Freight Forwarder ZIM Exceeds Analyst Expectations for 2021

ZIM cargo ship sails in the Mediterranean Sea – Photo: Shutterstock

All went well for freight forwarding firm ZIM when it presented its earnings report on March 9. The company reported numbers for its fourth quarter and full year that topped previous estimates.

ZIM Integrated Shipping Services (NYSE: ZIM) held a conference call share positive developments with analysts and investors.

ZIM’s fourth-quarter net profit was $1.71 billion, down from $366 million year-on-year. For the full year 2021, net income was $4.65 billion, an increase of 787% from $524 million in 2020. Fourth quarter revenue increased 155% from year-over-year, with $3.47 billion reported, and revenue for the year for 2021 was $10.73. billion.

Growth opportunity

It’s been a whirlwind year for the Israel-based international shipper, which debuted on the New York Stock Exchange on January 28, 2021.

ZIM only captured 1.7% of the industry market share and ranks 10and in size, according to Alphaliner, a data provider for the liner shipping industry. It is in direct competition with shipping giants several times larger. But the combination of aircraft grounding at the start of the pandemic and subsequent shipping bottlenecks presented ZIM with a prime growth opportunity.

ZIM’s volume transported in 2021 increased by 23% compared to 2020, with the company transporting the equivalent of nearly 3.5 million TEUs.

The term TEU represents an equivalent unit of 20 feet, a common measure of volume used in the freight transportation industry.

The average freight rate per TEU also jumped, with an average rate of $2,786 in 2021, up 127% from the previous year. By the fourth quarter of 2021, that amount had risen further to $3,630.

Asset-light business model

ZIM’s relatively smaller size allows it to be nimble when competing against its giant competitors. It has an asset-light business model that takes over ships as it needs them and returns them to owners when they don’t.

Its fleet currently consists of 125 vessels, but only six are owned by ZIM. The remaining 119 vessels are chartered. Historically, ZIM’s strategy has been to rely primarily on chartered capacity, although more recently they have decided to purchase more vessels, said ZIM President and CEO Eli Glickman.

“We are seizing the opportunity to be at the forefront of carbon intensity reduction among global ocean liners, with 28 environmentally friendly LNG (liquefied natural gas) dual-fuel container ships expected to be delivered to us between 2023 and 2024, which could account for 40% of our operated capacity,” Glickman said.

ZIM is headquartered in Haefa, Israel, and its North American operations are based in Norfolk, Virginia.

Dividend above expectations

Citi director and analyst Sathish Babu Sivakumar leads European transport and infrastructure research. He has covered ZIM since the stock began trading.

Sivakumar spoke to from his office in London, England following the ZIM earnings call. He pointed to the better-than-expected dividend of $17 per share for a total payout of $2.04bn (£1.55bn). When the Q3 dividend of $2.50 is included, the amount represents half of ZIM’s net income in 2021.

“It was quite impactful, actually,” Sivakumar said. “The wait was more like $13. I had $15 and thought I was pretty optimistic.

ZIM’s Glickman addressed the importance of the dividend.

“In total, including our special dividend paid in September 2021, we will return shareholders approximately $2.6 billion or $21.50 per share since our IPO, which represents approximately 30% of our current market capitalization and , incredibly, about 50% more than our IPO. market cap,” Glickman said.

No slowdown in sight

Sivakumar has been covering the transport sector for about seven years. He said the boost ZIM is getting from higher shipping prices due to supply chain congestion isn’t expected to slow down anytime soon.

He said “the current bottleneck in the supply chain is not expected to return to normal levels until the third quarter peak season. We are updating our supply and demand model and expect supply dynamics to continue to support high freight rates. »

The market reacted to the good news from ZIM. By the close of trading on March 9, shares of ZIM had jumped more than 6% to land at $75.14. Over the past six months, the stock has risen almost 30%.

Sivakumar’s target price for ZIM shares currently stands at $100.

“We expect bunker costs to increase 50% year over year in 2022,” Sivakumar said. “However, given the tight supply chain, ocean liners are able to pass the cost on to shippers with a six-week lag. We see the favorable rate environment offsetting the cost pressure and the industry is expected to see a year-over-year earnings growth.

A bunker is the fuel carried and consumed by a marine vessel.

Founded in 1945

The encouraging state of the business climate for shipping lines has prompted Sivakumar to update its price targets for German Hapag Lloyd (OTCMKTS: HPGLY), Denmark’s Maersk (OTCMKTS: AMKBY) and ZIM. Sivakumar also added ZIM to Citi’s “Positive Catalyst Watch” list.

ZIM was founded in 1945 by Histadrut, a Jewish trade union federation, and the Israel Maritime League. Her first ship was purchased in 1947. In her early years, the ZIM carried immigrants from Europe and wartime supplies. In the 1950s, ZIM purchased 36 passenger ships, freighters, bulk carriers and container ships and began offering a wider range of services.

When air travel became more accessible in the late 1960s, ZIM ceased offering passenger services and began to devote its energy and resources to international freight transportation.

In 1969, about 50% of ZIM was acquired by Israel Corp, and the Ofer Brothers group became the majority shareholder of this company in 1999. By 2004, Israel Corp had acquired all the shares still held by the government.

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Freight containers
March 30, 2021, Brazil.  In this photo illustration a Zim Integrated Shipping Services logo seen displayed on a smartphone

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