ZIM Integrated Shipping Services Ltd. (ZIM) Q4 2022 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. I am Ecola [ph] your chorus call operator. Welcome and thank you for joining the ZIM Integrated Shipping Services Q4 and Full Year 2022 Earnings Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. [Operator Instructions]. I would now like to turn the conference over to Elana Holzman, Head of Investor Relations. Please go ahead.

Thank you, operator. And welcome to ZIM's fourth quarter and full year 2022 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. You are kindly referred to consider the risk factors and cautionary language described in the documents the company files with the Securities and Exchange Commission, including our 2022 annual report filed on Form 20-F today March 13, 2023. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn the call over to ZIM's CEO, Eli Glickman. Eli?

Thank you, Lana, and welcome to everyone to today's call. Slide number 3. 2022 was a record year for ZIM in terms of EBITDA and EBIT results. We delivered adjusted EBITDA of $7.5 billion and adjusted EBIT of $6.1 billion, 14% and 6% higher than 2021 respectively. For the year, adjusted EBITDA margin reached 60% and adjusted EBIT margin reached 49%. The development of our quarterly results in 2022 reflect changing market dynamics throughout the year. Q1 2022 was our best quarter ever with respect to all financial and operational parameters. And since then, our quarterly results have declined sequentially with Q4 2022 results dramatically reflecting the negative impact of the declining freight rates. I'm incredibly proud to present these results today and of the ZIM team for their exceptional execution in delivering these record results and meeting our 2022 guidance, especially considering the evolving market conditions. Slide 4, we haven't been idle for the past two years. As we benefit from highly lucrative market conditions we took important steps to best position ZIM to execute in a more normalized market environment, improve our cost structure to ensure that ZIM is optimizing its performance for the benefit of our shareholders and creating sustainable value over the long-term. Most important was our decision to adapt our vessel chartering strategy. We secured cost competitive and fuel efficient newbuild capacity in a sense of chartering agreements to support our commercial strategy. These agreements include vessel ranging from our flagship 15,000 TEU LNG fuel vessels impairment to our Asia to U.S. East Coast service to smaller more versatile 5,000 and 7,000 TEU vessels. Notably, as we replace smaller vessels with large one, our cost per TEU will decline, driving improvements to our cost structure throughout 2023 and beyond. This will allow ZIM to competitively operate in low freight rate market and weaker demand environment and maintain our objective of maintaining positive EBIT. Our chartering strategy also underscore our ESG target. 28 of our 46 newbuild vessels, we secured our LNG power, making us an industry leader in term of low carbon intensity. The 15,000 TEU vessels are ideally suited to serve on our core Asia to U.S. East Coast service and we are the first liner to operate LNG vessels on this train. This is a significant commercial differentiation which enable us to immediately reduce the carbon footprint of ZIM and our customers. Next, our global niche strategy, and customer centric approach remain the foundation of our commercial strategy. Our customer relationship drive everything we do at ZIM, and we continue to make progress enhancing our customer experience. We continuously work to enhance our digital offering and employ strict KPIs to ensure we maintain the highest service quality while preserving our personal touch. We focus on special cargo, high value services. We continue to invest and improve our sales tools to support our profitability objectives. We also strengthen our local presence in important markets such as Australia, New Zealand, Thailand, and Vietnam. Our commercial presence today is more diversified as we focus on trades where we can establish a competitive position. We continuously review our services and strive to improve our network for the benefit of our customers, as market condition evolve, we adapt our services, open new lines, modified rotation and suspend loss making services. Recent example of these changes include, a new premium line from South America West Coast to U.S. East Coast, in which we redeploy vessels previously deploy in Intra-Asia services, a new service covering major ports in Southeast Asia and Australia. Rotation change to our express Asia, Baltimore, ZXB service and suspension of ZEX, our Azure to LA Express service. These changes are proof of our agile approach, aim at providing streamline services to our customers, as well as responding swiftly to changing market dynamics. We also recently established a joint venture with the largest domestic shipping company in Vietnam, high end shipping services. We have discussed the potential we believe this market holds and this joint venture uniquely position ZIM to serve local importance and exporters and more effectively connect local services with our international network. This joint venture will allow us to better serve manufacturers shifting from China to Vietnam, as well as potentially target the extending Cambodia and LA international trade. We also identified a commercial opportunity in the car carrier market in which strong demand and tight supply are resulted in positive market dynamics. We currently operate 11 car cares, which plans to expand to 16 vessels by mid-year. Turning to our gross engine complement to our co-shipping activities. We continue to explore opportunities in early stage companies introducing disruptive technologies in shipping and broader ecosystem. Most recently, we participated in equity and debt financing around for the company 40Seas innovative FinTech platform designed to modernize cross border trade financing. By using AI tools 40Seas streamlines the credit application process and can offer small and medium sized importance and exporters faster and cheaper access to working capital financing needs then traditional financial institution. Moreover, 40Seas’s represents a unique financing solution that we will very soon offer to our customer as well, primarily via our digital freight forwarder Ship4wd. The valuable synergies between Ship4wd and 40Seas and we are pleased to be able to offer our SME customers and new and innovative digital financing solution designed to assist them to grow their business. The positive development, which may benefit wave bill of lading, one of our early investment is a recent decision by the Digital Container Shipping Association, the DCSA, that was established in 2018 by most of the largest shipping companies with their objective of establishing IT standards for our industry. Together, the founding members represent over 70% of the global container shipping trade. DCSA members recently announced their commitment to reaching 15% electronics bill of lading within five years and 100% by the year 2030. As you may recall, ZIM first introduced electronic bill of lading to its customer, so the wave bill BL solution back in 2017. And today, other major shipping companies are also offering the wave solution to their customers. We are active investors in all our portfolio companies as we leverage our expertise [indiscernible] and network to support these companies. We believe our portfolio of companies all significant potential in the future. Our goal is to build financial resilience in our business, stay focused on our strategy and leverage our core strengths and in choosing this best position for a more volatile and uncertain market. We intend to employ our significant cash resources cautiously to support our future profitable goals. The actions that I have outlined and at advanced ZIM primary objective to use our strengths to grow profitably and maximize value to our shareholders. Going to Slide number 5. Despite the current rate environment, and challenging macro and industry dynamics, we are confident in our strategy and expect positive EBIT in 2023. As such, for the full year, we expect to generate adjusted EBITDA between $1.8 billion to $2.2 billion and adjusted EBIT between $100 million to $500 million. Our CFO, Xavier will shortly discuss the underlying assumption of our guidance and current markets environment in greater detail. Based on our strong full year results and confidence in our strategy, our Board declared a Q4 dividend of approximately $769 million or $6.4 per share. This brings our total dividend fell on account of 2022 results to $2.04 billion or 44% of total ‘22 net income. Returning substantial capital to shareholders remain a priority, as we seek to create long-term value and enable shareholders to directly benefit from our results. On that note, I will turn the call over to Xavier, our CFO, for his remarks and our financial results and additional comments on the market. Xavier, please.

Thank you, Eli. And again, welcome to everyone. On this slide, we present our key financial and operational highlights. As Eli already mentioned, 2022 was a year of exceptional financial performance for ZIM, even with the pace of normalization, accelerating during the latter part of the year. Despite the deteriorating market, ZIM generated record revenue of $12.6 billion in 2022 and that is to be compared to $10.7 billion in 2021, a 17% improvement. During the year, our average freight rate per TEU was $3,240, 16% higher than in 2021, as we benefited from the elevated freight rate environment for the majority of the year. In Q4, our average freight rate per TEU was $2,122, a 42 % decline year-over-year and 37% decline from the prior quarter. Our free cash flow in fourth quarter totaled $1 billion compared to $1.7 billion in the fourth quarter of 2021. Turning to our balance sheet, total debt increased by $1 billion since prior year end. As in recent quarters, this was mainly driven by the increased number of vessel fixtures, longer-term charter duration as well as higher daily chartering rates. Regarding our fleet, we currently operate today 152 vessels, out of which 12 are car carriers. The average remaining duration of our current charter capacity is 27.3 months, essentially unchanged from November 2022. I would note that our current fleet includes five newbuild vessels, four of 12,000 TEU capacity and one of 15,000 TEU, which is the first of the series of the 15,000 TEU LNG vessels that we ordered in 2021. We have 22 vessels up for charter renewal during the remainder of the year with 36 up for renewal in 2024. This means that we have a total of 58 vessels for renewal compared to the expected delivery of 41 chartered new build vessels during the same time period. Moving on to the next slide, you can see that, we delivered strong results over the last two plus years. And as a result our net leverage ratio has trended downwards at the same time and currently stands at zero as of December 31st, 2022, as we end the year in a net cash position. Turning to our fourth quarter and full year financial performance. Fourth quarter net income was $417 million compared to $1.7 billion in the fourth quarter of last year. Adjusted EBITDA in the fourth quarter was $973 million compared to $2.4 billion in Q4 2021. For the full year, net income was $4.63 billion compared to $4.65 billion in 2021, and adjusted EBITDA was $7.5 billion compared to $6.6 billion in 2021. Lower margin sequentially, the second half of 2022 versus the first half, as well as Q4 versus Q3 are driven primarily by lower revenue. Turning to slide nine, we carried 823,000 TEUs in the fourth quarter compared to 858,000 TEUs during the same period last year, a decline of 4% compared to the market decline of 8.5%. And for the full year, we carried 3.4 million TEU, that is a 3% decline compared to 2021, slightly better than the market decline of 4% in that quarter -- sorry, in the full year period. Lower volume on transpacific driven by congestion and lower demand will partially offset by higher volume in other trade lanes. Next, we present our cash flow bridge and we ended 2022 with a total liquidity position of $4.6 billion. Important here to emphasize that this includes cash and cash equivalent investments in bank deposits and other investment instruments. For the full year, our adjusted EBITDA of $7.5 billion converted into $6.1 billion of cash flow generated from operating activities, and other cash flow items included $314 million of a net capital expenditure, $1.7 billion of debt service, mostly lease liabilities and dividend distribution of $3.3 billion. Moving to our guidance, as Eli already mentioned, we expect to generate positive EBIT in 2023. Specifically, we expect to generate in 2023 EBITDA of $1.8 billion to $2.2 billion, and an EBIT range between $100 million to $500 million. We believe freight rates are close to bottom and expect some improvement in 2023. Further, we also expect our volumes to grow in 2023 as compared to last year, as we receive our newbuild capacity and enable to better optimize outfit. As for banker cost, we expect lower rates this year versus last year. Overall, while we don't give quality guidance, we do expect improved results in the second half of 2023, as compared to the first half. So we are entering this unpredictable time with a strong balance sheet, a significant cash balance of $4.6 billion and zero net leverage. As such, our Board of Directors declared a dividend to shareholders, which including prior dividends paid on account of 2022 results totaled 44% of 2022 net income. We do remain committed to returning capital to shareholders under our current dividend policy of returning to shareholders 30% to 50% of our annual net income. Other capital allocation priorities remain intact. We have a commitment of approximately $155 million and $340 million in '23 and '24, respectively, as down payment for newbuild vessels charted primarily from Seaspan, of which we already paid $13 million for the first 15,000 TEU ship delivered to us last month. We will continue to renew our container fleet and we continue to explore inorganic growth to the potential acquisition or regional liners in key market, such as Southeast Asia or Latin America. The backdrop against we are providing guidance today is extremely challenging. The supply demand imbalance points to oversupply in '23 and '24. Demand is soft, and as a result, congestion in U.S. ports and elsewhere has been one. Despite lower volumes in recent months, inventory to sales ratio were still below pre-pandemic level has not come down and various large U.S. retailers express caution with respect to their 2023 sales. These factors among others are causing freight rates to continue sliding, though at a slower pace as compared to the fall of 2022. Yet, there may be factors on both the supply and demand side that could mitigate the supply demand imbalance. Capacity may be impacted by slippage. In fact, we've received indications with respect to some of our charter newbuild vessels on potential delays. Scrapping also remains low, but the combination of practically no scrapping in the past two years and increase compliance requirements with IMO 2023 regulation may also decrease net supply. On the demand side, we believe that in 2023, we will see a return to a more normal demand pattern with demand stronger in the second half of the year, especially given the current weak demand. And on this note, we will open the call for questions.

[Operator Instructions] The first question was coming from Nokta Omar from Jefferies. Please go ahead, and ask your question.

Thank you. Good afternoon. Nice earnings report today clearly. Definitely earnings coming in stronger than a lot of us had expected. And just wanted to ask maybe about the, if you could expand just a little bit about the earnings surprise, perhaps the other revenue line item, I guess the non-container portion of the revenue, those reds their highest ever at 442 million. What's behind the upwards move there and what can we kind of expect as we move here in the next several quarters?

Sure. Thank you, Omar for the question. As far as we're concerned, the Q4 results did not surprise us and we are pretty much in sync with the guidance that we provided the market with back in November But to your question, with respect to the contribution of a non-containerized income, we did benefit still in the fourth quarter from two strong factors. First, Detention & Demurrage, especially relevant on the transpacific trade lanes in the U.S. were still quite high. We still experienced congestion in Q4. Although now, this has pretty much did unwind itself. And second, when it comes to our car carrier activity, we have been growing and we continue to grow our presence in this market. And it has contributed to also a significant impact on our revenue and also on our bottom-line. And we expect the car carrier activity to continue to contribute positively to our earnings next year and in the years to come.

Got it. Thanks, Xavier. And then maybe just kind of big picture. Clearly from the press release, the presentation and your comments here. You at ZIM, you feel very confident despite the soft market we're seeing today, which will have positive EBIT and maybe perhaps positive earnings, I guess, overall for '23. I guess as we kind of think about the market as it is today, how would you characterize things as they are? You mentioned that you expect rates to be at bottom here in the near-term and the recovery coming, what's going on in the market from say -- from your perspective, from say the demand angle? Are we seeing an actual substantial drop in demand? Or is this more of an unwinding of retail inventory, and thus we may not really have a good picture of where demand is, until that inventory unwinds completely?

No. That's a good question. There is clearly a lot of uncertainties ahead. And as you said that, we are confident. I would say that, we are confident in the actions that we took in 2021 and in 2022 to make sure that we are well prepared to enter into this new normal post pandemic. And so our cost structure is going down and this is the one lever where we can have an action upon that we have been very active in ensuring that we drive the cost down. So that we have done. And now when it comes to the demand, clearly, we have seen the demand softening throughout the second half of last year. We have seen a destocking type of strategy by the main retailers in the U.S. that was very aggressively performed in the fourth quarter, and into the first quarter of this year of 2023. With that, you have seen that, the capacity has been adjusted with more and more blank savings. But as we were implementing more blank savings, the demand was still softening even more. So we believe that at some point, this de-stocking effect will end and the retailers will have to come back and replenish their inventories. Hence why, we are reasonably optimistic when it comes to the statement that we are making. We think that, the market is close to reaching a bottom before the demand starts to come back. And as a result, we expect that we will have a positive effect on the overall freight rates.

Thank you. Thanks for that color. And maybe just one final one just about the contracting that's hopefully are potentially underway now. How are things developing here for the 2023 contracting season? Clearly there has been a big disconnect between contract rates historically and where spot rates are. What's going on in that market and how are you preparing for that?

Yes. Clearly, the market today when we look at where the spot currently is on the – main from specific trade lanes kind of pushes the shippers to ask for a significant rate reduction compared to last year. And we very well understand that. So, the one thing I would say is that the company has engaged with most of our key customers with whom we would like to enter into a contract settlement, both from a quantity perspective and from a rate perspective. Well first, what we are hearing today from our customer base is that they are very pleased with ZIM. And we hear a lot of positive feedback and comments on the fact -- on the very fact that we are the first liner to deploy in LNG service on the Asia to the U.S. East Coast. And that resonates very strongly to vis-a-vis our customer base. So now we do hope that it'll translate into the final discussions on the rates to levels where we would both shippers and ourselves be happy. We clearly have set ourselves a limit in terms of where we are not willing to go in terms of flow. For now, the discussions are ongoing. It's still too early to say what will be the final outcome of all those decisions. But clearly, we feel that from a commercial positioning perspective, the name and the brand of ZIM resonates pretty high in the eyes of our customers in the U.S.

Got it. Thanks. And sorry, just want one tiny follow up to that is, are you able to give a ratio or percentage of how much of your ‘23 business, you've got under contract so far?

We are still looking into 50/50 and the ratio that we've been doing by over the past few years or 50% contract cargo and 50% spot is still pretty much where we would like to end. But again, we will see where we end, when we finalize each of the discussion with each of our customers. And if the rates are not satisfactory to ourselves, we might revisit that percentage allocation and agree to expose ourselves motor spot market. We think that the second half is going to be indeed better than the first.

Okay. And just for clarity, the 50/50 is just on the Trend Pacific’s?

Correct. This is really the trade where we have a significant amount of our volume that is being contracted. We still on the other trade lanes and mainly on the Asia med, we also have a contract discussion with customers, but those are more quarterly as opposed to yearly. And in terms of quantum, I would say, it's 25% of the trade compared to the 50% of the transpacific.

Great. Thank you. I’ll turn it over.

The next question is coming from Bland Sam from JP Morgan. Please go ahead.

It's Sam Bland here. I have two questions, please. The first one is on the charters; you mentioned the sort of maturity profile. Is your current plan to let them run to maturity on the sort of agreed time scale, or are there any options to either accelerate or delay how you thinking about that? And the second question is, you mentioned slippage of the order book in the presentation. We've heard that from elsewhere as well. Do you think it's possible that the slippage could be quite a material amount of the orders or the deliveries planned for ‘23, ‘24? Or are we talking about sort of small bits around the edges? Thank you.

Yes. Good morning to you, Sam. Yes. The first question in terms of the charter, clearly, we need to differentiate here, I think the long-term charter, the newbuild vessels that we've ordered over the past two years. So those, clearly, we intend to take delivery of each and every vessel, we are eagerly awaiting those vessels, they are clearly in line with our vessel’s strategy and commercial strategy. So, there is here, no intention from the company to cancel or delay any of those contracts. On the more traditional charter markets, when we charter from the tonnage provider existing tonnage, as opposed to the new build tonnage I was just referring to. In '21, '22, we did enter into a significant amount of contract for a duration of three to five years. So by and large, this is what is driving the average duration of what's left in our chartering agreements. So, meaning that between '23, '24 we have a few vessels up for renewal, but it will really come back in 2025 and beyond. Now, when we look at the vessels that come up for renewal, in ‘23 and in '24, that's clearly 50 vessels, most of them it is very likely, depending on what the market does, but if the market conditions remain difficult, most of those vessels will be delivered. We do not intend to break any of our commitments, vis-a-vis any of the tonnage provider, we will make the decision to redeliver tonnage when we have the ability to do so, or engage early with some tonnage provider to potentially discuss extension, if we think and at a lower rate, obviously, if we think that this suggests will be overused for us for longer period. With respect to your second point and slippage is difficult to assess, to what extent it will have a significant impact. Clearly, for us, we are very much in front of that matter, because we are waiting the 15,000 TEU ships, that we've ordered out of the 10, nine of those ships initially were expected to be delivered in 2023. We have received the first one, we know that we will receive the second and the third in the coming weeks. But we've been advised that there might be a delay for some of the vessels that were meant to be delivered to us in 2023 from that very specific shipyard. So, we do think that some of the shipyards in Asia do have manpower or resource issues and which is it affecting us there's no reason to think that it is not more widely affecting the overall industry. When it comes to the other vessels that we have up for delivery towards the end of the year and 2024. Today, we don't know yet but we anticipate that there might be as well some sudden delay.

Just be sure on the first answer when you say redelivered, so your current jobs will be redelivered. Does that mean handed back to the charter?

Correct. To the Vessels liner.

The next question is coming from Sathish Sivakumar. Please go ahead.

Thank you, thanks for the presentation. I got three questions here. So firstly, on the restocking, right? So obviously, there has been this sense of optimism that volumes are looking, at least, it trends into second half of the year looking great? Or we are seeing signs of recovery? And what are you actually seeing, based on your conversation with the shippers? And how does it actually differ from say normal seasonality related moments that you would normally get out on this point the year? And the second one is actually around the 2M Alliance. Obviously, with the Maersk coming out of the alliance, what does it mean for you are you looking? How much of your DSA is actually related to Maersk? And What is your exposure to Maersk versus MSC? And then say into the dividend payment for FY '23 given that we all might see a second stepped down on normalization. Would you still stick with your quarterly dividend payments, given the potential will be quarters that you could probably end up loss-making? What are your thoughts on the quarterly dividend payment? Yes. Thank you.

Thank you, Satish. So, with regard to your first question on potential restocking, this is the early days to come to a different conclusion as to when the volume or the demand will come back up. But clearly, we are getting some early indication and early signs that, the inventories and once the inventories have come down to the level where the main retailers want them to be, the demand will be serviced. And that, from a seasonality perspective also indeed collide in the first quarter of 2023 with the traditional slack season that is the period in terms of ordering and demand affecting the trade lines where we operate. So today, in the early days of 2023, we have the combination of those two elements, which is the destocking and the slack season. Hence, while again, we truly do believe that, we are near to a bottom in terms of demand and therefore in terms of potential rates in some trade lanes. When it comes to the second question, the 2M and the future breakup of the alliance, between Maersk and MSC. I think by and large, this doesn't come as a significant surprise for all of us that have been watching this industry and how everyone is pursuing different strategies. As far as we are concerned, we have been collaborating with both of them, and we do collaborate with both of them on different specific trade-ins, obviously, but also individually on some other trade. Our relationship with Maersk and with MSC is extremely good. We have benefited -- and I think all of us did benefit from working together over the past five years now, or four years should I say we started in 2018 in the summer. And we intend to continue to discuss with all the major shipping lines on the trade where we do believe it makes sense from a company perspective, from an industry perspective, and from an end customer perspective to better utilize and better operate our fleet. So, we are an important player in terms of market share under Transpacific. And we see no reason why we will not continue to work with Maersk, with MSC, with both of them, with one of them in the longer-term. For now, the relationship is still very strong and very efficient up until I think January, 2025 is the date when they will pathways. And with respect to your last question on dividend, yes. It's been very important since day one for the company to return a significant capital to shareholders. And we've been, I think, true to that statement since day one. For now, there's no reason to think that our dividend policy may change as of today, it stands as it is, as every quarter, no matter what irrespective of the dividend policy, the board makes a decision and renews a decision every quarter as to what is the dividend that is due to be paid. So, we'll see where we end in 2023, every quarter the discussion will take place at the board level.

Okay. Thank you. Just to follow up on that commenter on Maersk and MSC. So, would you mean to say that into 2025 or beyond that you would still work with both MSC and Maersk on an individual basis?

What I'm saying is I don't know whether we will ask no reason to think today that we won't. That's what I'm trying to get to. I don't know -- we don't know today what will be the new set or the new scene in terms of whether Maersk and MSC will continue operating independently, whether they will be some reshuffling in the way, the other shipping lines do interconnect. We don't know that. What we know is that, there is no reason for us not to consider working with any of them or with some others. By the way, it could also be very possible. We will see what we think is that we are a very important player, again, in terms of the market share that we command, especially on the Asia, U.S. East Coast, trade lane. We have a very efficient fleet with the 15,000 TEU ships that we are currently scaling up in this trade. So, we are a very interesting partner -- to partner with. And there's no reason for us to think that the future when it comes to cooperation is not going to offer opportunities for ZIM and for our potential future partners.

The next question is coming from Alexia Dodani. Please go ahead.

Hi, thanks for taking my question. Alexia here comes from Barclays. Just three as well, please. Firstly, on the outlook for 2023, given Eli's comments around profitability improving in the second half, are we basically expecting EBIT losses in the first half? And subsequent to that, obviously, you've talked about, Xavier, your expectation of spot rates improving from here. How much improvement are you expecting to meet your guidance range? I mean, to the extent you're willing to share. Secondly, on -- following up on some questions on the vessels and the 58 vessels that are coming up for renewal over the next two years versus the 41 that you've already chartered. The net of this should be kind of a double-digit decline in unit costs or less, and just on the comment of handing it back, would you be willing to reduce your feet size from 138 containerships at the moment down by 58 and under which scenario, would you do that? And then finally, in terms of CapEx, can you remind us cash CapEx expectations for '23 and '24 and these CapEx as well? Thanks.

Sure, thank you, Alexia. First, on your question with regard to the output for 2023. Yes, we, as we said that we expect the second half to be an improvement compared to the first. We do not, as you know, provide the calendar view. When it comes to the guidance. You were asking whether that meant that we were expecting EBIT losses in the early part of 2023. Not necessarily that, we didn't say that. In terms of improvement also for us, when it comes to the question on freight ways. What do we expect to see, as far as we're concerned, it will be also a function of where we ended up in our contract discussions with our customers on the transpacific trade lane? If we are saying that to 50% of our volume is meant to be contracted then, and then 50% will be on the spot, it's going to be a different effect if we end up otherwise. But providing that we ended up where we think we will from a contract rate perspective, this provides us the comfort that we think that the second half in 2023 will be better market conditions overall for them. With respect to your second question, the 58 vessels that potentially come up for renewal against the 41 that we will take delivery from over the next two-year period, so all the way to the end of 2024. As to whether we will let go all of those for 58 vessels we will see is not a one-for-one. I think this is what we need also to bear in mind, very likely that the smaller capacity vessel the feeder size, type of shifts that currently we employ are we deployed mainly on the Intra-Asia business as a feeder in line but also as an Intra-Asia in our own traditional services. Those vessels are needed by the company to maintain servicing those areas where we think there is, by the way, quite significant opportunity for growth. So, what will happen is, there will be a cascading effect, we will take on larger capacity vessels, those will come and replace ships that will be redeployed elsewhere. So, we start with the 15,000 TEU ship that will come and replace the 10,000 TEU that we currently employ on the Asia, U.S., East Coast, those will go and upsize the ZXB and so on and so forth. And then at the end of the day, we will let go some vessels that will be in the Panamax size type of segments mainly. So, the big ships will keep on the Big East, West trade. The smaller feeder-sized vessels will be very much needed also in the regional trains where we operate. And in terms of dressing your last question on CapEx. We have the commitment to pay down at delivery each of the LNG vessels that we have ordered via down payment, as you know, $13 million per ship for the 15,000 TEU vessels and $20 million per ship for the 7,000 TEU vessel. So that adds up to roughly $140 million in 2023 and another $350 million in 2024, according to the current delivery schedule. On top of that, we will have the renewal of equipment, which will be limited because we have already secured and purchased a lot of equipment back in 2021. With the congestion being less of a problem this year, the rotation of the equipment is being facilitated. So we need less equipment in order to carry the same cargo. But still, we continue to replace all the boxes with newer one. And we will continue to as well invest in developing our digital solutions, which is very important to us. We have been at the forefront of the digital transformation of the industry and we intend to continue to keep this technological edge.

Thanks, Xavier. And this going to just have a clarification on the first answer. I mean, historically, contract rates are struck at the spot -- at a discount to spot for obvious reasons because shippers get kind of a discount for the volumes that come again year forward. Based on the comments you made, kind of makes me think that you shared the opposite view. If that's the case, why should contract rates, let's say, discount to sport or at the premium sport conceptually? Thanks.

Yes. I mean, I think today's market environment is a little bit unique in a way. We just concluded that two years of extraordinary situation. We are today at -- from the pendulum effect, if I want -- if I may use this analogy, the market has gone very strongly in the opposite direction. I think both shippers and liners know that there is a middle range that is the natural equilibrium that we should older tender lean towards. Otherwise, the disruptions might affect the shippers as well. If we don't get the risk that we believe makes sense for us to continue sailing, we will stop sailing. And then, if we stop selling, then it may have a more drastic effect on the ability of our customer to secure their supply chain. So I think it's not that simple in terms of where the market dynamics are leading us today. There are still quite a few weeks ahead of us before we finalize the discussions on the contract cargo, whether we will end above, below or close to spot remains to be seen. For us, like I said, we have our objective and our objective are customer by customers. We don't treat all customers the same way. We have a one-to-one relationship and we know exactly, where we can go and where we want to go.

This concludes our Q&A session. And I hand back to Eli Glickman, President and CEO for closing comments.

Thank you. Despite challenging market conditions toward the end of the year, we continue to execute our global niche strategy and deliver outstanding execution and profitable growth in 2022. Truly, EBITDA and EBIT results were all time records. As a result of our outstanding cash generation and strong balance sheet, we declared a Q4 dividend of approximately $769 million or $6.4 per share. While the new trend liner industry outlook maybe uncertain with increased supply and weaker demand trends as Xavier discuss, we believe there are reasons for optimism as we look ahead. We took deliberate steps over the past two years to both diversifies our commercial presence and improve our construction, enabling the company to continue to serve in more normalized environment like the one we are experiencing today. We remain highly confident that we have the right strategy in place with our competitive, efficient and cost effective newbuild capacity on the way. And our investment in digital innovation and disruptive technologies continue put to position ZIM to best serve customer and shareholders over the long term. Thank you all. Thank you.

Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.