Q2 2022 ZIM Integrated Shipping Services Ltd Earnings Call
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Good afternoon, ladies and gentlemen, thank you for standing by I am frenzy, your chorus call operator, welcome and thank you for joining the Zim integrated chip in service Q2, 2022 earnings conference call.
At today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session.
I would like to ask a question you May press star followed by one wonder Touchtone telephone.
Plus the stock equals zero for operator assistance, it's my pleasure and I would now like to turn the conference over to MS. Atlanta Hoffmann head of Investor Relations. Please go ahead ma'am.
Thank you Bradley and welcome to Jim's second quarter 2022 financial results Conference call joining me on the call today are illegally.
President and CEO and said the other snail, Zheng CFO before we begin I would like to remind you that during the course of this call. We will make forward looking statements regarding expectations predictions projections or future events or results, we believe that our expectations and assumptions are reasonable.
We wish to caution you that such statements reflect only the company's current expectations and that actual events or results may differ including maturity.
Kindly refer to consider the risk factors and cautionary language described in the documents the company files with the Securities and Exchange Commission, including our 2021 annual report filed on form 20-F on March 9th 19, 'twenty two sorry, 2022 we undertake no obligation to update these forward.
Looking statements at this time I would like to turn the call over to the CEO of live nation.
Amy.
Thank you Ilana and welcome everyone to today's call.
I haven't really broad.
Overall execution and continued strong financial performance during the second quarter and first up once the 'twenty two as you can see in slide number two as.
Over the past several quarters zoom establish itself as the leader in it.
In terms of EBITDA and EBIT margin in container shipping.
Oh first up results Hello record result.
Food and.
And we are pleased to continue delivering strong EBITDA and EBIT margin.
There's still no solid performer in the first though.
We are re affirming our full year guidance for 2022.
And the old blocks to deliver and I believe where it goes.
Profitability.
We are also announcing today the geez you know what the only dividend payout.
Wednesday percent to 30% of quarterly mid season.
This quarterly increase is based.
Based on the confidence in our ability to deliver long term goals.
System profitability, what Oh sure. There's two benefits you'll know when it is all this on a quarterly basis.
As you can see in slide number three in the first Apple wanted wanted to revenue grew by 73% compared to the same periods in 2021.
Adjusted EBITDA grew almost 15% and net income grew 110, 6%.
We further capitalized on integrated Brexit and resilient demand.
We remain committed to profitable growth.
First off was granted wanted to adjusted EBITDA margin improved from 52% to 65% and adjusted EBIT margin improved from 45% to 56%.
Our balance sheet continues to be very strong with total equity.
It's going to $5 billion.
The end of the quarter after the distribution of two 1 billion.
And then during the first half of 2022.
The slide number four consider returning capital to shareholders has been and remains a top priority for us.
Given our confidence in our long term disability and go to reward long term shallow sure does well in kids can go quarterly dividend.
So 20% of quarterly net income to 30% of quarterly net income was the total dividend payout of 30% to 50% annual net income.
As such starting this quarter, we intend to distribute support to at least 30% of quarterly net income for each of the first three quarters of the <unk>.
Responsible step.
Up to 50% pro forma net income with the release of Q4 and full year results subject to board approval.
Accordingly, our board declared a Q2 dividend of four and $7 75 for corn 75 dollar issue.
A total of approximately 571 million below the Q2 degrees that includes a 10% onetime catch up from Q1 net income.
In slide number four consider the past several weeks have demonstrated that dynamic Matt Jewell coal industry and the importance of staying focus will now go thought the Jeep in Houston.
Ration agility and excellence were the foundation of Zoom successful turn it off and they will continue to guide the commercial and operational strategy to further position soon as adult fallen in our industry.
We have established a track record of successfully identified attractive growth opportunities and adjusting our fleet size.
On changing market conditions.
This is a direct result, with operational and commercial agility, which is amazing zim to optimize vessel deployment support high utilization level of lessons and explored specific trades advantages driving those strong results and strong profitability.
We expect the support to continue to be beneficial as the market expected to normalize from peak levels.
Our global knee strategy dictated that we operate in place names, where we have competitive advantage and can command meaningful market share in Q.
Two we expanded our production capacity, we now operate 149 vessels to meet customer demand.
Opened new lunch and adjust those service to those changes in the business environment. So those are the continued to sell through.
A reminder, that we have expanded our clean over although bulk few quarters bottoming in anticipation of the Tianjin a collaboration agreement with the two of them.
We transitioned to a fourth slot swap agreement on desert to use Cisco and golf course, and terminated this look relative to the Union you had on the BMW and as you admit rate.
Results of these changes which went into effect in April 2022 we agree though related capacity in order to best serve our customers well.
I would also like to highlight so called business as an example of azeem ability to identify profitable commercial opportunities.
Since the beginning of the year, we grew the number of carriers, we operate to 10 as we take important steps to further capture growth in Gulf cargo being exported out of Asia.
On the operational side.
We remain committed to our strategy of relying primarily on charter capacity, while maintaining a high level of flexibility. This flexibility allows us to adapt our fleet size to changing market environment.
Yet we adapted our chartering strategy to reduce our exposure to the spot charter market due to shortage in capacity and rising daily rates.
Third rope.
Two chartered newbuild vessels, well cooperated capacity to improve our cost structure in the mid and long term.
As you know during 'twenty 'twenty and.
In 'twenty 'twenty four we expect the delivery of 46 46, new build vessels.
Of which 20 LNG powered whistles.
This new build capacity, but also commercial proposition and improve our cost structure by securing fuel efficient new build capacity.
The LNG vessels also serve our own is GE growth, we estimate that approximately a third of our capacity could be LNG powered when we take delivery of this LNG vessels and we will be the first learning to operate and then in June .
And there has to be U S East Coast East Coast right.
We are excited the June will be more carbon and cost efficiencies, while improving our competitive position and supporting our customer and meeting all of our ESG objectives.
We are pleased to continue to position.
As a proof point of carbon intensity reduction among global liners.
On slide six we can see that this part of our strategy. We continue to leverage these lately I think startup ecosystem to identify attractive attractive new innovative companies.
Gross engine for consumer digital initiatives technologies relevant drove coal shipping activities and the broader logistics sector.
Our objective is to identify this opportunity at an early stage, which require a modest investment to establish our position and serve as a strategic partner.
Main theme the technologies internally and assist these companies in those groups.
We have been very active on this fall and have recently completed for investment we do.
Just to follow on investment in waves.
And Sergio and further investments in data Science group and Grupo system.
Highlighting our most recent reimbursement local yoga provider of cutting edge start locking solution for and followed US. Since this solution is extremely durable cost efficient and politician, creating a tracking device that can last up to 10 years without changing their parcels.
<unk> will be used in part to develop a solution suitable for the components.
All these companies.
We believe they hold significant potential in the future.
Before turning the call over to Sylvia our CFO I would like to which they address the current market environment and the outlook moving forward.
As I mentioned the shipping industry.
This is dana.
Over the past several weeks, we have seen a decline in freight rates, particularly in the trans Pacific Despite persistent port congestion and overall positive demand trends driven by macroeconomic and geopolitical.
<unk> uncertainties.
Reserve, but recognize the plate mill.
However, we note that calculated we travelled restored Cai it mainly elaborated and therefore very profitable.
While we anticipate some declining rates for the reminder of the we expect the normalization to be gradual and support zoom real soon.
1020, <unk> guidance, which as I mentioned will enable us to post another review of Waco Irwin.
Furthermore, we expect the new 'twenty 'twenty three more regulation in the agenda to decarbonize shifting to partially offset growth in supply and support.
In the mid to long term.
I'll now turn the call over to Sylvia So easily months, we'll now financial results an additional comment on the market.
Please.
Thank you Eddie and again welcome everyone.
On slide seven we present key financial and operational highlights.
Our strong second quarter record first half 2022 financial performance reflects the historically high freight rates, which were significantly higher this quarter compared to the.
The prior year period resiliency.
Resiliency amount as well and the value of our differentiated approach.
Specifically, our average freight rates of Teu of $3596 in the second quarter was 64% higher compared to the second quarter of 2021.
During the first six months of the year average quickly was 73% higher than in the first half 2021.
Our commercial strategy and our competitive positioning enable us to identify better paying cardboard or more per teu that elsewhere.
Our current quantities in Q2 were down 7% compared to the same period last year.
Lower volumes this quarter resulted primarily from continued congestion.
Debated by more congestion in the U S East coast ports, which we call on ultra statistic.
Over the six month period are carried volume was down 1% compared to the 2% decline declines in market volumes in the first half of 2020.
When we look at the full year, we still expect to grow our volume by 2% to 3% based on higher operating capacity and assume easing import congestion going forward.
Our free cash flow in the second quarter totaled $1 6 billion compared.
Compared to $861 million in the comparable second quarter of 2021, an increase of 93%.
Turning now to our balance sheet total debt increased by $1 $2 billion to prior year and the.
The increase in debt.
Mainly by the increased number of vessels fixture.
Charter duration as well as higher daily charter rates.
The first half of 2020 to our cash position remained essentially flat, even after having paid approximately $2 $4 million of dividend.
Maintaining flexibility in our fleet management strategy. So we can match our capacity with customer demand remain a core focus for us.
The average remaining duration of our current chartered capacity is $27 seven months slightly down from the 28 six months in May 2022.
And Virgin alternative operating capacity to the scheduled delivery of our chartered newbuild vessels.
Also on the nine of our chartered vessels are scheduled for renewal between now and the end of 2020.
When we're looking into 2023, and 2024 28, and 34 vessels <unk> perspective.
In other words, we have a total of 62 vessels.
When you compare to the expected delivery of 46 chartered Newbuild vessels.
This past year.
Next moving on to slide eight you can see that our earnings continue to grow our net leverage is trending downward and is at one time.
June 30 this year.
Moving onto the next slide slide nine.
Currency and a proactive approach continues to generate strong results revenue for the second quarter were $3 4 billion up 44% compared to $2 4 billion in Q2 2021.
Most importantly, we grew profitability Q2, net profit of $1 3 billion, representing a 50% year over year increase.
Adjusted EBITDA was $2 1 billion for the quarter improvement of 57%.
Consistent with our focus on profitable growth margins were 61% for adjusted EBITDA of 61%, while adjusted EBITDA.
It needs to be compared with 56% and 49% respectively in Q2 last year.
Our six month 2022, adjusted EBITDA margin was 65% and adjusted EBIT margin was 66%.
This bulk margins are amongst the highest in July that the liner industry and do reflect our outperformance during the first half of 2020.
Margin contraction in Q2 versus Q1 was driven by higher staff costs, resulting from the transition of the stock purchase agreement, we haven't needed to win which was terminated on April and the first two are all operating capacity.
And also to higher LSA for Bunkering rates as well.
Our expected in Q2 versus Q1.
Moving on to slide 10, we carried eight.
<unk> hundred 56000 to use in the second quarter compared to 941000 to use during the same period last year.
Lower volume on the trust activity caused by the surge in congestion on the East coast was partially offset by growth in intra Asia.
Another trend, we see as the key.
People.
The growth in each of our Asia was driven primarily by the New E. Commerce services, we opened from China, Australia, New Zealand in the second half of 2021.
Moving to slide 11 regarding our cash flow. We ended Q2 2022 with a total cash position of $3 9 billion, which include cash and cash equivalents and also investments in that deposit and other investments in Sweden.
During the first half of 2022, adjusted EBITDA $4 6 million converted into $3 4 billion.
Cash flow from operations.
Other cash flow items in the period included 248 million of net capex and $647 million of debt service.
I would also remind you that during the second quarter, we distributed dividends totaling a proximity to portfolio.
Moving to our guidance, we are reaffirming our full year guidance and are on track to deliver another year of record earnings.
We expect to generate adjusted EBITDA between seven eight and $8 2 billion.
And adjusted EBITDA between six three and $6 7 million.
Our assumptions with respect to our guidance remain largely unchanged, except for lowering our expectations on volume growth of 5% to now 2% to 3% for the full year.
Our guidance also includes the assumption that spot rate heartbeat and that the gradual normalization in rates will continue through the second half of the year.
In other words, an average spot rates in Q3, I expect it to be lower compared to the average of Q2 and the same for Q4 versus Q3.
Turning to our view on the business environment side therapy.
The combination of very strong demand and tight supply port congestion, where the main underlying drivers of freight rates, which the efficacy levels in 2021 and early in 2020.
We address these three drivers.
First port congestion and supply chain bottlenecks, we made a significant challenges, especially in the United States as well.
<unk> avoided the heavily congested west coast Port Diversions, Toggled East Coast and Gulf Coast.
Q outside those that support group.
While there have been some correction enforced operation evidenced by the improvement of major such as export Oceanside indicator at 90 days and specialty it is.
Double the 45 day to Camilla.
There is still a lethal expectation that port congestion will materially improve in the near future. Despite this correction at the quarter.
Jewelry continues to estimate that 7% of SMT capacity will be tight in 2023.
To port congestion.
Also given the port congestion is to a certain degree outcome of Left-eyed bottlenecks in other words, the efficiency in mortgage containers in and out of the port.
Some level of port congestion may become lasting fixture in our industry.
This would result in the reduction of the ft capacity on the water.
In the United States and elsewhere. They are fine that certain headwinds such as increased inflation and higher energy prices have resulted in a softening of demand yet.
Yet overall demand trends globally, and possibly in the United States remains healthy.
2022 volumes are higher than people.
Are you 2019 levels.
In fact for the first six months of 2022 volume was up five 4% when compared to the same period in two.
2019.
Going forward the current inventory to sales ratio also supports this year.
What it is that from low of approximately 1112 retail inventory to sales ratio is still below historical peak levels on a runoff on fire.
In light of persistent congestion and led by bottleneck, we believe that retailers cannot and will not maintain lower investment to sales ratio compared to Pico.
Moving to slide 16, starting in 2023 the outlook for the supply demand balance will also change with additional supply is expected to be delivered and supply growth is anticipated to outpace growth in demand after a long period of tight supply.
Yes, I believe that both short and long term net supply growth may be smaller than is implied by the current order book.
In 2023 Port congestion, we partially offset the X 59% in supply.
As well as possible, so CB, resulting from our 2022 installation and I expect it to go into effect in January 2023.
The growth in supply May also bring about coffee, which was essentially zero in the past couple of years.
Longer term, we have indicated that the increase in order book is at least partially a response to that.
Macy's pressure to Decarbonize shipping and reduced aging fleet.
Especially the motivation to scrap older less efficient vessels may grow, resulting in lower growth than actual capacity that is currently implied.
To summarize these factors support our positive outlook on our business environment.
And I'll also note that the recent consolidation in the industry MBS Operationalize. These notes will further support improved efficiencies in ours.
And with that I will turn the call back for Ellie really sorry for his concluding remarks. Thank you look so good.
Thank you.
I'm incredibly proud of our team and zoom the ability to execute at the highest level and deliver on our commitment to profitable growth reflected in our second quarter and first half of what it wanted to performance.
We generated our best ever first therapy results and also to deliver another record year based on the guidance, which we affirm today.
We believe zinc Costar Digi key strengths will continue to serve us well as placements are expected to continue to gradually normalize from peak levels.
We have taken proactive steps to improve zinc commercial proposition and competitive position, both commercially and operationally.
We anticipate.
The changing nature of the charter market.
And that.
Adapted our fleet strategy to secure growth and reduce our dependence on the spot charter market.
We entered into multiple.
Long term chartering agreements to secure cost and fuel efficient new build capacity.
So in my view.
Well charter an agreement for 10, 15000, Teu vessels, which were the largest vessels remotely.
Sign over 18 months ago.
Going forward, we remain highly confident that our global strategy and cost structure. So that when the commercial was that an investment in innovation disruptive technologies position zoom.
To be a top performer, you know industry and deliver long term shareholder value.
Anthony will take the questions now thank you.
Ladies and gentlemen at this time well begin the question and answer session anyone who wishes to ask a question you May press star followed by one on debt Touchtone telephone issue.
Wish you put yourself in the question queue, you May press star followed by two.
Anyone who has a question you May press star followed by one at this time.
One moment for the first question please.
The first question is from Satish Sedrah Kumar from Citigroup. Please go ahead.
And thank you again.
I've got three questions. So firstly on the dividend payout ratio.
The change in from 20% to 30% or does actually like to guide quarterly dividend payout you should change given that.
Going on page two and then.
Next year, there's uncertainty around it.
Demand and.
Also do you have it.
Duston normalize.
So what are you actually explain the thought process why you decided.
Sure.
And then secondly on the vessel utilization.
On the ships.
Can you give a context like that the vessel utilization thought today versus what it used to be set up the year.
Especially out of Asia.
Specific.
And then the third one is that on the spot.
Such charges.
Obviously last year, there was a big.
With small.
There was a significant increase in volumes.
On spot premium surcharges.
Have you actually add any.
Premium volumes Q2 and out of the dark kitchens.
The Q3 in terms of that part of the.
The market does.
How much.
Thank you.
Thank you Satish, if I may I will address your questions. The first one with respect to the dividend quarterly payouts increased from 20 to 30, you may remember that we have from the outset said that we intended to return significant.
Second capital to shareholders and we have.
Already a couple of occasions tweak or change our updated our dividend policy we started between between.
Zero to 50% dividend payout once a year then though we acknowledge that this was a bit too big and we wanted to clarify also for our investors.
<unk> on our on our markets and our ability to continue to distribute dividends. So we switched from a yearly to quarterly and we took the conservative view initially to only distribute 20%, even though on a quarterly basis, even though we are really committed.
Our intention to distribute between 30% to 50%.
Our full year net earnings so that meant at the end of the day that we would always ended for very likely always end up with is significant.
Higher dividend payments once a year when we release our full year financials. If it is just only because we would capture from 20% to 30%.
We feel confident in our ability to continue to generate quarter after quarter.
Ongoing profit and then we felt that there was no real reason to.
You know hold back for the first three quarters and to catch up to get to at least a 30% once once a year, hence why we've made that change it today.
Second we're looking at.
Taking your second question in terms of in terms of vessel utilization.
Till today, when most of our vessels if not all of our vessels when.
Focusing on the Transpacific trade lane are saving food he'd mentioned that despite the fact that it does not necessarily have not necessarily translated in terms of volume with the overall volume in terms of Teu.
We initially expected due to congestion, but this is a congestion effects that the schedule is is taking longer than anticipated not a utilization FX. So our vessels have been saving.
Full apple to.
Year to date and for the remainder of the year. We also.
Assuming that the utilization will continue to be extremely strong and this is why we yet we think that we'll be able to catch up on our volume assumptions on a full year basis because of utilization will remain strong and we've also assume some sort of easing in the currency congestion of the bottle.
Next at the terminal at the receiving end of receiving yet.
And thirdly, we're asking I think about our ability to two.
To add surcharges to our income which has been a.
A significant feature of towards the end of 2021 and also to some extent during the first quarter of 2022. So this has a fairly clearly over the over the quarter and we are not assuming that we will that we will.
Generic significant additional surcharge going forward, we take the view when we talked about our guidance for 2022 on average.
The rates that normalization will continue, albeit at a pace, which is a platform which has always been by the way are our assumptions when it comes to weather normalization agenda.
A couple of follow ups, if I may on the dividend.
Why not buy back on but actually gives you flexibility right as you go into a potential downturn done have you considered a share buyback.
For the future.
And then the second one actually on the volume normalization.
For the full year.
If you look at your H one.
Sure. This is last year you basically.
So.
Proportion of volume stored in Asia. So do you expect that trend to continue and that's what we'll see a volume recovery come through rich too. Thank you.
So maybe starting with the second question that you raised we yes, we on the intra Asia trade, we continue to be very active and we talked about lines that will be since you opened up between the between.
Southeast Asia also to Australia, New Zealand and so we see a lot of growth opportunity growth on the intra Asia trade Lane and <unk> and we are well positioned to capture the volume growth in this in this region.
Going to your first question why is not share buyback and why did you do it and we have a built in today.
Promotive, returning significant dividends to our shareholders that stood at the App, if we look at.
Our.
Once into bigotry company returned $21 five.
Per share to our shareholders to <unk> billion dollars in terms of in terms of dividend we are when.
When we guide for 2022 and the numbers that we are guiding to suggest that they will.
The more dividend to come someday in the future so up until today, we have promoted returning capital to shareholders.
Dividend and we continue to get there by updating our dividend policy in terms of entering a payout that we just talked about from 2002. So that's always a commitment that we made it to the shareholders on day, one and we are delivering on that but.
That doesn't mean that the share buyback is obviously out of the table two to date, we havent entertained such of such initiative, but the board. The management will continue to always evaluate quarter after quarter. What is the best Avenue, the best way for us to continue to maximize shareholder value and the share buyback is one way.
To to return capital to shareholders on top of it in terms of dividend.
That's quite helpful.
The next question is from Omar knockdown from Jefferies. Please go ahead.
Hi, Good afternoon, Hi, alien Adobe, Eric Thanks for the update.
Obviously, a very nice solid quarter and good to see the guidance reaffirmed, especially given spot freight rates have been coming off here the past several weeks.
Having said that some of your peers had actually been raising guidance this past hour.
Last couple of weeks this earning season, which I think kind of set up expectations that we could see the same from zim.
Is there anything that you could highlight that maybe separates you from the others.
In this respect is it higher relative spot exposure on the trans Pacific or is it maybe a function of being too conservative.
I would like to begin again, you will see.
First this question to manage expectations.
We began the year.
And very high expectation from 2022, and we will share it with them.
List.
Investors.
Looking on EBITDA margin EBIT margin.
Six months.
Zoom is doing.
Considering where let's see one of the leader.
Compare to those comments.
As a result for sure.
The western side of the World.
Not by 1% 2%.
So in Q1.
Missouri proves very short time.
First guidance, we'll do we increase our expectation for the.
And we set targets 2022 will be a better view.
Speaking of EBITDA, and EBIT, but demand compared to 21, it was the best year ever for Ziv.
We believe.
Those boots ability is to be conservative.
As we see.
Gradual normalization of disease, meaning the first specific.
The freight rates.
So we would like to reaffirm.
Our guidance for the.
Because it seems this is Doug proceed to.
To deliver this Susan.
Compared to companies that you spoke about the.
<unk> decided to begin deal with low expectation.
For the second half of the field.
Zane pool the guidance.
From the beginning.
No.
Greg.
Yes.
No I think we need to look at the things that Omar in absolute terms. When you. When you look at things in absolute term, we actually to our site. We are a smaller company than that some of the larger players. Those are the what you are referring to our permitted capacity is less than 500000 to use.
Compared to the other ones and if you were to do a <unk>.
In Paris, and in terms of EBIT per Teu.
Operator, you may come to a very different conclusion with respect to our relative performance of the liner versus another one.
Okay. Thank you that's helpful and I appreciate that.
Comment I.
And I guess, maybe just about volumes you'd mentioned I think really that you've taken the fleet up to 149 vessels volumes.
Volumes have been flattish here, the past three or four quarters.
Should we think about volumes going forward you were thinking 5% growth.
Before now, it's maybe 2% to 3%.
So far in the third quarter are you seeing higher volumes that gave you maybe some confidence that we are going to see a bounce here in volumes or is it still more of an expectation as we proceed through the rest of the year.
Although we expect.
We expect to deliver on increased volume tariff quantities into into Q3 for many reasons again. This is not that the vessels have been not saving for over the past quarter has been more that said theres been there those issues in terms of congestion and we think we'll need to go hand in hand, if we.
We assume that the rate the freight risk will continue to normalize. It is it has to go with it.
Also on the land side perspective.
That congestion should you should start to ease a significantly because if that doesn't happen then.
Scenario.
The underlying assumption that freight rates normalized might be challenged so if we are taking the conservative view of the reasonable view on the.
Level that we also need to assume that we will be less penalized in terms of carry quantities by the congestion. So that's one second is also when we look at the capacity that we are operating we are.
Also we're taking delivery of a more vessel in the year.
Third and fourth quarter, we are going to be taking.
Taking delivery of a lot of capacity.
Are going to be entering into Asia U S. East Coast ahead of our a big transition next year, which is around the corner, where we will start getting the first the first 15000 Teu LNG network that will be delivered to us through separate so that's really coming into us.
Operating more capacity if you will.
Kent.
Assuming that the congestion window, we either will improve therefore, allowing us to move more and more cargo and therefore increase.
Got it.
Got it thank you and just final one.
On the new buildings the 46.
Coming on starting next year that are going to be vastly much more fuel efficient.
In terms of your existing footprint, how do you see that these new buildings joining the fleet.
Theoretically you have 149 is it simply 46 come out.
Existing chartering tweaks and you bring in these new 46. So your overall fleet size stays the same or do you expect to add some of these a bit more permanently.
And I guess, that's sort of that's like the one question. The other one I have is on that have you done sort of an analysis or are you willing to give maybe.
What these new buildings will look like on a.
Ship by ship basis. So if we were to replace ships on a one to one basis.
In terms of Teu cost are you able to give how much they would reduce your unit cost line I know that was a bit of a jumbo question, but simply have.
What does your cost go down by if you were to assume all 46, new buildings come in and replace 46 existing ships.
And that are currently in the fleet.
Thank you Amada.
Certainly not that simple because the starting with the beginning of your question.
We are not a slamming on the mutation ship a ship. So we have indeed, those 46, new buildings that are coming our way for which we are committed to them that we are eagerly awaiting this capacity and if we look at the vessels that are out of the Huntington 40, yet.
Container vessels that we operate today, we have 62 vessels that will come up for renewal in that over the same period and we will decide whether we want to let go so.
All of that capacity, depending on our winning in the market and whether we see options for us to grow enter into new trade debt. So the determination will be made as we as we go and as we are today Im sure you would that you would assume that we are preparing for 2000.
'twenty three we are in the budget season as far as that goes but we are already looking into 2023. What is the fleet plan. What are the trade data sets, we intend to continue to grow in the exit enter so this is very much in there.
In the process as we can please speak so it's not going to be one for one to give you to give you an example.
First series of 15000 Teu. Therefore for the 10 15000 Teu vessel will clearly be deployed on our Asia U S East Coast trade, there's HCP line all of them and they will replace vessels that are currently.
The capacity of between 90 to one to 10 positive what we do with this capacity of nine to 10000 Teu, we might cascade some of that capacity into arbitrate beat on the TRW for example, or on a second screen on the on the Asia to to the Gulf War to the U S Eastgroup.
We are looking into that and this is also a discussion that we take this as a partner and as we know.
We jointly operated with Maersk and MSC on ultra specific traded so there is a lot of potential scenarios that may unfold.
Sure will.
Lead to a different conclusion when it comes to our fleet plan going going forward. What we wanted to make sure is that we have the option to grow not obligation to group and Thats very important in terms of fleet planning. The fact that as we committed to those policies.
That's why we have the ability to deliver a significant portion of our current capacity.
Going forward.
Thanks Javier Yeah, that's very helpful that Optionality is the key.
I'll leave it there thanks so much.
Thank you Omar.
The next question is from Sam Bland from JP Morgan. Please go ahead.
Okay. Thanks, Thanks for taking my question I have two please.
The first one is could you talk about I think the change in the two N relationship started at the beginning of April .
Could you talk about to what extent.
Increased your unit cost quarter on quarter. Please.
And the second question is you talked about in the opening remarks or maybe in the last few weeks spot rates have been coming down.
Quite sharply.
If anything congestion seems to be.
Possibly getting worse on a global basis.
I don't think demand is.
Falling back quickly.
I guess I'm interested in why you think spot rates are coming down so sharply given those two factors. Thank you.
Thank you Sam.
The first the first question with regard to the change in the relationship with the cooperation of the partnership with its web Youre correct that.
We entered into a new network.
On the.
The changes were effective as of the first of April He said ECL. So in the first quarter. We were at net slot buyer from our partners and we are jointly operating their capacity, but at the end of the day. We are also in addition volumes from.
From our partners Maersk and MSC on.
And Transpacific trade Lane.
Asia.
From the first of April this year, we shifted completely to a full swap agreement, meaning that we are no longer buying any slots from Maersk and MSC and then we are purely exchanging capacity on the vessels that we currently operate on the trades.
We continue to operate which are mainly Asia U S East coast and Asia to the U S. Gulf Coast. So as a result, what's happened.
We have you seen that we anticipated that a change is the collaboration in terms of in terms of the structure of the collaboration so we had to bring in additional capacity in order to continue to be able to operate a similar estimated tonnage.
So that's that's what has explained to some extent.
<unk> in vessels that we are operating today versus what we operated.
Few quarters back and in terms of and so we saw those vessel.
In the.
The charter market at risk, that's obviously, where the prevailing rate.
That the tonnage providers recommending and Thats, where it was quite different from the slots are rates that we were purchasing from us from our partners. So in terms of in terms of impact is not that easy to that easy to quantify but it's a it's in the region I would say over $100 million.
Secondly on the on your question with respect to the the rate dynamics and why you did that we are assuming that the normalization of the ratio of the spot market by continue to slide out we've already experienced some really throughout the second quarter.
How is that possible if indeed, the congestion continue to continue to be there or to worsen you're.
You're right he sees there.
There is a lot of uncertainty ahead of us.
And it might.
The different scenario, what we are just saying is that it is it is.
<unk>.
We think it needs to go hand in hand, if we assume continued normalization in the fed rate then at some point congestion should ease otherwise we would be an institution, which would be quite awkward where there would be no real reason to justify the rate.
The rate adjustment. So that's why we are making that assumption equal weight to be enrolled in the assumptions with respect to the easing in the congestion it is very possible.
Demand is still as strong it's not as strong as it used to be the clear signs of a weakening in demand as well and that maybe wait there significantly.
<unk>.
The explanation of why the rates are starting to normalize but.
The demand is still there is still there compared to pre pandemic levels, we are still very resilient.
During that last year was extremely strong so when we compare year over year, yes, there might be signs of weakness with <unk>.
So that's an assumption, we're making we thinking its a reasonable one.
There might be other scenarios at the end of the day.
We see we see which is which.
Understood Thanks very much.
The next question is from Alexia <unk> from Barclays. Please go ahead.
Sure. Thank you for taking my questions I also have three.
Just firstly on <unk>.
And a question Larry scenario.
Explain to us what kind of flexibility you have.
Josh.
Sure.
So I guess kind of my reference.
Number one.
Expiring be helpful. Glenn.
Sure.
Secondly am I correct.
And my comments mentioned that you are reducing your spot exposure and you're answering.
More contract agreement.
Right.
No.
How spot versus contract.
Thank you Paul.
Finally in terms of the.
Im Susan.
Alright.
Joining on the line.
Is that a possibility.
Thank you.
Thank you Eric.
Yeah.
With respect to your first question what are the tools or what could we do each case of a prolonged recession.
And I guess your question is even beyond the 2022 and 2023, yet maybe 24 the flexibility for US is key and critical and we have 28 vessels that they will come back for renewal in 2023. So if we were to and this is a situation where.
The global economy is entering into a prolonged recession and as a consequence.
Men on the trade, where we operate was to significantly drop than we would.
Obviously, not a review of those those are choppy. We also have in 2020 for another 34.
So that will come up for renewal what is very important because then you might say, but yes, but you have the floor is vessels that are coming in over the same period. What is very important I think for us when the site is that those vessels. Yes. They are agreeing that they are brand new but as a result, the beat our ESG strategy and.
Commercial positioning Thats, what but also very importantly, when you look when it comes to <unk>.
Operating in the cost of operating those vessels are chartered cost that will be paid for each of those are brand new vessels, they are going to be far more competitive.
The last vessels that we fixed in the spot charter market as we know with very hot and very hot for the past few quarters and that had some effect on our cost structure. So what it means it means that as we enter into 2023 and every months when he said that.
Every one of these brand new vessel.
Cost of operation per Teu asphalt cost will go down.
<unk> two.
The determined.
Cost of operation of the company.
The second question you asked whether we were changing the mix between contract and spot.
No. We are we are still below where we were last last quarter you know that.
The trades, where we operate mainly the transpacific trade Lane is the trade that is subject to long term contract discussions with customers. These three quarters of this year, we finalize those discussions that towards the end of April for the new rates to kick in as of the first of May.
We have concluded the FCC at secured 50% of our volume.
Now Transpacific trade lane with our contract customers, we are still remaining exposed to spot at <unk>.
60% whatever.
And he was referring to is today.
Our situation is buy enough as Boston contract are paying the same.
<unk> announced so it doesn't make much of a difference for us to load.
Containers that is on contract or a container that we source from the spot market that is that was a two day.
And then the last question that you raised there with regards to our licensees.
<unk> did not.
The partnership that we entered into in.
In 2018, with Maersk and MSC has been extremely beneficial to us, but not only to us by the way since it has been extremely beneficial also to our partners, which is very important in a partnership it has to be.
With that combination.
And all.
All parties have enjoyed significant.
Improvements in the networks significant cost savings opportunities and that's why this collaboration has now lasted a considered a continued today it is.
For us we continue to always keep on evaluating our options in terms of partnering them with that.
An alliance or with a liner because on top of our partnership with the two web on the Transpacific trade and we also have a partnership agreement of DSA agreement network sharing agreement with Maersk and MSC Baidu separately from those of trade lanes, where we operate to Amtrust, we operate with the same goal.
All of the intra Asia.
Where we thought there was a lot of also smaller shipping. So this dynamic of a sharing space at the end of the day and sharing operated capacity is a feature I think of our industry, which is.
<unk> brought a lot of benefit to the liner and the day I think a lot of benefit to the customer as well as allow.
For the shipping industry.
<unk>.
Deliver.
The improved service at a lower cost.
Okay.
Ladies and gentlemen, this concludes our Q&A session and today's conference call. You may disconnect. Your telephone. Thank you for joining and have a pleasant day goodbye.
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