ZIM Integrated Shipping Services Ltd

NYSE:ZIM

Earnings Call Analysis

Record Q2 Results and Optimistic Guidance for ZIM

ZIM Integrated Shipping Services reported strong Q2 2024 results with net income of $373 million and revenue of $1.9 billion. Carried volume reached a record high of 952,000 TEU, reflecting double-digit growth. The company increased its full-year guidance, now expecting adjusted EBITDA between $2.6 billion and $3 billion, and adjusted EBIT between $1.45 billion and $1.85 billion. ZIM's fleet renewal program continues to improve cost efficiency, and the company remains committed to returning capital to shareholders with a $0.93 per share dividend declared for Q2. The outlook for the second half of 2024 is stronger, supported by sustained demand and elevated spot rates.

Strong Financial Performance and Growth

ZIM Integrated Shipping Services showcased remarkable growth in its second-quarter financial results for 2024, driven by a burgeoning demand in the container shipping market. The company reported revenues of $1.9 billion, a 30% increase year-over-year, complemented by a net income of $373 million, a stark recovery from a net loss of $213 million in the same quarter last year. Adjusted EBITDA and EBIT were robust at $766 million and $488 million, translating to margins of 40% and 25% respectively. This surge in profitability is indicative of ZIM’s strategic maneuvering to upscale its fleet capacity, resulting in a noteworthy carried volume of 952,000 TEUs, reflecting a 11% year-over-year increase.

Revised Guidance for 2024

In light of the strong market conditions and better-than-expected performance in the first half of the year, ZIM has raised its full-year guidance. The company now anticipates an adjusted EBITDA in the range of $2.6 to $3 billion, and adjusted EBIT between $1.45 billion and $1.85 billion. This revised guidance signals confidence in sustained market strength, driven by elevated spot rates and ongoing demand. The company also reiterated its commitment to double-digit volume growth for the year, measuring up well against an overall market growth of 6%.

Operational Efficiency and Fleet Transformation

ZIM's ambitious fleet renewal program continues to yield benefits, with 38 of 46 newbuild vessels added to its fleet, enhancing capacity and operational efficiency. The company's strategy has involved replacing older, less efficient vessels with modern, fuel-efficient ships, which has contributed directly to declining costs per TEU. This transformation not only positions ZIM to handle increased volume but also helps mitigate environmental impacts, as new vessels are primarily LNG-powered, aligning with global shifts toward more sustainable shipping solutions.

Spot Rate Variability and Market Demand

Spot rates have exhibited significant fluctuation, with an average freight rate per TEU of $1,674 in Q2, representing a 40% increase year-over-year. Factors contributing to this include ongoing supply constraints—stemming from port congestion and equipment shortages—as well as strong demand, particularly in the Transpacific and Latin American trade routes. ZIM has effectively capitalized on these dynamics, with volume growth of 29% in the Transpacific market and a remarkable 90% increase in Latin America, highlighting the company's ability to adapt its services to shifting demand patterns.

Commitment to Shareholder Value

ZIM remains dedicated to returning capital to shareholders, reaffirming its dividend policy which stipulates a payout of 30% of quarterly net income. For Q2, a dividend of $0.93 per share, amounting to $112 million, was declared, demonstrating the company’s strong cash flow generation capabilities amid solid profits. With free cash flow reaching $712 million in the quarter, ZIM's financial health positions it well to potentially increase dividends further, depending on market conditions moving into 2025.

Future Market Positioning and Risks

Looking ahead, while ZIM is optimistic about maintaining performance, there are notable risks linked to market volatility and geopolitical factors, such as the prolonged Red Sea crisis affecting shipping routes. The company's proactive management, including extending its fleet’s operational capabilities while ensuring flexibility in fleet size based on demand, prepares ZIM to navigate potential fluctuations in the market. The emphasis on strategic commercial approaches will be crucial as the company aims to maximize profitability while continuing to scale its operations amidst changing market dynamics.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by, and welcome to the ZIM Integrated Shipping Services Second Quarter 2024 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Elana Holzman. You may begin.

[Elana Holzman, executive]

Thank you, operator, and welcome to ZIM's Second Quarter 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. We 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 2023 annual report on Form 20-F filed with the SEC in March 2024. We undertake no obligation to update these forward-looking statements.

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

[Eliyahu Glickman, executive]

Thank you, Elana, and welcome, everyone. ZIM's positive momentum continued in the second quarter, and we are pleased to report strong Q2 results today, highlighted by double-digit volume growth to a record high carried volume and increased guidance for the full year.

ZIM generated net income of $373 million and revenue of $1.9 billion in the second quarter. Adjusted EBITDA was $766 million and adjusted EBIT was $488 million, reflecting adjusted EBITDA margin of 40% and adjusted EBIT margin of 25%. We maintain a total liquidity of $2.3 billion at quarter end. I'm particularly proud of the record we set this quarter in terms of our carried volume which totaled of 952,000 TEU. We achieved double-digit growth as planned, significantly outpacing global container market growth. This achievement is, of course, a direct outcome of our strategic decision to upscale our capacity, but not less important has been the exceptional execution of our employees globally. For that, I would like to thank them.

Slide #5. Turning to now performance. To date and continued market strength, we have raised our '24 guidance ranges. We anticipate full year adjusted EBITDA between $2.6 billion to $3 billion and adjusted EBIT between $1.45 billion to $1.85 billion. Xavier, our CFO will discuss additional factors driving our '24 guidance in his prepared comments.

We remain committed to returning capital to shareholders. As such, our dividend policy, which calls for a payout representing 30% of quarterly net income, our Board of Directors has declared a dividend of $0.93 per share or a total of $112 million on account of Q2 results. As we look towards the remainder of the year, our outlook for the second half has improved, reflected in our new guidance.

We now expect a stronger back half of '24 as compared to the first half. To date, the Red Sea crisis has not improved. Ongoing supply constraints, including port congestion and equipment shortages, coupled with strong demand have continued to put upward pressure on spot rates that we anticipate enduring through the third quarter.

However, taking a longer-term view, market dynamics still point to supply grow significantly outpacing demand, setting up for a reversion following recent peak rates. While the container shipping industry has always been volatile, our objective at ZIM was to build a resilient business with a transformed fleet. Importantly, we have maintained flexibility to adjust the size of our fleet depending on how market conditions evolve moving forward and to match our commercial strategy.

Slide #6. The primary pillar of ZIM transformation is our fleet renewal program, and we continue to make tangible progress as new vessels are delivered. Thus far, 38 of our 46 newbuild containerships have been added to ZIM fleet, including all 10, 15,000 TEU LNG-powered vessels and 12 out of 18, 8,000 TEU LNG-powered vessels. As we previously highlighted, our newbuild vessels are more modern, fuel-efficient, larger and better suited to the trade in which we operate.

Our cost per TEU continued to decline as this cost effective and fuel-efficient newbuild vessels replace older, less efficient and more expensive charter capacity, which we continue to redeliver back to the vessels -- to the vessel owners as planned. We have also seen financial benefit from our utilization of LNG since it has proven to be more cost-effective than LSFO. We are also pleased to see that other shipping companies are increasingly recognizing the advantages of LNG-powered vessels. ZIM is proud to have been an early adopter and advocate for LNG as a key solution to drive the transition to lower carbon mine fuels. This decision has enabled us today to be the first and only line to operate 2 separate services on the Asia to U.S. fiscal trade with LNG-fueled vessels.

As already mentioned, our upscale fleet has delivered commercial benefits as we carried a record of 952,000 TEU this quarter, an increase of 11% compared to Q2 last year and 13% compared to the first quarter. Specifically, our Transpacific, our main trades, we grew our carried volume in Q2 by 29% compared to the Q2 last year and 22% compared to the first quarter. We remain agile in our fleet deployment and focus on adopting the services we offer as customer demand shifts.

As such, at the end of the second quarter, we launched a second premium service from China to the U.S. West Coast to meet strong demand on this trade. Also contributing to our Q2 results and improved guidance is the decision we made earlier this year to revisit our commercial approach of an approximately 50 to 50 fleet between spot and contract volume. Instead, our spot exposure in the Transpacific trade is approximately 65%, enabling ZIM to benefit more significantly from the upward pressure we have seen on spot freight.

I would like also to highlight our growing volume in the Latin America trade as we have taken steps to launch new lines and extend our market share in this region. We grew our volume this quarter in Latin America by 90% compared to Q2 last year and 8% versus Q1 '24. As we have discussed previously, Latin America has been a focal point for us where we see long-term growth and profitability potential as we are pleased with the progress we are making in increasing our market share.

Slide #7. Before I turn the call over to Xavier, I would like to briefly touch on our tech investments. We believe there continues to be value in investing in companies developing disruptive technologies complementary to our core shipping business as potential growth engine. We recently added 2 very interesting companies to our portfolio. The first, CarbonBlue, our first investment in a climate-related technology. We participated in the seed-funding round alongside other financial and strategic investors.

CarbonBlue develops groundbreaking water-based carbon dioxide removal technology that is unique in its ability to utilize any type of water in its environmentally friendly process. As such, CarbonBlue's technology has the potential to convert any existing water infrastructure into an asset capable of removing CO2 from any water source, bring the water up to absorb more CO2 from the atmosphere.

The second investment is in Pickommerce, a startup developing an innovative robotic grasping technology. Pickommerce Solution combines advanced robotics and artificial intelligence to transform how logistics centers and warehouses handle packaging processes, overcoming the difficulty robots have in identifying items with different weight or shapes. Pickommerce unique solution enhance efficiency, reduce operational costs and ensure accuracy setting new standards in the logistics industry.

As we previously indicated, while these investments are small, they are consistent with our organizational culture, which promotes innovation in creativity. We are proud to have these companies address critical market needs and fulfill their potential as active strategic investors.

On this note, I will turn the call over to Xavier, our CFO, for a more detailed discussion of our financial results, our update '24 guidance as well as additional comments on the market environment. Xavier, please.

[Xavier Destriau, executive]

Thank you, Eli, and again, welcome everyone. On Slide 8, it presents key financial and operational highlights. Our second quarter financial results are indicative of continued market strength based on elevated freight rates and strong demand. Our second quarter average freight rate per TEU was $1,674, a 40% year-over-year increase and a 15% increase from the prior quarter.

During the first 6 months of the year, our average freight weight per TEU of $1,569 was 22% higher than in the first half of 2023. At the same time, we continue to see the positive impact on carried volumes. As Eli just mentioned, our Q2 carried quantities of 952,000 TEUs was a record and 11% higher year-over-year. ZIM's growth compares favorably to market growth of 6%.

Revenues from non-containerized cargo, which reflects mostly our car carrier services, totaled $128 million for the quarter compared to $136 million in the second quarter of 2023. Total revenues in the first half of 2024 of $3.5 billion were up $811 million or 30% year-over-year. Our free cash flow in the second quarter totaled $712 million compared to $321 million in the second quarter of 2023.

And turning now to the balance sheet. Total debt increased by $585 million since prior year end, mainly due to the net effect of the incoming of larger vessels with longer-term charter durations attached.

Turning to our fleet. We currently operate 148 vessels, including 132 containerships with total capacity of approximately 755,000 TEUs as well as 16 car carriers. This compares to the overall fleet of 147 vessels as of our prior earnings calls in May. The change from 3 months ago resulted from the delivery of 8 newbuilds and the redelivery of 7 vessels. However, it is worth noting again that while we continue to operate a similar number of vessels, our operating capacity continues to grow. And this is the result of ZIM replacing a smaller, less cost-effective tonnage with larger, more cost-efficient newbuild capacity.

As of today's call, 38 of the 46 newbuild vessels team has committed to have joined our fleet, including all 10, 15,000 TEU LNG vessels; 4, 12,000 TEU vessels; 12 of the 8,000 TEU LNG vessels; and 12 of the smaller 5,500 and 5,300 TEU ships.

Excluding the newbuild capacity, the average remaining duration of our chartered tonnage continues to trend down and is now 18 months compared to 19.7 months in late May. We have a total of 15 vessels up for charter renewal in the remainder of 2024 as compared to the expected delivery of 8 newbuilds during this period.

In addition, we have another 36 vessels up for renewal in 2025. As previously highlighted, this gives us ample flexibility to ensure our fleet size batches the market opportunities. Next, moving on to Slide 10. We present ZIM's second quarter and 6 months 2024, financial results compared to last year's Q2 and first half.

Adjusted EBITDA in this year's second quarter was $766 million and adjusted EBIT was $488 million. Adjusted EBITDA and EBIT margins for the second quarter were 40% and 25%, respectively, as compared to 21% and negative 11% in the second quarter of last year. For the first 6 months of 2024, adjusted EBITDA margin was 34%, and adjusted EBIT margin was 19%. This is compared to 24% and a negative 6% in 2023.

Net income in the second quarter was $373 million compared to a net loss of $213 million in the same quarter of last year. Turning now to Slide 11. We present our carried volumes broken out by trade zone. As you can see, we saw significant growth on the Transpacific and Latin America trade in the second quarter, attributable to our larger capacity vessels and also to new lines.

Transpacific and Latin America volume grew 29% and 19%, respectively, year-over-year. We expect to see continued volume growth during the remainder of 2024 as we continue to upsize our capacity and remain on track to achieve our double digit volume growth target this year.

On Slide 12 is our cash flow bridge. So for the quarter, our adjusted EBITDA of $766 million converted into $777 million of cash flow generated from operating activities. Other cash flow significant item for the quarter is at $598 million of debt service, mostly related to our lease liability repayments. In Q2, we paid $73 million as down payment on the delivery of our LNG vessels. Moving now to our 2024 guidance. As you already heard from Eli, our outlook for the remainder of 2024 is now significantly stronger than previously assumed. With the second half of 2024, now expected to be better than the first. As such, we are raising our full year 2024 guidance and now expect to generate adjusted EBITDA between $2.6 billion and $3 billion. Adjusted EBIT between $1.45 billion and $1.85 billion.

Our improved guidance is driven almost entirely by the strength we are seeing in spot rates, which we now expect will continue at least through the third quarter. This in turn contributed to a higher freight rate assumptions incorporated into our current guidance as compared to the freight rate assumptions we did incorporate into the guidance we provided back in May.

Our volume assumptions for our 2024 guidance remain unchanged and we continue to expect to achieve double-digit volume growth in 2024 versus 2023. This is consistent with the assumptions driving our initial guidance in March. Our fleet renewal program continues to give us very good visibility into our cost structure this year. And as we redeliver chartered capacity as planned, and we see the newbuilds we secured in 2021 and 2022. As previously indicated, we did not need to turn to the charter market to secure additional tonnage to address the Red Sea crisis. And therefore, our 2024 results are not impacted by the elevated rates currently observed in the charter market.

Our worker cost assumptions are largely unchanged in our current guidance as compared to the underlying assumptions for the guidance we provided in May. Moving to some data point, which we believe on the score are expectations for the remainder of 2024. The underlying supply-demand balance for the near to midterm has been and remains one of significant oversupply.

Yet, as you all know, security concerns of a safe transit through the Arab sea and straits of Bab-el-Mandeb have dramatically changed this reality into a certain equilibrium as extended voyage durations around the [indiscernible] have absorbed significant nominal capacity.

From May onwards, congestion mostly in Asian and West Med ports along with equipment constraints put additional pressure on the global supply chain. You can see the continued upward trend in the ocean timeless indicator or OTI on the right. To remind you, the OTI measures the journey of a container from the time it is set to lead a factory to the time it is picked up from its destination port. These longer journeys on the main deep sea trades point to added pressure on the supply side. And the outcome of this pressure is evident in the next slide where we show the spot rate development in 4 regional trades in which we operate.

We first saw signs of this rate improvement in May when a second wave of spot rate increases began and spilled over to trade not directly impacted by the Red Sea crisis. Nevertheless, the magnitude of the increases we have seen was unforeseen. At this point in time, though we've witnessed the SCFI decline since in mid-July peak, these declines are not unexpected as new vessel deliveries continue, particularly of large capacity vessels, allegating the pressure on supply.

Now on the demand side, we also saw in May an uptick in demand, which compared with the supply pressure and contributed to the magnitude of the spot rate increases we've experienced. Container volume from Asia to the U.S., our main trade have been strong in the first half of the year. Yes, there is still a question as to whether the strength in demand we are witnessing is a pull forward in peak season demand or longer term more sustainable uptick demand. While this has been and still is a positive peak season, the buildup in inventory levels in the U.S., which we can see on the right suggests that we will likely see no more seasonality trends this year. The uncertainty with respect to the rate environment for Q4 remains high with the duration of the Red Sea crisis a critical unknown.

While the less likely scenario in the short term, if the regs crisis ends and savings through the Suez Canal resumes, oversupply will likely put significant pressure on rates. On the other hand, as long as significant supply demand tied up in the extended voyages around the Cape, rates are likely -- are still likely to continue to slide at a slower risk given the added capacity and typical seasonality. Thank you. And on that note, we will open the call to your questions.

[Operator]

[Operator Instructions] Your first question comes from the line of Omar Nokta from Jefferies.

[Omar Nokta, analyst]

Congrats on a, obviously, a very, very strong quarter and a big guidance revision for the year. Nice to see double-digit growth in the volumes but also at the same time to see that in the freight rates, which many times that doesn't go hand-in-hand.

I wanted to ask -- I have a couple of questions, but I just wanted to ask on the volumes. You've highlighted several times in your comments about your target of double-digit growth for the full year. The figure for the second quarter of 952,000 TEUs, there's obviously a big jump in a gap up from what you've done over the past several quarters. I know you've taken delivery of some bigger ships, and so that's helped. But just as we think about volumes going forward, do you think this level is a new maybe baseline or run rate for ZIM? And is there any color you can give us on the third quarter and how these volumes have fared thus far?

[Xavier Destriau, executive]

Yes. Omar, it's a good question. And the short answer is we basically hope so. Clearly, as we've been upgrading and upsizing our capacity, we keep on increasing our operated tonnage. There, we operate, give or take, 750,000 TEUs by the end of the year, when we will have received the remaining ships that are yet to be delivered and albeit we turned 15 smaller vessels, we will end up operating an equivalent capacity close to 800,000 TEU. So for us to really benefit from the lower cost per TEU carried, we need to make sure that at the same time, we increased the volume that we end up carrying. So we set a new record this quarter with this 952,000 TEUs. We expect to continue to grow quarter after quarter and reach 1 million TEU per quarter in the not-so-distant future.

[Omar Nokta, analyst]

Okay. Interesting. And I guess, maybe big picture, obviously, on free cash flow. 2024 has turned out to be much stronger than you initially and we all initially expected and free cash flow has now turned positive quite meaningfully. How do you think about the uses of this excess cash flow that you're now bringing in into them? Whether it's strategically or with respect to the balance sheet, any thoughts you can give on the uses of that additional free cash.

[Xavier Destriau, executive]

Look, I think the first comment that I would want to make is that we are very happy and very pleased with the -- how the quarter the turnout and the outlook for the remainder of the year. So continuing to strengthen at the end of the day, the balance sheet of the company. And the more the balance sheet and the capital structure is strong, the work opportunities we have in terms of capital allocation.

So I think in terms of prioritization, we will continue to make sure that we allocate capital to our asset vessels and containers. We will continue to rejuvenate the fleet of containers that we operate. From a vessel perspective, we see significant completing -- we're completing our significant transformation that was initiated back in 2021, '22. So maybe less pressure on that front. And as importantly, I think we want to continue to return capital to shareholders. So we've done so since the IPO. I think we are consistently bid by our dividend policy in terms of dividend paid to our shareholders, and we tend to continue to do so as well in the foreseeable future.

[Omar Nokta, analyst]

Got it. And then just maybe a final one for me and a follow-up to just the last one on the dividend. Obviously, you paid another -- or you've declared a 30% payout for this quarter, your second one this year and presumably another one significantly is coming in the third quarter.

How do you think or how is perhaps maybe the Board viewing the potential of the full 50% at year-end I know it's obviously at the discussion of the Board. But do you think it's as simple as if the market remains above long-term averages, then 50% is realistic? Or do you think -- or is the mindset to prefer to hold on to the excess cash given maybe the uncertainty and as you highlighted the order book or the deliveries of the capacity is outpacing demand growth. How are you thinking about that in terms of that true up to 50%? Is it -- I guess I'm trying to ask is the mentality of the company to hold on to cash or pay it out if the market remains firm? Any color you can give there?

[Xavier Destriau, executive]

Look, I think maybe today, it's a little bit early for us to give a clear answer to that question. I think the Board and the company will closely look when the times come, and that will be as far as the potential true-up towards March next year what do we think the following years will look like, where will we be as an industry in terms of maybe going back to a more normal way of operating the Red Sea discussion today are blurring a little bit the perception of what the new normal may look like.

So I think this question will be obviously very much on the agenda at the time. And the answer will be very much a function of what we have delivered on a full year basis in 2024 to start with, but also as importantly, how do we project ourselves in the coming years, depending on where the market dynamics and the being when we make that consideration again towards March next year.

[Operator]

Your next question comes from the line of Sathish Sivakumar from Citi.

[Sathish Sivakumar, analyst]

I got 3 questions here. Maybe just to start off with on the tax rate. If you look at in quarter 2, you had a plus $2 million. How should we think about going forward into quarter 3 and quarter 4, i.e., maybe for the full year in terms of the tax charges on the P&L?

And then the second one is around the vessels that are coming up for renewal. So you got about 51 vessels that are coming up for renewal, including '24 and '25. Given where the rates are today, would you still be interested in like giving those vessels back? Or would you look to renew them?

And then the third one, you did have a slide there on the cash flow bridge view, you pointed about $380 million down payments for 10 LNG vessels and also payments for 5 vessels. How should we think about for the remaining 8 vessels? And do you expect to take another debt service charge in the coming quarters? Or it will be mostly in '25?

[Xavier Destriau, executive]

Thank you, Sathish. I'll try to take your questions one after the other. So the first one with respect to tax rate for the quarter 2024. We don't expect to incur significant tax charge in 2024 as we will still be able to benefit in a way from the tax losses that we generated in 2023 and that we can carry forward in front of the profits that we are making or expect to make in 2024. So you should not expect a significant tax charge in our yearly year P&L.

With respect to the vessel, the fleet plan, clearly, when it comes to 2024, we intend to continue to execute on the strategy that we laid out already a few quarters back, which is redelivering the vessels that come up for renewal. Those are smaller vessels, somewhat expensive capacity as well that was secured in the times of the COVID-era days during which the chartering rates were at elevated levels.

And we continue to need to make room for these new ships that are yet to be delivered. The 8 ships that are coming between now and the end of the year, and as I was saying also earlier on, by doing just that, we will continue to increase our operating capacity from 750,000 TEU today to 800,000 TEU by the end of the year.

Then comes 2025, and then we do not have a newbuild delivery expected, but we have indeed 36 ships that will come up for renewal in 2025. And we would need to make the determination as to whether we want to recharter some or all of this capacity to continue to operate on the 800,000 TEU equivalent tonnage or less, depending on where the market will be in 2025 on a monthly basis when we have to make those decision to let go of the ship or to potentially seek rechartering of the capacity.

And to be frank, that will be very much a function of where the market is in terms of rate environment where are we in terms of the congestion that we've experienced over the past few quarters, where are we in terms of supply-demand dynamics. So it gives us a lot of flexibility to potentially downsize if the market was to turn to the negative or to continue as is and even expand if we were to see that as a preferred option, but those 35 ships represent about 300, 30,000, 40,000 TEUs. So for 800 TEUs at year-end, we could end up if we had to downsize closer to 650 by the end of 2025.

And with respect to your last question on the down payment for the 8 ships that are yet to be delivered. We now expect 2 of the remaining 8,000 TEU ships and 6 of the -- sorry, I think it's the opposite. By the way, let me just double check quickly. Yes. We -- sorry, we expect 6, 8,000 TEU ships and 2 of the smaller 5,000 TEU vessels, we only have down payment commitment for the 8,000 TEU ships. So those are 6 vessels, $20 million each, we represent $120 million between now and the end of the year.

[Sathish Sivakumar, analyst]

Okay. you mentioned about, like, say, the freight levels would determine whether you wanted to renew them. So just to clarify, so you -- it's mainly the freight rates rather than the charter rates, right? Or would you still...

[Xavier Destriau, executive]

I guess, Satish, it's -- I mean, the 2 are somewhat linked. If we are in a situation where the charter environment continues to be limiting, I guess that's a translation of there is a still shortage of capacity and the shortage of capacity is normally a good factor to sustain elevated freight rates. So if we are to be in this environment, we might want, nevertheless, to take some charter in order to continue to capture this good market conditions. What I think we will be very mindful about at that time, if we were to be opportunistic, bearing in mind that the long-term view -- the longer-term view still points towards a potential significant overcapacity. We will want to limit our commitment in terms of charter duration to a short-term charter. So I think the charge will be on the duration.

And if we decide to reach out to some of the capacity if the rates -- the charter rates are perceived elevated, we would not want to lock ourselves for a long period but potentially reach after on an ongoing basis for as long as we see the freight and the demand supporting this type of commitment.

[Operator]

Your next question comes from the line of [ Niels Thomason from Farley Securities ].

[Unknown Analyst]

It's just -- so we understand you correctly, I think you alluded that freight rates will be higher in Q3 and then they will trend downwards in Q4, and that's baked into your guidance. But can you tell us something what you expect in terms of the container demand? Do you expect a normalization of the year-on-year growth that we've seen so far towards the end of the year? Or is that based on continued growth in the containers throughput throughout the year?

[Xavier Destriau, executive]

Look, I think we believe that 2024 overall in terms of growth in demand will be better than what we initially planned when we entered into 2024. So clearly, we are with a stronger -- strong start of the year. We talked about maybe this is because in the second quarter, we had a little bit of an early peak season, in which case some of the volume that would have been expected to come later in the year may have been a little bit front loaded.

What we think is still the second half should be okay from an overall demand perspective. What we are monitoring, obviously, is the inventory level in the U.S. And if that was to pick up meaningfully, then that would suggest that maybe the underlying demand is not as strong. But today, although those inventories have started to pick up from lower levels of earlier this year. They are still not yet at alarming levels.

So it will very much be a function of whether the demand continues to be okay, that will potentially lead to rates continuing of lighting or reducing at a lower pace that will really much be a function. This is why it's very difficult to forecast the fourth quarter because the 2 will be most probably linked. In terms of capacity, there is no surprise to be expected here. If we assume that the Red Sea disruption continue towards the second half the newbuild tonnage that is going to be delivered in terms of overall TEU equivalent is known.

So the unknown is to which extent the demand will soften in the second half compared to the first. But today, we don't have any clear alarm signals that the demand in the second half would collapse.

[Operator]

And this concludes our question-and-answer session. I will now turn the call back over to Eli Glickman, ZIM President and CEO for closing remarks.

[Eliyahu Glickman, executive]

Thank you. We are very pleased to report strong Q2 financial and operational results today. This performance illustrates ZIM continued success in advancing our fleet transformation, our commercial agility and outstanding execution, while capitalizing on a rate environment that has remained stronger for longer than anticipated. We are confident the steps we have taken to enhance our operational and commercial resilience will continue to drive long-term sustainable growth.

As we look towards the remainder of '24 we increased our full year guidance and now believe that back half of '24 will be stronger as compared to the first half. In the second quarter, we achieved record carried volume as a direct result of ZIM's strategic decision to upscale and modernize our fleet, and we expect to continue to see incremental benefits as new larger cost-effective vessels joined the fleet.

We are committed to further implementing our differentiated strategy, best serving our loyal customer and maximizing value for all our stakeholders. Thank you again for joining us today. We look forward to sharing with you our continued progress.

[Operator]

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