Hapag Lloyd AG

XETRA:HLAG

Earnings Call Transcript 2020-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome, and thank you for joining the Hapag-Lloyd Analysts and Investors Q1 2020 Results Conference Call. Hapag-Lloyd is represented by Rolf Habben Jansen, CEO; Mark Frese, CFO; and Heiko Hoffmann, Head of Investor Relations. [Operator Instructions] I would now like to turn the conference over to Rolf Habben Jansen, CEO. Please go ahead.

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Thank you very much, and thanks to everybody for taking the time to join us on this call. What we'll do is after a few opening remarks, and a couple of comments from my end, Mark will take us through all the financials of Q1. And then afterwards, we'll talk a bit about the market and also way forward before we take your questions.A couple of opening remarks, maybe. I mean if you look at today's situation, of course, the personal health of all of our staff is priority #1. That's also why we have been working from home largely since quite some time. If we look at the volumes, they've been definitely in line, as well as rates have been in Q1, but we start seeing some effects of that in Q2. We did launch what we call the Performance Safeguarding Program to make sure that we are still going to come out of this year in a proper way, and that means we did all kinds of measures, not only on cost, but also on liquidity and looking at investments, for instance. All in all, I believe our financials are -- for Q1, which Mark will elaborate on, are solid, even if they were definitely impacted by a write-down on bunker, which was quite significant. In terms of the market, I would say that the outlook, as we have it today, is probably not deteriorated materially compared to what we saw 6 or 8 weeks ago, but the situation definitely remains very fluid. Solid Q1. Clearly, volumes down now in Q2. We still think though, that in our scenario where we'll start seeing a gradual recovery somewhere in the third -- in the course of the third quarter, with -- then further pickup in Q4 is reasonable. If we look ahead, then, we basically stick to our guidance. We do recognize, however, that there is more uncertainty than normal around this outlook. But nevertheless, when weighing everything in, and we'll talk about that a bit later on, we came to the conclusion that we uphold our guidance at this point in time. Our main focus for the upcoming weeks and months is definitely to execute the Performance Safeguarding Program, which we will need in order to deliver on our guidance, but we will also slowly, but steadily, start shipping again more to business as usual and start refocusing on the things that we have identified in the context of our Strategy 2023. So overall, a good start to the year, I would say. But yes, COVID-19 is, of course, also affecting the shipping industry. And for us, I would say it's 3 key priorities. First one, our team. We need to make sure that we keep our employees, both on land and at sea, safe. We have the vast majority of our people working from home since the beginning of March, after some initial ceasing programs that's actually working remarkably well. We have a crisis committee that still meets every other day to look -- to monitor things that are going on and take actions if and when required. If we look at our business, we think Q1 was solid. Volumes and rates, as expected. But we do start seeing the first effects of, especially exports out of China in the month of March. Bunker prices in the beginning of this year, we were all talking about IMO 2020 and about the expected increase in fuel prices that indeed came. I think it's difficult to imagine today that 2.5 months ago, we were paying between $600 and $700 a tonne for fuel in Singapore. And then we had, of course, a very sharp decline in the fuel price just before the end of the first quarter, which caused us to write-down the bunker with EUR 64 million. And based on what we see today, I think our outlook is a little bit, as I described a bit earlier. We've taken all kinds of measures to make sure that we can weather the storm. We call it the Performance Safeguarding Program. That means cost, but also look at investment and secure additional liquidity just in case the crisis lasts longer than we currently think. On the other hand, we have, however, also on hire some additional equipment because we see that boxes flow slower and we need to make sure that we can continue to serve our customers also in these times. And above that, we've had to pause a couple of our projects in the context of our Strategy 2023, but we're now starting to pick those back up again towards the end of Q2 and certainly moving into Q3. And with that introduction, I will hand it over to Mark to talk about the numbers.

[Mark Frese, CFO & Member of Executive Board]

Yes. Thank you, Rolf. Also from my side, a very good morning to everyone. Let's have a deeper look on Q1. What we have seen is a solid operational performance with only minor COVID-19-related effect in the first quarter of 2020. Nevertheless, effects of the pandemic, especially on transport volumes, can be seen already and are expected as an offset to become sharp in the second quarter. Our transport volumes rose in Q1 by 4.3% year-on-year to slightly above 3 million TEU, while freight rates also increased slightly by 1.4%, mainly due to the MFR mechanism and good revenue management. So based on higher volumes and higher freight rates, revenues increased by roughly 6%. Average bunker consumption price increased sharply at USD 98 per metric ton due to IMO transition asset. And valuation effect at the end of the quarter, which drove up transport cost disproportionately by almost 10%. Despite the clearly negative bunker effect, EBITDA declined only moderately by roughly 7% to almost USD 520 million, and I will shed a little bit more light later on around that. Earnings after tax were, in addition, impacted by, negatively, the noncash devaluation of derivative financial instruments, more details to come a little bit later. The net debt, neutral drawdown of our RCF, our revolving credit facilities increased the balance sheet total by roughly USD 400 million, and the liquidity reserve remains very solid at USD 1.2 billion. Net debt-to-EBITDA remained at 3x, mainly due to the clearly positive free cash flow generation. There is return on invested capital turn out slightly lower due to the somewhat lower results compared to prior year, as said, especially, attributed or more than that attributed to the write-down of our stock of bunker in our vessels. Now having a look at some important -- more operational KPIs. Q1 revenue increased noticeably on the back, as said, of higher transport volumes and slightly higher freight rates. And in spite of the good revenue trend, EBITDA and EBIT were below the previous year level. This decline exclusively, attributable to very volatile bunker price developments and respective valuation effects. As a direct result of the introduction of the IMO 2020, at the beginning of the year, our average bunker consumption price increased sharply in the first quarter. Following the rapid drop in oil prices at the end of Q1, we incurred an extraordinary charge of USD 64 million due to the devaluation of bunker stock-to-market value. Without the devaluation of bunker stocks, EBIT would have been more or less at previous year level. In addition, the COVID-19-related financial market turbulences impacted our group profit as a noncash effective evaluation of the call option on our outstanding bond and interest rate swaps resulted in a negative change of USD 37 million in total. Now to transport volumes, which grew by 125,000 TEUs or 4.3% compared to Q1 '19. Almost all trades contributed to that development despite the fact that there was the coronavirus outbreak in China at the beginning of the year, especially the Middle East trades, mainly due to the start of 2 new services in October last year, as well as the Latin American trades have contributed to this positive development. Of course, Far East and Intra-Asia volumes have been affected in Q1 due to the outbreak and spread of the virus and, therefore, showed a negative growth compared to last year. Nevertheless, at the end of Q1, we have also seen a starting slowdown of the volume development in other trades, which is already now clearly visible for upcoming couple of weeks at least. While average freight rates in Q1 increased marginally by 1.4% year-on-year to USD 1,094 per TEU, it was not sufficient to compensate entirely for the higher bunker expenses. Our average bunker consumption price increased sharply by 23% year-on-year to USD 523 per metric ton, resulting from the IMO-related higher price of used low sulfur fuels since beginning of the year. Effect from the decline in oil and bunker prices will only be seen, to a larger extent, we have to say, in Q2 this year. Bunker expenses per unit rose substantially by USD 61 or 40%, which was mainly driven by the IMO 2020-related use of low sulfur oil since beginning 2020. Even though it seems almost 8 years ago, the prices of low sulfur fuel oil peaked in Singapore, for instance, at around USD 700 in the first half of the quarter, which drove up average bunker consumption price for Hapag-Lloyd quite significantly. In addition, the sharp decline in crude oil prices and therefore, in bunker price at the end of the quarter led to a devaluation asset of our banker stock on our vessels in the amount of USD 64 million or USD 21 per TEU, respectively. Except for the higher bunker cost, transport expenses have been reduced by roughly 1%. Handling and haulage, as well as equipment and repositioning costs, declined due to stronger U.S. dollar and favorable portfolio mix. Effects as the low share of Far East trades resulted in less inland business share and lower container risk positioning costs. The decrease in expenses for gasoline voyage was mainly due to voyage savings on the Far East and Transpacific trades, as well as lower share of shipments -- shipped charter on short-term basis. The contract depreciation and amortization increased slightly due to a higher number of ships chartered on a medium-term basis, and compared with the previous year, as a corresponding right of use had to be capitalized in line with IFRS 16. Pending transport expenses increased due to more pending voyages as compared to the prior year period. Our underlying financial results improved, thanks to interest rate and debt volume reductions. The interest rate effects were also related to a LIBOR reduction for sure. However, the financial market in March, have led to a considerable jump in the price of our outstanding bonds. Consequently, the embedded early termination options lost strong in value. This negative valuation effect had to be recognized in our P&L. In addition, foreign interest rates resulted in a negative valuation of our UASC legacy interest swaps. In total, the negative valuation effects summed up to around about USD 37 million in total. With free cash flow at USD 302 million, our cash generation in Q1 remains quite strong. Investments were primarily related to containers, ship equipment and retrofitting of ships to ensure compliance with IMO 2020. For reasons of financial prudence and safety, we decided to drawdown USD 400 million out of our unutilized RCF in order to minimize risk from increased financial market volatility due to the crisis. The Board funds were invested with banks with high ratings and have more impact on net debt. As we reported, liquidity reserve of slightly more than USD 1.2 billion, we are very well prepared for even worsening marketing -- market conditions. Even though the RCF drawdown led to an increase in gross financial debt, net debt reduced slightly to a positive free cash flow generation and an increase in our cash position as a result of the drawdown. Net debt-to-EBITDA based on an LTM, so last 12 months calculation, remained unchanged at 3x due to a slight reduced net debt and solid Q1 2020 results. Equity increased slightly to EUR 7.5 billion and equity ratio will remain stable, slightly at 40%. In some, we have done our homework. We can say, our balance sheet remains very stable, and we have secured a strong liquidity position. So we are well prepared for a difficult time to come in the weeks and months ahead of us. And with this, at the right time, I would say, I would like to hand back to Rolf to comment on the recent market developments and present our forward-looking perspective.

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Thank you, Mark. I think maybe, a few words also on market and demand. I think it's pretty clear that the coronavirus is heavily affecting the world's economy. That's not a surprise to anyone. If we look at the latest forecasts that are out there, whether it's the IMF or Clarkson or also Drewry came out with some numbers, then I think it is not really -- the consensus seems to be that we're going to see a decline in container volume this year of around about 10%. We tend to think that based on what we see that, that's not so far off. How do we expect to see that throughout the year? I think we see a pretty steep decline right now in the course of Q2. We expect it to run somewhat into the third quarter, and hopefully, we'll start seeing somewhat of a recovery in the course of the third quarter. And whether that's then going to be July, August or September, I think is impossible to say at this point in time, with some further improvement throughout Q4 and quite likely a fairly solid recovery in 2021. Although in fairness, we will only be able to judge that really, like in about 6 months or so from today. So a pretty big challenge for everybody and certainly for this industry. I would say, though, that there are also some important differences to the crisis we had in 2008 and 2009, which makes us probably a little bit more optimistic when we look further ahead. Because the big difference is definitely that the order book that we are having today, which is round about 10% of the global fleet today, is very, very different from what we had in 2008, 2009 when we had an order book of about half the global fleet, which, of course, then brought us into a long period of significant overcapacity post-2009. I think that situation is today very different also because we, at the moment, see very few orders, if any. And one would expect that also to remain like this as nobody is looking forward to have a huge CapEx program in a situation like this. So all in all, I think the environment, in which this unexpected crisis has been hitting us, is very different from what we have seen 10 years ago. And that still means that we have to do a lot over the upcoming months and quarters to manage these crisis, but I do think that the likelihood that we'll see a bit better recovery over the upcoming couple of years is higher.What do we do? We have to adjust capacity to lower demand simply because we have to cut costs. It's 10% or 15% of overall volume booked away. You have to take cost out. And it's very clear that, that's also what we are doing together with our partners, and probably everybody sees more or less the same. So that's why we try to paint a picture here based on publicly available data about how much capacity is being removed. You can read all about all the blank sailings and everything in the press every day. I think in reality, that also means that net capacity growth in the industry across 2020 is going to be negative in the end. If we also look at ourselves, we have a fair amount of charter ships in our fleet, and we do intend to return a double-digit number of ships until the end of this year, which in the end will also mean that the capacity that we deploy as Hapag-Lloyd towards the end of this year will clearly be lower than what we had in 2019. Does that mean that we cannot react? No, we can react. I think if you look at where we are right now, then I think we try to adjust our cost base to the demand that we see. We are, however, also prepared to scale up again quickly if and when things return. The big question is, of course, how quick and when will that recovery come. And right now, our expectation is to be more that we're going to see a recovery, but it's not going to be reshaped or it's not going to come from today to tomorrow, but it will gradually come in the course of the second half year. What did we do to react to that? To react to that, we launched, as I mentioned in the beginning, what we call the Performance Safeguarding Program to protect us against the downside and to make sure we save for our earnings and liquidity. I would say, 4 components here, and I'll talk mainly to the first 3 there. First and foremost, cost savings. We had to take cost out of the system because of the drop in demand. That means that we have taken substantial capacity measures. I think, in total, we have changed about 50 of the 120 services that we have. That's a big operation that is still ongoing right now, but it gives you a bit of a flavor of how substantial that is. Apart from that, we have been looking at every single cost category that we have to try and see what we can do, together with our partners, to bring those costs down. In the end, we do expect to see savings in a range of a mid-3-digit million U.S. dollar figure. And that is a number that is then, excluding the effect that we see from a drop in the oil price.We also look at our investments. Right now, clearly, no commitments to purchase vessels. I think it's not a secret that we have been looking at also be ordering some ships at some point in time. We have not taken that off our agenda, but we are definitely not going to commit to an order at this point in time, as we first need to have more visibility about how and when we are able to get out of this crisis. In addition to that, because we have lower volume, we can also curtail some of the other CapEx so that in the end, we will likely be able to curtail our CapEx program with a 3-digit million -- a small 3-digit million U.S. dollar figure. In terms of financial contingencies, we have a little bit more on that on the next page. We have drawn down some money from our RCFs, and we have taken also further actions to enhance our liquidity. So that, even if the crisis last longer than we think at this point in time, we are well prepared for that. And then we are also looking at what kind of government support there is. But at the moment, we don't expect to need any extraordinary government support, as the measures we've taken on profitability and liquidity should safeguard our financials in the weeks and months to come. Very quickly on the financial contingency measures in -- we reported a liquidity to you, a little bit earlier, of around EUR 1.2 billion. In addition to that, we can draw down on existing credit commitments, if we want. We have some additional fundings, meantime, available and have also secured some additional credit commitments, which means that in -- that on top of the reported liquidity, we would, if we needed, have an additional liquidity available of around about USD 700 million. And in order to optimize the short-term repayment profile, we've also expanded the existing CES facility, which we had with 6 months. So all in all, I guess the message here is that we've been proactive to create some additional buffer in our liquidity. We have been able to do that, but we're not drawing on all of that yet because for now, we don't expect to meet that in the upcoming months and quarters. But it's always better to be prepared, if things come worse than we expect. That brings us to our earnings outlook where we clearly need to point out that, that outlook is subject to considerable uncertainty due to the crisis. But based on the premise that the pandemic will peak in the second quarter and that we will start seeing a gradual recovery as from the -- somewhere in the third quarter and then also a bit better towards the end of the year, we do believe that our guidance still holds, whereby the 2 things that we do see different today than before are that the volume will go down, if we look at the entire year. And we also expect, based on what we can see today, that our average bunker price will also be below what we have seen last year. And unless the recovery comes much earlier, then it's not likely that we will hit the upper end of our guidance. We do feel, however, that we should uphold our guidance that we have given to you as we close the year, also because the outlook, as it is today, it's probably not that different from what we saw 6 or 8 weeks ago as this quarter, at least, largely seems to unfold as we had expected. So what are our priorities for the upcoming couple of months? First and foremost, ensure the safety of our employees and make sure that we continue to support our customers, to safeguard their supply chains, that's probably even more important these days than on the normal circumstances. To make sure that we implement the Performance Safeguarding Program, and take also the necessary measures to take out costs. Make sure that we keep on track to execute our strategy, and we're now gradually going to pick up a number of projects again, so that we can mitigate the delay implementation of any of the projects to a maximum of 6 months. We'll continue to follow a conservative financial policy with a very clear focus on cash. And of course, we'll also continue to monitor what the global economic impact of this pandemic, and will adapt to changing market conditions, if and when required. That brings us to the end of our introduction. And with that, we would hand it back over to you, Emma, and to the participants for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Sathish Sivakumar with Citigroup.

[Sathish Babu Sivakumar, VP & Analyst]

Firstly, if you look at the pandemic, right, so all that COVID in different parts of the world, in various stages. So now we are, in some parts of the world, we are -- they're still locked down, but some part of the world has come out of the lockdown measures. So on that point, what are you seeing actually volume trends by different trade lanes across markets? And also, have you seen any model shift in volumes between R&C? Secondly, what is your exposure to reefer? And could you quantify the trends between price cargo and pre-sale volumes, that will be helpful.Finally, an update on the shareholder structure. And also, there has been a recent news that the local regulator is looking into the share price move. If you could just give an update on that, that will be helpful.

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Let me try and take your questions. I think your first point was on the COVID-19 pandemic and that it's affecting different parts of the world at different time. I think that's exactly the way we see it as well. What we saw, of course, that initially, volumes out of China came almost to a standstill for Chinese New Year. That took 4 to 6 weeks because before that recovered to more or less a normal level. I think now we're going to a different phase of this pandemic as also Europe, the U.S. and South America get impacted, which means that rather than a supply issue, which we had in the beginning, as Asia is actually coming out of the crisis, the way it looks right now, reasonably well, we now see that it's becoming more of a demand issue because we see consumer confidence and consumer spending in Europe and the U.S. going down. So to answer your question, we saw initially a lot of volumes down from China. Those have recovered 4 to 6 weeks after Chinese New Year. After that, we see more impact on the demand side, which means that demand from most of the mature markets and, say, Europe, U.S., Latin America, but of course, also after the lockdown from India, the demand has come down, and that is now starting to impact flows. And if we look at what is the impact, I think the full year outlook of a Clarksons or so is not so wrong. If we look at Hapag in Q2, we are looking at a small double-digit percentage when we look at how much volumes are down. Your question on reefer, what's our approach to the reefer segment, I mean, our ambition on the reefer plans is that we take about 10% of the global market. We are not entirely there yet. And if you look at what it represents of our global flows, then, I think, we're hovering around 8% or something like that. And then there was a question on share price development. I can't comment on that because I know as much about that -- about what is causing that, as you do.

[Sathish Babu Sivakumar, VP & Analyst]

Okay. I have a couple of follow-ups. Firstly, under my first question, where you said demand essentially come down. If you could comment on the inventory levels across your customer base that you are seeing right now, that will be helpful. And secondly, on the second question on the reefer. Could you just help us to understand the volume growth between price cargo and pre-sale volumes in the current quarter?

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Yes. I mean I think -- I mean, on inventory levels, I mean, it's very difficult to judge the inventory levels at our customers. It's probably also very different when you look at it across multiple industries. I think there's quite a lot of disruption in supply chain. So I think inventory levels, as such, will not tell us all that much. I would suspect that most of the -- in retail, inventory levels are fairly high because spending has just come down and goods have continued to come in. I think we've seen that -- then, on automotive, that volumes have been down very significantly as the number of factories have been shut down. I would expect that to slowly, but steadily, come up again. I think those are the main ones that will stand out. As far as your question on reefer is concerned, if we look at year-on-year in the second quarter, then reefer volumes are not down, whereas dry volumes are down in, as I said, small double-digit percent -- in a small double-digit percentage.

[Operator]

The next question is from Marco Stoeckle with Commerzbank.

[Marco Stoeckle, Head of Corporate Credit Research]

Actually, 3, 4 questions from my side. First of all, on your outlook for Q2 volumes, it seems that you seem to be a little bit more optimistic than one of your main competitors i.e., Maersk is seeing the quarter developing to some degree. I mean as we rightfully said before, the point is that the route mix is probably a bit shaken up by overall situation. So I was nevertheless, wondering if you see yourself more protected on the route mix that you still see going into Q2. What are the elements? Why is your reefer comparably better? The second one is on consolidation in the industry. I mean we're probably taking a hit in Q2 quite substantially. However, it seems that bunker is obviously support for everybody at the moment. Nevertheless, there might be some weaker players there. I just wondered whether you had already a view on what you think consolidation would look like throughout the year in the industry overall.And then a question, I know it's very hard for you to comment on the share price development. I mean there were some articles stating that GEM Watchdog Buffin is actually looking into development. I was just curious to hear whether you think that it's kind of, let's say, routine, and there's probably nothing much come out of it. Have they contacted you? Is there already some communication ongoing between the company and Buffin? Or what's the proceeding here? And then I might have a follow-up.

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Okay. Maybe I take the last one, first. No, we have not been contacted, so there's no exchange going on. And I consider that a routine question that I will probably also ask, in terms of -- if I were in their shoes. In terms of consolidation, I don't expect to see a lot of things happening there anytime soon. If the crisis is going to last more than 6 or 9 months then, yes, then that situation might change, but I don't expect anything materially to happen there over the upcoming couple of months. But of course, we can be surprised. In terms of Q2 volumes, yes, maybe, I don't know. I mean I cannot comment on Maersk, obviously, because you have to ask them. If we look at how our bookings are and how our loadings are, then I think a small double-digit decline compared to previous year, in terms of volume in Q2 looks likely. And yes, we're now at the end of June just yet, but quite a lot of it has been loaded or booked at this point in time. So I think that's a fairly accurate estimate from our end.

[Marco Stoeckle, Head of Corporate Credit Research]

And actually, do you think that already your initiatives towards a, let's say, full service on the interland transport, actually, does this payout for you already in the current situation? And second question on what you were referring to charter. I mean how should we think of it? I'm just curious to hear how you ramp that potentially down because you've probably have 2 options. One is really bringing all the charter volumes or supply volumes down that you currently have. Or phasing out some of your older vessels that you own. What is actually the prerequisite that you decide for one or the other?

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

I think your point on the -- your first question on the interland, that actually in fairness does not play a major role at this point in time. If we are discussing the volume development, I don't think that has a major impact on it. Your point on charter. I mean, there, in the end, what we try to do is -- because we need less ships at this point in time, so we try to return as many ships as we can, yes? And that's where the charter ships were. Of course, most of them are chartered for a short term, it gives us the best opportunity to do that. And as we need to say, of course, at this point in time, wherever we can redeliver, we will redeliver.

[Marco Stoeckle, Head of Corporate Credit Research]

What are the usual -- can you remind us on the usual charter term durations, actually? How long is that? And...

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

It depends. I mean we have charters that last several years, and -- but we have also quite a large number of charters that is well below 12 months. And as such, we think that until the end of this year, we will be able to redeliver a double-digit number of ships to the owners, which is not something we maybe want. But in the end, that's what we have to do. And there is no need to then extend the contracts beyond the terms that we have agreed right now.

[Operator]

The next question comes from the line of Sam Bland with JPMorgan.

[Samuel James Bland, Research Analyst]

Two questions from me, please. First one is volumes, so far, in Q1, is okay. And I think you give a guide in Q2. But looking beyond that, I just wondered, you've got quite a large north-south or emerging market exposure. Do you think you could see some weakness in volumes maybe later in the year from the low oil price rather than COVID, as that flows through? And the second one is on, if you think about specifically Q2, what's the main area of uncertainty left? I mean I guess you've probably got a fairly good idea on volume and bunker. So is it mainly just the freight rate, that's the sort of missing piece there? And I don't know if you're willing to, but if you extended current freight rates forward for the remainder of Q2, how do you think it would look?

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Yes. I guess maybe first, your first point on volumes. I mean there's a lot of speculation going on right now about what's going to happen on volumes. I think one of the things we see in this crisis that it tends to sort of move around the globe. Initially, we started in China. There, we saw a pickup, then it started to impact Europe. Initially, mainly, Italy and Spain, where we now see again, some early signs of life, that the economy is starting up again. I think we're going to see more of those type of patterns. And whether in the end, the north-south traffic will be impacted much by oil price, I don't know. I do think that the weighing and everything that our assessment that we're going to see a gradual recovery in Q3 and then later on in Q4, with some further growth. I still think that's the most likely scenario at this point in time. Then, your second question was on freight rates. I mean freight rates are always difficult to predict. I would say, at this time, it's almost impossible to have a look at that also because we see patterns changing. We saw, for example, surprisingly strong volume from Europe to Asia, whereas it was weak, the other way around. So right now, that's very difficult to predict and also somewhat volatile. So difficult for us to comment on that. And as such, I think you can appreciate that under these circumstances, that nobody basically is able to give a decent estimate at this point in time about how the current quarter will look at. We still have about 6 weeks to go. And just, if you draw the parallel with the first quarter, if we would have had to make an outlook in the first quarter, at the end of February, we probably would have been very far off. So with all the uncertainty definitely, right now, we better stay on the cautious side there.

[Samuel James Bland, Research Analyst]

Are the other inputs around volume and bunker price roughly known within some kind of level of certainty, so it's mainly the freight rate that's unclear? Or is there still uncertainty on the other inputs?

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Well, there's uncertainty in other inputs because, I mean, people talk a lot about some of the areas where we have a tailwind, like, for example, the bunker price, which has definitely come down. But we forget that there's also a lot of extra costs. I mean we have ships idle, we've had to reroute ships, we have difficulties because we need to do port automations because they close. I mean there's a lot more disruption of the schedules. And they affect impact of all of that. But at this point, I'm actually -- not so easy to assess because that takes some time before it gets through the system. So I think to answer your question, there's certainly a bit more uncertainty around that as well. I mean we also have this Performance Safeguarding Program that we talked about, how much of those effects will already come in Q2 and how much of it will only come later. I think we're, at the moment, working through that. If we weigh that all in, we still think that our guidance for the full year holds. How that, however, will be spread across the various months and the various quarters, that certainly -- that certainly has a lot more uncertainty.

[Operator]

Our next question comes from the line of Frans Hoyer with Handelsbanken.

[Frans Hoyer, Analyst]

This is Frans. Just I wanted to make sure I understood the slide with the fuel consumption. Was it 1.106 million tonnes of consumption in the first quarter? Also, a question regarding the deployed fleet, you mentioned blank sailings. Are you able to say how much your deployed fleet -- how that developed in Q1 versus Q1 last year? I might as well just to do the rest of my questions, if you don't mind. You mentioned EUR 64 million of write-down on the inventory, and I guess that will have -- I'm thinking where in the P&L does they show up in terms of the bunker bill, therefore, the fuel price of $500 and something includes this charge in Q1, I guess, but maybe you can confirm.You talked about shortages of equipment and hiring in boxes. Is this -- that's going to imply some cost, I suppose. Are there any ways that you can mitigate that and offset it, perhaps? And then I have a question on, did you mention what your volumes did in April in terms of contraction versus April last year? That's it really for the moment.

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Okay. Let me try and maybe start from the back, and then Mark will take, I think, the fuel questions.I mean in terms of -- we didn't comment on the month of April individually, and we will also not do that. I gave you a comment on what I expect for Q2. And you should assume -- I said a small double-digit percentage, down. And I think you should assume that we do that based on the bookings and loadings that we see, so far. Your second question was on the boxes that we all hire, whether that gives us extra cost. And the answer to this question is, of course, yes. Yes, that does give us extra costs. And I think it's just an illustration of what I said before is that on the one hand, we see some costs coming down, for example, because we have lower fuel costs. On the other hand, we see costs going up because we take on more boxes and we have more idled vessels, we have more disruption of the schedule, et cetera, et cetera. So that's why it's a little bit difficult at this point in time, as we're just 8 weeks into this, to give an accurate outlook for the entire quarter. And then in terms of fleet, before I hand it over to Mark on the fuel, I think the number of ships we deployed in Q1 was slightly higher than what we had a year ago. I don't know the exact number, but I believe it was about 10 ships, more or less.Mark?

[Mark Frese, CFO & Member of Executive Board]

Yes, Frans, coming back to your question on the EUR 64 million write-down on our stock, on our fuel, on the vessel, so to say. So overall, you can see that in overall transport expenses, they increased year-on-year over EUR 200 million. And a big part of that is, for sure, the higher bunker price, especially for the low oil sulfur fuel. But also, answer's right in there, the devaluation of our stock, which is, for us, USD 64 million. So in total, it's in transport and there it's in the bunker cost overall.

[Frans Hoyer, Analyst]

And there was no offset by way of any derivatives gain to -- you didn't offset this particular risk by -- in the paper market?

[Mark Frese, CFO & Member of Executive Board]

Yes. Good question. Seeing the discussions over the last couple of days, but no.

[Operator]

The next question is from the line of Parash Jain with HSBC.

[Parash Jain, Head of Transport Research, Asia]

And I have 2 questions. And apologies, if that has already been answered. First, looking at the second quarter's run rate with respect to volume and the capacity. Can you give us some sense that is it fair to assume that second quarter likely be a tough quarter, although there's not a great deal of visibility going into the third quarter?And secondly, with your discussion with your customers, do you get a sense that the global trade of the last 4 months are lying into the ports or the warehouse or at the store, and even going into the next few months, if the lockdown eases rolled over, probably that inventory will be consumed first before the global trade growth resumes? And does any sort of recovery push forward towards the latter half of the year?

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

I mean I think to your first point, I think your first question was, are you able to give an outlook on Q2? No, we're not able to give an outlook on Q2. Do we -- the only things we can see right now is that bunker price is down, volume is down, and we face a fair amount of disruption also in our network. Having said that, when we look at where we are today, we've also said that we will -- we've also reconfirmed our guidance. So that should give you also those things, that's from really what I can say about it. Volume's down, bunker price is down. If we look at it overall, at the full year, we still think that our guidance falls. In terms of customers and volumes, saying roll storage than first be consumed. And this is very difficult to say. I mean if you assume that transportation volume is down, indeed a small double-digit percentage in Q2. And we also see that the economic growth is down with a similar percentage. That would not automatically mean that inventories are sky high. I think the challenge here is that it's going to be a very differentiated picture between various industries and various segments. I mean in the retail sector, I would also not be surprised that there's some overstock here and there. On the other hand, if I look at the automotive sector, which came to pretty much of a standstill over the last couple of months when a lot of factories closed, I would also not be surprised that at some point in time, they urgently need again their parts. So -- and if we look at food stops, I already commented earlier that when you look at perishables, that continues to flow, and I would not expect to see a major impact on that segment.

[Parash Jain, Head of Transport Research, Asia]

Perfect. And just a follow-up question. With respect to load factor, can you give us any sense how this quarter-to-date has been trending, given the expectation of volume collapse, dramatically, industry, including yourself, has been managed to deliver blank sailing? Does it mean that load factor will hover around a similar level as of, let's say, same time last year? Or we will see a material decline in load factors?

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

If you look at -- I think one of the charts we shared on the market was an indication of how much capacity is being taken out on the major trade. You see that, that's a -- I think if you look at it, it's probably 15%, 16%, 17% or so. I would say, the volume is down a small double-digit percentage. So that means that utilizations are still reasonable. There's just some more outliers than normal because sometimes you have some more disruption, and so every now and then you have an outlier. But on most of the services, the load factors are still reasonable. And we need that also because we cannot afford to sail with half-empty ships because then your unit cost for those boxes effectively doubles.

[Operator]

The next question is from the line of David Kerstens with Jefferies.

[David Kerstens, Equity Analyst]

Three questions, please. First of all, your volume was much better than the overall market, down 5%. I understand that's partly driven by geographical differences. Is that also the reason why the freight rate development was relatively weaker than the CCFI? Or are there other factors that play a role there, for example, your contract positions? And then secondly, on the contract positions, how have discussions with your customers recently been, particularly on the Transpacific in terms of pricing with the new contracts now being implemented? And then finally, on the free float in the appendix you showed, had decreased to 3.6%, but I assume that's at the end of March, and I was wondering if you do know what the number is today.

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Maybe we start with the last one because we think that's largely unchanged. So we don't think there's any change to the fleet float that we reported end of March. In terms of contract rates on the Transpacific, I mean, from all -- contract season is still ongoing. I think, there, we see rates around a similar level as we have seen last year. And in terms of your comment on volume and freight rates, I think you're spot on. I mean one of the things we have seen in the first quarter that we saw in a number of cases, some lower backhaul volumes that were actually compensated by higher backhaul volumes, and backhaul typically has a lower rate, so that pushes the average somewhat down. And that's also why it's always very difficult to look at volume, freight rate and all these things in stranded isolation, even if, of course, that's easier, if you want to model, where we want to go. But I think your point is spot on, it's a -- there's significant mix effect in that as well.

[Operator]

The next question is from the line of Joynson, Robert with Exane BNP Paribas.

[Robert John Joynson, Senior Transport Analyst]

Just a couple of questions from me, please. I noticed that you agreed a slot charter agreement with the 2 MOIs a few months ago, which provide access to its Asia-Europe services that sail directly to Scandinavia and the Baltics. Could you maybe just talk about the rationale for that? And in particular, is it partially intended to reduce costs by avoiding transit -- transshipment charges in North Europe? And then just a related question. Both the 2 MOIs and the ocean lines have been sailing Asia-Europe services directly to Gdansk in the Baltics for some time. Could the lines potentially do the same in the future? Or are you happy to continue to use feed as in slot charter agreements to continue to serve that market?

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Yes, I guess the 2 -- the answer to 2 questions actually is indeed somewhat related. I mean we entered into the slot charter agreement with 2M because we felt that would give us better coverage, indeed into some markets. And to your point, that gives us more direct connections, both at origin but also at destination and, as such, should allow us, indeed, to avoid some transhipment. So that has indeed been one of the important reasons to do that. In terms of what we will do as THE Alliance, there's all -- every now and then there is some talk about whether we should have a direct close into those markets. I would say though that given the current market circumstances, the likelihood that, that will come anytime soon, right now, is pretty low.

[Operator]

The next question comes from the line of Lars Heindorff with SEB.

[Lars Heindorff, Analyst]

Also, a couple of questions from my side. It's a follow-up on the earlier capacity issues. The first one is regarding the deployed capacity in the first quarter. As far as I can calculate, your nominal capacity is up by 2%, but you've been quite explicit about it here on the call that you have actually been cutting out and idling quite a number of vessels. Can you say anything about the -- how much the deployed capacity is down in the first quarter? And also maybe what you expect it to be in the second quarter? Then the second one related to that is the cost of idling. Surely, there are still some costs related to idling a vessel. But overall, if you can say any sort of rule of thumb about how much savings that you can generate from idling a vessel compared to operating it?

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

I think, first of all, your question was about how much capacity have we taken out. I don't -- to be honest, I -- the only thing I can do is that compared to the plan that we had for Q1, I think we took about 3% or so, out. 3%, 4% of capacity. If we look at Q2, that will be considerably higher. I think we will be in a double-digit percentage there. And as far as your costs are for -- if you want to have a proxy for what something still cost, if you're idle, I mean that's very hard to say because you have so many different ship classes. Also, when you look at charter rates and all these things, depends on which trade they are active. So I think that's a very tough question to ask me. The thing I would say though, that when you look at the cost of a ship, then you would typically save between 50% and 60% of the annual cost, if you idle it.

[Operator]

That was the last question for today. Please direct any further questions to the Investor Relations team. I hand the conference call back to Rolf Habben Jansen for closing remarks.

[Rolf Habben Jansen, Chairman of the Executive Board & CEO]

Okay. Well, not much to add from us. Thank you very much for taking the time, and look forward to speaking again soon. Thank you. Bye-bye.

[Operator]

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.