ZIM Integrated Shipping Services Ltd. (NYSE: ZIM) surprised investors today by significantly raising its annual guidance as well as by beating forecasts for the second quarter. The share price opened 14.32% higher on Wall Street, giving a market cap of $2.622 billion.
The Israeli shipping company reported revenue of $1.9 billion in the second quarter of 2024, up 47.6% from the corresponding quarter of 2023. Revenue in the first half of the year was $3.5 billion, up 30.2% from the first half of 2023. The average price of a container rose 40% in the second quarter to $1,674. At the same time, the amount shipped by ZIM rose by 10.7% in the quarter to 952,000 containers. Net profit in the second quarter was $371 million, beating the forecast, compared with a net loss of $215 million in the second quarter of 2023. Net profit in the first half of 2024 was $462 million.
Sharp rise in prices
ZIM CEO Eli Glickman explains that the price of shipping has risen fourfold to fivefold although it is still below prices during the Covid pandemic. He said, "These are certainly prices that we did not see in 2023 and they are contributing to a significant rise in profitability. We also saw this quarter the result of the entry of our new ships. We reached a record in shipping containers.
"A voyage that now leaves Asia for the US east coast takes 11 weeks, and the duration of a voyage to Israel is similar because of having to circumnavigate Africa around the Cape of Good Hope, so it takes time to see the results expressed. We are back here to the global crisis caused by the Houthi threats, which prevents the passage of ships in the Bab al-Mandab Straits and Suez Canal, as well as the back end of the Panama Canal drought, which created a bottleneck there. All this, alongside the increase in demand in the markets, especially in the US. This has led to a dramatic increase in prices due to a lack of supply and an increase in demand. The result is very strong in the second quarter and an additional increase in profitability is expected in the second half."
Is there anyway of moderating the volatility in financial results?
"The shipping market is known for its high volatility. As part of preparedness, we invested in two things - a new fleet of 46 ships, which will give us competitiveness even during a crisis in order to mitigate potential losses, as well as a billion dollars that we invested in new containers."
Glickman points out that ZIM's EBITDA profit margin in the second quarter, about 40%, is the highest of all the shipping companies that has published reports. One of the reasons, according to him, is the fact that when the long-term contracts were renewed at the beginning of May (the date of the renewal every year), there was heavy pressure on prices, and competing companies signed contracts at prices that are lower than cost prices; ZIM, on the other hand, refused to sign and therefore signed only 35% of long-term contracts, and the rest benefit from the increase in prices.
You took a risk
"We took a risk and a chance. We did not agree to compromise, there is no reason for us to subsidize large clients at the global level/
What are the reasons for the rise in demand?
"We believe that this was due to the Covid pandemic when large stocks accumulated in warehouses, then there was 'overshooting' and companies cut their stock dramatically, and due to the interest rate hikes, they reduced the stock to minimum levels. Now the fear is that there will be empty shelves, so there is again 'overshooting' and orders on a large scale. We don't know how long it will last."
The share price has more than tripled since last year's lows.
"We are responsible for the company's results and not for the share price. Our goal is to produce the best results for shareholders."
ZIM will distribute a dividend of $112 million, $0.93 per share, for the quarter’s profits.
Published by Globes, Israel business news - en.globes.co.il - on August 19, 2024.
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