Zim books billion-dollar quarter as spot rates soar
Quarter so strong that Zim will pay $100m in special dividends
Israeli carrier Zim reported its best quarter since the pandemic boom, posting $1.2bn in profits. Earnings were driven by ongoing upside from Red Sea reroutings, stronger than expected demand and the deliveries of cost-efficient newbuildings
INVESTORS were expecting ocean carrier Zim to deliver blockbuster third-quarter results. Zim certainly delivered: trouncing earnings estimates, hiking guidance and surprising the market with a special dividend.
Zim reported net income of $1.1bn in 3Q24, compared to a net loss of $207m in 2Q23 (excluding impairments). Earnings per share came in at $9.35, 42% above the analysts’ consensus forecast for $6.57 per share.
Profits in the latest quarter were triple levels in the second quarter, driven by surging freight rates.
Including both spot and contract, rates averaged $4,960 per feu, jumping 48% quarter on quarter. Average rates have more than doubled since 3Q23.
Zim’s high spot exposure — 65% in the transpacific — has allowed it to outperform carriers that focus on contract coverage. Contract-focused Maersk reported 3Q24 average rates of $3,236 per feu, 35% lower than Zim.
As with other carriers, Zim has continually raised its full-year guidance as 2024 has progressed.
On Wednesday, it said full-year adjusted earnings before interest and taxes will be $2.2bn-$2.5bn, up 39% (at the range midpoint) from prior guidance of $1.5bn-$1.9bn, and 24% higher than analyst consensus.
The third quarter will mark the peak for this year’s earnings. The new full-year guidance implies 4Q24 adjusted ebit of $259m-$559m, down substantially from $1.2bn in 3Q24 and similar to results in the second quarter.
Given the spike in earnings in the third quarter, Zim announced a special dividend of $100m on top of the quarterly dividend of $340m.
Zim’s share price was already hitting new one-year highs before the earnings release and the stock surged when the results hit, jumping as much as 12.5% in earning trading on Wednesday (it closed the day up only 1% on quadruple average trading volume).
Outlook strong through January ‘at a minimum’
Zim chief financial officer Xavier Destriau commented on 2024’s surprisingly strong freight market during Wednesday’s call with analysts and in an interview with Lloyd’s List.
“Looking back on 2024, this year has developed very differently than anticipated. The disruption in the Red Sea has had a more significant effect than had been initially predicted,” he explained. “The additional requirements in terms of capacity have been more than people anticipated.
“I think demand has also been stronger than anticipated. The resilience of the US economy has surprised some people.
“And in the near term, I think the risk of potential tariffs in 2025 and of a potential strike [at US east and Gulf coast ports], as well as the earlier than usual Chinese New Year, is supporting demand by convincing US shippers to bring their cargoes in sooner rather than later.”
Spot rates began declining in July, but that decline “was slower than expected”. Then, after the Golden Week holiday in early October, rates stabilised – likely due to pulled-forward demand.
“We see a stabilistion in the rate environment and we even see rates starting to pick up again in some trades,” said Destriau.
“Very quickly after Golden Week, which is a very important date in the seasonality of our industry, volume came back very, very quickly. The cargo rush continued through the end of the third quarter and we still see strong volumes today, especially from Asia to the US. Our vessels are pretty much full. Utilisation is strong.”
Destriau affirmed that the market will remain strong through early 2024 “at a minimum”. Then, following Chinese New Year, “we will see what the effect of the new tariff policies of President Trump will be”.
Zim’s outlook on US port strike threat
The transpacific is Zim’s most important segment, and most of its transpacific capacity serves the US east and Gulf coast ports, meaning Zim is heavily exposed to a potential port strike.
A strike beginning January 16 appears increasingly likely now that the dockworkers union, the International Longshoremen’s Association, has broken off talks with employers.
Asked about Zim’s strike strategy, Destriau said, “When you look back at September [prior to the first strike], we wanted to make sure we did not run the risk of having a ship docked in a terminal and getting stuck there, without any possibility of diverting the ship away. We will make sure we will do the exact same thing come January 16, and ensure we schedule our ships so that we don’t risk them being stuck at berths if there is a strike.”
Asked whether the net result of a prolonged work stoppage would be negative for Zim, given the negative effects on costs and throughput, or positive, given possible upside to rates, he said, “Whenever there is a significant disruption in our industry, it starts by hurting us and then, beyond the initial disruption, it assists us.
“The same with the Red Sea. At first, it increased the costs to our industry, then it pushed freight rates up.
“The earlier strike lasted just three days, which was quite manageable from an industry perspective. But if it goes beyond a week this time, what we can clearly say is that every day after a week would have a ripple effect throughout the supply chain that would potentially lead to a significant disruption – and disruptions are very often times of opportunity for this industry.”
