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ZIM Integrated Shipping Services Ltd.

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ZIM Integrated Shipping Services Ltd. (ZIM) CEO Eli Glickman on Q1 2022 Results - Earnings Call Transcript

Company Participants Elana Holzman - Head-Investor Relations Eli Glickman - President & Chief Executive Officer Xavier Destriau - Chief Financial Officer Conference Call Participants Muneeba Kayani - Bank of America Chris Robertson - Jefferies Alexia Dodani - Barclays Sam Bland - JPMorgan Operator Ladies and gentlemen, thank you for standing by. I'm Natalie, your chorus call operator. Welcome and thank you for joining the ZIM Integrated Shipping Services Ltd. Q1 2022 Earnings Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions] I will now like to turn the conference over to Elana Holzman, Head of Investor Relations. Please go ahead. Elana Holzman Thank you, Natalie, and welcome to ZIM's first quarter 2022 financial results conference call. Joining me on the call today are Eli Glickman, ZIM’s President and CEO; and Xavier Destriau, ZIM’s 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 materially. 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 2021 Annual Report filed on Form 20-F on March 9th, 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, Eli Glickman. Eli? Eli Glickman Thank you, Elana and welcome everyone to today's call. Following an extraordinary 2021 closing, we carried out our strong momentum into 2022. I am proud to present another quarter of record results and exemplary execution. I believe that we are very well-positioned today as an innovative provider of seaborne transportation to capitalize on market tailwinds and continue delivering superior profitability. Before I dive into our quarterly highlights, I would like to address the situation in Ukraine. The continued violence saddens us deeply. In an effort to support the people of Ukraine, we have donated to help build and operate a field hospital to care for those affected by the war. We also continue to support our Ukraine employees, customers, and partners in anyway we can. As I have stated previously, our duty to help preserve human life exceeds all other considerations. Now, turning to ZIM Q1 and year-to-date accomplishments. As highlighted in this slide, slide number three, we maintain our strong trajectory into 2022, delivering another outstanding quarter of financial results due to the proactive strategies we've implemented to capitalize on both the highly attractive markets and the ZIM differentiated strategy. In Q1, we generated record revenues of $3.7 billion, record adjusted EBITDA of $2.5 billion, and record net profit of $1.7 billion. Shareholders equity was $4.3 billion at the end of the quarter. Consistent with our focus on profitability, we achieved exceptional margins as well. 68% for adjusted EBITDA and 60% for adjusted EBIT. We continue to outperform the liner industry average as we have done for several quarters. Our results also stand out operationally as we grew our current volume by 5% in Q1, compared to Q1 last year. This is an impressive achievement, particularly given the global volume decreased by almost 2%. Slide number 4, you can see that our strong performance to-date, combined with the 2022 long-term contract rates that we have secured, boost our confidence with respect to our 2022 guidance. The average rate of our long-term contract, which took effect starting about two weeks ago in May 1st, reflect a rate increase in excess of 100%, in other words, more than double as compared to 2021. This long-term contract rates illustrate customer expectation for both sustained demand for capacity as well as the continuation of a very strong rate environment. As such, we are raising our full year 2022 guidance and now expect to generate adjusted EBITDA between $7.8 billion to $8.2 billion, and adjusted EBIT between $6.3 billion to $6.7 billion in 2022. It is also, noteworthy, that our exceptional performance allows us to continue to return substantial capital to shareholders where our policy to distribute a dividend to shareholders on a quarterly basis at the rate of 20% of net income. Our Board declared a Q1 dividend of $2.85 per share. Slide number 5. We remain focused on executing across our strategic pillars, including operational excellence. A core component has been strengthening our commercial proposition and improving our cost structure by securing fuel efficient using capacity. Following our first long-term charter agreement for 10,000, 15,000 TEU LNG dual-fuel vessels, intended to serve our Asia to US East Coast service, our focus shifted to highly diversity vessels. Since the beginning of 2022, we announced three charter agreements for a total of 17 newbuild vessels with total TEU capacity of approximately 96,000. We added three 7,000 TEU LNG dual-fuel container vessels to the 15 vessels already secured in 2021 as well as eight 5,300 TEU vessels and six 5,500 TEU vessels. This is modern and efficient tonnage, particularly well suited to serve on our expanded network of expedite services as well as other regional services. This versatile fleet will allow us to maintain our flexibility and soften our market position and commercial prospects. In total, we secured 46 new build vessels, scheduled for delivery starting in Q4 2022 and throughout 2023 and 2024. Our fleet chartering strategy will enable us based on prevailing market conditions in the future to decide whether these new vessels will represent an expansion of our fleet or replacement. It is also important to highlight that of this 46 new vessels, 28 are LNG powered consistent with our sustainability core value, we continue to position ZIM at the forefront of the carbon intensity reduction among global liner that will support our customers to meet their own ESG objectives. We anticipate becoming the first container shipping company to deploy LNG vessels Asia to US East Coast. When we take delivery of this green LNG fuel vessels, which will represent approximately one-third of our operating capacity, ZIM will be more carbon and cost efficient than it is today improving our competitive position. I would also remind you that the road to decarbonization in our industry is an opportunity for ZIM. Given our mostly chartering capacity, we can easily replace our operated capacity to more environmentally friendly tonnage. Moreover, by opting to charter these LNG vessels other than on ZIM, we are also maintaining flexibility to transition to newer technology if and when they become commercially viable. Slide number 6. You can see that our ability to adjust our fleet sales to market condition and identified market opportunities are a direct [Technical Difficulty] of our operational and commercial agility and other strategic pillars. ZIM now has an established track record of making minimum adjustment to meet changing market conditions, optimizing vessel deployment, supporting high utilization of vessels and exporting specific trade advantages to drive outstanding results and superior profitability. Since the beginning of the year, we've increased our operated capacity by approximately 11%, and we currently operate 137 vessels. It is important to remember that we have added significant operated capacity in recent weeks in anticipation of the changes to our collaboration with the third party. ZIM exceptional success is based on our ability to act decisively and adjust quickly. We continue to identify new market opportunities, advancing our global new strategy to meet customer demand. As far in 2022, we have launched 10 new lines, including six that are expansion of our network and four replacement line to better meet our customers [Technical Difficulty], notably in keeping result focus on promoting alternative modes of transport for e-commerce customers. We recently launched our Baltimore eXpress line, ZXB, a first of its kind, speedy e-commerce service from China and Southeast Asia to the US East Coast operated exclusively by ZIM. As part of our vision strategy, we identified this opportunity to add another building block in our ZIM Ecommerce Xpress Line, and launch the Baltimore service at a time when customers are seeking a competitive alternative to airfreight. Importantly, ZXB offers customer a wide range of advantages including expedited rail, air and road connections to inland destination. Finally, as we discussed on our previous earnings call, we've extended our operational cooperation with the 2M Alliance on the Asia to US East Coast and US Golf Coast trades, while we move to ZIM independent services in the Asia to Med and PNW trades. The collaboration is now operating on the basis of the slot exchange and vessel sharing, making ZIM an equal partner on these joint services. We continue to meet growing demand, and competitively serve our customers, particularly on key transpacific routes. I will now turn the call over to Xavier, our CFO, for his remarks on our financial results and market development, please? Xavier Destriau Thank you, Eli, and again, welcome, everyone. We delivered another quarter of outstanding financial performance as a result of both historically high freight rates as well as our differentiated and proactive approach. Slide 7 here demonstrates our strong results and significant improvement across key operational and financial indicators versus the prior year respective quarter. Our record results were once again driven by continued positive market conditions, which kept freight rates significantly higher than prior year. ZIM has continued to prioritize better-paying cargo and undertaken initiatives to capitalize on the e-commerce demand, which enabled us to improve cargo mix. Specifically, our average freight rate per TEU of $3,848 in the first quarter was 100% higher compared to the first quarter of 2021, and also 6% higher than our average freight rate in the preceding quarter. Our free cash flow in the first quarter totaled $1.5 billion, compared to $645 million in the comparable quarter of 2021, an increase of 130%. Turning to our balance sheet. Total debt increased by $984 million since prior year-end, mainly driven by the increased number of vessel fixture, longer charter duration as well as higher daily charter rates. Over the same period, our cash position grew substantially by approximately $1.3 billion. As a result for the second consecutive quarter, ZIM’s net debt has been driven down to a level, at which the company closed the period in an effective positive net cash position. Our fleet management strategy is to maintain optionality to match capacity with demand remains intact. We believe that things as we take the ability to adapt to our fleet size to change in demand fundamentals. The average remaining duration of our current chartered capacity today, is 28.6 months, slightly up from the 26.1 months in March 2022, and breaching our current operating capacity to the scheduled delivery of our newbuild vessels. Also, only 11 of our chartered vessels are now scheduled for renewal between now and the end of 2022. And 28 will be renewed in 2023, and 34 potentially also reviewed in 2024. Next on slide 8, you can see that, we are delivering consistent improvement in earnings, at the same time our net leverage has trended downward from 2.4% in Q1 2020 to zero. Importantly, we continue to be positioned in the third-tier of our industry in this regard, reflecting the strength of our balance sheet. Moving on to the next slide, slide 9. Our proactive strategy continues to generate record results. Revenue for the first quarter was $3.7 billion compared to $1.7 billion in Q1 2021, driven primarily by improved freight rates, and to a lesser extent, also an increase in carrying volume. Most importantly, we grew profitably with Q1 net profit of $1.7 million, representing 191% year-over-year increase. Adjusted EBITDA was $2.5 billion for the quarter, compared to $821 million in the first quarter of last year that is an improvement of over 20%. Consistent with our focus on the delivering industry-leading margins, adjusted EBITDA and EBIT margins were 68% and 60%, respectively, as compared to 47% and 39% in the first quarter of last year. Those margins were comparable to margins we delivered in the prior quarter. I would like to note that, as anticipated, ZIM is currently incurring 23% corporate income tax in this math. In Q1 2022, company began the impact of the ZIM and as such, during the first quarter, we paid tax event in a total amount of $246 million. Moving on to slide 10, we continue to outpace the industry in terms of growth in carried volumes, without compromising our profitability. We carried 859,000 TEUs in the first quarter as compared to 818,000 TEUs during the same period last year. So we grew, our current volume by 5%, while the general market contracted by almost 2%. Volume growth in Q1 in non-transpacific trade did compensate for the decline in transpacific volume, which was negatively impacted by rejection. Sequentially, our Q1 2022 carried volumes were flat, compared to Q4 2021, while again up, the overall market shrunk by over 6%. Regarding our cash flow, we ended Q1 2022 with a total cash position of $5.1 billion, which includes, cash and cash equivalents and investments in bank deposits and other investment instruments. I would remind you that in April, we paid a dividend totaling approximately $2 billion. During the first quarter, our adjusted EBITDA of $2.5 billion converted into a $1.7 billion cash flow from operations. Other cash flow items in the first quarter included $177 million of net CapEx and $249 million of debt service. The first quarter of 2022, CapEx mainly related to the secondhand vessels we purchased in Q4 of last year that we got delivered in the first quarter of this year. Moving to our guidance, we are raising our full year guidance and now do expect to generate adjusted EBITDA between $7.8 billion and $8.2 billion and adjusted EBIT between $6.3 billion and $6.7 billion. The main reason for improved outlook for 2022 is better than initially anticipated contract rates. Volume growth is expected this year to be approximately 5% other assumptions we provided in March do remain largely unchanged. Turning to market and industry strength and our positive view going forward. The combination of port congestion and strong demand, especially in the United States, are the underlying factors shaping the strong market we are currently experiencing. Port congestion and supply chain disruptions have been a persistent strength on container shipping operations for over a year now. This reality is not expected to be resolved in the near future and even still into 2023. Jury estimates that long queues of ships waiting outside port and slower ship turnaround resulted in effective containership capacity being 17% below its potential in 2021. The forecast for 2022 has also increased from 12% in March to 15% today, and the port congestion to absorb 7% operating fleet capacity in 2020. Exports Ocean Timeliness Indicator demonstrates the depth of port congestion. As you can see, the end-to-end transport time from the exporters location to the port of destination on China to US groups, which stood at 45 days pre-pandemic, more than doubled and is currently estimated to be around 103 days. This longer supply chain creates demand for more backroom and containers to absorb the significantly longer qualities. It is important to remember that congestion cannot be viewed as port-specific, rather the more global holistic view should be taken. And as we saw in recent weeks as the queue outside port of LA and Long Beach shortened, congestion in East Coast ports started to wither. These measures show no signs that the supply chain crisis has passed. The next slide shows that demand in the United States is expected to remain robust in the near future. Continued disruptions of global supply chains are expected to support high demand for container shipping and shippers are looking to guarantee space to maintain required inventory. Despite growing inventories in the United States, strong demand results in inventory to sales ratio remaining at a level which is far below pre-COVID or normal levels. You can also see here on the right that global volume in March 2022 is higher by 6% when compared to 2019, the last normal year experienced by our industry. Moving on to the next slide. The overall supply-demand balance remained positive for 2022, despite projections for 2022 to be adjusted downwards, due primarily to the impact of the illegal [ph]war in Ukraine and China's zero-tolerance COVID policy. The supply-demand balance reverses in 2023, when more significant newbuild deliveries, including ZIM green hours [ph]are expected. The order book has also consistently grown over the past several months, yet our view of market fundamentals for the near and mid-term remain overall positive. We believe that the increased order book is at least partially a response to the anticipated pressure to decarbonize shipping and renew aging fleet. With major retailers setting more aggressive reduction in carbon emission than mandated, the motivation to scrap older, less efficient vessels will grow, reducing the growth in effective capacity. Supply chain disruptions will also partially offset the effect of newbuilding deliveries in 2022. Next is the more shorter -- is the more short-term, we show that the decline in freight rate since January 2022, which is in consistent with typical seasonality impacting the first and second quarters in our industry. The graph on the left shows a similar seasonality trend for the 2022 SCFI Comprehensive Index when compared to previous year prior to and following Chinese New Year. We believe that the Shanghai lockdown contributed to the slower spot rate recovery this year compared to prior year. Yet, when manufacturing in China returns to normal and demand picks up in peak season, the added volume may put additional pressure on already strained supply chain and congested ports in the United States and elsewhere. The graph on the right compares the development of freight rates from 2018 to 2022 to-date, and again, demonstrates the price decline in Q1 are consistent with typical seasonality. The downward trend in 2022 extended longer than prior years, again, most likely due to the Shanghai lockdown. But we are starting to see rate stabilization in Q2 as would be expected. With respect to our overall expectations for freight rate, we would contend that certain factors including the sustained historically higher than average freight rates, now entering the third year in a row, structural changes in container shipping, vertical growth strategy being pursued by various liners and higher cost incurred by all players will keep freight rates of declining to pre-COVID levels when rates finally normalize. With that, I will turn the call back to Eli for his concluding remarks. Eli Glickman Thank you, Xavier. We continue to deliver on our commitment to outstanding execution and profitable growth while positioning ZIM for long-term success. As Xavier just outlined, strong underlying market fundamental support our optimism for the future as we leverage our global niche strategy to meet growing customer demand. Importantly, we have secured fuel efficient newbuild capacity that will strengthen our market position and commercial prospects moving forward, while maintaining ample flexibility in our operated capacity. We are pleased with our incredible progress today as a public company and excited to carry our momentum forward, continue to advance ZIM position as innovative digital leader of seaborne transportation and logistics services to maximize value for all stakeholders. We will now open the call to questions. Thank you very much. Question-and-Answer Session Operator Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] And the first question is from the line of Sathish Sivakumar from Citigroup. Please go ahead. Sathish Sivakumar Hi. Thanks again for the presentation. I got two questions. So firstly, on the contract rate side. Obviously, your rates have been almost doubled. So if you could give some color on, given the spot rate how they moved so far, what are you actually seeing on your contract rate because Asia to US is probably -- the negotiation is just starting on, right? So would you see that -- there is even more further upside as we go into Q2? How should we think about contract rate element alone? And then the second one. Obviously, if you look at your guidance and while your EBITDA for Q1 and what does that imply in terms of H2 actually, do you expect like steep normalization and rate because in one of your slides, you do say that disruptions might extend into 2023. So I just wanted to understand what does it mean in relevant to your spot rate expectations as you go into H2? And then sorry, if I could ask the third one. What is your current visibility on demand in terms of bookings that you see in your system? Like do you have like, say, two months, three months visibility? And how does that compare versus, say, back in 2019? Yeah, those are my three questions. Thank you. Xavier Destriau Yes, starting with the first one. I think the first one and the second one are quite intertwined actually. The contract season for us on the transpacific is starting from the 1st of May and will extend up until the 30th of April, next year. So what we have done over the past few weeks is finalized all the discussions with our customers on the transpacific trade to agree on both the allocation and the risk that would prevail for the next 12 months. And this is because we have concluded on average at risk that we are higher than what we initially anticipated when we were in the middle of the discussions when we last talked in March two months ago then we predominantly explained why we are increasing our guidance. So we increased the guidance on the back of higher than anticipated contract rates that will start to kick-in or started to kick-in, in the 1st of May. So we largely impact Q3 and Q4 for the second half of 2022. With respect to what we anticipate in terms of spot market, what the spot market might do. And again, there is a lot of uncertainty today, but we need to make assumptions and work with those. We made still the assumptions in and embedded in our guidance that the spot rates would start to normalize in the second half of this year and that to some extent, the reduction in the spot market would be offset by the incremental revenue that we will generate on the contract cargo compared to last year. So, we still expect a conservative view in that sense that we believe that it is a possibility that the spot market will start normalizing in the second half of this year. And when talking about the -- I think the third aspect of your question, what do we see in terms of the demand. Currently, as you know, there is the situation that has been affecting the whole of the industry, especially relevant in Shanghai with the lockdown of Shanghai and Shanghai being a very important export placed out of China. So, there's been a reduction in volume out of Shanghai. We are also hearing and reading the same as I think you do that -- the idea is that the situation should start to resume and production should start to resume and lockdown should start to ease, so that by the end of June, production should go back to normal as far as Shanghai is concerned. Up until today, we have -- we managed to compensate the shortfall of export cargo from Shanghai by reallocating some of our volume to South China and also Southeast Asia. But at some point, indeed, if the situation was to remain as is and if the manufacturing sites were not allowed to come back to production, then the situation would deteriorate, but we see -- we don't see that happening. And in terms of booking forecast, looking at our filling factors, the vessels for the weeks to come and for the few months, a couple of months to come, are expected to stay full. Sathish Sivakumar You do have a visibility of the two months that ZIM stands today? Eli Glickman I'm sorry, say that again? Sathish Sivakumar No, I just wanted to clarify. So, you got about two months of visibility in terms of demand booking? Eli Glickman Yes, on the spot. And then on the contract, we have a little bit more than that due to the -- not only do we negotiate contract risk, but more importantly for our customers today space in terms of the volume. Sathish Sivakumar Okay, got it. Can I ask you another quick follow-up actually. You've outperformed on volume growth and versus the overall market, right? And what is actually driving that? Is it because of your exposure to Transpacific, or how should we think about, let's say, for the remaining part of the year? Eli Glickman If we look at the first quarter where we generated an increase of 5% versus the same quarter last year, we were affected by the congestion on the Transpacific. So, we carry a bit less cargo than we initially anticipated. But where we have been extremely active in growing our network is on the Intra-Asia trade. We've opened quite a few new lines within the Intra-Asia region, including between Southeast Asia to Australia, so the growth on Intra-Asia has been quite dynamic and allowed us to compensate for the slight reduction we've seen in volume due to the congestion on the US. Sathish Sivakumar Okay. Got it. Yeah. Thank you. That's quite helpful. Thanks very much. Operator The next question is from the line of Muneeba Kayani from Bank of America. Please go ahead. Muneeba Kayani Thank you. I was wondering if you could talk about the union negotiations at the Port of LA, Long Beach. What are you hearing? And what is your expectation for that? And is that a risk for further disruption going into peak season? And then secondly, in terms of like new deliveries for the market that are expected in 2023, could those be delayed because of the lockdowns in China and disruption on supply chain? Thank you. Xavier Destriau Yes. The first question with regards to the current discussions in the union discussions in Port of LA, very difficult for us to comment on what could be the outcome, what we can say is that as is always the case, we hope for the best and get ready for the work. So it is a threat and a potential risk to the current existing supply chain disruption. We've seen some of our customers be directing some of their cargo already in anticipation of what could be the outcome of the discussions, or if there was to be some action also in an action on the – in the Port of LA. So some of the cargo has been moved already from the US West Coast to the US East Coast, which also explains, to some extent, why there is an increase in the congestion of the US East Coast terminals. With respect to your second question, as we all know, 2022, is not going to be a year where we will see a significant new building being delivered in the 2023 on paper active and 2024, indeed are – or were expected to be years where significant amount of new tonnage are expected to be delivered. It is possible and time will tell, it is possible that the initial planning and we are sensing that some shipyards, especially in China, maybe more than the shipyards in Korea are being affected, as you suggested by the zero-COVID policy that is being enforced in China, may struggle to deliver the vessels as per the original schedule. So there might be some sliding in terms of delivery of the new building capacity in 2023 to a little bit of late. As far as ZIM vessels are concerned, because you know that we are expecting some vessels in 2023. The first one being expected to be delivered in February 2023, we seem to be on schedule. Muneeba Kayani Thank you. And can you comment on what sort of demand you're seeing right now from the US? And have you seen any change in recent weeks? Xavier Destriau Today, the demand is still extremely strong. And I think this is what we want to illustrate when we show and we keep on displaying that graph, which is the inventory to sales ratio in the US, which is for us a key metric that we track. There is – what's going on in Asia is one point of reference. The other one, obviously, there's the crisis in Europe, Russia, Ukraine is also having some effect on Asian offshore trade link. But if we look at the Asia, the trans-Pacific trade, which is the one we are exposed to as we are not exposed to Asia to North Europe, as you know, the dynamic is not the same. The demand in the US is still extremely resilient, is still extremely strong. And we don't see -- we haven't experienced so far any softening more than we would expect in terms of seasonality on that front. So customers are still looking to ensure that the space that we have allocated to them is still a space that they will be able to enjoy in the coming weeks. There is all the orders that have been placed prior to the Shanghai lockdown are still there, and we need at some point to be lifted to -- from China, Southeast Asia to the US. And what may also happen is pre-Thanksgiving, pre-Christmas shopping season, which is the peak season for us, you know, activity in our industry might start earlier than initially anticipated. So if all the stars are aligned, and Shanghai lockdown indeed is before or somewhat towards June, all the situation could be that there will be a surge in demand as early as July. Muneeba Kayani Operator The next question is from the line of Chris Robertson from Jefferies. Please go ahead. Chris Robertson Good morning and thank you for taking my questions. Xavier Destriau Chris Robertson My first question is on the current average time charter duration. Could you talk about the average time charter duration and on average, what percent of your operated fleet rolls off charter per quarter or per year? Xavier Destriau The average -- if we look at what we have, we have -- we operate 135 vessels, 137 vessels today. Pretty much all of them are on charter with the exception of the secondhand vessels that we acquired late last year. So they are all on charter. And in terms of charter duration, they are all on charter for more than a year; we've contracted for more than a year. The average remaining duration of the book of charter that we have is now 28 months. When we renew a contract or since already in late 2020 and throughout 2021, and today, still in 2022, when we renew a charter, when we fix a vessel, the average charter duration is between three to five years. That has not changed. I think since now three or five quarters in a row. That's the rule of sum that we should keep in mind. So three years to five years. Now when it comes to -- and I think this is a very important point that you're raising in the second part of your question, what is left in terms of fixture that will come up for renewal in the quarters to come. And looking ahead into 2023 and into 2024, we have out of the 137 vessels today that we operate, 11 vessels, for which the charter will come to an end between now and the end of the year. So then it is rightly that we want to renew those charter, and we might enter into charter contracts for duration between three to five years for those 11 vessels out again of the 135 vessels -- 137 vessels. So we are not that exposed to the stock charter market for the remainder of 2022. However, looking ahead into 2023 and into 2024, that's where we cover the flexibility that we need and that we want in order to leave room for the new buildings that will be delivered -- will be delivered to us in 2023 and 2024. So in 2023, we have 28 vessels or charter that will come to an end. And in 2024, we have another 34. So that’s 62 vessels, altogether that will come to an end in terms of chartering agreement, and to put it into perspective to be compared with the 46 newbuilding that will be charted to us over the same period. Chris Robertson Okay. Yes. Thanks for that. And my second question is on the new Baltimore eXpress line, and you can speak generally to -- on the other Express and also the eCommerce lines. How should we think about that in terms of a – of earning a premium versus kind of the market average rate? A – Eli Glickman Yes, this -- those lines that are dedicated to time-sensitive cargo. The objective is to ensure that the transit time is as short as it can be and also that we have -- once the vessel arrives at the terminal both on arrival that we have the chassis ready that the inland transportation onto rail can be organized swiftly. So this is the whole service that we provide to a customer when they book on those specific lines. So yes, they do commend a premium. It is difficult to price it or to give an indication as what is the percentage of premium that we are generating on those trade lines, but we generate on average, better income or better margin per TEU that we would on a more traditional line Chris Robertson Okay. And my final question it’s kind of following up on the first question asked around your EBITDA guidance. What percentage of the EBITDA guidance is kind of locked in based on your contract negotiations versus what is exposed to fluctuations in spot? A – Eli Glickman The -- when we look at the cargo mix or the trade mix where every country operates, 45% of our volume is from trans-Pacific. The rest is non trans-Pacific, Intra-Asia, Atlantic, Asia to South America. But -- so 45% is trans-Pacific, and that is where we are talking about a long-term contract. And 50% of our volume will be -- or are contracted on a long-term contract basis and 50%, we remain exposed to spot. So from a volume perspective, you can think that 25 -- a bit more than 25% of our volume is contracted and you can apply that first line of our criteria. The second one that obviously, needs to be taken into consideration is that the trans-Pacific in terms of -- in terms of profitability may differ to the other lines in terms of volume -- in terms of EBIT margin per TEU. So from a profitability perspective, it is north of the 25% I just talked about that is being locked in already in for the future quarters. Chris Robertson Okay. Great. Yes. Thank you for the color, and I appreciate the time. Operator The next question is from line of Alexia Dodani from Barclays. Please go ahead. Alexia Dodani Yes. good afternoon. Thanks for taking my question. I also had three. Just firstly, Xavier on your comments that you're now operating 137 vessels. That is a significant increase from the 125 we talked about at the previous call and yet carried volumes are in line this quarter with the prior quarter. Can you just talk a little bit about utilization of these assets in the most recent period and how you expect that to move ahead, I guess, as the lines pick up. So that's one kind of clarification on the capacity. And if you're able to give us a forward-looking capacity plan in terms of size of fleet, that would be very useful? And then just secondly on the customer mix or product mix on the volumes you carry. Is there a high-level number you can give us in terms of exposure to e-commerce or retail? I guess I'm trying to understand what else can balance of if there is some weakness from retail demand? I mean, news from some of the largest US retailers is a little bit confusing in terms of the sales growth being driven by price rather than volume and clearly there are associated implications. So any color you can give there would be great. And then the final question is on labor cost inflation. Is there something to flag in terms of kind of seafarer wages going up in line with inflation, or is it more nuance? Thank you. Eli Glickman Thank you, Alexia. Maybe on the first part of your question with regards to the fleet utilization, 137 vessels compared to the 125. We are operating more vessels and remember as well that we increased the size of our fleet also to adjust to the new relationship with the partnership we have with the 2M. And now we replace also slots that we used to buy on board our partners with our own capacity. So that explains also to some extent why we are operating more vessels and you don't see the exact same translation in terms of carried quantity, because of -- as I said, we used to be a net buyer of space on board our partner’s vessels. Second element, which is, I think, important in terms of you were asking about utilization. Utilization is extremely strong and has been very close to 100% on every single voyage. The one thing that has had an impact, nevertheless, is the congestion issue, the waiting time, meaning that that translated into a longer transit time to carry the same volume of cargo from one place to the other. So, there have been less voyages in a -- as a result of the port congestion that has an effect on the overall transit time of moving a boat from A to B. So, utilization is very strong. Vessels -- more vessels to adapt our fleet with the current relationship with the 2M and the volume also in line with the impact of the congestion. Looking forward to the capacity plan that is out, we want to make sure and we have taken all the necessary steps already to ensure that for our core lines that we have a very strong foothold that we have the capacity that we need in order to not only defend, but also increase our competitive position in those very important trades. And this is very much the 46 newbuilding vessels that we referred to earlier on that will come our way in 2023 and 2024, which will allow us to get a very efficient and the leaner tonnage that will position us very strongly. We will continue to explore alternative options and where we see opportunities to enter into new trade lines. If it does make sense, we will. And this is why we are very pleased to see that we will have the option to do so, because as I was referring to earlier on in 2023-2024. The 20 -- or 62 vessels that we cover for renewal if we see that there are opportunities for us to enter into new trades, then we will renew those charter on top of the one -- or some of them on top of the new capacity that we will get delivery for. So we will have the option, not the obligation to operate more vessels into the coming years. The third question that you raised, the question about e-commerce percentage of our activity. We've been, I think, very aggressive in entering into this type of trade, starting with our liaison between Asia, Southeast Asia, China to L.A. and then we expand it to a same type of a trade between Southeast Asia to Australia and New Zealand. Now we're just announced the opening of the same trade length between a similar service, sorry, between Asia to the US East Coast. So the reason why we're opening those lines is because there is a demand and our customers do wish that we provide this type of solution to them. So there's a split in terms of e-commerce trade lane. If we look at what it was over 2021, pretty much 25% of our transpacific trade and to a lesser extent on the Intra-Asia as well with the Australia, maybe 20% of our Intra-Asia trade were very much e-commerce trading. And then your last question, which is well about cost of employment. Obviously, with the current situation impacting Ukraine and as we all know, Ukrainian’s are greater seafarers and we have a lot of seafarers Ukraine’s situated on board. For us, it has a limited impact because largely as we mentioned, we are chartering in the capacity that we operate. And as part of the charter rates, the daily rates that we do pay to the tonnage honor that include as well the manning of the vessel, the ship management of the vessel that includes the seafarer wages and the technical support. So if there is an impact, it's more from the tonnage owner than it is for us to absorb. Alexia Dodani Very clear. Thank you very much Xavier for that. And can I just ask one follow-up on the contract portfolio. Actually, you haven't really changed your mix of contracted volumes. I mean, is there an opportunity to increase that 50% on the transpac to a higher level that locks-in some of these increases for longer, or are you more confident on the spot market? Xavier Destriau We could have decided to increase the volume that we would contract on a long-term basis. It was not a lack of demand in this respect from our customers. And throughout the discussion, the first question that we were addressing with our customers was the amount of the space that we could allocate to each and every one of them. So it was more a strategic decision from the company to stick to the 50% allocation between contract and spot as we also like to be able to benefit from the spot market, especially during the peak season, where normally it is to be expected that, the spot can outpace the contract – with the contract rate. So that has been a recipe that has worked for ZIM over the past few years, and we didn't see any reason to change drastically on that front for this very specific contract season. Alexia Dodani Great. Thank you very much. Operator The next question is from the line of Sam Bland from JPMorgan. Please go ahead. Sam Bland Hi. Thank you. Thanks for taking the question. I have also got three, please. First one is on the, these transpacific contracts. I think they've roughly doubled – the rate has doubled. Could you talk about where the contracted rates are have been agreed versus the current spot rate on that particular lane, please? The second question is on the, the 46 vessels. I think on at least some of those, maybe all of them, there's an option for a sort of upfront payment. Could you just kind of confirm if that's on all 46? And if so, is it known how big that upfront payment could be in 2023 or 2024, or is there some flexibility around that? And the final question is, if we assume that, you take all the 46 and renew the charters on the existing ships, $137 million, where do you think roughly the lease liability would max out at, please? Thank you. Xavier Destriau Okay. The – on the first question, with respect to the transpacific contract rate, yes, we did mention that, the – we settled or we agreed on average at rates that are more than double compared to what we signed the – same time – same time last year. But there is also some – some latitude or some gap between the various risks that we agreed. But by and large versus the spot today, we were or we – completely depending on when you are looking at in terms of over the past few weeks. But the rate that we contracted is where it was not that far off from what the spot currently is today. With regard to your second question, the 46 vessels, we did indeed agreed to pay stuff or too – to put upfront some cash at the time we will get the delivery of those vessels. And it was actually not a request from the charter – the service providers, but more a request from us to be able to put our cash to good use, as opposed to have to – to remunerate the equity of the tonnage of owners that would otherwise demand a very strong remuneration of that equity. So, it was a way for us to reduce the daily charter rate that we would be paying over the duration of the chartering agreement. And by and large, I think we did communicate for the first series of vessels with Seaspan the tenth – 15,000 TEU vessels. We are talking about $13 million per vessel, so $130 million altogether for the 15 vessels. And then for the subsequent order of the 7,700 TEU vessels, 18 of them, we agreed for $20 million altogether in terms of payments. So, if you add everything altogether, the commitment in terms of cash out at the time, we will get the delivery of those newbuild will be in the region of over $500 million. And to the last question, it's difficult to answer that one, Sam, because obviously, we don't know, what the chartering renewal rate will be or would be, if we were to renew the charter in 2023 and 2024 as opposed to let go the vessels that we currently operate to make room for the ones that would be delivered to us. So for that, it's a bit difficult to say. But obviously, we would only do it, if we felt that this was the right thing to do for -- from a business perspective, as you know, it is very high on our agenda to grow profitably and to enter into trade, where we believe that we can generate ongoing and sustainable profit. So we are very pleased to have the option to continue to grow. But in no way, do we feel we have the obligation to continue to grow aggressively. Sam Bland Understood. Thank you very much. Operator This concludes our Q&A session and the ZIM Q1 earnings call. Thank you for joining, and have a pleasant day. Goodbye. Comment

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