ZIM Integrated Shipping Services Ltd

NYSE:ZIM

Earnings Call Analysis

ZIM Navigates Transition Amidst Revenue Drop

In 2023, ZIM experienced a revenue drop of 59% to $5.2 billion, affected by a 63% reduction in average freight rate per TEU from the previous year. Despite these challenges, non-containerized cargo services saw a 73% revenue increase. The firm faced a net loss of $2.69 billion, including a $2.1 billion impairment in Q3. Lower adjusted EBITDA and EBIT margins were noted. Going into 2024, investments in technology, such as advanced container tracking, are key. The company anticipates adjusted EBITDA between $850 million and $1.45 billion, forecasting average freight rates slightly higher than in 2023, with a more robust first half expected.

ZIM Invests in the Future While Weathering Market Challenges

Looking ahead into 2024, ZIM's capital allocation strategy is unaltered, maintaining a cautious yet proactive stance aimed at enhancing long-term shareholder value. The focus rests on boosting ZIM's growth engine - essentially its fleet or equipment - while simultaneously engaging in cost savings and cost avoidance initiatives to preserve cash, which remains a high-priority objective. For instance, ZIM's strategic investment in Hoopo Systems reflects this ideology, integrating advanced technological solutions like the innovative tracking device for dry van containers to bolster the company's operational strength and commercial resilience.

Financial Summary of a Difficult Year

Over the past year, ZIM was confronted with a challenging market, manifesting in a significant 59% revenue drop to $5.2 billion in 2023. The average freight rate per TEU witnessed a substantial 63% decrease from the previous year, standing at $1,203. The fourth quarter saw a continuation of this declining trend, with average freight rates per TEU dipping further by 3% from the preceding quarter. These lower freight rates have heavily contributed to ZIM's recorded net loss of $2.69 billion for 2023, a stark contrast from the net income of $4.63 billion in 2022 which included a sizeable $2.1 billion impairment loss. Even adjusted EBIT and EBITDA margins significantly diminished due to the prevailing economic conditions.

Operational Resilience Amidst Debt Increase

Despite a substantial increase in total debt by $666 million, ZIM's operational capacity leveraging a fleet of 150 vessels - including 16 car carriers - has grown due to strategic acquisitions and the integration of 24 out of 46 newbuild vessels into its fleet. In fact, ZIM's newbuild strategy is intended to replace smaller, less efficient vessels with larger, cost-effective ships, thereby diminishing unit costs per vessel and amplifying competitiveness. Simultaneously, ZIM demonstrates operational agility with 30 vessels up for charter renewal in the remainder of 2024, complemented by the expected delivery of 22 newbuilds, ensuring adaptability irrespective of market changes.

Guidance for 2024 Reflects Cautious Optimism

ZIM projects adjusted EBITDA to fall between $850 million and $1.45 billion in 2024, with adjusted EBIT anticipated to range from a negative $300 million to a positive $300 million. This cautious outlook presupposes a marginal uptick in average freight rates for 2024 as compared to 2023, with potential benefits from current higher spot rates in the initial two quarters. However, the latter half of the year is expected to be weaker. This guidance is set against an impending increase in operational capacity due to incoming newbuilds and an aspiration for volume growth over 2023's numbers, coupled with the potential for more favorable bunker costs as ZIM shifts towards increased LNG consumption.

Earnings Call Transcript 2023-Q4

[Operator]

-- [Abrupt Start] Integrated Shipping Services Q4 and Full Year 2023 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Elana Holzman, Head of Investor Relations. Please go ahead.

[Elana Holzman, executive]

Thank you, operator, and welcome to ZIM's fourth quarter and full year 2023 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'll 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 and cautionary language described in the documents that company filed with the Securities and Exchange Commission, including our 2023 Annual Report filed today on Form 20-F. We undertake no obligation to update these forward-looking statements.Before turning the call over to Eli, one housekeeping point. Since announcing the relevant charter agreements, we have referred to the 18 smaller LNG vessels as 7,000 TEU vessels, their original design name, and prior to their construction. Nominal capacity of these vessels is approximately 8,000 TEUs. As such, going forward, we will refer to these vessels as 8,000 TEU vessels.At this time, I would like to turn the call over to ZIM's CEO, Eli Glickman. Eli?

[Eliyahu Glickman, executive]

Thank you, Elana, and welcome everyone to today's call. Reflecting on a challenging year, we at ZIM have proven to be resilient and committed to excellence throughout our operation, as we deliver the highest level of customer care even in the face of the industry disruptions and other operational challenges.The war situation in Israel is ongoing and continues to affect our employees here. We mourn the loss of all innocent lives, and we continue to pray for the safe return of all Israelis who remains held hostage by Hamas in Gaza.Since the tragic events of October 7, our priority has been to ensure the safety and well-being of our employees and to minimize any service disruptions to our customers.I'm incredibly proud of the unwavering commitment that I've seen from our peoples throughout the organization during this challenging time, and the collective spirit to continue to drive our business forward.Before discussing the current state of the market and ZIM's strategic transformation, I will briefly address our financial results. Consistent with our latest expectations, our fully adjusted EBITDA was $1.05 billion and '23 adjusted EBIT loss is $422 million.These results were in line with the outlook we provided in November '23 and reflected the ongoing market weakness. Importantly, we ended the year with substantial liquidity of approximately $2.7 billion.Turning to Slide 4. Turning to the market environment, we've seen dramatic changes in recent months, demonstrating the volatility and dynamic nature of our industry. The escalating tensions in the Red Sea have had broad implications for container liners.In late November '23, to ensure the safety of our seafarers, our customers' cargo, and the vessels we operate, we made the decision to divert all ZIM vessels due to pass through the Red Sea around the Cape of Good Hope until further notice.These Red Sea diversions, which others have also implemented, have been a disruptive force across the industry, absorbing some of the overcapacity in the market and driving freight rates in certain trades higher.January '24, stricter draft restriction enforcing the Panama Canal, including on container vessels, added to the supply squeeze we're currently experiencing. While this disruption had the minimal impact on our Q4 results, we expect first quarter and potentially second quarter earnings in '24 to reflect the improved spot rates.Yet, as we look toward the remainder of the year, it is worth noting that there is a fundamental difference between the current disruptions and the prevailing market conditions during the COVID-19 pandemic.The COVID era market was characterized by a significant increase in consumer demand accompanied by unprecedented supply chain disruptions. Current market conditions, on the other hand, are primarily supply driven, and the significant spot rate increases remain somewhat limited to trades more directly impacted by the disruptions.Once the Red Sea crisis is resolved, we'll likely revert to the supply/demand scenario that had begun to play out in '23, setting up a more challenging third quarter and fourth quarter of '24 for the industry, including us.Given that market dynamics in the year ahead will depend largely on the duration of the Red Sea disruption, we are taking a cautious approach in establishing our '24 guidance.As such, in '24, we expect to generate adjusted EBITDA of $850 million, $1.45 billion, and adjusted EBIT of negative $300 million to positive $300 million. Xavier, our CFO, will discuss the underlying assumption for our '24 guidance in his prepared comments.Going to Slide #5. This strategic transformation is progressing as planned and is already yielding the favorable outcomes we projected. As we have communicated previously, '23 and '24 were always expected to be in transition period.We are pleased with the decisive steps we have taken to enhance ZIM's future commercial and operational resilience. As a result of these actions, we expect ZIM to emerge in a stronger position than ever in '25 and beyond, as our strategic transformation continues to deliver gradual benefits. Most importantly, we've executed a fuel renewal program that will enable ZIM to operate more efficiently and competitively.Through a series of long term charter agreement, we secure a total of 46 newbuild container ship of which 28 are LNG powered. 24 vessels have already been delivered to us, and another 22 are expected to be delivered through the remainder of '24. The advantages of this fleet are worth highlighting again.The goal was to shift ZIM's reliance on older, less fuel efficient and less green capacity to a cost and fuel efficient, largely energy power newbuild fleet. Our core fleet will be modern, larger, and better suited to the trades in which we operate.Our cost per TEU is declining as we continue to take delivery of the cost effective newbuild tonnage and redeliver expensive COVID era vessels. We expect further improvement moving forward.From an environmental perspective, we expect approximately 1/3 of our operating capacity will be LNG powered in '25, establishing ZIM as a clear industry leader in terms of carbon intensity reduction. We are pleased to offer our customers a pathway to more ecofriendly shipping options and reduced carbon emissions.Today, ZIM is the only carrier to operate LNG vessels from Asia to the U.S. East Coast. We are deploying 15,000 TEU and 8,000 TEU LNG-powered vessels on 2 different key services. We believe this further enhance our competitive position on this strategic trade for ZIM.As I already mentioned, during the remainder of the year, we have 22 outstanding newbuild deliveries that once completed will further enhance our fleet and complete our fleet renewal program.Our decision to charter these LNG vessels was part of our long term strategic plan to enhance our market position, particularly in the Transpacific trade, partly in anticipation of the termination of the 2M Alliance, which did in fact happen.We wanted to ensure that ZIM operates a competitive fleet that will -- would allow us to operate independently if needed, and at the same time, would also make us an attractive potential partner to other liners.Our collaboration with the 2M will end at the end of January '25 as per the termination of the 2M Alliance. Yet, we are confident that our new cost and fuel efficient newbuild capacity better position us to reach new operational collaborations in the future, and we continue to believe in mutually beneficial operational partnership, which we'll continue to seek when possible.We are focused on ensuring our fleet in the best align with demand levels. To this end, we are committed to rationalizing our capacity, whenever necessary, to minimize cash burn. In '23, we redelivered 32 vessels, and we have a total of 32 charter vessel up for renewal in '24.Turning to our network, we are constantly reviewing our services to best address customers' evolving needs and take advantage of new commercial opportunities with growth and profitability potential.Our decision to reinstate our ZEX service in late '23, connecting South China to Los Angeles was very timely, and we are now benefiting from volume growth reaching the U.S. West Coast. We proved our agility once again when we launched a second ZIM operated West Coast bound service early in the first quarter of '24 in addition to our collaboration with MSC on this trade.This service connects Asia, Canada, and the U.S. via the Vancouver Gateway and include expanded rail connection across North America. This service is also benefiting from recent market tailwinds.Latin America, where we see long term growth and profitability potential, has been a focal point for us throughout '23. We opened a number of different services, and we are pleased with our growing volume in this region. We also made adjustment to services calling East Mediterranean ports to address changes resulting from the Red Sea crisis and capture market share.We redeployed existing capacity to this service and did not charter additional capacity to maintain a weekly service on our Asia to U.S. net service.Delivering our signature Z Factor customer care, which combines personal touch with advanced digital tools, remain a high focus. This year, especially against the operational challenges, we're especially pleased to receive better than ever result from our '23 annual customer experience service. We see positive trends in the important parameters such as satisfaction with ZIM, customer loyalty and how customers' view our service versus our competitors'.Moving to Slide #6. Our capital allocation strategy for '24 remains unchanged and equally cautious. We intend to invest our resources to enhance our long term value for the benefit of shareholders, namely our fleet or equipment, as well as our growth engine. While at the same time, we continue to pursue cost savings and cost avoidance initiatives to preserve cash.So preserving cash remains a top priority. We believe there continue to be a value in investing in growth engines, mainly selectively investing in early stage companies, developing disruptive technologies in our core shipping activities and broader logistic ecosystem and assisting these companies to reach their potential as active strategic investors.An excellent example in our recent announcement to install cutting-edge tracking device on our dry van containers, developed by Hoopo Systems, one of our portfolio companies. We are excited to see our investment in Hoopo's unique technological solution mature into what we believe is the most advanced tracking device for dry containers.At ZIM, the use of technology and digital tools, combined with our agility, our core strengths, which will promote our operational and commercial resilience and efficiency. The upcoming months still represent a transition period for our company, but we are excited about what the future holds.During this time, while market conditions remain uncertain, our strong cash position will enable us to maintain a long term view. Our entire organization is focused on returns into long term sustainable profitability.On this note, I will turn the call over to our CFO -- to Xavier, for more detailed discussion of our financial results, our '24 guidance, as well as additional comments on the market environment. Please.

[Xavier Destriau, executive]

Thank you, Eli, and again, welcome everyone. On this slide, we present our key financial and operational highlights.Echoing Eli's earlier comments, 2023 marked a challenging year, but ZIM remains resilient. Due to the weak market, ZIM generated revenue of $5.2 billion in 2023, a 59% decrease compared to last year.During the year, our average freight rate per TEU was $1,203, 63% lower than in 2022, as we are again adversely impacted by the continued decline in freight rates. In Q4, our average freight rate per TEU was $1,102, that is a 48% decline year-over-year and a 3% decline from the prior quarter.Total revenue from a non-containerized cargo, which reflects mostly our car carrier services, totaled $534 million for the full year of 2023, and that is 73% increase compared to prior year. Growth resulted from our expanded capacity in 2023, as well as underlying positive market dynamics.As also Eli previously indicated, the Red Sea disruptions had minimal impact on our Q4 results. Our free cash flow in the Q4 totaled $128 million compared to $1.05 billion in the fourth quarter of 2022.Turning to the balance sheet, total debt increased by $666 million since prior year-end, mainly due to the net effect of the incoming larger vessels with longer term charter durations.Regarding our fleet, we currently operate 150 vessels, out of which 16 are car carriers. The increase from November resulted from the delivery of 12 vessels and the scheduled redelivery of 7 ships.Excluding the newbuild capacity, the average remaining duration of our current chartered tonnage continues to trend down and is now 20.4 months compared to 22.7 months in mid-November. And as of today's call, 24 of the 46 newbuild vessels ZIM committed to have joined the fleet.Since our last update in November, we received 3, 15,000 TEU LNG vessels; 5, 8,000 TEU LNG vessels; 2 wide beam 5,500 TEU vessels; and one wide beam 5,300 TEU vessels.February 2024, we also completed the purchase of 5 vessels for a consideration of $129 million following an early notice for the exercise of purchase options we held from the 2014 restructuring.These vessels range in size from 8,400 TEU to 10,000 TEU. The decision to acquire these vessels does not mark a change in our vessels' sourcing strategy, but rather it is us taking advantage of beneficial term to acquire the ships.We have a total of 30 vessels up for charter renewal in the remainder of 2024, as compared to the expected delivery of 22 newbuilds during this period. In addition, we have another 37 vessels up for renewal in 2025. This gives us ample flexibility to ensure our fleet size matches the market opportunities.Again, I would like to highlight that while we may continue to operate a similar number of vessels, or even fewer vessels, our operating capacity has grown and will continue to grow in 2024.The newbuilds are replacing smaller vessels, less cost-effective tonnage with larger, more cost-efficient tonnage, thereby contributing to lowered unit costs per vessel. These vessels are also better suited to the trades in which they are being deployed, again improving our competitiveness.Turning to our fourth quarter and full year financial performance. Q4 revenue was $1.2 billion, compared to $2.2 billion in the fourth quarter of last year. Adjusted EBITDA in the fourth quarter was $190 million, compared to $973 million in Q4 2022. And for the full year, net loss was $2.69 billion, compared to a net income of $4.63 billion in 2022.To remind you, our full year 2023 net loss includes a $2.1 billion impairment loss recorded in the third quarter. Adjusted EBITDA in 2023 was $1.05 billion, compared to $7.54 billion in 2022. You can see that adjusted EBITDA and EBIT margins were significantly lower this year versus last year.Turning to Slide 10. We carried 786,000 TEUs in the fourth quarter, compared to 823,000 TEUs during the same period last year. That is a decrease of 5%, compared to a market growth of 7%.For the full year, we carried 3.3 million TEUs, a 3% decline compared to 2022 and the overall market was more or less flat. Importantly, our Transpacific volume grew 9% in 2023, and we expect to see growth in 2024, as we upsize our capacity.Growth in Latin America was driven by our expanded presence in this trade. And conversely, intra-Asia volume is down, as we cut our capacity in this region, including services to Australia, New Zealand, and also Africa, due to weaker demand.Next, we present our cash flow bridge. For the full year, our adjusted EBITDA of $1.05 billion converted into $1.02 billion of cash flow generated from operating activities. Other cash flow items for 2023 included dividend payments of $769 million made in April 2023 and a $2.09 billion of debt service, mostly related to our lease liability repayments.Moving now to our 2024 guidance, we expect to generate adjusted EBITDA between $850 million and $1.45 billion in 2024, and adjusted EBIT between negative $300 million and a positive $300 million.Overall, we assume average freight rates to be slightly higher than in 2024 as compared to 2023. We also expect first quarter and potentially second quarter to benefit from current higher spot rates in certain trades, while the second half is expected to be weaker than the first half of the year.We also expect our volume to grow in 2024 versus 2023 as we receive our newbuild capacity and are able to better optimize our fleet, coupled with potentially better demand than in 2023. As for our bunker cost, we expect a lower cost per ton in 2024 versus last year 2023 as we shift towards more LNG consumption.As Eli had mentioned, the crisis that has evolved in the Red Sea over the past 3 months, which caused most global carriers to divert their vessels away from the Suez Canal and around the Cape, demonstrated the fast pace at which market conditions can change in our industry.In November 2023, we anticipated rates to remain flat through 2024, amid a supply/demand imbalance. Today, the SCFI is over 80% higher as the longer voyages around the Cape are estimated to have absorbed 6% to 7% of global capacity, creating a more balanced supply/demand equilibrium.Yet the long term impact of the Red Sea crisis remains unknown. First, it remains unclear under what circumstances trade through Suez would resume. Although, there doesn't appear to be a military or political resolution of the crisis in sight that could change as quickly -- that could change, sorry, as quickly as the crisis itself has evolved, causing rates to drop quickly back to November-December 2023 levels.Moreover, even if the crisis persists, the long term impact on rates also remains to be seen. Rates in January seem to have peaked in conjunction with a seasonal cargo rush prior to Chinese New Year and have since abated. In other words, strong demand could potentially keep the rates higher. But if demand is weak, as shippers remain cautious on inventory levels throughout 2024, rates could continue to slide down.The underlying supply/demand balance in 2024 points to clear oversupply with over 3 million TEUs or approximately 10% of current global capacity expected to be delivered during the year.The Red Sea crisis has created a more balanced market. However, it should be noted that of the expected deliveries of 2024, 1.9 million TEUs or 120 container ships are 10,000 TEU or larger in terms of size.These are large capacity vessels that could be deployed on East, West trades that have been impacted by the Red Sea crisis. As such, newbuild deliveries could alleviate the supply pressure that currently exist on some vessel segments.The change in market conditions also impacted capacity management actions taken by carriers. The simultaneous restrictive passage through both the Suez and Panama Canal, though for different reasons, has sidelined slow steaming, which was used in 2023 to absorb some capacity, as well as idling and blanking, which were used more modestly.Expectations for scrapping in 2024 also remain limited at only approximately 357,000 TEUs, less than 2% of current global capacity, compared to the 10% scheduled deliveries.Although, current market conditions may have put a hold on the various capacity management actions available to carriers, longer term, we believe IMO 2023 and the decarbonization agenda may motivate liners and vessel owners to retire older vessels earlier than in the past, resulting in a step up in scrapping and helping the market to offset some of the newbuild capacity.Short term, however, the current market condition, we believe, creates significant uncertainty for carriers in 2024 and warrant a cautious view of potential outcomes this year.And on this note, we will open the call for questions.

[Operator]

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

[Omar Nokta, analyst]

Just a couple of questions for me. Obviously, first, I think on the guidance for 2024, you guys both discussed, kind of the backdrop of that. But just kind of getting -- thinking into that just a bit deeper, it looks like the lion's share of the guidance range could be achieved in the first half of the year. So just in general, wanted to see what sort of baked in a bit, for say the second half. You mentioned being conservative in the second half of the year. Are you assuming basically a solid first half based off of what's going on in the market?And then in the second half, do you assume EBIT -- EBITDA, do they fall to where they were in the second half of last year? Or do they go much worse? Or are you assuming a moderation? Any color you can give basically on the second half would be helpful.

[Xavier Destriau, executive]

Yes. Clearly, today, we, live in uncertain times, but we have seen, already towards the end of last year and continuing into the beginning of this year, 2024, that the spot market has been going up quite significantly on a trade that are very relevant to us. Obviously, the cross Suez, for one, but also the Transpacific as a as a ripple effect of the redeployment of some capacity. So spot market went up, quite significantly.Let's not forget that we also are bound by some volume that are contracted that were less benefiting from the surge in the spot market. Now, this is a fact for the first quarter, at least of 2024. We anticipate that it will continue to -- we will continue to be in a rate environment that is a better one compared to the one of last year towards the second quarter.And then I think, what we are suggesting in our guidance is that, there is a scenario according to which the minute the situation in the Red Sea gets solved, then, most likely, obviously, liners will go back to crossing via Suez. And, as a result, we will go back into the market dynamics fundamentals that prevailed before the Red Sea crisis started to erupt towards November of last year and with the significant threat of oversupply.As we've seen already in the past after the very good years of '21 and '22, when situation started to get better the rates collapsed quite significantly and quite sharply and quite quickly. So we think there is a scenario according to which the rates might go back, clearly, to where they were towards October, November, time frame of 2023, towards the second half of 2024.

[Omar Nokta, analyst]

Okay. And then I guess, just you've mentioned a few times that the first quarter is looking -- is going to be solid. 2Q, potentially also healthy. Do you think that there is potential for actual a shift into positive earnings territory at least in 1Q?And then any color then on what that means for the dividend policy? I know there's no mention of that, I think, in the release. But is there -- is the intention still if you have a profitable quarter to pay out 30% of earnings?

[Xavier Destriau, executive]

You start by saying that we guide that Q1, Q2 will be healthy. I don't know what you mean by healthy. What we suggest is better than what we generated in the fourth quarter of 2023. And, as we did say, the second half is going to be more challenging. So, clearly, in terms of a characterization of the guidance that we provide, a shift towards the early part of the year is to be expected compared to the second part of the year.Now when it comes to, the dividend, and maybe a little bit early to talk about dividend at this stage. But our policy stands and, so the distribution dividend policy remains unchanged. And, of course, the Board will continue to review every quarter the capital allocation strategy and decide on a possible distribution to shareholders.

[Omar Nokta, analyst]

Understood. And one final one for me just on the -- we're coming up here on contracting season in the Transpacific. I'm guessing it's probably a little early for you to give us a sense. I wanted to ask you about that, and just in general, one of the things that we saw last year, perhaps, was shippers being able to get out of contracts and leaving you and many operators in the spot market more so than anticipated. Any kind of color on how things are developing?And then is there any, situation, which if you were to enter into contracts this year, that there would be more of a take or pay variety? Or would they still, you think, revert to the traditional way of contracting?

[Xavier Destriau, executive]

Look. The discussions with our customers have started and really they kick off during the TPM conference in -- on the West Coast that took place last week. So what, we, clearly, can say at this stage is that, we have seen a lot of traction and a lot of interest from our existing customer base, but not only, by the way, also new customers that are coming to see us, and they are very interested by our LNG proposition at the end of the day.Just to reemphasizing that we are the only shipping line today, deploying 2 services that are mostly LNG powered on U.S. East Coast. So that triggered the clearly a strong interest and a lot of questions around this strategy of ours was being discussed with our customers and the new customers potentially.A little bit early, as you said, to say or to assume as to where we will land when it comes to the contract volume and also the prevailing rates that we will manage to secure with our customer base. You know, some are waiting a little bit as well as they potentially want to get more visibility as to what the spot market might be doing in coming weeks. They still have a lot of weeks to go before we aim at concluding the discussions. So the pace of our customers might vary from customer to customer.We, clearly, have ourselves some internal objectives that we are willing to achieve in this respect. But, a bit early to say where we will close this contract season.

[Operator]

Your next question comes from the line of Alexia Dogani with Barclays.

[Alexia Dogani, analyst]

I also had 3. Just firstly, on the volume outlook you've given. Can you help us a little bit understand the magnitude of volume growth? Your peers have talked about global trade recovering to 3% to 4%. Should we expect you significantly higher from this level because of your upsizing? Or how should we think about that?Secondly, on the spot rate discussion, I mean, we've seen the spot rates kind of peak already, if you like, as carriers are now adjusting their schedules around the Cape of Good Hope. And can you help us understand at the upper end of your guidance, what is really the trajectory you expect from here? Is it that they stay flat from the current levels? Or, yes, what is kind of the evolution?And then finally, I want to understand a little bit your comments around cash preservation in the current market. Clearly, financial leverage increased significantly at the end of the year. It's now 2.2x net debt to EBITDA. If I look at your guidance, which is broadly flat, let's say, year-over-year at the midpoint, how should net debt evolve?And maybe you can give us a little bit of color around CapEx. I see you've bought some vessels. Have you done any more charters in this period to get capacity for the sailings around the Good Hope. Anything you can help us with that, that would be great.

[Xavier Destriau, executive]

Thank you, Alexia. So I'll start with the first question around our volume assumptions for 2024. Yes, we are also looking at the market growth expected to be around the numbers you quoted, the 3% give or take, in terms of the potential growth in demand.As far as we are concerned, we have more ambitious objectives, in terms of growing our volume of carried TEUs. As a result of us upsizing the vessels that we are deploying in many of the trades where we operate, Transpacific trade is clearly one where we have significant gross volume assumptions here.We've opened the line that we suspended in 2023, our fast line between the South Asia to the U.S. West Coast, Southwest Coast. We've opened a new line on the Pacific Northwest. We are upsizing the vessels that are currently being deployed on our trades between Asia to the U.S. East Coast. So we intend to fill those ships, and as a result, we have gross volume assumptions, on those trade lanes.Second, also on the on the backhaul, back from the U.S. to Asia, we also, as opposed to repositioning empty containers, we are putting a lot of commercial efforts in order to capture some of the full cargo that can be moved back from the U.S. to Asia, and that also will count in our volume growth assumptions as opposed to moving back an empty.And third, in terms of region, we also are growing quite rapidly in Latin America. We have a redeployed capacity away from, intra-Asia also to the Latin America trade lane. We see growth opportunity in the future. And I think we're talking midterm, long term here as well, especially between the north -- of North America and South America as we see the patterns of our customers willing to diversify also their sourcing base away from the predominance of China.I'm sure you've seen Mexico taking a very strong position in terms of imports in the U.S. this year, outperforming China. So we want also to make sure that we position ourselves early on those trade lanes where we be we believe that there is a significant growth potential.Spot rates, your second question in terms of what is our forecast in terms of evolution. I think, we talked about 2 potential scenarios. We think that, yes, they may have peaked. That they will potentially trend down. And then now the pace as to which they will trend down and potentially go back to where they were before the Red Sea crisis started to erupt will be in itself a function of when the disruptions in the Red Sea dissipate. And if they dissipate during 2024, we think the rate adjustment might be quite severe and quite rapid.If, the Red Sea situation continues, we expect that then the new capacity coming into the trades will put additional pressure on today's market, where already some of the capacity has been absorbed by the redirection of tonnage around the Cape of Good Hope. But all the incoming vessels are coming into the trades between now and the end of the year. Even if the Red Sea situation was to last for longer, will put pressure on the supply/demand equilibrium.Then I think you had a question on cash preservation and what is our objective or what is the capital structure or what is the trend of the capital structure of the company going forward. You are correct that we are closing 2023 with a leverage of a 2.2x. Clearly, our -- and we've mentioned that, I think, since quite a few quarters.Now, as a result of the 46 newbuild program that we initiated back in 2021 and 2022, we will see our debt continue to increase. And, so the balance sheet, the lease liability that we have on balance sheet will continue to go up, up until we get delivery of the last vessels. So towards the end of 2024, we, should see an increase in our lease liability on balance sheet before it starts to trend back downwards in the years thereafter.Our objective today is, indeed to return the vessels that are up for redelivery, and we have 30 vessels up for redelivery between now and the end of the year to make room for the 22 newbuild tonnage that we are expecting to receive also between now and the rest of the year.So I think back to your last question in terms of charter assumptions. We don't intend to recharter vessels between now and the end of the year. Rather we will redeliver vessels that are coming up for renewal in order to make room for our newbuild and cost efficient vessels.

[Alexia Dogani, analyst]

And can I just check a little bit of a follow-up on the volume growth assumptions? I mean, should we be thinking high-single digits or do you think you will might go to double-digits because of your comments on new services on those routes?

[Xavier Destriau, executive]

Look. We are, like I said, quite ambitious here. We will grow our operated tonnage double-digit. Hence, we will aim at growing our carried quantities also double-digit.

[Operator]

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

[Sathish Sivakumar, analyst]

Javier, I got 3 questions here. Maybe let's start off with car carriers. Right? What's happening there in terms of demand, given there's a lot of news flows on slowdown of, like, auto vehicles and such? If you could share some color on that, that'll be helpful.And then, just going back to the contract season negotiation, obviously, it is still too early to comment on where I end up. But try to compare this year versus last year. What is the, like, say, where you are today versus last year? Are you signing more volumes or you're signing less volumes? Any color, like, say, year-on-year, is it -- how does it trending? That will be very helpful.And then, the third one is more around the -- just your point around the operator tonnage that -- like, you're likely to grow around double-digits. So what does it mean? Would it come more on -- based on contracted volumes or would you go into the spot market and you'd like you to prioritize volume or market share to make sure that you utilize the coming capacity?And then can I add one more actually? In terms of East Coast versus West Coast, there has been growing commentary that shippers are likely to switch some volumes into the West Coast because of the labor negotiations coming up in the East Coast. And you are actually a bigger player in the East Coast, given that you're going to, like, almost double digit capacity, what does it mean in terms of volumes?

[Xavier Destriau, executive]

Thank you, Sathish. So starting with your first question on the car carriers. So we operate today 16 ships and we did indeed grow our operated tonnage in this -- in this activity over the past few years. We always say that we saw an opportunity -- a window of opportunity, and then we entered that window of opportunity quite aggressively over the past few years as we saw an imbalance in a way, opposite to what's happening today on the container liner. But, we saw an imbalance between the surge in demand of moving cars from Asia mostly to the western countries and limited available tonnage.So, we today see and expect to see, as we have seen in 2023, a continuation of those favorable dynamics in 2024 before more vessels are being indeed delivered. And, we know that, a significant number of new tonnage will come into the trades in 2025 and beyond, and this is why we will continue to monitor quarter-after-quarter, year-after-year, what is happening in this sector and potentially limit our involvement if the market conditions were to change. But when it comes to 2024 for the coming year, we are quite optimistic that it should be a good place to be in, just like it was in 2023.Going to your second question, the contract season. Yes, I mean, today is still very early days for us to opine as to where we will conclude in terms of committed capacity and rates. We used to try to seek 50%-50% in a way, 50% exposure on spot and 50% of our intended volume secured via a contractual commitment. We don't know, not at any price. So we will clearly need to make the arbitrage between the expectations of some of our customers and what are our own expectations. We need to find the right balance between the various parties here. So we'll see.And again, hopefully, we'll be able to give a little bit more color into that once we have finalized the discussions and we talk again during our Q1 earnings call. But the objective of the company remains to secure a significant percentage around 50% of contracted cargo. And like I said, very promising discussions already started with our customer base during the TPM conference a week ago.I think the -- what was the third question? Now I can't remember the third question. So I'll go into the fourth. Sorry?

[Sathish Sivakumar, analyst]

We'll come back on the third one. Now, the third one is around the OpEx tonnage. You're likely to grow double-digit. What does it mean -- like on contracted volumes? Do you priorities on growing those [ capacities ] in the sport market i.e. more about volume than pricing?

[Xavier Destriau, executive]

Yes. So I think it's very linked to the second one. At the end of the day, we do not today aim at going aggressively more than 50%, which has been pretty much the norm in the past for the company. We don't have here an objective to go and lock and secure a significantly higher percentage of contract cargo.We truly believe that at Transpacific, we have a compelling proposition in terms of the lines that we operate, the services that we operate. The deployment, again, of a unique deployment of LNG tonnage on the main trade between Asia to the U.S. East Coast that, again, are attracting a lot of attention from our customer base, because, of course, they see that as a way for them to reduce their own carbon footprint.So we are hopeful and quite optimistic in a way that we will manage to deliver on our volume assumptions for next year without having to change the philosophy in terms of spot versus contract exposure.And then I think your last question was, what about the potential shift of cargo between the East Coast and the West Coast, now that the discussions with the unions are taking place for the terminals on the East Coast? We don't know. I mean, clearly, the discussions are ongoing as we speak. And we know that there are some timelines and deadlines that some of them are approaching soon.We today do not feel that there is a panic from our customer base to move cargo away from the East Coast to the West Coast. Time will tell what happens and what is the outcome of the discussions. But as we speak, as of today, we don't see or we don't feel any significant movement from or actions taken by our customers to shift cargo from East to West.Maybe I would add that we are now also increasingly present on the West Coast with now 3 services that we operate between Asia to the U.S. West Coast. 2 -- I mean, 2 that we operate, one where we jointly operate with a partner. But that is also us increasing our footprint on the trade between Asia to the U.S. and also Pacific Northwest.

[Operator]

Your next question comes from the line of Oystein Vaagen with Fearnley Securities.

[Øystein Vaagen, analyst]

Hey, guys, just a quick one from me, which kind of relates to the previous question. I see all the revenues or call it non-containerized revenues are up quarter-on-quarter. Would you be able to give some kind of a split or color on how much car carriers that is and how much demurrage and other? And if possible, how we should think about this going forward?

[Xavier Destriau, executive]

Yes. I think I can be quite precise as to the number, the revenue that we generated out of our car carrier activity, which is slightly in excess of $500 million for the full year of 2023. And if we were to consider what will be the outlook for 2024, we're going to be in a similar ballpark, continue to operate the same capacity, which is 16 ships.

[Operator]

This concludes our Q&A session. I'll turn the call to Eli Glickman for closing remarks.

[Eliyahu Glickman, executive]

Thank you. You're in a challenging year. Our employees across the globe maintain a steadfast focus on achieving the highest operational standards and delivering an exceptional level of customer care, demonstrated by the better than ever results from our '23 annual customer experience service.We like to personally thank the entire ZIM team for the commitment and dedication, especially in light of the industry and operational challenges, as well as the ongoing war.In '23, we advanced ZIM's strategic transformation as planned and are pleased with the progress we've already made to enhance ZIM's future commercial and operational industry position.Based on our strong liquidity, we will maintain our long-term view and intend to continue to take decisive steps to further benefit from our strategic transformation and emerge in a stronger position than ever in '25 and beyond. Thank you again for joining us today. Have a great day.

[Operator]

Thank you. This concludes today's conference call. We thank you for joining. You may now disconnect your lines.