Compania Sud Americana de Vapores SA

SGO:VAPORES

Earnings Call Analysis

Overcoming Red Sea Disruptions with Strong Q1 Growth

The company reported a significant turnaround in Q1 2024, despite ongoing challenges in the Red Sea increasing fuel consumption and logistics costs. Revenue surged 13%, pushing EBITDA up by 108%, showcasing resilience. Container volumes grew 10%, a historic high, aided by the destocking period's end and dynamic global demand. The company also plans fleet expansions to offset new emission standards. Guidance for 2024 includes conservative expectations of 0 to $1.1 billion in EBIT, reflecting continued caution amidst supply chain disruptions.

Navigating Through Turbulent Waters

Hapag-Lloyd starts 2024 with a volatile backdrop, particularly owing to the ongoing conflicts in the Red Sea. These disruptions have forced shipping companies, including Hapag-Lloyd, to reroute vessels around the Cape of Good Hope, significantly increasing transit times. This drastic alteration necessitated extra vessels and containers—an increase of approximately 5% to 9% of the overall fleet, creating a unique supply-demand dynamic in the shipping industry.

Financial Results: A Mixed Bag

For the first quarter of 2024, Hapag-Lloyd reported an unexpected loss of $159.1 million. While this reflects a major change due to significant tax obligations, the company showcased resilience with a quarter-on-quarter revenue increase of 13%. Comparatively, the EBITDA saw an impressive growth to $378 million, showcasing a recovery from the losses experienced in late 2023. Despite operational challenges, volumes grew by 7% year-over-year, indicating strong demand in an uncertain market.

Expectations for Future Growth

Hapag-Lloyd anticipates a strong recovery trajectory, expecting demand growth of 4% in 2024, with potential to reach 8% the following year. If current market dynamics persist, actual growth could spike up to 9-10% within this fiscal year. Such optimistic forecasts are buoyed by an increase in volumes, recovering from a prior destocking phase in the global supply chain.

Reassessing Strategies: Cost Management and Infrastructure Investments

The company has reported a 5% decline in costs per container over the last year, thanks to strategic measures targeting pandemic-era expenses. By investing in more efficient vessels and enhancing technology for better fleet management, Hapag-Lloyd aims to reduce its emissions by one-third by 2030. Hapag also plans to increase terminal operations from 23-25% currently to an ambitious 30% by 2030.

Stabilizing Markets amid High Volatility

The current situation has generated significant price fluctuations—spot fees initially surged before normalizing then spiking again toward the end of April. The company is mindful of this volatility and, as such, is adopting a conservative outlook for the rest of the fiscal year, believing that certain operational metrics may taper off due to consistent disruptions in supply chains originating from geopolitical conflicts.

Market Outlook and Revenue Predictions

Despite the uncertainty stemming from geopolitical tensions, Hapag-Lloyd has revised its earnings before interest and taxes (EBIT) expectation for the year, narrowing it to a range between 0 to $1.1 billion. This marks a significant shift from the previously anticipated wide-ranging forecast. Hapag-Lloyd aims to focus on maintaining profitability and recovering operational costs, all while navigating through the quagmire of global supply chain disruptions.

Earnings Call Transcript 2024-Q1

[Unknown Executive]

Good morning, everyone. Welcome to the call of the South American company of steam (sic) [ Compañía Sud Americana de Vapores ] where we will be presenting the results of the first quarter of 2024.

We'll be doing this in Spanish. With those of you that want to listen in English, on the bar at the bottom, you can select the world icon where you can select English or Spanish, as you wish. Having said that, we'll begin now to share our screen.

[Unknown Executive]

Good morning. We'll be sharing now the general comments for the quarter. We had a loss of $159.1 million. This is mainly explained due to taxes, due to the dividends that we have to pay to our German company to bring funds to Chile, around $230 million. This is really compared to the operational expenses, mostly related to high taxes of $71 million. Another important thing is that on Friday, 24th, we will be paying dividends for [ $15.8 million ]. We'll be performing 4 dividend payments in a year.

Hapag-Lloyd, on one part, an important thing to say that we were able to see at the beginning of the first quarter a very important increase in demand. But we basically are still seeing this problem in the Red Sea, which has made an increase in demand.

If you compare March to March, our fees fell 20% when it comes to Hapag-Lloyd, and volume increased 27%. That explains the foreign fees. We're working on imports, which gave us an increase in the [ $35 million ]. We approved a dividend of EUR 9.25 per share. This was already paid for a total of EUR 1.6 billion so far. And regarding the market environment, we've seen the outlook towards March. It narrowed its range. It went up to an EBITDA that was a net positive. So we expect this year's results to be positive to get rid of anything negative.

Just to give you a bit more context of what this first quarter was, when you compare this first quarter with the first quarter of 2023, the results follows -- specifically because of the first quarter of 2023, price -- contract prices were still changing coming from the pandemic. So the average fee of that order was different, and we were seeing a normalization during 2023.

But when you compare with the fourth quarter of last year where Hapag-Lloyd had a loss, you can see how this situation is considerably improving. This is happening because of what we're seeing here on this slide. Due to the conflicts in the Red Sea. You have to remember that towards the end of last year in December, these container vessels started being attacked in the Red Sea area. And that is when freight companies decided to change the course of their vessels going through the Cape of Good Hope instead of the Red Sea under Africa, which meant that the transited time and distance is to be a lot longer.

As a consequence -- as an immediate consequence, what happens is that to offer the same service to our clients, you need more vessels -- you need more vessels and more containers. So in practice, it's like we have to work to 5% to 9% of the fleet. This is because the Suez Canal has around 25% to 30% of the global fleet. And with an increase in transit time, this adds around a 7% or 9% of additional fleet. So this additional fleet had an immediate impact in our fees. And also considering that the first trimester towards the end of last year, we were in a contract period, we also expect that the level of contracting to also reach a good level. It says that the volume is a margin above what we had last year with the same fee.

So the situation in the Red Sea is ongoing. It's ongoing for 5 months, and we are not seeing any improvements in the short term. So as the situation continues, this absorption of a fleet is compensating for any new fleets that we would be getting. You have to think that October of last year, we thought that it would be complicated for 2024 because we had a 10% increase of fleet in the market, but the situation has reversed, and we're now seeing good results for this year, although we expected them not to be that good.

This is a bit of the context of what is going on in the Red Sea. The good news, have surprised the short-term market, has to do with volumes that we're seeing for this 2024. Demand increased during the first quarter, around 9% on a global level, which is huge. A lot has to do with the fact that the destocking period that we saw throughout all of last year has ended, and the economy is a lot more dynamic. And due to the fleet need that we were talking about, we see that the fleet that's not being used is around 0.9%, very low levels, idle fleet. And as while being repaired, it's around 2.8%.

This is the spot fee that we're talking about. We see how the spot is racing around January, reaching its peak. Then we saw some normalization around March and April. And towards the end of April and May, it is another increase. We believe that this is associated mainly, first of all, to logistic problems for the industry due to these route changes, due to the conflicts in the Red Sea. We've had to get a bigger fleet. There's scarcity in containers. So all these logistic issues start adding up and they generate scarcity of equipment, vessels, and this is then reflected in the price, the needs of the clients to transport their cargo in the smallest amount of time possible.

This is something that I also want to mention very shortly. There's some speculation that part of this could be due to the fact that on the East Coast of the U.S., the syndicate of our Boards is in a collect negotiation process to a contract that is currently standing since last September, and this is something that we need to continue also rating. In the case of the -- any possible conflicts, we take a look at the [ resi ] fuel. The price is relatively stable. Since the second semester of last year, it's still in high levels. If you take a look at historic prices, in the first semester we remain sold out by $173 per ton.

Before we continue, I have mentioned that Hapag-Lloyd's line up of fuels, we're starting since this first semester to reflect the cost of emissions associated to burning fuel. We have to remember that this year, the new standard for the European Union starts, which will be progressing. It will be in full order, fully operational since 2027. But for this year, we have to account for 40% of emissions of the vessels that are operational between ports in Europe. And the upcharge, just so you can look at some [ few years ] for this line of fuel is around $24 million.

Now if you take a look at the order book. We have this income of around 10% for this year for our fleet where we started showing for the first quarter. We've had deliveries of around 3.6% above the global fleet. This means that the order book is falling, compensating also some new orders that have been placed during the year. So we see the order book at a very healthy and stable level for this industry in a fleet change process, technology change process so we still have some fleet that is left over that we need to account for, for the next year, which is a positive thing.

Now when we took a look at the balance for supply and demand for 2024 and 2025, in this graph here, we expect -- at least our initial expectations, is that the demand to grow by 4% this year, 8% next year. This could be corrected if we keep the volumes that we've seen during this first 5 months of the year are in the order of 9% to 10% of growth. But nonetheless, we have 10% of fleet joining this year. So to know how long the Red Sea conflict will last, it could really change the balance of supply and demand very quickly. But with certain numbers, 10% is what we expect as income. Maybe we could have some delays towards the next periods? And this 10% is in part compensated by the absorption of fleet that I was just mentioning that is not reflected on this graph of around 5% to 9% of the global fleet.

I want to take a look at our Hapag's results. It was a very good quarter. This -- compared with the first quarter of 2023, we are very far away from these positive results because that quarter had pre-pandemic numbers. But regarding the fourth quarter, there is a very considerable increase of revenue, 13% EBITDA to 108% of EBITDA. It was a very good quarter regarding the very negative expectations that we had. And if you see something relevant about this slide is that the EBIT was around $396 million against the $325 million of the group profit. This is due to taxes, which is relevant of around $100 million for Hapag. And this has to do with the exchange rate effect, the tax effect that the exchange rate has on financial investments of Hapag-Lloyd.

Just to make this a lot easier, Hapag-Lloyd now has a very relevant investment level with a very good portfolio. These investments are done in dollars, accounting in Germany is in euro. So we had -- any devaluation in the year, generates some kind of taxable things and issues in Germany. And although there are no losses, they have to be accounted with these taxes. As I say, it's mainly due to exchange rate.

We can see the reach in EBIT for the first quarter of 2023 against the first quarter of 2024. We had a very strong first quarter 2023, with [ $1,855 billion ]. The best thing was how the volume grew in Hapag-Lloyd at 7% with 195 extra containers, but we saw a very important decrease in the price of fees, although it is better than the fourth quarter of last year, it's lower than the fees that we were seeing a year ago.

But regarding costs, we also see a negative impact. This is done mainly due to more fuel needed. If we see that the price of this quarter, fuel prices are falling compared to the last quarter, there's more fuel consumption due to the conflicts in the Red Sea, which meant that you need to accelerate more and do traversal a longer distance. So fuel consumption is bigger, it is higher.

And we also have this issue of emissions that I just told you that is also being -- those are expenses. We also need more containers to do the same because they sell a small rotation. And we've seen no balance between where some empty containers are and when they are needed. So this also had an effect on the line of equipment and also has meant a bigger cost for our vessels. And this means an EBITDA of $378 million for EBIT.

Now when we take a look at cost per container, they have been declining since a year ago. We have a decline of around 5%. It has to do with the plan that Hapag-Lloyd, as I said, trying to get rid of all these costs that we were dragging since the pandemic. But due to logistic problems, they had been increasing. So this is a very good piece of news.

If you compare at cost level, for example, with the third trimester of 2023, it has increased because although we have more conflict and logistic issues, this also has a repercussion on the cost level. So we see more expenses, as I was saying, bigger distances, higher speeds, they imply a bigger consumption of fuel.

Also in handling freights, it's implied that the vessels that went through the Middle East, and they were stopping in the ports that they need to. Now they need to deviate and they need to leave their cargo in some other intermediate point. It could be in Europe. And this means more changes. So it increases these costs for moving cargo.

But it's something that we are monitoring regarding quality, which was -- which has also been reflected in higher fees. When we take a look at the results, you have to remember that Hapag-Lloyd, since September of 2023, it's been reporting to business segments related to liner shipping and terminal infrastructure.

Obviously, the strongest segment continues to being liner shipping, which is around 95% of our EBIT. But it's also interesting to see the results of the business in terminals and infrastructure, how it's been stable. It's still in a consolidation process of a business that is growing. Construction is still ongoing, and it has quite a bit of stability in the bad moments.

All terminals are also part of the strategy published by Hapag. Around a month ago, we published our 2023 strategy on how -- 2030, I mean, I apologize, on how we see our metrics towards 2030 with a lot more complete results. This is something that we have already been talking about for some time now.

So the strategy is to continue being a focused player, focused on what we're doing, which is liner shipping and maritime transport, but always having some strategic infrastructure to do what we do but better and more efficient. So although with all the purchases and acquisition that Hapag has done during the last year, we have around 20 terminals, owned terminals. We expect to reach 2030 with EBITDA above 30 terminals. So we're going to still expect some growth along this line.

And we also want to improve and increase the amount of freight that we move on land for our clients, which is around -- we want to return 30%. We are now around 23%, 25%. So we want to offer clients an excellent product for the whole transfer. And to achieve this, we have to continue to be one of the first 5 players of the industry, the top 5 players in the industry. And to do this and to continue having this market share, we need to continue growing above what the market is currently growing.

So how do we grow? With these 3 strategic pillars that we have defined: one is to continue to being the undisputed #1 for quality towards our clients; second is to be focused on sustainability and decision-making, which is something that clients and regulators are demanding; and third is to continue having a top-level performance.

So how can we do this? Hapag carries out two surveys per year where we evaluate and we are assessed regarding the valuation of our own clients. The idea is to continue having this Net Promoter Score above the 50 points. Currently, last survey, we got a very good evaluation against 60 points or 6 points. And another thing that we see is that more than 80% of the cargo to be on time and to continue being #1 in our digital experience so that all clients have the feeling that this has -- that we have been working very strongly on our service in the last few years.

When it comes to emissions, we plan to reduce our total emissions around 1/3 from 2022. This is a big challenge, considering how this is taking a look at total emissions and not only not only a -- these emissions will continue growing towards 2030. And last, to continue having a very good financial profitability to reduce unit costs at around 20% and to increase our productivity to 30%.

And now, one of the news that I wanted to give you, since we had the results from a week now, we updated the range of the result that we expect for the year. And it was narrowed to the upper half that we were aiming for at the beginning of March. So we expect that the EBIT, the lower range of the EBIT to be 0 and the upper half of the range to be $1.1 billion. This is in a context where we expect the biggest change that is being visualized, that the fees will fall moderately differently from 3 months ago where we saw a bigger decrease from the last year. We must remember that last year, the average fee was around $1,500 per deal, TTEU. Now we have seen a very important increase.

Now Roberto will continue.

[Roberto Saenz, executive]

Now moving on to CSAV results. We saw that last quarter, we had a result of $598 million, and this is directly affected for this quarter due to 2 effects. First of all, it's Hapag. We've explained how we've had an impact $513 million. We have savings in around $2 million for management and financial result of $9 million. We have no positive financial results. We have an exchange rate difference of around $23 million. This is due to the devaluation of the euro from the dollar.

We do no hedging because we have no clear view on the date where things will be paid. We'll see reductions in exchange rates if things don't improve for the year. And if we stop there, we have $61 million before taxes result. But then we see tax expenses of our German partners. This is the idea, because last year, we had a very positive income, and dividends in Chile are taxable 27% of the dividend received, and this is the effect that we have of around 206 -- $217 million in taxes, now we need to account for as expenses.

If we didn't have any tax credits, they wouldn't be paid. This is -- this $217 million [ are not ] with the tax credit if we don't see any flows for the accounted results. Our deferred taxes of around $23 million from the exchange rate in Germany and Chile, a tax income -- after taxes around, 25.5%. This is a result that we've seen in our financial statements. This is a very temporary difference that we see, the $23.4 million due to the exchange rate. There was also a positive effect of the taxes that we paid in Germany. These accounts for this $10.2 million, meaning that the total amount of expenses for taxes is around $232 million negative. And the net income, $159 million negative.

If we go to retentions, we have $601 million of total current tax assets. And credits, just like I mentioned before that we used to pay our taxes, we have around $251 million towards March and a remaining a tax rate of 1.6%. these are some of the taxes that are -- that can be recovered or future taxes.

We have 31 because this is a new row here. These are taxes have been paid between May of 2023 in March of this year. So we've seen decrease of around [ 40% ] tax, and we're expecting that these funds will reach Chile directly. But we still don't have a very clear date on when they will be coming to Chile.

If we could project this same slide for every year, we still have the first 3 dividends that we already mentioned as a very good important retention for March. The new thing here is they have dividends that were paid in May 6, but very [indiscernible] And this was seen as a dividend between 2 German companies, EUR 429 million of retention. This will be reimbursed next year. This year was March, last year was August. So we can expect this as a range in our data for delivery. When we got our tax return, around 10% of retention rate, and the rest was used as a tax credit with EUR 38 million. So you can see that we're going from EUR 321 million to EUR 487 million in retentions as of May 2024.

If we quickly check the balance on the upper part of this chart in asset -- main asset changes, we began with 8,269 total assets. Dividends received from Germany, $685 million. And also considering the retention from the taxes in Germany, this was reflected in our -- the total of -- from $86 million for Hapag. All liabilities, they increased from $180 million to $193 million, specifically due to the deferred income taxes of around $24 million that explain this difference. The rest are Texas and Germany. Whether retained or whether reimbursed, this compensates the taxes payable, and this is what we have been seeing this year.

Regarding equity, we see a negative result and a decrease down to $7,922 million. If we take a look at this cash flow some, we have -- we began in $952 million promoter inflow, and now we are at around $963 million, concerning the retention of taxes in Germany. So this is mainly due to the dividends being brought on from Germany.

Now going over to ESG strategy. We've mentioned previously that we have a policy aimed towards different communities in San Antonio. We created a new upgrade to the bathrooms. And for the courses, we rented a gym, we renovated this gym and sports facilities to have a fully-equipped gym so that the community can use it.

And last, some of the final comments, this is our main investment. We saw a very solid start for this year. There were some issues expected with the problems in the Red Sea and the over -- the increase in the offer of our vessels as -- and the situation in The Red Sea mitigating some of the effect in other places.

With regards to CSAV. We have $3 million to get back, to reimburse from this year to the other. And with that, we can pay our investors. I believe this would be everything for the presentation that we have now.

[Unknown Executive]

[Operator Instructions] We are open to answer any comments that you may have for this presentation.

[Unknown Analyst]

I have three questions. First of all, regarding the strategic plan for the long term, when you expect to reduce unit costs around 30%, I would like to understand where you're leveraging to reachieve this objective. This has quite a bit to do with the [indiscernible] agreement? Or are you doing something else to achieve this?

The second question is the volume, the demand had a very strong beginning, quite a bit above what we expected in the beginning. But it doesn't seem to have changed the expectations that you have for the whole year. Is there any increase in risk? Or is the good season coming on early?

Third is that I would like to understand what is the things that you're supposing for this increasing range, meaning that the fees wouldn't be stabilized if the issues in the Red Sea are not solved. So what are you thinking about this?

[Unknown Executive]

I will clear up the second question because I think it's very similar to three. Second question is more around demand. The volumes were very strong. And three is more about what -- how you assume to be part of the upper range because it doesn't seem to me like you changed your expectations of demand towards the whole year. But I would like -- it seems like you are assuming that fees will not be falling towards the rest of the year.

Let's take a look at the strategic plan, first of all. It's talking about falling costs, we were talking about pandemic costs. Now where very high costs that have been falling, and the main leverage to get this discount has to do with the vessels investment in more efficient vessels, which we have been doing. We have to continue doing more efficient vessels in the sense that they have less emissions. So they consume less diesel, less oil. And we're comparing the same thing. So during the pandemic, we didn't pay the carbon bonds that we have to pay now. So we're much more in vessels, so we achieved this.

And second, we actually expect this alliance to generate economic benefits and cost reduction. What we expect here is to have some sort of network where we have more transfers with a certain amount of -- where we have transfers with a certain amount of containers, we're accounting for this amount of volume for transfers. And we have to make sure that the service towards our client is maintained. But we have also increased our amount of ports with Maersk. It is a very important port portfolio and this could be aimed towards increasing the quality of transfers.

And there's great savings. We are doing transfers, but we're doing it more efficiently with bigger vessels in a combination like that, a bigger vessel. It doesn't drop off fewer containers to small ports. So this is one of the main layers that we have when it comes to cost savings.

And there's also savings in our investments in technology because with more technology, you can probably have a better control of containers, of the ship network. These are some of the main drivers.

When take a look at volume, and I'm talking about question number 2 now. When you take a look at the volumes, so you can clearly see that, we have a very surprising increase, around 10% of volume from the industry in the first quarter of the year. You compare all this with the first quarter of last year, that was very low. Notwithstanding the EUR 3 million that have moved was a historically high volume for the first quarter, this is our historic record. So there's a very important growth in volume that has been persistent even in April and the beginning of May.

Now whether this is permanent or not is hard to say because there's a lot of disruption in the production chain. The issues in the Panama channel and the Red Sea, this has also repercussions in the ports of the U.S. So it's very hard to know whether what we're seeing here is an important increase of demand due to overstock, hoping to have some operational decreases in the U.S. due to agreements with the syndicates, whether it has to do with participation of -- in the high season. It's very hard to diagnose just now.

Now I will move over to point 3. We continue having a very conservative point of view towards the rest of the year because it's very early now to see whether certain volume operations will remain. So Global Bank are also having these conservative ranges of around 3% to 4%. That's what we use as a basis to continue working.

If this is not the case, then this could mean that our projections will aim towards the higher range from the range that was just informed by having now. And it's also very relevant to what will happen with the Red Sea. You have to think that the Red Sea crisis has basically reported around 6% of an additional fleet all around the world just to continue with this traffic. So if this is issue -- if this issue is resolved, we will see, if it does happen, plus a lower growth towards the half of the year. Again, go back to a scenario of bigger risk like the one we thought we would have at the beginning of the year.

The initial forecasts that Hapag had was between minus $1.1 billion and plus $1.1 billion. So it was a very wide range. So the forecast that you're seeing is aimed towards second half of the year. That's a lot more conservative than the first, with very volatile results. And this is a lot more conservative considering the first semester. And considering this guidance is being done by Hapag now at the beginning of May, knowing some of the results from April. This guidance is now between 0 to 1,000 and not from minus 1,000 up to 1,000.

I don't know if this answers your questions.

[Unknown Analyst]

[indiscernible] here. I have 2 questions to ask. One, you caught my eye, how much of the fees from China have increased? China towards the world? It really shot up, especially now in May, it has increased quite a bit. If you were to make any reservations and bookings in Chile, there are no containers. There are no reservations for vessels of up to June. Why did the demand increase so much? Did something exceptional happen? Are world inventories are decreasing? What's the explanation of this? Because the freight around [ 6,000 ] and something here in Chile. And in China have been increasing. So I would like to know what happened now in May that we project it will continue going up until the end of the month, and the fees will continue rising in China until June.

And the other smaller question that I would like to know. How much do you project in utility for a segment of containers for EBITDA towards the end of the year? I believe it's not 100% operational. So I would like to know when it is 100% operational, how much utility we'll get for EBITDA.

[Unknown Executive]

Well, first of all, the last thing is very easy to answer. We don't do utility forecast for any network, for any line of business. What we do is we give a range but not specific forecast. I have nothing else to add regarding this.

And regarding what is happening in May. We're talking about the results from March. We try to avoid talking about things that are going on in the quarters where we have not informed any results. But what is going on throughout the whole world in April is that demand -- this strong demand that we saw during the first quarter has continued, and we need to understand that this is a global network. When you need more vessels to any particular area, they move towards this area. So what happens in the world affects every single place when there's a vessel scarcity.

So what has happened, especially with the Red Sea, is that this disruption has caused the productivity of containers to be lower, meaning if you could go 4.5 -- if you could go around the world 4.5 times with one container, you do less than 4 now. So this means that there are fewer containers in the world. So companies, along with us, we are doing a very important investment to get more containers, and this isn't solved from one way to the other.

Same thing happened during the pandemic. Not only they would have a vessel scarcity, but container scarcity because there's not a matrix of network designed around containers to move around with efficiency. We have these metrics, but when there's any disruption, they become inefficient, very inefficient. So they are trapped in warehouses, in industries because of their ports that you can no longer reach. So we had some trapped in those ports, and this generates container scarcity and this cause and effect on every single market, not only Chile. I don't want to talk about Chile because it's less than 1.5% of business or Hapag-Lloyd, so it's not that relevant for the yearly results, but it affects every single area of the business.

[Unknown Analyst]

Can I ask another question? Sorry, I forgot about it. What percentage do we have of signed contracts for the long term regarding spot fees of this year? Or are you not negotiating due to them being so high, they're not closed?

[Unknown Executive]

No, they're closed of around a bit more than 50%. A mix between long-term contracts for more than 3 years and a yearly contract.

[Unknown Analyst]

[indiscernible] company and investment analyst. I have 3 questions here. I don't know if we could ask them one by one to not have any miscommunication.

First is very easy. I want to refresh. The utilities from the first quarter, I believe I have some leftovers from the loss of vessels. I believe that bigger part of the first quarter of contracts that are signed at 2 months before, 3 months before I don't know, I assume. So I want to know that if the results of the first quarter has accounted up to what increase in prices since January? That would be the first question to kind of understand the accounting part.

[Unknown Executive]

You're talking about the results of the second quarter. All the same, I can't answer that. Second question.

[Unknown Analyst]

I understand that vessel companies such as you and others have done yearly contracts of around 10%, I believe. Do you continue having this policy or...

[Unknown Executive]

Yes. As what I just mentioned, we have around 50% our contracts. A part of that around 20%, 23%, 24% of those, meaning around 12% are long-term contracts and -- for a year and the others are for a 1-year contract. So you could expect that the contracts that we had 3 years ago or 4 years ago to start being negotiated with better prices, with better cost.

[Unknown Analyst]

Better for who? For you?

[Unknown Executive]

No, not necessarily. Because these contracts were done during the pandemic with a lot of higher spot fees, a lot higher than what we're seeing now. So many of those contracts are already being renegotiated because many of them are out of the market. So generally, these contracts are not working with the fees that we had.

We see this very stable, and not all contracts are expiring during the same month. So the yearly contracts generally tend to have maturity around November and March. That's where they're concentrated every year.

[Unknown Analyst]

I see. Perfect. And last thing here regarding the global demand, not consumer demand, we know that this cannot be predicted. But for the industry, you see that many vessels are freezing. We see vessels that are more than 20 years old that are around 20% of the global fleet that are still operational. And you would tend to think that the higher speed that vessels had to satisfy client needs should normalize towards the second quarter when you have all this logistics in place and they can spend a bit less fuel by decreasing speeds. I don't know if this effect should be seen in the second quarter.

And related to the same thing, I have another question. How long will this take to go out, these new orders that you see in this quarter that are relatively high and not so high. When you see it that way, why are all shipping companies so conservative towards the second semester? My question is, why are you being so careful? Is it so volatile? Because there's quite a bit of space to mitigate all these risks that you see.

[Unknown Executive]

The thing is that there are two different parts of your question. I will answer them separately. First is the order. We see that structurally, at an order of around 20% with -- around 12% of the fleet, with all the new emission standards because, of course, the older vessels are more efficient because you have to pay for each ton of CO2, especially like in Europe, for example.

The industry has a scrapping that hasn't been used for the last 5 years. So when you take a look at the scrapping, it's very irrelevant. So we've been accumulating ships that should go to scrapping. During the pandemic, these ships extended their contracts from 3 to 5 years that are now maturing in 2025. But with the Red Sea issue, we need to continue reserving ships, because you need an additional 5% to 6% of the fleet of the world, and it's operational.

It will increase around 9% this year. So this 9% plus the older ships and vessels, they continue operating. And since volume has increased around 9% to 10%, we need more ships. That's why fees increase.

If the Red Sea issues resolved, we assume that it will end up being resolved, this will free up 6% of the world fleet. And this will happen fast once this is resolved.

And we see the story of this industry, when you have overcapacity around 67%, which could last up to the second half of the 2025. The original expectation of the industry towards the end of last year is that we had a situation of overcapacity that will end up being absorbed. If the world will be driven around that 3.5%, it will be resolved around the second half of 2025.

So if your growth projection for this year is around 3.5% or 4%, the industry hasn't changed this part of these issues. And if your point of view is that it will liberalize traffic in the Red Sea, we go back to the basis that we had when we did the first guidance between minus 1,000, up to 1,000. But we'll have -- what we saw for around 5 months that this didn't happen. That is why we have such a conservative point of view and shipping companies have such a conservative point of view, because this venture that we had from 18 to 20 months had disappeared due to a very high demand and the issue of the Red Sea that ate around 9% of fleet.

This can return in a shorter period because we haven't created any more ships. So having idle ships of around 20% is not a structural problem. So we're still careful towards the next 12 to 18 months. It's not long term. Towards the long term, we don't see any balance problems, because as you say, the space for industry to do quite a bit of scrapping, it would be necessary. It's hard to know because we take a look at the Shanghai Index, in 4 weeks, we went from 900 to 1,500.

[Unknown Analyst]

And can you do this -- can you perform the scrapping of so many old ships? Is there a capability to do this?

[Unknown Executive]

Well, there is a bottleneck. Generally European companies are scrapping only in docks that are worried about the environmental issue. This is a limited capability. If you want to send them to India, for example, and just leave them stranded in the beach, then this increases capability.

Not many contracts are ongoing. They will mature around 2025. And those are maturing now due to vessel scarcity. we'll also have to be signed towards the long term. So this dilates the scrapping period. But the shipping companies themselves, us, in the case of Hapag, if you take a look at the fleet of each one of these shipping companies, they all have old ships that could be scrapped. So this could go to scrapping before rented ships. And this capability hasn't been used because there are no idle ships. They are all being used.

[Unknown Analyst]

And just to wrap things up, the Red Sea crisis, this issue will persist, right?

[Unknown Executive]

No, exactly. And the speed has to do with this. The Red Sea, the road that we're taking is more than 20% longer in miles. We used to do this with 10 ships. Since now it's 20% longer, we needed to add 2 additional ships in each loop. We had to do this in each route.

It's not 20% longer. It's longer than this. It's around 25% longer. And this 5% to 6% additional is speed. So the industry has increased speed and need more ships. That's why speed has been increasing and we are consuming more oil. So while the Red Sea crisis persists, we'll continue having these issues of fleet and now to having the acceleration problems.

[Unknown Executive]

Antonio?

[Unknown Analyst]

My question has to do with the strategic plan towards 2030. In one slide, you talk about contracts, how 50% of the utility of Hapag-Lloyd will reach around minus 30% towards 2030?

[Unknown Executive]

The thing is the company is forced to give its vision on the dividend policy. If you read the dividend policy of [indiscernible] 30%, same thing, right?

Yes. Now a declaration of what the administration or director of Hapag could say. And another thing is shareholders, those that vote for dividends are shareholders. So we shouldn't see any changes heading towards 2030. Until this pack is working, unless we see a situation that requires this, which could happen, but to go below 50%, we need all members of the packs to agree.

[Unknown Analyst]

Another thing. I don't know if you could say or talk a bit about it -- about this. You starting work on terminals. And now in your 2030 strategy, you see an increase in around 30%. I want to understand a bit more about this, if you could talk about this.

[Unknown Executive]

That doesn't mean buying land assets. We're talking mainly about developing door-to-door sales of door-to-door services for one service, one segment of the market. But this doesn't mean that we will continue investing in our trucking companies.

[Unknown Analyst]

That's my question. Are you still focused towards the maritime freight?

[Unknown Executive]

Yes, completely. There are many ways of doing this. You can add the other platforms, digital platforms through which you integrate the lab services and that your clients -- smaller clients because this isn't for big clients. Big clients generally solve these issues themselves. But for smaller clients, this could eventually -- they could eventually book in your web page from door-to-door services. And Hapag-Lloyd, it could be able to provide the service, being integrated in some sort of a marketplace with providers without owning anything.

I don't see a CapEx between [ billions ] in the land market, which doesn't mean that we'll have to buy some small things here and there. But our strategy is that we are a shipping liner and we went into the terminal business. That's 99% our focus.

[Unknown Analyst]

Well, my question is -- my question is related to the previous point of the ships. In the ship contracts, I imagine, as you said, they would be about to mature, right? And what are the feelings about renovating this with this demand? Does this match with what is going on in the Red Sea? Because supposedly by lowering the amount of ship rental, the cost of this rental should decrease.

[Unknown Executive]

Well, [ Jaime ], we have a plan that is growing around where the markets were. And if the margins were around 3% to 4%, our fleet has to grow around 3% to 4%. If not, we're not capable of achieving this promise of not shrinking.

When you have inefficiencies like what is happening today, to be able to grow around 4%, the fleet grows a bit more than this because ships are navigating for more hours. So we will continue renting ships and purchasing ships to make sure that we have a 4% or 5% in growth every single year.

And sometimes, it could happen that you placed a purchase order for a cheap ship. And sometimes, you get more expensive purchase orders. The same thing happens with our rentals. So we don't make decisions for the long term for the spot prices. So we are consistently renovating the fleet. So contract renovations in years when business is very good, they tend to be more expensive than those that have been when the business is bad.

But if you don't renew these contracts, your competition renews them and you have no contracts, right? So what we try to do, both for the purchase and for rentals, is to continue working with the industry to work with the average.

I do not see this as an opportunistic thing that rentals are expensive. I will only rent when they are cheaper because when they're cheaper, probably no ships will be available. So this is a much more industrial vision more than that trading thing.

[Unknown Executive]

We have one more question. [ Marco ]?

[Unknown Analyst]

A very short question, very simple. If you could please explain. It says total current tax assets, $601 million from which there's a grid for taxes of $251 million. In the last slide, it says there are $600 million in current tax assets. Meaning, can we get all of this back in dividends or is it not possible?

[Unknown Executive]

Well, [ Marco ], I suggest that we take your questions separately because -- for the rest, [ Marco ] is a journalist and this is an investment call. So you could send us your question in writing, and we can reply internally.

That's all done?

[Unknown Executive]

Yes, no more questions then.

[Unknown Executive]

Well, thank you very much, everyone, for joining us. We will see you in the next investment call.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]