Q3 2023 ZIM Integrated Shipping Services Ltd Earnings Call
Okay.
Okay.
Hello, My name is Christa and I will be your conference operator today at this time I would like to welcome everyone to the same integrated shipping services third quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer.
If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you would like to withdraw your question. Please press star one again. Thank you I would now like to turn the conference over to eat laid out Hoffmann head of Investor Relations. Elena you May begin your conference.
Thank you operator, and welcome to Zimmer <unk> third quarter 2023 financial results conference call joining.
Joining me on the call today.
Illegally command, Jim's, President and CEO, and Sylvia just leos and 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 matured.
You are kindly referred to consider the risk factors and cautionary language described in the documents the company filed with the Securities and Exchange Commission, including our 2022 annual report filed on form 20-F in March 2023.
We undertake no obligation to update these forward looking statements.
At this time I would like to turn the call over to Jim CEO illegally Ellie.
Thank you and welcome everyone to today's call.
Before we turn the call today I would like to address the ongoing situation in easily.
During these trying times.
Oh, the children bench has abandoned whites and grandparents, who lost their lives their loved ones and so on and so we think and tragic events of October the seventh.
We stand in support of families and communities.
We are affected by this.
And we pray for the site and immediate return of all people held hostage by Hamas in Gaza.
Oh priorities assisting go employees in Israel, and ensuring the well being while continuing to meet the needs of our customers.
Delivering the highest level of customer care.
Maintaining strict operational standouts to drive our business forward.
Despite weather related challenges zoom operation and services everywhere.
Clothing, Joe and Paul is.
We are continuing without interruption.
As a global company our employees over 4500 around the world serve more than 30 well.
74000 customers worldwide.
Shifting to over 200 boats in 19 countries, it's only about 10% of our volumes imported or exported.
Usually.
Turning to our financial results I will discuss <unk> third quarter and our path forward.
Zoom strategic transformation launch back in 2017.
Which involves every aspect of our company and the way we do business deliver do enough fears of historic financial results well mid 'twenty 'twenty, So 2022.
<unk> net income of nearly $10 billion.
This period also.
Jim.
Profitability is today led to a significant cash balance.
Which at quarter end stood at over $3 billion.
While market weakness is extended loan goes and where do we generally anticipated. It is important to note that our strong liquidity will allow us to weather this downturn.
We believe zoom is well position to emerge stronger than ever.
The fleet will provide us a competitive advantage in cost rates.
Specifically.
We leverage our successful IPO and capitalize on the extended period of historic profitability.
So best repair Z well they used to come.
First we executed our fleet renewal program and secure sources of charter agreements a total of 46, new built container ships of which 28 LNG power.
When do you quantify it.
Zoom split often will be dramatically different our fleet will be much younger more fuel and cost efficient.
However, vessel size will be bigger and better suited to the third which we operate.
We expect approximately one third of all created capacity in 2025 to be LNG power.
Making zim one of the lowest carbon intensity operators in the industry.
As such we will be well positioned to support our customers in reducing their carbon footprint.
But even though they already today, Jamie is the only carriers to operate the LNG vessels from Asia to the U S East coast.
By the end of 'twenty 'twenty four.
Where we led to different services operating with only LNG vessels as we plan to deploy our 7000 Teu LNG vessels.
No bulk Cmos service. In addition to the 15002 LNG vessels deployed on Xetra GP service opening brand, new as yet to U S East Coast service.
Second.
To complement our fleet renewal program, we purchased almost 1 billion dollar worth of containers.
With a particular focus on investing in our with our propositions to.
Today, we own and operate the youngest refill fleet in the industry, we serve us well as we.
Compete for this how do you high value cargo.
Sure.
We entered into a strategic supply agreement with shell to secure LNG supply at competitive pricing.
And last one.
We invested in customer facing and back and digital tools and applications to propel profitability and improved customer experience, we view it as a core strengths to leverage technology to promote operational and commercial excellence.
We continue to invest in technology and are currently in the process of learning and extensive project towards the store will now entire dry van container fleet the car.
Edge talking devices developed by who POS system, which is also one of <unk>.
Our portfolio companies.
Will it be one of the first carriers in the container shipping industry.
Drove its entire fleet equipped with tracking device.
This will enable us to better manage our fleet, but also offer customer value added services, such as Gil fence alerts and open and close though.
Suffocation.
As we consider zoom strategic direction break in 2020, one we anticipated that the subsequent years 2023 and 'twenty three 'twenty four.
We're going to be a transition period there.
The goal was to ship genes reliance on older less fuel efficient.
And less environmentally friendly capacity to our coal cost and fuel efficient LNG powered Newbuild fleet.
We understood the steps needed to magazine and more resilient company induced new fleet will effectively position us to both address the carbonization agenda of the shipping industry and drive long term profitable growth.
During these two years transition period zooms cost base will gradually improve as we continue to make to take delivery of the cost effective newbuild donuts and redeliver the expensive corporate <unk> charter of cost per Teu is declining and we expect.
Further improvement moving forward.
The remaining 33 of the 46, new builds we secure.
Added to our fleet this year and throughout 2024.
I want to highlight the 615000 Teu LNG vessels, well, what we have already deployed on our strategic goals just to US East Coast <unk> service.
<unk> and even exceeding our cost saving expectations.
During this transition period, our entire the entire organization is focused on returning zim to long term sustainable profitability.
We expect the initiative, we began to undertake two years ago, we will deliver that result in 2025 and beyond.
At the same time.
As we navigate near term market challenges, we have taken steps to rationalize our existing capacity whenever possible to minimize cash burn in 'twenty to 'twenty three we have already read deliver Wednesday charter vessels and expect to deliver another five vessels.
Back to honor by year end.
We also have another 34 vessels.
Up for renewal in 2024.
This will allow us to better Atlanta fleet with current demand levels.
We also continue to review all services and reallocate resources to adapt our network.
We are attentive to our customers' evolving needs and focus on taking advantage of new commercial opportunities with schools and profitability potential for.
For example, <unk>.
Recently decided to reinstate our Z E X service targeting the ecommerce market from South China to L. A.
Today, we are hearing from customers there.
Again looking for an expedite ocean service that offers slightly longer transit time compared to the airport, but at a fraction of the cost.
We also extended our presence in Latin America this year.
In early 2023, we open our co liberally service connecting the West Coast of South America to U S East Coast CLC lunch, we have consistently gone our case volume and we are now one of the top five carriers on this straight.
More recently, we announced the launch of two additional lines in Latin America.
While market conditions remain challenging in this region as as elsewhere, we believe north south trades have significant growth potential as U S importers six to the well diversified.
Their supply chain.
During this quarter, we also announced a new collaboration with MSG the industry largest carrier that is already delivering cost savings. These agreements include vessel sharing slot purchases and swap the regimen across services connecting.
In the Indian subcontinent with decent at uranium these through that Iranian with no sudden Europe and services connecting East Asia, We saw Xi'an yet.
This latest collaboration is consistent we saw approach to leveraging partnerships that improve efficiencies and enhance our network, particularly during this period of continued headwinds in our market.
Furthermore, we believe that our new cost and fuel efficient youll build fleet will better position us to reach similar operational arrangements in the future.
In parallel we are constant concern us constantly pursuing operated steps in a wide range of cost control.
The musician and cost avoidance initiatives in order to achieve improvements you know cost structure.
This cost control initiatives, including <unk>.
Among others.
<unk> H, our hiring program to ensure our workforce is aligned with industry dynamics.
Lower variable costs, such as terminal related cargo and limb and port storage costs.
Bank of course, leveraging our agreement with shell to use more LNG versus low so sulphur fuel.
And of course.
Actively seeking opportunities to redeliver charter capacity capacity early we.
We expect these initiatives to continue generating measurable and sustainable savings.
Moving forward.
We will continue to seek opportunities to capitalize on our strengths and capabilities in order to create long term value for our customers and investors alike.
Although market conditions for the near future are uncertain.
Ample cash enable us to maintain a long term view.
Turning to our third quarter results.
Our result.
The third quarter performance reflect the persistent weakness.
Of the current trading environment with softer demand and continued freight rate deterioration.
The rate increases we saw in August.
And Trans Pacific will show.
In Q3, 2023 we generated adjusted EBITDA of $211 million and adjusted EBIT.
Of $213 million cash flow from operation.
$338 million.
As already mentioned, we maintained strong total liquidity with a cash position of approximately $3 $1 billion at the quarter end.
Based on our nine months results and expectation of no material improvement in freight.
During this reminded of deal with Lord.
Full year 'twenty sleek forecast.
We now expect to generate adjusted EBITDA.
900 million dollar to $1 1 billion dollar in adjusted EBIT loss of 600 million dollar to $400 million.
Given this negative outlook in the near term we recorded a noncash impairment of 2.1 billion dollar this quarter.
Despite the losses in <unk> and 'twenty suite Zoom is resilient company, our strong cash balance.
Ed will help us withstand this prolonged downturn and as I already indicated we believe the 25 will mark a turning point for zoom and return to profitability.
On this note I will turn the call over to severe our CFO for a more detailed discussion of our financial results the impairment.
And now our revised guidance as well as additional comments on the market environment.
Yeah. Please.
Thank you and again welcome everyone.
On the slide five we present key financial and operational results.
As Eddie mentioned, our third quarter financial performance reflected the ongoing weakness of the current markets.
Our third quarter average freight rate per Teu was $1139 that is a 66% decline year over year.
During the first nine months of the year, our average rate of $1235 was similarly, 66% lower than the comparable period last year.
Our current volume of 867000 to use is 3% higher versus last year's third quarter.
This compared to market growth of approximately 5%.
Looking sequentially our carried volume also increased slightly.
Revenues for the third quarter were again adversely impacted by the top continued decline in freight rates.
Q3 revenues were $1 3 billion.
Our revenues for the first nine months of 2023 of $4 billion were 62% lower than in the first nine months of last year.
Free cash flow in the third quarter totaled $328 million compared to $1 6 billion in the third quarter of 2022.
Turning now to the balance sheet total debt increased by 400, and a $1 billion since prior year end.
Mainly due to the net effect of the incoming vessels with longer term charter durations.
As previously mentioned, we also recorded a noncash impairment of $2 $1 billion. This quarter, mainly driven by a negative outlook for container shipping in the near term.
You need the deterioration in freight rates observed in recent weeks with lethal expectations for meaningful recovery into 2024.
In addition.
We also need to consider the increase in interest rates, which in turn increased our average cost of capital.
As a result, he expected discounted cash flow of the company made generic going forward are lower than previously projected.
30 in the recognition of this impairment charge.
These are noncash impairments has been allocated to our container shipping related assets, primarily container vessels, but also equipment boxes and other related assets.
You can find additional information on the impairment test in the note seven of our Q3 2023 interim financial statements.
And I would note that these noncash impairments is excluded from our adjusted a bit and also from our adjusted EBITDA results.
Our net loss of $2 $3 billion. This quarter includes the impairment charge for $2 $1 billion.
Yeah.
Regarding our fleet. We currently operate a 145 vessels of it in 'twenty nine container ships and 16 car carriers.
Excluding the nucleus capacity the average remaining duration of our current charter tonnage continues to trend down and is now 22 seven months.
Compared to $24 six months in mid August.
Of the 46 Newbuild vessels Zim committed to 13 have been delivered to date, including six LNG powered 15000 Teu vessels and also the first 7000 Teu LNG ship.
Year to date, we delivered 20 charted vessels and we have another five vessels, whose charter periods and before the end of the year.
And in addition, 34 vessels have charter periods, concluding next year in 2024.
So in total these 39 vessels, which we could be delivered to the owners or renew at lower rates compared to 33, new builds that we expect to be delivered to us during the same period.
Dan I would like to reiterate here the delivery of these modern cost efficient vessels, we replace smaller less cost effective tonnage therefore contributing to lowering our carriage unit cost base.
On slide seven we presented since Q3 and nine months 2023 financial results compared to Q3, and the first nine months of last year.
The decline in revenue based on the lower freight rate environment impacted all of our metrics.
Adjusted EBITDA in the quarter was $211 million of the adjusted EBITDA loss was $213 million.
Adjusted EBITDA and EBIT margin for the third quarter were 17% and minus 17% respectively.
60% and 48% in the third quarter of last year.
For the first nine months of 2023, adjusted EBITDA margin was 22% and adjusted EBIT margin was minus 9%.
This is compared to 63% and 54% in the comparable period in 2000 and has it too.
This quarter net loss was $2 3 billion and as already mentioned includes the impairment charge of two per watt.
Moving on to slide eight as I mentioned, we saw a slight uptick in our carried volume compared to the third quarter of last year.
The increase was driven by growth in transpacific in Latin America.
We also saw a small increase in cabin audio versus the prior quarter with the growth again, driven primarily by Trans Pacific and the Latin America trades.
Turning now to the next couple of slides I'll review, our cash flow bridge for the quarter and nine months period.
We ended the third quarter with a total liquidity position of $3 $1 billion, which includes cash cash equivalents and also investments in term deposits and other investment instruments.
During the third quarter of 2023, our adjusted EBITDA of 211 million, coupled with a positive effect from change in our working capital converted into 338 million.
Cash flow generated from operating activities.
For the FERC ROE for the nine months period, adjusted EBITDA 859 million converted into a target at $58 million of cash flow generated from operating activities.
Other cash flow items for the nine months period included dividend payments of $769 million and $1 $5 billion of debt service, mostly related to our lease liability repayments.
Okay.
Moving now to our revised guidance in light of the continued deterioration in freight rates across all at rates. We are revising our guidance and now do we expect to generate in 2023, adjusted EBITDA of 900 million to $1 $1 billion and adjusted EBITDA loss.
$600 million to $400 million.
This revised forecast is based on our assumption that freight rates will not recover.
Eric levels with overall volume for the year to be slightly lower compared to prior year.
Our assumptions also include inflation in bunker prices for the remainder of 2023.
I would highlight that our adjusted EBITDA forecast is positively impacted by the impairment that we recorded in the quarter.
As our depreciation expenses going forward are going to be lower.
Moving to our market section I believe it is clear that our current view of the market for the remainder of 2023 and into 2024 is one of the continued headwinds oversupply, beating weak demand with limited impact from the capacity.
But actions taken by the carriers.
Alpha liners supply demand outlook for 2023, and 2024, which you can see on the left remains unchanged pointing to clear oversupply in the market.
At the same time freight rates remain depressed as you can see on the right.
Here, we show the <unk> five for the U S East coast, the key trade for us, which accounted for approximately 40% of our volume in the nine months period.
We also excluded here 2021, and 2022 right from the graph to provide better granularity as to where rates are compared to other years pre COVID-19.
2016.
You can see the decline in rates for August when we saw a short lead improvement in freight rates following broader blocking.
And that rates today are lower as compared to 2019.
<unk> cost today are clearly significantly higher versus the same year 2019.
On the demand side, while retailers are working through high levels of inventories and we have seen some market growth in the third quarter inventory levels are not declining.
And there are no clear data point that a restocking cycle will begin anytime soon.
As such it does it does it does not seem that a recovery in our industry will result for for near term growth in demand.
At the same time, while the carriers have employed summit management capacity.
This has not been sufficient to sustain higher rates.
<unk> remains the only continued meaningful actions taken by carriers.
Blanking has also been unemployed, but for limited periods of time with limited lasting impact on rates.
Scrapping on the other hand has remained negligible with approximately only a hobby than 7000 Teu worth of capacity scrapped from January to September compared to deliveries totaling one 6 million Teu during the same period.
Alpha liners, and scrapping projections for 2024, and 2025 off for 450000 Teu each.
In that each of the next two coming years.
Compared to expected delivery of almost 5 million to use of capacity in 2024 and 2025 combined.
Finally idling has also remained limited with inactive capacity in September standing at 1% instead of as a volume a 2% by vessel count.
While idle tonnage has increased over the course of 2023, it is cathy lower when compared to 2023 peak of three 3%.
Achieving the February.
And just as a reference point idled capacity in need of 'twenty 'twenty when Covid hit and then demand fail also dramatically was over the 10% Mark.
On that note, we will now open the call to your questions. Thank you.
As a reminder, if you would like to ask a question. Please press star followed by the number one on your telephone keypad will pause for a moment to compile the Q&A roster.
Your first question comes from the line of Omar <unk> from Jefferies. Please go ahead.
Hi, Thank you good afternoon, Elian and W. Here in Atlanta.
Thanks, Thanks for the update <unk> got some good detail here.
Just wanted to ask you know, perhaps it had a couple of questions but.
You've got the 3 billion of cash on the balance sheet, you've got the liquidity there.
Just regarding the $2 billion write down obviously, it's noncash and Dolby or are you just mentioned how on an ongoing basis depreciation is going to come down.
But just in general how should we think about what this now means four of actual running costs on a cash basis.
Look as far as the cost is concerned on a cash basis like you said rightfully impairment as it has no effect. So in terms of the lease liability repayment profile that is being unaffected by the by the impairments that we are booking now in the in the third quarter what will.
The affected is indeed, our depreciation and amortization to our P&L and in our EBITDA will go up as a result of incurring less depreciation on a quarterly basis and to quantify that in the quarter and in Q4. This is also what we reflected in our in our guidance now.
If you look at the difference between.
The the impact for the quarter is going to be in excess of $150 million.
Okay.
Okay. Thank you.
Then I guess just in general.
Think about we look on the balance sheet, and we see kind of a bit of a mismatch between the book value of the ships and then the remaining lease liability.
I guess, how should we think about that in the long term.
Medium term, perhaps you mentioned the five ships rolling off charter here before year end. Another 30 for next year. That's 39, I guess can we think perhaps it.
Or is there may be telegraphing.
Approach to ship owners or.
We have an amendment or early termination of the charters for beyond just these 39 ships, but the additional perhaps maybe 70 80 that are that remain on charter beyond next year is that what this means that this write down.
Look I think we need to disconnect a little bit what we did for the purpose of.
The impairment test that we needed to and at the end of the quarter our format from my visit the overall impact with the Missouri Oscar weakness.
With the vessel, we are committed to honoring our charter and commitments is that with the owner and we are in that we are not hiding from that looking at potentially we did it very early some of the vessels for which we have asked potentially at knott's.
And employment going forward. So that is still happening and is to be looked at in a D. Correlation format for the impairments that we that we book today, what I would say it is critical to US is that as I think Kelly mentioned, we are clearly today in a transition phase when it comes to the.
The profiling of the fleet that could we'd ended up operating once we have taken delivery of all he said new cost efficient tonnage fuel efficient tonnage that we've ordered back in 2000 22021. These vessels, although the call and are going to replace the existing charter so the.
The message is there was one is that it is very likely from zim perspective that we will deliver all the vessels as they come up for renewal in steps over the charter period to make room for the brand new ships more efficient.
We've ordered between now and the end of next year. So yes, we have five vessels up for re delivery between now and the year of the year we have.
Another 34 vessels that we've covered before he did a very there is between a first of all Gerry 44. Two he has offered the December 'twenty 'twenty four and it is very likely that the vast majority of this capacity would be related.
Got it thanks, Javier and then maybe just one final one just kind of on the revised guidance you know it makes sense you know clearly I wouldn't necessarily say there was a surprise there, but just in general as we think about.
No the fourth quarter relative to the third quarter. It looks like the updated range is for <unk> to be similar to <unk> I guess just in general I guess from say an EBITDA perspective, if we just think about on the margin as we look here into the next quarter.
Marginally do you think <unk> is going to be better than three Q or kind of on the margins. It could be worse any anything you're willing to share on that front.
Really yes there.
Our outlook for the remainder of the year and also I think as we tried to convey here today is going into 2024 and it.
Is.
That said, maybe very little with chips.
That said the freight rates today are at very low level and they are very challenging for the industry. We don't see many catalyst for that to change it in the immediate future. There is a clear leader looming threat of a overcapacity that is S. T left ahead of us.
We've seen that very little of the retirement of our older tonnage scrapping is very limited even idling is very limited so the excess supply seems to be here to stay for a while and therefore, reducing the optimism for the rates to meaningfully recover so that's that.
There's a perception that we have a continual thing so hopefully will turn out better.
After maybe year 2044 is the last year the future year's may see the recovery in our in our industry, but clearly for US today, we are taking a very cautious view of the coming quarter.
In the coming quarters, including the year from your August 2024, we will obviously guide to in a more detail all of you for to southern 44 in a in a in a few of course for US now, it's a little bit early for us to.
Two is to guide the market's better by and large we do we expect that the industry will be on the severe.
Pressure and the challenge for the foreseeable future.
Understood. Thanks, Javier that's it for me I'll turn it over.
Your next question comes from the line of Sam Bland from Jpmorgan. Please go ahead.
Thanks for taking the question.
Have two please the first one is sort of the same point on these sort of timing of the.
Charter renewals I guess, you've ever done 25 more this year 34 next similar to the last question is does that sort of mean that there's.
50, 60 or something in 2025.
Those also sort of high Covid era prices.
Is there anything you can do to maybe.
And maybe bring them forward, obviously, you got to do that with agreement from the from the tonnage provider.
And the.
The second question is if you look at the where rates are today, you said that.
Hello.
The new builds.
Might cost competitive how house, how would you sort of characterize.
What are the sort of current spot rates.
Profitable or not.
For the new for the Newbuild ships with the cost base.
Thank you.
Thank you Sam so to your first to your first question in terms of you're right to say that we have 34 vessels that come up for renewal.
<unk> thousand and 24, we have close to 40 are not received or close to 40 that will cover for renewal in that 2025 as well so those could be characterized potentially as well as the.
As higher.
Chartered.
Charter chartered capacity in terms of a daily rate. So that will continue at worldwide in the year and the year subsequent to US who sells at a 24, but we will already have we delivered and combination 59 vessel by yet of by the end of this year 2024.
Whenever you ask the second question in terms of where do the rates are today will cover the cost of the new capacity that we are doing again, that's it that's a difficult question to answer because it is also very much a function of our ability to fill the ships.
You see so if we are in a situation where the shipper to sell because the capacity seating.
Seating factor is a satisfactory than we are in a better and a much better position with the new capacity to give an indication I think I already used to set this industry.
Illustration.
On a couple of occasions, but the 15000 Teu LNG ships that we are now gradually deploying an hour is yet to the U S East Coast trade Lane horrendous cost the same to two operators at 10000 Teu ships that they come in to replace so we get a 50% additional.
Our intake at the same board is the same the cost although obviously the voyage so that illustrates the magnitude of the year of the benefit that we expect to get for those vessels that come in in terms of charter at competitive price, but on top of it we expect to get additional.
Savings by running them on LNG, which today is a is a source of fuel which is more cost effective than there is.
Isn't the issue.
Yeah.
Okay understood. Thank you.
Your next question comes from the line of Alexa, Doug Doug any from Barclays. Please go ahead.
Yeah. Thanks for taking my questions I have three as well just firstly, obviously I appreciate the 3 billion equate to you currently have in your balance sheet. What do you think is the minimum liquidity you are at.
April or want to operate.
Yeah that would be helpful.
Secondly, can you remind us the downpayment for the new vessel thing.
'twenty, three and 'twenty four as part of it.
Long term agreements I think you mentioned a number in Q1.
If we can just double check that and then.
Yeah.
Finally, given sort of the depreciation run rate in Q4, and then if I annualize the number I think it's around a billion now.
Should we still assume covey.
Kind of Iraq.
Charter costs in terms of cash to be around $1 4 billion.
Thanks.
Yeah.
Thank you for the for the for the question.
So the your first question, which is in relation to what is the minimum cash that we would want to.
Keeping is difficult to answer that question today, because clearly we are in the industry is in a transition phase that is not as up stabilize there yet and there and clearly on the some of the trade. The the rates are sustainable for the longer term. So we wish to be very cautious here here and there.
And I don't think we have a.
Right amount for us to have to provide at this stage, we want to make sure that we navigate the current turmoil in our industry with a strong balance sheet and I think this is the case today with the $3 billion that we have sitting on our balance sheet, but with the clouds on the horizon, we need.
To be very mindful of the of.
Our liquidity position.
And with respect to the down payment that we intend.
We intend to work to make their per delivery of the vessels, we will be making $350 million worth of zelle payment in 2024, when we take the deliveries of 15 7000 Teu ship for which we have agreed to pay $20 million per ship of crop.
As a reminder of the year 15000 Teu ships for which we are as we are committed to bring year $30 million. So precisely is 300, plus or 39 $339 million of upfront payments that we will be making into cells and a 24 after having beaten.
I mean, they saw it in 2023 crews to the Huffington, The harbinger of 40 million daus.
Depreciation going forward is.
Going to be impacted by the by the impairment.
As I mentioned earlier also.
The situation or is the model that you had pre impairment.
I did guide at the fourth quarter the effect of the impairment would be a little bit in excess of a $150 million. So you should assume that for the full year of next year. It will be a second year about $600 million in terms of overall us over order impact versus.
The prior model without impairments registered in this in the third quarter and in terms of cash payment of lease liability repayment as there should be no difference between the situations.
Situations before impairment or after impairments as this is a noncash item and the lease liability that we have on balance sheet is today and changed as a result of the impairment that's already reduced our our fixed asset base.
Understood. Thank you.
Your next question comes from the line of Patrick <unk> from Goldman Sachs. Please go ahead.
Hey, Eli.
It looks like you managed to to limit the cash burn.
Somewhat in the third quarter, and that's really just starting with the lease payments it looks like the down 100 million quarter on quarter.
Just trying to understand what's driving that I mean, how much of that is coming from the re delivery of about 20 vessels how much of it is maybe down to sort of one off timing effects.
And perhaps also some costs flowing back above EBITDA.
With the extension of the duration of some of these charters has been transferred from above.
Above EBITDA below EBITDA.
And some of these payments.
And then related to that.
Net net between re deliveries of new vessels next year, what do you think for the right quarterly run rate on this charter payments I mean from the sort of $3 50.
In the third quarter.
Thank you Patrick so youre right that theres been some of a timing effect in the third quarter that I will explain nothing has changed in terms of the reallocation of costs between their above EBITDA out of the low no all of our vessel cost today or 99% of our vessel cost.
Today <unk> are being registered in that in there.
Again like I said the effect of the impairment in our depreciation and amortization from a from the from.
From a cash perspective, if we look at the third quarter what happened in our lease liability timing repayment. What are these liabilities is mainly the charter that we pay back with the vessel.
The payments are made every two weeks that's the way it works in the in the in the chartering market first of all the most of the 15th of the malls and in the first of the month is or isn't E. Banking. There then the payments are being pushed out or delayed. So we had one payment run less in Q3.
Compared to Q2 so.
So we had five out of six that contributed to $100 million less payments versus the prior quarter. So that that's just what the well timing a timing effect. We also had a positive impact in our third quarter of working capital improvement.
Mainly driven by a less risky to go on there on the balance sheet that also contributed to increasing our cash flow from operation. This is going to be most probably a one off hopefully.
<unk>. This is the result of the lower freight rates that we are involved in the software to our customers to our customer.
Okay, I mean, you've preempted my follow up question is on the working capital. So it sounds like you don't see more opportunities to them.
To optimize working capital do you think that's true for nine months I think we've made some very good progress.
Progress is here I mean leave aside the fact that the value of the receivables or less which is something that we're not too happy about but in terms of our collection efforts have past due we are at a very low level. So obviously always quite there is quite a.
Right. Good. So we are pleased there on that trough. So this is why I'm, saying that we should not expect unless there is a continued deterioration in the environment of a significant working capital improvements on the AP side.
We are we.
We are maintaining it pretty much the payment terms that here, we have redesigned our supply base.
Yeah.
Got it and then last one can you just give a quick update on how you see the Panama Canal situation evolving and how you are adapting your operations to it I mean, I guess, you run probably slightly lower utilization, maybe get slightly higher rates, but any color on how your rerouting and adapting be interesting.
It is true that the Panama Canal is where we saw a situation in evolving as they are today with the.
Draft limitations that is being imposed on the Aussie industry. So we do operate a fewer number of services that goes with the Panama Canal and.
Namely our Asia U S East Coast service Zips.
C P and also our new service says to us too, but it was said XD you.
Service. So we are we are trying to optimize the utilization of the ship where he built the draft limitation has addressed the mutation because many of the weight of the cargo that we carrying and we also taking actions to us to utilize our hearing service in our invested America discharged south Cal.
Well before the Panama Canal and this was after the vessel kind of wilful across across the Pacific before before it has to US it has to cross the desk.
Obviously, we are monitoring the situation as they are to date and we will evaluate if there are decisions that need to be made in terms of potential of rebooting of or all of these type of this type of the uncertainty also I think maybe this is linked disease or maybe driving one of the reason. This is one of the reason why.
We are now reopening the services between the South China, and delay, which we suspended if U S. A few months back and as we also see that some of their cargo being he directed now back from the East coast to the West Coast and there we see an opportunity here for us to work with you.
Our service is that he exercised desktop was had been quite successful critical for these assets.
Okay. Thanks very much.
Your next question comes from the line of Alexia <unk> from Barclays. Please go ahead.
Thank you for taking the follow up question.
A question on the size of your fleet for next year, obviously and the size has gone down to 145 vessels, how should we think about the size of the company and 24.
And then given your more fuel efficient vessels entering the fleet. How quickly do you think you can regain unit costs.
At par with 2019 levels. Thanks.
Thanks.
And with regards to the fleet size, if we look at or who you anticipate the vessel count it might not be very different from what we have to be operate today, but you're right. We will operate larger ship on a on an average as the ships that are coming in or replacing a smaller a smaller vessels with <unk>.
Today give or take we operated the equivalent capacity of 600000, Teus plus a year for the <unk> 49 casinos vessels that we operate and as these fish would go.
Or closer to the 700000 Teu Mark by the end of 2024, when he has taken delivery of the of all of outfit. So this is a clearly a F.
Something that is important for us when we when we look into 2024 and as the volume that we also need to capture in terms of filling hitting those vessels.
In terms of where the shoe efficiency transitioning are clearly is towards LNG for the 28 vessels that we are coming our way.
Today is as of the end of next year. This is a this is allowing us to work to get to a significant significant savings. We also get savings from the charter in cost.
Whether we get back or if we get back to 2019.
Is there a typical determination to make there are a lot of us moving parameters.
As you know.
So we will provide again more guidance in 2024 witnessed when we address our U S as a market.
Early next year to date clearly whatever the market is doing we are focusing on extracting cost in our in our organization. So he's cost actions obviously, yes.
As it relates to us taking towards a new and more efficient vessels. It also relates to SB deploying our capacity the best way. We we we seek care is that is the case with I. Just mentioned he is a he acts like the new services, we reopened the two new lines that we've also announced.
In the opening of dressing Latin America trade lanes.
Partnering with NFC, not so long ago on the sort of the key trades, where we by partnering with them to get managed to lower our cost of operations, So maximizing and optimizing our network is clearly here is clearly number one priority for the year for the company and then that next year, we will not need to capture additional oh.
Or do you.
We intend to do that with a stable workforce is where therefore generating productivity savings as well in this respect.
Thank you.
This concludes the Q&A session I will now turn the call back over to Ely, Glenn for closing remarks.
Thank you.
2023, and 2020 for a transition period for zoom.
While these are challenging times, we expect the deliberate steps, we've taken to enhance our operational and commercial resilience to deliver positive outcomes.
<unk> renewal program will improve our cost structure and drive long term profitable growth.
In the immediate term.
We are pursuing cost control initiatives and commercial opportunities that will best position us to weather this downturn.
So total cash position of sleep on $1 billion.
Maintained long term view and believe zoom is well positioned.
To emerge stronger than ever highlighted by a few a new coke costs and fuel efficient.
Leads it provides us a competitive advantage and Kate rates.
We remain committed to leveraging technology and digitalization to promote operational and commercial excellence, while further implemented a differentiated strategy to best serve our customers and generate sustainable value for shareholders.
Thank you all for joining us today.
Interesting zing hope everyone stays safe.
Yeah.
This concludes today's conference call. Thank you for your participation and you may now disconnect.