Hapag-Lloyd Aktiengesellschaft
Q3 2021 Earnings Call Transcript

Published: 12 Nov 2021

[Rolf Habben Jansen:]

Thank you very much, and thanks everybody for making your time available to join us here on this call. Yes, as usual, we have a short presentation prepared with a couple of remarks from my end in the beginning. And then Mark will take over on the numbers, after which we’ll give a few comments on market and outlook. Maybe a couple of opening remarks, if you look at the first nine months we have seen, as you will know, continued strong demand, but clearly also a fair number of operational challenges. If we look at Q3 in specific, in particular, I think congestion was as expected pretty severe. Apart from that, and that has certainly limited us in our ability to move volume, because quite a bit of it is actually stuck on ships as we speak. Apart from that, I think the two main events that are worthwhile mentioning from our end are the acquisition NileDutch, which closed in July. And then we also signed the agreement to stake 30% in Wilhelmshaven, in September. In terms of numbers, earnings are still strong, of course, on the back of high freight rates and transport volumes that are roughly in line with our expectations, costs are up not only because of time charter, but also bunker is up and we have quite a lot of congestion related extra cost as well. Balance sheet ratios, of course, improve significantly because of the strong earnings. In terms of market demand expected to outpace supply growth, not only this year, but also next year supply chain disruptions will continue. We still think that there is going to be some easing into 2022, but nobody knows exactly when all activity has slowed down still a fairly sizable order book, but we also shouldn’t forget that as we move forward and environmentally related regulations will become tighter. There will also be a need to replace the older fleet. Going forward, we expect also to see a strong Q4 as you will have seen from our updated outlook. And in terms of the priorities for the next years, those we will present at the Capital Markets Day in a few days. A little bit more detail on congestion. You see it on Page number 3 of the presentation that waiting times outside of ports are not only up in the U.S., but clearly also in North Europe and in Asia. In addition to that, we also see that port operations in and of itself have lost for the first nine months, about 5% of capacity. And of course, if you add up these two effects significantly longer waiting times outside of the port, but also 5% lower productivity, then that unfortunately explains almost on what chart, the key remaining problem that we have at this point in time. Because whereas when demand started to bounce back after the initial phase of the pandemic, we – I think in reality had three problems. One was that boxes were sometimes in the wrong places and because we needed them longer, we didn’t have enough boxes available. I think that problem has been resolved, because we have built enough boxes to now be able to provide them. That doesn’t mean that every now and then there cannot be a shortage of boxes, but by and large, that problem has been resolved. We have enough ships on the water. Everything we have is, is sailing, but it’s really down to this problem, which we see here illustrated on this chart. We’ve done a lot of things to counter that. We moved capacity to high demand trace. We tried to find alternative gateways. We try to buy secondhand products. We put in additional vessels. We deployed extra loaders. We bought a tremendous amount of additional containers. And in addition to that, we also have added people have added IT capacity and developed a number of new digital solutions to ease the work. That doesn’t change the core of the problem though, but I do think it makes it more manageable. And before I hand over to Mark, last point on current developments, you will have see that, we closed the transaction with NileDutch in July, meantime we’re in the midst of the voyage got over and we will as anticipated closed that by the end of this year. Yes. And then JadeWeserPort or Wilhelmshaven we have completed or we have agreed that, have signed the agreement closing expected over the upcoming couple of months once we have all the necessary approvals. So with that, I’d handed over to Mark, who’s going to talk you through the number.

[Mark Frese:]

Yes. Thank you, Rolf, also good morning from my side. And even if the chart is not indicating that I can keep it short and crisp. As already outlined by all of nine months 2021 was dominated by continuing strong demand from transport from the Far East to the rest of the world for sure. And that was resulting in some operational challenges as that while the operational situation remained very difficult financials, improved strongly on the back half these higher freight rates and volumes. As a result, we were once again able to improve profitability strengthens in the balance sheet as you can see here, and earn cost of capital. For the next chart, we take a closer look on the P&L. We see that the earning strengths accelerated even further in third quarter, as a result, we see nine months EBITDA to US$8.2 billion. The EBITDA margin jumped to 45.5%. And nine months group profit came in at more than US$6.6. Looking at Chart 8, you can see that the transport volume increased by 3.3% to roughly 9 million TEUs in the first nine months. The strong demand for exported goods from Asia led to the increase in transport volumes as we have seen on the trade Latin America, Middle East, and Far East and particularly compared to the year or the previous period. The lower transport volume on the Intra-Asia trades is attributable to the network optimization and container repositioning to meet demand from exported goods from Asia to the rest of the world. And on the TP, the congestion of local port infrastructure and the resulting delays that is slight decline in transport volumes, despite the higher demand for container transport as mentioned. Looking now to Chart 9, while the higher volume growth was embedded by the continuous supply chain disruptions, our average freight rate increased heavily due to the scarcity of vessels and containers. And on the other side, we have to go with bunker prices, which with a number of US$514 per ton in Q3 was already close to the level we have seen in Q1 2021 –2021, the introduction of the IMO 2020 low-sulphur regulation led to that temporary search of bunker prices. Now to Chart 10 on unit costs, they continue to increase clearly due to the global supply chain disruption assess as well as general cost inflations. And we have to say more to come, in particular expensive for handling and haulage have been negatively impacted by the operational challenges, higher container storage costs, and at the port and internal terminals due to long and 12 times that to that increase of 16%. D&A was also up on previous year primarily due to the rise in the percentage of ship charted in on medium term basis at simultaneously higher charter rates as a result increased in right of use. Due to the very good earnings, looking at Chart 11, operating cash flow increased to US$7.5 billion while investing our investments have also gone up as we have acquired NileDutch invested in additional containers, secondhand tonnage, and made first installment payments for our new orders the ultra large container vessels. Despite these high investment free cash flow surged to US$6.6 billion compared to the US$1.9 billion of the previous year period. In order that we had used the cash flow to pay out the dividend of EUR 3.50 per share, and to pay down financial debt. And we have to say that investment in Q4, I expected also to increase. Last chart from my side, as a result of the very strong earnings trend, our balance sheets ratio improved further in nine months – 2021 we reduced our net debt by US$4.3 billion to US$1.2 billion. Net leverage ratio is now close to zero, and we certainly will be in net cash positive by the end of the year, without our balance sheet gets, all the strong financial and strategic leeway we will need for tomorrow. And having said that, I will hand it over back to Rolf to conclude and comment on the market.

[Rolf Habben Jansen:]

Thank you, Mark. I mean, yes, only a few things from my end before we open up for questions. Maybe a little bit as usual, on supply and demand. First of all, we look at volume growth. Of course, volume growth has been strong after the decline last year, which was much less than was expected. I think when you look at container volume growth, there’s probably a little caveat to that as well, because I still think that a lot of that is actually being measured based on an export basis. And there is a tremendous amount of cargo currently probably stuck. Yes. And so if we would measure it based on what actually arrives at destination, then the growth is probably going to be less than the 7%. And then also when you look at the growth rate that most of the larger aligners have reported, you will also see that on average, you will not get to this 7.4% at the moment. Having said that, healthy growth and I believe also the outlook for next year, which still a lot of pent-up demand and low inventories around the globe on that front is definitely healthy. When we look at the order book for a second, I would say that the order book is up. Yes, it’s above 20% at this point in time, which I think was a little bit to be expected. Newly placed orders are slowing down a little bit, quarter-after-quarter. We’ll have to see, when that order book will really be delivered. When we look at the situation that we have today, you can also see that the idle fleet, this is an absolute low point with lots of people pushing out scrapping, but also pushing out dry docks and regular maintenance. So, we will certainly need some additional capacity to take care of that as well. And we also shouldn’t underestimate the impact of the new rules that are going to kick in as from 2023. Having said that, looking at it for now in the short term, I think we see it that in 2021 and 2022 where demand growth will probably outpaced supply. And then in 2023 and 2024, it might be a little bit the other way around. Personally, I still think that like they’re scrapping and the impact of additional dry docks that a lot of people need to catch up is actually higher in 2023 and 2024. So the gap that’s being suggested here is probably a little bit smaller, and as such looking at it from today’s perspective, I think it’s fair to say that the next number of years right now look to be reason and be balanced. Yes. And of course that picture can still change, but until 2023, not a lot of relaxation to be expected. And as I said, I think the big wild card there is the impact from new environmental regulations. Then looking at the outlook. There’s the last one that we’ve actually published transport volume roughly in line with previous year, bunker consumption price up quite a lot. I will still see bunker prices being pretty high these days. Freight rates up, of course, an EBITDA in the range of US$12 billion to US$13 billion and in terms of EBIT between US$10.3 billion and US$11.3 billion. So, how do we look ahead? Operational challenges will remain, but we do expect some normalization not before the first half of 2022 though. We need to make sure we stay close to our customers that also where we invest and look and where we try to do our almost to help them also through this period. We’ll continue to be prudent on the financial front. And we also start looking ahead three or five years from now because we need to make sure that then unit costs start going down again as shipping midterm definitely will again be the most efficient way to move your cargo probably also at the lowest possible cost. And then of course, digital solutions being very, very important. We have seen that in terms of some of the stuff that, that we have developed already and more in the pipeline. And then we’ll talk more about our priorities for the next roughly three years. Yes. And we’ll also talked our sustainability strategy at our Virtual Capital Markets Day in a little bit less than a week from today. So, with that fairly short introduction, this time we’ll hand it over to you for any possible questions you may have.

[Operator:]

First question is from the line of Sathish Sivakumar with Citigroup. Please go ahead.

[Sathish Sivakumar:]

Good morning. Thanks again for the presentation. I have three questions. My first question is actually on contract rates. Could you please actually update on the progress that you’ve made so far versus last year, and then where do you expect this year or for 2022 in terms of volumes to differ versus say 2021 i.e. split between spot and contract rates? And second one is actually slightly related more on freight forwarders, during the current tight capacity that we are seeing. Are you actually seeing increased pressure on freight forwarders actually to buy capacity for longer duration rather than say typical two to three months ahead? And then in terms of congestion I understand the reason why U.S. is actually seeing an increased congestion, but in Europe, what is actually driving it, because we are not seeing a similar demand compared to U.S. So is it mainly related to landside bottleneck and where do you see congestion normalizing in the Europe?

[Rolf Habben Jansen:]

Let me try and take them. Starting with number three. Congestion in Europe is definitely mainly landside related. I’d also say that demand has been going a little bit up and down, but has also been strong in certain focus, but main bottleneck there indeed on the land side. When you look at the position of forwarders, your second question. Yes, of course, forwarders operate in the same market as BCOs. And that means that right now we have a market where space is tight. And of course, that puts some pressure on the duration of contracts, the same pressure we face, when we talk to people that charter our ships. And when it’s around contracts, I think your questions were how is it split between short and long term? And yes, that’s shifting a little bit more towards the long-term as we look into 2022, certainly also a segment where we contract for multi years, in terms of the progress that’s being made. I would say we’re probably a bit ahead of where we were last time when we were last year around this time. But still the majority of the volume is basically on the negotiation now and we are closing deals daily as we speak.

[Sathish Sivakumar:]

So, do you expect the split to be significantly different versus last year on the spot versus contract?

[Rolf Habben Jansen:]

I expect that the contract chunk will go up a bit.

[Sathish Sivakumar:]

Okay. And sorry, just to follow up on freight forwarding. So, what was the typical exposure actually between this sport market and contract set back in 2019?

[Rolf Habben Jansen:]

I didn’t really understand that question.

[Sathish Sivakumar:]

So out of the capacity, that freight forwarders buy from liners, what are the typical mix would look like, say two to three months worth of capacity versus mainly on spot?

[Rolf Habben Jansen:]

I mean, that varies look very difficult to give a clean answer to that. I mean, they tend to operate in three segments. One is the annual contract. One is the three months contract, and then you have the spot market and it varies really a lot between, which forwarders, some are more and long term, some are more short term, but I would say that they probably typically have a decent presence in all three segments.

[Sathish Sivakumar:]

Okay. Yes. Okay. Thank you. Thanks very much.

[Operator:]

Next question is from the line of Sam Bland from JPMorgan. Please go ahead.

[Sam Bland:]

Thanks for taking the question. I have two, please. The first one is again on contracted rates. Could you just confirm whether your 2021 guidance includes much of a benefit from contracts being renegotiated early, or does most of the sort of contract renewal uplift kick in from early 2022? And the second question is on spot rates. We’ve seen some decline in some of the indices and there’s been some press articles recently. Do you, I mean, it’s a bit of a crystal ball question, but do you think that’s sort out of a normalization or could it be maybe more of a seasonal effect and we might see an uplift later on? Thank you.

[Rolf Habben Jansen:]

I think on spot rates maybe first, I think the decline that we see right now is probably less than you normally see in this time of year compared to what we see in peak season. And of course we also come from a very high level. I would nevertheless hope that these spot rates normalize a bit more as they are today still on a very high level and going into 2022. I think it would be better for everybody if we see a little bit more normalization. We don’t see a lot of that just yet to be honest. When you look at the effect of contract rates on our 2021 forecast, I would say that the effect of that is fairly minimal. Most of that, you will only see in 2022.

[Sam Bland:]

That’s fine. Thank you very much.

[Operator:]

Next question is from the line of Andy Chu from Deutsche Bank. Please go ahead.

[Andy Chu:]

Thank you. Good morning. Just on the current contracting season for Asia/Europe. I think Rolf, I think I saw some comments that you were saying in the press and wanted to double check whether this is correctly quoted that, that you were saying that actually the absolute amount of contractual rate on Asia/Europe was, were actually not that high relative to the current sort of spot rates. And then a lot of the other sort of competitors and sort of top 10 players are talking at about contract rates, Asia/Europe in the market this early stage rates are, a 100%, 200% plus. So, I was just wondering if you could comment on Asia/Europe and how those negotiations are going? In terms of Slide 15, in terms of supply demand, just a couple of sort of points here. Just wondered, therefore, is it right to conclude for 2022, that the only way really year-on-year is really given that supply demand balance looks favorable to 2022, that freight rates should go up year-on-year. And then in terms of the, the sort of supply coming on board in 2023 and 2024, if you were to take, say 2023 and sort of jury and others that are sourced into the 7.3% supply. In terms of closing that gap versus the demand that you alluded to, if you’re starting with 7.3% demand, what percentage would you chip away at for say delivery delays, higher scrapping any other sort of category? How should we think about the sort of chunks in terms of closing the gap to the demand at 4%? Thank you.

[Mark Frese:]

Yes, let me try and take, can start with the last one. When you look at 2023, 2024, I mean, I think the likelihood that there will be some slippage in production is definitely there. The likelihood that there will be some more scrapping is also there and there will also be some impact from IMO 2023. How much of that gap that will close, I really don’t know, but I would not be surprised if it closes anywhere between 1% and 3% of the gap. Yes and I think the gap is predicted to be 3% or so, but I would be surprised if it’s going to be more than two, assuming that the demand indeed comes. Then your question on whether in next year, we expect rates to go up, I do expect contract rates to go up on average, because quite a lot that was closed before 2021, but I do expect spot rates to go down, what the mix of that will be, that remains that’s too early to tell. And then on Asia/Europe yes, contract rates are over there, significantly below spot rates. I think that’s also what you see in other markets and that freight is considerably bigger than you normally would see. If you look at how much are the contract rates up versus last year, it’s difficult to put a percentage on that. Also because the contract rates that were closed for 2021 operation in Europe have been closed over a longer period of time, which means that you still had some very low rates that will be in close, but at the end of the contract season rates were already up quite significantly. So the percentage probably goes from a high double digit to somewhere in the triple-digit percentages.

[Andy Chu:]

Thank you. And that maybe just one further question in terms of all the sort of disruption in the industry where it’s landside at the ports, at the warehouses, what will it take if you were to sort of offer a solution and what – is there a solution? Is it trying to clear the, that the bottlenecks at LA and Long Beach is a priority putting, trying to get extra, maybe government resource in there to clear that the bottlenecks? Is that sort of one of a potential option, and how would you actually go and clear this bottleneck, if you were sort of?

[Rolf Habben Jansen:]

I think – happy to be, that the efficiency gets improved. If you look at the waiting times that also truckers have in places, but not like LA, but not only there. Yes, they could move a lot more all boxes. Yes, if they would just go in and out of the terminal and pick up the boxes and deliver the empty ones. So, I think there’s a lot that can still be done in terms of efficiency. And that’s not only on the terminal side and opening hours, but it’s also about the ability to deliver boxes at the customers. Many customers would still accept boxes only during certain time the day. And certainly not during the night, if we all go and think a little bit more 24/7, not only in the ports, but also when you look at the truckers. And also when you look at the warehouse and abilities to deliver, you would actually create an enormous amount of additional capacity that would allow us to at least get it of quite a bit of the congestion. And if you put yourself in the shoes of a trucker, I mean, it’s much more fun to do four trips a day than to do one trip a day. And then all the time have to wait for five, six hours and still incur a lot of overtime.

[Andy Chu:]

And then maybe one small one to finish in terms of vessel speed Mark said that they, they they’ve speed of the vessels. Is that, what you’ve been doing as well or planned to do?

[Rolf Habben Jansen:]

I mean, if and when that makes sense, we do it. Yes. But we will not just speed up to end up in the same queue and have to wait a little bit longer there before we get into the port.

[Andy Chu:]

But if you don’t fast, are you not further back in the queue?

[Rolf Habben Jansen:]

Right. It depends very much on what the, that depends on the birthing arrangement that you have. I mean, if I have a birth clock at six o’clock this afternoon, and I can sail very fast to be there at three o’clock in the afternoon, it really doesn’t make any sense. Yes. If I’m otherwise going to miss the slot, because I’m only going to arrive at eight. Yes. Of course, then I speed up. Most people have slots where they need to get into the terminal, whether it’s on a specific day or at a specific time. And you would do your rightmost to get to that slot. And yes, there are also some terminals where you just have to queue, but for all of us to go and a tremendous amount of queue to see who’s first in the queue, I don’t know that’s a very good way of working either.

[Andy Chu:]

Brilliant. Thanks very much. Thanks, Rolf.

[Operator:]

Next question is from the line of Marc Zeck from Stifel. Please go ahead.

[Marc Zeck:]

Hi, good afternoon. Thank you for taking my questions. Just three if I may, one on spot rates and my understanding weakness in spot rates all time specific freight rate providers like is due to their, they including a premium freight rates. And that could you give some reminder, what’s your share of volume that ships on premium on the Transpacific? Second question would be on the current container dwelling fees in LA Long Beach, I guess. Just today you send out an FAQ to customers saying this, these additional 100 staggering fees will pass through fees. And I guess it’s my understanding that this is not the intention of let’s say the government or the authorities. So, what you expect some core challenges to you passing through fees and what measures or what instrument, do you have to really pass these on authorities don’t really want these to be passed on. And third question would be on, let’s say first quarter of 2022. So your bigger competitor, they gave a sneak preview on first quarter 2022, saying that EBITDA will be roughly in line first quarter 2022 with the third quarter 2021 is something that we could expect for Hapag as well, or this too early to tell? Thank you.

[Rolf Habben Jansen:]

Yes. Let’s start with last one. I think it’s too early to restate something material about Q1 2022, but also we would not expect to see a dramatic change all of a sudden from one quarter to another. Yes. So, I can somewhat relate to their comments. Then you made a comment on the additional charges that are being imposed by the ports of LA Long Beach, on long dwelling container, on the one end, I think it’s good to have an incentive to peel out those boxes earlier. I think we just need to make sure that it easily can also become a double-edge sword. because if there’s cargo windows boxes, that is not very valuable you may also end up with a lot of abandoned cargo, which is then going to stay at the terminal for much, much longer. So it’s a bit of a balancing act there. I hope it works indeed as an incentive will need to see. And then in terms of your question to spot rates, you ask how much of your cargo is moving on premium rates? Well, I would say that’s a small chunk of the overall volume probably a single digit percentage.

[Marc Zeck:]

Thank you. The single digit is like specifically for Transpacific or related to the overall upload volume?

[Rolf Habben Jansen:]

I mean, I think it’s, I don’t know for the rest, but I mean, your question was on Transpacific and there definitely single digit. If you look at other trades, it’s the same. Yes. Because even if our freight rate is up very significantly year-on-year, of course, it is still very, very far away from the increases still very, very far away from what one sees on these premium rates. So that to need a very small percentage.

[Marc Zeck:]

Certainly. Perfect. Thank you.

[Operator:]

Next question is from the line of from Carnegie. Please go ahead.

[Unidentified Analyst:]

Yes. Hello, it’s actually Carnegie. Thanks for taking my questions. In the other end of your guidance range, you guide basically for an even high EBITDA in your Q4. Could you give some flavor, what will take it there basically? Is it expected higher rates? Is it your end of voyage? So to say methodology or even higher rate volumes, I guess volumes is difficult really to argue for as it’s difficult to push through more volumes in this market as it is right now. And then a second question would go through whether you see increased business with the forwarders, that source is pushed out. For instance, in we have other carriers that are taking a battle right now with the forwarders and losing some business or at least losing some plants here. Is it something for you to grab at the moment you to sense change – sense so to change here, yes, as of late. So that will be my two questions. Thanks.

[Rolf Habben Jansen:]

I mean, maybe first of all, as of Q4, I think you are right. I think we see a little bit then when you look at rates, they start to plateau a little bit, at least. Yes. So, we would still expect a strong Q4. You are also, right that we have an end of voyage, yes. Accounting mechanism, which means that you would typically see it uptick potentially a little bit later. The swings in the results can still be quite high though, because you also have a big swings in terms of what percentage of completion these type of things can influence. So I think, yes, the upper range little bit higher, volume is going to be probably as much as possible. Rates are very strong. And we at the end of voyage principle. In terms of the forwarders, I mean we see certainly very healthy demand for space from the forwarders in how much of that is related to other carriers, offering them less space. I really don’t know. Yes. We also see healthy demands from BCOs. So it’s not a one segment that is that much stronger than another. And also with us split between NVO and BCO is largely unchanged.

[Unidentified Analyst:]

Okay. Thanks a lot.

[Operator:]

Next question is from the line of Lars Heindorff from Nordea. Please go ahead.

[Lars Heindorff:]

Yes. Morning. Thank you for taking my questions as well. The first one’s a little bit getting back to the contract rates. I don’t know, you’re probably going to transport something like 12.5 million TEUs next year, ballpark. Could you give an indication how much of that will be on multiyear contracts? That’s the first one.

[Rolf Habben Jansen:]

I mean, it’s still a little bit early to say that. Yes. But I would like to, I think that in the end that is going to be a small double-digit percentage.

[Lars Heindorff:]

Okay. All right. And that’s, and I assume that that will be up from close to nothing last year.

[Rolf Habben Jansen:]

Yes. I mean, I think, traditionally that, that has been a small segment, although we’ve always had some, yes. I think we’ve had a small to midsize single digit percentage of cargo that moved on multiyear contracts. And I think right now we’re going to see that moving into double digits. How far up in double digits I would get small double digits.

[Lars Heindorff:]

Okay. All right. And then on the cost side. I’m a little bit curious about, the development and how sticky your cost are? We have seen other carriers even going out buying vessels instead of taking in on time charter, because of the time charter here are completely yes, outrageous just like the container rate. So, what I’m trying to get at is set up to the length and the stickiness of your network cost given that I assume that if, and when you roll new time charter contracts with the suppliers that you will have to make multiyear contract there also compared to earlier if I understand it correctly.

[Rolf Habben Jansen:]

Yes. I mean, that’s certainly a challenge. I’d say though, that Hapag has a relatively high owner share, yes, ownership share. So that makes us a little bit less exposed to debt side of the market. We also – when we entered into the pandemic did a number of extended number of our existing contracts at lower rates. So, overall, I think we’re actually reasonably well covered, even of course, we also have some expensive shifts in there. But I’d still say that our exposure is quite likely below average there. There are also other cost categories that have been up. I mean, if you look at storage in terminals also terminal handling, bunker costs some congestion related surcharges that we face here or there. So, I mean, cost there’s been quite a lot of output pressure on cost. Some of that will stick. Some of that won’t, yes. I think the structural cost increase that we will see is hopefully going to remain excluding the bunker component then, but excluding the bunker component, I think that’s still going to be a single digit number.

[Lars Heindorff:]

Yes. Okay. And on the…

[Rolf Habben Jansen:]

Sorry, single percentage, just for the avoidance of, yes.

[Lars Heindorff:]

Yes, yes. All very clear. On the TCN part, I don’t know, if you can give any indication about, how much average length of your TCN is up, I don’t know if you have a measure for that?

[Rolf Habben Jansen:]

How much of our TCN you see is up renewal? You mean?

[Lars Heindorff:]

No. I mean, I don’t know, historically you maybe had a – on a charter in fleet average length of the time charter of maybe six to 12 months, if maybe that is up by a year, or one and a half, or whatever it is that was what I want trying to get it.

[Rolf Habben Jansen:]

I mean, I’m just looking at my, at high now, but I would say that it’s up to the bit more than a year. Is that fair? Yes. Between one and 1.5 years up, duration is up on average between one and 1.5 years.

[Lars Heindorff:]

Okay. All right. Thank you. And then the last one very shortly getting back to the to the contract part of the – of your business. Normally, I mean, as you mentioned, you are making, probably making a lot of negotiations these days, as you normally are this time of the year at Eastern Asia/Europe, but on Transpac most of those will normally start in March, and then take place during April and step into forth on the 1st of May. So, I’m a little bit curious to get at this has that changed? Or have you seen a similar demand also on Transpac, which means that you’re getting out of the normal seasonal pattern with great negotiations on the Transpacific as well?

[Rolf Habben Jansen:]

I mean, there are certainly significantly more early yes, early negotiations on the Transpacific, then there were – then there are in normal years, and in quite a few cases, you then also do discuss multiyear yes, discussions, which is something that we tended to discuss throughout the year anyway, but now there seems to be a little bit more appetite to conclude that.

[Lars Heindorff:]

Okay. Right. Thank you very much.

[Operator:]

Next question is from the line of Parash Jain from HSBC. Please go ahead.

[Parash Jain:]

Thank you. And I have a couple of questions. Maybe first, a quick one for Mark. Mark, with your current capital structure, is it fair to assume that with pretty much achieving net cash balance sheet, any excess cash will return to the shareholder in an absence of any loss ticket, acquisition or CapEx? And is that understanding correct and to this regard, do we have any guidance? And secondly for Rolf, I just wanted to understand what percentage of fleet today has been stuck because of all of these congestions. I mean, the slower asset turnover. And does it mean that whether in second half 2022, or at some point in 2022, when this congestion unwind your active capacity increase will substantially outpace any new build number that we are seeing, and that would put perhaps a larger impact on the spot rates? Is that understanding correct? Thank you.

[Mark Frese:]

Starting with your first question, your general understanding of the potential balance sheet structure end of the year, and net disposition is absolutely right. And there is no on top of our dividend policy, no additional planning. So for sure, if we know our dividend policy is to pay, and give back a decent dividend to our shareholders, much too early to say how it will look like, but yes, we are prepared to let our shareholders participate, but nothing more than that plan.

[Rolf Habben Jansen:]

And in terms of your second question, how much capacity you’re stuck in force? I think realistically that’s probably somewhere between 5% and 10% these days that will never go down to 0%, but can that give a boost to available capacity when you look at 2022? Yes, definitely. And we are also anticipating that. Yes. That next year we will be able to move more because of that.

[Operator:]

Mr. Jain, are you finished with your questions?

[Parash Jain:]

Okay. Thank you.

[Operator:]

Next question is from the line of Anders Karlsen from Kepler Cheuvreux. Please go ahead.

[Anders Karlsen:]

Yes. Thank you. A little bit more on your charter in fleet. I was wondering, how much of the fleet in the charter inside, do you have optionality to extend, how is the percentage of legacy charters that are historically lower rates than what you see today? And then in terms of contract negotiations, are you seeing, I understand it towards the tail end of season, but have you seen any clients, asking for early negotiations in order to secure space for next year numbers?

[Rolf Habben Jansen:]

Let’s speak to second question first. Yes. We have certainly seen that to see people trying to extend early to secure space, not only on Asia/Europe, but also in Transpacific, in terms of your question on charters, and how many cases we actually have options to extend, to be honest, I don’t really know the answer to that question. I know that next year we do not have a lot of charters that are running out. So the number of fixtures we have to do next year is actually reasonably small, yes, which puts us in a fairly comfortable position. But how many of those actually have extension options are really low.

[Anders Karlsen:]

That gives some clarity to it. So thank you. That’s all for me.

[Operator:]

There are no further questions at this time. And I would like to go back to any more questions to the investor relations team. And I would like to hand back to Rolf Habben Jansen for closing remarks. Please go ahead.

[Rolf Habben Jansen:]

Not too much to be said. Thank you very much for your time. I appreciate the questions, and you taking the time to listen to us. Hopefully it wasn’t informative and hope to speak to you again soon. Take care. Bye-bye.