ZIM Integrated Shipping Services Ltd. Q3 FY2023 Earnings Call

Hello. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the ZIM Integrated Shipping Services Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to Elana Holzman, Head of Investor Relations. Elana, you may begin your conference.

Thank you, operator, and welcome to ZIM's third quarter 2023 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 of 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 that company filed with the Securities and Exchange Commission, including our 2022 Annual Report filed on Form 20-F in March 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, Elana, and welcome, everyone, to today's call. Before we turn to our call today, I would like to address the ongoing war situation in Israel. During these trying times, our thoughts are with the children, parents, husbands, wives, and grandparents who lost their lives, their loved ones, and their homes in the horrific and tragic events of October the 7th. We stand in support of families and communities who were affected by this terrorist attack, and we pray for the safe and immediate return of our people held hostage by Hamas in Gaza. Our priority is assisting our employees in Israel and ensuring their well-being while continuing to meet the needs of our customers, delivering the highest level of customer care and maintaining strict operational standards to drive our business forward. Despite war-related challenges, ZIM operations and services everywhere, including to and from Israel, are continuing without interruptions. As a global company, our employees, over 4,500 around the world, serve more than 34,000 customers worldwide, shipping to over 200 ports in 19 countries, with only about 10% of our volumes imported or exported from Israel. Turning to our financial results, I will discuss ZIM's third quarter and our path forward. ZIM's strategic transformation launched back in 2017, which involved every aspect of our company and the way we do business, delivered 2.5 years of historic financial results from mid-2020 through 2022, including net income of nearly $10 billion. This period of exceptional profitability has today led to a significant cash balance, which at quarter-end stood at over $3 billion. While market weakness has extended longer than we had originally anticipated, it is important to note that our strong liquidity will allow ZIM to weather this downturn. We believe ZIM is well positioned to emerge stronger than ever with a fleet that provides us a competitive advantage in core trades. Specifically, we leverage our successful IPO and capitalize on the extended period of historic profitability to best prepare ZIM for the years to come. First, we executed our fleet renewal program and secured, through a series of charter agreements, a total of 46 new built container ships, of which 28 are LNG powered. In 2025, ZIM's fleet profile will be dramatically different. Our fleet will be much younger, more fuel and cost-efficient. Our average vessel size will be bigger and better suited to the trades in which we operate. We expect approximately one-third of our operated capacity in 2025 to be LNG powered, making ZIM one of the lowest carbon intensity operators in the industry. As such, we will be well positioned to support our customers in reducing their carbon footprint. But even today, ZIM is the only carrier to operate LNG vessels from Asia to the U.S. East Coast. By the end of 2024, we will have two different services operating with only LNG vessels as we plan to deploy our 7,000 TEU LNG vessels on our Baltimore service, in addition to the 15,000 TEU LNG vessels deployed on ZCP service, our premier Asia to U.S. East Coast service. Second, to complement our fleet renewal program, we purchased almost $1 billion worth of containers with a particular focus on investing in our reefer propositions. Today, we own and operate the youngest reefer fleet in the industry, which serves us well as we compete for this high-value cargo. Third, we entered into a strategic supply agreement with Shell to secure LNG supply at competitive pricing. Lastly, we invested in customer-facing and back-end digital tools and applications to propel profitability and improve customer experience. We view it as a core strength to leverage technology to promote operational and commercial excellence. We continue to invest in technology and are currently in the process of planning an extensive project to install, across our entire dry van container fleet, cutting-edge tracking devices developed by Hoopo System, which is also one of our portfolio companies. ZIM will be one of the first carriers in the container shipping industry to have its entire fleet equipped with tracking devices. This will enable us to better manage our fleet and also offer customers value-added services such as geofence alerts and open and close door notifications. As we consider ZIM's strategic direction back in 2021, we anticipated that the subsequent years 2023 and 2024 would be a transition period. The goal was to shift ZIM's reliance on older, less fuel-efficient, and less environmentally friendly capacity to a cost and fuel-efficient LNG-powered new build fleet. We understood that steps were needed to make ZIM a more resilient company, and this new fleet will effectively position us to both address the decarbonization agenda of the shipping industry and drive long-term profitable growth. During this two-year transition period, ZIM's cost base will gradually improve as we continue to take delivery of the cost-effective new build tonnage and redeliver the expensive COVID-era charter. Our cost per TEU is declining and we expect further improvement moving forward. The remaining 33 of the 46 new builds we secured are added to our fleet this year and throughout 2024. I would highlight that the six 15,000 TEU LNG vessels we have already deployed on our strategic Asia to U.S. East Coast, ZCP service, are meeting and even exceeding our cost-saving expectations. During this transition period, our entire organization is focused on returning ZIM to long-term sustainable profitability. We expect the initiatives we began to undertake two years ago will deliver that result in 2025 and beyond. At the same time, as we navigate near-term market challenges, we have taken steps to rationalize our existing capacity whenever possible to minimize cash burn. In 2023, we have already redelivered 20 charter vessels and expect to redeliver another five vessels back to their owners by year-end. We also have another 34 vessels up for renewal in 2024. This will allow us to better align our fleet with current demand levels. We also continue to review our services and reallocate resources to adapt our network. We are attentive to our customers' revolving needs and focused on taking advantage of new commercial opportunities with growth and profitability potential. For example, we recently decided to reinstate our ZEX service, targeting the e-commerce market from South China to LA. Today, we are hearing from customers that they are again looking for an expedited ocean service that offers slightly longer transit time compared to air freight, but at a fraction of the cost. We also expanded our presence in Latin America this year. In early 2023, we opened our Colibri service, connecting the West Coast of South America to the U.S. East Coast. Since its launch, we have consistently grown our carried volume and we are now one of the top five carriers on this trade. More recently, we announced the launch of two additional lines in Latin America. While market conditions remain challenging in this region as elsewhere, we believe North-South trades have significant growth potential as U.S. importers seek to diversify their supply chains. During this third quarter, we also announced a new collaboration with MSC, the industry's largest carrier, that is already delivering cost savings. These agreements include vessel sharing, slot purchases, and swap arrangements across services connecting the Indian subcontinent with the East Mediterranean, the East Mediterranean with Northern Europe, and services connecting East Asia with Oceania. This latest collaboration is consistent with our approach to leveraging partnerships that improve efficiencies and enhance our network, particularly during this period of continued headwinds in our market. Furthermore, we believe that our new cost and fuel-efficient new build fleet will better position us to reach similar operational arrangements in the future. In parallel, we are constantly pursuing operative steps in a wide range of cost control optimization and cost avoidance initiatives in order to achieve improvements in our cost structure. These cost control initiatives include, among others, a strict HR hiring program to ensure our workforce is aligned with industry dynamics, lower variable costs such as terminal-related, cargo handling, and port storage costs, bunker costs, leveraging our agreement with Shell to use more LNG versus low sulfur fuel, and of course, actively seeking opportunities to redeliver charter capacity early. We expect these initiatives to continue generating measurable and sustainable savings. Moving forward, we will continue to seek opportunities to capitalize on our strengths and capabilities in order to create long-term value for our customers and investors alike. Although market conditions for the near future are uncertain, our ample cash enables us to maintain a long-term view. Turning to our third quarter results, our results this third quarter and performance reflect the persistent weaknesses of the current trading environment with soft demand and continued freight rate deterioration. The rate increases we saw in August in the Transpacific were short-lived. In Q3 2023, we generated adjusted EBITDA of $211 million and adjusted EBIT loss of $213 million. Cash flow from operations was $338 million. As already mentioned, we maintained strong total liquidity with a cash position of approximately $3.1 billion at the quarter-end. Based on our nine months' results and expectation of no material improvement in freight rates during the remainder of the year, we have lowered our full-year '23 forecast. We now expect to generate adjusted EBITDA of $900 million to $1.1 billion and adjusted EBIT loss of $600 million to $400 million. Given this negative outlook in the near term, we recorded a non-cash impairment of $2.1 billion this quarter. Despite the losses incurred in '23, ZIM is a resilient company. Our strong cash balance will help us withstand this prolonged downturn, and as I already indicated, we believe that '25 will mark a turning point for ZIM and a return to profitability. On this note, I will turn the call over to Xavier, our CFO, for a more detailed discussion of our financial results, the impairment, our revised guidance, as well as additional comments on the market environment. Xavier, please.

Thank you, Eli, and again, welcome, everyone. On Slide 5, we present key financial and operational results. As Eli mentioned, our third quarter financial performance reflected the ongoing weakness of the current market. Our third quarter average freight rate per TEU was $1,139, a 66% decline year-over-year. During the first nine months of the year, our average freight rate of $1,235 was similarly 66% lower than the comparable period last year. Our carried volume of 867,000 TEUs is 3% higher versus last year's third quarter. This compared to market growth of approximately 5%. Looking sequentially, our carried volume also increased slightly. Revenues for the third quarter were again adversely impacted by the continued decline in freight rates. Q3 revenues were $1.3 billion. Our revenues for the first nine months of 2023 of $4 billion were 62% lower than in the first nine months of last year. Free cash flow in the third quarter totaled $328 million compared to $1.6 billion in the third quarter of 2022. Turning now to the balance sheet. Total debt increased by $401 million since the prior year-end, mainly due to the net effect of the incoming vessels with longer-term charter durations. As previously mentioned, we recorded a non-cash impairment of $2.1 billion this quarter, mainly driven by our negative outlook for container shipping in the near term, namely the deterioration in freight rates observed in recent weeks, with little expectations for meaningful recovery into 2024. In addition, we also needed to consider the increase in interest rates, which in turn increased our average cost of capital. As a result, the expected discounted cash flow the company may generate going forward is lower than previously projected, resulting in the recognition of this impairment charge. This non-cash impairment has been allocated to our container shipping-related assets, primarily container vessels, but also equipment, boxes, and other related assets. You can find additional information on the impairment test in Note 7 of our Q3 2023 interim financial statements. I would note that this non-cash impairment is excluded from our adjusted EBIT and also from our adjusted EBITDA results. Our net loss of $2.3 billion this quarter includes the impairment charge for $2.1 billion. Regarding our fleet, we currently operate 145 vessels, 129 container ships, and 16 car carriers. Excluding the new build capacity, the average remaining duration of our current chartered tonnage continues to trend down and is now 22.7 months compared to 24.6 months in mid-August. Of the 46 new build vessels ZIM committed to, 13 have been delivered to date, including six LNG-powered 15,000 TEU vessels and the first 7,000 TEU LNG ship. Year-to-date, we redelivered 20 chartered vessels and we have another five vessels whose charter periods end before the end of the year. In addition, 34 vessels have charter periods concluding next year in 2024. In total, these 39 vessels, which we could redeliver to the owners or renew at lower rates compared to 33 new builds that we expect to be delivered to us during the same period. Again, I would like to reiterate here that the delivery of these modern, cost-efficient vessels will replace smaller, less cost-effective tonnage, therefore contributing to lowering our carried unit cost base. On Slide 7, we present ZIM's Q3 and nine months 2023 financial results compared to Q3 and the first nine months of last year. The decline in revenue based on the lower freight rate environment impacted all of our metrics. Adjusted EBITDA in the quarter was $211 million and the adjusted EBIT loss was $213 million. Adjusted EBITDA and EBIT margins for the third quarter were 17% and minus 17%, respectively, as compared to 60% and 48% in the third quarter of last year. For the first nine months of 2023, adjusted EBITDA margin was 22% and adjusted EBIT margin was minus 9%. This is compared to 63% and 54% in the comparable period in 2022. This quarter's net loss was $2.3 billion and, as already mentioned, includes the impairment charge of $2.1 billion. Moving on to Slide 8. As I mentioned, we saw a slight uptick in our carried volume compared to the third quarter of last year. The increase was driven by growth in Transpacific and Latin America. We also saw a small increase in carried volume versus the prior quarter, with growth again driven primarily by Transpacific and Latin America trades. Turning now to the next couple of slides, I'll review our cash flow bridge for the quarter and nine-month period. We ended the third quarter with a total liquidity position of $3.1 billion, which includes cash, cash equivalents, and investments in bank deposits and other investment instruments. During the third quarter of 2023, our adjusted EBITDA of $211 million coupled with a positive effect from a change in our working capital converted into $338 million of cash flow generated from operating activities. For the nine-month period, adjusted EBITDA of $859 million converted into $858 million of cash flow generated from operating activities. Other cash flow items for the nine-month period included dividend payments of $769 million and $1.5 billion of debt service, mostly related to our lease liability repayments. Moving now to our revised guidance. In light of a continued deterioration in freight rates across all our trades, we are revising our guidance and now expect to generate in 2023 adjusted EBITDA of $900 million to $1.1 billion, and adjusted EBIT loss of $600 million to $400 million. This revised forecast is based on our assumption that freight rates will not recover from current levels with overall volume for the year to be slightly lower compared to the prior year. Our assumptions also include inflation in bunker prices for the remainder of 2023. I would highlight that our adjusted EBIT forecast is positively impacted by the impairment that we recorded in the quarter as our depreciation expenses going forward are going to be lower. Moving to our market section. I believe it is clear that our current view of the market for the remainder of 2023 and into 2024 is one of continued headwinds, oversupply meeting weak demand with limited impact from capacity management actions taken by the carriers. Alphaliner's supply/demand outlook for 2023 and 2024 remains unchanged, pointing to clear oversupply in the market. At the same time, freight rates remain depressed. Here we show the SCFI for the U.S. East Coast, a key trade for us, which accounted for approximately 40% of our volume in the nine-month period. We also excluded the 2021 and 2022 rates from the graph to provide better granularity as to where rates are compared to other years pre-COVID since 2016. You can see the decline in rates from August, when we saw a short-lived improvement in freight rates following broader blanking, and that rates today are lower compared to 2019, when costs today are clearly significantly higher versus that same year. On the demand side, while retailers are working through high levels of inventories and we have seen some market growth in the third quarter, inventory levels are not declining and there are no clear data points that a restocking cycle will begin anytime soon. As such, it does not seem that recovery in our industry will result from near-term growth in demand. At the same time, while the carriers have employed some management capacity, these have not been sufficient to sustain higher rates. Slow steaming remains the only continued meaningful action taken by carriers. Blanking has also been employed but for limited periods of time with limited lasting impact on rates. Scrapping, on the other hand, has remained negligible with approximately only 107,000 TEU worth of capacity scrapped from January to September, compared to deliveries totaling 1.6 million TEUs during the same period. Alphaliner's scrapping projection for 2024 and 2025 is for 450,000 TEU in each of the next two coming years, compared to expected deliveries of almost 5 million TEUs of capacity in 2024 and 2025 combined. Finally, idling has also remained limited with inactive capacity in September standing at 1% in terms of volume or 2% by vessel count. While idled tonnage has increased over the course of 2023, it is currently lower compared to a 2023 peak of 3.3% that was achieved in February. As a reference point, idle capacity in mid-2020 when COVID hit and demand failed also dramatically, was over the 10% mark. On that note, we will now open the call to your questions. Thank you.

Your first question comes from the line of Omar Nokta from Jefferies. Please go ahead.

Hi, thank you. Good afternoon, Eli and Xavier and Elana. Thanks for the update. Got some good detail here. Just wanted to ask, perhaps I had a couple of questions, but you've got the $3 billion of cash on the balance sheet. You've got the liquidity there. Just regarding the $2 billion write-down, obviously, it's non-cash. And Xavier, you just mentioned how on an ongoing basis depreciation is going to come down. But just in general, how should we think about what this now means for actual running costs on a cash basis?

Regarding the cost, the impairment does not impact our cash basis. The lease liability repayment schedule remains unaffected by the impairment we are recognizing in the third quarter. However, our depreciation and amortization will be impacted. Consequently, our profit and loss statement and EBIT will increase due to lower quarterly depreciation. To provide specifics, for Q4, as indicated in our guidance, the difference between EBIT and EBITDA will exceed $150 million for the quarter.

Thank you. As we review the balance sheets, we notice a discrepancy between the book value of the ships and the remaining lease liability. How should we approach this in the long term or medium term? You mentioned that five ships will be rolling off charter by year-end, along with another 34 next year, totaling 39. Is ZIM possibly indicating a strategy to negotiate with ship owners for amendments or early terminations of the charters not only for these 39 ships but also for the additional 70 or 80 that will remain under charter beyond next year? Does this write-down suggest that?

We need to separate our recent actions regarding the impairment test from our commitment to the vessel owner. We are dedicated to fulfilling our charter obligations and are not shying away from the possibility of returning some vessels early that may not have future employment. This is ongoing and should be viewed separately from the impairment we recorded today. It's important to note that we are currently undergoing a transition phase. As we take delivery of new cost-efficient and fuel-efficient vessels ordered in 2020 and 2021, these will replace the current charters. Therefore, it is highly likely that we will return all the vessels as their charters expire to make room for the new, more efficient ships we have on order between now and the end of next year. We have five vessels scheduled for redelivery by the end of this year, and an additional 34 vessels slated for redelivery from January 1, 2024, to the end of December 2024. It is very likely that most of this capacity will be redelivered.

Thanks, Xavier. I have one final question about the revised guidance. It seems reasonable, and while I wouldn't call it a surprise, when we compare the fourth quarter to the third quarter, it appears that the updated range indicates that 4Q will be similar to 3Q. From an EBITDA standpoint, do you anticipate that 4Q will perform better or worse than 3Q as we look ahead to the next quarter? Any insights you can provide on this matter would be appreciated.

Our outlook for the rest of the year suggests that not much will change, as freight rates remain very low, which poses challenges for the industry. We don't see many factors that could lead to improvement in the near future. The threat of overcapacity is still present, and we have observed very few retirements of older vessels. Scrapping and idling are minimal, indicating that excess supply is likely to persist for a while, which diminishes the likelihood of a significant recovery in rates. We anticipate that conditions may improve after 2024, but for now, we hold a cautious view for the upcoming quarters, including the entirety of 2024. We will provide more detailed guidance for 2024 in future calls, but generally, we expect the industry to face considerable pressure and challenges for the foreseeable future.

Understood. Thanks, Xavier. That's it for me. I'll turn it over.

Your next question comes from the line of Sam Bland from JPMorgan. Please go ahead.

Thank you for taking my question. I have two inquiries. Firstly, regarding the timing of the charter renewals, we've completed 25 this year and expect 34 next year. Does this imply that there could be 50 or 60 in 2025? Will those also be at higher COVID-era prices? Is there any possibility to expedite them, assuming you have agreement from the tonnage provider? My second question is about current rates. You mentioned they are low, but the new builds are quite cost-competitive. How would you assess whether the current spot rates are profitable for the new build ships given their cost structure? Thank you.

Thank you, Sam. To address your first question, we have 34 vessels scheduled for renewal in 2024 and close to 40 vessels for renewal in 2025. These renewals may involve higher chartered capacity with respect to daily rates, and this situation will continue to develop beyond 2024. By the end of 2024, we expect to have redelivered a total of 59 vessels. Regarding your second question about whether current rates cover the cost of new capacity, that's a complex issue as it depends significantly on our ability to fill the ships. If we achieve satisfactory occupancy rates, we stand in a much stronger position with new capacity. For example, the 15,000 TEU LNG ships we are introducing on our Asia to the U.S. East Coast route will operate at a cost similar to the 10,000 TEU ships they replace, while providing a 50% increase in capacity for roughly the same cost per voyage. This demonstrates the benefits we anticipate from these competitively priced vessels. Furthermore, we expect additional savings from operating on LNG, which is currently a more cost-effective fuel option compared to heavy fuel.

Okay, understood. Thank you.

Your next question comes from the line of Alexia Dogani from Barclays. Please go ahead.

Yeah, thank you for taking my questions. I had three as well. Just firstly, obviously, I appreciate the $3 billion liquidity you currently have on your balance sheet. What do you think is the minimum liquidity you are able or want to operate the company at? That would be helpful. Secondly, can you remind us of the down payments for the new vessels in '23 and '24 as part of these long-term agreements? I think you mentioned the number in Q1. It would be great if we can just double-check that. And then, finally, in terms of the depreciation run rate in Q4, I mean, if I annualize the number, I think it's around $1 billion now. Should we still assume though, the kind of rough annual charter costs, in terms of cash to be around $1.4 billion? Thanks.

Thank you for your question. Regarding the first part, it's challenging to specify the minimum cash we want to maintain since our industry is undergoing a transition and has not yet stabilized. Some trade rates are not sustainable in the long term, so we need to proceed with caution. At this stage, I cannot provide an exact figure for what might be considered the right amount. We aim to navigate the current industry turmoil with a solid balance sheet, and currently, we have $3 billion available. However, we must be mindful of our liquidity, especially with uncertainties ahead. As for the down payments for vessel deliveries, we plan to make $350 million in down payments in 2024 when we take delivery of 15 ships of 7,000 TEU capacity, with an initial payment of $20 million per ship. Additionally, for the remaining 15,000 TEU ships, we are committed to $13 million per ship. This amounts to approximately $339 million in upfront payments for 2024, following nearly $140 million in 2023. Going forward, depreciation will be affected by the impairment I mentioned earlier. The impairment impact for the fourth quarter is expected to exceed $150 million, so for the entire next year, anticipate the overall impact to be slightly above $600 million when compared to the previous model without considering the third-quarter impairment. There should be no difference in cash payments or lease liability repayments before and after the impairment, as our balance sheet remains unchanged; the impairment only reduced our fixed asset base.

Understood. Thank you.

Your next question comes from the line of Patrick Creuset from Goldman Sachs. Please go ahead.

Hey, Eli and Xavier. It looks like you managed to limit the cash burn somewhat in the third quarter. And as we just start with the lease payments, looks like they're down $100 million quarter-on-quarter. Just trying to understand what's driving that. I mean, how much of that is coming from the redelivery of about 20 vessels? How much of it is maybe down to sort of one-off timing effects and perhaps also some costs flowing back above EBITDA? I remember with the extension of the duration of some of these charters has been just transferred from above EBITDA to below EBITDA in some of these payments. And then related to that, net-net between redeliveries and new vessels next year, what do you think is the right quarterly run rate on these charter payments, I mean, from this sort of $350 million level in the third quarter?

Thank you, Patrick. You're correct that there was a timing effect in the third quarter that I will clarify. There has been no change regarding the reallocation of costs between above and below EBITDA. Currently, 99% of our vessel costs are still accounted for due to the effects of impairment in depreciation and amortization. Looking at the third quarter from a cash perspective, we observed some timing issues with our lease liability repayments, primarily related to the charters we repay to vessel owners. Payments are made biweekly, on the first and fifteenth of each month. If the first of the month is not a banking day, then payments can be delayed. As a result, we had one less payment run in Q3 compared to Q2, resulting in five payments instead of six, which led to $100 million less in payments compared to the previous quarter. This is just one timing issue. Additionally, we experienced a positive effect in the third quarter from improved working capital, mainly due to lower receivables on the balance sheet, which also helped boost our cash flow from operations. This improvement is likely a one-time occurrence, primarily due to the lower freight rates that we can pass on to our customers.

Okay. I mean, you've preempted my follow-up question there on the working capital. So, sounds like you don't see more opportunities to optimize working capital. Do you think that's the peak at the nine months?

I think we've made some very good progress here. I mean, leave aside the fact that the value of the receivables are less, which is something that we are not too happy about. But in terms of collection efforts and past due, we are at a very low level. So our DSO is quite good. So we are pleased on that front. This is why I'm saying that we should not expect unless there is a continued deterioration in the freight rate environment of a significant working capital improvement. On the AP side, we are maintaining pretty much the payment terms that we have agreed with our supplier base.

Got it. And then, last one. Can you just give a quick update on how you see the Panama Canal situation evolving and how you are adapting your operations to it? I mean, I guess you run probably slightly lower utilization, maybe get slightly higher rates. But any color on how you're rerouting and then adapting would be interesting. Thank you.

The situation with the Panama Canal is concerning and changing continuously due to the draft limitations affecting the industry. We run several services through the canal, including our Asia-U.S. East Coast Service, ZCP, and our new service to Baltimore, ZXB. We are working to optimize ship utilization within the constraints of these limitations, which mainly impact the cargo weight we can carry. We are also using our feedering service in Latin America to offload some cargo before entering the Panama Canal, allowing the vessel to carry a full load across the Pacific. We are keeping a close watch on the situation and will assess if we need to reroute or consider alternatives. Additionally, one of the reasons we are resuming services between South China and LA, which we had suspended a few months ago, is due to the redirection of some cargo back from the East Coast to the West Coast. This presents us with an opportunity to restart the ZEX line, which had previously been successful for us.

Clear. Thanks very much.

Your next question comes from the line of Alexia Dogani from Barclays. Please go ahead.

Thank you for taking the follow-up question. I just had a question on the size of your fleet for next year. Obviously, the size has gone down to 145 vessels. How should we think about the size of the company in 2024? And then, given your more fuel-efficient vessels entering the fleet, how quickly do you think you can regain unit costs at par with 2019 levels? Thanks.

Regarding the fleet size, we expect the vessel count to be quite similar to our current operations. However, we will be operating larger ships on average as the incoming vessels replace smaller ones. Currently, we operate an equivalent capacity of 600,000 TEUs across 129 container vessels. By the end of 2024, after we take delivery of our entire fleet, this capacity should approach 700,000 TEUs. This is crucial for us as we prepare for 2024 and the volume we need to capture to fill those vessels. In terms of fuel efficiency, moving towards energy for the 28 vessels coming in today and through the end of next year will lead to significant savings, as will our chartering costs. Predicting when we will return to 2019 levels is challenging due to many variables. We will offer more guidance in 2024 when we update you and the market early next year. Currently, our focus is on reducing costs within the organization. These cost measures involve utilizing the new, more efficient vessels and optimizing our capacity. I mentioned the ZEX line, a new service we have reopened, along with two new lines targeting Latin America trade lanes. Our partnership with MSC has also helped us reduce operating costs on key trades. Optimizing our network is our top priority, and next year we will need to capture more volume while maintaining a stable workforce to achieve productivity savings.

Thank you.

This concludes the Q&A session. I will now turn the call back over to Eli Glickman for closing remarks.

Thank you. 2023 and 2024 are transition periods for ZIM. While these are challenging times, we expect the deliberate steps we have taken to enhance our operation on a commercial resilience to deliver positive outcomes. Our fleet renewal program will improve our cost structure and drive long-term profitable growth. In the immediate trend, we are pursuing cost control initiatives and commercial opportunities that will best position us to weather this downturn. A strong total cash position of $3.1 billion will maintain a long-term view and believe ZIM is well positioned to emerge stronger than ever, highlighted by a low core cost and fuel efficiency that provide us a competitive advantage in key trades. We remain committed to leveraging technology and digitalization to promote operational and commercial excellence while further implementing our differentiated strategy to best serve our customers and generate sustainable value for shareholders. Thank you all for joining us today and your interest in ZIM. Hope everyone stays safe. Thank you.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.