ZIM Integrated Shipping Services Ltd. (NYSE: ZIM) surprised investors today by significantly raising its full-year guidance and beating second-quarter forecasts. The stock opened up 14.32% on Wall Street, giving it a market capitalization of $2.622 billion.
The Israeli shipping company reported revenue of $1.9 billion in the second quarter of 2024, up 47.6% compared to the corresponding quarter of 2023. Revenue for the first half of the year amounted to $3.5 billion, up 30.2% compared to the first half of 2023. The average price of a container increased by 40% in the second quarter to $1,674. At the same time, the quantity shipped by ZIM increased by 10.7% during the quarter to 952,000 containers. Net profit for the second quarter amounted to $371 million, exceeding forecasts, compared to a net loss of $215 million in the second quarter of 2023. Net profit for the first half of 2024 amounted to $462 million.
Sharp rise in prices
ZIM CEO Eli Glickman says shipping costs have increased four to five times, although they are still below prices during the Covid pandemic. He said: “These are certainly prices that we haven’t seen in 2023 and they are contributing to a significant increase in profitability. We also saw this quarter the result of our new vessels coming on board. We hit a record high in shipping containers.”
“A voyage that leaves today from Asia to the East Coast of the United States takes 11 weeks, and the duration of a voyage to Israel is similar because it has to go around Africa via the Cape of Good Hope, so it takes time to see the results manifest. Here we return to the global crisis caused by the threats of the Houthis, which prevent the passage of ships in the Bab al-Mandeb Strait and the Suez Canal, as well as the end of the drought in the Panama Canal, which created a bottleneck there. All this, in parallel with the increase in demand in the markets, especially in the United States. 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 a further increase in profitability is expected in the second half of the year.”
Is there a way to moderate the volatility of financial results?
« The shipping market is known for its high volatility. As part of our preparations, we have invested in two things: a new fleet of 46 ships, which will give us competitiveness even in a crisis in order to mitigate potential losses, as well as a billion dollars that we have invested in new containers. »
Glickman points out that ZIM’s profit margin in the second quarter, about 40%, is the highest of all the shipping companies that have published reports. One reason, he says, is that when long-term contracts came up for renewal in early May (the renewal date every year), there was a lot of pressure on prices and competing companies signed contracts at prices below cost; ZIM, on the other hand, refused to sign and therefore signed only 35% of the long-term contracts, with the rest benefiting from the price increase.
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You took a risk
« We took a risk and a chance. We did not accept any compromises, there is no reason for us to subsidize large customers worldwide. »
What are the reasons for the increase in demand?
“We believe this is due to the Covid-19 pandemic, when large inventories accumulated in warehouses, then there was an ‘overshoot’ and companies reduced their inventories drastically, and due to rising interest rates, they reduced inventories to minimum levels. Now the fear is that the shelves will be empty, so there is again an ‘overshoot’ and large-scale orders. We don’t know how long this will last.”
The stock price has more than tripled since last year’s lows.
« We are responsible for the results of the company, not the share price. Our goal is to produce the best results for shareholders. »
ZIM will distribute a dividend of $112 million, or $0.93 per share, on the quarter’s earnings.
Published by Globes, Israeli business news – fr.globes.co.il – August 19, 2024.
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