ZIM Integrated Shipping Services Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 16, 2023

Key Takeaways

  • In Q2 ZIM generated adjusted EBITDA of $275 m and an adjusted EBIT loss of $147 m on freight rates averaging $11.93/TEU, a 67% year-over-year decline.
  • ZIM narrowed its 2023 outlook to adjusted EBITDA of $1.2–$1.6 bn and an adjusted EBIT loss of $100–$500 m, citing a soft peak season, low single-digit volume growth and muted freight-rate improvements.
  • ZIM is transitioning to a fleet of 46 newbuild charter vessels—including 28 LNG-powered ships—with 8 delivered so far and the remainder due by early 2024 to lower costs and carbon intensity.
  • Despite industry headwinds, ZIM’s Q2 carried volume rose 2% year-over-year and 12% sequentially, outperforming market growth amid challenging conditions.
  • ZIM expanded its partnership with Fortisys, integrating AI-driven cross-border trade financing into its services with modest capital outlay and potential for significant customer traction.
AI Generated. May Contain Errors.
Earnings Conference Call
ZIM Integrated Shipping Services Q2 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Thank you for standing by, and welcome to the Zim Integrated Shipping Services Second Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Call. Thank you.

Operator

Elana Holtzman, Head of Investor Relations, you may begin your conference.

Speaker 1

Thank you, Rob, and welcome, everyone, to ZIIP's Q2 2023 financial results conference call. Joining me on the call today are Eli Glickmanzin's President and CEO and Saville Desliones, 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. Call. We believe that our expectations and assumptions are reasonable.

Speaker 1

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 2022 annual report filed on Form 20 F in March. We undertake no obligation to update these forward looking statements. At this time, I would like to turn the call over to ZYN's CEO, Eli Glickman. Eli?

Speaker 2

Thank you, Ilana, and welcome everyone to today's call. During the Q2 year to date, near term container shipping market conditions continue to be challenging. Our performance in the Q2 of 2023 reflected this reality. In Q2, we generated adjusted EBITDA of $275,000,000 and adjusted EBIT loss of $147,000,000 Cash flow from operations was $347,000,000 Our total cash position of $3,200,000,000 at quarter end remained strong. Going to Slide 4.

Speaker 2

Zim is currently in transition period. In early 2021, we embarked on our fleet renewal program to improve our cost structure and support long term profitable growth. During this period, we secured through a series of charter agreements, a highly competitive fleet and one that is optimally suited for our commercial strategy. This fleet is made up of 46 newbuild vessels, included 28 LNG powered containership. Of the 46 newbuilds, 8s are already part of our fleet today.

Speaker 2

4 12,000 TEU vessels and 4 LNG powered 15,000 TEU vessels. We expect the delivery of 3 additional 15,000 TEU LNG vessels this year and the remaining 3 are expected in the 1st few months of 2024. The commercial and environmental benefits of this cost competitive capacity are worth mentioning again. Our then 15,000 TEU LNG fueled vessels were designed and built to serve on the Asia to U. S.

Speaker 2

East Coast trade. This is a strategic service for ZIM and one in which Our market share exceeds 10%. 1, we operate our ZCP service with all 10 newbuild 15,000 TEU vessels, We expect to benefit from a very competitive cost per TEU on these 3. Moreover, ZYN is the 1st liner to operate LNG powered vessels on the Asia to U. S.

Speaker 2

East Coast route, which we are confident will increasingly become a significant commercial differentiator. We view it as imperative that we provide customers with a service offering that enables them to reduce their carbon footprint. At the same time, adding state of the art energy fuel vessels, further Zing owned sustainability goals and support our commitment to reduce greenhouse gas emissions to net 0 by 2,050. Our fleet renewal program also included 32 smaller, more versatile newbuild vessels, out of which 18 are LNG powered 7000 TEU vessels. These smaller vessels support our global niche commercial strategy and enable us to maintain flexibility to target better performing trades.

Speaker 2

The first 37000 TEU vessels are expected this year and the remaining in 2024. Once we receive all 28 LNG vessels, We expect that approximately a third of our operated capacity will be LNG fume, which will position ZIM among the lowest carbon intensity operators. In 2021, we also leverage our strong cash generation to invest almost $1,000,000,000 in renewing our container fleet, particularly our reefer equipment. Today, we operate the youngest reefer fleet in the industry, which is a competitive advantage with this higher value cargo. We're also early to identify the attractive dynamics of car carriage caused by tight supply.

Speaker 2

We successfully grew our operated capacity from 2 car carriers in early 2021 serving the local Israeli market to operating 16 car carriers today with global coverage and benefiting from strong demand. In the near term, during this downturn period, as we await The delivery of the remainder of our cost effective newbuild capacity, improving our cost structures remains and other line priority for ZYN. We continuously review our network and services and take action to rationalize our existing capacity to minimize our cash burn. Today, in 2023, We redelivered 7 container vessels to adapt our fleet to current demand levels and maximize utilization. Xavier, our CFO, will provide additional information During this challenging market, we continue to look for opportunities to establish resilience in our business and focus on optimizing profitability.

Speaker 2

We remain committed to our core trade lens, specifically Asia to U. S. East Coast and intra Asia and expect our network will continue to evolve as customer demand change and new commercial opportunities arise. For example, in Q1, we suspended our Express service from China to Los Angeles as relates to the West Coast collapse and launch in Q2, Colibri, a new service from South America West Coast to U. S.

Speaker 2

East Coast. In this service, we leverage our strong glycer offering and carrying volumes have been consistently growing. Moving to Slide 5. While we remain cautious In our capital allocation decisions, we believe there continues to be value in investing in gross engines which complement our core shipping activities. In June, we expanded our partnership with Fortisys, 1 of our portfolio companies.

Speaker 2

OTCS is innovative fintech platform designed to modernize cross border trade financing. As a reminder, Fortisys uses its AI tools to streamline the credit application process and can offer small and medium sized importers and exported excuse me, faster and cheaper access to working capital financing needs than traditional financial institutions. Zim now offers this unique financing solution to customers directly as well as via our digital freight forwarder, Ship Forward. When it comes to this investment, the capital requirements are relatively modest, yet the potential is significant. Moving to Slide 6.

Speaker 2

In conclusion of my prepared comments, I would like to address our revised guidance for 2023 and current freight rates. As previously announced, we now expect to generate in 2023 adjusted EBITDA of $1,200,000,000 to $1,600,000,000 and adjusted EBIT loss of $500,000,000 to $100,000,000 This revised forecast is driven by our expectation that peak season will be soft, bringing down our expectation for volume growth to low single digit and no material improvement in freight rates in the second half of twenty twenty three. That would normally be consistent with seasonality. The improvement we have recently seen in spot freight rates is clearly a welcome development. However, I would like to caution that the significant improvement as it related to ZIM is focused on transpacific rates, whereas other trades we operate and haven't seen a similar improvement.

Speaker 2

Moreover, This improvement, even if sustained, does not have immediate impact on our financial and does not change Our full year guidance. Marginally, we may benefit from improved excuse me, spot freight rates as long term contracts this year account for only about 30% of total transpacific volume. I would also like to reiterate that our strong balance sheet and ample cash will serve ZYN well during a prolonged downturn and allow us to operate from a position of strength and maintain a long term view. On that note, I will turn the call over to Xavier, our CFO, for his remarks on our financial results and additional comments on the market. Please.

Speaker 3

Thank you, Eli. And again, on my behalf, welcome everyone. On Slide 7, we present key financials and operational highlights. As Eli mentioned, our 2nd quarter financial results reflected challenging near term container shipping market conditions. Our 2nd quarter average freight rate per TEU was $11.93 a 67% decline year over year.

Speaker 3

During the 1st 6 months of the year, our average freight rate of CAD12.86 was 65% lower than the first half of twenty twenty two. Our carried volume of 800 and 60,000 TEUs in Q2 was slightly up compared to last year's Q2 carried volume compared to a market growth of negative 2%. Sequentially, our volume was up 12%. Revenues for the 2nd quarter were driven by the continued squeeze in freight rates. Q2 revenues were up $1,300,000,000 Our revenue for the first half of twenty twenty three of $2,700,000,000 was 62% lower than the first half of last year.

Speaker 3

Our free cash flow in the 2nd quarter totaled EUR 321,000,000 compared to DKK1.6 billion in the Q2 of 2022. Turning now to the balance sheet. Total debt increased by CAD537 1,000,000 since prior year end, and that is mainly due to the net effect of the incoming vessels with longer term charter durations. Regarding our fleet, we currently operate 148 vessels, 132 container ships and 16 car carriers. Excluding the newbuild capacity, The average remaining duration of our current charter capacity is 24.6 months compared to 25.5 months in May.

Speaker 3

As Eli mentioned, out of the 46 newbuild ZIM ordered, 8 have been delivered, including 412,000 TEU vessels and 4 LNG powered 15,000 TEU vessels. We have 13 vessels whose charter period ends before year end 2023 and another 34 vessels whose charter period ends in 2024. So in total, these 47 vessels, which we could renew or we deliver to the owner compared to 38 newbuilds that we expect to be delivered during the same period. Is important to highlight that the delivery of these modern cost efficient vessels will replace smaller, less cost effective tonnage. On the next slide, Slide 8, we present ZYN's Q2 6 months 2023 financial results compared to Q2 and the first half of last year.

Speaker 3

The underlying dynamic for both comparisons are similar and are primarily the outcome of the decline in revenues based on the lower freight rate environment. Adjusted EBITDA in the quarter was $275,000,000 and the adjusted EBIT loss was 147,000,000 Adjusted EBITDA and EBIT margins for the 2nd quarter were 21% and minus 11%, respectively, as compared to 61% and 51% in the Q2 of last year. For the 1st 6 months of 2023, Adjusted EBITDA margin was 24% and adjusted EBIT margin was minus 6%. This is compared to 65% and 56% in the comparable period in 2022. 2nd quarter net loss was $213,000,000 In Q2, we recorded a one time $46,000,000 financial expense and $21,000,000 capital loss in connection with the termination of the charter of 4 vessels, which were previously subject to a sale and leaseback transaction.

Speaker 3

After tax, the net effect to our bottom line stood at $51,000,000 with no cash impact. The vessels will be redelivered to their owners in the coming weeks. Moving on to Slide 9. As I mentioned, our carried volume slightly increased compared to the Q2 of last year. And we saw a 12% improvement in carried volume from the Q1.

Speaker 3

2nd quarter 2023 volumes increased in the Pacific, cross sales and Latin America trades. Turning to Slide 10, I review our cash flow bridge. We ended the 2nd quarter with a total liquidity position of $3,200,000,000 which includes cash and cash equivalents and also investments in bank deposits and other investment instruments. I would remind you that during the second quarter, we attributed to our shareholders a dividend of $6.4 per share or a total of approximately 770,000,000 dollars on account of our 2022 results. During the Q2 of 2023, Our adjusted EBITDA of CAD275 1,000,000 converted into CAD347 1,000,000 of cash flow generated from operating activities.

Speaker 3

Other cash flow items included $562,000,000 of debt service, mostly related to lease liability repayments. To remind you, we have commitments of approximately $150,000,000 $340,000,000 in 2023 2024, respectively. This is as down payment for newbuilding vessels chartered primarily from Seaspan. To date, in 2023, over the 1st 6 months, we have paid $52,000,000 for the 415,000 TEU ships that were delivered. I would like to again reiterate that we expect our significant total cash position of $3,200,000,000 at last quarter's end, coupled with our strong balance sheet to enable ZYN to weather an extended market downturn.

Speaker 3

Moving briefly to review market conditions. Alpha Liner's supply demand outlook for 2023 2024 remains unchanged, pointing to clear oversupply. FlowCNN remains the most meaningful tool operators have sequentially used in 2023 to absorb the oversupply created in the market with the complete unwinding of port congestions and new vessel deliveries. More recently, we have seen increased blanking, especially on Trans Pacific, which may have supported the recent rate increase on this trade. Other possible actions operators could have taken, namely idling or scrapping have had a negligible effect so far.

Speaker 3

As the charter market remains relatively strong, the motivation to scrap old tonnage remains low. However, as charter capacity comes up for renewal and IMO 2023 enforcement come into play, the motivation to scrap may increase in 2024 and beyond. Delayed deliveries of newbuild capacity have also been minimal and are not expected to meaningfully impact the growth in the supply. On the demand side, consumer spending remained relatively healthy despite rising inflation and greater macroeconomic risk. Yet, high inventory levels built over 2021 2022 and continued concerns over economic growth have caused importers to be cautious and limit any meaningful renewal of inventory.

Speaker 3

Demand development is positive globally compared to the recent 6 months of downturn, but destocking seems to have been prolonged into 2024, and year to date demand levels seem to track 2019.

Operator

Call. And your first question comes from the line of Omar Khachta from Jefferies. Your line is open.

Speaker 4

Thank you. Hi, good afternoon, Ily and Xavier. Just a couple of questions for me just related to the market and the impact obviously on ZYN. First off, you've seen the big jump here or maybe a moderate jump in spot rates over the past 6 weeks or so, really on the Trans Pacific as you highlighted, But that is your key area of focus. How is that translating into revenue potential?

Speaker 4

Are you able to say whether you've been booking higher transpacific spot revenues currently versus what you earned on average during 2Q?

Speaker 3

Hi, Omar. Thank you for the question. Clearly, the increase that we see in the spot rate on the Transpacific is a welcome development after having been through a period where the rates went down consistently week after week and reached a level below the 2019 average. So it is very good to see that the are going up. Yet at this stage, we want to remain cautious that we don't really know whether this will stick.

Speaker 3

And as a result, we are remaining quite cautious for the forecast. That being said, What is clear to us today is that the spot market now is more beneficial to the liners than the average rates that were contracted during the contract season. And as far as we are concerned, we have in terms of cargo mix, A greater exposure to spot than we have to contract, 70% spot exposure to be compared to maybe 30% contract. So for as long as the spot rate today continues to be more elevated compared to the average of the contract, Yes, this is going to benefit to the company.

Speaker 4

Thanks for that. That's helpful color. Thanks, Javier. And then maybe just As a follow-up, as you mentioned, 30% contract. Have you seen shippers coming, looking to lock in contract after The disagreement this past May or is everybody still kind of focusing on spot?

Speaker 3

Look, As far as we see it today, you may remember that when we were discussing during the contract season with our customers. We had some sort of a floor that we were not willing to go below in terms of agreeing to agreeing to rates. And this is also why we ended up with a 30%, 70% type of mix. So we today, we in retrospect, we feel that we made the right decision at the time. But again, I would remain extremely cautious because we only have seen today only a few weeks of improvement in the trade.

Speaker 3

We know that this trade has been struggling for a long period. So hopefully, it will sit, but time will tell.

Speaker 4

Okay. Yes. And then just final one for me. Clearly, your volumes were up

Speaker 5

quite a

Speaker 4

bit significantly sequentially and notably above industry averages, transpacific volumes were their highest for you since 'twenty one. Can we expect a similar sort of is this a new baseline at least here in the near term? What you did in the Q2, is that achievable again you think so far from what you're seeing in the Q3?

Speaker 3

Look, the increase that we've experienced on the Trans Pacific, as you mentioned, is driven by a couple of things. Clearly, the new building, so the 15 large capacity vessels that we take delivery of, those ones are being deployed on Asia to the U. S. East Coast trade, and they come and replace the 9,000, 10000 TEU ships that are being cascaded to Align, which is also serving the U. S.

Speaker 3

East Coast. That's the service to Baltimore, which we have or we are in the process of sizing, as we currently speak, moving from a biweekly service to a weekly service. So our operated capacity deployed on the Transpacific is increasing and will continue to increase up until we get the final delivery of the 10, 15,000 TEU sheet that we have ordered with Seaspan. So yes, We think that the volume increase that we've experienced in the second quarter, at least from capacity operating perspective, providing that the volume continue to be there, should allow us to maintain this type of volume, if not more.

Speaker 4

Very good. Thank you for that color, Javier and Eli. I'll turn it over.

Speaker 3

Thank you. Thank you.

Operator

And your next question comes from the line of Sam Bland from JPMorgan. Your line is open.

Speaker 6

Thanks for taking the question. I think I've got 2, please, actually both on contracts again. Could we in Q3, is there a So the profit step down from contracted rates being rebased lower or I think you had said in previous calls that you'd already Taken the pain on those earlier than the sort of traditional 1st May step down. And the second question is, I think you just said that your share of volume on contract on the Transpacific is now about 30%. Has that That's come down quite a bit.

Speaker 6

Am I right in thinking it used to be a much higher number? I'll maybe leave it there. Statement? Thanks.

Speaker 3

Yes, thank you for the question. To your first point, we clearly already as from the Q4 of 2022. So already, I think, as we mentioned, last quarter Q1 of 2023, We were not able to keep the contract cargo that was secured at very high and elevated rate back in March, April of 2022. So for us, there is when we look In Q3 early Q3 and even late sorry, earlier Q2 and even late Q1, there's been no tailwind from potential higher revenue generated by contract cargo. That was already long gone for us.

Speaker 3

We were already in Q1 operating predominantly on the spot market with very little, again, tailwind from contract. That is also very much the case in Q2, where we've been booking very much on spot. What is happening in Q2 Is that now we are shifting to the new contract season in a way, which starts the 1st May. And so the second part Q2 and now going into Q3, this is where we now say that we are loading pretty much on the 70%, thirty percent mix between spot and contract. So the 30% contract were the 1 volume and the rates that we have discussed And agreed upon with our customers earlier on this year around March April timeframe.

Speaker 3

And you're right in saying that 30, 70 is lower than what the company used to secure a lot in terms of contractual commitment, because we were more towards fifty-fifty in the past, at least last year and the year before. The reason why we ended up this time around at 30, 70 is because we were not willing to agree to rates that we are below a certain threshold that we did have set for ourselves. So that's the reason. And today, now that the for some time, the spot market was Contributing less to the contract. This seems to be turning now as we speak.

Speaker 3

We'll see and the future weeks months will tell us whether we made the right decision at the time.

Speaker 6

We can infer that the 30% was at a rate that was at least in line with what you were willing to accept. And I think you also said that at least today, The spot rates are above whatever rate was agreed on that 30% that's contracted. Is that right?

Speaker 3

That is correct.

Speaker 6

Understood. Thank you.

Operator

And your next question comes from the line of Alexia DelGani from Barclays. Your line is open.

Speaker 7

Yes. Thank you for taking my questions. I also had a couple. Just firstly on the guidance range of an EBIT loss of $100,000,000 to $500,000,000 Can you help us understand the upper and lower end of the range and kind of the second half application? That's my first question.

Speaker 7

And then secondly, can you elaborate a little bit more on The kind of cost measures you alluded in the statement in terms of kind of refocusing, Yes, cost performance and some capacity rationalization that you talk about. Thank you.

Speaker 3

Thank you. Yes, when we look at the guidance range, we need to be very Careful in the sense that there is still a lot of uncertainty ahead, and this is why it is difficult to to be precise in our assessment for the quarters to come. What are our main underlying assumptions? First of all, from a volume perspective, we We visited a little bit downwards our volume expectations compared to prior assessment. And now we anticipate that on a Full year basis, we will be slightly up, low single digit numbers in terms of carried quantities when compared to last year.

Speaker 3

So we have a volume assumptions that if there was to be more demand and a stronger peak season than what we initially anticipate could drive The volume assumptions in one direction or the other. Today, we look at the peak season and the way it is shaping out, And we think that if there is going to be 1, it's going to be a very soft peak season, to say the least. So volume is one driver. The second driver, obviously, and the most meaningful one is clearly the freight rates environment. We've talked about the recent improvement that we have experienced that we are continuing to experience At least as of today on the Trans Pacific trade lane, that is obviously welcome.

Speaker 3

But how long that will that improvement will sit is also an unknown. Whether it's going to go beyond October or not is an unknown. So this is also a significant potential driver when you look at the full year outlook for the company. And when we talk about the Transpacific that is improving, We should not lose sight of the fact that on some other trades that have so far been more resilient than the Transpacific, there is intensified pressure. To name 1, the Atlantic trade lane that has been extremely resilient up until recently is today under more severe pressure, and we see the rates going down as opposed to the rates going up.

Speaker 3

So there is also here a mixed consideration that may impact where we are going to land the year on on full 12 months basis. To your second question, in terms of the cost measures that the company is taking, They are obviously the ones that we already took a couple of years ago and that will take time in order to for them to find their way all the way through the bottom line. And this is really the re profiling of the fleets that we operate and those and newbuilding that we ordered throughout 2021 2022 that are coming gradually between now and the end of 2024. So that's going to take a few quarters for us to bringing those ships and for those ships to replace the more expensive tonnage that we are currently today operating. Now in a more short term horizon, we are obviously looking at always trying to optimize our fleet and to allocate our capacity the best way we can.

Speaker 3

So we are looking at a few things, as we always have, by the way, which is looking at how we can potentially partner with some other shipping lines in order to Optimize a fleet network or a structuring of our lines so that both partners can be better off by joining forces as opposed to operating alone. And so we've been quite successful at doing that in the past, and we continue to explore Any opportunities of the sort. 2nd, we are and we will look on a case by case basis if there are ways for us maybe to deliver some of the charter that we have secured back in 2021, 2022, a little bit ahead of schedule. We'll see We'll see if this is something that can be done. And lastly, but even maybe more importantly, we continue to look at trades that we believe may be underserved, where there might be opportunity for us to enter.

Speaker 3

Just like we've done not so long ago, when we open this new service between Latin America West Coast to the North America East Coast, which has been so far proven to be quite the right decision for us to do. So we will also look at entering into new trends as well.

Speaker 7

Thank you, Xavier. And can I just ask A clarification on the transit not the sorry, on the Asia U? S. East Coast that you're up gauging the fleet to the 15,000 TEU. Obviously, you alluded in the previous answer that obviously volume growth will reflect the upscaling or upsizing of these vessels.

Speaker 7

Can you discuss a little bit about load factor or utilization factor? And really, Do you need to incentivize the price to fill the ship at the same levels as the 9,000 TEU? Or is it kind of coming at the same load factor and therefore you're getting really the benefit of the increased capacity per ship?

Speaker 3

Look today, when we sell and because when we need to keep in mind is there's been An intensification of blanking, and we have also blanking some voyages on those services, Which we think have participated to allowing for the rates to go up. But when we sell, The utilization on the 15,000 TEU ships is extremely good. So this, I think, is the right strategy for us to promote Blanket and to sell at optimum capacity when we do sell. And on the other service, which is the one that is being upsized as a result of the cascading of the 10,000 TEU ships that are now being deployed on these other services. We continue to also see the volume ramping up.

Speaker 3

So there is from a capacity deployment perspective, we think We have today and we continue to hopefully have tomorrow the right vessels for the right trade once we have fully completed the upsizing and the cascading that we have engaged in recently. Call.

Speaker 7

Thank you.

Operator

And your next question comes from the line of Siva Kumar from Citi. Your line is open.

Speaker 8

Yes. Thank you, Javier and Ali. I've got three questions here. So first one is actually a very basic 1. Just to clarify, the contract rates are excluding bunker cost and the spot rates obviously is all in, right?

Speaker 8

So the rate uplift that we have seen in the past couple of weeks, how much of it is actually related to spike in bunker cost or the fuel cost that we have seen? So I just wanted to get some clarity on that. And then second question actually on your volume, obviously Trans Pacific, there's a strong momentum in volume quarter on quarter Obviously, there is seasonality going to do, but we have seen disruption on like on the U. S. West Coast.

Speaker 8

So how much of it actually you had like customers calling you at the last minute wanted to ship some of the volumes that were meant for West Coast into East Coast? And did you have any surcharges, last many surcharges related to that? And then finally, actually on your cost, unit cost ex bunker, you obviously quarter on quarter you've seen significant improvement even from 860 to 800 odd. And as you continue to up gauge, do you see further scope for this unit cost ex bunker to drop as you go into quarter 3? Yes, those are my three questions.

Speaker 8

Thank you.

Speaker 3

Okay. So Your first question, you're right. The contract is there is the bunker escalator that is embedded into the contract that we've signed with our customers. So that would go up or down with the fluctuation in bunker and the spot It does not. The spot is indeed an all in rate, give or take, even though sometimes we, for internal purposes, Divide the ocean freight from the bunker element.

Speaker 3

So the recent changes that we've seen in bunker, Yes. They may have had an effect on the spot market, but I would say to a limited extent. If you look at, on average, how much you are burning per TEU that you carry from Asia To the U. S, you're talking half a ton, give or take. And so when you have a $50 change, That's potentially $25 per TEU in terms of incremental costs that is obviously being has to be deducted from the rate improvement at stable bunker assumptions.

Speaker 3

So your view is correct, Whether this recent fluctuation in bunker has or will have a significant impact on The rate increase, I think not so much. The maybe looking at the second question, You're right that there's been a lot of uncertainties going on in by the way, on the U. S. West Coast due to the Discussions that were ongoing in the various terminals with ILWU And also on the East Coast with the current issues with the Panama Canal. And you've had there's been Sometimes some arbitrage between customers moving from one place to the other or by the way, also including the U.

Speaker 3

S. Gulf Coast. But as far as we are concerned, as you know, today, we are no longer operating any service between Asia to LA. We are now only focusing on Asia, U. S.

Speaker 3

East Coast and U. S. Gulf, and we have a service that where we load on NSE on PNW. So for us, really, the matters relate more to what's going on in Panama with the current draft restrictions, which act as a regulator in terms of capacity being deployed to the trades, but requires that we are very up to speed and up to date and prioritizing light cargo in order to be able to load the vessels the way we want, Also potentially leveraging our network in South America by unloading some of the cargo before The canal and for that cargo to find its way on the service that we recently opened between South America and the U. S.

Speaker 3

East Coast. So that's, I think, would be what is today driving the markets on the Trans Pacific as far as we are concerned. With respect to your 3rd question, unit cost ex bunker, yes, we've seen an improvement quarter over quarter. I think the long term trend should be that we will continue to see an improvement only because of, Again, the change of the profile of the fleet that we will end up operating and as we take on The new building more efficient and cheaper tonnage, cheaper per TEU in terms of operating capacity, Those vessels come in and will end up replacing a more expensive charter. But that is something that will take some time.

Speaker 3

It's not going to be an overnight effect, but it's underway. And every quarter that passes should allow us, If we look at the vessel cost for that cost to go down. Another element of cost reduction that is quite visible is the fact that now with the ease in the congestions in the various terminals, we do incur far less storage, for example. We also have less land transportation related costs also because of lesser volume booked door to door from the PNW service. So we also see here a less cost per TEU that we carry.

Speaker 3

And finally as well, in terms of balancing costs, balancing cost is being defined for us as the cost of repositioning an entity when we have an imbalanced trade and we are moving a full from Asia to the U. S. And we don't have as many full to export out of the U. S. Back to Asia.

Speaker 3

We had a line that was heavily in balance, almost 100% in balance, and that was the The ZDX line, the express service that we closed in Q1 between Asia to the U. S. West Coast. And as a result, we have less balancing cost as we operate in the overall network of line, a more balanced network overall.

Operator

Call. And your next question comes from the line of Lars Heijner from Nordea. Your line is open.

Speaker 5

Yes, good afternoon. Thank you for taking my questions. A couple of questions on my part. The first one is regarding capacity. I don't know if you can tell us what your development in your deployed capacity spend during the quarter?

Speaker 5

And also with the new vessels coming in here and the upgrade of some of the trade links, What will be the likely development in your deployed capacity as we head into the Q4 and the second half of this year? That's the first one.

Speaker 3

Yes. So in terms of capacity, we have increased the overall capacity that we are operating today. As we have taken on board in the quarter, up to date, we have now 4 of the 15,000 TEU ships that were delivered over the 1st 6 months of 2023. And we also received 412,000 TEU newbuilding that were also delivered. So that's 8 for us, 8 large capacity ships that were delivered, and we have returned some smaller tonnage to tonnage providers over the course of the quarter.

Speaker 3

So today, I think, if I'm not wrong, we operate a capacity combined capacity of roughly shy of 600,000 TEUs altogether, a little bit less than that. And as we progress throughout the year. We will have the delivery of another 3 15,000 TEU ships between now and the end of the year. And we will also start taking delivery of our 7,000 LNG also fuel vessels. 3 of them will be delivered between now and the end of the year.

Speaker 3

So adding 6 new build tonnage to our operating capacity. So that will contribute as well to increase our overall operating tonnage between now year end.

Speaker 5

Okay. Thank you. And then on the contract side, have there been any change in the behavior of your customers when you engage in contract negotiations. And the reason why I asked this is that we've been hearing from many other carriers that they now have At least the largest share of contracts which are index linked and not at least in the beginning of the period, contract period relative to fixed rates. Any views on that?

Speaker 3

As far as we are concerned of the majority of the contract that we have signed and secured and agreed upon with our customers are fixed. So on either side, obviously, The bunker adjustment factor that we referred to earlier on during this call for us is the vast majority is agreed upon ocean freight and there was no index type of linkage. That doesn't mean that we would not be considering this going forward. But if we look at the present time, when I'm talking about the 30% of the capacity or the volume that we are carrying, The contracts are mainly fixed rate.

Speaker 5

Okay. And then last one on the Speed, I mean, are you slowing down as many other carriers are in terms of average business fees, adding more This is to loops in order to keep the savings schedule?

Speaker 3

Yes, we have done that. So through streaming is something that has been the strategy of the company for already quite some time. And as a result, we indeed, in some of the trades, have added vessels in order to maintain a weekly schedule. So that has happened at least on more than 2 occasions where we have added a vessel to a given service. So without, at the end of the day, increasing our offering on the trades, but absorbing some of the capacity and allowing for a slow steaming, which is also for us A way to make sure that we meet the IMO 2023 regulation as well when it comes to calculating the carbon intensity index.

Operator

Call. And this concludes the Q and A session. I will now turn the call back over to Mr. Glickman for some final closing remarks.

Speaker 2

Thank you. While we are clearly in the midst of a challenging period for our industry, Zim has continued to take proactive steps in response to these market realities. Beginning in early 2021, Zim began queuing through a series of charter agreement, a highly competitive fleet that is optimally suited for our commercial strategy. As we continue to take delivery of these newbuild vessels this year and next year, we'll improve our cost structure and build further commercial resilience. We are in transition time.

Speaker 2

We remain committed to minimize cost in this in the near term continues to review our network and services to rationalize our existing capacity. Additionally, our ample liquidity and solid balance sheet, including a total cash position of $3,200,000,000 at quarter end, will enable Zim to operate from a position of strength and maintain a long term view. As we look to the future, We believe Zim is well positioned to further implement our differentiated strategy to best serve our customer and generate sustainable value for shareholders. Thank you to all of you.

Operator

Call. This concludes today's conference call. Thank you for your participation. You may now disconnect.

Powered by Quartr