Q3 2024 ZIM Integrated Shipping Services Ltd Earnings Call
The
Krista: Ladies and gentlemen, thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to ZIM Integrated Shipping Service third quarter 2024 earnings conference call.
Krista: All lines have been placed on mute to prevent any background noise. And after the speaker's remarks, there will be a question and answer session.
Krista: If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. And if you would like to withdraw that question, again press star 1. Thank you. And I would now like to turn the conference over to Elana Holzman, Head of Investor Relations. You may begin.
Eliyahu Glickman
Eliyahu Glickman: Thank you, Operator, and welcome to ZIM's 3rd Quarter 2024 Financial Results Conference Call.
Eliyahu Glickman: Joining me on the call today are Eli Glickman, ZIM's President and CEO, and Xavier Destriau, ZIM's CFO.
Eliyahu Glickman: 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.
Eliyahu Glickman: We wish to caution you that such statements reflect only the company's current expectations and that actual events or results may differ, including materially.
Eliyahu Glickman: 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 2023 Annual Report on Form 20-F filed with the SEC in March 2024.
We undertake no obligation to update these forward-looking statements.
Speaker Change: At this time, I would like to turn the call over to ZIM's CEO, Eli Glickman. Eli?
Thank you Elana and welcome everyone.
Speaker Change: Adjusted EBITDA was $1.5 billion and adjusted EBIT was $1.2 billion.
We suggested EBITDA margin of 55%.
Speaker Change: an adjusted EBIT margin of 45%, indicative of our continuous strong financial position. We maintain total liquidity of $3.1 billion at quarter end.
Slide number five.
Our nine-month results are better than expected.
and with an improved outlook for Q4-24.
We are raising our 24 guidance ranges.
We now anticipate fully-adjusted EBDAS.
Speaker Change: between $3.3 billion to $3.6 billion and adjusted EBIT between $2.15 billion to $2.45 billion.
Speaker Change: Also, thanks to our improved cash generation to date and strong balance sheet,
Speaker Change: Our Board of Directors has declared a special dividend of $100 million on top of the regular dividend of $340 million or 30% of Q3 net income.
Pair of Dividend Policy
We will distribute a total of $3.65 per share.
Speaker Change: which is made up of $2.81 per share on account of Q3 results plus 0.84 cents per share as a special dividend.
Speaker Change: Returning capital to shareholders has always been a priority, and we are pleased to share our success with shareholders today with this substantial dividend.
Slide number six.
Speaker Change: These water results were the highest we have delivered since Q3 2022, and higher than any period prior to the extraordinary COVID-19 market.
Speaker Change: While this quarter results were also driven by elevated freight rates,
Speaker Change: continue to benefit us going forward regardless of prevailing market conditions.
First and foremost is, of course, our Fleet Renewal Program.
Speaker Change: To remind you, in 2021 and 2022, we engage in a series of long-term charter agreements to secure 46 new-built vessels.
Speaker Change: including 28 LNG powered container ships to be delivered over the course of 2023 and 2024.
Speaker Change: The benefits of our fleet transformation are already evident in 2024, driving our strong results this year.
Speaker Change: 50% of our fleet capacity will be new-built, resulting in more fuel-efficient and cost-efficient capacity.
Speaker Change: Our average vessel size has grown, making our fleet better suited to the trades in which we operate and improving our cost structure.
More webil
About 40% of our capacity will be LNG powered.
Speaker Change: Zinn was an early adopter of LNG, enabling us to be the first and only carriers
Speaker Change: currently operating two services on the Asia to U.S. East Coast trade with Challenger Vessels.
Speaker Change: This has been an important commercial differential for us which supported our efforts to capture additional volume as we grew our operated capacity on this trade.
Speaker Change: In addition, to reduce the environmental impact of ZIM operations, we have also seen financial benefits from our utilization of LNG.
Speaker Change: LNG is 25% more efficient as compared to LSFO, and has been consistently cheaper than LSFO since we had our first 15,000 cuLNG vessels delivered to us in early 2003.
importantly,
Speaker Change: We ensure reliable access to LNG, which is not as readily available as LSFO, by reaching strategic supply agreements with Shell,
Speaker Change: Recently, we entered into an additional agreement with Shell, and now our services to the U.S. East Coast are covered by long-term LNG supply agreements.
Speaker Change: This has enabled us to operate our dual-fuel LNG vessels on LNG and capture these cost benefits.
Our Improved Competitive Position
Speaker Change: On the Asia to U.S. East Coast trade also helped us reach our new operational collaboration agreement with MSC, replacing the agreement with the 2M. More recently, we also agreed to a new operational collaboration with Hapag-Lloyd covering the Atlantic trade.
Speaker Change: These and other operational collaboration agreements we have in place allow us to improve network efficiency by promoting greater utilization of larger vessels as well as enhance our product offering to customers with better port coverage.
Speaker Change: who has insecured cost-competitive new-build capacity to support its commercial strategy.
Speaker Change: and was prepared to operate independently, these operational collaborations de-risk the significant capacity growth we have undertaken in 2023 and 2024.
Speaker Change: We have also been proactive in securing the necessary equipment to support our planned volume growth this year.
Speaker Change: As I already mentioned, a key factor contributing to our strong Q3 results has been volume growth, reaching 970,000 TEU, which represents another record high for ZIM.
These 12% year-over-year growth significantly outpace global container market growth.
Speaker Change: We are incredibly pleased with our progress in gaining market share owing to our strategic investment in Zim fleet, particularly on the Asia-to-US East Coast trade. We have also delivered significant growth in Latin America, a newer focus area for Zim.
Speaker Change: Identifying potential growth opportunities and demonstrating commercial agility have been and continue to be a core strength at ZIM.
Speaker Change: Identifying the car carrier opportunity and expanding our capacities to 16 carriers is one example.
Two more recent examples.
Speaker Change: I will expand focus on Latin America, which I just mentioned.
Speaker Change: and the Expedite services we relaunch in 2024 from Asia to the U.S. West Coast to capitalize on the strong volume growth on this trade.
Speaker Change: As you will recall, earlier in the year, ZIM chose to deviate from our previous approach of a 50-50 split between spot and contract volume and instead increase our spot exposure in the trans-Pacific trade to about 65%.
Speaker Change: This enables them to benefit more significantly from the upward pressure we saw on sport rates in the third quarter.
Slide number 7.
Speaker Change: Looking ahead, market dynamics still point to supply growth outpacing demand in 2025 and 2026, setting up for a version following a period of strong rates that has extended for most of 2024.
However, the rate environment can be volatile and unpredictable.
Speaker Change: dictated by macro conditions and times factor external to the shipping industry.
Speaker Change: As such, our focus has been and will continue to be on improving our cost structure and operational and commercial resilience.
Speaker Change: It is important to highlight that our position today is fundamentally better as compared to a year ago.
Speaker Change: The transition period of 2023-2024 is concluding and we are on track to complete our fleet transformation as planned.
Speaker Change: The benefits of our strategic investment in our fleet have already begun to materialize this year as I have detailed today.
Speaker Change: Our position in 2025 and beyond will improve further as we are regaining flexibility in terms of the size of our operated capacity.
Speaker Change: with a total of 57 vessels up for renewal in 2025 and 2026, which we could re-deliver to owners. We can choose to continue operating in similar capacity.
Speaker Change: or scale back, depending on the market environment. As market conditions continue to evolve, we intend to remain agile and build on our track record of taking advantages
of Attractive Opportunities that benefit them both operationally and financially.
Speaker Change: We are confident that the steps we have taken have solidified our position as an agile container shipping player with a competitive cost and fuel-efficient modern fleet.
Speaker Change: On this note, I will turn the call over to Xavier, our CFO, for more detailed discussion of our financial results, our Update 24 guidance, as well as additional comments on the market environment. Xavier, please go ahead.
Thank you, Eliyahu, and again, welcome everyone.
On slide 8, we present key financial and operational highlights.
Speaker Change: These third quarter financial results reflect continued momentum based on strong demand and elevated freight rates.
Speaker Change: Our third quarter average freight rate per T.E.U. was $2,480, a 118% year-over-year increase and a 48% increase from the prior quarter.
Speaker Change: During the first nine months of the year, our average freight rate per T.U. of $1,889 was 53% higher than in the first nine months of 2023.
Speaker Change: At the same time, these increased carry volumes have had a positive impact on earnings given the strong rate environment.
Speaker Change: As Eli mentioned, our Q3 carried quantity of 970,000 TUs, was a record, and 12% higher year-over-year.
Dean's growth compared favorably to market growth of 5%.
Speaker Change: Revenues from non-containerized cargo which reflects mostly our car carrier services totaled 145 million dollars for the quarter compared to 153 million in the third quarter of last year.
Speaker Change: Total revenue in the first nine months of 2024 of 6.3 billion were up 2.3 billion, or 58% year-over-year.
Speaker Change: Our free cash flow in the third quarter totaled $1.5 billion compared to $328 million in the third quarter of 2023.
Speaker Change: Turning now to the balance sheet, total debt increased by $828 million since prior year-end.
Speaker Change: And that is mainly due to the net effect of the incoming larger vessels with longer term charter durations attached.
Speaker Change: I'd like to remind you that the new build capacity we have received, especially the LNG vessels, are charted for a period of 8 to 12 years, creating a predictability in our cost structure with respect to this core capacity.
Speaker Change: Furthermore, we hold options to extend the charter period on the 25 CISBAN LNG vessels.
Speaker Change: as well as purchase options, giving us full control over the destiny of these ships.
very much as if we were the actual vessel owner.
Speaker Change: Turning to our fleet, we currently operate 145 vessels, including 129 container ships with total capacity of approximately 773,000 TEUs.
as well as 16 car carriers.
Speaker Change: This compares to an overall fleet of 148 vessels as of our prior earnings calls in August.
Speaker Change: The change from three months ago resulted from the delivery of four new builds and the re-delivery of seven smaller vessels.
Speaker Change: I'd like to reiterate that while we may continue to operate a similar number of vessels, our operating capacity continues to grow. In fact, today, the average vessel size we operate is about 50% larger as compared to our fleet two years ago.
Speaker Change: And with our fleet transformation program, we are replacing smaller, less cost-effective tonnage with larger, more cost-efficient new build capacity.
Speaker Change: As of today's call, 42 of the 46 new built vessels had committed to join our fleet, have joined our fleet.
Speaker Change: the four 12,000 T.E.U. vessels, 15 of the 18 8,000 T.E.U. LNG vessels, and 13 of the 14 smaller wide-beam 5,500 and 5,300 T.E.U. ships.
Speaker Change: Excluding the new build capacity, the average remaining duration of our charted tonnage continues to trend down and is now 17 months compared to 18 months in late August.
Speaker Change: We have still a total of seven vessels up for charter renewal in the reminder of 2024, as compared to the expected delivery of four new builds during the same period.
Speaker Change: So as we approach 2025, we have another 35 vessels up for renewal next year, and 22 vessels up for renewal in 2026.
Speaker Change: which, as Eli mentioned, provides optionality to better align our operating capacity with the market opportunities.
Speaker Change: Next, now on slide 10, we present ZIM Q3 and 9-month 2024 financial results compared to last year's Q3 and first nine months.
Speaker Change: Adjusted EBITDA in this year's third quarter was $1.5 billion and adjusted EBIT was $1.2 billion.
Speaker Change: Adjusted EBITDA and EBIT margin for the third quarter were 55% and 45% respectively, as compared to 17% and an EBIT loss in the third quarter of last year.
Speaker Change: For the first nine months of 2024, adjusted EBITDA margin was 44% and adjusted EBIT margin was 30%.
Speaker Change: This is compared to 22% and an EBIT loss in 2023.
Speaker Change: Net income in the third quarter was $1.1 billion compared to a net loss of $2.3 billion in Q3 2023.
Speaker Change: As a reminder, net loss in Q3 last year was primarily driven by a non-cash impairment charge of $2.1 billion.
Speaker Change: Turning now to slide 11, we present here our carried volume broken down by trade zones.
Speaker Change: As you can see, we saw significant growth in the Trans-Pacific, Latin America and Atlantic trade in the third quarter.
attributable to our larger capacity vessels and new lines.
Speaker Change: Trans-Pacific and Latin America volumes grew 24% and 59% respectively year-over-year.
Speaker Change: We expect to see continued volume growth during the reminder of 2024 as we continue to upsize our capacity and remain on track to achieve our double-digit volume growth target this year.
Speaker Change: On slide 12 is our cash flow bridge. For the quarter, our adjusted EBITDA of 1.5 billion dollars converted into 1.5 billion of cash flow generated from operating activities.
Speaker Change: Other significant cash flow items for the quarter include $595 million of debt service, mostly related to our lease liability repayments.
and a dividend of $112 million.
Speaker Change: In the third quarter, in Q3, we paid 60 million dollars as down payment on the delivery of three of our LNG vessels.
Speaker Change: Our assumptions for double-digit volume growth and bunker costs haven't changed since we provided our prior guidance in August.
Speaker Change: However, the expected decline in freight rates from their peak in early summer was slower than we had initially anticipated, resulting in stronger overall expected performance for the year.
Speaker Change: Before we open the call to questions, a few comments on the market.
Speaker Change: Looking back at 2024, this year developed very differently than what was initially anticipated.
Speaker Change: From an expectation of significant oversupply, causing potentially freight rates to drop to loss-making levels, we saw a relative equilibrium develop due to the significant capacity absorbed by the Red Sea Diversion.
which, coupled with better-than-expected demand, drove rates upwards.
Speaker Change: Looking forward to 2025 and beyond, in addition to uncertainties stemming from geopolitical matters such as the duration of the Red Sea crisis or the impact of the recent US elections, the risk of oversupply continues to exist.
Speaker Change: especially with the recent growth in the order booked to freed ratio to 25.5% though to a lesser extent than the gap between the supply and demand growth of 2024.
Speaker Change: Yes, it's also important to note that the delivery schedule of the current Old Book is longer than the typical two-year period.
Speaker Change: Rather, it is stretched out to 2027, 2028 and even 2029, easing the absorption of this additional capacity.
Speaker Change: Moreover, over the next several years, the decarbonization agenda of the industry will require carriers to modernize their fleet so they will be able to meet IMO mandates as well as customer expectations on reducing carbon emissions.
Speaker Change: The decarbonization agenda of our industry will also likely drive scrapping to more meaningful levels.
Speaker Change: Scrapping almost did not happen since 2021, and at some point it should begin to catch up, especially as more stringent regulations on carbon emissions are enforced, making it uneconomic to operate certain older vessels.
Speaker Change: In the short term, industry players can also utilize slow steaming or idling to continue to manage capacity.
Speaker Change: On that note, we will now open the call to questions. Thank you.
Speaker Change: Thank you and we will now begin the question and answer session. If you would like to ask a question please press star 1 on your telephone keypad to raise your hand and join the queue and if you'd like to withdraw that question again press star 1.
Speaker Change: Your first question comes from Omar Nocta with Jeffries. Please go ahead.
Speaker Change: Thank you. Hi, Eliyahu and Xavier. Thanks for the update. Obviously, you know, exceptionally strong quarter, big guidance bump.
Thank you.
First maybe just on the dividend
Speaker Change: You know, your cash position has jumped here to above $3 billion here at quarter end. It seems that you just here in the commentary and by your actions that you've got a good level of confidence on the outlook, I guess, you know, for XIM in particular. But maybe if you wouldn't mind just giving us a sense of how are you thinking about XIM and how it's positioned as we go into, you know, an uncertain perhaps 2025?
Speaker Change: and then also in terms of, you know, the dividend, the $100 million payout, the special payout, does that factor into the board's decision on whether or not to screw up to the full 50%?
and try to believe.
Speaker Change: Thank you. Good morning, Omar. Maybe addressing the second part of your question, we are indeed very pleased to be able to top up our regular dividend this quarter, and this is, I think, us being true to our commitment.
Speaker Change: vis-à-vis our shareholders to return capital as much as we can when the situation allows.
Speaker Change: As you rightly pointed out, the third quarter and also the outlook for the remainder of the year is somewhat stronger than what we initially planned for, hence why we decided to top up again our regular dividend with a special dividend.
Speaker Change: Just to give things into context, if we look at what has happened and how much capital we've returned since we became a public company in 2021, we've returned $5.2 billion to our shareholders or $43.26 per share.
Speaker Change: over this four-year period, including this quarter dividend in those numbers.
Speaker Change: So it is us delivering on our commitment that we are doing this quarter.
Speaker Change: and the board will review in March what to do in terms of potentially topping up our dividend between 30 to 50% of the net income that we will have generated over the full year period.
Speaker Change: So that decision, this discussion will take place in March. The dividend policy remains in place and unchanged.
Speaker Change: Now, going back into looking at what the market may look like in 2025.
Speaker Change: Clearly, we are pointing towards a good performance towards the end of 2024, so a good Q4 and certainly a better Q4 than what we anticipated.
Speaker Change: in August a few months back. Now looking into 2025, there are a lot of potential elements of volatility ahead of us.
Speaker Change: One thing is for sure is that the company is very well prepared and very well equipped.
Speaker Change: to changing market conditions. We have, I think, demonstrated in this quarter and in the prior quarter our ability to move and redeploy our capacity to trades where they are more contributive than others.
Speaker Change: Eli mentioned us re-opening very swiftly and rapidly our trade serving the Pacific Southwest, moving vessels from Pacific Northwest to Pacific Southwest, and again capturing the extra profit that those trades were generating.
Speaker Change: We are also very strongly positioning ourselves into markets where we believe there are potential for significant growth in the future.
Speaker Change: You've seen our volume growth a quarter of a quarter year over year on Latin America trade, where we believe is an area that will benefit in future years from future growth.
remembering that we ordered those vessels in 2021-22.
Speaker Change: before the significant surge in the new build price and also before the inflationary environment that led to a cost of capital being elevated thereafter. So we got a very good deal if we compare to what would be the similar type of cost that we would incur if we were placing those orders today.
Speaker Change: So, we are entering 2025, with 50% of our core fleet, or our operative fleet, being represented by this 46 brand new ships.
Speaker Change: 40% of our capacity is LNG powered and we have regained the ability to potentially flex down if we need to depending on what the market environment
Speaker Change: may be like in 2025 by returning the smaller, less efficient vessels that will be up for renewal in 2025, the 35 shifts that we were talking about.
Speaker Change: Great. Thanks, Avir, for that color. Very helpful. And maybe just to follow up, maybe in terms of just the spot market, as we referenced here, you know, it looks like we're finishing off the year relatively strongly. You know, we
Speaker Change: Maybe just like, you know, we could you give some color on what you've been seeing here recently? You had the wind up going into peak season a little bit of a wind down as peak season has started to conclude How did how have things kind of been going here recently and then?
Speaker Change: In terms of the strike on the U.S. East Coast, it only lasted three days. You're obviously very active in that market. Did any lingering effect for Zim in the fourth quarter in terms of, say, financial impact, anything to talk about? Thank you.
Speaker Change: The fear of the potential strike that may take place come January 15 in the U.S. And also the fact that, from a timing perspective,
being moved between especially Asia to the US.
Speaker Change: So that is obviously supporting the rate environment, as you rightly pointed out.
Speaker Change: We did see the rates started to normalize after the peak that was reached in July. But over the past few weeks and post-Golden Week, what we've seen is that on most of the trade lanes, some sort of a stabilization in the rate environment. And even on some other trades, we are seeing rates starting to pick up again.
Speaker Change: So that, I think, points towards a good finish for 2024, at least up until the end of January, up until Chinese New Year. Then we will move towards the second part, the better part of 2025, and we will need to see what will be the effect, potentially, of the new policy of Mr. Trump and how the demand will behave going forward.
Today, everything points towards a continued growth in demand.
Speaker Change: Thank you. I would like to add, Omar, I think these results...
Higher than $1.13 billion
Speaker Change: The decision on special dividend of $100 million on top of the $340 million.
Speaker Change: Our confidence in the company with the new fleet that we have, 42.
and New Vessels.
Speaker Change: Very efficient LNG vessels that you have in the fleet. We see the impact.
We see the record volume of the company.
Speaker Change: We enjoy from all our decisions to prefer this year the spot rate on top of the long-term contract and not to surrender to price suggested to us by, let's call it, the big customer below break-even.
Speaker Change: show our result. On top of that, our decision to open a new line from Asia to the west coast of South America.
Speaker Change: Our decision to reopen the line from Asia, South China, to L.A. and from Shanghai, Ningbo, to L.A.
show our strength
Our agility to take decisions.
Speaker Change: and we are in high confidence and with that the board approved the special dividend on top of the 340 million, total 440 million dollars. So we believe in the company, we see strong cash flow and we believe in the future of the company.
Speaker Change: Excellent. Well, thank you. Thank you, Eli, for that. And Xavier, I appreciate all the color. I'll turn it over.
Speaker Change: Your next question comes from the line of Alexia Dogani with J.P. Morgan. Please go ahead.
Good afternoon. I have two questions.
Speaker Change: It's very good to hear the positive outlook that gives you the confidence to give some
Speaker Change: you suggest kind of things have improved more underlying. So that's my first question. And then...
Speaker Change: Secondly, can you just clarify, Javier, what percent of your capacity is on this kind of smaller, less?
Speaker Change: efficient vessels that could potentially come out in 2025 should the market kind of turn out weaker. And then if I actually can ask one more, what are you hearing from your customers?
near term? I mean, is there scope for...
Speaker Change: further inventory buildup into the first half of 2025 or kind of the duration, kind of constrain the timing benefit of arriving in the US in the next couple of weeks.
Thanks.
Speaker Change: This is maybe a little bit of a complex accounting matter, but I'll try to explain as clearly as I can.
Speaker Change: Back in September 2023, when we concluded this impairment analysis, it is always a forward-looking
Speaker Change: and the process that gets considered when we are benchmarking the value of our assets in our book.
Speaker Change: against what is the potential value of the asset that will be generated in terms of future discounted cash flows. So it's always forward-looking. And so what has happened behind does not really assist or play a significant role in any subsequent reassessment of the impairment.
Speaker Change: So that being said, this quarter, unlike prior quarters, we did indeed look and reassess
Speaker Change: the overall impairment amount that was left in our book because
Speaker Change: a significant portion of it has already been amortized over the past 12 months. And when we look ahead into future years, 25, 26 and the year thereafter, and when we compile our cash forecast, when we use also the updated WACC in terms of a discounting rate, which is also affected by the macro environment in terms of interest rate, in terms of country risk in Israel. So there is a lot of data that comes into play. And when we finalize the overall assessment and compare...
Eliana Holzman, Eliyahu Glickman, Elana Holzman
Speaker Change: in material impact of the impairment assessment. Hence why we concluded that there was no need to change anything.
Speaker Change: And what basically that translates into, in non-accounting terms, maybe to help understand, is suggesting that the book value post-impairment...
Speaker Change: is pretty much in line with what the asset value would have been had we not been forced to charter capacity in 2021-2022 at a time when the charter rates were very high.
Speaker Change: I think this is another way of looking at it from an economic perspective, walking away from the pure accounting treatment of the impairment assessment itself.
of between 120,000 and 130,000.
Speaker Change: So, meaning that if we look at what is the total TU capacity that we will end up operating at year-end, close to 800,000 TUs, we will have 120,000 TUs potentially that we could let go next year.
Speaker Change: without having to face any, you know, early penalty to get out of an existing charter. So we'll see what will happen with those vessels, but again, very important to emphasize that the first vessel that will potentially leave the fleet, if there was to be any of them, will be the ones that are more expensive, less efficient for us to operate, leaving the company always with operating the core capacity, which is far more efficient, far more cost efficient.
obviously on our Trans-Pacific Trade Link.
Speaker Change: Clearly it came from a period of destocking in 2023 to maybe some sort of restocking that took place over the summer. If we look at the inventory data in the U.S. and the one for us,
Speaker Change: that is, I think, maybe extremely relevant is inventory to sales ratio.
Speaker Change: We see that inventories levels, as of today, are not abnormal compared to normal inventory levels to be expected at this time of year. The demand has been strong and resilient in the US.
Speaker Change: So, we don't feel too alarmed that there might be an eventual build-up going on right now in the U.S. that might, you know, bite us back in subsequent quarters into 2025. At this stage, we don't see that.
Speaker Change: What really is, yeah, kind of the basis on the lesser extent point. Thanks
Speaker Change: potentially change, but hopefully it will change sooner rather than later. I think what we are referring to here is, in terms of new builds being delivered to this global shipping industry, 2024 was the year of significant new build deliveries, 3 million TUs.
Speaker Change: of Equivalent Capacity delivered this year, more than 10% of the overall tonnage being delivered in one year.
Speaker Change: So 2024 was obviously a very important year on that front. Clearly, the Red Sea situation contributed meaningfully to health absorb.
Speaker Change: this additional capacity that came in. At some point, the Red Sea disruption will dissipate, but...
Speaker Change: We are still in an industry which is growing in terms of expected carried quantities year over year. So that is an important element of consideration to be taken. And second, the scrapping of capacity will, it's a matter of, it's not an if, it's a matter of when, and this should approach, this should happen fairly soon. There will be a need to take out older tonnage. There is a lot of vessels that...
Speaker Change: in other circumstances would no longer sail and those vessels would need to be retired. They would have been in normal circumstances and they would be pushed out also with the enforcement of the IMO regulation. And again, I think what we could add one other element to finish answering the question is if we look today in order to cope with the surge of required capacity to
to walk around or to go around.
Speaker Change: The Cape of Good Hope. If you look at the average vessel speed, it went up from 2023, I think today on average.
Speaker Change: there is a clear room in 2023 the average was below 15.5 so that's one not the difference is that having a significant effect also on capacity absorption
Speaker Change: the risk of or the effect of this influx of capacity. The risk is there, of a risk of extra or overcapacity, but there are also, I think, and this should not be overlooked, a series of meaningful things that could happen that could mitigate that risk going forward.
Speaker Change: Your next question comes from the line of Satish Sivakumar with Citigroup. Please go ahead.
Thanks again Xavier and Eliyahu Glickman.
Speaker Change: Congratulations on the good results here, actually. I got four questions here, and I might start off with ...
Speaker Change: It actually assumes the average freight rates being flat, quarter on quarter. Is that correct, or do you actually see an uptick in the volume growth versus Q4, even adjusted for seasonality?
Speaker Change: Has it changed as we went through the year? Are you still using around 35% of your volume zone? Trans-Pacific is still contracted. Any color around that, what does that split look like actually at the end of Q3?
Speaker Change: I just seen some still some pressure on getting the vessels fully utilized again just looking into very specifically trans-pacific vessels, intra-Asia, flat-arm trades
Speaker Change: And then the final one on the trans-pacific volume growth, strong volume growth here. Can you actually help us understand year-on-year movements there?
Speaker Change: Let's just say volumes into West Coast, which was not there last year. You launched those services this year. And then also the impact of express service stamp, basically splitting between East and West Coast would be very helpful from Asia. Yeah.
Speaker Change: New Capacity. We still have four vessels that will be delivered to us.
Speaker Change: between now and the end of the year, whereas we have seven smaller ships for redelivery over the same period. So next we continue to grow our operated tonnage and as a result we also believe that we will be able to capture additional market share and fuel those ships.
Speaker Change: So the 970,000 TEUs that we've carried this quarter, we are expecting to continue on the same trend into the fourth quarter. So yes, there is still a volume growth assumptions versus last year, baked into our guidance for Q4.
Speaker Change: In terms of rates, we talked about the fact that the rate did indeed decline from the high of achieved in July, but we now see some rates stabilizing, but still on the overall, if you compare, when we will close Q4, the average freight rate per T.U. carried in Q4 will not be as strong as the average freight rate of T.U. carried in Q3 again.
Speaker Change: because we were through the descent in terms of the spot rate environment already within the third quarter. So we see a stabilization now, but on average, the average revenue generation that you carried in Q4 is expected to be less than the one in Q3.
Speaker Change: With regard to the question on the spot versus contract, you're right in saying that it was a very important decision that we took earlier this year to not compromise on our, you know, ask vis-a-vis our customers for a minimum contract rate that led to us being more exposed to the spot market than what we initially had planned.
Speaker Change: That hasn't changed throughout the year. For us, the contracts are being discussed and set during the contract season, in a way, so in the first quarter. And so, as of today and as of...
Speaker Change: the end of the Q3, we were still operating on the 35-65% type of split between contract and spot.
Speaker Change: which is that we are seeking obviously to lock a long-term contract but providing only that those are being set at rates that we are happy to agree to.
Speaker Change: The volume resumed, but the demand went back up very rapidly thereafter.
Speaker Change: And so our vessels are sailing at optimum capacity and pretty much full.
Speaker Change: So, the utilization is strong, has been strong ever since, and we expect it to continue to be strong for the reasons I've explained earlier on, up until, we think, at minima, early next year, up until Chinese New Year, which is set on 27th of January.
this time next year.
And finally, you were asking the trans-Pacific volume growth.
Speaker Change: It's been very important for us, not only in Q3 by the way, but still since we have experienced the effect.
Speaker Change: of the Red Sea Disruption and the fact that we had to add capacity.
Speaker Change: to the trades that were sailing around the Cape. So we added capacity on the cross-swathes trade in order to maintain the weekly service and to capture the momentum in the freight environment. And with the ripple effect, because it's pretty much the same type of ships that are being deployed also on the Trans-Pacific, the Trans-Pacific has been recovering very quickly from the low of 2023.
Speaker Change: and echoing, I think, what the comment that Eliyahu made, that it was very important to us to maximize our earning potential. So yes, we had a very strong historical presence on the U.S. East Coast.
Speaker Change: and we capitalized on that stronger foothold. But also on the U.S. West Coast, that's where we took full service away from the Pacific Northwest.
Speaker Change: that was not as strong in terms of demand and in terms of earnings potential and redeployed its capacity to the Pacific Southwest.
Speaker Change: So now we end up operating two services, where last year we had no longer any service on the Pacific Southwest.
Speaker Change: So those which are expedite service, 5-6 week full transit rotation, move cargo pretty fast in a way and contribute positively both to the revenue generation but also from a volume perspective to the carried quantities when you look at that metric in isolation.
Speaker Change: Thanks, Xavier. Just maybe, again, on the express-type product, the express services, what type of customers are actually utilizing that service?
Speaker Change: Do you have any color, like which one do you want?
Speaker Change: Yeah, I mean on this service you have all the usual suspects that are very interested in services that cater for time-sensitive cargo, so you have all the, you know, e-commerce type of businesses. So that is a significant
Speaker Change: source of cargo, and you also have some regular cargo that is being booked on those ships, especially nowadays with the shortage of capacity and the strong demand that is prevailing in the U.S.
Speaker Change: Got it. Maybe just sorry, one quick follow-up on this. So the point of sale on that express service, how do you classify U.S. versus Asia on that express service?
Speaker Change: I'm sorry I didn't quite get that question. If I look at the point of sale for that express service, what is the split would look like say originating out of Asia versus originating out of US importers?
Speaker Change: Oh, I would not be able to tell you precisely here, to be frank.
Speaker Change: push export out and pull imported is something that you know I wouldn't want to say something that
and the 100% sure.
Okay, no problem. Thanks, Xavier, and congratulations again.
Speaker Change: And that does conclude our question and answer session, and I will now turn the conference back over to Eliyahu Glickman for closing comments.
Eliyahu Glickman: In summary, we are proud of Zinn Strong Third Quarter, in which we deliver record carried volumes and outstanding financial results.
Eliyahu Glickman: This performance, again, illustrates our continued progress advancing ZIM fleet transformation, enhancing our commercial agility, and executing strategic objectives.
to best position the company for long-term profitability.
2024 is shaping up.
Eliyahu Glickman: to be the third best year ever for container shipping following the record year of 2021 and 2022.
Eliyahu Glickman: and we are pleased to continue to capitalize on a positive rate environment that has remained stronger for longer than anticipated.
We have once again raised our full ear guidance.
Eliyahu Glickman: As we look to the future, while market dynamics are volatile, we are confident that we have built a resilient business at ZIM with a transformable future.
Eliyahu Glickman: Fleet, our strategic transformation has put us in a stronger position than ever.
Eliyahu Glickman: And we will continue to implement our differentiated strategy to drive the next phase of ZIM growth.
Eliyahu Glickman: Thank you again for joining us today. We look forward to sharing our continued progress with you all. Thank you.