Good morning. Let me first say sorry for that horrible music, but that's what we get with AI and all these rights issues. So that's what you get. Anyway. Good morning and welcome. Happy to see so many of our friends and partners and not least, also investors here. We discussed way back whether we should have a capital markets day, and we decided we don't think we need that. We give you quite some good updates during the quarters and there are no significant company news that we need to share right now. On the other side, we are in a market that is quite exceptional, and I think looking out here, maybe with one or two exceptions, I won't name them.
We have never seen something like this, at least in our industry, where we have massive global forces hitting the markets we serve in terms of auto and partly High and Heavy, and also hitting us. I think the impulse we are now seeing from China in terms of advanced manufacturing also in cars, can, to some extent be compared to those who were in the bulkers and tankers back in the 2000s and seeing the impulse from China when it came to more raw materials. So really understanding China is something we are all trying to do, and we have that on the agenda today. So what we want to do today are basically talk about the environment in which we operate, less about ourselves. Going to touch it. We have put our best heads to work.
Anders will join you soon to talk through the automotive market and partly the High and Heavy market. Really looking at what putting China into an Asia context, in historic context, and looking at, so what happens then to the rest of the world. We will have Morten joining us talking about the shipping market, which is at least for us, we've never seen anything like this. Then I think even the most senior in the room can't remember anything like this in a RoRo market. Then we'll have a couple of external views from good partners also talking about the automotive industry and China. So hopefully when you leave today, you have learned something new about the industry in which we operate, and less so about Wallenius Wilhelmsen, but a lot about our markets.
With that, I'll pass it on to Anders that will take us through the first session.
Thank you.
You do not need.
I have this one. Thank you. First of all, this presentation is quite comprehensive and, thanks to some smart people, Elisa and Rian, that have helped me on preparing this. That is it. This is the quick agenda for today. We are going to talk about auto. We are going to talk about High and Heavy. As Lasse mentioned, the fleet. We are going to have a presentation from Bank of America and a presentation from DNB Carnegie. Lasse is going to round off. On the agenda. On the automotive side, we are going to talk about Asia, what is happening in Asia, what is driving the market. We are going to talk about Europe. We are going to talk about U.S. Before going over to the High and Heavy side. Trying to put things in a context.
We, as Lasse said, we are experiencing a very tight market. It is not necessarily driven by massive auto sales. It is more about how the sales of those automotives are distributed. There is more and more being seaborne. As you look here going way back in time, you can see that with the exception of China, car sales are fairly stable. There is the financial crisis, there is COVID, and a few other pieces that kind of disrupt it. But overall, car sales is when we are back to 2015 levels when it comes to car sales. It is not the market for buying new cars that is driving. What we see today is more the development within that market. On the seaborne side, what we are seeing is there now a massive redistribution.
There is more and more coming out of Asia, less and less coming back from the West. The fact that China is not coming, but also the fact that Korea and Japan are stable is what kind of shifts. The dark green bar here is showing what is coming from Asia, and that is growing significantly. With no return cargoes, that means that for the marginal cargo coming out of Asia, there is no return cargo, meaning you have to do a round voyage. That is extremely ton-mile intensive. What we are seeing now is ton fleet growth, which has been quite substantial. It is still insufficient to cover what is needed, and it adds pressure to rates in a positive sense for us. Looking at where are cars sold and what kind of imports are we looking at.
Basically, we can split the market in two in Asia. Pretty much what is produced in Asia is also consumed in Asia. There is limited imports. Whilst if you look at the U.S., South America, Europe, and Africa and the Middle East. A majority or a big portion of the total auto sales are actually imports. Then, you know. What has happened there? Really, this is on the production side, and really what has happened is that China has moved from 2%, 3% back in 2000 of the global production to in excess of 30% today. Europe and the U.S. have kind of come from pretty high levels, but have reduced their production or their production has come down, whilst Japan and Korea has been fairly stable. That is really the key factors that is driving the shift in production from Western producers to Eastern producers.
Going a little bit into the industrial journey that we are seeing in, or are seeing and have seen in the auto markets, in particular for Asia. If you look at Japan and Korea, they have both been through a journey where you started producing cars in Japan.
Gradually, you started to export. It took time before people started to realize that these cars are good. It is not bad car. You get acceptance in the market. If your export starts to increase, and then eventually you start to actually produce abroad in addition to exporting. We have seen this happen in Japan. Then we saw it happen in Korea, and that is one of our key customers with Hyundai Kia. That is the journey that we have been taking part of. But in both cases, we have seen, starting off with local production, going into exports, eventually establishing production abroad.
China has been through much of the same journey, but it will start off with Korea and Japan. What has happened for those countries? Basically, what we are seeing is that, the bottom bar is local production for local consumption. The next bar, the slightly lighter green, is exports. Exports have been fairly stable throughout a number of years. It has come down a little bit, but not massive. Even if development in terms of social production has come up, exports have remained quite stable. Then we have seen the emergence of production in the U.S. and elsewhere in the world, and that is really what is driving it. O verall, production from the Asian players have been fairly stable. If you look at how they kind of impact in the global markets, we see that they have a huge share of production in North America.
In South America, they have a substantial production, t hey do have production in Europe. What we are trying to say here is that having foreign production does not exclude exporting. There is a balance here, between those two. If you look at exports, and this is only the export part and the split between Korea and Japan, we see that there was a huge ramp up ahead of the financial crisis back in 2008. Then there was a decline, and that was partly caused by a strong Japanese yen, leading to an increased establishment abroad, both from the Japanese players, but eventually also from the Korean players. Overall, exports are remarkably stable, even as we have headed towards more restrictions in exports, et cetera, over the past few years.
Near term, if you look a shorter period, where we have had a lot of headwinds in terms of tariffs and changes to global trade, we see that exports are very stable out of both Japan and Korea. If you look at Hyundai Glovis, which is a key customer of ours, their exports to the U.S. have been very resilient and they are actually, despite the tariffs, they have actually increased their exports. You see the same thing for the Japanese. Their exports have remained stable despite the challenges that you see from the U.S. Then on to China, which is kind of Japan and Korea on speed. Basically what we are seeing here is that the fact that there is a time between when exports reach a certain level, we put it at 1 million here.
We take in a six-year period. Japan moved from 1 million to 3.7 million. Sales were lower at that point, so the actual feat of doing that is very substantial. Korea moved from 1.2 million to 1.5 million in six years. China has moved from $1.5 million to an estimated 10 million this year. During a course of six years, China has, in reality, surpassed Japan, it surpassed Korea, it surpassed the total of Japan and Korea, and that is really what is driving the market. Is this a coincidence? No, it is not. China has been mulling around this for a long time, starting back in 2000 when they were starting to build a technology base. They became a member of the WTO.
They gradually started to look into this industry, and in 2015, they elevated it into an industrial policy, Made in China 2025, where they had 10 priority industries that were priority sectors that they wanted to focus on. One was auto. They also had adjacent industries like batteries and other factors that kind of goes together with this. The plan was to drive mass adoption. The good thing for China is that they have the world's or one of the world's biggest home markets, so they can test out things there before they go global. Then in 2021- 2025, their ambition was to go global. They have done that, first starting with production from 2000- 2025, their production has increased by 17x . If you look at the bottom here, you can see actually they are following what they are saying.
In the beginning, they are building the technology base, but they actually took in foreign production or foreign companies to teach them how to do it. Then they created domestic scale, and you see the ramp-up in local production. Then they launched Made in China 2025. They were with the ambition to drive mass adoption. They succeeded. COVID came in the middle here, and then convert into global scale. Again, they have done that. At the same time, the local market has evolved and the sales increased 14x , production 17x, meaning that there is a gap here and that is kind of what is been moving towards the export. Having the world's largest auto market at your hands has enabled an ecosystem of 70+ brands. There are brands in China that we have never heard about. Again, that has created a significant competition.
It is driven the move towards innovation and everything else. That is created a brand of vehicles that is not only cheap, but they have evolved into becoming the technology leaders of the auto industry. We have used this graph or this slide before, but last year, five out of the 10 in the top 10 of the Gartner Digital Automaker Index were Chinese. This year, six. There is one additional. They are technology leaders. Basically, we see what they have done is that they have learned through joint ventures, partnerships, they have adapted the technology to consumer demand by testing in their own market. They have accelerated and now grown into a global scale. Basically, what we are seeing now is that they are leading on technology. They are producing high-quality cars at a reasonable price. The price is not the selling point anymore.
It is a good selling point, but the technology part is actually more important. They are really leading the industry, in terms of doing what they do. What have they created? Whether it is the Wuling Bingo or the Haval Jolion or Voyah Dream, they have cars hitting the entire market from the entry-level to the super and luxury car. Basically, they have created an infrastructure and a product that is actually very good and it is covering the entire value chain. What has this created? Well, it is created an export monster. Basically, this year, target is from China to export up to 10 million cars. If you do the recent run rate, that number is going to be higher. That is also what we are seeing. Ships are full out of Asia. The big, big thing is the amount of cars coming out of China.
Have they reached their ambition level? Well, it does not seem so. If you listen to the local producers of cars, and it is not the 70 producers or 70+ brands, but there are some key brands that are big on exports. A company like BYD recently stated their ambitions for next year. First of all, they upped their ambitions for this year to 1.9 million, but for next year, they plan to do 2.5 million. That is 600,000 more cars out of China. That is a lot of cars, and it needs a lot of capacity to move that. If you do SAIC, they had a target this year for 1 million. That target was succeeded in August. Chery, they have an ambition for 1.5 million overseas sales.
One note here is that some of these sales may go to Russia, which is kind of excluded in our ambition, but they do not split it. O verall, going through the leading exporters in China, they all have continued very high ambitions in terms of exports. Do they export for the sake of exporting because the local market is bad? We have tried to look into this, and basically we have said that if we looked at the exports out to China from China customs, then we looked at the sales in some regions where we have good data, so actual sales or registrations, with a time lag of three months. Basically what we see is that there is no signs of big inventories in the target markets. It is basically a good correlation between what is shipped and what is sold at the other end.
With the growth that we see from China, they need to have a lot of cars in their pipeline in order to meet the market demand because they seem to be selling at the other end here. This graph is actually quite amazing because the other graphs we talked about, going back to 2000. This one goes back to July 2024, so it is about two years. In that time, in Australia, the Chinese have moved from an 11% market share to a 34% market share. In the U.K., it is from 5%- 21%. In Italy, it has moved to 13%. In Germany, it is 6%. But what you see is that basically in markets where there is no local production of cars, when you start to get acceptance for the Chinese cars, they are winning market share very fast. It is really unprecedented numbers.
The speed that it is happening is incredible. So basically what you are seeing is that they sell and they gain market share. We talked about how Korea and Japan have established production abroad. China has the same ambitions, but it is still moderate. This is to scale, the other ones have not been to scale. So basically what you see is most of the production in China also into 2030 based on what Mobility Global is saying, is expected to be in China. They have ambitions of reaching 1 million cars production capacity in Europe and 900,000 in South America. But beyond that, these are the big target areas. We put no emission in the U.S. That is how it looks now, b ut over time, who knows what is going to happen? But for now, this is how it is looking, t hey are expanding abroad.
They are following a little bit of the same path as what we have seen from Korea and Japan. To put things in perspective, we looked at a little bit about Europe here. So how is local production impacting imports? In Europe, we are seeing that there is a certain amount of foreign brands producing in Europe. It was started by the Americans.
It was followed up by the Japanese and the Koreans, and now we are seeing Chinese coming. Around 20%-ish of European production is actually foreign brands producing in Europe. If you look at the import side, you see that despite having local production, there is an increasing amount of imports. Of course, the Chinese are making a big chunk in terms of recent growth in Europe. So that is what we are seeing, and they are winning over other brands. But again, local production does not exclude imports.
The Chinese are already preparing. As I said, they are planning for 1 million cars production capacity by 2030. They are looking at greenfield developments, but they are also buying into existing capacity in various places in Europe where the production is underutilized. On top of that, they are also building infrastructure. They are building battery factories. Their plans and ambitions on the battery side, we think that is a relevant thing here, is actually sufficient to fit out between 3 million and 5 million cars. It could be sold to local European producers, but it could also be used in their own infrastructure. The Chinese are really establishing themselves in Europe. Again, it is not something that will stop imports. It may change, but then we looked at, okay, what is the danger?
People are talking about, "Oh, yeah, the Chinese are going to start producing locally, so there is going to be no imports." Right now, or in 2025, about 1.9 million Chinese cars were imported to Europe. Then they took, put 1 million cars there. That is assuming that the Chinese will produce whatever they can in Europe by 2030. Then they said, "Well, current market share of Chinese cars in Europe is around 12%." That is the latest, but it is moving up fast. That would mean 1.8 million of odds imports. This is based on S&P Global Mobility's 2030 estimate sales for Europe. This is just an illustration. If we were to get the U.K.'s current market share, approximately current market share of Chinese vehicles in Europe, you would be at around 2 million cars.
If you were to move to Australia, you have more than 4 million cars coming into Europe. We think there is going to be a balance between local production and imports, but the size of those imports is really determined by the ability to gain market share. There is this second part with it, and this is more like a thought than anything else. The Chinese, as we said, they have cars spanning the entire range, but they do have some very reasonable cars that have good technology, the latest part in terms of efficiency. They have good warranties. You can do everything. Basically, what if a cheap Chinese car replaces a lot of the secondhand market in Europe?
If you buy a three-to-five -year-old car, you are bound to get repairs, you are bound to lose your guarantee, you are bound to get all these things that is kind of the downside of having a secondhand car, except that you get it for a reasonable price. There might be an upside here that people may start buying cheap new cars rather than a secondhand car. That could create another upside to the market. Again, it is just a thought. We do not know whether it is happening or not, but it is something that might change as well. Basically, we have seen the Chinese follow a path that they have done in solar panels, they have done it in batteries, they have done it in smartphones, and now in automotive. Basically, they support quite a large home market. They create demand. They gradually build scale.
They have scale, and that brings them a cost advantage. They compete internally, and they learn both from foreigners, but also from the competition itself. Eventually they scale abroad. That is really what is happening. It is no coincidence. They have planned this for a long time. Now we are seeing the effects of it. We talked about what drives things out of Asia. Stable Korea, stable Japan, fast-growing China. What impact does it have, first of all, in Europe? What we are seeing is that production capacity in Europe is underutilized. From 2015- 2025, in a 10-year period, European production has come down by 20% firstly. If you look at how that production is split up on the right-hand side there, you see that it is a lot of the European brands that have lost market share.
We have Japanese, American, and Korean cars coming in, and eventually you also have the Chinese. It is a market where there are challenges. It can also be illustrated by how is Europe's position looking in the market. Basically what we are seeing is that on the left-hand side, you have the exports. They peaked in 2015, or at least on this slide. They are now down close to 30% in 2025. At the same time, you are seeing imports moving up 82%. The trade balance in Europe has gone from a clear positive to a negative. We also see that the Europeans lose ground not only locally, but also internationally. If you look at European-produced exports from 2015 to today, it is down 27%.
A lot of that is China, where the European OEMs have benefited from being very popular in China, but they are now losing market share to local produced Chinese brands that give you much of the same feeling as what the European cars did before. On the right-hand side, it is actually worth noting that not only have they reduced exports, but they have lost market share in a growing market. Whilst the global market in terms of sales have moved up 19% since 2020, European sales are down 12%. That is a big challenge, and we are also seeing that they are losing market share in Europe. Not only abroad, but they lose market share in Europe. Going back, they used to have 73%, even higher at times, market shares until COVID. After COVID, you are seeing that market share move down to around 68%, even lower now.
If you look at the top yellow bar there, you see that it is China that is really moving in. What are the reasons? Cost is one. This is from IEA, and it shows an example of the cost benefit of a Chinese electric SUV versus a German SUV of a similar size. What drives it? A lot is the battery package, and of course, a lot direct manufacturing costs, but it is also assembly and energy costs. What we are seeing is that the Chinese have bigger scale and they have better integration. That is a disadvantage. The Europeans have a more fragmented ecosystem. The Chinese seems to be more interconnected. In terms of battery technology, typically, the Europeans buy batteries, the Chinese produce them themselves.
You also have something that is maybe even more relevant right now, the energy and input costs, which is coming up sharply in Europe. There is another thing as well, and that is the time to market or the cost of development. The Chinese are very, very efficient, and it is probably driven by extreme internal competition. While it takes two to three years for a Chinese to get a car to the market, it may take four to five years or longer for the Europeans or for the Westerns. The Chinese are built around IT structure. The Europeans, not so much. Chinese are quicker to introduce changes to the IT infrastructure, and they are more focused around software development, whilst a lot of the Europeans have that externally. There is a more complex structure in the Europeans than what you see on the Chinese.
There is both a cost advantage in terms of production, but it is also in terms of time to market and R&D costs. This is shown a little bit by the complexity, and this is just an illustration, but it shows one of the big benefits of the Europeans previously was that you could choose whatever you wanted. That creates a complex structure for production. It was very nice, you could have whatever color and interior you wanted, and you could swap around and do whatever you wanted. It makes into a lot of different configurations. Of course, that is good, but it also creates cost and complexity. If you take a Chinese car, this is just an example, you can choose between a few colors. There are some interior colors. You can have a tow hitch or not.
There are some premium package or no premium package, and you can choose between all-wheel drive or just two-wheel drive. It makes a much simpler configuration, meaning that it is easier to produce that car and send it out to the market. You do not have a lot of cars that are off-spec or not exactly the spec that you want. It gives them a competitive advantage on top of the price point that they show here. What are the Europeans doing to prevent this thing happening because the auto sector is extremely important for Europe? It is 67% of GDP. It is close to 14 million jobs in the entire ecosystem, and it is one of the big export drivers. It is really taking two forms in the EU. First of all, you have tariffs. They introduced tariffs on EVs, and they are talking about introducing tariffs on hybrids.
Then you have industrial policy, which they are looking at now through the so-called Industrial Accelerator Act. That means that you need more European components, et cetera, in a vehicle in order to sell it in Europe. Having a look at this. Tariffs, it can slow a little bit in terms of the Chinese growth, but we do not think it is going to derail it. The example here is based on when they introduced tariffs on EVs, you saw a small decline in sales, but eventually now that sale has picked up again, and you are above the levels that it used to be before they introduced the tariffs. Now the tariffs are still there, so that did slow it a bit. At the same time, we saw the Chinese switching to hybrids rather than EVs, so their exports moved up anyway.
But this is one way of doing it, and whether it works or not, it is hard to say. The second part is the so-called Industrial Accelerator Act, and there is a lot of components to it, and it all goes around having more European-produced input factors into your car. But the important part here is that the European OEMs, they typically have 50/50, or about 50/50 of their products sold within Europe and outside of Europe. So if you do something in Europe that is supposed to support the European market, it only kind of protects 50% of your market. And with the European OEMs being export-focused, having protection at home does not really help you abroad, because then you are facing the Chinese anyway and all the others, so you need to be competitive. So having a local protection plan is not really solving a problem.
The Europeans are very aware of this, and basically what you see is that they understand they need to compete in a global market. And basically, we are seeing a lot of restructuring and a lot of news from the European OEMs. But it all goes around resizing, you need to look at your workforce and capacity. They closed down factories, et cetera. And that is where the Chinese are coming in and buying capacity at those factories. You can simplify structures, you can reduce model complexity and everything else, and you can also reduce your orientation. You can regionalize, meaning that you do something to your supply chain and your overall footprint. A company like Volkswagen is actually talking about producing cars in China and exporting to Europe. And you need to reinvest.
You need to reinvest in technology because as we showed from the Gartner index, a lot of Western OEMs are lagging in terms of technology. So they need to invest in that and put out the next product out there. So that kind of sums up Europe. They have a challenge, but it is a big challenge because they are losing both locally and globally. And they need to be competitive because their whole business is based on almost half of their sales are done outside of Europe. Then to the U.S. The U.S. is a different market. In terms of sales, it is a fairly stable market. Typically, sales range between 16 million and 17 million cars. It is focused on light trucks rather than straight autos. So a lot of the sales in the U.S. are the bigger fuel-guzzling cars.
This is also reflected in the production mix, but while sales are 16 million to 17 million, production is now around 10 million, 10.1 million, 10.2 million. So there is a big gap here between local production and what is sold. At the same time, we see, as we saw in Europe, the U.S. is even more a mixed market in terms of production. When you look at international brands, you see that in the '80s, the Japanese came into the market. In '90s, you saw the Europeans establishing locally.
In 2000, you saw HMG go in there, and you had some additional Europeans back in late 2010s. So basically, the American market is even more fragmented in terms of brands than what we see in Europe, where the foreign brand part was about 20%. In the U.S., we see it is close to 50%, b ut there is also one other thing that is very different, because here we do not have any Chinese, and we will come back to that, but that kind of difference shapes this market to a lot of the others. But again, there is a foreign brand mix with production, but you still have imports. If you look at imports into the U.S., in excess of 40% to whatever is consumed in the U.S. is imported.
The dark green at the bottom is typically land-based imports from Mexico and Canada, with a complex infrastructure and cars moving back and forth and as part of what they are dealing with these days. But then you have a lot of imports from Asia, as we talked about in terms of Korea and Japan. The Korean seems to be winning in the U.S. in terms of gaining market share.
Japanese, fairly stable, maybe a little bit down. Europeans, losing out a little bit. Then you have some others in there. But typically, a lot of the U.S. consumption is based on imports. Again, it shows that localized production does not necessarily mean that you lose out on imports. Looking at the export side of the U.S., it is quite interesting because it shows that actually, most of the American exports are European brands exporting out to the U.S. It is not American brands, it is pretty much a lot of European brands produced in the U.S. exporting to the world market. Again, quite a different market than anything else. But also here, the auto sector is very important, and that is also reflected in the politics.
Whilst it is slightly smaller than what it is in the EU, but typically 5% to GDP, around 5% of employment, and quite important in terms of exports. What are the Americans doing? They are doing things differently than what the Europeans are doing for now. Right now, they have put tariffs in place, so Chinese cars have 100% tariffs, so that kind of excludes China from the U.S. Of course, we have Liberation Day and all the tariffs around the auto put in place by Trump. Again, it is focusing on getting people to produce more locally. You have the fact that there is a lot of trade between Canada and Mexico in and out of the U.S. There you have the USMCA, which is being changed or we do not know what it is going to look like, but again, trying to get more local production.
They have proposed technology and ownership restrictions, which is fairly strict. A company like Polestar is excluded from selling in the U.S. from 2027 because of the IT infrastructure. They are also talking about Chinese ownership, in terms of who owns. More than 15% Chinese ownership may actually lead you to be excluded from the American market. Volvo has gotten an exemption, but a company like Mercedes has close to 20% Chinese ownership. It raises some issues. Again, the U.S. is very protective in terms of what they are doing, and that makes it a quite different market than any of the others.
That actually leaves me ahead of time. Basically, what we are seeing is a huge shift. Basically, we are seeing a repeat of the story that Japan and Korea saw in the automotive market. China is now following the same path.
Having local production or extending your production base to other destinations outside of your local market, it does not really need to exclude exports. We think it is going to be a combination of everything in terms of China. The Europeans and the United States are facing big challenges because of the growth in China. It remains to be seen how this will affect the markets, but we think it is going to be interesting to watch this going forward.
You are probably bored by now, but on to the High and Heavy. High and Heavy is an important part of our business. Right now, it is around 25% of all our cargo. The main part is typically construction equipment, it is mining equipment, and it is agri equipment.
On top of that, we also have something called break bulk, which is trains and windmills and a lot of other stuff. That is more specialized products that maybe are more one-off and project cargos. It does add up to typically 3%-5% of that 25%-30% of High and Heavy. This time, this here, we are looking at the main sectors. What is happening and what is the outlook in the various sectors? If you look at construction first of all, housing is not very good, and it is high interest rates, environment, et cetera, very good for housing. On that, construction is not necessarily very attractive. What you see is that the inflow of data centers and investment in data centers is a key driver here. That leads to the need for power grids.
It needs to have infrastructure in place in order to build those. We also see that the increased focus on defense spending is also part of what is driving demand for construction. It does vary from region and sector, though.
On the mining side, again, a little bit driven by the energy transition and infrastructure. You need a lot of copper to do this. It is both new mines, but it is also expansion of existing mines. It is also driven by automation, electrification, and the need to replace equipment. On the agri side, we see that margins are very slim. With fertilizer and diesel and other input factors becoming more and more expensive. At the same time, agri products not seeing the same increase in value. That puts pressure on margins, meaning that the farmers do not have too much to spend, so that means less buying of new equipment.
There is some positivity. Our inventories are normalizing. There is also a need to replace equipment over time. Overall, we would say that construction, we may see a gradual improvement. Mining, fairly resilient. Whilst agri is probably at the floor or somewhere around it, but we do not see any huge pickup in the short-term. Going deeper into construction. Basically, it is split between segments. We put some traffic lights here in order to illustrate where we think things are. On data centers and power grids, et cetera, we think that is a full go ahead, gung ho, whatever. Defense spending, more and more focus on increased defense spending, particularly in Europe. Advanced manufacturing, same thing. We think that is also something that is driving demand for construction. Whilst housing is soft, and it is all linked to a high interest rate environment.
On the regional side, Europe seems to be doing all right, partly driven by data centers and infrastructure. Japan, Korea, okay. Korea, Oceania, and North America are doing good. Particularly North America, where they're spending like there's no tomorrow on data centers. China, not that good. They are struggling with local consumption. If you listen to what the market participants say, they're fairly constructive and see some positive trends. That leaves us to flat to slightly up as our base view on construction. On the mining side, as I said, demand is driven by energy transition. Of course, there is the base product like iron ore and coal, et cetera, but it's also the energy transition and all rare metals, all these things. These are not necessarily the big projects as you see on the iron ore side or coal side.
Typically, you need to process a lot more product in order to get what you need. Even a small project for various metals could actually require quite a lot of equipment. Then we come to the security of supply, which is a big issue. Having local content and then automation and electrification is also something that is driving demand for mining. Talked about it, green brownfield. Copper is a very important factor. That's typically a lot in South America. We see that the key mining companies, they are increasing their CapEx spend, and that could, again, prove to be increasing demand for equipment. On the demand side, yeah, new mines, capacity expansion. Do you need replacement at existing facilities? You need more automation and electrification. Again, fairly positive outlook for the mining sector as we see a lot of demand there.
Agri, as we said, inventories are normalizing a little bit, but spending is selective because you have low margins and less money to spend. Of course, that impacts affordability. What you do have is an aging fleet, so that could put replacement further. There is also tech element to this, precision agri, et cetera, could also be something that drives demand here. On the regions, Asia Pacific looks okay. Europe probably stabilizing, but it's a mixed picture. Australia, soft. North America, very weak. South America is the same. Big agri markets like North America, Australia and South America are struggling. If you look what marketplace are saying, they're saying small agri versus big agri is leading the way. John Deere is saying that it's bottoming. CNH stabilizing. AGCO is cautious and Kubota resilient. It mixes all over the place.
Then we have a Chinese element also on the High and Heavy side. We have seen the Chinese growing exports of High and Heavy equipment. This is number of units and this is only a sample because High and Heavy is a huge number of types of equipment. This is a selection, but it's from China Customs. We're seeing that growth is substantial and we see that a lot of the Chinese big players are starting to get out there. But so far the Chinese High and Heavy exports are typically containerized, and it's focused on smaller units. But we think that there is a chance that some of these big players in China may have the same global missions as the automotive players have. This leaves possibility for increase in terms of exports out of China and maybe some of that will hit the wall.
Then just summing up and looking at what the industry is saying in terms of CapEx spend and sales. This shows pretty much the same picture as what we said. On the construction side, we see increased spend or increased sales expectations, in consensus estimates. In mining, CapEx is moving up and in agri, sales are slightly stable, negative in the coming years. It kind of reflects what we are seeing. With that, it is actually time for a few questions if you have any. Eirik. Hi, Eirik.
There has been a big shift. I think everybody has been a bit surprised this year about the Chinese kind of boom we have seen. Maybe not you, but the rest of us. At the Q2 release, you talked a little bit about how your discussions with your customers also have changed a little in their tone, they are planning further ahead, more eager to secure capacity. Can you maybe share some more color on that or give a little bit of an update on what you have seen recently? Because obviously this is just, at least from the outside, it looks like it is just gaining kind of traction and pace.
I will leave Lasse. But I am as surprised as you are.
I will come back to this also at the closing later today. G enerally speaking, I think there are two factors happening at the same time. One is that they are growing so fast that they realize that transactional approach does not work anymore. When you are growing with 600,000 cars year- over- year, you realize you need friends. I think that is number one. The Koreans have realized it and Japanese in the past. The other one is, of course, the nature of the market, and Morten will come back to it, that they are really screaming for capacity. To be perfectly honest, we have more leverage. I will cover it a bit more later on, but just one year back, the market dynamics were very different in China.
From a market perspective, what can the Europeans really do? Besides tariffs, which has not really worked in the past and is not really working for the American auto industry, I would say. In your opinion, what can they do to mitigate or halt this?
They are trying to do a lot. They do restructuring, they do all these things that they need to do. They are also, to a greater extent, actually collaborating or making joint ventures, et cetera, with the Chinese. I guess what they need to do, and to a great extent, trying to do, is to be competitive in the global market. I think the European approach is quite different than the American approach, at least from the U.S. OEMs, which is typically local for local, as we showed on the exports out of the U.S. is actually dominated by European brands, whilst the American OEMs are focusing on the local market. So the Europeans need to be competitive globally, and they are trying to do that. I am not sure if you have anything.
I could just build on that. First of all, in our view, we think the Europeans are doing a better approach than the Americans in the sense that they realize they need to compete. Even if you ask the CEO of Stellantis, I have not asked him, but he quoted that we need to learn how to compete with the Chinese. We cannot keep them out. Stellantis is probably the brand that is mostly affected. In the U.S., they have decided that we want to protect our market. Remember then that the U.S. auto manufacturers, even though produced in the U.S. for the U.S. is stable, the U.S. brands are declining. What is really happening in the U.S. is that they get technology in from Korea, Japan, and Europe, they do not really develop it themselves increasingly.
Not competing in the global scale seems not to be a good idea. Europeans are competing, and I have talked to four different chief executives of European brands the last two weeks, and it is becoming clearer and clearer that all of them are planning for an Asia strategy, meaning that you cannot produce or develop in Europe for the Asian markets. Even having engineers sitting in Northern Europe trying to figure out how things are moving and what are moving in Asia is not possible. So they are moving more of their, not only the production which they did in the first round, they moved a lot of production to China, but pushed out. Now they need to move more of the technology development. The big third question is how do we partner with the Chinese?
There's no doubt that they have to partner with the Chinese, but this is a massive dilemma. All of the four I talked to are thinking how much and where do we let them in? We need to do it in the technology stack, and there are basically two areas they need to look into. One is the energy side, batteries, and the second is compute, IT, and AI. This is a massive dilemma, but there's no doubt they need to find a way to partner with some Chinese. The Americans are not, and that's probably why we see that the U.S. brands are less and less competitive.
But you have more leverage. I like that. That's my headline. Yes.
Any more questions? [ Örjan], did you fall asleep?
Thank you for the presentation. It's interesting and following on to what Eirik said, because we've seen this before, so I really liked the framing in the beginning where you talked about what happened in the Japanese export market and then on to the Korean one. My understanding going into what's happening on the Chinese side was that things were relatively balanced in terms of efficiencies, right? So a question to you who might have some more insight into the long historical picture here. What were you able to do back then that leveled off the imbalances that we had out of Asia at that point in time, to make the efficiencies of the trade flows better? How does that differ this time? So how sticky would this imbalance that we're seeing in the trade and therefore the freight intensity of volumes be going forward?
I guess it partly relates to the competitiveness of the European exports, but nonetheless, if you have anything more to add.
Yeah, I can start. Fill me in, Anders. I think both of us are fairly new. We don't have that 30-year experience. We were not here with the Japanese and the Koreans came in. I don't think we can add too much on what happened back then. I think we can talk a lot about what we see happening right now. I think looking at Wallenius Wilhelmsen, we were basically founded at the back of the Japanese exports. Wallenius were the first one bringing cars from Japan to Europe in the '60s. They were basically inventing the whole RoRo trade. Back then, we didn't have a global trade, and it really were more or less invented by the Japanese coming in.
We had a little bit of exports out of here, and there's this fantastic story with Olof Wallenius, who had a couple of ships, Ro-Ros, which he more or less invented, trading with the Germans. They thought they had leverage, and this is back to the leverage question, Eirik. They pushed him a lot on rates, and he jumped on a flight to Japan, met with Toyota and said, "I can bring your car to Europe. Are you interested?" They said, and they asked, "So when?" Then he looked at his watch and his calendar and said, "In 32 days. Are you ready?" He basically took his whole fleet out of the Germans into Japan, and that today we are the only large player with Toyota except for the Japanese. I think it was a very different market dynamic.
What we're seeing now is that this massive growth that Yes, there was growth out of Korea and Japan, but the speed of it out of China is so fast that there's no way that a three to five-year lead time industry like shipbuilding can pick up to it. The only question is, how long will it last? We don't think that the Chinese competitiveness will go down. If anything, it's going up. The big factor is where will they produce? If you take a proxy of the Koreans, they are now adding a massive factory in the U.S., producing maybe 600,000- 700,000 Hyundai and Kias. That is not even coping for the growth in sales in the U.S. for the last five years of these brands.
What we are seeing is that even though local production is established, the growth in local production is slower than the growth in market share development. Everybody we talk to are really concerned about capacity out of Asia. It goes to the Japanese, the Koreans, and the Chinese. The Chinese are now mirroring the approach of the Koreans. I can assure you that Hyundai Kia, when they have two partners, us and Glovis, and we are the global partner, they do around 2 million cars. We have said 50%, so you can do the math. We are really a partner with them. When they have a need, we bend over backwards and we deliver. The Chinese have seen that. I would generally say that we have never been in this situation at this speed before in this industry.
We have never seen anything like it, but I do think that the Chinese are now trying to learn from the Koreans and Japanese in creating partnerships. I am not sure it was an answer, but at least that is the gist of what we see today.
Okay, thank you. It sounds very sticky, which I guess is the bull story. On the, and I do not want to jump to conclusions that might come later on, but learning from the Japanese and the Koreans, then of course, building up a large presence within this industry themselves, in connection with their export increases. That was also part of the story back then. Now it seems like the Chinese have been a bit more reluctant to do that. They are more reliant on others' services for the Chinese exports. Is that something that you are seeing as lasting, or is that something that might change?
Well, these are three. Even though they have a lot in common, they are completely different cultures. The Japanese, in general, are Japan is for Japan. When we say we are the best non-Japanese in Japan, that means that we can fight for the rest. The three players out of Japan, they get first to the table, period. In Korea, they decided that we want two friends, and we have those, and we stick to them. Then we are competing between the two of us, but they are basically covered. That means that China is free for all, and the Chinese are very happy with that being free for all. We do not see any favors coming into Chinese players out of China. On the other hand, we see everybody being in the Chinese market. We compete with the Koreans, the Japanese, the Europeans, whom not.
The only problem is that there is not enough capacity left because of commitments made to others. In China, it is free for all, and everybody can compete. They are building up some fleet themselves, and of course, that has been a question. What happens to that? When we talk to them, that is just a fear of not getting enough capacity, and it is far, far, far away from their need, and they always prefer a contract with an operator instead of doing vessels themselves. But for now, it is, I would say, a desperate move just to get access to some capacity. When we talk to one of the bigger players out there, what they tell us is this is our emergency button.
When we need to run a campaign because we need 7,000 cars to land in Australia due to a campaign, we know we have this vessel, we can get it there, and we can control that commercial side of it. But the main load is still with the big operators. In China, the good news with the Chinese is they are really commercial. But increasingly more partnership-oriented, everybody can compete there.
Good. Any more? I think I was actually ahead of time. Few minutes. If not, there is a short break or a good break, actually. Be back here, quarter to. Thank you.
Yes. I am stealing the show from Anders now, but we got a question before the break that I do not think we answered sufficiently in terms of the structural implications of the trade imbalance. One of the guys I pointed to that has a longer memory than me and slightly higher age was [Ole]. [Ole] came over and told me, "But this was the whole reason why you guys made the merger." I thought, [Ole], I will call you out on that. Since you have a memory way back, from your perspective, what happened?
Okay. I'm not going to tell you what Wilhelmsen thought they were doing, but I'm going to tell you what the analysts saw Wilhelmsen and Wallenius doing. We are back in 1997, and the backstory, as you heard earlier, was that Wallenius was the only Western operator who had direct contact with the Japanese manufacturers. Everybody else was a subcontractor to the Japanese ship owners who did not have enough capacity. Wilhelmsen historically was incredibly strong in Australia, so they were both unbalanced. Wallenius unbalanced coming back to Japan, and Wilhelmsen unbalanced coming back from Australia because there was not enough rolling cargo coming out from Australia. If you combine the two, you could go fully laden into Australia with high-value cargo. You could get just something to get you up to Japan, and then you could take cars out of Japan to the world.
Then you had a triangle trade, and they were balanced. That was how the first balancing was solved. This was how we explained it. I do not know what the hell they thought they were doing, but this is how we explained it.
If you add a little bit of high and heavy into the mix, also coming from the Wilhelmsen side, also balancing out, I think that is a good recap of what happened. As a follow-up today, the system value is less being able to bring cargo back because that is structurally going down. The system value is to have a product in Asia, and specifically now in China, where you can come several times a week and pick up cars and distribute it wherever in the world. That is why an OEM struggled to do that, because you need a lot of vessels and a lot of different cargo sources to be able to fill up the vessels into all the various ports of the world.
If you are a BYD and you have 7,000 cars on one vessel, if you send that to 10 destinations, it is going to be very bad economics. This is really the value of an operator system that still is there, less for the front haul, back haul, but more because of the global distribution needed if you are to be competitive out of China. Next one up is Morten. Please, Morten Skedsmo, come up. He is our internal ship owner and trying to find capacity that does not exist. Good luck.
Thank you very much. I have a mic?
Yeah.
Nice to see you all. I am Morten. I am the head of fleet ownership. Today we will talk a little bit about our fleet development and a little of the supply side of our markets. If you have a history back to 1997 from these companies, you will not need this slide, but I think I will bring it up anyway. What is a PCTC or a RoRo vessel or a car carrier? Well, it is a large multistory car park with a big ramp and a propeller at the end. Our vessels usually have 12- 14 decks, like this illustration here shows of our Shaper class. All of them can be filled up with cars, obviously. We also differ on what we can load up apart from cars. Size-wise, the smallest vessels we have can take around 5,000 cars.
The largest vessels we have on order can take up to 11,700 cars. If you are familiar with this area, the biggest car park in the area is at the CSFS, the shopping mall up the street. How many cars can you park there in total? About 1,100. A Shaper class is around 11 CSFS in volume for the locals. As I said, if we sort our vessels a bit, our fleet can be categorized into three buckets largely. We have standard car carriers, PCTCs, as we call it. That is where we have the majority of our fleet. They are very good and flexible and light vessels, and can fill them up with cars. They can do a little bit of High and Heavy cargo, but only on a couple of decks and not the heaviest stuff.
In the other end of the spectrum, we have RoRo vessels that are tailored, specialized vessels ready to carry very heavy cargo, up to 500 T/unit and 7 m tall. We have eight of those that are in specialized trades with a specific set of customers. In the middle, we have, for lack of a better word, hybrids which are flexible enough to take most of our High and Heavy cargo, but also good with cars. That is the, let us say, the segment or the type that we are growing at the moment. Our previous class Hero class fit into this category. The 14 Shapers we are about to start on, they are also in this category. You can also read this a little bit left to right.
We are adding capacity in the large end, and when we are retiring capacity, most of it is in the small end of the spectrum. That is, of course, because we want to provide to our customers the most competitive rates and the lowest emissions. Upsizing the vessel is the most powerful lever we have to reach that. It is also well-suited, of course, with our operational size and cargo base. We are well suited to implement larger vessels, and we have historically broken the mold in PCTC several times, introduced larger vessel types. If you compare us with the peers, we have the largest fleet in numbers and in capacity. We also have most of these hybrid-type vessels. Others are also growing in that category, but we have the largest volume of that, and we will add all the Shapers into that category.
In the High and Heavy RoRo segment, which we spoke about, we are quite alone to have that kind of capacity. We are, of course, intending to continue serving that segment where we have long-standing customer relationships. If we lift up a bit and look at the global fleet, here on the left side, you see the capacity that has come in and gone out per year. This is in CEU, in numbers. The whole global PCTC fleet is now at around 950 vessels, and the order book is at about 180 vessels. You will see here that we have been through almost 10 years, from 2009- 2019, where there were very little or no meaningful fleet growth in the world in this segment. Then came some years with increasing deliveries.
The deletions here that are illustrated into the future are based on retiring vessels at 30 years of age, which is kind of the normal retirement age for car carriers. But at the moment, we are not in normal times. Basically, even if we retire vessels, most of them will probably find another home with secondhand traders or with regional players. All in all, we are in a period with fleet growth. The order book a couple of years ago was up to 42% of the existing fleet and has now, with delivery of the very big 2025 vintage, come down to around 20% and is again on the rise with new orders coming in. Today, we would say the order book is around 25% of the fleet.
If we instead of looking at deliveries, look at contracting, we see we have been through three years from 2022- 2024 with quite intense contracting of car carriers. Then in 2025, that year, we took a breather as an industry and sort of a wait-and-see mode to see how the fleet was absorbed. We all know, and you have probably heard this morning that that was not a problem. The whole fleet of new building has been absorbed and then some. This year, let us say the confidence has returned to the market, and we are again in a period with quite active ordering of new buildings this year. 73 contracts have been signed as far as we know so year to date. If you just extrapolate that for the rest of the year, we may end up around the 2027 record year.
We are pushing this quite far into the future now, and orders are coming in for 2030- 2031. So the lead time is now four or five years, which at least I think we see signs that it's harder for a tonnage provider to secure charters for that far forward and also harder for the yards to price it. So I think five years is sort of a maximum at the moment of what is commercially viable. You may also notice that all these orders, usually they basically end up with a handful of shipyards, mainly Chinese. And we wish sometimes that there were more providers of PCTC in the market and we could find more yards interested, but building PCTCs is a bit special.
It takes much more man-hours than other types of ships because, again, of all the decks that needs to be welded and the whole structure. And also it takes up a lot of space at the shipyard sites because you have to put all the decks out next to each other before you can put them into the ship. So it isn't everyone who's interested in this support, and it ends up with a few specialist shipyards, most of this. So with that in mind, no wonder that the prices are holding up for new buildings. There's also a lot of interest ordering container and bulkers and so on. So yard prices are holding up. We estimate that a 7,000 standard dual fuel LNG vessel costs around $94 million now, a nd on the charter side, we see strengthening rates again.
This one-year charter rate of $90,000 is probably representative, but a bit theoretical also because the order depth or the liquidity here is basically gone. There isn't vessels available for charter for us for delivery this year or even next year. So it's We can see deals for 2029 and 2030 onwards, but there is very little to add in the short term. So when our colleagues in the sales department come to us and say, "Why don't you add some more vessels? We would like to ship some more." We had to say, "Sorry, it's not possible." It's not just us who are basically filled up with cargo, it's the whole industry. And you saw this morning probably that cargo is flowing out of our segment at the moment and into containers and other types of ships. So challenging to secure more capacity than we have on our books.
Returning to the start, it's a good timing for us at least. So we are happy, and our customers are happy that we are about to take delivery of the new Shaper series. Three vessels this year, and by the end of 2028, we will take all 14 vessels. The first seven are over 9,300 CEU, as you know, and the last seven will be the largest car carriers in the world at 11,700 CEU. So we look forward very much to this, and what better time to get large vessels into this market. That's what I have. Then, there's room for questions, I think.
Hello. It is interesting what you were saying on the man-hours for the car carriers. Is that something that has changed? Because I believe the efficiency by these four yards that you mentioned that are very focused on this business have improved a lot o r has it always been around that same number? Thank you.
I would not be able to give you a very precise answer there. We see automation coming up when we visit the yards, but how much exactly it has changed, I could not tell you very precisely. It is a significant amount of hours going in. We estimate twice the amount compared to welding up VLCC, which is a much larger structure, of course.
Yes.
I think this needs to be seen in a wider context, the fact that all segments are ordering. The yards can actually choose. I think what you are saying, Morten, is that, in that market, they do not choose PCTC unless they have done it before. They would rather do a bulker or a tanker or a container vessel. Because for a shipyard, it is a question how the biggest limitation we have is the dock. How much can we push through the dry dock or the ship? The second is basically the welding capacity and the area. What we see is that you can push less vessels through the same infrastructure with PCTC than, call it, at least the average alternative.
Yes. Thank you. That is interesting because then you have a tight connection to the Korean yards as well. The prices that you are quoting on the $94 million, that is a Chinese-built ship. What will you need to pay if you wanted to make or produce that same ship in Korea at the moment? Do you know?
We have discussions with Korean yards, but I couldn't give you a precise number. It's significantly higher, both in Japan and in Korea.
All right. Thank you.
Okay.
Thank you.
Good morning, everyone. My name is Francesco Allamandi. I'm a managing director in the Bank of America Investment Banking team based in London. My day-to-day job is to serve our clients in the automotive industry, in Europe, but also globally, as this is a global market, effectively. For the next 20 minutes, I'm going to have a short presentation going over some of the opportunities, the challenges that the current global landscape is presenting to the OEM industry. Clearly building on some of the themes that Lasse and Anders have gone through this morning. I think what's fascinating is we're going through an unparalleled paradigm shift in the industry, as has been mentioned. I think there are four key things to keep in mind here that are shaping some of the dynamics in the industry.
Number one is what we call the end of volume growth, but certainly a slower growth in the number of units being produced globally. We have been through a cycle between 2010 and 2017, where the industry sort of benefited from a huge growth driven primarily out of the democratization of Chinese mobility consumption, car consumption, and that has generated operating leverage in the industry and great profits and then margin improvement. Then we went through a period of volatility during COVID that we are all familiar with. Today, we are in an environment where markets are more mature and growing more slowly. By 2029, it is estimated that the industry will essentially only by then recover the same amount of volumes that we had at the prior peak. That is a pie that, in terms of units at least, is growing a bit slower than in the past.
Secondly, there is different technology adoption globally across regions. In particular, and here we have the example of battery-driven vehicles, China will lead. It is expected to lead. The U.S. will rely more in the future on more traditional technologies, and then Europe is a little bit in between. What does that mean for the OEMs? It means that you need to fund more technology or parallel technologies for a little bit longer. The third dynamic is the adoption of these new powertrain technologies has been volatile and uncertain. Essentially, as testified by these very big write downs that some of these companies, GM, Stellantis, Ford, have announced, for example, this year, we are going through an investment cycle into EV technology that has not really produced the returns that it had promised at the onset.
Lastly, we are seeing obviously more geopolitical friction, globally, whether it is tariffs, whether it is export control, whether it is softer barriers. What that means is, again, from an OEM standpoint, the need to develop different local ecosystems rather than a single one global to compete at a global scale. The danger here, or the challenge that is faced, is there is an increasing capital demand for OEMs to compete in what is theoretically a more fragmented market. On top of this, you have the competitive overlay. Chinese OEMs have taken a large share of volumes from pre-COVID to today in a market which is basically stable from 2019 to today in terms of units being produced and sold. The C-OEMs have taken about 12 million more in volumes clearly lost by the global competitors.
When you look at the distribution of the share gain, you have two, three larger players, BYD, Chery, Geely, but you have also a universe of mid-sized competitors with very attractive products and which have entered the international market. This dynamic, to me, has taken two stages. Stage one was between 2019 and 2025. A lot of the volume gains, the proportion of that has happened domestically. 8 million volumes gained domestically out of the 12, essentially. Now we are onto a second stage where over the past four or five quarters, and projected to the end of this year, what has been a slowing demand in the internal market in China has incentivized the C-OEMs to essentially replace volumes lost in the local market to volumes gained internationally. Pretty much so far at a one-to-one ratio up to now. What is driving this?
The local domestic market in terms of consumption of vehicles has slowed down over the past, since basically 2025. Multiple factors. Essentially the subsidy regime was wound down over the past two years. There is also a normalization which comes with that because there was demand essentially pulled forward ahead of the subsidies being phased out. Also negative wealth effect as the strength of the Chinese consumer internally is a bit weaker. How does the industry expect that to evolve going forward? If you look at the medium term, 2026, 2027, 2028, volumes or internal demand for cars is expected to be on a recovery, but relatively stable and certainly lower than the prior peak at the end of 2025. So that is the dynamic that is expected to remain there for the medium period.
What is also interesting, on the right-hand side, you see the nature of what the Chinese car market is today. It is very much a startup market where you have 50 plus up to 70 competitors, fighting for business, trying to bring innovation. Essentially, only a few of them really have the scale. Ultimately, car business is still an industrial business. Scale is still a critical factor for profitability. Only a few of them have the scale necessary to turn a profit. Here we see the top three, the ones who have essentially a million plus number of units. But for the rest, they are still yet to turn a profit. So there is essentially an existential need for the local player to also evolve and capture share outside of the local market in order to come out of this startup phase as a survivor of the industry.
The other side of the equation, it is also the ability to fund this international growth from a capacity perspective. When you look at the firepower or the theoretical maximum firepower of the industry in China, looking at volumes which could theoretically be double what the internal consumption is today. So we are seeing the exports going up. Again, the big gap between the dotted line and the solid bar, that is capacity available to fund or to provide products for this external growth. Where are the products going today? Today, products are going more towards, or historically up to today, have been going more towards developing markets, LatAm, Russia, Africa, and the rest of the neighboring countries. North America is the more closed market, as outlined before. Europe is clearly the low-hanging fruit and where we expect volumes to continue flowing, to increase flowing.
I like to note that this is not a dynamic that only applies to Chinese OEMs. This is one that applies to all the international global players also operating in China, which are increasingly seeing China as also an export base for the global market for a number of reasons. They have in-store capacity, they have a low cost environment, a low cost and growing supply chain that is local. Also, most importantly, there is an advanced technology. These suppliers are able to provide really advanced tech. As I think it was the Volkswagen CEO mentioned, China is becoming the fitness center of the auto industry. So for global OEMs, being there, learning lessons there, competing and taking their lessons abroad and capacity abroad, there is still going to be a strong competitive incentive to do that. Talking about remaining on the theme of competition.
What has happened so far, we could, in a first wave of competition in the local market. The competitive advantage forces that have shaped the market have been based on, A, ability of local players to really hit the market with new products at a very fast cadence, in a very fast development cycle. Again, a feature of a startup market. B, great integration, for example, of your phone in the car, in the user experience end of the car, and in the integration with the local ecosystem has been an advantage. But largely, I will say mainly, the catalyst that has empowered local players has been the shift in powertrain. Going from an ICE vehicle to a BEV vehicle, where you have better battery technology, a structural cost on the battery that is advantageous.
The initial catalyst was powertrain, where we see the competitive landscape changing today and the forces that shape the market today, they are going more towards the software. Ultimately the highest application of software, which is autonomous driving. Today in the local market, at the end of 2025, two-thirds of vehicles sold featured advanced ADAS function. Level 2 plus and above. Much, much higher level than what we get here in Europe or in the U.S. We have BYD as one of the examples, but essentially a big suite of sensors and features are offered at base level, and with smaller incremental cost at the more premium end of the vehicle. That is clearly a feature that is defining the competitive battleground in China today. Above that, you have a growing and nascent robotaxi industry as well, like the ones you see in the U.S.
In China, you also see commercial operation from a number of operators, in an industry with a number of players, whether it is the tech providers or the actual ones who are more integrators, which do the tech and also the operations on the street. Is this a competitive advantage that is being developed and can be deployed elsewhere in Europe or used to conquer market share globally? I think in the short term, there are still barriers to that. There is data control. There are authorizations, regulation. But what we see is that maybe not the products in the car, but certainly the technology stacks are making their way into the global markets and into Europe. You see Momenta, WeRide, Pony.ai, all of the local players have partnership in place with mobility operators in the European landscape, and we will see these tech stacks operating in our market.
Moving on to a bit of our local landscape here in Europe. The market has been relatively resilient in terms of units being sold, despite the macro headwinds. Today, again, the incumbents still have a 60% market share, but the Chinese OEMs have been taking shares. Today, they have about basically 18%. They had 3% about a year and a half ago. The case study that is very interesting, I know that here in the local market, Norway is a very specific market where the BEV penetration is really high. But in more traditional markets such as the U.K., you can see how the second highest sold vehicle in the country in Q1 of this year was the Chery Jaecoo. Mid-size SUVs with a Chinese brand. Done without a European brand, like for example, Geely would have done with Volvo or has been done with MG. A non-native brand.
It's not a BEV, it's a plug-in hybrid. It's a product that really has been competing in a traditional way, in quality. Quality is understood as the ratio between the content versus the price. The PHEV is a particularly interesting story because it has been the loophole in a way, used by the C-OEMs to go around, to a certain extent, the tariffs that were imposed two years ago at the end of 2024. Today, most Chinese makers have to face some degree of tariffs for electric vehicle only. That's on top of the 10% tariff that already hits the imports in Europe. That hasn't really slowed down the consumption of Chinese vehicles in Europe. The big question is: will Europe impose new tariffs? Last week, the State of the Union speech points to the problem in a way.
It's to be debated whether this is going to result in tariffs. The timeline for that would definitely be similar to the previous one, where from 2023- 2024, that's when the tariffs will be implemented. You're looking at perhaps a 9-11 months timeline. Certainly, this would help local manufacturers in the market, but at the same time, the new entrants are expected to, A, absorb the tariffs in a first part, which they can do because of a cost advantage that they have in the manufacturing. But B, over time, try to localize more into Europe. These are really the current plans that we see from Chinese or from Asian OEMs. Localization is the ultimate incentive of a tariff regime. Why are they doing this? Obviously, tariff avoidance, but also to a way, from a brand image standpoint, there's also political acceptability standpoint.
I think it's important to note that when you sum up all of the capacity that will be built to 2030. So in the medium to longer term, you still have a significant gap to what the market share and to the volume implied by the expected market share of the Chinese player that will be in 2030. So you're thinking about 2 million plus volumes coming from China, about 1 million potentially localized. There's still a significant gap that leaves room for significant imports there. Switching gears a little bit to North America. North America today is, we could see this as a happy place for legacy manufacturer. A, there's very attractive, most profitable profit pools of the market. Think about the large SUVs, the trucks.
These are really marketplaces where the locals, the Detroit threes, have making a lot of profit margins that really focus their strategy, to maximize their opportunity set in there. It's no wonder that the global OEMs who have been losing volumes in the East are looking to North America as a must-win market for the future to replace profit lost elsewhere. Localization is the price of new entry under this current tariff regime, and we've seen announcements made, but pretty much most, if not all of the operators, in that market, that goes towards bringing more production for production in the continent. There are two themes here that I think could shape the dynamic going forward. One, the demand in this market is pretty much K-shaped as much of the demand in the U.S. economy.
This is our internal data, but basically, you see that the loan payments for new large vehicles, again, large vehicles are the ones sustaining the profitability of the North America industry today, are heavily skewed towards higher classes. That reflects really the K-shaped dynamic in the U.S. economy. Now, should there be a stock market hiccup, maybe we could see something changes there and then potential risk on that side of the market. The second dynamic is one about powertrain. Differently from the rest of the world, the car park and the car sales are going from ICE, not to death, but from ICE to mainly moving more to hybridization. This is in the medium term, an opportunity for OEMs, or could be an opportunity for OEMs which have global platforms with hybrid technology.
I am thinking really about the Japanese, the Korean, to a certain degree, the European player, to try to take market share in some of these profit pools, thinking about the mid-size, compact size SUVs. There is an opportunity for competitive shake-up in the medium term. I think the big question is in the long term, in a market which is essentially protected, where the development or the capital deployment into electrified technologies or few fully electric technology, is not as incentivized by the market. What is going to happen really in the long term, where, let us say, the barriers could come down and you see really players who have been in this fitness exercise for a couple of decades now, entering the market against, let us say, less fit, domestic players.
I would like to conclude with a quick thought and going back to the beginning of the presentation, also reflecting our role as M&A practitioners. When you think about the start of the presentation, we mentioned the fragmentation potential of the market, increasing capital resources needed to compete, you could think of de-globalization instinctively as a result of that. What we are seeing instead is really much more collaboration in the industry. As players from across the globe are trying to get together to solve some of these challenges. You see from a transatlantic standpoint, software JVs between, examples here, Rivian and VW, also with equity links on top. You see sharing of platforms. Some of the American guys, namely Ford in Europe, using some of the platforms of the European established players. Sharing of capacities in factories as well.
Innovating agreements for the manufacture and distribution with equity links. For example, Stellantis and their stake in Leapmotor and their JV to produce Leapmotor cars outside of the Chinese market. Also deals where capital has been provided in exchange for licensing tech to Chinese player, like the VW in XPeng case shows. The concluding remark is that despite the change in paradigm, this industry remains intrinsically global. Global scale still counts and matters. The markets are global. This will remain like this, and so will remain the flow of ideas, technology, and ultimately also products. Thank you.
Turn this on so we can get to DNB Carnegie.
Yes.
I get it.
Hi, thank you. Let me start with my presentation. I am an economist. I am a macro person, so I am thinking we are going to look at China from a macro perspective, a bit of a bird's eye view. This picture that I picked is not by accident. It is from BYD's Shenzhen Mega Factory. It is a bird's eye view of that. I picked it because I am a bit jealous of our shipping team in the DNB Carnegie who is going there. It is a factory that is approximately the size of London, in scale. It produces an enormous amount of cars and vehicles for export. Let me begin with what we think is important for the macro perspective on China. This is really something that I think is defining what is happening within China and outside.
Because if you look at what has happened in the past, I would say six years, something very dramatic has changed in what is driving China macro. If you go back even further in time and you ask economists, what is a big risk? What keeps you up at night? A lot of people will tell you, "Oh, there is so much debt accumulating in China.
They are building all of these houses that no one wants to live in, these ghost towns. When that goes bust, it is going to be a big cost. It is going to really hinder growth, not only in China, maybe even the world." That is precisely what has happened in the last six years. In 2021, the Chinese government themselves decided this is a bubble, the risks are high, and they are just going to poke it and also contain the fallout of it.
If you look at the chart behind me to the left, it shows you what has happened with housing investments in the pink line, and that is half. This is important. At its peak, it was like a quarter of Chinese GDP. When that halves, that is a big impact. If you look at what has been happening in the global economy, in the Chinese economy, a proxy for Chinese GDP with electricity demand just kept growing. Actually, it has not really slowed down even. That, I think tells you a lot about what has been happening internally in China. It has managed to basically shift one engine of growth, real estate, into other engines of growth. Manufacturing is important, of course, but so is cars, so is robotics, so is AI, so is biopharma. Everything else got more resources, more investments.
Basically what we think is that China ran Hunger Games on tech. They were saying, "Yes, welcome. We have a big startup community. We are happy to invest. We are happy to let there be some overcapacity, but there is going to be competition that gets the winners up and out." The thing that we need to remember is that this has costs. I think that is where we think, the Chinese economy and the export story is focused too much on.
If you think about what happens in The Hunger Games, if someone wins, someone is going to go hungry. What has happened with China is that overall, margins for everyone has really been squeezed. For households in particular, when we look at real wage growth, that is basically half. Prior to 2021 or 2020, prior to the pandemic, it was around 6% of real wage growth every single year.
Now we are at 3%. What does that mean? Well, it means that households have much less income growth. In addition, the biggest storage of wealth for households, their house, has declined materially in value. Low incomes, but also a big cut to their wealth. What does that do to Chinese households? Well, they save more. The chart to the right shows you that. If we think about the auto sector, it is the textbook example of this, a sector where demand, chart to the left, is basically flat. I will come back to the decline this year. The supply to manufacturing is growing into the sky. I think there is a bit more to this. There is a bit more than just demand is too small, supply is too high, and therefore much more is being pushed out into the rest of the market.
Let me start with the demand story. I think the previous speaker already mentioned it. There has been a lot of changes to subsidies in China, purchase subsidies. One thing is that China has had this big program where we trade in old vehicles, and the government will pay a lot of the price of the new vehicle. It is set up in a way where especially the cheaper cars is going to get more subsidies. In addition, if you buy an electric vehicle or a plug-in hybrid, you are going to be exempted from the purchase tax. What I think is important is that when we look at what has happened to these subsidies in total from 2025 to this year, that decline is about 30%-40%. If we calculate it as a share of the value of the vehicle, it is actually quite high.
For cars that cost less than 100K RMB, it is about 13% of the value. Why do I make a point out of this? When we think about a car here in Norway that is less than 100,000 RMB, like 145,000 NOK, we think, "Oh, but that is a really cheap car. What is that?" But for China, for the average Chinese household, if you look at what that costs in terms of their average wage, they have to save 1.4x their annual wage to buy that car. In some of the most expensive segments, it is almost like buying a house here in Norway. When the subsidies change, in our view, that has really had a big impact on demand this particular year. What does that mean?
It also means that in some of the segments where demand has fallen more, we have seen that the cars have gone out. One of the most popular cars that are being sold in Europe, in the U.K. and Germany at least, as well as in Brazil, is this BYD Seagull. It is this baby car, very small and very cheap. It actually occupies a market that does not really exist. It is not really being served there. We also see that the XPeng, which is around 120K RMB, that is being dubbed the Tesla killer. It is coming out also in a greater extent. Of course, we have Xiaomi. This is the car that looks like the Porsche Taycan, but drives better than the Porsche Taycan, or at least it beats it in the Nürburgring.
That one is actually part of a segment where demand is also declining, and it is also coming to Europe. We have the Tesla Model Y, which is actually a quite expensive car in China, as well as the Maextro, which is a Huawei model. What we are seeing is demand is declining the most in the cheaper segments, and it is pushing some of these cars out, but it is also quite competitive in also the more expensive segments. The bigger story, I think, is not just that demand is declining in China, but that there has been a massive change in drivetrain technology. I think it is difficult to wrap your head around it because of the scale of China. As analysts, we typically think something big does not really change that fast. Acceleration is not that quick.
If you look at what has happened in terms of Chinese demand for vehicles, in just six to eight years, it has basically transformed the entirety of the Chinese transport sector, more or less. The chart to the left shows you domestic demand, the total in gray. But you have the ICE vehicles and the traditional hybrids in blue, battery, electric, and the plug-in hybrids in various shades of pink. It is fascinating that in just the course of one business cycle, the demand for ICE vehicles went from 25 million cars per year to what? Below six almost. That is a massive swing. If you think about the size of that is more than the supply the OEMs that produce in Germany, in Japan, and the U.S. put together in one business cycle. These factories are not transforming themselves into new EV factories. Those have grown in addition.
There has been a really big change here in the drivetrain, and we think that that is one of the reasons why especially ICE vehicles are driving the exports. A lot of people will say, "Wow. That is a massive change six years, that is not a lot." When you think about what has been underneath this, it has been pushed through by policy that started back in 2001. That is when China really started saying, "Oh, maybe we should have some more students in engineering courses, material sciences. We need to look more at batteries." In 2015, China had a major push out of charging infrastructure. That is also when they started mandating supply chain localization. If you wanted to produce an electric car, the battery you used had to be made in China. They did a lot to make sure that suppliers were built up in China.
That is why when 2021 hit and the housing market was popped and the Chinese car manufacturers suddenly could see more access to capital as support to build up their factories, it was kind of ready to build. That is also what we think is happening when we look at exports. The chart to the left shows you exports, and I think really surprisingly, if we just look at what is being mentioned in the media, everyone is talking about this massive wave of Chinese EVs that is coming to Europe. If you look at the actual data, the largest increase in exports from China is just normal ICE vehicles. Of course, battery electric and plug-in hybrids have also grown, but these are 2 very different stories. On the one hand, we have all of the stranded productive capacity in China producing ICE vehicles that can be sent out.
On the other hand, you have very competitive EV vehicles that are also being pulled out. As the previous speaker noted, actually the European markets, the Western markets in general, is not that big a deal for China. Going forward, I think it is also worth noting that these are the markets that China are targeting. If we look at what is driving demand for vehicles in developing markets, the chart to the left kind of shows you that. It is the number of households, millions of households, that enter what we call middle class. This is when you buy your first nice car. If you look at what is going to happen in the next 10 years on our estimates compared to what has happened in the past 10 years, actually, China is not really that big a driver of the growing middle class.
It is really the other emerging markets that are more important in terms of the scale of growth. If we look at what China is exporting today in the regional split, it is quite fascinating that China's exports to these other emerging markets are really that very important. What are they doing there? Well, one is building brand recognition. You have the sales team in line. You create the logistics that you need. But two, what we are seeing is also that China is able to adapt the supply with the demand in the various regions. ICE vehicles go predominantly to Latin America, lots to Africa as well. Whereas Chinese EV and plug-in hybrids are increasingly also going to Latin America and especially emerging Asia. One of you or some of you might ask, well, EVs in developing economies, are they capable of penetrating that path?
I mean, is there infrastructure for charging there? I think to me, the big surprise is, yes. In Vietnam, for example, EV penetration is 40% of new car sales. Developing economies, having seen what China has done, are perhaps also able to build the infrastructure needed to go over to plug-in hybrids and EVs. The war in Ukraine, all the better reason to do so. What will happen then with these Chinese exports? Are there going to be tariffs that are going to make the Chinese exports less competitive? We think there are definitely some, but fundamentally, I think it's important to highlight what China actually has been doing with tech. From a macro perspective, we look at ex-factory gate prices. That's an index of how expensive things are when they come out of the factory.
If you look at the chart to the left, we see what's happened with ex-factory gate prices for autos, for cars in China. Normally, an economist keen on inflation and central bank rates, we would expect prices out of the factory, hopefully, to continue rising about 2% every year. That's the best-case scenario. If we look at what's happened with the Chinese cars, they've been declining in price every single year in the past 12 years. A lot of people will say, "Well, that's because there's too much competition. They're cutting prices. There are price wars because they just have to subsidize, and they have to send all the cars at a loss out there to gain market share." We think that might be part of the story for why prices have intensified in terms of the decline.
When we think about what's driving a big part of the cost in China, the battery cost, it kind of followed the same trajectory. Just in the couple, since 2021, battery costs have fallen by about 40% in China. That's something quite dramatic. If we look at how that compares to the battery costs in Europe or North America, I think it's a really big point to say it's dropped there as well, in Europe and North America. Learning by doing, it spreads everywhere. But the gap between how much a battery pack costs to produce in China versus Europe has actually widened further in the past three years. So it's even cheaper, even more competitive now. What's driving that?
Well, every time you go to a Chinese car manufacturing company, their showroom, the first thing you see, I think many of you guys may have seen it, is the wall of patents, which tells you, "This is our company's particular patents that we have." We think that is important. But the International Energy Agency, which provided these numbers, they've also looked at other things that may be important. Their calculations show that China, having worked on controlling the full value chain of battery production, they have access to materials in a cheaper way. There's vertical integration. That accounts for about a third of their cost advantage. That's quite difficult to replicate. Another third of their cost advantage is just China is better at doing things. Their scale, the wall of patents does matter.
And then the last third they are saying is, well, probably some subsidies here and there, and probably also a cheaper German BEV. What does this mean? Well, the way I am thinking of it is if China is hoping to continue building its electric vehicle industry, this is really the foundation of what makes it competitive globally. And perhaps it will be fine. It will be happy to act as the Western multinational companies have done before. Moving factories to Brazil, moving factories to the Middle East, maybe licensing the platforms that you use to produce, as long as one of the key components, batteries, are still Chinese. That brings me to Europe, because this is probably where the problem of tariffs or the question of tariffs is most pressing. And I think the chart to the left is quite fascinating because that shows you the share of Chinese brands.
That includes brands like Polestar, which we do not really think about as Chinese, but are owned by the Chinese. And their share of the European, both U.K. and Norway, car markets. And I have plotted a couple of things in there because I thought it was fascinating. For a very long time, the Chinese brand share of the European market was very little, less than 2%- 3%. But even after the European Union slapped punitive tariffs on the Chinese cars, the share kept growing. Quite significantly as well. Some would argue that that is because China quickly switched over to plug-in hybrids. But it just kept growing, until we got to the point where the EU and Volkswagen Anhui decided that, you know what? What if we just agree that when China sells to Europe, you set a minimum.
We set some sort of volume that you can export, but at a minimum price so that we can protect our domestic car manufacturers. I thought that was fascinating because for a Chinese producer, or in this case, Volkswagen in Anhui, that is basically saying, "We are guaranteeing you a wonderful profit that you will never have in China." Best-case scenario ever. So now when we are thinking about, okay, will the EU seek voluntary-- They want voluntary export restrictions. So they want the Chinese to say, "You know what? Actually, we will cap how much we sell to you guys." The question is, will there be a minimum price maybe also involved, or will there be other horse trading that happens? And one of the things that I think is worth noting is the type of horse trading that happens on precisely batteries that I spent some time on.
When we look at the broader picture, a lot of people will say, "Well, you know what? Batteries are actually a general-purpose tech." If you think about robotics, if you think about manufacturing, you think about drones, a lot of key strategic applications, it requires a battery to function. And if we think about where China is on the supply chain of batteries, 83% of all batteries today are produced in China. But the cell materials, so the components, the anodes, and the cathodes, almost 100% of them are produced in China. A lot of the materials are being mined elsewhere, but they are processed in China. So if we are thinking about what the EU might want in their negotiations with China, one thing is localization of firms, localization of jobs, but another thing is probably also Chinese IP.
This has gotten a name in Europe called the Reverse Deng Xiaoping, because it is kind of like what Deng Xiaoping did back in the day, which is saying, "You know what? We will give you market access, but what we really want from you is tech transfer." Let me end there with a couple of takeaways from my part on the macro side. For me, I think there is a lot of things that point to a structural change here. There is a lot of things that tell us that the Chinese car industry is quite competitive. Yes, there is very clear demand weakness now in 2026, but that is quite mechanical. The more important thing here is that China has managed to change the transport sector completely. If we look at what is going to happen for exports, the Chinese government is very clear.
They want to focus on emerging markets. The West is nice, but it is the rest that really matter. Trade barriers, yes, we might see more of them, but the competitiveness that underpins Chinese tech, it is very hard to just tariff away. When we look at what might happen with the EU and China, watch out for some type of compromise involving IP. With that, I am a little ahead of time, so maybe we have time for a question. One question. [Pierre Ze]? All right. Thank you very much.
Thank you. Then it is left to me to try to wrap it up, not with a disclaimer, but with this. Before I do so, I would like to thank the person who has been behind this, certainly Kelly and Francesco for bringing in new perspectives. Thank you. Also the three people over here that you do not see, but basically those are the brains behind both me and Anders and others. Please, Rian and the team, get up and let us give them a good round applause. Ida, too. All right. Both Anita and Rian are part of Anders' team, and Ida is on comps for those of you know. Three key themes we heard today that shapes our market. No doubt China is the one driving the market today.
We have talked a lot about shipping because we have focused on the exports, and I just want to add one thing. We are more than just shipping, as you know. We also have a significant logistics and supply chain solutions business. The stronghold of that is in the U.S. So for U.S. market, we are very well positioned to serve that too. Certainly also with our logistics capabilities around the world, we are fully able to help Chinese players grow way beyond the terminal side. I just wanted to mention that. Today, we are really focused in on the shipping part of our business and those markets. The key there is that we have constrained capacity, and the natural consequence is that rates are increasing.
Let me give you then a little bit more of the background for that, and I will end with a repeat of our market view. What we have seen today is that the Chinese are basically taking over in every market and everywhere. Sitting in Europe, we tend to over-focus on Europe and talk about what happens when we have Paris. Europe is not key to the Chinese. It is 70% of their current exports and other markets are growing faster. The Chinese export story is not about Europe, it is about global competitiveness. I would claim that if you go 10 years back, it was cost advantage. Now it is product innovation and technology advantage. They used to be cheap cars, now they are better cars. That is why you have seen that this has grown first in China, built scale, and now they are scaling this overseas.
Based on discussions we have with customers, they expect this to continue, certainly for the rest of this year and into the next year, into the next years. This has caused a massive spread between the need for RoRo capacity or PCTC capacity out of China and the supply. Meaning that the growth of exports are far surpassing the growth of the fleet that is coming in. If you had asked us two to three years ago, we were a bit uncertain on what happens in 2026 when we have this first wave, 2025 and 2026, first wave of vessels coming in. The answer was nothing. The reality is that we are still lagging behind the growth in demand. What we saw now during 2026 is that more cars are moved into container, and we have a complete new segment of other bulkers and others doing cars.
I can assure you, I have never met a single OEM in the world that prefer anything but PCTC. When you move 10 million cars out of a country, you really focus on flow. Putting it into a box, out of a box, it creates damages, it is more costly, and it is slower. Lifting it onto a bulker, just imagine. All Chinese customers and OEMs are fighting for PCTC capacity. That is why they have started also now to do some time charters themselves out of desperation. Not because it is a good idea. Here you need to understand the value of an operator. We are an operator. We have around 130 vessels. We have tens of customers. We do not have one single vessel, more or less ever in our history, with one customer on board.
Because we are taking big volumes out of China or Korea or Japan or Europe for that matter, and you spread it out to the world. You need to do that frequently, because if you do not come in every second day, the port is filled up. You cannot do that with 20, 30 vessels, but you can do that with 130 vessels. What is unique with the big operators like us that these companies can never replace is one, the frequency. We are there several times a week. Second, we can fill it with other OEMs going to the same port. You do not need to take one vessel to 10 ports, but one vessel to one port with 10 customers. That is why we are not afraid of OEMs being our competitors. We do not think they will. But we will have, for sure, Chinese competitors being operators.
We already have very good competitors sitting down the street, even in the audience. We are happy to have competition. I think it's important to say that we are not concerned about our customers becoming our competitors. We believe, based on what our customers tell us, that these volumes that have moved beyond PCTC, the day there is capacity, they will come back. Not only are we seeing a growth in demand, but also a growth in unmet demand for global shipping of cars and equipment. As Anders pointed to, we have not yet seen China moving at scale on High and Heavy. This is the one to watch. When we talk to customers in China, they are now saying that the first stage, they are maybe 10 years after the auto industry.
If you talk to big global players, Western players in the High and Heavy industry, they are now doing everything they can to settle the market before the Chinese comes. We don't think that this Chinese story is anywhere near to end. This squeeze in capacity has caused a massive change in the cost of capacity. When you look on the right-hand side, that's the TC, time charters, what we need to pay if we were to find a vessel. Morten told you there are no vessels, we can't find them. If there were one, they're expensive. Don't confuse that with our earnings. This is our cost. Our earnings is on the left-hand side, that's the rates. When we did contracts, the current contracts that were one-year contracts, most of them in China were one-year contract a year ago.
This is where we did them. We are now renewing these contracts, and as you can see, the spot rates out of China for transport of PCTC, very small market, but it's a very good proxy on what's going on. The sentiment in which we are doing contracts in the fall of Typically, you do it in the fall, and then they start end year. In 2026, it's materially different than what it was in 2025. We need to admit that we probably read the market wrong as everybody else, because the sentiment last year was not as strong, but the fundamentals were still there, but we just didn't see it sufficiently. That leads us to our business. We had some questions this time around last year on, what about that 40% open capacity you have in 2027? Today, for us, that is a massive opportunity.
It's not a question of if we can fill that 40%, it's a question of who do we give it to. That's what we talked about earlier in terms of leverage. Of course, that's not always easy because there are quite a few customers we need to let down. We are currently prioritizing real hard and trying to make long-term partnerships with those who we believe are long-term players in this industry. No doubt, an increasing amount of that are Chinese players. They have realized they need to do something differently than what they did last year. What we have seen so far this year, I will not speculate what will happen for the end of the year, but so far to date, all players have seen that the rates have gone up. You have seen that.
Also duration of contracts has been extended, and the need for partnerships and deeper relations with somebody like us has really changed in one year in China. I would say I have never seen a change in sentiment among customers in one year than what has happened over the last year. Fundamentally different market that we are now renewing in. When rates are up, durations are up, and partnerships are deepening, also we are selling much more of our non-shipping scope to these customers. The only thing to add to that is that the book of business in 2026, as you saw, was sold last year. Whatever happens in this market does not affect 2026. We have given you a guidance on what we believe for this year, and that's an EBITDA around $1.6 billion.
At the same time, we will repeat what we said in Q2. We have a very strong outlook. With that, thank you all for coming, and thank you for all those who have been on the stage for excellent presentations.