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Zim Shipping Line is betting big in the spot market as losses mount

Zim Shipping Line is betting big in the spot market as losses mount

Image of the Zim ship

Zim Newark serves Asian and Gulf Coast trade. (Photo: Shutterstock/Daniel Wright98)

More bad news from Zim, the world’s 10th-largest container-line operator and a major player in Asia-U.S. trade on the East Coast: After lowering its guidance for the full year in July, it posted a much bigger loss in the second quarter on Wednesday than analysts expected. .

The Israeli company Zim (NYSE: ZIM) reported a net loss of $213 million for the second quarter of 2023, compared to a net income of $1.34 billion in the second quarter of 2022. A net loss of $58 million in the first quarter of this year. The adjusted net loss of $1.37 per share for the most recent period was 49% lower than the forecast loss of 92 cents per share.

The company’s stock fell 10% at 2.7 times average trading volume on Wednesday after the results were announced, flirting with a new 52-week low.

Zim maintained July guidance for full-year adjusted earnings before interest and taxes (EBIT) of $100 million to $500 million. Its adjusted EBIT minus $161 million in the first half, which means it expects EBIT in the second half of $339 million to $61 million.

On the plus side, the company has a pretty large cash cushion to weather the storm.

Total cash was $3.2 billion at the end of June, down from $4.25 billion at the end of the first quarter of 2023. The April dividend payment linked to the 2022 earnings was $770 million, or 73% of the sequential decline.

Shipping rates are still up 20% compared to pre-COVID levels

Zim is more exposed to spot rates than larger airlines such as Maersk and Hapag-Lloyd that rely more heavily on contract coverage.

This benefited Zim during the boom, when its average price per container (including contract and location) rose more than other carriers, but the bill came due in the fourth quarter of 2022 and the first half of 2023, when spot rates hit. Sunken Zim more difficult than others. vectors.

Chart comparing Zim's rates to other carriers

(Graph: FreightWaves based on data from quarterly filings for Zim, Maersk, and Hapag-Lloyd)

Its price in Q2 2023 averaged $2,386 per forty-foot-equivalent unit, down 67% year-over-year and 14% quarter over quarter, albeit still up 20% from Q2 2019, pre-COVID.

Zim rates chart

(Chart: Freight Waves based on Zim’s quarterly filings)

Zim spot upside in the second half?

This is the optimistic state of Zim in the second half Spot rates across the Pacific have increased significantly over the past six weeks The company is more exposed to spot rates now than usual.

Annual contracts in the Trans-Pacific region usually begin on May 1. During Wednesday’s conference call, Chief Financial Officer Xavier Destriau explained, “When we were in discussions during the contract season with our clients, we had ground that we weren’t willing to go below in terms of agreeing to prices. We weren’t willing to agree to prices that were lower than A certain threshold that we set for ourselves.

The company generally puts 50% of its trans-Pacific business into contracts and 50% immediately, but it hasn’t found enough shippers willing to sign contracts above the price limit this year. As a result, it has only 30% of its capacity across the Pacific from May 1, 2023 to April 30, 2024, with 70% immediate.

This unusually heavy mix may have been a coincidence in the current quarter. The Drewry World Container Index (WCI) between Shanghai and New York is up 27% since the start of the third quarter, to $3,363 per capual unit as of the week ended Aug. 10. Coast’s valuation has risen 20% since the beginning of July, to $2,846 per consumer unit as of Tuesday.

Spot price chart across the pacific

Real-time price valuations in US dollars for each investment unit. Blue Line: FBX China-East Coast. Green line: WCI Shanghai-New York. (graph: FreightWaves SONAR)

Norway-based Xeneta tracks both spot and contract prices. According to Xeneta data, short-term rates for the Far East and the Middle East averaged $3,121 per economic investment unit on Wednesday, up 41% from the start of the third quarter and 14% above average long-term rates. Spot prices on this corridor have outperformed contract rates since the beginning of this month.

Chart rates across the Pacific

(graph: Xeneta)

‘Lots of uncertainty ahead’

“Obviously, the increase we’re seeing in spot rates in the Trans-Pacific region is a welcome development after going through a period where rates were consistently falling week after week and coming in below the 2019 average,” said Desterio.

“What is clear to us today is that the spot market is now more advantageous for liners than the average contracted prices during the contract season. So,[in respect of Zim’s 30-70 contract spot mix]we feel we made the right decision at the time.

“As long as spot rates continue to rise relative to average contract prices, it will benefit the company,” he said, emphasizing that the current spot rates across the Pacific are higher than the minimum contract rate set by Zim this year. Negotiation.

But we remain very cautious, as we have only seen a few weeks of improvement in trade. There is still a lot of uncertainty ahead. How long the recent improvement in the Trans-Pacific Trade Corridor will last is unknown. Whether or not it will pass October is unknown.

“The high levels of inventory built during 2021 and 2022 and continued concerns about economic growth have prompted importers to exercise caution and limit any real inventory replenishment,” he warned.

“Today, when we look at the peak season and the way it’s shaping up, we think if there is a season, it’s going to be a very weak peak season, to say the least.”

Zim KPIs Chart

Zim KPIs Chart

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