ZIM Integrated Shipping Services Ltd. Q2 FY2021 Earnings Call

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus operator. Welcome, and thank you for joining the ZIM Integrated Shipping Services Ltd. Q2 2021 Earnings Call. And 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 Second Quarter 2021 Financial Results Conference Call. Joining me on the call today are Eli Glickman, President and CEO; and Xavier Destriau, 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, projections, predictions, 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 materially. You are kindly referred to consider the risk factors and cautionary language described in the documents the Company filed with the Securities and Exchange Commission, including our 2020 Annual Report filed on Form 20-F on March 22, 2021. We undertake no obligation to update these forward-looking statements. At this time, I would like to turn over to Eli Glickman. Eli?

Thank you, Elana, and welcome to today's call. We are excited to discuss our record results and several notable second quarter year-to-date accomplishments outlined on Slide number 4. First, we maintained our strong trajectory in the second quarter. Once again, we generated all-time record quarterly results with adjusted EBITDA of $1.3 billion and a net profit of $888 million. Both are higher than for the full year of 2020. These results are based on the quality strategies we continue to implement to capitalize on both the highly attractive market and ZIM's differentiated approach. For the second quarter, we also generated our highest ever operating cash flow of $1.2 billion and significantly strengthened our balance sheet, growing shareholder equity to $1.72 billion. Importantly, we continue to deliver industry-leading margins, outperforming the industry average. Our Q2 2021 adjusted EBITDA margin was 56% and adjusted EBIT margin was 14%. We remain committed to our goal of consistently performing as one of the top three players in terms of EBIT margin. Based on our strong second quarter performance, the sustainable market environment, and the condition of our contracts secured at higher rates, we are once again raising our 2021 guidance. Specifically, we now expect to generate in 2021 adjusted EBITDA between $4.8 billion to $5.2 billion and adjusted EBIT between $4 billion to $4.4 billion. Based on the midpoint of today's guidance versus the guidance provided in May, our new forecast represents almost a 90% increase in our EBITDA guidance and more than double our EBIT guidance. Our strong results have also enabled us to make important investments to position us for long-term success. In July, we announced a second strategic agreement with Seaspan for the long-term charter of 10 7,000 TEU LNG dual-fuel container vessels to set across ZIM. These vessels, which will be delivered to ZIM starting in the fourth quarter of 2023 and through 2024, are ideally sized to be employed in multiple places in which we operate. We also have an option until the end of August 2021 for the long-term charter of five additional such vessels. This transition follows our initial agreement with Seaspan in February 2021 for the long-term charter of 10 15,000 TEU LNG fuel vessels to serve our Asia to U.S. East Coast. With these two agreements, we secured high-quality green tonnage, considering we share sustainability values while maintaining our proportional agility. In Q2, we also redeemed the entire $349 million principal amount outstanding of our Series 1 and 2 notes. As we mentioned last quarter, we achieved this important accomplishment sooner than expected and earlier than the stated maturity, further strengthening our balance sheet and enhancing ZIM's position to take advantage of favorable fundamentals for the benefit of shareholders. On Slide number 5, you can see that over the last nine quarters, our revenue consistently increased, and we delivered consecutive record quarters. At the same time, our leverage continues to trend downward. ZIM's net leverage decreased from 5.3 in Q1 2019 to 0.3 this quarter, positioning us in the top tier of the industry. Moving to the next slide, Slide number 6, we continue to advance major initiatives related to our strategic pillars. First, for ZIM, our exceptional operational agility is a testament to our differentiated asset-light and global niche model. Today, our fleet includes approximately 113 vessels, reflecting our ability to quickly adapt our vessel deployment strategy and grow our fleet based on changing demand fundamentals. As you can see, we proactively adjusted our vessel capacity over the past 18 months, effectively responding to the initial negative effects from COVID and then quickly growing our capacity to capture the dramatic increase in demand we recognized in the market. Notably, we accomplished this important objective despite the increasingly tight charter market. In addition to successfully increasing our capacity for the benefit of customers and shareholders, we continue to grow on our commercial agility to identify market opportunities and develop new growth engines. During the second quarter, we launched nine new lines including premium high-speed services to meet the burgeoning e-commerce demand and provide an alternative to air freight. Importantly, these new high-speed lines and the others that we added during the quarter have been instrumental in driving our record results as well as our positive forward outlook. Since launching ZEX, our initial high-speed premium line between China and Los Angeles, we have opened additional high-speed lines including one between Asia and Australia and between Australia and New Zealand. The other lines opened during the quarter fall within our trade lines, including a new service for Asia to East Africa. In addition, we continue to take steps to further strengthen our Pacific presence, which remains a key trade for us. Through our partnership with 2M Alliance lines, we launched our joint Asia-East Coast service, which commenced in June. We also continue to leverage our partnerships with leading industry players, expanding our service network and meeting increased customer demand. Additionally, during the second quarter, we announced the extension of our cooperation with Alibaba as we continue to grow our presence in new markets and further capitalize on positive e-commerce trends. Next, our operational excellence continued to position us well for the future. First, consistent with our focus on sustainability and reducing our carbon footprint, we entered into long-term charter agreements for green LNG fuel vessels. Once delivered, together with the first 10,000 to 15,000 TEU vessels, approximately 50% of our operating capacity will be green. In doing so, we established ZIM as a leader in terms of carbon intensity among global liners. With this charter agreement, ZIM secured the cleanest technology currently available. This will help us address increasing regulations on carbon emissions and meet customer demand to transport cargo on more eco-friendly vessels. We also maintain the flexibility to transition to newer technology as they become commercially viable. Second, since the beginning of the year, we've entered into agreements for the purchase of equipment, mostly new-build containers. Given our higher-than-expected growth this year, combined with the current congested market and the availability of containers, our substantial investment in new equipment supports our ability to provide the best and most reliable service to our customers now and in the future. To further advance our growth objectives, we also established and strengthened our local presence in new and existing markets during the second quarter. We launched operations in countries where we were not present in recent years, including Australia, New Zealand, certain East African countries, and East Russia. We also strengthened our infrastructure and presence in other countries such as Mexico, where we replaced a third-party agent. We remain committed to our customer-centric approach, which is key to our long-term success. Finally, we continue to invest in tools that help us prioritize profitability over volume or market share and employ disruptive digital strategy. Embracing big data and artificial intelligence, we recently launched a partnership with an Israeli startup to develop an innovative artificial intelligence tool for implementation in ZIM's operational environment. The joint teams are tasked to develop advanced models to focus on demand, plan shipping routes, automate logistics processes, and more as we continue to focus on profit optimization. We also continue to see broader industry adoption of electronic bill technology, a groundbreaking blockchain-based platform supporting the shipping industry, which we were first to embrace. We are pleased to see the growing acceptance of WAVE technology by other global carriers as well. I will now turn the call over to our CFO, Xavier, for his comments on our financial results and market developments.

Thank you, Eli. And again, welcome everyone to our quarterly update. As Eli mentioned, during the second quarter, our differentiated approach and proactive strategies served us well as we generated another consecutive record performance. I will now briefly discuss our KPI specific Q2 and H1 figures and also our robust cash position. Slide 7 highlights several KPIs demonstrating our exceptional financial performance, including outstanding earnings and further improved cash position, resulting in our lowest leverage ratio in ZIM's entire history. In Q2, we benefited from the new annual contracts with Trans-Pacific customers, which went into effect on May 1, reflecting an average rate of slightly above 50% higher than 2020, as well as strong momentum in the spot market. ZIM capitalized on industry tailwinds that drove freight rates higher. Moreover, our prioritization of a better-paying cargo mix and initiatives to capitalize on e-commerce growth were key differentiators that allowed us to earn even higher rates. Specifically, our average rate per TEU rose by 119% in the second quarter of 2021 to $2,341 compared to $1,071 in the comparable quarter in 2020 and was 22% higher than the average freight rate of $1,925 per TEU in the first quarter of this year. For the six months of the year, our average rate per TEU was $2,145, almost double compared to last year's first half. Turning to our balance sheet, we have significantly increased our cash position, which I will discuss in a moment, and our leverage ratio continues to decline to 0.3x. Total net debt in the second quarter decreased by $132 million, resulting from a net decrease in financial debt, mainly related to the early redemption of our Series 1 and 2 notes in June and an increase in cash position, offset by a net increase of $523 million related to lease liabilities, almost entirely reflecting successfully fixing additional charters in the quarter despite a very tight market. Our free cash flow in the second quarter totaled $867 million compared to $115 million in the comparable quarter in 2020, an increase of over 650%. Turning to Slide 8, as we look at our remarkably strong quarterly revenue, EBIT, EBITDA, and net profit growth, sequentially and year-over-year, it is clear that our unique approach continues to yield positive results. Total revenues in the second quarter were up $2.4 billion compared to $795 million in Q2 last year, which is a 200% increase, three times more. More importantly, and consistent with our primary objective to grow profitably, second quarter net profit was a record $188 million compared to $25 million in Q2 2020, growing by more than 3,400%. Adjusted EBITDA in the second quarter also significantly increased to $1.3 billion, compared to $145 million in the second quarter of last year, while adjusted EBIT increased to $1.2 billion in the second quarter compared to $73 million in the comparable quarter of 2020. Then Q2 2021, adjusted EBITDA and adjusted EBIT margins of 56% and 49%, respectively, continue to position us among the top performers of the industry. Now, I would like to point out that our Q2 2021 results include increased tax expenses totaling $224 million. As I explained last quarter, considering our current and expected full year 2021 performance, we reassessed our entire carryforward tax, and we now do expect to utilize all of them for the tax year of 2021. Next, we review our significant improvement across all financial metrics during the first half of 2021. Revenue for the six months periods were up $4.13 billion compared to $1.62 billion last year, already exceeding full year 2020 revenue. This 155% increase was driven by the improved freight rates as well as carried volume growth, which I will discuss briefly. Again, consistent with our focus on profitable growth, net income for the first half of the year was $1.48 billion compared to $13.4 million for the first half of last year. Adjusted EBITDA was $2.6 million for the first half of 2021, compared to $242 million for the first half of 2020, representing a growth of 791%. Our six-month adjusted EBITDA and EBIT margins also improved to 52% and 45%, respectively, this year versus 15% and 6%, last year. Turning to the next slide, Slide 10. Our increased current volume is a direct result of our proactive efforts to launch new expedited and other services in response to identified growth in demand and our enhanced position in Pacific trade and intra-Asia. While global volume growth in the second quarter was approximately 15% year-over-year, this carried volume increased by 44% from 641,000 TEU in the second quarter of last year to 921,000 TEUs in the second quarter of this year. Though it should be noted that the second quarter of last year volumes were negatively impacted by the then-emerging pandemic. Compared to the first quarter of 2021, our volume increased by 13%, with intra-Asia and the Pacific trades both contributing most significantly to the increase. For the full year, we continue to anticipate carried volume growth of approximately 30% compared to 2020. Consequently, as mentioned by Eli, given our higher-than-expected volume growth in 2021 combined with current congestion impacting the availability of containers, we contracted $763 million of new equipment in 2021, growing our container fleet by approximately 265,000 TEU equivalents. This is about $175 million more than we previously guided last quarter. Containers at a cost of $406 million have already been delivered to us during the first half of the year. We had to increase our investments in containers to take further advantage of our significant cash position, and we made the prudent capital allocation decision to purchase the containers rather than rely on more expensive leasing solutions. Turning to cash flow, Slide 11. We ended Q1 2021 with a consolidated cash position of $1.2 billion. During the second quarter, our adjusted EBITDA was $1.3 billion, taking into account a decrease of $154 million related to working capital and other factors, $314 million of investing cash flow, and $544 million of debt service, we finished the quarter with a cash position of $1.5 billion. Now I will review the strong market fundamentals that we continue to see in the liner sector and share our positive view going forward. On Slide 12, market supply/demand fundamentals remain positive, with expectations that global demand growth will surpass supply growth in 2021 and also in 2022. On the supply side, the order book-to-fleet ratio has increased from historically low levels, aiming to renew the fleet and meet demand growth. Specifically, while new builds on order have risen to slightly above 20% of the total deployed capacity, we continue to view the fundamentals as favorable, considering the need for replacement tonnage and the current forecast for demand growth. Moreover, we view the threat of overcapacity as low, even in the less immediate term, when additional capacity is delivered in 2023 and onwards due to two unrelated factors. One, post-COVID environmental regulations that will likely go into effect in 2023 will promote the necessitating additional capacity to keep carrying the same volume. And two, congestion or land infrastructure issues, particularly in the U.S., will continue to adversely impact efficiency. In other words, while COVID exacerbated this phenomenon, as demand continues to grow, operational constraints in the U.S. are likely to persist. As such, landside bottlenecks and slow steaming as part of decarbonization efforts are expected to partially offset 2023 net fleet growth reflected in the increased order book. Turning to the next slide, as you know, freight rates continue to rise well above the past decade average, driven by supply chain bottlenecks, equipment shortages, and port congestions. We expect these market conditions to continue for the remainder of 2021 and very profitably into 2022, supporting these historically high levels. On the cost side, rising charter hire trends are correlated with demand, as is reflected by higher charter renewal rates. You will also note the changing of the charter market, impacting availability of chartered tonnage. First, most of the fixtures concluded in the past six months have been from the mid-tier charters, and second, the large number of small and medium-sized vessels sold by tonnage providers to carriers in the last year is causing the non-operating order fleet to shrink. This has also impacted our approach to secure longer-term commitments. Now looking at demand expectations in the U.S., the extremely high demand is being supported by the largest destocking cycle in U.S. history. Base U.S. retail trade inventories to sales ratio stood at 1.09, significantly below the 1.47 average of 2019 despite months of high demand. We expect retailers to target the same inventory to sales ratio they had prior to the pandemic, which will continue to support the restocking trend, especially as we enter into the traditional peak season before Christmas. This, in turn, is expected to sustain strong demand for container shipping for the remainder of the year through the Chinese New Year. Turning to the right-hand side of the slide, the price of oil has recently increased, and accordingly, we have assumed slightly higher bunker prices when providing our current guidance as compared to our assumptions last quarter. So turning to our full year outlook, based on the strong second quarter performance, the sustained robust market environment, and the contribution of our freight secured at higher rates, we now project to deliver in 2021 adjusted EBITDA within a range from $4.8 billion to $5.2 billion, and adjusted EBIT between the range of $4 billion to $4.4 billion. The underlying assumptions driving this improved outlook include, as we mentioned, expected higher average freight rates and also higher charter costs as well as slightly higher bunker rates as compared to our expectations and assumptions when we provided our guidance back in May. As previously indicated, we expect our volume in 2021 to be approximately 30% higher compared to 2020. Turning to the next slide, our dividend guidance remains unchanged. Based on our strong and improving earnings outlook, we are well positioned to return substantial capital to shareholders. In September, in a few weeks from now, we will distribute a special dividend declared in May of $2 per share. And separately, in 2022, we will distribute, subject to Board approval, 30% to 50% of our 2021 net income. Now, I will turn it back over to Eli for his concluding remarks.

I'm very proud of our team's solid execution since going public in January 2021. ZIM today is an innovative digital leader in seaborne transportation and logistics services, poised to capitalize on global commerce and container shipping. We delivered record earnings and profitability in the first half of the year. As Xavier described in his prepared comments, we expect this exceptional market condition will persist through the second half of 2021 and possibly even longer into 2022. Therefore, we have a very positive outlook for the second half of 2021 and expect it to be even stronger than the first half of the year. Our strong performance and cash generation have allowed us to pay down debt and we plan to return a significant amount of capital to shareholders. In addition, we continue to prudently allocate capital for future growth, including strategic investments to secure our core operating fleet, investing in equipment, and exploring M&A opportunities. We are excited about ZIM's prospects and look forward to taking advantage of our unique model to continue profitability and create enduring shareholder value. We will now open the call to questions, please.

Ladies and gentlemen, at this time we will begin the question-and-answer session. And the first question is from the line of Randall Giveans of Jefferies. Please go ahead.

Congrats on obviously on the quarter here. Pretty dramatic increase in EBITDA and EBIT guidance. We thought we were relatively bullish, but clearly not enough, I guess, considering the $5 billion midpoint. So with that, you mentioned volume growth of 30% year-over-year. So I guess that means 3Q and 4Q volumes will both be close to around 1 million TEUs. Is that correct? And then what are you using for expected quarterly TEU rates in the third and fourth quarter to get to that midpoint guidance?

To address your first question, our volume is indeed increasing as we start to fully realize the benefits of the new lines we have opened in recent quarters. For the early part of Q3 and into Q4, we can expect volumes to be slightly under 1 million TEUs per quarter, which aligns closely with those figures. As we prepare our forecast for the entire year, particularly for the second half, we remain heavily influenced by industry dynamics that are driven by supply and demand. Currently, we are still experiencing congestion issues that are impacting the supply side. On the demand side, we are witnessing robust support, especially in the U.S., which is contributing to rising freight rates.

Okay. I'll let to be there. And then you mentioned you operate 113 vessels today. What is the size of your fleet currently in terms of TEU capacity for those 113? And then following those nine new lines, are there additional lines you're looking at acquiring or M&A opportunities for smaller liners?

The answer is yes. We opened this new line, and we are exploring all the options for new opportunities, including M&A.

Talking about M&A, it goes along with our capital allocation. We are looking at options to potentially acquire smaller shipping lines that operate in the regions where, first of all, we already have a very strong footprint and where we also potentially see significant growth opportunities. So that is relevant in the intra-Asia trade and especially focusing on Vietnam and Thailand as areas and countries that are growing very fast, and we anticipate strong growth opportunities in those two markets and also for South America. Regarding your first question on the overall TEU capacity, we are increasing our number of vessels. On average, you should consider that we are growing in the smaller segments. The large capacity vessels deployed on the Asia-U.S. routes remain very stable. These are 10,000 TEU and above. When we open new lines and explore new trades, we are generally focusing on Panamax size vessels. Therefore, if you take the 10 additional vessels that came in over the quarter, you should consider roughly 50,000 TEU of additional tonnage.

Then final question, I guess, the million-dollar question or in your case, multibillion-dollar question. You didn't announce another special dividend, which is understandable. You also mentioned that ZIM is at the lowest net debt leverage ratio in its history, right? So I guess, what are you going to do with that cash? Is there a potential for share repurchases at these discounted levels? Or how are you going to use your free cash going forward?

Yes. There are various areas where we intend to allocate our capital. The first one, which is obvious, is investing in containers and equipment. We're growing our fleet. And as we grow our fleet, we also take the opportunity to rejuvenate in terms of hedging our fleet of equipment. So we talked about $760 million of investment in this respect. Secondly, as you will recall, we have a hybrid structure with Seaspan, similar to the transaction that we already secured with them back in February, where we enter into a long-term charter agreement, which is a hybrid structure. We will deposit cash upfront at delivery in order to put our cash to good use and replace this tax equity in the transaction itself and benefit from lower charter rates throughout the charter period. So, that is a second area of allocation for cash. We've also, to some extent, within these six months, paid down debt, but there's a little more we would do going forward in this respect. We talked about M&A, and we want to make sure we can seize any opportunity if we identify one in this respect. Hence, we want to keep access to capital. Lastly, and very importantly for us, as we mentioned back in February when we went public, we plan to return significant capital to our shareholders. We are pleased to note that we are on track to distribute a special dividend of $2 per share, which we declared in May. When we look at the implied results arising from our renewed guidance, the 30% to 50% dividend distribution in 2022 will come to a very significant dividend payout for our shareholders. We are examining every single potential way to allocate capital among our company’s growth and our shareholders, including dividends and share buybacks. Everything is on the table.

Congratulations again on another strong quarter and obviously on the EBIT guidance for the rest of the year. Clearly, a completely transformative deal for ZIM and for the industry overall, but definitely specifically for ZIM. I do have a question just maybe a bit more broadly in the market and then just one follow-up on ZIM specifically. Obviously, freight rates are at record levels across most regions. We've seen a lot of discussion revolving around congestion and equipment shortages as two key drivers that have caused this tight supply, obviously, against the backdrop of very healthy demand. Let's talk about investing in equipment. We've seen a lot of containers being built, and they're starting to deliver higher numbers here in the coming months. Do you see that as aiding and reducing the shortages that we're seeing at port, and does that lead then to reduced congestion? Or is the issue simply the fact that ports worldwide are just unable to handle ships that are coming in as fully loaded as they are, as we've seen over the past few quarters? Any sort of color you can give on that perspective?

First, we see that this supply chain began with China, experiencing a shortage in supply in January, February, March 2020. This was followed quickly by an increase in high demand for the Western countries, mainly, as you know, the United States and European countries. The dynamics have quickly shifted from shipping idle to a shortage of vessels and containers. We prepared, and as you know, we grew a lot, from 50 vessels initially down to around 113, and now we're on track to reach 120 soon. Regarding containers, we grew dramatically in the last 18 months, from around 600,000 TEU containers to over 900,000 TEU containers. Currently, we do not have any shortage of vessels for containers. However, we see high demand and congestion, especially at terminals. You know very well what’s happening in L.A. and other U.S. terminals. We observe the same in several other terminals as well. Events such as those occurring in the Suez Canal and the Ningbo port have also impacted global supply chains. The entire supply chain is very sensitive, and any small change can have a significant effect in this sensitive situation. So, I don't believe we can pinpoint that we can solve this issue with small vessels or more containers because it's a complex situation in a very sensitive, high-demand market.

Just maybe to add to what Eli said, we agree with you, Omar, that the bottleneck issue is not purely a container liner issue. We, as a container liner, do our utmost to keep the cargo moving. This means every single vessel that is available is out on the water. We source and bring in as many containers as we can. We redirect cargo where there is an issue in a terminal to an adjacent terminal in order to do our utmost to keep cargo moving. But there are also issues that we cannot control, such as the situation at terminals and ports or even inland, which are beyond our control. It's a broader issue. This is why we believe that the congestion issue is likely to persist, and it will take time to fully resolve.

Yes. It's a very complicated situation. I wonder if you have seen any response from the key ports as you mentioned in the U.S. Are they doing anything? Is it as simple as getting past COVID restrictions? Or does there need to be some sort of infrastructure-related investment on the part of these ports to smooth out this congestion? I know it's a complex question, but I just wondered if you have seen any response from ports to expand their ability to handle the tonnage coming in?

Well, I think there are quite a few initiatives, especially in the U.S., to expand and extend terminal capacity, as there is a general acknowledgment that current terminal capacities are insufficient to meet demand expectations. However, obviously, this does not happen overnight.

Okay. And then just two quick follow-ups. Considering the amount of cash you're generating and you do have some M&A targets or ideas, as you think about the dividend potential for next year, regarding the 30% to 50% payout, does the range of 30% to 50% mean that the Board would prefer to pay out 30% versus 50% depending on any M&A opportunity? Or are they mutually exclusive?

No. I think it is management and the Board that will make the final decision based on how the situation evolves. Yes, M&A transactions and other opportunities will be elements of consideration by the Board when deciding on the percentage of dividend payout.

Okay. And then a final one from me. You mentioned the tax carryforward — tax loss carryforwards being used for 2021. Could you give a perspective on what we should consider as an effective tax rate for the rest of this year or for the second half of this year and then potentially what it looks like for '22 and beyond?

For now, yes, the effective tax rate should be in the region of 15% to 16%.

1-5, you said 15?

Yes, 15% to 16%.

Okay. And that's for the second half of this year onward?

That's for the full year.

Okay. And then in '22, does that change to the same range?

'22, and we will indeed return to the tax rate that applies here in Israel, which is 23%.

I actually got three questions here. Firstly, on the freight rates and volume, actually. If you compare with Q2, what are you actually seeing currently in terms of rate progression as well as on the volumes? And also, if you could just give any color on which regions in your network are actually performing strongly from a volume perspective? And how did you see weakness coming through?

Yes. To start with, in terms of freight rates, we see the freight rates going up. That's the trend that has been consistent. And if we look at all the indices, you can observe that the trend is upward, and we obviously see the same thing here. So all the places where we operate, be it transpacific, intra-Asia, or Latin America, we see positive momentum in terms of freight rates everywhere. For us, obviously, the strongest impact comes from any variation relating to transpacific rates due to our heavy exposure to that market, particularly with Asia-U.S. East Coast and Asia-U.S. West Coast. When it comes to volume increases and newly opened lines, we have had several initiatives on the Asia to the U.S. transpacific routes, including for both the West Coast and the East Coast, along with our partners. Growth is also continuing in intra-Asia trade, which encompasses Australia and New Zealand, featuring significant increases in volumes. Hence, transpacific and intra-Asia trade remain primary areas of growth, and I must add Asia to East Africa as well.

So when you say growth is primarily driven by transpacific, can you elaborate on the current booking windows like in the transpacific versus the other regions? What visibility do you have right now?

On the transpacific today, we have good visibility for the next three months, depending on transit times. For instance, in Asia to U.S. East Coast, our rotation is 77 days. Thus, we have a window of four to five days ahead of us. Therefore, we have a good visibility until the middle of Q4, whereas the shorter lines such as intra-Asia have less visibility.

Okay. Got it. So my second question is actually around the transit times under current conditions. You stated to have about 37 days on the transpacific. What was it like say, go back two years ago in 2019? What was the typical transit time on a port-to-port basis? If I had to understand how long it takes to ship a box of container from a manufacturing plant in China to a center in California?

When it comes to the Asia-U.S. East Coast, the transit time remains at 77 days as it was in the past. The service offering still maintains the same timing level throughout the pandemic. However, for the Asia-U.S. West Coast, where we offer expedited services, the transit time is typically around 35 days. Adding to that, we experience some delays. Currently, on average, we see a four to five-day delay from departure areas, and depending on the port of entry in the U.S., there can be significant delays due to port congestion that can add another week or two. Overall, the time to move a box on a port-to-port basis is about 20% longer currently than it would have been if we were able to meet the original pro forma scenario.

Okay. Got it. And just to understand here, does this 20% longer shipping time mostly arise from port conditions? Or does it stem from containers not arriving on time at ports or productivity levels playing a role?

It can be a bit of everything. But by and large, we think that the situation primarily arises due to port congestion. We've already implemented measures to increase our container numbers to offset the fact that sometimes the containers return late to the terminal for us to put them back on the next rotation. So we've addressed that issue, but the biggest concern remains the productivity level at the terminal and the ongoing effects of COVID-19.

Got it. And my third question revolves around volume exposure. We note that some other liners have reported increases in contracted volumes compared to last year. It makes sense as the spread between spot and contract rates is considerably wider than the typical $300 to $400 difference we used to see. Moreover, you also mentioned that your charter vessels have no long-term contracts, which makes extending more contracts logical. How do you plan to address longer-term charter agreements for vessels? How are you bridging the gap between spot and contract rates?

The contract season for us on the transpacific runs from May 1 to April 30 of the following year. Therefore, discussions for yearly contracts generally begin after our conference early in the year and are concluded around mid-April. So this is ahead of us. This is a discussion that we will initiate with our customers in the coming six months. A lot can happen in that timeframe in terms of industry visibility as we formulate our strategies regarding spot contracts. That said, it does make sense for us to consider the dynamics of the market along with risks we will continue to monitor.

Okay. So what is the current spread between contracts that you're seeing across your network?

It can vary depending on the line and week, but this is not our primary focus. We have negotiated and agreed with our clients on volume commitments and availability. Therefore, we honor those agreements. Building long-term relationships with our customers is very important to us, which we protect each time.

And this concludes the question-and-answer session. I hand back to Eli Glickman for any closing comments.

Thank you very much to all of you for your time, and see you on the call next quarter. Thank you.