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Hapag Lloyd AG
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Ladies and gentlemen, thank you for standing by. I am Hailey, your Chorus Call operator. Welcome, and thank you for joining the Hapag-Lloyd analysts and investors conference call on the results for the first 9 months of 2019. Hapag-Lloyd is represented by Rolf Habben Jansen, CEO; Nicolás Burr, CFO; Heiko Hoffmann, Head of Investor Relations; as well as Anna Neumark from the Investor Relations team. [Operator Instructions] I would now like to turn the conference over to Rolf Habben Jansen, CEO. Please go ahead.
Thank you very much, and thank you, everybody, for joining, and welcome at this call. Let's get started. Maybe if we go directly to Page 2 of the presentation, a couple of opening remarks from our side. I think in terms of highlights, we could say that in terms -- when we talk about implementing our strategy for the next -- our Strategy 2023, I believe we are on track. When we look at freight rates and volumes, we talk of we're about 4% up so far this year in terms of rates. Transportation volume up only 1.2%. I'd say though that if you exclude for a minute Intra-Asia, where we on purpose have reduced our exposure to some of the markets, we're actually looking at a growth of about 2.7%, which we think is roughly in line with market. When we look at unit cost, that is stable and despite somewhat higher bunker costs. In terms of the market, I think it's clear that there is a weakening of the global markets. Now having said that, we don't see any volumes falling off a cliff. So as such, we still think that the longer-term trends are -- in fact, the order book remains healthy with only a few orders placed this year. And of course, the net growth capacity is also somewhat impacted by quite a lot of retrofits that are being done by us and some of our competitors. Looking at the financials. We see our EBIT roughly doubling compared to the same period of last year. Group profit up quite a lot and also worth highlighting very strong free cash flow with a cash conversion of even slightly above 100%. Looking ahead, we expect our EBITDA and EBIT to end up in the upper end of the guided ranges that we published earlier. We expect to see a fairly smooth transition into IMO 2020 as we see that the fuel that we need is increasingly becoming available and being secured. And apart from that, we'll, of course, continue focusing on implementing and executing the strategy that we decided on last year. Looking at the highlights of the first 9 months in numbers. I already mentioned transportation volume, freight rate and group profit. Transportation expenses, pretty much flat; EBIT, very healthy; EBITDA margin, close to 16%; a solid liquidity reserve; equity slightly above 40%; and net debt coming down with us, having paid back about $800 million or a little bit more than $800 million of debt in the course of the first 9 months of 2019. When we look at our strategy, we've always set ourselves 3 overarching goals. One is to remain a global player. The second one is to be profitable basically every year. And then our aim to become #1 for quality. We try to illustrate on this page a number of things to underline what we are actually doing. And I'd say that our market share is fairly stable, around the 10% that we are aiming for. And then yes, we are strengthening our position in some markets where we believe that we can do a little bit more. On the other hand, we're also reducing our exposure in some places where we don't think we can make enough money. In terms of the financials, most of the numbers already mentioned. I would say though here that the fact that we have again been able to reduce our financial debt by about $800 million is a real highlight of 2019. That also means that our net leverage has improved to 3.2, excluding the effects of IFRS 16, which is ahead of plan. In terms of cost management, we're definitely on track and we also see increasingly the benefits of doing revenue management. On the quality side, worthwhile mentioning good progress in establishing our quality service centers. And we see this also now starting to be reflected in the calls that we get from our customers as we see that our -- the feedback on customer satisfaction has been very good recently and we see also our Net Promoter Scores going up. In terms of cost management, there we are definitely on track, I would say, when we look at our plan to achieve $350 million to $400 million in 2021. I think we're very confident that we are going to achieve that. Whether there will be upside on that remains to be seen. I believe that we will be able to say something more about that after the closing of 2019. When we look at markets, I already mentioned that market growth is definitely slowing. Here, we see an outlook for this year of around about 2.2%. I guess when we look at that, we shouldn't forget that especially when we look at the second half of the year, we compare against some very strong numbers that we have seen in 2018, both globally but also for Hapag as a whole. So if we end up the year with an underlying growth excluding Intra-Asia of 2.5% or 2.7%. I think that, that would actually be a good result even if admittedly somewhat behind plan. Outlook for next year is slightly better at this point. But I'd also say that there's still a fair amount of uncertainty around that. And I mean we all read the press and it's certainly not all smooth sailing out there. Looking at the order book. At a historic low of around about 11% with again very few orders being placed in 2019. Idle fleet creeping up a bit, mainly driven by scrubber retrofits. I think we -- one should expect that the idle fleet remains fairly high over the next number of quarters as we see that most of those retrofits actually take a little bit longer than originally planned. So as such, that might actually drag into -- to quite far into 2020 and probably also still into 2021. And if we combine that with an expected increase in scrapping, I think the outlook for the industry, certainly when you look at the supply side of things, is actually fairly healthy. What will happen on the demand side is always the big question. But I'd still say that a growth of a couple of percentage points every year, that remains, I would say, still the consensus and also our expectation. And that would mean that we should be in for a couple of reasonably healthy years. And with that introduction, I'd hand it over to Nicolás, who will go over through the numbers.
Thank you, Rolf. Good morning, everybody. So here, we have a little bit more in detail the P&L on the main KPIs. In the first 9 months of the year, we increased volumes, as Rolf commented, 1.2%, driven by Atlantic, the Far East and EMA. Freight, a little bit compensated by the Middle East in which we have grown a little bit lower this year and the conscious decision of taking out capacity in the Intra-Asia trade, as Rolf commented. Freight rates went up 4.2% compared to last year. And this is the reason why you see our revenue increasing around 5% in an amount of $513 million. The bunker is up 5%. But the ex bunker rate remains positive compared to last year. And that's basically one of the reasons of the big jump in the result compared to 2018. In summary, when you look at the EBIT result, which is we have a positive effect from IFRS 16 of around $26 million, as you will see in the next slide. We have an important improvement of $365 million, almost double or even kind of roughly double the profit that we made last year. And this is explained basically by a better ex bunker rate and also higher volumes. This led us to an EAT of $333 million in the first 9 months, which is still, as you know, affected by some one-offs that we made -- that we had in the last quarter due to the payment of the bonds. That amount is around $25 million plus an IFRS 16 effect of around minus $30 million in the bottom line. That is important to be considered when you compare to 2018. That's basically the explanation of the first 9 months in terms of the results. Here, we have, in the next slide, we have the effects of IFRS 16 that I have already commented. Going to the next slide, a little bit on volumes. As Rolf and I commented, 1.2% volume growth. Here, graphically, you see the effect. In the case we take out the Intra-Asia trade, we grow 2.7%, which is roughly with the market, mainly driven by healthy growth in the Atlantic, the Far East and also EMA trade that are the North-South Europe to Africa mainly and Oceania. The next slide, you see a little bit on -- a little bit more detail on rates. You see the 4.2% nominal rate increase the first 9 months of the year compared to last year. And the bunker on the line below is the bunker evolution going up 4.7% year-on-year. But as I just commented, the ex bunker rate is still favorable compared to last year when you look at the 2 components, the nominal rate increase and the bunker evolution. A little bit on unit costs. I think it's a positive message. We have pretty much a flat unit cost compared to last year despite the bunker going up $4 per TEU. We have here the IFRS 16 effect. And that's the reason why we have included depreciation in order to compare. Here, you have handling and haulage that went down $17 per TEU. Here, we don't have any IFRS 16 effect. But the reason of this is basically the fact that we have decided to make less -- we have cut a little bit the volumes on inland in order to optimize the portfolio. And of course, the intention of the company is to continue increasing that after we have optimized the portfolio. But this year is a year of transition in that respect and therefore led us to a slightly lower percentage of inland. But that's something to be corrected in the future as we optimize our portfolio of business. And also, we have some FX effects in that $17 per TEU. The reason why we have a decreasing cost in equipment and repositioning is basically the IFRS 16 effect. Actually, in equipment and repositioning, we have had an increasing cost because the imbalances are higher in the -- in Europe and in North America. And that is basically compensated by higher depreciation compared to last year due to the fact that we have the IFRS 16. So a lot of leases are classified as depreciation when we pay them. That's basically a summary on unit cost. If we go to cash, a couple of highlights, I think positive in general. Our operating cash flow is $1.72 billion. That represents basically 100% conversion from EBITDA. When you take out the IFRS 16 effect, we have a $1.3 billion of cash generation, which is basically what has allowed us to continue repaying our debt and deleveraging the company. In the investment cash flow, you see a total of minus $244 million, which is composed basically of fixed assets, $313 million, which is basically containers and some vessel investment and compensated by some disinvestments that are related to sales of containers that we don't want to reposition and also the dividend from some subsidiaries. On the financing cash flow, you see a little bit more activity, a lot of effort to pay debt. In total, the net effect is minus $1.6 billion. So you see a bond repayment there and you see some debt intake that is compensated in the repayments. But in total, we have repaid significant debt during the year in order to continue our path of deleveraging. And you see there the interest of around $351 million that led us to a cash balance of $635 million and a liquidity reserve of around $1.2 billion. So again, a little bit about the balance sheet. Here, we have the fixed assets of around $15.5 billion. There is an increase compared to last year due to a right of use, which is currently at $1.18 billion. Then we have the equity base there in which you can see the increase compared to last year due to a profit that we have made, partially compensated by some OCI effects related to pension liabilities, hedge accounting and the dividends that we have paid. And financial debt also going down, when you take out the effect of IFRS 16 is around $800 million less this September compared to what we had in December last year. And a final comment before I hand it over to Rolf for the outlook. I think we have improved even more our indebtedness and leverage ratio to 3.2 now at the end of September. So it's a good development from the 5.7x that we had at the end of 2017 after the merger with UASC. So we are happy with that result. We've committed a 3.5x net debt-to-EBITDA by 2 years after the merger. We have fulfilled that target. And we continue working in order to fulfill the strategic target of going below 3x hopefully very soon.
So with that -- thanks, Nicolás. With that, we come to the earnings outlook, which many of you will have read anyway. I think when we look at the various components, transportation volume, I think we now expect to see full year growth to be below 2%. And as such, the official outlook then becomes on previous year's level. I think one should still expect a growth in line with what we have seen for the last 9 months. Average freight rate is going to be slightly up, bunker price, roughly in line. And I think the most important being that we expect the EBITDA and the EBIT both to be in the upper part of the range that we have communicated earlier. That means that when we then look at what our major targets for the rest of the year, actually not much change. We'll continue to work on increasing profitability and also on further deleveraging the company. We still don't earn back our cost of capital despite some fairly solid results in the last years. So we still have work to do there. We'll continue to also change and adjust if we see changing market conditions because in the end, volume growth is one objective, but the most important objective is that we are also economically sound. And that means that if markets grow faster or slower, we will adjust to that. We're preparing for IMO 2020, as I mentioned in the beginning. We believe that we're in a good position to switch on the 1st of January or before the 1st of January as required, as we see that the fuel is largely available and all the technical things that we need to do on our ships are on track. And as far as the contracts where the customers are concerned, we have secured the needed compensation for higher cost and all of the long-term contracts. And we expect also that on the short-term contracts that those will go up as from the 1st of December simply because the fuel that needs to be burned will go up as from that date. And that means that cost goes up. And I believe that most of our customers will also understand and accept that. We'll continue to implement our Strategy 2023 that most of you are very familiar of. And then we will also continue to put money into digitized solutions, not only for our customers but also to further improve internal efficiency. And that brings us to the end of the presentation from our side. And we'd be happy to take any questions that you may have.
[Operator Instructions] The first question comes from the line of Johan Eliason of Kepler Cheuvreux.
Congratulations to the good numbers. I have just a short question on this shareholder situation. Can you remind us how long this shareholder agreement lasts for the 3 main owners?
Yes. The shareholder agreement lasts until the end of 2024 because it was signed for 10 years.
Okay. Excellent. And then on the scrubbers, you say you will install 10 scrubbers and then you have an LNG conversion. I guess these are for the biggest ships and that will basically be on the Far East trade. Do you have enough sort of share of scrubber on that trade to be competitive versus, for example, MSC with a huge scrubber program? I think Evergreen also has a big program, et cetera. And CMA is obviously getting a number of LNG ships there. I guess the price model, I think, you hinted earlier was based on sort of the average ship used on that trade. And it might be that the average ship will be scrubber-fitted one, implying that you will not get compensated for the 100% premium you need to pay for the low-sulfur fuel. How have you...
I guess it's important here to take a somewhat longer-term view because, yes, there are a lot of programs out there, but as we move into 2020, there are actually very few ships that are actually equipped with scrubbers today. A lot of ships are undergoing retrofits, also some of ours. And that means that also when you look at Alphaliner and others, you'll see that the share of scrubber-equipped ships in the beginning will be very low. And then we'll need to see how quickly that -- how that develops further down the stretch. I think that will also be very much driven by what the spread is. This morning, the spread was very high. But it could very well be that in 6 months, that picture is very, very different. As far as our position is concerned, as I mentioned, we have 10 of our own ships that are scheduled to go into retrofits. We have also some charter ships that are being retrofitted, which means that when you look at our overall fleet, we will probably, based on the programs we have today, end up with 15% or so of our capacity being equipped with scrubbers. That is a percentage that could still change, dependent on how markets will develop. So as such, I think we're going to be going through a transition period over the next probably realistically 2 or 2.5 years, where dependent on what happens with the spreads and dependent on what happens with these programs and also how technically viable this solution is and also looking a little bit at what the regulators think about it, we'll come to some kind of new equilibrium. And we are right now not very concerned that, that will put us out of the market if you wondered. Based on everything we can see, we will actually be competitive also going forward.
Okay. Excellent. And then I think your Danish competitor tomorrow will start talking about their CapEx plan for 2020 and forward. What's your views for the time being?
I mean I have no view on Maersk's CapEx plans. But I'm curious to hear what they will say. I think we have not been ordering ships for quite a while. I think the last orders we have put in is in 2015. Of course, that will not last until 2040. But we have always said that we will not order any ships for sure in '17 to '19. I also don't think that orders from Hapag are imminent. But it will also be -- it would also not be unlogical that at some point in time, whether it's the next year or the year after next, that we would be looking at possibly ordering some more ships to replace some of the existing ones or possibly to accommodate some of the growth. But we would not be looking at delivery at the earliest in '22, '23, I think.
The next question is from the line of Sivakumar, Sathish of Citigroup.
I have three questions. So firstly, on the volumes, in Q3, obviously there is a slowdown in Intra-Asia. Could you just give us some color on what is actually driving that slowdown in Intra-Asia? And then looking into Q4, where are you seeing strength and weaknesses by trade lanes versus last year? That is, how has been the customer bookings so far? So that's the first one. And then secondly, on the dividend, if you could just give some color on your dividend, considering the substantial improvement in results versus last year. And finally, on the shareholding structure, just a follow-up there. What are the measures or conversations that has been taking place to improve the free float?
Okay. Let me try and take them one-by-one. Maybe the first one around volume, I mean we have seen Intra-Asia being fairly soft in our business. But to be fair, that's mainly because we have reduced our exposure to that market. So it does not have that much to do with the market as such but is more a decision that we have taken to deploy less capacity in some trades. If we look ahead into Q4, I think we see a fairly -- we saw the first couple of weeks of October were fairly soft as we had Golden Week in China, not softer than last week. Last year though and I think over the last weeks, we've actually seen pretty decent bookings across the board. And we have also seen that spot trades are recovering. And I think that's actually a fairly encouraging sign. And I would also expect that volumes remain healthy at least until Chinese New Year towards the end of January next year. In terms of dividends, I mean we will make a proposal to our Supervisory Board on dividend in the course of Q1 and also once we know the full year result. So it's too early to speculate about that. And then in terms of shareholding, I mean it's good and positive that our big shareholders are committed to Hapag-Lloyd. And as such, they are linked to invest more. Of course, the company would like to have a somewhat bigger free float if we look mid-term. But at the moment, there's not that much that we can actually do to influence that.
The next question is from Toby Sittig of MainFirst Bank.
Two for me. Firstly, on the whole scrubber IMO 2020 discussion, firstly, do you have a read on how much capacity is currently taken out of the market due to scrubber retrofits? And I mean you said 4.9% is idle fleet, but not all of that is scrubber retrofits. So do you have any read on how much of the capacity is taken out of the market due to that? And then a technicality, you said you'll charge your clients from December 1. But my understanding is that you only expense the fuel really as of January in your P&L. So we will -- can you elaborate a little bit about the P&L and cash flow effects of that whole transition process there? Yes, that was what the two questions for me.
I mean in terms of the capacity effect of the scrubbers, I don't know the latest numbers off the top of my head, to be honest. I believe Alphaliner is actually quite a good source for that. If I'm not mistaken, they commented quite specifically on that somewhere in the last few weeks. I mean our estimate is that it's a slightly more than 1% of the global fleet that are out of service to date because of retrofits. In terms of the IMO 2020, I mean we need to start burning the fuel as from -- roughly as from beginning of December because you don't have tank stations all across the ocean and you need to clean the tanks as well and you can't carry the other fuel anymore after the 1st of January. So that means realistically that you need to start also charging it as from the 1st of December even if, in many cases, those shipments will only arrive in November because a typical voyage would take a month or, in some cases, even longer. So yes, you are right that in terms of P&L, you'll see it only largely as from January. But of course, the cash-out is earlier. I mean how big that effect is, we also see that high-sulfur fuel has actually come down. And as such, I think the effect on working capital will be manageable. But yes, if you have to buy, like we do, roughly 400,000 tonnes of fuel or 350,000 tonnes of fuel per month and the average cost of that goes up with a couple of hundred bucks, then that, of course, has an effect. And then you can calculate the amount.
The next question is from Michael Boam of Sona.
I just wondered if you could talk a bit more around guidance. It seems you're guiding to a weaker fourth quarter than last year. Is that sort of what you ultimately expect the outcome to be, given, I guess, pre-stocking Intra-Asia -- sorry, Transpacific last year? And secondly, when you say that the transition is going smoothly, when do you envisage obviously putting prices up to reflect the higher fuel costs? Will that be a December event or not?
Maybe to take the last one first. I think for all of the long-term contracts, we have the formula agreed with our customers. So those will kick in as contracted partly, and that generally is between December and January. In terms of the short-term rates, those will be up as from the 1st of December because that's basically when we start burning the fuel. In terms of the guidance, Q4 is typically somewhat weaker than Q3, which is the peak season. So we would also expect that now. And apart from that, we're probably taking into account that there may be some costs that are associated to the transition to IMO 2020. I do not think that you should expect a material deterioration of the result beyond what we had last year.
The next question is from of Jayanth Kandalam from Lucror.
Actually, I just had two. One is on a more broader spectrum. Do you see any -- or do you have any update on how trade lanes are developing over the -- because of the U.S.-China trade issues? I mean I know in the past, we have talked about it, but nothing much has seemed to have impacted. So I just wanted to see if going into 2020 that, also the IMO 2020 pressure on pricing to customers, is there anything which seems to be off mark? And second question is just trying to understand what -- the changes in working capital in your cash flow, there seems to be quite a bit of cash inflow, but reversing on provisions as well as quite a bit positive. So maybe you could just throw some light on that. And last question is basically on CapEx. I'm not sure if I saw the CapEx guidance for the full year and for 2020. If you could provide that, that will be great.
Let me take the one on trade lane development and then Nicolás will take working capital and CapEx. On trade lane development, I mean there's no 2 parts to single out there. I think as you rightfully point out, we have certainly not seen landslide changes in any of the trade lanes. If we look in particular at the Asia-U.S. trades, then we have seen some changes in the composition of the trade as volumes out of China have come down. But in return, we've seen volumes out of -- in places like Vietnam, Indonesia and India come up quite a lot. So all in all, I'd say that, that trade is sort of flattish. And that would be what I can say to that. And apart from that, not that much irregularities, as you also pointed out. And with that, I'd hand it over to Nicolás.
Yes. In terms of working capital, we have had a kind of a good quarter. But the reason why we had an inflow because of working capital is because less inventory, investment in inventory. A little bit is very balanced between the 3 main categories, I mean inventory, accounts receivables and accounts payables. So the 3 of them added a little bit to have basically an inflow of around into $90 million to $100 million. That's basically the reason. In terms of the CapEx -- I'm sorry, but a little bit more -- I elaborate a little bit more on that reasons. Inventory is basically price. Account receivables is basically management and the procedure that we have implemented, I think, improving a little bit, especially in North America. And accounts payable is something that we also manage every -- always, I mean, as a process. But it's basically a balanced improvement on the 3 items. I mean CapEx, we have said that we are more or less in the neighborhood of 50% depreciation. And I think this year will not be far away from that guidance.
[Operator Instructions] The next question comes from the line of Lars Heindorff of SEB.
A couple of questions from my part as well. First, regarding the pass-through of the low-sulfur surcharge. I'm fully aware that you have announced already the formula. And there will be sort of a pass-through at least for the longer-term contract. But on the shorter term and also on the spot, which you do have a bid on as well, how is the pass-through looking there? And are there any customers that are actually demanding concessions on other parts of the package, if you can call it that, the base rate in order to accept the higher low-sulfur charges. That's the first part.
Okay. I mean in terms of the -- we announced on a short-term basis, there will be what we call the ITC, which is the transition surcharge which will be applicable to all business up to 90 days as from the 1st of December. Most of those deals are being made and -- as we speak. And I expect to -- I expect that we will be able to get that increase, which is also fair because if you look at a ship that goes today, you basically are sailing on a ship that bunkers for $200 a ton. And if you do it in 2 weeks, then you sail on a ship that goes for $450 a ton. I think that's also something that a lot of people can relate to. And as such, I think the fairness of the increase is also there. And that's why I also expect good acceptance there in the market.
Okay. And then the second is regarding maybe a little bit of your strategy. You talked earlier in your presentation about the decline in Intra-Asia volumes, which is because you -- which is the reason because you have been cutting capacity there. I mean there's still quite a bit of growth out there. So what is exactly -- what is the reasoning behind this change in deployment of capacity?
I mean we've never been a big Intra-Asia player to be fair. And in this case, we talk about a couple of specific services that we have had and that we've operated for a number of years and where we have been unable to make them profitable. And as such, we decided to reduce our exposure to those markets.
Okay. And can you also elaborate whether have you been moving that capacity to other areas?
Yes. I mean in general, that's why I think we see in most of the other markets, we've just been growing with the market. And yes, we have come up also with a couple of new services. We had a new service this year from South America to Europe. We had a service from the East Med into the U.S. And I mean that's a normal change. I mean we operate about 120 different services. So every year, you will have some that will be stopped and some that will be opened or that will be upgraded. And I think we just try to stick there to what we had as a strategy. And that's also what guides the decisions on where do we deploy extra capacity and where do we potentially take capacity out.
Okay. And then the last one is regarding the -- a little bit the outlook and also the cooperation in THE Alliance now that HMM is coming in, and they have and will get quite a bit of new vessels. So I think it's from early March onwards. Can you say anything maybe about how do you cope with that kind of inflow of capacity into THE Alliance? I know that some of the -- if I understand it correctly, some of the smaller routes in Asia and Europe is operated by 9,000 TEU, which calls Japan. And I assume that Ocean Network Express will still have to call those. So maybe a few words on how you cope with that kind of capacity.
I mean the product for 2020 is still being defined. But in simple terms, what happens is that HMM will bring their capacity, their new ships into THE Alliance. And all of us will after that roughly grow with the market. And that means that HMM will probably bring in a little bit more capacity than they will initially need. And that will then help the other partners to also grow with the market as we -- as none of us really takes in a lot of new ships over the upcoming period.
The next question is from Parash Jain of HSBC.
I have two questions. First, and apologies if this has already been answered as I dialed in a bit late. Looking at the free float of the company, as of 30th September, it stands at 4.5%. I understand it's the decision of the shareholders. But are the 2 large shareholders continuing to remain active in terms of buying the shares from the market? And what's management's recommendation to the shareholder with respect to establishing the free float back into the market? And my second question is looking at the space of M&A and your successful integration with CSAV and UASC in the past few years, do you see that ONE and Hapag-Lloyd are compatible being the part of the same alliance? And is there a reasonable case of Hapag-Lloyd and ONE working more closely going forward, i.e., in the form of mergers that you have done in the past?
Well, I mean first point, we indeed covered some of that before. I mean the free float is around about 4.5%. I honestly cannot comment on whether our shareholders will continue to buy more or not. We just come out of a couple of days with meetings with them. And I can only say that we had some very fruitful and constructive and forward-looking discussions. So I think they were all still very much supportive and committed to Hapag. And what that means for free float is not up to us to comment on. In terms of cooperation between us and the Japanese, I mean I think there's definitely room to work even closer together between us and the Japanese. I don't think though that it is very likely that, that will lead to some kind of M&A type of transaction. I just don't see that.
The next question is from Christian Cohrs of Warburg Research.
Yes, a couple. First, on rates, shippers are said to be eyeing lower contract rates in light of the weaker spot market. Do you see that already that negotiations for prospective contract rates adjusted for the IMO effect, of course, are getting tougher? Secondly, there are market rumors that you engaged yourself in a new terminal in Tanger. Is that correct? And do you -- are you eyeing further terminal investments? Then a question on the GDP multiplier, who is now below 1. Can you shed some light what is the potential explanation? And also, do you expect this multiplier of below 1 to last into the future? And last but not least, your chart on the cost savings. It seems that in 2020, there will not be much impact from the cost savings side. But the remainder is pretty much back-end loaded to 2031. Can you first confirm? And can you, secondly, maybe point out what have you done already on all these feat of activities, like container steering, terminal partnering, procurement, et cetera? And what is left?
Okay. Maybe let me try and take it one-by-one. I mean in terms of rates, I think it's always in this time of year when the customers say that they would like rates to go down next year. And I would say that I would like to see rates go up next year. So not much to be said about that. The market, in the end, will determine what's going to happen. I think when you look at all of the things, then there's probably an equal number of arguments to say that things will go up and that things will go down. So way too early to say anything sensible about that. At Tangiers, we did take a 10% stake in a new Terminal 3 at Tangiers because we would like to secure the capacity that we need in that hub. That does not mean that you should expect a lot more of those type of investments from us anytime soon. I wouldn't rule another small one out here or there. But that is certainly not a big part of our strategy. In terms of the GDP multiplier, I think it's -- longer term, it's probably going to have around about 1. And that means that sometimes, it may be a little bit lower, sometimes it may be a little bit higher, also a bit dependent on whose statistics you believe. I think to assume a multiplier around about 1 longer term is a fairly safe bet. In terms of cost savings, I already hinted at the beginning of the presentation that we are on very good track in pretty much all of the categories that you also mentioned and that we feel that there might actually be upside to what we have communicated so far. And we will be saying a bit more about that and maybe probably also a bit more specific when we disclose our full year numbers.
The next question comes from the line of Sheharyar Malik of CQS.
Very quick question. I just wanted to ask in terms of your volume, could you give us a sense for the percentage of a dozen long-term contract, how much is on short-term contracts and how much is on spot? And secondly, if there are any major variations in that split across lanes, it will be useful to know what that is.
Yes. Okay. I mean yes, we get this question regularly. And I'll still answer it in the same way. I mean if you look at what we have as long-term contracts, that is typically between 35% and 40%. And then the remaining 60% is fairly evenly split between mid-term and short-term rates. That tends to vary a little bit between trade lanes. Whereas, for example, the long-term piece on the Far East trade tends to be a little bit lower. On the Atlantic, it tends to be a little bit higher, where you have also a lot of 6-month rate. On the Pacific, it tends to be fairly high because you have very much the contracting season and also a number of very large BCOs. And in other trades, I would say it's probably around about the average that I indicated.
We have a follow-up question from Johan Eliason of Kepler Cheuvreux.
Yes. I was just wondering, considering that 85% of your capacity will be running with this more expensive fuel going forward, how are you thinking about ship speed and slow steaming, et cetera, into your networks next year?
I mean for now, we don't anticipate any major changes. Though in fairness, we have added a couple of ships to some services because we felt that we needed to sail too fast or we'll slow down a little bit. If you look at the new regulations, I don't think they will result in a massive slowdown across the globe. But of course, as costs go up, there is not a lot of incentive to go and sail faster. So if anything, you'll see that we and also others may opt for adding a few ships here and there to loops, on the one hand, work on schedule reliability but to also minimize the risks of having to do speed-ups and those type of things. I don't expect that you'll see a major impact on overall transit time.
And longer term, to meet the carbon ambitions by the shipping industry, do you foresee slow steaming being a major driver on it? Or are you expecting speed limits for ships to be introduced in a couple of years? So how does that look like in your view?
That's very difficult to predict. I think what we do is we take all kinds of measures on the technical side to try and reduce emissions. I mean if you compare the emissions today with what it was 10 years ago, then you'll see that also CO2 emissions for container are down with about 50%, not only with us but pretty much across the industry. I still think we can do more. And if new types of fuel come in, that will certainly also help. Whether there will be regulations imposed on us around speed limits and those types of things, that's very difficult to judge. I think some of it might come but then probably only in coastal waters or near Europe or something like that. But I mean you would have to ask the IMO and other regulators what is going to happen there. There's a lot of talk out there. And -- but nothing very firm just yet.
Next question is from Tom Schwartz of Crédit Suisse.
This is Tom Swift from CreditSights. I have a question concerning some rumors from the French competitor of yours that there were some terminal assets that potentially they wanted to dispose of. Is this something that you have been in discussions with them on this matter?
No.
We have a follow-up question from Lars Heindorff of SEB.
Just a follow-up on again related to the IMO situation. I think you write in the report that 15% of your consumption for the first 9 months is low-sulfur bunker. But can you say anything about how much the share of low-sulfur consumption was in the third quarter? And maybe given the fact that you said that you're going to start to burn the low sulfur from the 1st of December, what kind of magnitude share of low-sulfur consumption do you expect in the fourth quarter? Maybe a range, if you can give us that.
Great. I don't think there's going to be any major -- there's not going to be a major change in the third quarter compared to what we had earlier on in the year. I think when you look at the last quarter, one should expect that, that goes up quite a lot, especially because it's from roughly the beginning of December, pretty much everything which we do today is on high sulfur, we'll then move to low sulfur. So I mean I wouldn't know exactly what the math would be, to be fair. But I would not be surprised if that 15% that we have seen so far goes to 25% or 30% when looking at the fourth quarter. But to be honest, I haven't done the math. But I mean the basic logic being roughly as from December 1, we will start taking in the low-sulfur fuel. So of course, as from that moment, that percentage goes up a lot and the high-sulfur piece goes down a lot because we were in the beginning on a very few ships that are fitted with scrubbers.
We have a follow-up question from Jayanth Kandalam of Lucror.
Yes. Just a quick one on -- again, just touching upon IMO 2020. Just to look at the time lines again, you just said that you're going to be substantially higher in Q4, especially if you take the December month. Just thinking about the lag, what you usually base on your contracts, I mean is it something which -- I mean I'm sure you've taken into consideration when you give the full year outlook. But is it something we should think about even going into the first quarter of 2020, especially with the CNY and then the other holidays in Asia? Just trying to understand what would be the shorter or short-term impact before -- assuming everything is fine in terms of pass-throughs.
Well, I mean it's going to be quite a quick switch because the regulation is very clear as from 1st of January, where you are no longer allowed to burn up high-sulfur fuel unless you have a scrubber. So what you will see is that the percentage of low-sulfur fuel that will hit our books will not be so high this year because we do things based on an end-of-voyage basis and the number of voyages that ends within 30 days is not the majority. So there will be some impact in December. But after that, it will be pretty much 100% as from January.
Yes. Sorry, but I get that part. But I'm just trying to understand in terms of the cost for you as well as the recovery from the customers' point of view in terms of any lags are based on the spot contracts, there -- the way you can recoup the costs. What kind of deviation should we see over the quarter?
There's never a zero risk with these things. But in and of itself, the short-term rates are being taken up as from 1st of December. So that should give us a recovery. On the short-term piece, the 90-day rates will in -- majority will be renewed as from 1st of January. And for the long-term contracts, the clauses also kick in either in December or January. So I don't expect a huge time lag there. I mean you can never completely rule that out. But whereas normally, when you see bunker cost go up gradually over a period, you will see 1 or 2 quarters' delay before that's fully reflected in the rates. This time, it's different because it's a sudden shift, and it's a change of fuel type, which gets treated in a different way. So I do not expect to see much of that delay.
We have a follow-up question from Sheharyar Malik of CQS.
I just wanted to get a little bit of clarification on the vessels that you'll have from the 1st of December that will have scrubbers and how many will have LNG. So from 100 -- out of the 112 vessels that you own, what I got was that there will be 10 that will be operating on scrubbers from the 1st of December. I don't know how many will be on LNG. And combined, what percentage of your volume do scrubbers and LNG represent?
I mean we will not have any ship on LNG until we have converted the first one, which will happen in Q2 next year. So that percentage is 0. And as far as the scrubbers are concerned, we have a program to go and do altogether up to 19. And I believe that at year-end, the expectation is that we will have 4 or 5 up and running. And after that, that will gradually grow to the 19 that are in the overall program, 10 of our own and 9 on charter ships.
Okay. So 10 on own and 9 on charters. So that program is targeting 19 by the end of next year, right?
More or less, yes.
Okay. Fine. So by the end of next year then, how much of your volume will be on -- what percentage of volume roughly would be on scrubbers and LNG?
Close to 15%.
And this 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.
Okay. Thank you very much all for joining, and thanks for all of your questions, appreciate it. And then hope to see or speak to you again soon. Thank you very much. Bye-bye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.