Q1 2025 AP Moeller - Maersk AS Earnings Call
We start with the highlight from the first quarter just passed. The quarter saw solid delivery across all of our businesses within an increasingly volatile environment.
Specifically, on the back of good asset utilization, operational improvement and proactive cross-measures, we generated an EBITDA of $2.7 billion and an EBIT of $1.3 billion for the quarter.
In logistics and services, we remain on track as reflected in the significant year-on-year improvement in the EBIT margin to 4.1%, owing to continued operational improvement and cost management.
On our ocean business, we saw continued decline in rates in line with our expectation and demonstrated solid profitability as vessel utilizations remained high and contracts had the stabilizing effect.
In terminals we deliver strong results yet again driven by strong volumes and higher revenue per move.
The increased macroeconomic and geopolitical uncertainties since we shared our guidance in February inevitably affects our outlook for the rest of the year.
Against this new backdrop and especially on the back of the escalation we saw of the U.S. China trade relation as well as the unresolved questions around the other tariffs currently under 90 days reprieve.
We revised our expectation of container market volume growth to be in the range of minus one to plus 4% from the around about 4% which we had communicated previously.
On the other hand, despite the lower volume outlook, we confirm our full year 2025 EBIT guidance of zero to three billion dollars. I will get more into the details of this later in the presentations, but now taking a closer look at each of our segments.
First, logistics and services generated at EBIT margin of 4.1%, which has improved since the first quarter 2024 and is on track to reach our profitability goal of 6% during 2025.
This steady margin uplift we have seen in the recent quarter owes itself to the continued operational improvements we have made in middle mile, also known as Maersk Crown Freight, and last mile as well as the productivity gains across the entire Logistics and Services portfolio.
Revenue remains stable year-on-year with volume growth across most products, while air and middle-mile we took targeted actions to rebase those businesses to focus on margin in favor of revenue.
A.P. Moller
In ocean, we experienced a continuously declining rate environment since mid-2024, which continued through the first quarter in line with our expectations.
Under these circumstances, we delivered on our planned profitability. Our utilization remains high in the 90s, while slight sequential down tick following normal seasonality.
Contracts have provided some stabilizing effects, and are focused, enabled us to roll back inflationary pressure on some of our cost items.
You may recall our new Gemini Network launched at the start of February .
Early results on reliability are promising and in line with expectations.
As of today, 94% of the mainliners are phased in. We expect the final port call of the old 2M network to happen later this month in May, such that June will be the first full month with all of our network on Gemini.
Our expectation on cost savings remain unchanged in view of the phasen process.
Finally, on Terminal, we saw another excellent quarter, driven by strong volumes and higher revenue per move, and supported by increased storage activities.
The business achieved a further uptick in return on invested capital to 14.5% well above our 9% mid-term target.
The strength of the business owes itself to the strong acid utilization which reached 79% for the quarter across the whole portfolio and the investments we have made in automation and operational efficiencies over the years.
A.P. Moller
If we move to the next slide, which is our scorecard, comprising our mid-term targets, valid until the end of this year.
Our business performance over the last 12 months has been strong on all fronts, with overall A.P. M. Reich standing at 14.3% driven by terminal and ocean in particular.
Where we do fall a bit short is logistics and services, where our last 12 months EBIT margin is steadily ticking upward but remains below the 6% target so far.
As mentioned earlier, EBIT margin remains the priority, even if this has to come at the expense of some revenue growth for a while, as we saw with the rebasing of middle mile and air.
We also see further room for improvement in our operational cost and productivity, which will have further impact in the coming quarters.
We also acknowledge that while the last 12 months give a good picture of the progress we have made to date some parts of these pictures are influenced by unusually high freight rate environment that we saw especially in the middle of last year.
The next 12 months signal an increasingly volatile environment with a significant amount of new damage coming online, and this is where our focus lies.
Between the sustained improvement in logistics, the flexibility offered by Gemini and the very strong and diversified position we have in terminal, we have a lot of levers at our disposal to buffet our performance against possible effects of price volatility.
Niels Kornerup, A.P. Moller
You may recall this slide from our fourth quarter presentation in February , in which we shared our view on the supply and demand imbalance and the various supply and demand side factors.
Much has happened since then, so let me explain to you the situation at his stands now and the key delta that we have seen since last time.
First, our view that the supply demand imbalance will increase over in the course of the year remains unchanged. This is driven by new deliveries which are planned and fixed at about 2 million TUs for the full year.
In response to these new deliveries, various supply-side drivers exist within the industry, and the potential impact of those measures remains at one and a half to two million T.E.U.S. of potential.
What has changed, however, is that we are seeing a delay in the reopening of the Red Sea such that the supply increase of 1.5 to 2 million TUs in 2025 is looking more and more unlikely.
On the other side of the equation, the strong market demand which we had guided for in February is now looking more uncertain. This has led us to revise our volume growth assumption outlook to minus 1 to plus 4% instead of around 4%.
So for now, these two factors, namely the delay in the Red Sea opening and a more a certain market demand, are offsetting each other such that our overall view can remain unchanged.
Of course, any of these factors can rapidly move in and out of favor, so we will continue to monitor the external environment closely.
In terms of the external environment, let me qualify this by saying that while the level of uncertainty has increased from potentially worse than expected tariffs and ongoing trade tensions, the uncertainty has so far been very US-centric rather than global.
As long as this is the case, our relative under exposure to the U.S. markets offers some significant offsetting opportunities by looking at other geographies such as emerging markets and and intra-regional trades where the man so far continues to be robust.
Nevertheless, we also continue to pull on all livers within our control to ensure that our business are fit and ready to continue to deliver for our customers and shareholders.
In logistics and services, our broad solution offering is a big advantage in these uncertain times and allows us to support our customers and navigate the volatility ahead.
With lead logistics, we can help shippers flex their supply chain through alternative sourcing or also adjusting the speed of their shipments.
Our bonded solutions also allow shippers to hold off-carrying cargo at destination until there is more certainty around the tariff regime.
Our custom services offer shippers also advice on how to comply with any tariff changes and other trade barriers.
These have a positive impact not only on our logistics and services but also can also have an impact on our ocean volume support.
Meanwhile, internally, we continue to focus on cost management and productivity to protect the margin uptick we have achieved so far and continue to enhance and build on this towards our target.
Finally, we continue our sales focus to secure new win and grow despite the slowing market.
Despite all of these current uncertainties, we have the livers that we need to get where we have ambition to be.
In ocean, Gemini has introduced greater flexibility in our fleet and wider operations.
This happens at a time when the China U.S. Volumes have dropped 30-40% in April .
However, it is important to note that China U.S. volumes only make up 5% of our total, while the remaining 95% comprising the rest of the world continues with unchanged demand.
In response to any demand shock, our new modular network allows us to swap capacity from lower to higher demand services and to optimize for utilization without disrupting reliability.
Further, the cost synergies that we have previously communicated still stand and can be realized irrespective of any weak China-U.S. demand.
And finally, our relatively low-order book, at least relative to the industry, protects us against protracted trade tensions.
In terminals, we have a well-established toolbox to tackle uncertainties ahead and have a geographically diversified portfolio of gateway terminals.
We also maintain our focus on cost and productivity, so we protect our margins and maintain a strong rig for the group.
All in all, our business portfolio and operations mean that we are well prepared and positioned to whether any challenge ahead.
Niels Kornerup, A.P. Moller
So, what does that mean for the financial guidance? Well, as I mentioned into the intro slides, we now expect the container volume growth to be between minus 1 and plus 4% in 2025. This reflects the increased microeconomic and geopolitical uncertainty.
We expect to grow in line with the market. These risks represent the largest unknown at this stage as to how the supply and demand equation we play out for the year, as we now expect the Red Sea situation to last for the full year.
Considering these factors and the progress made on operational quality, we maintain our guidance at an underlying Abit of 0 to 3 billion dollars with the same corresponding range of Abit of 6 to 9 billion dollars and free cash flow higher than 3 billion dollars.
CapEx at 10 to 11 billion dollars for the financial year 2025 and 24.25 combined and 25.26 combined is also maintained. And with that, I would like to pass over to Patrick for a closer look at our financials.
Patrick Yanni: Thank you Vincent, and welcome to everybody on the call from my side as well.
Patrick Yanni: The first quarter of the year was characterized by solid year-only of performance across our businesses, delivering higher volumes and increased profitability despite a volatile environment.
Patrick Yanni: When looking at the sequential development, ocean profitability came down with an expectations, even the eroding environment resulting from increasing supply.
Patrick Yanni: While logistics and services managed to retain stable margins sequentially by building on the operational momentum achieved throughout 2024.
Patrick Yanni: Meanwhile, our thermals business delivered another quarter of excellent performance in near-record profitability, benefiting from continued high volumes and storage income.
Patrick Yanni: All in all, the businesses delivered an EBIT of $1.3 billion, equivalent to a margin of 9.4%.
Patrick Yanni: A substantial increase over the previous years, a bit of 177 million, in line with the quarterly path expected for 2025.
Patrick Yanni: Free cash flow also on this substantial increase, reaching $806 million, supported by stronger earnings and disciplined working capital management. Net profit after tax came in at 1.2 billion for the quarter, also on the back of a strong financial result.
A.P. Moller
Patrick Yanni: In the first quarter, we also returned $2.5 billion to shareholders through dividends and share buyback.
Patrick Yanni: Up from 1.5 billion in the same quarter last year. Our total cash in deposits is $22.3 billion with a net cash position of 5.2 billion, both higher, year on year.
Patrick Yanni: We turn on the visit capital, rose to 14.3% from 3.2% in the first quarter of 24, reflecting the strong earnings we delivered in the latter half of 2024, and our continued focus on capital efficiency.
Patrick Yanni: Looking ahead, our strong balance sheet gives us the flexibility to continue investing in growing our business while returning capital to shareholders, even in a market environment that is characterized by increased volatility.
Patrick Yanni: Now let's have a look at our cash flow movements on slide 12. There we see that we generated 2.8 billion dollars cash flow from operations in the first water. The increase from the 1.1 billion in the previous year was primarily a result of the higher
Patrick Yanni: And was further supported by a substantial favorable unwinding of working capital. The cash conversion was 102 percent up from 69 percent in the previous year.
Patrick Yanni: Croscapex for the quarter amounted to 1.4 billion, a year-on-year increase reflecting the timing of installments to vessels ordered in 2024. As such, 1.2 billion is related to ocean with about half going to vessels and the remaining to have some equipment.
Patrick Yanni: The final pass over the bridge highlight the significant return to shareholders in the quarter, with $2.5 billion through dividends and share buyback, as mentioned earlier.
Patrick Yanni: I will continue with a detailed review of each of our business segments starting with the
Patrick Yanni: The ocean business delivered solid profitability in the first quarter, driven by higher-year-on-year freight rates and supported by low-bunker costs mostly of setting inflationary cost pressure.
Patrick Yanni: Volumes remained stably on the air, as volume growth in inter-Asia, Asia, Europe , and Latin America was offset by lower volume growth in inter-America, inter-Europe, and Africa.
Patrick Yanni: Utilization was 92%, sequentially in line with normal seasonality following Chinese New Year.
Patrick Yanni: This is a disc decrease compared to the 95% in the same quarter of 24, when we just had started to reroute our vessels in response to the rate C disruption.
Patrick Yanni: But is in line with the first quarter levels in prior years.
At the same time, our scheduled reliability is steadily improving.
Patrick Yanni: Compared to the previous year, EBIT increased by around $900 million to a total of $743 in the first quarter, equivalent to an EBIT margins of 8.3%. Sequentially, EBIT decreased quite significantly due to the steep decline in rates since the fourth quarter.
Patrick Yanni: On site 14, you can see how the bridge on the year on year development is coming in ocean profitability.
Patrick Yanni: Starting from the left, you see the positive impact from both higher freight rates and lower banker prices in the first quarter, partially upset by higher container handling costs.
Patrick Yanni: Notice that compared to the previous four quarters, there is no longer a visible year-only impact from higher bunker costs in a higher consumption, as our vessels also were rerouted around the heap of good hope in the first quarter of 2024.
A.P. Moller
Patrick Yanni: Franny, there's a positive impact from detention in the marriage income, but the largest comparative impact by far is the timing effect of rates year-on-year as we earn a decreasing phase compared to an increasing phase of the last year.
We turn to the OCEAN Business KPI on slide 15.
Patrick Yanni: The impact from continuously increasing supply can be directly seen in our average rate rate, which decreased 8.7% since Q4 2024, and was only 2.5% higher than the first quarter of the previous year.
Total costs were stable here on the air.
Patrick Yanni: On the base of higher container handling and network costs, which were compensated by 11% reduction of bunker costs coming from a 9% lower bunker price, and a 3.4% lower consumption.
Loa S.GNA also contributed to the good cost picture.
An average operated fleet increased.
Patrick Yanni: 6.9% the only reflecting the injection of supply in order to meet market demand and the new network implementation.
Patrick Yanni: We would like to highlight that we have changed our reporting on ocean products.
Patrick Yanni: to align with the performance management of the business. The new classifications are rated on
Patrick Yanni: Rate validity that is the period for which rates are fixed and should offer a clearer view of the rate commitments compared to the previous bit between contracts and shipments.
Patrick Yanni: In short, contracts with a rate validity longer than 3 months are considered long term and contracts with a rate validity of 3 months or less together with the spot shipments are considered shorter.
Patrick Yanni: For comparisons between the new and the old split, please refer to our Q1 interim report. In 2025, we expect a roughly equal split between the long-term and the short-term volumes.
Patrick Yanni: It has now moved to a logistical services business which deliver volume growth across most products in the first quarter.
Patrick Yanni: In particular, our customs business grew strongly with volumes of 10% a year, driven by increased demand resulting from the rapidly changing tariff landscape.
Patrick Yanni: Our contract logistics business also increased in volumes with growth from new customers' wins in warehousing and effort billment.
Patrick Yanni: Revenue overall remains stable, year-on-year, as growth in volumes was offset by initiatives through rebased our last mile and middle mile business in North America, as well as our end-business.
Niels Levernabit of $142 million for the quarter.
Patrick Yanni: Equivalent to a 4.1% average margin, unchanged from the previous quarter and significantly improving from the low profitability levels in the previous year.
Patrick Yanni: This is a result of a broad improvement across products, consequent cost and productivity focus, and in particular supported by addressing past operational issues in our last and middle of my business.
Patrick Yanni: These results keep us on track towards our 6% avid margin target.
Patrick Yanni: We can see the performance breakdown on our product families on slide 17. Our freight management revenue increased 18% or 85 in dollars, reaching $553 million.
Patrick Yanni: The growth was fueled by strong performances across all products, most notably customs, projects, and called channel districts.
Patrick Yanni: Consequently, the EBITR margin improved to 21% up from 17.3% the previous year.
Patrick Yanni: For fulfillment services, revenue experienced decline of 101 million dollars, settling at 1.3 billion dollars, representing a 7.1% drop.
Patrick Yanni: Despite the lower top line, the EBITR margin saw a notable improvement, rising to minus 2.5% which, while still negative, reflects an improvement both sequentially and year-on-year. The positive shifts were primarily driven by enhancements in warehousing.
Patrick Yanni: and the ongoing rebasing of Velomile and Last Mile in North America.
Patrick Yanni: In our transport services segments, revenue remains stable at $1.6 billion, consistent with Q1
Patrick Yanni: The EBITR margin slightly decreased to 6.4%, compared to 6.5% the previous year, reflecting steady performance across our product lines as decreased volumes were offset by increased rates.
Patrick Yanni: Now let's turn to our Terminals business on slide 18. Terminals once again deliver another quarter of outstanding performance. Revenue increased 23% year-on-year, driven by high revenue.
Patrick Yanni: Per move and strong volume growth, particularly in North America, Latin America, and Europe . The 13% year-on-year increase in revenue per move came from higher storage revenue as well as price increases.
Patrick Yanni: Crosper move increased as well, primarily due to labour cost adjustments, together with increased concession fees linked to higher turnover.
Patrick Yanni: With high utilization and revenue in the quarter, profitability increased 31%, resulting in a strong EBIT performance of $394 million, equivalent to an EBIT margin of 32%.
Patrick Yanni: Which alone so volumes grow 15% to remain by significant growth in Los Angeles and Porter-Leader-Beth.
Patrick Yanni: The largest increase to Abidhar, however, came from the increased revenue per move, which managed to offset higher labour costs through price increases and was further supported by a strong storage revenue.
Patrick Yanni: This concludes our financial review of the business and we are now ready to answer any questions you might have on our earnings announcement without operator. I think we can pass to Q&A.
Speaker Change: Yes, thank you. We will now begin the question and answer session. Anyone who wishes to ask the question may press a star and one on the telephone. You will hear a tone to confirm that you have entered the queue.
Patrick Yanni: If you wish to remove yourself from the question queue, you may present our end two. Questions on the phone are requested to disable the loudspeaker mode while asking a question. In the interest of time, please limit yourself to one question.
Patrick Yanni: Anyone who has a question, may press star and one at this time.
Speaker Change: We have the first question from the line of Munida Kajana from Bofa. Please go ahead.
Muniba Kayana: Good morning. Thank you for taking my question. So just wanted to ask, you know, you said volumes are down 30 to 40 percent on the China US trading. It's just kind of where, how do you see this evolving scenario for trade deal or kind of, what are you hearing from customers in terms of where the England tree positions are right now? Like, could there be a scenario where there is a rush of orders and rates go up?
Speaker Change: So just kind of what you're hearing from customers and how you could see things developing in the near term that be very helpful to understand. Thank you.
Hi, Moorima. So, yes, we've seen 30-40% drop.
Speaker Change: And I think even Jinsa Roca at the port of Los Angeles mentioned 35% on the first ships arriving after this liberation day. So it's pretty aligned, I think, across the board what we have seen as a consequence.
Speaker Change: Basically, this has gone very fast, so this is the result of customers reacting very, very fast on canceling orders or stopping orders and waiting to see if this is going to resorb itself.
Speaker Change: There is a meeting this week. I don't think the trade deal will necessarily come out of one meeting but if a de-escalation was to happen it is not unlikely that there would be a catch-up effect.
Speaker Change: Where at some point the situation resolves itself and then you see much stronger demand coming out of China. I think what is what is important to realize is there is for some product, some makeup.
Speaker Change: A capacity elsewhere to source your goods but there are also certain goods where that this is either non-existent or fairly limited and therefore there is a strong dependency on getting
These goods from China, whether it is semiconductors,
Speaker Change: Whether it is something as simple as snowboard boots, there are really different products where the supply chains are very verticalized in China, same with solar panels or battery parts. So that's one possibility. The second possibility, of course, is that things get entrenched?
A.P. Moller
Speaker Change: So what is happening in these weeks where the volumes are not moving is basically our customers are drawing on inventory and are trying to wait and see as long as possible what is going to happen.
Speaker Change: And what we see them doing is they're drawing not only on their own inventory, but they're drawing on the inventories that they have in Canada. They're drawing on inventories that they have in Mexico. They're drawing also on distributors and other vendors of the products and the parts inside the US to see how long they can...
Horde those goods and wait [inaudible]
Speaker Change: Before they find out what Tyref regimes they have to plan in their supply chain. And I don't think there is a final answer today as to how this is going to play out. Also for them in the case where this does get entrenched.
Speaker Change: If the tires go away, they will reopen the gates for purchase orders and parts purchase. If it doesn't, I don't think our customers at this stage have a good playbook and I've talked to out of our top 400, probably 20 or 30 of them.
Speaker Change: There is not a good view of if that gets entrenched, what do we do? Because in certain cases that would have quite significant impact with respect to risk of recession in the U.S.
A.P. Moller
Thank you.
Speaker Change: The next question comes from the line of last hindor from Nordia. Please go ahead.
Lars Heindorff: Yes, one thank you for taking my question. It's on the ocean part of the business. The development of Kemenai to talk about the incident earlier on. Is that?
Lars Heindorff: One of the reasons why you've been adding as much capacity as you've been adding and also the question here is basically about your capacity transfer and forward will you continue to uphold around about four and a half million to you and number of capacity.
A.P. Moller
Lars Heindorff: Thank you, Lars. Actually, the increasing capacity is a function of having to sail these long distances around the Cape of Good Hope.
Lars Heindorff: When we started to do that about a year and a half ago,
Lars Heindorff: If you remember the reason why the raid actually shot up in the second quarter of last year was actually because there was holes in the network sailing these longer routes meant you need more tonnage to carry the same amount of containers.
Lars Heindorff: And during the year we have, if you will, plugged the hole and got ourselves ready for a network that can ensure the reliability that we have ambition to deliver and the capacity that we have ambition to deliver because whereas we're not very concerned about our market share. [inaudible]
Lars Heindorff: We are concerned about our ability to lift these 12.5 to 13 million FFIs a year, which we think is quite important to maintain the scale that we have in our network.
Lars Heindorff: So actually what you see now is the consequences of a steady work that has been going on as a result of the crisis in the Red Sea.
Lars Heindorff: Once this reverse itself and we go back to setting on the trading route, we will gradually get back into, based on the same philosophy, get back into the capacity that we need at that time.
But I do just follow up on that, Le Butchis.
Lars Heindorff: We have seen a huge number of blankings in connection with the decline in volumes recently.
Lars Heindorff: But from the stats that I can see, a Gemini which means both you and Herp Hack have been doing farthest blankings compared to many of the other. Is this?
Lars Heindorff: Something to do with the that you need to uphold the schedule of liability in the network or what's the reason for that.
Lars Heindorff: So the reason for that is actually the unprecedented flexibility that we have in our deployment. If you look at the blankings, if you look at all the capacity actions that have been taken across the alliances, there is about 22-22% of the market capacity that has been withdrawn since the beginning of April .
Lars Heindorff: And Gemini has withdrawn about 20-21% also of its capacity, but we have done it less through blinking and more through vessel swapping.
Lars Heindorff: So you have an 8000 TU ship, the demands drops by 40%, you swap the 8000 with a 6000 TU ship that kind of helps soften that and then you deploy your 8000 TU ship in another trade where the 6000 was before.
Lars Heindorff: And where there is better than a man and where you can get better as a utilization going forward. And we...
Lars Heindorff: Because we have so few ports and because the network it modularized the ability that we have to do this basically almost on the fly.
and to reverse this.
Just as flexibly, I think is one of the advantage...
Lars Heindorff: That we have built through Gemini and that will come quite handy in times like the ones that we're going through right now. But I want to be clear on the fact that we are managing capacity down to demand. We'll continue to do that and we're doing it as aggressively as any other alliance.
Thank you.
Speaker Change: We don't have a question from the line of Seller-Eckblum von Mogenen Stanley. Please go ahead.
Speaker Change: Thank you very much. Two questions from me. Can you please talk about the fulfilled by Maersk business? It still seems to be delivering negative EBITDA in the quarter.
Speaker Change: What measures are you taking there to improve profitability of that segment within your LNS business? And then can you just talk a little bit more about your volume performance in the first quarter?
Speaker Change: It was flat year on year and in the release you talk about market growth being more like three and a half to five and a half percent.
Speaker Change: And then the ambition to grow with the market over the remainder of 2025, I'd like to understand why your volume performance in the first quarter seems to be less than some of the peers and less than your own market assessment. Thank you very much.
A.P. Moller
Yes, so...
Speaker Change: Let me come back on your question on full feedback. So what you see here is effectively you also see a reduction in revenue which we have highlighted. As we are handling what we also highlighted in previous quarters on settling our operational issues, primarily in last mile and middle mile in the US.
Speaker Change: So we have been stepping out of our contracts which we have also highlighted in various occasions in the last six months.
Speaker Change: of rightsizing the business to operations are actually profitable and also having a strong cost focus to reestablish profitability in this business. So, you see, you start with an improvement, it takes some time to rebuild the business which we are doing now but you will see a further improvement in the coming quarters.
Coming through.
Speaker Change: I think as well on the one positive element here is also the warehousing which has already actually turned around and is starting to be a good business in full-field by Maersk. So you would see here on sequential improvement of those numbers as we go forward.
Speaker Change: Let me just add to this, that basically what is missing for us from the 4.1% that we have to get to our long-term target is to bring that number up.
Speaker Change: I mean, as far as transportation services and lead logistics in managed by Maersk are concerned the margins are, if not best in class, they're very very competitive in full fill by Maersk we're liking the industry, and the plan for us to get back
Speaker Change: About the 6% required that all the improvements needs to come from full fill by Maersk in the coming quarters.
If I go to the second on your volume performance.
Speaker Change: So, we have said, first of all, the quarter on quarter thing, I wouldn't put too much on because we...
Speaker Change: What you look at is there are some certain times because of your geographical exposure or how your...
Speaker Change: Your tonnage is deployed and what have you. You may have a quarter where you move a bit different from the market. So look at it for the year usually and that's probably a better indication.
Speaker Change: But it is true that in the first quarter, the market probably grew somewhere around 4.5%.
And we were flat.
Speaker Change: And the reason for this is actually we have the capacity that we have back to Lars' question before.
Speaker Change: And as we were going through the redeployment into Gemini, it was difficult to do everything at the same time and try to be as opportunistic as maybe we would be in a more separate or in a different network.
Speaker Change: As you know, one of the key benefits of Gemini outside from the flexibility we just talked about on capacity is actually the fact that it frees tonnage.
Speaker Change: And as we complete this redeployment now, we will have more tonage available and that's why we can actually grow with the market for the rest of the year and ensure that the vessels that are being freed are actually optimally utilized.
Speaker Change: The next question comes from a line of Ulrich back from Danske Bank. Please go ahead.
Yes, a little bit in Patrick. My question is...
Speaker Change: On the ocean unit cost, it increased 4% quarter of quarter and I guess this was driven by the station.
Speaker Change: Fade enough of the Gemini Network. But how should we think about the unit cost going into Q2? I guess there are some moving parts, volumes are like even below, but then you also...
Speaker Change: Procressing in the face enough of this Gemini Network. So, what should the net effect here be? Or could you already see a decline in Q2? And then further proof from the Q3?
Thank you.
Speaker Change: Thanks very much for your question. So indeed, I think the previous question was so highlights that to get a good cost per unit you obviously need to have a good volume is right. So I think on the pure cost side, the costs were actually in line with our ambitions. They were stable. We have had a good control on the...
That were costs, those positions I expected to...
Speaker Change: To continue to be under control and slightly decrease over the rest of the year and you'll have as Vincent was mentioning higher volumes as we grow with the free capacity of Gemini so the cost per if you will actually improve when you look forward during the year so not getting specifically on Q2 which is still a...
Speaker Change: A quarter where we are implementing Gemini, but if you look forward we will have our cost benefits and the cost per unit which will also improve looking forward.
A.P. Moller
Speaker Change: The next question comes from the line of Marco Limite from Barclays. Please go ahead.
Speaker Change: Hi, good morning, thanks for taking my question. My question is on the inventory in the U.S. Do you have a feeling of how big is in the inventory at the moment and basically for how long your customer can live with the inventory and, you know...
Speaker Change: When we will start to see, eventually, if there is no trade deal, we will see people panicking and start importing stuff at any price. Thank you.
Speaker Change: That's a really really good question and I wish I had a super sharp answer to tell you you know it's week 21 and you'll see what you'll see but it's not exactly like that. I mean the fact of the matter is there is no real good data on inventory and then the problem that we're going to see is it's not all...
Speaker Change: It's not all companies running out of all SKUs at the same time.
Speaker Change: So I think right now the race is about trying to get your hands on as much inventory as possible.
Speaker Change: If you're a home improvement retailer, you have imported a certain amount of, I don't know, grills for the summer.
Speaker Change: So you have a certain amount of weeks of inventory. It's going to depend of how many you sell obviously and it's going to depend now also on how many you can source domestically from local distributors and so on that may sit on inventory and maybe willing to sell it to you.
Speaker Change: For something that is much more advantageous than what you otherwise would have to pay if you brought them in from China. All these haggling inside the U.S. right now is happening. I mean, everybody's rewiring their supply chain is actually looking at bringing in extra inventory based on the...
Speaker Change: The SKUs that they're most concerned with because what you want is you want to be the last one that's going to run into the problem that you just mentioned.
Speaker Change: So, I don't have a really good thing. I can tell you that in some, especially in industrials, automotive and so on, restrictions on rare earth and restrictions on semi-conductors, it's going to bite fairly soon.
Uh...
Speaker Change: And whereas maybe for retail and certain things it may take longer for it to really be meaningful. So if you, the pictures of empty shelves in big box retail in the US is maybe not around the corner.
But I mean, let's be clear, if we don't find...
Speaker Change: Something before the summer, it's going to start to hurt quite a lot across the board because there are certain commodities and certain things.
Speaker Change: Where you can't really substitute some of these imports freely in terms also both in terms of SKU but also in terms of quantities. I mean the capacity that there was in China is not available already available elsewhere to support the U.S. market. [inaudible]
Speaker Change: Thank you, and if I may follow up, so do you think that what we're seeing at the moment is also a bit of front loading and inventory rebuilding from, you know
Speaker Change: Well, from the other countries and clients trying to get as much as they can from everywhere. And then, Voller, let's just slow down also on other trade lanes if we don't get any more clarity after the 90-day post. Thank you so much.
Speaker Change: Yeah, so I think, first of all, I've talked to a lot of customers since these tariffs were done and there's not one...
Stratage you that everybody is following.
Speaker Change: And also the ability to pivot and do things differently is not there in the same way.
If you are importing laptops.
Speaker Change: Or if you're importing fishing rods or, you know, or garments. So those are those are those are very different challenges to say. I think what is going on at the moment is.
Speaker Change: Is two things. One is to try to figure out how much can I source domestically, as I mentioned. We see also a lot of inventory moving from Canada to the US because that's...
A.P. Moller, A.P.
Speaker Change: It's easy to replenish Canada right now so you can deplete your inventories in Canada and then replenish those.
Speaker Change: That's what's happening. We see also some of that happening from Mexico. So that's one thing. The other thing is you look at where you have alternative sourcing.
Speaker Change: For governments, for footwear, for different of these commodities, you can go to Guatemala, you can go to Bangladesh, you can go to Indonesia, and you can try to take sit on as much capacity as possible there.
Speaker Change: Because there is no alternative to China and this will eventually come into inflation to the US consumer. Whether it is in the final product or is quite subject to that thing.
Speaker Change: The domestic producers in the US have made some pretty substantive declaration about what that would mean for them if it stayed this way in terms of also cost-per-vehicle and so on. And I think that's what is going to play out in the coming weeks now.
A.P. Moller
Speaker Change: A trade deal between the US and the UK that would be a first and maybe hopefully a step towards more of those in the coming weeks before the 90 days expire.
Speaker Change: The 90 days can be re-conducted, also can be extended in the case where people feel there is positive momentum, but they just need more time to get things sorted.
Speaker Change: There is a meeting in China with China as well this weekend in Switzerland. Maybe that's the first step towards a de-escalation. That's a process that will take a while. But that could be a first step. So I think there are certain scenarios where you see
Speaker Change: A type of retreat towards something that is maybe more bearable for the economy.
Speaker Change: Or you will see maybe a hardening of the stance in the coming weeks which in my book would increase the risk of recession in the US because ultimately given the lack of alternatives to China both in terms of scale and breadth, you would have to pass this on to consumers. Thank you very much.
Thanks.
Speaker Change: We will have the next question from Christian, Ndel II from
From UBS, please go ahead.
Speaker Change: Hi, thank you very much. I'm just coming back to your comments earlier that 20-22 percent of trans-Pacific capacity was withdrawn. Maybe the first question could be, can you help us assess how fast this 20 percent capacity can be reactivated on trans-Pacific? I think you evaluated that on Gemini. You can do it relatively fast. What about your peers and could you give us a bit of a timeline? Secondly, you've also alluded that.
Speaker Change: A large part of this capacity is being repositioned on other trade lanes.
Speaker Change: So, how do you think that the implications of this repositioning for freight rates on Asia, Europe , over the next months? They have been falling sequentially recently. Do you see the risk of further significant drops here or anything that gives you more comfort that we can avoid that? Thank you.
Speaker Change: Yeah, thank you, Christian. So basically the way this works is you can blank a ship with about 10 days notice and you can reactivate it with less than that.
Speaker Change: So, if you had a big surprise, you come out with a big trade deal, Tyref go back to zero out of China. Tomorrow you would see a catch-up effect on volumes from the following week and you would have capacity ready to cater for it.
Speaker Change: What the flexibility, I mean so far, a lot of the autonomy is blank, it's just idling for waiting for the next position. Eventually you might see more of that going to other trades.
Speaker Change: We've been able to do it through swaps because of Gemini.
Speaker Change: So that's the way we have dealt with it. So far, you know, without impact.
Speaker Change: On rate, actually the rates have been decreasing sequentially for three quarters in a row basically since July of last year and all the way through March but in the last six to eight weeks they have been some of the most stable they have been in the last few years.
Speaker Change: So I don't know if this is going to stay forever, it depends on how the man holds, it depends on how supplier is being managed.
Speaker Change: The market grew about 4.5% this quarter, the capacity is 9% up year on year, and the rates are okay. So you see actually some pricing discipline across the industry right now that looks...
Better, throughout last year and this year.
Speaker Change: That looks better for me, that maybe what we have seen on the back end of COVID in 2023.
If you remember, in 23, we finished...
Speaker Change: The year with a very difficult last quarter it was like prices fell, hit the floor before they kind of rebound it. In this case here prices didn't hit the floor they actually normalized at a level that is sustainable.
Speaker Change: and they have been stable there for almost two months now. So...
Speaker Change: I cannot provide any guarantee that this will continue for the rest of the year, but I can say that at least we're seeing a much more responsible pricing behavior at this time around that we did last time.
Thank you very much.
Speaker Change: The next question comes from the line of parish joined from SHBC. Please go ahead.
Parrish Jain: Thank you for taking my question. If I may ask with respect to your terminal business, the first quarter's growth.
Would you attribute a...
Parrish Jain: This proportionate growth in North America is illegitimate. Is there a role of...
Jami Nai Network, Bringing additional volume to...
to your portfolio's terminals.
Speaker Change: How would you stack between two M versus Gemini? Most terminal portfolio is gaining additional volume as a result or not. Any color on that will be helpful.
Speaker Change: Yes, thanks very much for your question, Pares. I think, as you see, during Q1, the coming of Gemini you have had some swaps.
Speaker Change: The net effect is not substantial per se that the net effect really comes from the main driver of profitability in revenue growth in terms of the actual growth we have seen highlighted as well through the arrivals and the disclosure we have in our Q1 report on the different volume growth throughout the world with the U.S. with 15% being the biggest increase.
So that's really, I would say, additional volumes coming in.
Speaker Change: We shall obviously improve both the revenue but also the storage income and was a main driver of the significant increase in revenue for terminals in Q1.
Speaker Change: Or maybe on a, if I can ask constantly, on a light for light basis, would you, would A.P. M. Terminal portfolio, would handle greater volume from Gemini Network versus non-gemini proposition?
Speaker Change: So the terminal network is going to have more volumes from Gemini, for the simple fact that before into M, MSC had a comprehensive terminal portfolio, we had a comprehensive terminal portfolio, so we had to kind of share a bit volumes, especially in areas where there was overlapping assets.
Speaker Change: such as, for instance, the U.S., that was leading to some delusion of volumes. This is not the case in the current network, so this is a net positive for
Speaker Change: I just want to attract your attention on the fact that the asset utilization across the portfolio was at 79%, so I know in shipping you need to be in the 90s.
Speaker Change: But in a terminal business, once you go too far up from 80-85 you usually start to get into some real trouble on operation and cost.
Speaker Change: So we are very close to the soft spot with respect to terminal utilization, where if we want to grow volumes much further we either need to expand the facilities that we have or we're going to need to add new facilities to the portfolio.
Speaker Change: Absolutely. That is very helpful. Thank you so much and have a good day.
Speaker Change: We have now a question from the line of Omar Nocta from Jeffries. Please go ahead.
Omar Nocta: Thank you. Hi. Good morning. You painted obviously an uncertain picture on the outlook with several factors at the Twin Games either way, just wanted to ask, you know, given this.
Omar Nocta: I'm going in certainty. Did this at all shift your view on the buyback or change the timetable on deploying the 1 billion US by August and the other billion by February next year?
A.P. Moller
Yeah, thanks for my follow-up question. I think that was it.
Omar Nocta: The buyback that we have is actually dimension in the way that is pretty much maximizing the possibilities we have given that the free float and the rules of not influencing the market, right? So we are limited to 20-25% of the volumes per day and that's where we trade.
Omar Nocta: So from the pure dimension I think on the daily volume that's where we are. On the other hand taking a step back I think the balance sheet is strong.
Omar Nocta: And as we highlighted, we are in a position to invest in the business because obviously the business will continue. We are investing in growing both minerals and logistics and also renewing our fleet.
Omar Nocta: Which are long term things that are much more important and we will continue to do but we still with the balance sheet we have can continue to share by back in the dimension that we have indicated before which is pretty much maxed out on a on a yearly basis.
Alexia Dogani: Next question comes from the line of Alexia Dugani from J.P. Morgan. Please go ahead.
Alexia Dogani: Good morning. Thanks for taking my question. Can you help us understand the parameters now of your low and high end of your financial guide?
Speaker Change: Obviously previously you had assumed at the low end that the red theory opens in the second half that has been taken away. So implicitly there is a deterioration, let's say an organic kind of development. Can you help us understand?
Speaker Change: What needs to happen to stay at the low end and what needs to happen to get to the high end, especially given your comments, in Q2 that imply volumes likely will be down year-over-year. Thanks.
Speaker Change: Yeah, so let me accelerate. So we've not said that the volumes will be down, likely will be down. We've said there will be between minus one and plus four. So depending on the distribution that you have on this, you still have a much more than 50% chance that there will be positive volume growth during this year. I think that's the first thing I want to...
I want to say, the second thing is, you've basically...
What we had before was a supply side risk.
Speaker Change: In the sense that if with both the new tonnage coming and the red theory opening you would have had a lot of supply coming online in an over a fairly short period which would have put pressure on prices and utilization.
Speaker Change: This we see as being less than before because we still have the new tonnage coming in but the likelihood of us having to sail through the Red Sea is very low. So we see the supply side as being more sure right now.
Speaker Change: On the other side, I think the erratic nature of how this tariff and this trade war is rolling out is creating a new level of uncertainty.
Speaker Change: I don't know if it was a surprise to you, but for me, a 145% area from China was not really in the base case that we had, or even in one of the scenarios that we had when we looked at it.
and some of these...
Speaker Change: Other tariffs that have been set on pause for 90 days, they were also higher than what most people had expected. That's why we saw that if this resolves itself fairly quickly with a lot of trade deals within 90 days and maybe a de-escalation of China, you will see...
Speaker Change: The demand side bounced back to somewhere around 4% for the year, and that would have a positive impact.
Speaker Change: On the other side, if you see an entrenchment of the trade war, if you see more tariffs being implemented because the 90 days roll out and are not being extended or the trade deals are not good and still have a significant amount of tariffs and so on and so forth, then you could see...
Speaker Change: A lower demand, obviously. I mean, we've seen it already in China-US, so that could spread itself a little bit more. And I would say for us to get into the lower, and you would need to see actually a reduced on the consumption side in the U.S. because
Speaker Change: As long as you want to sell, you're going to need to import.
Speaker Change: Eventually the amount of imports that you're going to have is a function of the consumption that you're going to have in the US. So I think for us, we also follow what IMF and other economic institutes are seeing and as they increase the risk of recession for the US, obviously it also moves where we see...
Speaker Change: The range of possible and scenarios that could play out.
Speaker Change: Yes, I can follow up what I meant is in the second quarter you told us that China U.S is 5 percent.
and Big Zolum are down 35%.
Speaker Change: It implies it's all else equal and I assume kind of broadly flat on your comment that nothing else has changed.
Speaker Change: It implies volume in Q2 negative. So my question is... No, that's incorrect. So you are basically the way to think about this is we have 95% of our volumes that grow.
Speaker Change: Close to 4%. And we have 5% of our volumes that dropped 35%.
Speaker Change: Then you can do the weighted average of what that means for April and May. In June , I don't know yet, but in April and May that can give you a weighted average view of what we think the market is doing at this state.
Perfect.
Speaker Change: One last point, when you talk about deescalation and deal, is the assumption, therefore, that that they 145% died from time that goes to zero, it gets halfed. I mean, what's kind of the magnitude for things to then recover really strongly? I think, I think, first of all,
Speaker Change: We don't guide on tariffs, I just want to say and I think I'm quite happy I don't have to because I don't know that anybody could do that including in the White House.
Speaker Change: But I think what I want to say on this is there is not a mathematical formula that equates 10% of tariffs equal plus 2% or minus 2% on volumes and so on. And therefore, I don't think it's very meaningful for me to give you something like this or a guess because it has...
Speaker Change: What we can tell you is if we start to see the U.S. move towards the recession,
Speaker Change: There is a possibility that the market moves on slightly negative for the year despite the fact that...
Speaker Change: Almost five months into the year, it's been actually quite resilient demand. That's what I can give you.
Speaker Change: And, but if this goes back to something that is manageable and I don't know because it's a question of tariff, it's a question of forex, it's a question of how sustainable is it because all this reprieve of 30 days and 40 days and 50 days, it doesn't really help a lot of decisions.
Speaker Change: I don't know how all of this will shape and I don't think anybody does, but I can tell you that if there is a normalization of things...
Speaker Change: We will see a catch-up effect which will enable us to go back close to up to 4%. And if there is not then you could see risk of recession that could take it to zero or slight negative despite this for five months. That's the best I can do.
Speaker Change: Maybe to conclude on that, what we want to say with our guys is that actually the year is actually pretty okay, right? So even if you have...
Speaker Change: Why the range of senais, which Vincent Clerc, you did too, with nobody really knows how it's going to develop on the volume side, our results actually pray solid and we're going to weather that through because the habit is actually pretty okay.
A.P. Moller, A.P.
Speaker Change: We now have a question coming from Alex Irving from Bernstein. Please go ahead.
Speaker Change: Hi, good morning. How confident are you that we will not see a return to Red Sea series terms this year? Similarly, does this meet clues on the ceasefire agreements change anything in your scenario plan, please?
A.P. Moller
Speaker Change: So I want to remind you first of all that there is a strong link between what's going on in Yemen and what's going on in Gaza and in that conflict.
Speaker Change: And therefore, given at least the expectations that things are, or even what we're seeing every day and the expectation that it's worsening on the ground in Gaza, and that things could worsen even further, then I think that today going through something...
Speaker Change: As complex, costly, and hard to reverse, as a complete redeployment of our shipping networks to go back through the Red Sea.
Speaker Change: Based on a news of a deal whose contour we don't understand, whose terms we don't understand and who has been bridged already, I think is really not responsible.
Speaker Change: So, for me, this thing around the hoodies, if the U.S. will stop bombing them.
Speaker Change: That's good, but whether this means that there is not only safety today, but there is safety for the foreseeable future in us sending our colleagues, our assets and our customers cargo through the Red Sea again, we're pretty far from that threshold.
Speaker Change: Ladies and gentlemen, that was the last question. I would now like to turn back the conference to the CEO Vincent Clarke for any closing remarks.
Vincent Klug: Well, thank you everyone for all of your questions and I would like to make a few final remarks before wrapping up the call.
Vincent Klug: The first quarter marked a solid delivery on the back of continued operational improvement and proactive cost measures. This is actually what is carrying us through despite the difficulties that there is on the uncertainties that there is ahead.
Vincent Klug: Our logistics and services business is on track to make its year-on-year EBIT margin improvements. OCEAN demonstrated solid profitability despite the declining rate environment, and terminals demonstrated strength and stability with continued strong results.
Vincent Klug: While our performance in Q1 has been solid, our focus is on the future and the uncertainty it represents which we spent most of the questions addressing.
Vincent Klug: Here we are deploying all livers to further improve our operational efficiency, not the least through Gemini, and to give ourselves the agility that we need to negotiate to handle whatever difficulties might come our way.
Vincent Klug: This also allows us to maintain our guidance, notwithstanding this greater uncertainty.