ZIM Integrated Shipping Services Ltd. (NYSE: ZIM) has reported weak financial results for 2023 as a fall in shipping prices led to lower revenue and a net loss.
ZIM, which only two years ago reported the biggest-ever profit recorded by an Israeli company, has a $2.7 billion net loss in 2023, compared with a net profit of $4.6 billion in 2022. Revenue fell 58.9% to $5.16 billion and EBITDA fell to $1 billion in 2023 from $7.5 billion in 2022. The number of containers shipped by the company fell slightly to 3.3 million in 2023 and the average price per container was $1,203, down 63% from $3,240 in 2022. In the fourth quarter the price was even lower at $1,102.
In the fourth quarter of 2023, ZIM's revenue shrank 45% to $1.2 billion and net loss was $147 million compared with a net profit of $417 million in the corresponding quarter of 2022.
Looking ahead ZIM expects an improved performance in 2024, in part because the attacks in the Red Sea by the Houthis has led to a rise in shipping prices. ZIM sees annual EBITDA of between $850 million and $1.45 billion in 2024, with the mid-point reflecting an improvement on 2023.
ZIM created free cash flow of $919 million in 2023, down 84% from 2022, and at the end of the year the company had debt of $2.3 billion compared with $279 million in cash at the end of 2022.
ZIM president and CEO Eli Glickman said, "There is a good surprise in the industry from a commercial perspective, and a bad surprise in terms of the business atmosphere. The bad surprise is the war that threatens us from the south and the north - Hamas and Hezbollah. The surprise at the business-operative level is the Houthi threat to ZIM's ships that were scheduled to sail through the Bab al Mandab Straits to and from the Suez Canal. Due to the threat, we stopped the services on these lines. What we did not expect was the effect of the increase in prices as a result of the Houthi crisis. What we see is a decrease in the level of customer service - the sailing time to Israel has been extended to 21 days, and on the other hand, a positive effect in terms of prices, because there is an understanding from customers who need to share in the insurance risk increase and the length of the voyage."
Glickman added, "The Houthi crisis resulted in our swift reorganization and increasing the number of ships on the line to Israel from 10 to 15. And since there was a dramatic increase in demand, we increased the number of ships. In practice, ZIM is the only company that guarantees direct service to Israel, so we have seen a significant increase in demand." He adds that the company conducts frequent situation assessments regarding the required safety measures.
The prices on the lines to Israel and the eastern Mediterranean have increased significantly recently, sometimes even tripling from about $2,000 to about $6,000. Israel accounts for about 8% of ZIM's activity and Glickman does not expect a dramatic increase in Israel's share of the company's results.
Will you return to profit in the first quarter of 2024?
"We don't give quarterly forecasts. In the forecast we gave, we showed an improvement in the predicted results for 2024. As a result of the crisis at the global level in the field of shipping and the switch by all shipping companies to circumnavigating Africa, the market went from a situation of excess supply to a shortage of ships, and also as a result of an increase in prices both in the eastern Mediterranean and to the US. In Europe, there was a certain increase in prices which has fallen in recent weeks."
"Another variable comes in here: the Chinese celebrated Chinese New Year a few weeks ago, and we still don't know what the global container market and prices will look like after the Chinese return from the holiday, because it takes time for them to return to full production. We don't know if the market will continue with the supply shortage or if there will be an excess supply again due to a decrease in Chinese production."
"In our forecasts for 2024, we estimate that the meaning of the increase in prices as a result of the Houthi crisis and the crisis in the Panama Canal is that in the second half of 2024 we will see a drastic drop in prices to the price levels before the Houthi crisis. Therefore, our estimates for this year are a slight improvement compared to 2023 but it is a market still under pressure."
Why do you expect a fall in prices? You believe that the Houthi crisis will be settled?
"We estimate that the Houthi crisis is a local crisis in terms of its duration, and as soon as the war ends - in the hope that the hostages will return home quickly - either the threat of the Houthis will cease or the shipping companies will find a solution, which will cause prices to drop in the second half."
ZIM's share price has risen nearly 60% since its low-point last November but well below its peak market cap of $10 billion in 2022. The company's share price is currently down 13.81% at $10.05, giving a market cap of $1.21 billion.
Glickman concluded, "The shipping market continues to be volatile in terms of price changes as a result of external factors. ZIM is in a transitional period of shedding the 'millstone' of old and inefficient ships. To date we have received 24 new ships out of 46 and by the end of the year we will receive another 22 ships, which will make ZIM the greenest and most competitive company of all the shipping companies in the world."
Published by Globes, Israel business news - en.globes.co.il - on March 13, 2024.
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