ZIM Integrated Shipping Services - Earnings Call - Q4 2024

Transcript

Operator (participant)

Hello, everyone, and welcome to ZIM Integrated Shipping Services Q4 and full year 2024 financial results conference call. Please note that this call is being recorded. After the speakers' prepared remarks, there will be a question-and-answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Elana Holzman, Head of Investor Relations. You may now begin.

Elana Holzman (Head of Investor Relations)

Thank you, Operator, and welcome to ZIM's Q4 and full year 2024 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 in cautionary language described in the documents the company filed with the Securities and Exchange Commission, including our 2024 annual report on Form 20-F filed with the SEC today, 12 March 2024. We undertake no obligation to update these forward-looking statements.

At this time, I would like to turn the call over to ZIM's CEO, Eli Glickman. Eli.

Eli Glickman (President and CEO)

Thank you, Elana, and welcome, everyone. 2024 marked an exceptional year for ZIM, both financially and operationally. Today, we are reporting our best results ever outside the extraordinary earnings generated during the COVID period. Operationally, consistent with our strategic objective to grow our volume, we achieved in Q4 a third consecutive quarter of record-carrying TEUs and delivered double-digit volume growth for the year. This is in line with our original guidance provided this time last year. This achievement helped drive our outstanding financial performance, highlighted by 2024 net income of $2.2 billion and revenue of $8.4 billion. Adjusted EBITDA was $3.7 billion, and adjusted EBIT was $2.5 billion, with adjusted EBITDA margin of 44% and adjusted EBIT margin of 30%. We ended the year with total liquidity of $3.14 billion. Slide number five. Excuse me.

As we continue to generate strong cash flows, we are also delivering on our commitment to return significant capital to shareholders. Today, our Board of Directors declared a dividend of $3.17 per share. Repeat, $3.17 per share, or a total of $382 million. This brings our total dividend payout on account of 2024 results, including the special dividend paid in December 2024, to $7.98 per share, or $961 million, representing approximately 45% of 2024 annual net income. We are proud of this track record and pleased to share our success with shareholders, consistently paying dividends based on our strong earnings. Turning to slide six. Looking forward to 2025, we are confident in our strategy and competitive position in the industry. Our guidance ranges for the full year of 2025 are adjusted EBITDA between $1.6 billion and $2.2 billion, and adjusted EBIT between $350 million and $950 million.

Our business environment has always been impacted by external factors such as geopolitics, international and US domestic political dynamics, as well as economic, monetary, and fiscal policies. As such, it has always been characterized by a high level of uncertainty. Yet today, the degree of uncertainty is more pronounced than ever, and the range of factors, some interlink, which could potentially impact both supply and demand, are greater and more diverse than usual. Some of these factors include, but are not limited to, the recent proposal from the Office of the US Trade Representative to impose a new port charge of up to $1.5 million for each port call on Chinese-made vessels, a trade war between the US and several of its trading partners, resulting in tariff imposed on imports from Mexico, Canada, and China, and uncertainty around the timing of the potential return to the Suez Canal.

I would also note that in the recent weeks, we have seen a steep decline in freight rates. It is still unknown whether this is due to typical seasonality or whether this price movement will continue in the months ahead as the threat of overcapacity persists. Xavier, our CFO, will provide additional content and underline assumptions for our 2025 guidance later on the call. Slide number seven. Before I turn to our 2025 strategic priorities, I would like to highlight the important progress we made in 2024, upscaling our capacity and enhancing our cost structure. We received the last four of our 46 new-build container ships that we secured, which include 28 LNG-powered vessels. After redelivering all more expensive capacity as planned, we entered 2025 with 50% of our capacity as new builds, resulting in a more fuel-efficient and cost-efficient fleet overall.

It is again important to highlight that 40% of our capacity is now LNG-powered. ZIM was an early adopter for LNG, and we currently remain the only carrier deploying LNG capacity from Asia to the US East Coast. We operate two services on this trade, a key commercial differentiator for us, enabling ZIM to grow market share as we expanded our capacity. Complementing our investment in the fleet, our foresight related to ZIM's commercial strategy contributes to strong 2024 results, namely our decision to increase our spot exposures in the transpacific trade to about 65% trade-off. This allowed ZIM to more directly capitalize on the strong spot rate environment that dominated during most of the year in this trade. Our strategic investment in ZIM's fleet has also contributed to our ability to serve as an attractive partner in collaboration agreements.

Our operational cooperation with MSC on the Asia to US East Coast trade announced last September has just launched and is working as planned. This collaboration, along with others we have with MSC and other carriers, illustrates our commitment to providing a broader offering to our customers and enhancing our efficiency in our network. From a volume growth perspective, ZIM's 14% growth far exceeded the overall market growth of less than 6%. This accomplishment was driven primarily by share gains thanks to the new capacity deployed on Asia to US East Coast, the successful expedited services to the US West Coast, and our expanded presence in Latin America.

Speaking broadly, the benefits of our fleet transformation were evident throughout 2024 and are reflected in our strong performance. With larger vessels and fleet better suited to the trade in which we operate, together with the improved unit cost, we achieve our target double-digit volume growth and deliver strong margins.

Slide number eight. As we enter 2025, our focus continues to advance ZIM's strategic position as an agile container shipping player with a competitive cost and fuel-efficient modern fleet. We see our commercial strategy coupled with continued prudent investment in our fleet, equipment, and technology, driving increasing resilience in ZIM business moving forward. We enter 2025 with a highly competitive fleet, newer, greener, and better suited to our commercial strategy. The transformative step forward we undertook is behind us, with the most critical capacity, namely the 28 LNG vessels secured on long-term charters. Now, we will remain diligent in maintaining and further enhancing this competitive position while capitalizing our attractive opportunities to continue to modernize our fleet. The market realities of today may be different than the realities of tomorrow, and ZIM is prepared to take a long-term approach as we consider the future of our fleet.

We also intend to preserve the flexibility with respect to our operated capacity, which we regain in 2025. We have approximately 94,000 TEU and 80,000 TEU, which we could redeliver to vessel owner in 2025 and 2026, respectively, if we choose to do so due to the market conditions or a shift in our commercial strategy. Commercially, our presence in the transpacific trade is strong and growing. We've also been successful in ensuring that ZIM is involved in trade from China to diverse end markets, not just the US In the context of uncertainty around the tariff and the impact on global trade, we've expanded ZIM's presence in other growth markets in Asia, such as Vietnam, Thailand, and India, as well as Asia to South America. We believe these are trades that will see further growth in future years and from which ZIM stands to benefit.

Our customer-centric approach remains a core element of our strategy. We are committed to providing best-in-class customer experience and continuously look for new ways to address customer evolving needs. We are pleased that our recent annual customer survey has underscored our success in meeting this objective. The survey results highlight a consistently high level of service provided across all customer interactions. The survey also reaffirms improvements related to customer satisfaction, customer loyalty, and ZIM offering versus competitors. As part of this customer-centric approach, ZIM continues to invest in technology and digital tools to differentiate our offering and enhance our operational excellence. For example, we recently accelerated the rollout of advanced trackers on our dry containers, making them smart containers.

ZIM is a leader in this area with the most technologically advanced dry container tracker from Hoopo, giving customers access to critical real-time data, enabling tracking visibility while their cargo is in transit and supporting better decision-making across the supply chains. On our reefer fleets, we offer ZIM Monitor, a best-in-class monitored solution to secure sensitive and high-value cargo. We also continue to believe there is significant value investing in growth engines. Our approach is to selectively invest in companies developing disruptive technologies related to our core shipping activities or broader logistics ecosystem, as well as sustainability-related technology. Most recently, ZIM made an investment in ZUTACORE, which falls in the latter category. ZUTACORE develops a unique, more sustainable alternative to conventional air and water cooling of data centers.

Their waterless direct-to-chip liquid cooling solution can help data centers cut their carbon footprint and drive the development of more energy-efficient and environmentally friendly AI data centers. On this note, I will turn the call over to Xavier, our CFO, for more detailed discussion of our financial results, update 2025 guidance, as well as additional comments on the market environment. Xavier, please.

Xavier Destriau (CFO)

Thank you, Eli. Again, on my behalf, welcome to everyone. On this slide, we present our key financial and operational highlights. Our strong full-year results are indicative of a robust market with elevated freight rates and resilient demand. ZIM generated revenue of $8.4 billion in 2024, a 63% increase compared to last year. During the year, our average freight rate per TEU was $1,888, 57% higher than in 2023, as we benefited from solid freight rate throughout the year.

In Q4, our average freight rate per TEU was $1,886, a 71% increase year-over-year, though 24% lower than the Q3 average freight rate of $2,480. Freight revenue from non-containerized cargo, which reflects mostly our car carrier services, totaled $497 million for the full year of 2024, compared to $535 million in 2023. The decline resulted from a partial reclassification in 2024 within revenue types. I would also note that in November, we redelivered one of our car carriers and are now operating 15 ships. We may opt to redeliver additional vessels in 2025, depending on market conditions. Our free cash flow in the Q4 totaled $1.1 billion compared to $128 million in the Q4 of 2023. Free cash flow in 2024 totaled $3.6 billion compared to $919 million in 2023.

Turning now to the balance sheet, total debt increased by $1 billion since prior year-end, mainly due to the net effect of the incoming larger vessels with longer-term charter durations attached. The new-build capacity we have received, especially the LNG vessels, are chartered for a period of 8 to 12 years, creating a predictability in our cost structure with respect to this core capacity. Furthermore, we hold options to extend the charter period on 25 out of 28 of our LNG vessels, as well as purchase options, giving us de facto full control over the destiny of these vessels, very much as if we were the actual vessel owners. Moving to our fleet, we currently operate 143 vessels, including 128 container ships, with total capacity of approximately 784,000 TEUs and 15 car carriers.

This compares to 145 vessels in November 2024, as we delivered 7 container ships and 1 car carrier and received 6 vessels, including the last 4 remaining new builds, that is, the 3 8,000 TEU LNG vessels and 1 5,300 TEU wide beam vessel. Having now received all 46 new builds we secured in 2021 and 2022, this phase of our fleet transformation is complete. In 2025 and 2026, we have regained flexibility with respect to our operated tonnage. During the remainder of 2025, we have a total of 26 vessels up for charter renewal and another 23 vessels up for renewal in 2026. While our plan is to maintain in 2025 constant operated capacity when compared to 2024, we do have the optionality to scale back.

This flexibility is important and will allow ZIM to adjust its fleet size depending on the operating environment and depending on our commercial strategy. As we consider renewal opportunities for this capacity, the typical charter durations are expected to extend between 1-5 years, therefore much shorter than the 8-12 year charter periods of our core LNG capacity. Our focus going forward is to ensure that we maintain and continue to enhance the competitive position of our fleet, as we have recently done when we secured four additional 8,000 TEU vessels to be delivered in late 2026 and 2027. We also recently capitalized on an attractive opportunity to acquire two 8.5 thousand TEU vessels, which we were already chartering. Turning to our Q4, compared to $190 million in Q4 2023.

For the full year, net income was $2.2 billion compared to a net loss of $2.7 billion in 2023. To remind you here, the full year 2023 net loss included a $2.1 billion non-cash impairment charge that we recorded in the third quarter. Adjusted EBITDA in 2024 was $3.7 billion compared to $1.1 billion in 2023. Adjusted EBITDA and EBIT margins for 2024 were 44% and 30%, significantly higher than last year. Turning now to slide 12, we carried 980,000 TEUs in the Q4 compared to 786,000 TEUs during the same period last year, an increase of 25% compared to market growth for the quarter of 5.3%. For the full year, we carried 3.8 million TEUs, a 14% increase compared to 2023 and compared to the overall market that only grew by 5.6%.

Importantly, our transpacific volume grew 27% in 2024, and we expect to maintain our market share gains in 2025 with our upsized capacity. We opened new services serving Latin America and achieved a 77% year-over-year volume growth in that region in 2024. Next, we present our cash flow bridge. For the full year, our adjusted EBITDA of $3.69 billion converted into $3.75 billion of cash flow generated from operating activities. Other cash flow items include for 2024 dividend payments of $579 million and $2.55 billion of debt service, mostly related to our lease liability repayments. Moving to our 2025 guidance, as Eli mentioned, we expect to generate adjusted EBITDA between $1.6 billion and $2.2 billion, and adjusted EBIT between $350 million and $950 million, with better performance expected in the first half of the year versus the second half.

These range reflect the high degree of uncertainty related to global trade, geopolitical issues, and particularly the timing of the Red Sea opening. Overall, we assume a significant decline in freight rates in 2025 as compared to 2024. Our base scenario assumes that the Red Sea will not open earlier than the second half of the year, meaning again that we expect a better first half of 2025 while rerouting continues to absorb significant capacity. Our guidance assumes that we will maintain constant operated capacity as compared to 2024 as we renew some of the existing capacity or at least similar tonnage, though at lower rates than the ones incurred in 2021 and 2022. As such, we expect to continue to see an improvement in our cost structure. With respect to volume, we expect to deliver single-digit volume growth in 2025, slightly better than expected market growth.

As for our bunker cost, we expect similar cost per tonne in 2025 versus 2024. Now, before opening the call to question, a few comments on the market. The risk of oversupply in the near future remains unchanged. The current order book to fleet ratio is approximately 27% or 8.5 million TEUs, of which approximately 2 million are scheduled for delivery in 2025, and the remaining spread out until 2029. The disruption caused by the Red Sea closure absorbed significant capacity in 2024, and it remains a key unknown in 2025. While there is no indication of the imminent reopening of the canal, once that happens, the capacity now absorbed by the rerouting around the Cape of Good Hope will be freed and will likely put additional pressure on freight rates. The external environment, which Eli already discussed, is creating an unusually high degree of uncertainty for industry players.

Yet, it is important to remember that carriers have tools at their disposal to manage overcapacity as needed. In the short term, carriers can go back to slow steaming, which was used extensively in 2023 and which also has cost and environmental benefits. Carriers can also opt to execute blank sailings or put vessels on idle. Scrapping is another important tool which has been underutilized in recent years, and it can be expected to catch up at some point, particularly as older capacity, which was chartered during the COVID period, is finally redelivered back to the vessel owners. The industry's decarbonization agenda and the need to meet the IMO's carbon emission targets or customers' expectations will also require a higher pace of fleet renewal and could spur further scrapping. On this note, we will open the call for questions. Thank you.

Operator (participant)

Thank you. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. Your first question comes from the line of Muneeba Kayani from Bank of America. Your line is now open.

Muneeba Kayani (Managing Director)

Thank you for taking my questions. Firstly, on your guidance, I wanted to just clarify. It's clear you've said it's a second half, earliest Red Sea reopening, but does the top end assume no reopening this year and kind of the low end assume early second half? If you could give us a sense of the timeline you've assumed in that range, that would be helpful.

Secondly, just kind of on the USTR that you'd mentioned, was I right in thinking that you would consider moving capacity to other trade lanes in the scenario it is implemented? And can you tell us what's your exposure to Chinese-built ships? Industry sources suggest it's 34%. Is that correct? And if I may ask a third question, press articles last week suggested a potential management-led buyout. Can you please comment on that? Thank you.

Xavier Destriau (CFO)

Thank you, Muneeba. Maybe taking your questions in the orders you raised them. The first one, when we refer to our guidance range today, I mean, as we speak, we are still thinking it is more likely than not that the Red Sea will reopen sometime this year.

Both of our guidance extreme numbers do include the scenario according to which the Red Sea would reopen, albeit at the lower end of the guidance with early reopening and the higher range of the guidance with a later reopening towards the end of 2025, which obviously remains to be seen. Second question with respect to the questions around the potential additional levy that could be imposed on the Chinese-built tonnage that would call at a port in the US, it is clearly a development that we are monitoring very closely. I think we are today still in the early days. We are still under the consultation period, which will last up until, as you know, March 24th. It is a little bit early to jump into conclusion as to whether there will be enforced or not. Clearly, we are looking into that. You're correct.

When we look at the capacity that we operate, we operate a mixture of Chinese-built tonnage and non-Chinese-built, mostly Koreans. Our Chinese-built capacity ranges within the 25% to 50% mark that is also referred to in terms of potential threshold for additional levy on the port calls in the US I think, like I said, very early days to conclude what, if there were to be enforced, would be the effect on ZIM and on the overall industry, I think it would be very significant. The first thing that we would want to do is try to make sure that we limit to the maximum extent possible our exposure to those additional costs that would require potentially shifting, as you suggested, vessels from trades to other trades. It would also potentially require us reshuffling a little bit the lines and the networks that we currently operate.

If I take an example, today, one of our services that move cargo between Asia to the US East Coast, the ZXB line, has four port of calls in the US with Boston, Baltimore, New York, and missing the last one, which is Boston, New York, Baltimore, and Norfolk. We might want to limit the amount of calls and move more cargo into less ports. We would need to rearrange moving cargo inland or have a feedering service. There is a lot of potential options that would need to be considered. Clearly, at some point, we would be left with some extra cost after having tried our best to limit the effect. The question will remain who will absorb that extra cost. We will need to find ways to recover this incremental impact.

Lastly, your last question with respect to the rumor of an MBO. Our policy has been, since we went public in 2021, to not comment on market rumors. We are not going to start today. What I can say is that management clearly continues to be focused on executing the strategy that we laid out for ourselves already since quite some time, which aims at ensuring that we build resiliency within the company for the longer term, that we unlock shareholder value, and that we continue to hopefully reward or return significant capital to shareholders, as we've just announced today with the additional dividend of $3.17 per share.

Muneeba Kayani (Managing Director)

Thank you.

Operator (participant)

Your next question comes from the line of Marco Limite from Barclays. Your line is now open.

Marco Limite (Equity Research Analyst)

Hello. Thanks a lot for taking my question. The first question is just a follow-up on the outlook. You have mentioned that you expect the first half to be quite stronger compared to the second half, depending on the reopening of the Red Sea. I mean, my backend of the envelope calculation takes me to assuming an early reopening at the beginning of the first half, basically to first half EBIT positive and then second half EBIT being negative at the low end of the range. Would you agree with that? My second question is on CapEx. Could you please explain a little bit more about the phasing of the renewals? Are those renewals more back-end loaded or just throughout the year? What is the CapEx range, including lease for 2025, assuming none of those charter agreements are renewed or all of them are renewed? Thank you.

Xavier Destriau (CFO)

Thank you for the question. On the first part of your question with respect to the guidance, we do not really communicate on quarterly guidance. What we really wanted to say this time around is that there is a lot of uncertainties ahead in 2025, clearly, as we tried to list some of them. We have, as we see today, mid-March, pretty clear visibility on the first quarter, obviously, and to some extent as well on the second. We can say that the first half is going to be, in our look, better than the second half. That is also mostly driven by the fact that the good market condition that prevailed throughout 2024 and as we entered into the early months or weeks of 2025 continued to be extremely strong.

We had very strong volume pre-Chinese New Year with very strong resilience on the rates environment that indeed contributed to a very strong start of 2025. Now, as we speak, we are just after Chinese New Year. After the slack period of a Chinese New Year, we see the volume coming back, but maybe not as quickly as what would have happened in prior years. I think there is a lot of anxiety, clearly, still from the market with respect to what will be the ultimate effect on the tariff policies between the US and China. Everybody's a little bit still on the wait-and-see mode. We will see how that pans out. I think this is why we felt confident that we could say the beginning of the year looks good.

There are so many factors of uncertainty thereafter that we want to remain more prudent when it comes to the second half of the year. Now, talking about your second question, which is, I think, if I understand correctly, what is the strategy of the company when it comes to the fleet management, the strategy around the tonnage that we currently operate? Just to give and re-emphasize a few numbers, as we start 2025, the 128 container ships that we operate represent altogether 780,000 TEUs of capacity. Important to say that two-thirds of this capacity, so 520,000 TEUs, is tonnage that is either locked in for long-term charter duration or owned tonnage by the company. The exposure that we have on the short-term charter, if you will, is a third of the capacity that we operate today, so give or take 260,000 TEU.

Out of those 260,000 TEU, we have a bit less than 100,000 TEUs worth of capacity that come up for renewal in the coming months into the remainder of 2025. Today, our objective is to renew some of them, let go of some of them, pretty much a 50% split between what we would renew, what we would let go might be the correct assumption for our base scenario. Again, we will have the flexibility to change that along the way if we believe that it is a better alternative. I think it is not really CapEx in a way. This is just going back to the charter market from a short-term charter perspective for the non-core, less strategic capacity that we operate today. Again, having now already, since the end of 2024, having finalized our fleet transformation program, secured for the longer term the core strategic tonnage that we intend to deploy for the foreseeable future.

Thank you. If I may, just a follow-up on this. Are you willing to provide a range for CapEx plus debt service, basically for 2025, based on whether you renew or not the expiring capacity? Thank you.

CapEx-wise, what we have in 2024, what we had in 2024 is limited. It is containers, equipment mostly, and some also IT-related capital expenditure. We have, in terms of vessels, two 8,500 TEU ships that we announced recently we would acquire. Those would be for less than $100 million transaction combined.

Apart from that, from a vessel perspective, what will happen is whether we do or do not recharter some of the capacity that comes up for renewal. In terms of debt service or lease liability repayment, if you look at what was the situation, or if you look at our cash flow statements for 2024, the total amount reached between $2.5 to 2.6 billion altogether. That included the down payment that we paid for the new build capacity that was delivered to us, 29 ships altogether in 2024, and also included the option that we exercised on five vessels earlier in 2024. That combined represented $440 million of one-off amount paid and reported in our cash flow statement as a lease liability repayment because, actually, from an accounting perspective, this is what it is.

Those will not be repeated, obviously, in 2025, leave aside the $90 million or $100 million that I talked about on the two vessels that we have announced we would purchase from the vessel owner that is chartering those ships to us today. You should expect to see in 2025 a reduction from this $2.5 to 2.6 billion that we incurred in 2024, both because of the one-off that is not happening and, two, an additional incremental cash saving from a cash flow or cash outflow perspective due to the fact that we are letting go, in a way, the more expensive tonnage.

If we do replace some of the 28 ships that we have up for renewal in 2025, it is more likely than not that the rates that we would secure would be lower than the one we are currently paying, as most of those charters were secured in 2021, 2022, during the high of the COVID days and the high of the charter market. By and large, we will see in 2025, when compared to 2024, a reduction on our lease liability repayment coming from two elements: the one-offs in 2024 that are not going to repeat themselves in 2025, and also the fact that we continue to benefit from the lower chartering rate of our new tonnage and possibly of the tonnage that we will renew in the period.

Marco Limite (Equity Research Analyst)

Okay. Thank you very much.

Operator (participant)

Your next question comes from the line of Omar Nokta from Jefferies.

Your line is now open.

Omar Nokta (Managing Director)

Thank you. Hi, good afternoon, Eli and Xavier. Just maybe wanted to follow up. I have a couple of questions. Maybe just first on the last point, Xavier, you were just making in terms of the lease payments for 2025. Does that mean if it was $2.5 to 2.6 billion last year, does that come out to something like $1.7 billion, $1.8 billion this year, assuming maybe half of those vessels rolling off, you extend them at today's market rate? Does that sound in the ballpark?

Xavier Destriau (CFO)

It would be clearly below the $2 billion mark, that's for sure. Whether we're going to be $1.8 billion, $1.7 billion remains to be seen, but clearly below $2 billion, yes.

Omar Nokta (Managing Director)

Okay. All right. Thank you. You had mentioned in your opening comments just that you're approaching that 4 million TEU run rate per year. In terms of, and you mentioned being able to maintain that, what is behind that in terms of the vessels coming up for renewal? Is that assuming that of those 26 ships that roll off this year, that half will be extended and the other half returned?

Xavier Destriau (CFO)

Yes, maybe, Omar, to help understand that. Let's look at what happened in 2024. In 2024, we increased our operated tonnage from 640,000 TEUs at the beginning of the year to close at 780,000 TEU at the end of the year. We added capacity month after month throughout 2024 as we received more tonnage than we delivered existing tonnage. So 140,000 TEUs of incremental tonnage between the beginning of operating capacity between the beginning of 2024 and the end of 2024.

That allowed us to come to deliver on the volume story that you rightly highlight, that allowed the company to move 14% more boxes in 2024 compared to the prior year 2023. Now, when we look at 2025, our starting point is 780,000 TEUs worth of capacity. With those 90, give or take, 1,000 TEUs of tonnage that are up for renewal, if we were to let go all of that tonnage, we would end the year with an operated capacity that would be close to 700,000 TEUs. Still quite significantly more than what we started 2024 with.

That is why we are saying that we feel confident that we will be able to continue to grow our carried quantities with the capacity that we intend to operate in 2025, even though, as of yet, we still maybe have not made final decisions when it comes to the renewal of all or some of these 28 ships that are coming up for renewal in 2025.

Omar Nokta (Managing Director)

Thank you. That is actually quite helpful. Just a final one, and this is a bit more big picture and strategically maybe just about the business. You were discussing the USTR proposal and it is still early in terms of figuring what that all means. You did mention that some of the complexity that is now involved, if it were to go through in terms of servicing different ports and different customers in various areas. How are you thinking about them, I guess, going forward? You've operated, obviously, long-term as an independent ocean shipping company. Any plans or thoughts in terms of diversifying into related businesses that are either tangential or within logistics as a result, especially given how significant your cash position is?

Xavier Destriau (CFO)

Look, I think the number one priority of the company continues today to ensure that we continue to position ourselves for the longer term as a very highly competitive ocean player. We've taken a series of decisions and implemented a series of actions throughout the past four or five years, starting with the renewal of our fleet, starting also with the collaboration with the 2M back in 2018 with MSC now as the 2M got dismantled. We are very well positioned. We are commanding a significant market share on the key trade where we decide to focus our attention.

Just also to emphasize here or re-emphasize on the Asia-US East Coast, we command a market share close to 12%. Despite the fact that ZIM globally only commands 2.5% of the global shipping market, on the trades where we compete, we are strong and we are a big competitor. The partnership with MSC on the US East Coast trade is a pure swap agreement. We are bringing as much capacity as MSC, and we both enjoy from sharing slots on board each other vessels. We have been very active in ensuring also that we differentiate ourselves with our LNG proposition. We were one of the first shipping lines to aggressively, I think, order new build LNG tonnage. Today, we just talked about the composition of the fleet. Out of the 780,000 TEU of capacity that we operate, 40% of that capacity is LNG powered.

We are the only shipping line having two services between Asia to the US East Coast. We have built, we believe, a strong brand. We get the recognition from our customers that transpires in our ability to capture additional volume, as we just talked about, generating more than 40% volume increase in 2024 versus 2023. Now, all the uncertainties that you are referring to ahead of us will affect the whole of the industry. We feel strong about the fact that we now have the right tools, and we are very well positioned to navigate those uncertainties in the months and in the quarters to come. I do not think that all those elements that we need to keep in mind and consider are of a nature to divert our focus and attention away from our core shipping activity.

We said that we, on top of this core shipping ocean liner strategy that we have and execute on, we continue to look at investing and diversifying some of our activity towards digital initiatives, and we named a few in this respect. We will continue also to do that. The short answer after maybe a long one is we think that in the foreseeable future, the focus should continue to be on our core shipping business.

Omar Nokta (Managing Director)

Thank you, Xavier. Appreciate your comments.

Operator (participant)

Your next question comes from the line of of Alexia Dogani from JPMorgan. Your line is now.

Alexia Dogani (Research Analyst)

Hi, gentlemen. Thank you for taking my questions as well. Just very firstly, you talked about the anxiety that customers are facing very near term. Can you talk a little bit more about the very current rates we're seeing in activity in February?

Because we've noticed quite material drops in spot rates in February, and it's not very clear what is driving that given the Red Sea remains closed. Any comment there would be great. In that context, if you can give us a little bit of a rough evolution of rates over the next 12 months, obviously, there's seasonality and kind of what your assumptions are on that basis. Secondly, on the fleet composition, I remember when you came to market, one of the unique selling points was your agility and the fact that you had very few vessels or capacity on longer-term charters. Obviously, that balance massively switched during COVID because of the constraints to secure capacity. Are you considering, again, to go back to much shorter charter durations to bring back some of that agility you had prior to COVID?

Can you help us understand at which scenario would you actually consider shrinking your asset base? Obviously, you're telling us over the next two years you have scope for a 20% reduction, assuming you do not renew any of these vessels that are coming up for renewal. Is that a scenario you are considering as a team? Just kind of a very quick one. It's good to see that you chose to buy some vessels. Why did you not consider to buy more and instead kind of continue to pay the dividend that clearly is quite expensive if I think about the yield it trades on? Just trying to understand kind of the capital allocation there. Thank you.

Xavier Destriau (CFO)

Thank you, Alexia. Quite a few questions here. I am going to try to take them one after the other if you allow me. Maybe starting with the third one. You were talking about the fleets and the agility that was one of the arguments that characterized ZIM at the time of the IPO. At the time of the IPO, you were right in saying that we were very much exposed to the short-term charter market. We operated very little tonnage that we owned, and we were very not exposed to the long-term charter.

That was an element of differentiation for ZIM. The agility of yesterday or the drivers for the agility of yesterday are not the same for the agility of today and tomorrow. Our market and our industry landscape changed significantly with the COVID years of 2021 and 2022. Relying on the short-term charter markets was a strategy that could work up until and worked pretty well, by the way, for ZIM up until 2021, including, by the way, 2021, 2022.

After we felt that clearly we had to change this strategy and make sure that we locked for the longer term our core capacity because we would otherwise run the risk to no longer have access to the right vessels. As we also changed our commercial strategy and network strategy, opening up to partnering with other shipping companies, with the 2M, as we discussed earlier on, we wanted to make sure that we could continue to upscale and generate economies of scale. The higher in terms of size you go in the charter market, the less you have availabilities in terms of vessels. Clearly, we changed that, and this is what triggered the fleet transformation program that we initiated back in 2021 and 2022.

We now are in a situation whereby, as I mentioned earlier on, two-thirds of the capacity that we operate is locked in for either because it's long-term charter or it's owned tonnage. That is for the better because it, first of all, gives us or guarantees access to tonnage. We are no longer subject to the fluctuation of the short-term charter market. It also provides cost visibility because the cost that we are paying on these two-thirds of our fleet are known, certain, and not subject to any potential change.

I would add that from a timing perspective, we went out in the market at the right time as we concluded those orders early on compared to today, and we benefited from very competitive pricing from the new build market that prevailed at the time and that we would not be in a position to find, I believe, today. Clearly, we changed our fleet strategy. We believe this was the right decision for us to embark on and will allow for us to build resilience in our model going forward. Why did we not buy vessels as opposed to entering into long-term charter? The reason, I think, was very apparent at the time when we said that we want to make sure that we get towards the greener technology. At the time and still today, by the way, there were two options: LNG, maybe methanol.

We believe that LNG was the better one. We do not want to take the residual value risk on the technology that you would be taking if you were the vessel owner. We are happy that the lessor or the vessel owner keeps that residual value risk on the technology. As we believe, between now and the end of the charter period, it is possible that there will be an alternative technology which will be greener, more efficient, and it will allow us to switch and transition to that prevailing technology easily when times come. That was really one of the drivers for the decision-making process. I would remind you that from a cash allocation perspective, we did also allocate some of our capital to those transactions. This was the way for us also to utilize the good earnings that were generated back in 2021 and 2022.

The upfront payment that we've been paying for each of the ship at delivery that represented for some of them more than 10-15% of the value of the new build itself was a way for us to clearly invest, make our cash work for us, and contribute to reducing the daily cost that we are now paying on those ships. With respect to your first two questions, I think that are more linked to what is the current trading environment, and you were referring to the rates environment that is uncertain as of today. Clearly, I think we are just outside of the just after the Chinese New Year period and colliding with this end of the Slack season in a way. We have the tariff uncertainty that will at some point have some effect.

It's still very difficult to say which, but we are still looking at how the market will develop in the weeks to come. Clearly, we see volume coming back, not as quickly as one would have initially anticipated. Is that the beginning of a trend, or is this something that will dissipate in the coming weeks? It's a little bit early to say. One thing that I would say or add is that we've started the negotiation with the long-term customers for the contract cargo that we would allocate to some of our BCOs or freight forwarders on the Trans-Pacific trade lane. The discussions were kicked out in LA a week ago. What we are hearing from our customers is quite encouraging on that front. There is, at this stage, no sign of significant weakness in the potential demand.

The discussions are ongoing as we speak with very little disruption. Of course, everybody's talking about the tariff, but nobody seems to suggest that the volume will be affected meaningfully, at least as part of those negotiation discussions that are just being initiated as we speak.

Alexia Dogani (Research Analyst)

Thanks. Sorry, can I just ask a very short follow-up? In your guidance comments, you basically expect stable operating capacity. Therefore, we should expect all leases up for renewal will be renewed to get to stable operating capacity. Is that right?

Xavier Destriau (CFO)

No. Maybe we were not clear enough here. What you should assume is that the capacity that we've operated throughout 2024 will be pretty much the same as the one we will operate throughout 2025, maybe a bit less. Like I said, maybe Omar, I think, had a question earlier on.We grew by 140,000 TEUs of capacity over the 12-month period of 2024. If we were to let go all of the ships in 2025, we would that we have available, those represent only 98,000 TEUs worth of tonnage. So de facto, we would be operating more tonnage in 2025 than in 2024.

Alexia Dogani (Research Analyst)

Okay. All right. Thank you.

Operator (participant)

This concludes our Q&A session. I'd now like to hand the call back over to Eli Glickman, President and CEO of ZIM.

Eli Glickman (President and CEO)

Thank you. In summary, 2024 was outstanding year for ZIM, highlighted by our best results ever, excluding the extraordinary COVID period. We made important operational progress, upscaling our capacity, which resulted in three consecutive quarters of record carry TEU and 14% volume growth for the year, far outpacing the market.

Our strong earnings in 2024 allowed us to share our success with several dividends paid to shareholders throughout the year, including today's dividend. Our total payout on account of 2024 results is $7.98 per share, or $961 million, representing approximately 45% of our net income. I want to thank our employees globally for their contributions in making this performance possible and their steadfast commitment to achieving the highest operational standards and delivering an exceptional level of service to our customers. As we enter 2025, our business environment is formed by unusual degrees of risks and unknowns. Yet, with the transformed fleet of modern cost and fuel-efficient capacity, 40% of which is LNG-powered, we are confident that we continue to leverage our agility and implement our differentiated strategy. We hold a strong competitive position in our industry and are well-positioned to navigate the external uncertainties.

Thank you again for joining us today. We look forward to sharing our continued progress with you all.

Operator (participant)

Thank you for attending today's call. You may now disconnect.