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Jul 29, 2021
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TL:DR - Shipping rates are going through the roof due to ship & container supply constraints coupled with port congestion and huge demand as Covid unwinds - ZIM is ideally situated to take full advantage
ZIM Integrated Shipping is a top ten global container shipping carrier with a fleet of 101 ships in operation with a total capacity of around 429,000 TEU
Shipping rates are going through the roof due to increased demand coupled with lack of global fleet supply, port delays etc, at its current earnings rate ZIM is on course for a 2021 full year PE of 2 (TTM PE is currently under 4) against sector peers PE range of 8 to 15
On 21 June 2021 ZIM extended its partnership agreement with ALIBABA that allows customers to book transport through the Chinese e-commerce giant
ZIM TEU carried - 818,000 in Q1 2021 (the traditional off peak quarter)
22% of ZIMs capacity is on 12 month set price contracts with the remaining 78% on spot daily rates, The 12 month contracts give the company certainty of income covering ZIMs operating costs while being short enough in duration to allow ZIM to renegotiate, taking advantage as spot prices increase.
The remaining 78% of the fleet are able to take full advantage of the rocketing spot daily rates which are currently exploding higher as the world comes out of covid and retailers scramble to desperately refill inventory
West Coast FBX01 Container FEU spot rates were around $1500 at the start of 2020, they rose to around $3500 by the end of 2020 and are currently around $6700, over 4 times the 2020 rate, with many routes commanding much higher amounts.
Due to the lack of space, congestion and high demand, in many cases shipping clients are paying a premium well over these rates anywhere from $11,000 to $23,000 to ensure they can secure loading equipment & vessel space for essential supplies
Shipping rates are going through the roof
ZIM also offers door to door transportation, in 2020 23% of ZIM TEUs carried utilized additional elements of land transportation
In Q1 2021 ZIM earned more per share ($5.17) than the entirety of 2020 ($4.96) and peak season has only just started, traditionally running from 1st June to 31st October.
Even at the Q1 shipping rate ZIM would be on target for full year earnings of around $20 per share (a PE of less than 2) but rates continue to move much higher
What is behind the shipping rate upsurge and how do we know this will continue?
None of the above 3 factors are going to abate any time soon and the likelihood is that things will get worse before they get better meaning elevated rates for all of this year and likely towards the end of 2022 and perhaps beyond
A quick calculation for full year earnings:
ZIM carried 818,000 TEUs during the first quarter of 2021.
The average freight rate per TEU was $1,925, compared to $1,091 for the first quarter of 2020.
ZIMs current capacity is 429,205 TEU which equates to a full year figure in the region of 3,400,000 TEU transported
This leads to a turnover of $7bn(average shipping rate of $2000) up to $10bn(if average rate is $3000 per TEU)
In Q1 $1.74Bn revenue resulted in earnings of $5.17, so the full year should be somewhere in the region of $20 to $29
sound like buying a dollar for 50 cents?
ZIM management have the share holders interests at heart - on 22 April the company announced it was paying off $351.6 million of secured debt 2 years early, one of the reasons for this was that the terms of the debt prevented the company from paying a dividend
During Q1 earnings ZIM announced a 5% special dividend of $2.00 (ex dividend date of Aug 25, 2021)
ZIM also confirmed their intention to distribute 30%-50% of 2021 net income to shareholders via special dividends (this should equate to approx $10 per share)
Q2, Q3 Earnings (Peak shipping rates season is Q3)
Continued Increased demand for products by consumers as the world comes out of covid, coupled with low retail inventories
2021 - 2022 Profit sharing by way of 30-50% special dividends, the promise of juicy dividends will help keep the share price elevated and reduce selling volume
Increased Demand coupled with lack of fleet supply, port unloading delays and congestion, will maintain and likely increase spot rates further and keep them elevated until the end of 2022 and into 2023
It will take several years for shipping new builds to bring the worldwide fleet to a level where supply will match demand
2023 Additional 10 ships on order
1050 Shares $41670
1 x $50 Oct Call - $220
4 x Cash Secured Puts - $1729