O&E earlier, and I think we should also look at terminal partnering. Well, how we are going to do that? One important step is definitely to look into our core processes. We need to improve our processes and by that to also in a way simplify them, but also optimize them. Again, here, I think you need a strong IT support.
Again, IT and processes belong very closely together. Quality Service Center, I would like to elaborate a little bit further going through the presentation. Give you some ideas about what we do today already and what we're going to do in future as well. This automatically leads to automation as well. Next page. Good. As we said, agility, we need to boost agility with a further streamlined process, better tools, definitely, and by that also to focus purely on our core business. To give you a few examples, we think that we can and should and will improve our budget process, our forecast process. Schedule reliability. I think that's a subject which everybody's talking about. Schedule reliability is really not at best. Now, if you're at 80, 75%, I think then it's obvious that there is room for improvement.
We do know. We do have here in Hamburg what we call a Fleet Support Center. There you can see basically all our ships around the world at the same time, and you can see where they are. They get advice on, let's say, forthcoming typhoons or bad weather or whatsoever. To address the weather, of course, you can't change the weather, but you can address the weather. Working also a little bit on the schedule integrity is also something where we have to work on, that we get it right when we talk about move counts in a port, that we have the right window berths at the right time. These things are going to be addressed. Cargo control, I think here also, this is extremely important. We work with a what we call container entitlement list.
We allocate roughly 80% of our space on our ships and keep 20% open. Why are we doing this? Because in the past, we had allocated almost 100% of our capacity to our ships, and we still have a downfall ratio of 25%-30% at peak season. By definition, we were sailing with open space. I think this is something you have to look at, and you have to improve this. How are we going to do this? Our approach, of course, as said, we have to optimize, and by that also simplifying our processes. We do need, obviously, to look into additional and further tools in order to get there. Okay. Moving forward, establishing now the Quality Service Centers.
This is something new on Hapag-Lloyd, and I would like to elaborate a little bit further on this as well going through. We intend to do this, and we will do this because we want to further improve, obviously, our quality. This is what we are aiming at. This Quality Service Center setup, which I will share with you in a minute, some further details so that you get a good feel for that, what it means. It will help us doing so. By doing so, we will improve, obviously, the consistency and quality of our services. We will continuously make progress, and make things better. We will work with the systems. Again, our strong IT will assist us very much on that, plus our processes on top of it.
What we're looking at here is we have two different ways. We have what we call a Global Service Center. These Global Service Centers are located in India, in Chennai and in Mumbai, and one in Suzhou by now. Here we do basically predominantly documentation work, with roughly 1,500 people working in these centers, predominantly, obviously, in India. Now we are looking at Quality Service Center. We have set up a Quality Service Center in Suzhou, near Shanghai. We are in the process of further setting it up in Atlanta. We are looking also now at the Middle East region and India.
What we are going to do there, we will focus to bundle all activities, I would say, which are related to activities which are not customer-facing, i.e., customer service, operations, business, administration. You will leave the sales in the area office as we have it today, plus of course, sales support. Then these people will make sure that the customer is taken care of and well off. At the same time by bundling these activities, streamlining these activities, we will further improve our quality and our speed to the market as well. This automatically logically will probably also lead us to automation. The prime goal of automation is, and I like to say it very clearly here, not to cut jobs.
It is really, we would like to improve our quality, we want to be faster, and we want to avoid errors. That's the main objective of the automation moving forward. If you allow me now, I would like to add one more chart in terms of how the organization most probably will look like moving forward. As we said, and as we heard before, Hapag-Lloyd will look quite differently moving forward in the next years. As you can see from the chart here, we try to illustrate a little bit how we see the move of activities and job profiles maybe look like in our company in future. Obviously, we need additional people for additional volume. This is very clear. We will gain productivity gains on a very regular basis. That's also clear.
On the long term, and we said it and we talked about it, automation will play their part as well. We talked about niche markets earlier today, like the reefer business, DG or out-of-gauge cargo. Clearly here, we need to employ additional people. In balance, I think we will see more or less the same picture. Definitely for our people, it will mean changes. It may also mean for us, we have to ensure coaching, yeah, so that they get trained for a new job profile, so that they can cope with those challenges ahead of them. Well, this then leads me to my next topic, to my next subject, and this is procurement. I think Rolf elaborated a bit on it earlier, and I think we heard it.
We need to continuously earn and keep the right to play, yeah?
For that, obviously, you also have to make sure that your costs are well under control. How we're going to do this? What we are doing is we have launched a procurement initiative, and by that we are focusing on transport initiative. We call it Transport Plus. Under Transport Plus, we do understand feeder barge, rail, truck. We do have, of course, bunker and then corporate procurement, IT, hardware or spare parts for the ships and terminal procurement, including terminal partnering. I think on the bunker, for example, what we do need is we do need the technical, I would call it, expertise and the procurement skills in order to purchase the best possible quality in terms of bunker for our ships. We have launched a project which is called Agora. It's coming from old Greek.
It's called Marketplace, and this stands for our initiative on Transport Plus. We would like, by doing so, of course, increase the service level which we are getting from our vendors, which we provide them, to them, to our customer, to reduce, if possible, cost. However, I think we have to improve also the value for money, yeah? It doesn't help you have the cheapest trucker around if the performance is not there. You need a fair balance between these things in order to get them. This will have an impact on our entire organization, be it here in the headquarters, be it in the regions or the areas alike. I think here is also very important that we avoid what I call cluster thinking. Yeah, we have to work together.
We cannot have one looking at his predominant issue and then neglecting the other.
I think that's extremely important. Allow me a few words on the terminal partnering because I think we heard it before. I think terminal partnering is not just to get the best possible handling rate. It is more than that. Yeah? We think that partnering up with the terminal to get into a dialogue with the terminal to share data which we do have will help us. Give you one example. If we, let's say, sail Suez bound for Singapore, giving the anticipated ETA to the terminal by that time, allowing the terminal to react, allowing the terminal to guide you, allowing the terminal to tell you either to speed up, hopefully not, or rather slow down to avoid additional bunker consumption, to avoid that you are idle on the roads once approaching Singapore.
This will help the terminal to plan accordingly. This will help us to reduce cost. At the same time, we are burning less bunker. Those things, I think our experience we are making with the terminals, well, I think it's well-received. The terminal operator do appreciate this, and this is definitely the way forward for us to look into this. Another point on the procurement is obviously also, as I said earlier, that we need to have the right processes in order to get there. I said earlier, Hapag-Lloyd is very much process driven, depending on the IT as well, and working closely with the IT. I think we have at least room for improvement when it comes to working or establishing processes for the procurement activities. We're working on this.
We want to have a standard procurement method, a standard procurement process, which should allow us to look into this. We will have individual ideas depending on, or processes rather, depending on the terminal situation. For example, if you are in South America and you have a high dependency on reefer cargo, you obviously will look into this when you look into your procurement efforts, how the reefer containers and the electricity towards the reefer containers is being supplied and the cost as well. If you do that, of course, you have to ensure that you of course successfully implement this. I think it's also very important to get to these processes internally, that you train up our people. I think first you have to really align on the processes.
You have to train and coach the people on it, on the processes. Once you have done this and you have negotiated accordingly, I think then you can also ensure that you have a close follow-up internally as well externally, for example, with the terminal, and make sure that the targets which have been set are also being accomplished. What do we need in order to get there? Of course, again, processes. It's very important. We need to have the real correct, efficient processes to make this happen. I think communication anyway, it's something which is extremely important. Anyway, today, if you don't communicate, you will not get where we want to be. You have to create transparency and trust and respect towards these others, otherwise you will not work that out.
Cost reduction, at the same time, the quality, that's the fair balance you have to accomplish. From that, probably a vendor in our book will become a future partner for Hapag-Lloyd. Let me say one more word or a few more words with regard to Agora. I mentioned it. Agora focusing on rail, truck, barge, feeder, and some other costs. These are big cost buckets for Hapag-Lloyd. I think it's very important that you get a good grip on these things. You can definitely not avoid certain cost increases. When you talk to the terminals in China, I think you have not a great deal of opportunity to negotiate the freight rate or the rates, sorry, terminal rates, because this is given.
You have certain increases which are obvious, and they are there, and they will be there in future as well. I think you should look into these buckets here and see what you can do. We have initiated what we call Lighthouse Project. These are 13 different initiatives, such as we looked into the rail situation in America and the truck. As we all know, we had an issue there. We looked into that. Of course by doing so, we also look into our cooperation with ONE. On top of this, we have launched Agora. In Agora, we had a pilot in the Benelux. I would like to share with you the initial findings and the way forward we intend to go on that subject as well. As I said, Agora is looking at these transport costs.
We decided to move forward with the Benelux because we do have basically Holland and Belgium, and we have not only these two countries, we have the River Rhine, we have the hinterland in Europe as well. We have all the composition of the individual cost buckets as well. I must say it's encouraging to see the results when we went through. The process is roughly three months when you go from start to end in order to prepare, to execute and hopefully then negotiate successfully. I think it's not only encouraging to see how well this has been received within our own organization, but it's also encouraging to see how well our vendors, our partners, are reacting to this. We come well prepared to the table.
We can talk very clearly and straight about these issues, and I think this is extremely well received. This allows us to set very clear service level targets, and by that also to ensure that we get where we want to be. We partner up. There's one point which is, I said, optimized modal mix here. What we are saying is, for example, if you, let's say, you tracked the cargo in the past or up to now and in future you may can do it via the barge on the Rhine, then you like to change your mix or the modal mix. There are two different things. One is you negotiate with a terminal or a trucker. Here you do need to also, of course, align your activities with the third party, i.e. the most important one on that, their customer.
If you align that and you get the green light to do so, I think you have a lot of opportunities to make this happen. We have started in the Benelux. We have seen the encouraging results. We are now, as we talk, doing this here in Germany, Central Europe, and also in Indochina. Indochina for us is Vietnam, Malaysia, Cambodia and Myanmar. We will bring this forward. The year to come, 2019, we will roll this out within Hapag-Lloyd, wave by wave we call it, so that we will have a clear target for the year to come, 2019. Okay, this brings me to the wrap up, to the main bullets we had addressed here now. The backbone, as said earlier, is obviously the truly global company.
I think also it has been acknowledged that we have some core competencies. To become an agile organization, we need to be faster than our competition in changing the business environment as well and to adapt, of course, to this new strategy, and by doing so, quite successfully in 2023 or by until 2023. We will see a different organization by then, a modern organization and a very agile organization as well. Procurement, we heard it, with the enlarged organization, of course we also need to look into changing our procurement efforts and, through the processes we are going to establish, not only within Agora, but for the remainder as well. We will be well prepared to get there. We will, in the end, substantially strengthen our procurement activities and the competence toward our suppliers and partners alike.
This will wrap up my presentation, and I think now we are open for questions you may have. Thank you.
Yeah. Thank you. Thank you very much, Joachim. I think we just briefly hopefully can fix your microphone that we can get rid of this one. If there are any questions at this point in time, we'll be happy to take them, and Joachim will be happy to take them or the rest of the board, if you don't mind. If there are no questions, we would continue with the next part, but it's up to you. I don't see any further questions on this part. Maybe we can do it later on. That might also make sense. Now coming to the next presentation. It's certainly one of the hottest topics that we have in our industries these days. It's IMO 2020.
What does it really mean for the whole industry, for the container shipping industry, and especially for Hapag-Lloyd? What's our way to tackle these regulatory challenges? I'm quite happy to hand it over to Tony to continue with the presentation.
Okay.
Thanks.
Thanks, Heiko. My microphone's working. Good. Yeah, challenges and chances around the environmental changes. As Heiko said, hot topic. IMO 2020 has probably been the change in the rules around shipping, generating the biggest interest and discussion on environmental issues in the history of the container industry. There are two reasons for this. One, it's gonna cost a lot of money. I think as Rolf said earlier, that's not necessarily a bad thing. Also, and probably mainly, because many in the industry assumed that the implementation was gonna be postponed. Those that thought that included the oil majors, refineries, fuel suppliers, charter owners, and shipping lines. It's not gonna be postponed.
The IMO has shown very clearly it has teeth regarding these issues, regarding environmental issues, and we can expect further changes over the next years to come. Regulatory challenges have always played a role in shipping, and we've always managed to successfully implement them. Due to the global nature of our business, and Hapag-Lloyd is truly global, we don't have to just adjust to the global regulations, but also, of course, to local regulations. Some of the examples shown here on the chart are actually quite challenging at the time but never really had the interest in them we're seeing with IMO 2020. The 24-hour rule, nobody knew how to comply with that at the time. The ballast water changes, regulations which are more recent, were also quite challenging.
We've usually managed to deal with these things because they either need a good IT, strong organization, good planning, technical competence to deal with them. What's actually happening with the IMO 2020? IMO 2020 is just about sulfur, and that's only one of the environmental issues which will be addressed and needs to be addressed. 2020 is purely addressing sulfur, and it's not the first time. As you see on the chart on the right, we've had a continuous decreasing of allowed sulfur in fuel since 2010. In the so-called emission control areas, the ECAs, we've had a reduction twice now since 2010. Since 2015, we've been operating there with 0.1 sulfur fuel. You see the ECAs shown here in blue. There's a targeted ECA in China.
We can assume because these are not global regulations, the ECAs, there's gonna be a lot more of them. Governments all around the world are more and more concerned with environmental issues. There's gonna be more and more areas where you're only gonna be allowed to use environmentally less damaging fuels in the future. Today, we use 3.5% sulfur fuel worldwide and 0.1% fuel in the ECAs. As from 2020, we will only be allowed to use high sulfur fuel with scrubbers. I'll come to more detail on that in a second. Otherwise, we'll have to use low sulfur fuel, 0.5% fuel, and in the special areas, 0.1% fuel. This is just one issue around the environment.
This is addressing sulfur, and the marine transport sector is basically on the same path as the road transport sector regarding sulfur. The same sort of regulations are going to come out regarding CO2. There's gonna be a big push to reduce CO2 emissions and also nitrous oxide and other damaging emissions. This sort of change will continue to be a challenge for us in the future. To comply with IMO 2020, there are three possible solutions. Liquefied natural gas, which you can see on this chart, is gonna be a very small part of the solution, so-called exhaust gas cleaning systems, usually referred to as scrubbers, or using compliant fuel. The majority of vessels in 2020 will run on compliant fuel.
The worldwide capacity for installing scrubbers, and I'm now talking about the container industry, the 5,000+ ships in the container industry, the 60,000 ships in the total global shipping world. Total capacity for installing scrubbers is at the moment about 500 a year, which means there's not gonna be a lot of scrubbers installed by the time the regulations come in. The estimate is around 1,550, which is a very small all ships, not just container ships, for the whole of the shipping business. This was also not what the IMO thought was gonna happen. The IMO estimated there'd be close to 4,000 scrubbers installed by 2020. You can see the industry has been very slow to react, and is now really starting to catch up.
The first solution, and probably the one which is most environmentally friendly, is liquefied natural gas. We believe this is a midterm fuel solution for the shipping industry. The advantages of LNG is that there's a regulatory certainty around it. It is pretty clean. It has substantially lower emissions than any fuel oil. Not only sulfur, but it also reduces CO2 by about 30%, which is one of the targets we're gonna have in the future. It will be available on a broad basis in the next couple of years. Disadvantages, it's expensive. It costs a lot of money. Either building an LNG ship is more expensive than an oil ship or converting a ship. The bunkering network is not yet in place, and it's not available everywhere we need it yet.
To be a bit more specific, the estimated cost for a conversion or the additional cost for a new build for a large ship is about $25 million-$30 million. At the moment, based on the fuel information we have today, the payback of that investment would be 4-7 years. Hapag-Lloyd's position regarding LNG is that we have 17 so-called LNG-ready ships. We're the only player in the container industry to have these sort of ships, and we are looking very hard at what exactly we can do. We're planning a pilot to convert one ship to LNG, and we'll then decide on the future process. LNG ready is not plug and play. You can't just go up to the next LNG bunkering station, fill it up with LNG, and off you go.
There's quite a lot of investments and technical work needed before you can run on LNG. Let's say we're working at the moment on a 115,000 TEU vessel to convert that to LNG, and further refittings are possible. As we say, this is a midterm solution, and probably you will see a lot more LNG ships running in the container industry in the next years. Exhaust gas cleaning systems. This is an attractive short to midterm solution. It's much lower CapEx than LNG. There's no issue with fuel. We can carry on running on high sulfur fuel, which is easily available. It's economically attractive. It's a simple technology. Land-based power stations have been using scrubbers for a long time. Disadvantages are increased fuel consumption. Scrubbers need energy, quite a lot of energy.
You're discharging the scrubber water, the wastewater into the ocean, and it's definitely not a long-term solution. The estimated cost for the conversion of a ship is $7 million-$10 million with a very attractive, very short payback based on the figures we have today, probably one to maximum three years. There's been a lot of discussion around scrubbers in the press and in the industry. There's a lot of very negative opinions about them, some less or fairly positive opinions. The problem with scrubbers is you're putting the wastewater in the ocean, which when anybody hears about or sees, they think can only be a bad thing. It's not as bad as it sounds. What we're washing out of the exhaust of the ship is sulfur. When you mix sulfur with salt water, it becomes sulfate.
About 7% of the world oceans is today made up of sulfate, and if all the ships in the world use scrubbers, it would still be 7%. Now, this is. The issue is not the sulfur, the issue is everything else you're washing out of the exhaust. You know? This is what the problem will become. Sulfate in the ocean is not a problem, it's part of the biological process. I'm not a biologist, but I just know certain things eat sulfate, so it's part of the biological process in the ocean. Our position on scrubbers is we're planning to retrofit 10-13,000 TEU ships to be able to use them as from or going forward in 2020. Further retrofittings could be possible if we are successful with those ships where we're installing the scrubbers.
Main issue is you have higher CO2 emissions, you have the water pollution issue, and we see it as a short- to mid-term solution. You have the compliant fuel, which are gonna be the key solution as from 2020. No CapEx, most environmentally friendly or least environmentally damaging solution, and a confirmed availability. The disadvantages, it's gonna cost a lot more to run the ship on low sulfur fuel, and there are possible compatibility problems. This is an issue we hope is gonna be solved over the next 12 months, but at the moment, there's certain concerns that if you buy your low sulfur fuel from different suppliers from different fuel suppliers and the compliant fuel is produced in a different way. It may not be compatible, so you end up having problems in your tanks.
This is something we hope is gonna be solved. Solution to that, of course, is in the purchasing and in the contracts around the compatible fuel you buy. A big advantage for us is no downtime or cost for conversion. The issue we have to address, which I'll come to in a minute, is the additional cost. The additional cost for Hapag-Lloyd would be about $1 billion a year, as mentioned earlier. We see that for Hapag-Lloyd as being the key solution going forward and probably for 90% of the ships in the world will be running on compliant fuel. The regulations will make the industry greener, but it's gonna cost a lot of money. The total effect on the entire shipping industry worldwide is estimated at $60 billion, for the container industry, $15 billion.
As I said, for Hapag-Lloyd, $1 billion. These figures are based on what we know today about what this fuel is gonna cost in the future, and we're estimating that at about $250 a ton more than high sulfur fuel. That's what the experts tell us. That's what all the information available tells us. This fuel is not available today, or if it's available in very limited quantities, and there's no futures market for it. We can't really be sure what it's gonna cost, but the experts estimate it's about $250 a ton. Because the shipping industry can't afford $60 billion, and we can't afford $1 billion, as mentioned earlier, we have to recover the cost. We have, basically, the industry has been fairly haphazard about recovering fuel cost.
We've had things called bunker charges, and then when they haven't worked, we've had emergency bunker surcharges, and then we've had bunker trigger charges, and we've tried to recover our bunker, but it hasn't really been as clear as in other industries. I think as Rolf mentioned earlier, there's a lot of clever ways of dealing with this. We're going to use the IMO 2020 change to establish a fuel recovery mechanism, which will be a lot clearer, a lot more logical, and a lot more sensible. We're doing that now. We've already had the first negotiations with customers, and that is being accepted actually surprisingly positively.
We will replace all existing fuel charges for every customer, for every transport with the new MFR mechanism, which is very simple. Basically, we have an average fuel consumption for the ships in a trade.
We know they carried the number of TEUs, the utilization in the trade. We multiply that with the fuel price, and that gives us our Marine Fuel Recovery amount in dollars. We will show this on every invoice to every customer. Even if the customer has an all-in rate, a spot rate, or whatever agreement he has, we will show sea freight and Marine Fuel Recovery separately, which doesn't sound very dramatic, but is a big step for the container industry. This means, I think as Rolf said earlier to answer one of the questions, we will be selling sea freight. On top of the sea freight, you pay your share with the fuel used by the ship. As I said, it's logical, transparent, and easy to understand.
It'll have an advantage for our customers because it means they will see how their costs will go up or down as the fuel prices, as the market for oil prices, the market for oil change. The customer feedback has been quite positive. Some of the first negotiations we've been doing have gone extremely well, and it seems this is something the customers will adopt. It's based on market data, so anybody can logically reconcile that back, and they can understand where it's coming from. We are doing it with a unique approach. It probably won't be unique for very long, but we're also not just taking the 0.5% fuel into consideration. We're also considering the ECAs.
We're saying if your cargo is on a ship which spends three days going through an area where we have to burn 0.1% fuel, that will also be taken into consideration. That will also be in the formula. We're getting fuel consumption details from the market, so these things can also be understood by anybody looking at the formula. Governance is crucial. We have seen sometimes in the past that not every ruling which is adopted by the IMO or pushed out by the regulatory authorities is automatically adhered to by everybody. Obviously, such a big change, we are talking about millions, billions of dollars, is not gonna work if there is no governance.
Just to give you sort of one figure on that, a big size or fairly large size container ship between Asia and Europe would have $800,000 more cost for fuel if it used non-compliant fuel. Not complying can have a big financial advantage. Obviously that's not gonna work. There has to be a governance regime. What the IMO has come up with is the so-called carriage ban. I'll explain what that is. The IMO has no authority for governance. They can't control ships. They don't have a police force or a coast guard or anything. Each flag and port state is responsible for enforcing the regulations. The strict control in ports will be fairly easy, is also important, and it's all based on the carriage ban.
What the IMO has said is that no ship which doesn't have a scrubber or runs on LNG is allowed to have high-sulfur fuel on board after March next year. That means even if you say, "Well, I'm not using that tank," or, "It's left over from last year," or whatever, you're not allowed to carry this fuel on the ship, which makes it very, very easy for any port or state control to go on the ship, control the fuel on board, look at the fuel book, look at the invoices, and discover if compliance is there. We can assume the fines will be fairly serious. One of our competitors was fined $350,000 in California this year for not complying with the fuel regulations. Hong Kong and China are becoming increasingly tough.
People are not saying you get a fine, but you get a fine per day you're using the fuel, so you're talking about large amounts of money. The estimates I've heard other people are saying compliance will probably be over 90% from January next year. Supply, demand. Always the big question in our industry. Everything has to do with supply demand. Probably, these changes will also have some effect on supply demand. One issue is that an old ship or an inefficient ship would have substantially higher costs because of the more expensive fuel. This will make running older, inefficient ships much less interesting and could cause an increase in scrapping. The difference is more than 60% when you go to the higher fuel cost.
Also, large numbers of ships being taken out of service to have scrubbers installed when it's outside the normal dry docking will also have some sort of effect on the supply and demand. We do expect some older ships which are just hanging on with fairly marginal charter rates to actually disappear as from 2020. Wrapping that up, IMO 2020 is affecting the whole shipping industry, all of the container industry. There are three options to comply. The majority of container ships will run on compliant fuel as of 2020. We, of course, welcome and embrace these changes to become more environmentally friendly. Our customers want that as well. We will be testing LNG and scrubbers in 2019 and 2020, and possibly implementing the changes as from then. We will be relying mainly on compliant fuel.
We have an MFR mechanism, Marine Fuel Recovery mechanism in place. We believe there will be further emissions regulations in the near future. 2030, IMO has already defined targets for reduction of CO₂. 2050, very, very ambitious absolute reductions of CO₂. There will still be a lot to do in terms of improving the fleet and changing the way we address these environmental issues. Thank you.
Thank you very much, Tony. I think we can now open the floor for your questions, and I've already sorted them. We'll come to some questions. Maybe we start with David and then afterwards with Dominic.
Hi, it's David Kerstens from Jefferies. Two questions, please. First on the crude prices have recently come down a bit unexpectedly by 25%. When will you see that in your fuel bill? And does it mean that with your bunker recovery mechanism, you will have to give that back to your customers next year? Or will you see actually a cost benefit from the lower fuel prices? And secondly, you said being compliant with the or using compliant fuels, there will no CapEx be required. Does it mean that you can use the existing fuel tanks for the compliant fuels, or will you have to clean them up first? And will there be some downtime related to making them ready for the compliant fuels? Is there no CapEx at all or is there some CapEx? Thank you very much.
Okay. Try to remember all the questions. First, the fuel prices have come down over the last weeks considerably. We will probably see that in our results as from next year because we have an end of voyage system. Yeah. Our results are based on end of voyage, and we tend to fill our ships up with fuel. So we already have the fuel at that cost. So the advantages will probably come over a period of time, but you'll see most of that coming in as from next year. Yes, of course, we've only just started with the MFR and most of those contracts as from next year. Of course, if the fuel cost goes down substantially, of course, we will be reducing the Marine Fuel Recovery element in the invoice we send to the customers.
That I think was your question. Yes, it goes both ways. It's not just. The fuel price won't always go up, and that means the surcharge or the recovery factor will not always go up. It could also come down. Yeah, I think that's the answer to that. Regarding the CapEx, yes, you have to clean the tanks. But if your tanks are not completely clogged up with old fuel, the remaining residue of 3.5% fuel in the tank doesn't matter. The experts have said you will have to clean them to a certain extent, but not a full tank cleaning. There is no substantial CapEx required for that. What you have to do, I mean, I'm explaining this to a shipowner now.
What you have to do is plan each ship, each tank, as from probably second half of next year, how you're using the tanks and what fuel you're putting in them. Yeah. It's not a substantial CapEx expenditure.
Maybe a quick follow-up regarding the first point. What is the starting point for the fuel prices? You're starting on January first, so any benefits you get still this year, you will still. That would be the starting point for your new recovery mechanism, or how does it work in practice?
The mechanism works on the average price over the last three months. Yeah. I mean, if we're here on January the first, we don't know what the fuel price is gonna be then or what it's gonna be on January the fifteenth. I think we've said in the details of the formula, if we have substantial price changes over a short period of time, we will need to adjust for that. Obviously we can't start with a formula, somebody paying on the first of January $200 higher fuel costs than the actual price. Obviously we'll have to adjust that as we go along. Yeah. Who knows what the price is gonna be two weeks from today.
Yeah.
As you said, the price reduction was quite surprising.
Thank you.
Hi there, Tony. It's Dominic Edridge. Just one in regards to two things. Firstly, can you just explain how you're going to be quoting the spot or FAK rates then? 'Cause from what I understand, usually those are all in at the moment. So are you gonna be unbundling them?
Yep. Yep.
When I look on your website, we'll be seeing the FAK rates will be unbundled effectively.
Yeah. The idea is to send the customer an invoice saying, "Your all-in rate was $2,000. $1,500 sea freight, $500 Marine Fuel Recovery.
Okay. Can anyone see that or would that be only the customer will see that, or will you have a transparent mechanism on your website, do you think?
It will be transparent, yes.
Okay.
Yes.
The second question is more of an operational one. I think you alluded to the fact about potential incompatibility of where there's a lot of blends out there. What are your views at the moment as to what's going to be available? I'm sure you're in discussions with your suppliers at the moment. Do you think there are going to be a sort of a compatible blend that's out there, or are you gonna have to be very careful with how you use your tanks?
We've had information from at least one major who's guaranteed that he will be able to supply compatible fuel in all the ports where we need it. Yeah. We tend to call in most of our services at major ports. If you're calling Rotterdam or Singapore or Houston, L.A., you're gonna find compatible fuel. We believe that will not be a big problem for us. You don't want to pick up any special offers or fuel from fly-by-nights somewhere else in the first period. That could be dangerous. It's gonna be more challenging for tramp owners, some bulkers or tankers who tend to call at other types of ports where there might not be the good fuel available. This will be something we'll have to control very carefully going into next, you know, as from fourth quarter of next year.
Thanks so much.
All right. Any other? Edward.
Edward Stanford from HSBC. Can we look further, longer term, think about the reduction in CO2. Could you just remind us, if we knew in the first place, what the targets are for 2030 and 2050?
Oh.
From that, could you perhaps speculate as to what a ship you order in, say, 2030 will actually look like and how it will be powered?
Okay. 2030, the target of the, of the IMO is a 30% reduction of CO2. The target for 2050 is very, very ambitious because that's based on reducing, I think, the global CO2 of the shipping industry to 470 tons, 470 million tons. Anyway, less than 500 million tons. Absolute. Which is a pretty ambitious target. Which leads to the answer to your next questions. A ship we're ordering in 2030, or no, 2040, I mean, 2030 would be 20 years old by 2050, but will probably be different to a ship we would have ordered a few years ago. I mean, LNG reduces CO2 emissions by about 30%, which is part of the solution. Making the ships more efficient will also reduce CO2.
By 2050, you're probably gonna have other sorts of fuel available for big ships, most probably hydrogen. Whether that's hydrogen produced through fuel cells or hydrogen produced from gas, I don't know.
Okay. Joel.
Hi there. Just a couple maybe. You may have said this and I may have missed it, but in terms of scrubber installation, if I wanted to install one on a vessel today, how soon could it be done? And how long are the vessels out of action for while the work is done? That's my first question. Then my other question was just, you mentioned about non-compliance and your view that 90% will be the compliance rate. Is that for container shipping or the entire shipping industry? Even taking that number, that implies obviously 10% are not gonna comply. Hapag, I guess, will be 100% compliance. Is 10% still gonna be a problematic amount if 10% of the industry is still running on high sulfur fuel?
First of all, if you want to install a scrubber on your ship, for 2019, most of 2020, they're sold out. So it's gonna be quite difficult to get one. And probably then you'd install the scrubber when the ship is in dry dock anyway. So you're talking about a couple of weeks additional time max, if it's in dry dock. If you're installing a scrubber on a ship as a pilot because you've never done it before and you don't know how to do it, and this is the first time anybody's installed a scrubber on a ship like that, it will take longer. Yeah. That then depends on how many engineers you have and how you're working it. The thing about compliance, for the container industry, I would assume the compliance is gonna be much higher.
This 90% figure for compliance I took from Alphatanker, who had a very big paper on this whole issue. Because in the container industry, ships tend to call ports like Singapore, Hong Kong, Rotterdam, Hamburg, New York, big ports with environmentally interested governments, so they will be controlling it. You only have to control a ship in one port because of this carriage ban, and it's quite easy to find out if it's complying or not. If you have ships trading between other countries, put it that way, tramp ships, maybe some parts of Africa or Asia, which are not calling such environmentally concerned countries, it may be that the controls are not being done as seriously as in other parts of the world.
I would think this non-compliance will most likely not be an issue for the container industry, for the global container industry. All right. Maybe Satish and then Tobias again.
Thanks. Satish from Citigroup. I have three questions. The first one is on the operational standpoint of view. So by how soon you should start using a cleaner fuel on the ship so that you'll be compliant by January 1, 2020 and probably avoid the carriage ban by March 1, 2020, and what are the operational steps involved in this transition process? The second one, just being more on the supply side, there have been reports out there that tell that the desulfurization or coking capacity at the refiners have been increasing steadily. Also, there has been greater absorption of power generation from Saudi and OPEC, which should throw out that the spreads might normalize between a high sulfur and low sulfur fuel. I just want to understand, are you also hearing something like that?
Finally, on the Marine Fuel Recovery mechanism. Ninety percent of your vessels will run on a low sulfur fuel and 10% is going to be on a scrubber. Obviously, your customers going to differentiate whether they're paying for a low sulfur fuel or a vessel with a scrubber fitted, because you also pointed out scrubber will increase your fuel consumption.
Okay. The last question first. The customer at the time of the booking maybe will not know what ship, or we might not even know which ship. So there's gonna be a standard as an average for each trade. So if you have one scrubber and one LNG ship and 10 other ships in a service, you're not gonna differentiate. Yeah. I think that's the easiest question. On the refining capacity or the change in the refineries, this is a very complex issue, and we've got our information from oil experts on the oil industry who have spent a lot of time looking at these issues, how the refining capacity has been changed.
It's quite a complex subject, but all of the expert opinions we've got, and I think it's still the general opinion in the market, is that there will be a substantial premium between low sulfur and high sulfur fuel. There is, of course, a difference between the crude oil coming out of the Middle East, the crude oil in America because of how sweet the oil is, what they can do with it. There's also a difference in the age of the refineries. You know, some of the refineries in Asia are quite modern, some others are quite old, which are also able to change the refining process. But I don't pretend to understand all that. The expert opinions we've got indicate there's going to be this premium. Your first question again was?
The first question on the operational steps to-
Oh, yeah.
Transition.
Right. Okay, sorry. Yeah. We have a plan. We're developing a plan that each ship will have the necessary tank cleaning done as required and bunker the right fuels in a process which will start as of the fourth quarter of next year. Yeah?
The latest you'd start by Q4 next year.
We will have to start in the fourth quarter now next year, bunkering compliant fuel. Before you do that, you've got to have tanks cleaned.
Okay.
If the ship, for example, is in dry dock and all the tanks are cleaned, say a couple of months earlier, you might not use some of the tanks for heavy fuel oil to reduce the exposure in the later period. It's gonna be individual plan per ship for the fourth quarter of next year.
Okay. What is the additional fuel consumption with you would see because of using a scrubber on the vessel?
We don't know for our vessels yet. It's estimated at around 3%.
3%, okay. Yeah, thank you.
I think Tobias Sittig from MainFirst. How do I call you? Okay.
Thank you. Tobias Sittig from MainFirst indeed. Basically the investment decision, one to three years return on investment sounds pretty compelling. The decision not to install as many scrubbers as you can, is it a function of basically you think regulation will change quicker within the next three years versus against scrubbers? Or is it that the bunker fuel is no longer available or that the spread will be smaller. Yeah. Why don't you put in as many scrubbers as you can get?
There's so many unknowns. Yeah. I mean, if we knew the premium would stay as it is or increase, obviously scrubbers are a fairly simple bet, but we don't. Yeah. That's the first point. That was the question we just had. Secondly, there are not that many scrubbers available. Yeah. We want to get some experience with them. We wouldn't want to have a huge project of scrubbers on all the ships we have without getting some experience. Scrubbers are proven technology, land-based, but on ships of our size, running scrubbers is still fairly new. So you might find that the first installations need to be modified, and there'll be a certain amount of learning by doing during the installation.
I thought cruise ships have been running on scrubbers for a while already, or is that not correct?
They have some cruise ships, smaller one. Cruise ships?
Cruise ships, yeah.
Yeah, cruise ships are very different ships. Very different animal. Yes.
Excuse my ignorance.
There've been cruise ships out there, also some smaller ships in the Baltic running on scrubbers.
Yeah.
We're talking about ships with 80,000-horsepower engines, which tend to roll and stamp and move around in the water quite a lot, which run a little bit differently to a cruise ship. Yeah. Of course, we can go on their experience, but that's a slightly different animal.
Thank you.
All right. Any further questions? Christian Cohrs from Warburg Research.
Thank you. Christian Cohrs, Warburg Research. Two questions. First, you said that 90% of the global fleet will run on compliant sulfur. I fully understand that you said that you need more experience how this scrubber technology works. If we look to 2025, 2030, what is your assessment of how the global fleet will look like? How many scrubbers, LNG, and potentially also how long the what time you need to retrofit your current fleet. And secondly, Maersk has announced a partnership with Vopak in Rotterdam. Do you also eye some preferred supplier partnerships in the field of compliant fuel?
I can't tell you what the global fleet is gonna look like in 2030. I don't know how many ships are gonna install scrubbers. We don't know how many scrubbers we're gonna install after the first 10, to be very honest. If we see the premium to the high sulfur fuel low sulfur fuel increasing or looking as if it's gonna become stable, and LNG the development of LNG is not as positive as it might seem at the moment, we might install more scrubbers. If we do, probably other players will as well. If that is the trend, you'll probably find more production facilities to make scrubbers and more facilities to install scrubbers becoming available, so you'll be able to install more than 500 a year.
I don't have a crystal ball which tells me that at the moment. Yeah. I think it's a time of development for the industry and you will see changes, but also the IMO is gonna be coming out with new regulations. You can be fairly sure that if the political pressure on the IMO is very strong, you might find that scrubbers are not allowed in five years. Yeah. That's also inside the realms of possibility. Yeah. Sorry I can't give you a more precise answer than that. What was the second question? Sorry.
I think Maersk.
Oh, sorry. Yeah. No, yeah, of course.
Maersk and Vopak.
Yes. I mean, we are looking at working closely with all suppliers, with the majors to provide the right sort of fuel.
Okay.
Yeah.
I'm Edward Stanford again. Very quickly, just to clarify, the capacity of scrubbers of 500 a year, is that for the whole industry or just-
Yeah
The container ships?
That's the figure I got from this new report from Alphatanker.
That's for all types of ships?
For all ships. They say the capacity, this 500, is not because of the yards. There are plenty of yards out there who can fit a scrubber. On the one hand, it's the scrubber manufacturers. On the other hand, it's the specialized engineers you need to design a scrubber installation.
Thank you.
Okay. Oh, sorry. Okay, fine. Just wanted to move on.
James Baker from Lloyd's List . Just a quick one on availability of LSFO post-2020. Are you giving any insight into just being able to access this stuff, never mind the price of it?
The price?
No. No, the actual availability.
Of the
Of just getting the pure volume of it that you need for the fleet that you have and across the industry.
I mean, as I say, from one major, we've heard very clearly there will be enough fuel available in the ports we call for us.
Is there any indication that given that there's only gonna be, you know, this tiny percentage using scrubbers, that, well, the lack of demand for HSFO-
Okay, for high sulfur fuel, yeah.
For high sulfur fuel is going to sort of make that a lot less available as well, in which case that could further drive down the price or push up the price of high sulfur, you know, relegating scrubbers into some sort of dead end.
Good. I mean, good. Yeah. It's a good question. Interesting point. I mean, the way I understand it is the high sulfur fuel will still be produced.
Mm-hmm.
It will still come out of the refinery, so there'll be price pressure on it, pushing the price down. In the sort of ports where vessels calling, there will be the infrastructure available to bunker high sulfur fuel. That won't, probably will not be available in every port as it is today. Those, say 5% or whatever of scrubber installed ships, they will be calling Rotterdam and Singapore and probably Long Beach or Houston. In those ports, there will be the availability.
Thank you.
All right. Thank you very much, Tony. I think or if there are any further questions, then we would like to move on to our last-
Okay.
To our last topic today.
Okay.
Thanks a lot. I think Rolf already mentioned this morning that digitization plays an important role in our industry and even increasingly important role. What have we done so far and to differentiate from others and what we have achieved already. Rolf will elaborate a little bit more in detail. Rolf, the stage is yours again.
Good. Well, now we're gonna talk IT, yeah? For sure you will have less questions to that than if you have to fuel, yeah? I'm not promising you that we have more answers, but, I would still say that it's good to give you a little bit of insight in what we actually wanna do. Also because, when we go back to the morning and when we talked about differentiation, a lot of that in the end will also be linked to what we can do in terms of processes and what we can and cannot make possible. I believe that when looking at that, it is important to maybe also take a little step back. 'Cause I do believe that when we look forward and when we say, okay, what are one of...
What are some of the strengths that Hapag can build on, that IT is definitely one of them and process excellence as well. Hapag started already in 1993 with developing one system where we invested already at that time a lot in EDI and connected that to SAP. A little bit over 15 years ago, we came up with FIS 2. Then started to push online and automation and also introduced all kinds of business analytics. We then merged between Hapag and CSAV and UASC, certainly brought some further tools in-house also from those two companies. Now we did this year Quick Quotes, and we are working also on the next release of FIS. We'll continue to deliver innovation in this field also in the years to come.
I guess our message here is that digitization is probably a nice buzzword for me, but in the end it is also all about getting better in IT and making sure that your processes become more and more efficient going forward. I think if you look at some of the statistics that are out there in terms of productivity, and you make a comparison between the various lines, and people tend to do that just by dividing the number of TEUs by people, you will actually find out that from all of the big liner companies that is out there, that already today Hapag has the highest productivity, despite the fact that we are somewhat smaller than others. I think that's just one of those points that underlines that this is definitely one of the things that we can build on.
If you look at what do we do, I would say that for us, when you look at digitization, it's all based on our existing IT, as I mentioned before. We do believe we have a good starting point there. I also think that, when you look at our structure, this picture looks actually rather simple, if you compare it to some other companies. I actually believe that that's also true. Because we have been on one path for quite a long time. That means that despite the fact that we have a lot of IT, the basic structure of it is actually fairly straightforward.
We have SAP, we have FIS, including some analytical tools on top of that, and then we have a data warehouse called Compass, and then we connect with our customers and with our suppliers. We've been very firm on these things also in the last couple of years. If you look at the integrations we did with CSAV and with UASC, I believe one of the key success factors there was that we decided not to, you know, try and find the best of both worlds or best-of-breed type of systems, but that we took a very firm decision in both cases to migrate everything to one platform. We were able to migrate the CSAV business to the Hapag-Lloyd platform and take also some things from CSAV after that.
We did the same with UASC, which allowed us, I think, in both cases, to integrate quite fast. If in reality you look at the transition that we did with UASC, I think we said externally that we did it in six months. In fairness, we probably in reality did it in four months, yeah. I think that tells you quite a lot about the quality of our IT, and that, in the end, is the basis to digitize if you ever want to do that.
We also think another point that's very important here that we cannot emphasize enough, that in the end, going digital or doing automation can only be done if you have a very close alignment between IT and the business, because only then you'll be able to get to something which we would call digital excellence. We've given you some examples in this chart about all the things we do, yeah. When we look at our digital development programs, if we look at the 100+ projects that we run around process excellence and automation, I'll talk a little bit more about the digital channel and the e-business unit that we put in place afterwards. We do have a tech watch unit. We spoke earlier about IBM and Maersk, but there are so many of these type of initiatives out there.
We believe it's very important to keep an eye on them, and we participate also in a number of them. So far, there have not been that many where we said, "Okay, here we're really going to put in a lot of money," yeah. But some of that will come. In the end, this is all about making sure IT and business continue to hold hands, together develop products that are also adding value to the customers, and then be quick if and whenever we can. Can you use all kinds of technologies there, and what can you do with artificial intelligence, machine learning, all those wonderful things?
Yes, you can do a lot with it, but in the end it's always about try to find the right use cases, because IT can do a lot, and you can—I mean, we're also being called by, I guess, 100 startups every week or so, yeah. All believe that they have now developed the best thing since sliced bread, yeah. In many cases, they don't come up with things that we can really apply and also bring in play towards our customers. Because that's in the end what you need to do, yeah. In the end, yeah, technological innovations can definitely help you, yeah, to create better customer solutions. Of course, the marginal cost of IT and of storage and all those type of things has come down tremendously, yeah. The tools have become a lot better.
That certainly means that also when you try to put the customer in the center of what you can do, that there are opportunities to differentiate by levering technology. In the end, it's never all about IT alone. Having said that, what we've tried to do over the last year and a half is to still find some instruments to try and accelerate some of the things that we can do towards the customers. What we did there is that we set up what we called a DCIU, yeah. The name is more complicated than it actually is because it's not a huge group of people, yeah. In there we've said we should try to create a separate group that based on the capabilities that we have, works on what kind of insights do we get from the customers, yeah.
What can we develop quickly and how can we then also put it into the market quickly? Because if we do it like this, we'll gain a lot more pace than if we try to do it all through our normal development cycles. The best example that we have for that is still what we did with Quick Quotes, which in the end is a fairly straightforward tool when you look at it. We'll show you as a quick video in a minute, yeah. What it brings you, it gives you 24/7 access to quotes from any origin to any destination across the globe. That sounds easy, but it's actually quite complex also because you need to have the whole pricing engines and everything behind it, and that means it needs to be fully integrated with your operational system.
That's also why it was only possible to do that in a joint effort between the DCIU, the regions, the areas, and our IT. It actually takes some time to pull some of that together, and it's also not that easy to replicate. It gives you the rate back immediately. If you ask a quote from us from, I don't know, Ho Chi Minh to New York, yeah, you'll get a quote within 25 or 30 seconds, which we believe is fairly unique in the market. You can get it really with only a few clicks. Anyone can access the tool. If you like the quote, you can use it and you can book immediately, yeah, and it gives you actually access to our entire global network. That is the thing that we've been able to build.
If you take a step back and you ask yourself the question, why were we able to do that? That has everything to do with that IT infrastructure that I tried to describe earlier. Because doing these type of things on a truly global basis is incredibly difficult, yeah, if your IT landscape is fragmented. Then, of course, you can still do some things for specific segments or specific markets, but this is, I think, a good example of what we try to do on a global basis. If I'm not mistaken, then we're gonna now run a one-minute video to give you a little bit of an illustration of what it is. Then I'll talk afterwards about what we've actually been able to achieve with it.
At Hapag-Lloyd, we care about helping your business move faster and enhancing your shipping experience. That's why we've created Quick Quotes. With Quick Quotes, your quotations are now better, faster, and more yours. Fast, easy, flexible. From now on, your quote is just 30 seconds away wherever you are, whenever you need it. Simply log in, select your routing, and get your quote instantly. With your quote in hand, you can start your booking with a click and seamlessly manage your entire supply chain with our integrated online business suite. After a successful quotation, you can book right away. Get your first quote now.
That is about the time that it indeed takes you to ask for a quote. I know Heiko tried to challenge me that I had to do it live here on stage, but we didn't dare to do that. But that's probably more because of my IT skills than anything else. Yeah. I think what I'd like to show you here is one chart which shows you a little bit how this channel has developed. We started at beginning of the year, because here you basically see the weeks of 2018, and on the vertical axis you see the volume that we've been moving.
We started at the beginning of the year after doing a number of technical tests in November 2017, and then we started with pretty much zero, yeah. We started rolling it out, and as you can see, that by the time we got to week 44, which is the last one we have here in the graph, we were moving about 14,000 TEUs a week, yeah, through this channel. If you think about that, then that's sort of building up a channel within 10 months that has a run rate revenue of about $700 million. Yeah. Which is actually quite impressive, yeah, and if you would be an investment banker, you would probably love to bring this company to the stock market, yeah.
Because it probably has a lot more potential to grow as we move forward. The interesting thing is that when you look at this and when you break it out, which is something that we are doing now, that you see growth in segments where you did not expect it. We also see that there are still segments where the penetration, even today, is very, very low. Yeah. Then you see that the unit margins we are able to achieve in this segment are well above the average, yeah, of what we are able to achieve globally across our entire business. I think that's what gives you know, quite a nice illustration of what one can actually do, yeah, with digitization.
It also tells you that this is only possible if you are properly integrated, yeah, with your operational backbone, because it wouldn't work, yeah, if we give you a quote, you try to make a booking, but then you don't get a box, yeah. Or then we don't ship your cargo. The last point I'd say about why we have also been positively surprised about this channel is that we also test every week. We spoke in the beginning of the day about Net Promoter Scores and how you measure quality. We measure it here every week. Yeah.
In this channel, the interesting thing is that the net promoter score of this channel varies between 20 and 30 positive, which is significantly higher than you would find in our normal business, and which is also probably significantly higher than you will find across the entire industry. While a lot of people would say, you know, it's an automated service and, I can't talk to my salesperson, you still see we provide 90,000 quotes every week. We move 13,000-14,000 TEUs on a weekly basis, and we have about 3,000 customers using this channel every week meantime. I think that's a good illustration of what actually can be done if you get it right, on the digital front.
Are there other things that we are working on and that we can still do going forward? Yes, for sure. Yeah. I do believe that, you know, this for us at least, it's been the one that's been the most visible thus far. Which, of course, also encourages us to continue working all these type of things, because you simply can see that you can make life easier for the customers, but do it also in a way that you deliver also perceived good quality at a relatively modest cost, which of course could be a true game changer for our company, yeah. Not neglecting that also others will of course move in that direction, yeah, so we'll have to work hard to remain in front with some of this.
Okay, it also illustrates that based on the infrastructure and the way of working we have, we can do things that may not be so easy to replicate, and we may also be able to come up with a couple of other ideas. Some of which may be as successful as this, but others may be a little bit less successful, but we'll continue to explore these type of things over the years to come. Wrapping this short section up and then giving you again the opportunity to ask some questions if you want that. Again, what are the key takeaways for us on this front? One is the single operating system is very, very important because if you can't build on a single operating platform, it's going to be incredibly difficult to digitize on a truly global basis.
The second thing is, it has to be focused on what is important for the customer. If you take the example of Quick Quotes, we built that around the feedback of the customer who was always upset because we took so long to give them a quotation, yeah? So long then meaning one day, two days, eight hours, four hours, 'cause sometimes you just need it on the spot. It could also be a forwarder that just tries to close a piece of business, or it could also be one of our salespersons that sits with a customer in Canada who asks, "By the way, I have a container here that has to go from Buenos Aires to Asia. Do you have any idea?" He could give him a quote in 30 seconds and basically take the booking right away.
Simple piece of value, but focused on a customer solution. We put up this separate team mainly to get more, some dedicated attention on building these type of things. That unit, I hope they're not in the room, does not have a tremendous amount of shipping experience, yeah, which is good, yeah, because they have a tremendous amount of digital experience, which sometimes creates some, you know, some longer discussions, yeah, with us internally, because we do need to make that connection, but it brings a new type of spirit and energy into the company, and I think it's been taken very positively by everybody. Now we bring it back into the organization because we do believe that we can still do more, yeah.
As said here, we kicked off a number of potentially quite interesting collaboration efforts in this field. We have a number of other things also in the pipeline as we speak, but not yet as mature as this one. But it certainly underlines also our confidence and trust that you can do a lot more in that space, and we believe that we're very well positioned to truly capture also those opportunities that are out there in the market as evidenced by this not so little example. With that, Heiko, I'll hand it back over to you for the question session.
Q&A session. Oi. Sorry. Thank you very much. Yeah, as you said yourself, we're now opening the floor for your question now. Maybe Adrian Peh l from Commerzbank.
Yes.
Yes, Adrian Pehl from Commerzbank, hi. Three questions on that. Actually, I dare to ask whether you could give us some indication on the better rates that you achieved or the better margin on the web tool initiative. Second, maybe you could share with us how many new customers have you attracted already with that. Maybe not in terms of figure, but maybe there's a kind of share in new customers versus existing customers, something like this. Third question is on do you already push that into the existing channels, i.e. your employees, are they incentivized to advertise this new tool into the existing channel or customers as this is so attractive.
I mean, to take the last question first. The answer to that is not yet, yeah. We are now also because we've also been a little bit surprised about the quick uptake of that channel, to be honest, yeah. Because of that, we first now have been coping with the growth, and now looking into next year, we'll try and put some more structure around it. Your second question was around the number of new customers. It's a little bit difficult to determine because you always have spot customers here and there, but I would still say that if you look at it across the year, that is certainly a four-digit number, yeah. Your first question was around margin, yeah, or price.
I mean, this is a product that, of course, taps into the highest paying segments in the market, yeah. Then it depends very much on what you actually put out there as a benchmark, yeah. If you look at a margin per container, I mean, the extra amount you are probably looking at high single digit percentages or low double digit percentages, yeah. Higher rate, which if you think about that, yeah, I mean, if you get a 10% higher rate, yeah, we talked earlier on about becoming twice the size, yeah, and then saving 2% of cost. Then you have 10%, even if it's only on 5% of your business or maybe 15% of your business at some point in time, is actually quite a sizable amount of money.
What we should not forget, which we don't take into account, is that of course, because it is a fully automated channel, more or less, yeah, or will be a fully automated channel, that also the cost for every transaction is well below the average as well.
All right. David?
Can you give an indication, how much you are investing in the digital transformation and how that does compare to the industry overall? Perhaps as a percentage of revenue.
I don't know. I mean, I think that the amounts of money that you are pouring into something like this are not always decisive. It is not only about investing a tremendous amount of money, it's about bringing the right people together and then developing something based on what your backbone is. I mean, we have a fairly significant IT development budget, but not only for things like this, yeah. If you would look at the absolute amounts that we pour in there, they are very small, yeah, compared to some of the numbers that I have heard from some of our competitors.
Okay.
Hello, Neil Glynn from Credit Suisse. Just a question following on from that. You mentioned, I think getting the right people. We've seen certainly in some other sub-sectors of transport, investment in startups. I'm just interested in your approach to that, whether it be startups in Germany, whether it's focused on container shipping or the broader logistics industry, or even looking further afield. Is that something that could help, I guess, change culture, improve culture, give yourselves maximum exposure to latest thinking and developments?
I mean, we're certainly open to look at that. I mean, when we've had many discussions with startups and companies, but so far we have the number of investments we've done has actually been pretty limited. Again, for the sort of similar-ish reasons what I said I just tried to explain. Because if you look at, for example, all the online digital forwarders that are out there, yeah. I don't know how many there are. They definitely attract a lot of funding, yeah. That's what I can see. But I think there are very few digital forwarders out there today, yeah, that move 15,000 TEUs a week, yeah. I don't think there's any, yeah, to be honest, based on what I know.
From that perspective, I think the added value for us to invest in a platform like that is probably not that big, yeah. Also because they tend to be quite good on the front end, but it tends to be fairly manual in the back end. I mean, we've been visiting many of them, and I will not quote names, but where you have people with a very high reputation, and when you then go out there, the number of people that are doing data entry is mind-boggling, yeah. Yeah, and it's just, you just don't see that.
I recall that I think Tony and I were visiting once one of those guys, and when we left, we were arguing whether their SG&A per TEU was 300% of ours or 500% of ours, and I don't think we could come to an agreement on that, yeah. This illustrates again that there's a big difference between going out there and coming up with some really good PowerPoint, yeah, which looks fantastic, and coming up with three pilot customers for which in the back you actually do everything, compared to trying to build something that is actually scalable, yeah, and fairly simple, yeah, which then in the end will also help you to generate quite a lot more business. Those approaches are very different.
The disadvantage with these startups in many cases is that they are small, yeah, and the scalability of those solutions in many cases is quite questionable. For that, our business is too complex. Our business is very different than buying an airline ticket, although everybody would like to compare it with that.
Thank you.
All right. I think Johan had another question.
Yeah. Hi, Johan Eliason from Kepler Cheuvreux. We've been talking about these 2023 targets, but if I may also look at today's situation, you mentioned that the fuel mechanism, recovery model seems to have been appreciated by the clients. Can you say anything then about the rates, how these new negotiations are going? I guess Asia-Europe is ongoing or so.
First of all, that's really too early to say. I think you see very early results. Generally, we've been happy about the adoption of the MFR mechanism. If you look at the rate levels, particularly in places like Asia, Europe, I mean, those negotiations are just starting. I would expect the rates to be better next year than this year, but I expect that every year. Based on the data that we can see so far, you can't say too much about that. So far, I've been pretty happy with what I have seen, but admittedly, that's only a few of the tenders that have really been concluded.
How do you plan your capacity for next year, considering volume seems to be at risk at some trades and I guess growing at others?
If you look today, we still think that market will grow 3%-4% next year. We would then typically plan allocation growth a little bit less than this because we still think we can sweat our assets a little bit more, yeah. If that turns out in the end to be higher or lower, okay, then we'll have to adjust our plans accordingly. Yeah, I mean, that's, I think, where we need to become a lot faster, and I think our teams have become a lot faster, that when we see some things are working really well or not so well, okay, then we need to move and adjust, yeah.
As long as we do that right eight or nine out of 10 x, in the end, we'll have a much better result, yeah, than if we just look at it once every year and then use another couple of quarters to just hope that things get better.
Okay. Thank you.
Okay.
Yeah. Frank van Kralingen from ABN AMRO. I've got a question on leases, actually. I saw in the picture you showed that Hapag-Lloyd has a relatively, compared to the competitors, low amount of lease obligations.
Yeah.
Is there a specific strategy compared to the competitors in leases going forward?
Yes. That's true. We have significantly lower amount of operational leverage than at least the two competitors that we showed in the slide, four to five times less. That is a reflection of the higher ownership in, especially on the ship side. We own around 65% of our capacity, whereas they own significantly lower percentage of capacity. We feel comfortable with this percentage of ownership at this moment. That gives us the space to continue growing with some time charter, of course. We believe that the industry will go up in terms of ownership, not because of the norm, because of, I think it, today is economically more efficient to do that way. We are happy with that percentage of ownership. That gives us the possibility to generate more cash flow.
The EBITDA margin is structurally higher than theirs, which is something that will be corrected by the norm anyway. At the end of the day, the important thing is that we can generate more cash flow and then continue with our deleverage path, as we have commented in these presentations.
Okay.
Of course.
There are no further questions. Before we finally wrap it up, I think we have prepared a little video, unless you wanna say something at this point in time?
No.
No, I would say we show the little video, and then you finally wrap it up for me.
Okay.
Everything starts with a vision and the courage to change, to adapt, and to reimagine. We are one of the largest liner shipping companies in the world. Wherever you point on the globe, you will always find us because we keep the world's economy running. We have repeatedly reinvented ourselves. For example, when Hapag became Hapag-Lloyd, when we took the company to a public listing, when we were merging with UASC. The journey is long, and as you know, the weather in shipping is not always sunny. These changes have made us stronger. We are now five times bigger than we were in 2005 and enriched with the best talent from three mergers. One year ago, Hapag-Lloyd started working on a strategy. We have worked passionately to build up our plans.
Now we are ready to start the implementation, and we want to have all of you on board, customers, employees, suppliers, investors. Our customers expect more reliable and cost-effective marine supply chains, and that is what we will deliver. We strongly believe the time has come to focus on quality of service and to transform our industry. That's why our main goal is to be number one for quality. It's time to set our sails for Strategy 2023. Join us on that journey.
I think what we tried to convey to you today is very much our way forward, which we've labeled number one for quality. I think a couple of key points to remind you one more time, and basically the key message from our end is that we will continue to actively drive change, but we will do that by trying to build on those things where we are strong, yeah. We believe that we have some of the strength in-house that will give us a better chance than some others to be successful on this route, yeah. We'll have to make sure that we continually earn and keep our right to play.
We can have all kinds of nice ideas about differentiation and midterm strategies, but we need to make sure that we remain cost competitive and always have the best possible cargo on board.
Quality was mentioned. We'll need to become quicker, even quicker than we were. I think Tony explained very well on how we intend to deal with regulatory changes in an environmentally friendly manner, yeah. We'll work on building better and new customer solutions through digitization, and we will also promise you that, you know, in a way, German as we are, yeah, that we will systematically monitor, measure, and drive progress in the way that develops. Because strategy is nice, and you saw a lot of nice PowerPoint charts, but in the end, it's all about the execution, yeah? That is now what is ahead of us, and I think we and our teams look forward to doing that.
We also look forward to seeing you again soon, and then showing you more about what we have and have not been able to achieve. Thank you very much for your attention. Then I believe we welcome you to join us for a small get-together outside. Thank you very much.