Earnings Call Transcript - ZIM Q4 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. I’m Natalie, your Chorus Call operator. Welcome, and thank you for joining the ZIM Integrated Shipping Services Ltd. Full Year and Fourth Quarter 2021 Earnings Call. I would now like to turn the conference over to Elana Holzman, Head of Investor Relations. Please go ahead.

Elana Holzman, Head of Investor Relations

Thank you, and welcome to ZIM’s Full Year and Fourth Quarter 2021 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 filed with the Securities and Exchange Commission, including our 2021 annual report filed on Form 20-F today, March 9, 2022. 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?

Eli Glickman, CEO

Thank you, Elana, and welcome to today’s call. Before we turn to our call, I would like to take a moment and say that over the past couple of weeks, we have witnessed with great concern the unfolding situation in Ukraine and the suffering of the people there. Our hearts go out to the men, women and children affected by the environment. The safety of our employees and their families has been and continues to be our highest priority. Since the outbreak of the war, we have made every effort to assist them in staying safe. We are also in touch with customers in Ukraine and support them in any way we can. Our duty towards preserving human life exceeds all other considerations. ZIM has donated to help build and operate a hospital to care for Ukraine war victims. Now, back to the business. 2021 was an extraordinary year for ZIM. We executed at the highest level and achieved many important milestones that are listed on this slide. These actions and decisions we took in 2021 make me very optimistic about our future. We have demonstrated that we are a decisive and fast-growing company with a leadership team and corporate culture to take full advantage of both near and long-term favorable fundamentals for container shipping. We believe that the container liner industry has fundamentally changed in recent periods, giving ZIM an unparalleled competitive edge. We see a bright future for ZIM in 2022 and beyond. I note that today, ZIM is in a stronger position than ever. In Slide #5, we highlight the number of key operational accomplishments that contributed to our 2021 record results. It is important for me to thank our employees worldwide for their hard work and dedication during a year of unique and unprecedented challenges; their efforts directly contributed to ZIM’s momentous results. We recognize that 2021 was also difficult for customers, and we continue to look for ways to provide best-in-class service. Most notably, we used our substantial cash generation in 2021 to make significant investments in ZIM’s equipment to facilitate the movement of cargo for our customers. We also significantly expanded our operating fleet capacity and launched many new services. In June 2020 and throughout 2021, we launched 17 new lines, including new expense lines to meet growing e-commerce trends and provide viable shipping alternatives to airfreight. As a result, ZIM’s carried volume grew 23% in 2021 compared to 2020 while global volumes grew only by approximately 7%. In 2021, we also took important steps to secure access to high-quality and cost-effective tonnage by entering into chartering agreements for 36 newbuild vessels, most of this capacity being LNG powered. This access to EBITDA tonnage will enable ZIM to meet growing demand and deploy more carbon-efficient tonnage to assist our customers in meeting their own ESG targets. In fact, given the significant newbuild capacity, there will be no more carbon and cost-efficient way of operating these vessels starting in 2023 than it is today, improving our competitive position. Turning to Slide 6, we highlight our exceptional financial performance. During the first quarter, we delivered yet another record quarter of revenues, adjusted EBITDA, and net profit, enabling ZIM to achieve its results. For the year, we generated $10.7 billion in revenues, $6.6 billion in adjusted EBITDA, and $4.64 billion in net profit. We also grew shareholders’ equity to $4.6 billion. Consistent with our focus on profitability, we achieved record margins as well. Our full-year 2021 margins were 61% for adjusted EBITDA and 54% for adjusted EBIT. We continue to outperform the liner industry average. Moving to Slide 7, this exceptional performance has positioned ZIM to return some substantial capital to shareholders. Our dividend policy says that we will distribute between 30% and 50% of our annual net income in dividends, including interim dividends. Today, we are delivering at the high end of these expectations. Based on our strong performance and outlook going forward, our Board declared a dividend of $17 per share. We are also excited about the future as we provide full-year 2022 guidance. Reflecting our strong performance in 2022 to date and further market outlook, which Xavier, our CFO, will discuss in greater detail. Specifically, our guidance for 2022 is that we expect to generate adjusted EBITDA between $7 billion to $7.5 billion and adjusted EBIT between $5.5 billion to $6 billion in 2022. Based on the midpoint of today’s guidance versus our 2021 results, our 2022 forecast represents a 10% increase in our EBITDA, while EBIT is in line with 2021 results. Slide 8 outlines key achievements and activity across our four strategic pillars. ZIM’s differentiated position and success rely on our operational and commercial agility and can-do approach. As we have previously discussed, we view vessels as a means to achieve profitable growth. Since mid-2020, we have taken advantage of attractive opportunities to add necessary capacity to meet strong market demand and best position ZIM to continue delivering superior profitability. Most recently, we announced a charter agreement for five secondhand vessels and eight newbuilds to target our operating fleet and advance our proven strategy of chartering cost-effective, highly dual-fuel vessels to meet significant and sustained demand in our global network. Since the beginning of 2021 to date, we have increased our operated capacity by approximately 20%, and we currently operate 125 vessels, up from 87 vessels as of the end of 2020. We adapted our fleet management strategy to the change in the charter market; the average duration of new charters is, in fact, longer. We have successfully maintained our flexibility to allow us to adjust our fleet size to market conditions. The capacity we added in 2021 has enabled us to further advance our global niche strategy to meet growing market demand. I mentioned our 17 new lines earlier. Following the pandemic lows in the first half of 2020, we identified the recovering demand early and capitalized on the turnaround in the market dynamics. Most notably, we capitalized on the opportunity to promote an alternative mode of transport for e-commerce customers and launched ZEX, our first premium express service from Asia to Los Angeles. We have since expanded our network of express services and now offer them to other destinations, including Australia, New Zealand, and with a new line to Boston. It is also important to note that we see strong customer retention in this new customer segment for seasonal transportation, and many of them are engaged in long-term contracts. Another example of our ability to identify and grow profitable commercial opportunities is with our car carrier services. This is consistent with our focus on identifying attractive markets where we can develop competitive advantages. At the beginning of the year, our fleet included two car carriers, and this number grew to eight car carriers as we identified opportunities to drive further profitability. A few weeks ago, we also announced the extension of operational collaboration with the 2M alliance on the Asia to the U.S. East Coast and the U.S. Gulf Coast range. The collaboration will now operate on the basis of a slot exchange and vessel sharing, making ZIM an incredible partner on these joint services. Operationally, our standard of excellence continues to serve us well. A key component of ZIM’s advancing ESG targets, particularly sustainability objectives, is that we are seizing the opportunity to be a shipping sector-led leader in implementing policies and initiatives that help mitigate the impact of our operations on the planet. Of the 36 new deals to be added to our fleet, 28 are LNG dual-fuel container vessels. This represents new tonnage. When we take delivery of these vessels, approximately 40% of our operating capacity could be LNG-fueled, positioning us at the forefront of carbon intensity reduction among global liners and supporting our customers in ESG efforts to reduce their carbon footprint. While the need to decarbonize can be challenging, it represents both a threat in our industry and an opportunity. Given our strategy to operate charter capacity, we do not have the legacy fleet to replace and can easily and quickly transition to liner tonnage. In terms of portfolio equipment, we grew our container capacity by approximately 33% since January 2021 to approximately 1 million TEUs to date. This investment in containers has allowed us to better support our customers during these times of growing congestion. We also renewed our reefers and today operate a best-in-class reefer fleet. This new reefer fleet utilizes the most advanced technologies and again, offers customers more environmentally-friendly solutions. Finally, we continue to position ZIM as a leading digital shipping company focused on restructuring and innovation. Throughout 2021, we advanced multiple initiatives to introduce disruptive technology that could be significant future growth engines for ZIM. Internally, we continue to employ a data science and efficient intelligence team. For example, we launched a partnership with Data Science Group, DSG, to develop advanced models to forecast demand, plan shipping routes, automate logistical processes, and more as we continue to focus on profit optimization. I will now turn the call over to our CFO, Xavier, for his comments on our financial results and market developments.

Xavier Destriau, CFO

Thank you, Eli, and I also would like to welcome everyone and thank you for joining us today. On Slide 9, we highlight our extraordinary financial performance. These were once again driven by continued elevated rates in the spot market as well as higher annual contract rates. ZIM has continued to prioritize better-paying cargo and undertaken initiatives to capitalize on the e-commerce boom, which has been key differentiators that have allowed us to secure even higher rates. Specifically, the average freight rate per TEU of $3,630 in the first quarter is 139% higher compared to the fourth quarter of 2020, and it’s 12% higher than our average freight rate in the first quarter of this year. For the full year of 2021, our average freight rate per TEU stood at $2,786, more than double compared to 2020. Our free cash flow in the fourth quarter totaled $1.7 billion compared to $391 million in the comparable quarter of 2020, which is an increase of more than 325%. For the full year, free cash flow was $4.9 billion compared to $845 million in 2020. Turning to our balance sheet in 2021, total debt increased by $1.5 billion, mainly driven by the increased number of vessel fixtures that we concluded during the period and also higher volume for longer average durations. Over the same period, our cash position grew by more than $3.2 billion, thus driving net cash to a point where the company closed the period for 2021 in a positive net cash situation. Despite longer-term charters becoming more prevalent, the average remaining duration of our current charter capacity today is less than what we disclosed in November. Only 15 vessels are scheduled for renewal in the remainder of 2022, and we have to double that amount in 2023, reflecting approximately 33% of our total operating capacity. This, as Eli previously mentioned, allows us to remain flexible to changing demand fundamentals. On Slide 20, you can see that we have delivered 12 consecutive quarters of consistent improvements in earnings. At the same time, our net leverage has trended downward from 5.3 in the first quarter of 2019 to near zero. Importantly, we are positioned favorably in this regard, reflecting the strength of our balance sheet. The success of our differentiated approach is clear, as we generated strong improvement across all financial metrics versus the prior year. Revenue for 2021 was $10.7 billion compared to $4 billion in 2020, driven primarily by improved freight mix as well as an increase in carried volume. Consistent with our focus on profitable growth, net income for 2021 was at $4.6 billion compared to $524 million for 2020. Adjusted EBITDA was $6.6 billion for 2021 compared to $1 billion in 2020, representing growth of nearly 540%. Our 2021 adjusted EBITDA and EBIT margins also improved this year to 61% and 64%, respectively, versus 26% and 18% in 2020. Turning to Q4 results, total revenues in the fourth quarter increased to $3.5 billion compared to $1.4 billion in the fourth quarter of 2020, an increase of more than 150% due to improved freight rates and increase in carried volume. Again, and consistent with our primary objective to grow positively, fourth quarter net profit was $1.7 billion compared to $366 million in the fourth quarter of last year. Adjusted EBITDA in the fourth quarter also significantly increased to $2.4 billion compared to $531 million in Q4 2020. Adjusted EBIT increased to $2.1 billion in the first quarter compared to $439 million in the comparable quarter of last year. Since Q4 2021, adjusted EBITDA and adjusted EBIT margins of 68% and 61%, respectively, improved year-over-year and sequentially and continue to position us among the industry-leading performers. Our Q4 results include a tax expense totaling $374 million for the quarter and $1 billion for the full year 2021. As we previously indicated, in 2022, we will incur and be subject to a 33% corporate income tax rate in this context. On the next slide, we highlight that we increased our current volume by 23% in 2021 to 3.5 million TEUs compared to 2.8 million TEUs in 2020. This is significantly higher than the market growth rate of approximately 6.6%, with volume growth in the transpacific trade being the primary contributors. This growth was a direct result of our focus on expanding our presence and entering new trades. Our expanded network is also the basis for our positive forward outlook. In the fourth quarter of 2021, our carried volume increased by 7% to 858,000 TEUs compared to carried volume of 799,000 TEUs in the fourth quarter of last year. While at the same time, global market volume declined in the fourth quarter year-over-year by 1.2%. Sequentially, our fourth quarter 2021 carried volume was slightly down due to supply chain bottlenecks consistent with the experiences across our industry. Eli mentioned our investment in equipment in 2021; we purchased $898 million worth of equipment, adding approximately 306,000 TEUs to our old container fleet. I’ll tell you that a cost of $819 million has already been delivered to us during 2021. Moving to Slide 14, regarding our cash flow, we ended Q4 2021 with a total cash position of $3.8 billion, which includes cash and cash equivalents and investment in bank deposits and other investment instruments. During the fourth quarter, our adjusted EBITDA of $2.4 billion converted into a $2 billion cash flow from operations. Other cash flow items in the fourth quarter included $344 million of net capital expenditure, $308 million of debt service, and $299 million of dividends that we attributed in analogy. For the full year, our adjusted EBITDA of $6.6 billion converted into a $6 billion cash flow from operations. CapEx net for the year was $1.1 billion, debt service totaled $1.3 billion, and dividend distribution totaled $536 million. Moving to Slide 16, I will discuss market fundamentals and our outlook moving forward. While many initially expected a more normalized market towards the second half of 2021, these projections were pushed out as port congestion worsened and demand remained robust. Today, with the underlying market conditions, which caused a record Q3, an elevated sentiment is now turning to the second half of 2022 at the earliest. Moreover, we believe that even with the planned deliveries for 2023 and 2024, the need for additional tonnage and the impact of IMO regulation expected to come into effect in 2023 remains meaningful. The Ocean Timeliness Indicator demonstrates the depth of all the obstructions. As seen here on Slide 17, the end-to-end transport time from the export location to the definition of the factory grew from 45 days to more than 110 days. As supply chains grow longer, there is a high demand for more vessels and containers to absorb this elongation. Investors on the move are continuing to grow larger as well. These measures show no signs that the supply chain crisis is easing. Turning to the left and the right, lower port productivity is estimated to have reduced the effective capacity of the global fleet by as much as 11% and 17% for 2020 and 2021, respectively, and should have expected an impact for 2022. The next slide illustrates that the charter hire trend is picking up again, driving higher charter costs as well as longer charter durations. Turning to Slide 19, higher fixed costs were also incurred by the liners sourcing tonnage in the second-hand market to meet demand. 2021 showed extraordinary sales and purchase activity in terms of volume, but more importantly, in terms of price. We believe that a higher fixed cost structure demonstrates the lines of increased confidence in market strength sustaining. Looking at the chart to the right, the demand for container shipping continues to be robust and is being supported by the largest ever restocking cycle in the U.S. While the sales to inventory ratio is slightly up, the data continues to suggest that the pressure on retail-based inventory is partially spilling over to wholesale as well. Inventory replenishment for wholesalers continues to fail to keep pace, leading to the inventory to sales ratio being well below average. We expect retailers and wholesalers to project higher inventories to sales ratio, which in turn is projected to sustain strong demand for container shipping. Turning to our full-year outlook, based on our strong performance to date and favorable market outlook, we project in 2022 to deliver adjusted EBITDA within a range of $7.1 billion to $7.5 billion and adjusted EBIT within the range from $5.6 billion to $6 billion. In providing this guidance for 2022, we are assuming that the average freight rates in 2022 will be higher than the 2021 average. We also expect this to gradually decline starting in the second half of 2022. Our contract rates for the competitive trade will recover approximately 50% of our volume, and we expect this to be significantly higher than our 2021 contract levels. In 2022, we expect to grow our fund volume in line with global market growth. Average bunker prices in 2022 will be higher than in 2021. As for charter rates, we expect that to remain stable in 2022. I will remind you that our exposure to the charter market is limited in 2022. As already indicated, we had only 15 vessels for renewal before the end of the year. The approximately $700 million higher depreciation costs reflected in our 2022 guidance, which is a difference between EBIT and EBITDA, are mainly the result of a volume increase as we will be operating more vessels in 2022 compared to 2021. Second, an inflation impact as renewal rates for our charter agreements have been consistently year-on-year increases since 2020, and third, the cost clarification impact as we increase the percentage of long-term charter agreements, which involves charter observation of more than a year. Thus, shifting costs from operating expenses down to the lease asset depreciation. Regarding the impact of the war in Ukraine, as I indicated, we don’t believe suspending our services to Odessa and Russia will have a material impact on our 2022 financial results. We will redeploy investment elsewhere given the current capacity. The situation is volatile and may change dramatically. Regarding our dividend, as discussed, our Board declared a dividend of $17 per share today. Together with the third quarter interim dividend of $2.5 per share, our annual 2021 dividend totals $19.5 per share, representing 60% of our 2021 net income. Taking into consideration a special dividend of $2 per share that we paid in September 2021, we will return $21.5 per share to shareholders in dividends in our first year as public companies. The total dividend distribution since our IPO of $2.6 billion represents approximately 30% of our current market cap and has been 50% higher than our IPO market cap. We will now open the call to questions. Thank you very much.

Randy Giveans, Analyst

Congrats obviously, I mean on the quarter, the year, massive dividends. So I have a few questions, a lot to cover, but I’ll try to keep it brief. For your 2022 EBITDA guidance range, obviously, very strong, also fairly tight, right? So I guess, what assumptions or maybe total volumes and average rates are you using to get to the midpoint of guidance? And then in terms of revenue visibility to keep that tight range, any updates on your upcoming contracts in terms of the amount of volumes or average rate duration?

Xavier Destriau, CFO

Yes. So starting with the first part of the question when it comes to our volume assumptions in 2022. After having grown in 2021 by more than 33%, we are becoming a bit more conservative regarding our 2022 growth volume assumptions, and we are factoring in 6% to 7% volume growth in 2022, which should be slightly above the average market growth, thanks to the full-year effect of the previous year's growth. From a rate perspective, as we’ve mentioned, our operating rate assumption for 2022 will be higher compared to the average rate that we delivered in 2021. This is because we are selling now in the first quarter of 2022 after having closed a very strong quarter in the fourth quarter of 2021. We see the resilience in the freight rates is still very much there. The SCFI continues to be extremely strong, therefore sustaining strong profit as we enter into 2022. When it comes to the visibility of the second part of the year, this is where we also gain added visibility regarding the contracts we expect to secure with our contracted customers, especially relevant on the transpacific trade. 50% of our volume for this segment is still not yet finalized, but we have better visibility today. We expect to close on average the contract at a premium rate compared to what was secured last season, which will also support the overall average rates towards the second half of 2022.

Randy Giveans, Analyst

Okay. Can you quantify that a little bit better? Is that 5% or 8%, right, in terms of the average rates? And then for the duration, is the majority going to be 12 months?

Xavier Destriau, CFO

Starting with the second part of your question, yes, the vast majority of our contracts are likely to cover a 12-month duration, as has been the norm in the past. That doesn’t mean we won’t have some contracts extending beyond 12 months, but by and large, the vast majority will be for the standard term. And when it comes to where we will be landing in terms of the average freight rate for contracted volumes, we expect it to be significantly higher than what was secured in 2021. It’s still a little bit early for us to quantify to what extent that may be.

Randy Giveans, Analyst

That’s fair. We can wait a few months for that. All right. Second question, last one for me. Just around capital return, right? How did you and the Board determine that $17 dividend, clearly above my expectations and probably anyone’s? Why did you decide on the 50% of net income for all dividends, maybe not balance that with share repurchases? Can you walk through that process?

Xavier Destriau, CFO

Yes. What is very important for us is delivering on the policies we made to the market when we communicated it more than a year ago. We have always said that it was high on the agenda of the management and the Board to return capital to shareholders. And as you may remember, we refined and updated our dividend guidance policy over the course of 2021. Hence, back in Q4 last year, we stated that the intention would be to return between 30% to 50% of net income back to shareholders. We closed 2021 very strongly, and the numbers speak for themselves. When we also looked ahead into 2022, we felt cautiously optimistic given the strong start. So we believe all the conditions are met to deliver on our promises towards the 50% range as opposed to 40%. That’s the rationale behind it. We are also looking at how best to allocate our capital, ensuring that we continue to invest in enhancing our commercial prospects, securing the equipment and vessels we need, while also continuing to invest in our digital transformation. Given the financial results of 2021, coupled with the outlook for 2022, this justifies returning at the high end of the range. Regarding share buybacks, we’ve noted that there are other ways to return capital to shareholders, not only dividends; share buybacks could be an adoption. For now, we wanted to promote a better track record to our shareholders by delivering on our dividend commitment, not only in terms of absolute numbers but also in terms of frequency of payments since they will be paid quarterly. We believe this will unlock shareholder value.

Randy Giveans, Analyst

Share buybacks would have been the cherry on top, but otherwise excellent results.

Eli Glickman, CEO

We see that you’re consistent, and it’s okay. And we’re looking forward, but we think that this is the best way to deliver and to show results to shareholders. Looking around at the world of stockholders, the stock rates today until the last figure. We think this is going to be the best way to deliver value to shareholders.

Muneeba Kayani, Analyst

I firstly wanted to ask about the vessels waiting outside the port of LA and Long Beach. We’ve seen that kind of come down over the last couple of weeks. So if you can share why you think that has come down and what your outlook is for congestion at LA and Long Beach specifically? And if I may just get my second question now itself. The dockworkers union, the ILWU negotiations, how are those coming along with the contract ending mid of this year? How do you factor that into your guidance? What’s the impact on the spot trade? And then if I could ask a third one: with the strong growth in volumes last year and your expectations for the market this year, why is growth slowing down this year? Do you have any flexibility to exceed the 6% to 7% growth this year in terms of volumes?

Xavier Destriau, CFO

Yes. I will start with the first question, which is very visible and under the spotlight. There are a lot of metrics shared weekly to monitor the bottleneck prevailing at this terminal. A couple of things to remember: today, February is typically a weak month under normal circumstances. There is still a bit of seasonality in our industry. We are just after the Chinese New Year, and there’s a lesser volume pressure. This, to some extent, has assisted in clearing some congestion in LA, hence why fewer vessels are waiting. Another thing to note is that it does not mean that there are fewer vessels in the vicinity after the port of LA; those vessels could still be pushed back a little further down the route. So the reduction you observe might just be a temporary span as things seem to be improving in LA, while situations worsen at other terminals on the East Coast and Vancouver. The congestion and bottleneck challenges continue to exist for us as an industry to navigate. Regarding your second question about the ILWU negotiations, it’s challenging for us to assess what could happen this time around. We know what happened previously during negotiations; it's difficult to predict outcomes and could add uncertainty as to when the operational bottlenecks may ease. With respect to your third question on capturing additional growth in the market, we're always focused on growing when we see opportunities rather than merely to capture market share. If opportunities emerge, we will certainly explore actions to facilitate growth. However, given our guidance for 2022 and the strong growth previously, we remain conservative.

Omar Nokta, Analyst

Yes, congratulations on a phenomenal 2021. The guidance for this year is quite strong and above expectations. I wanted to ask just about the current climate and how that’s affecting your business. I know you touched on it a little bit, both Eli and Xavier, in your opening comments. I know that the biggest footprint for them is the transpacific. But in general, are you seeing any direct impacts from the current Russian-Ukrainian situation on your activities?

Xavier Destriau, CFO

Yes, you’re right. We do see some impact, but in terms of the way we manage the services that we have calling in the Black Sea, Ukraine, we are exiting those two countries, Ukraine and Russia. We are redirecting capacity, so from an operational perspective, we are taking actions to ensure that our vessels will definitely struggle elsewhere. This is what we do. From a financial impact perspective today, we see a very limited effect. For us, those services represent a not significant percentage of our overall tariffs. We will take actions as necessary, but as of today, given our expectations, we do not envisage a material effect.

Omar Nokta, Analyst

Okay. And then obviously, one of the big concerns here recently is the surge in oil and commodity prices in general and how that could potentially start to stress consumer spending. How are you guys seeing that risk, I guess, in general? And how are you viewing the business, but also with respect to the guidance you’ve given today? How are you dealing with maybe heightened risk of impact on consumer spending?

Xavier Destriau, CFO

Yes. So for now, we have to work with what we know. We need to make assumptions when we provide our guidance. We cannot today anticipate the duration of the conflict or whether it might spread to other locations, which could have potential additional impacts on trade that would be more relevant to us. So we are monitoring the situation closely on a daily basis, and we will revise our guidance as necessary. Regarding the visible increase in bunker costs, which is skyrocketing, we have a relatively efficient pricing strategy that we will continue to enforce with our customers, acting as a form of natural hedge. However, if bunker costs remain high for a prolonged period, then we will need to factor that into our future estimates. It's challenging to predict what significant prices will be for the second half of the year, which is crucial for our 2022 guidance.

Omar Nokta, Analyst

Okay. You mentioned that the recent spike in bunker fuel costs is something we can manage in the short term, but the long-term effects still need to be evaluated. Is that accurate?

Xavier Destriau, CFO

Yes, there's a lot of uncertainty ahead, as you've pointed out, hence we cannot make assumptions here. If the situation remains or continues to escalate significantly where fuel costs rise dramatically, we hope to have factored the average rates for 2022 at this point since we anticipate the average freight rate of the spot market will gradually normalize and decline, thereby leaving room for additional fuel cost considerations.

Omar Nokta, Analyst

Great. Yes. Okay. And one more, and I’ll turn it over. Just maybe more about the business. Obviously, for the past several years, the trans-Pacific has been your main footprint. However, intra-Asia has really started to pick up and become over 1/4 of your volumes. How do you see that develop over the next, say, 12 to 24 months with the new ships you’re bringing on? Do you see the Asian market becoming just as dominant as trans-Pacific in terms of your business footprint or potentially even larger?

Xavier Destriau, CFO

We will see. There is still a lot of opportunities to grow, particularly in areas that contribute to the trans-Pacific. But you’re right that it is an extremely dynamic trade where we are growing quarter after quarter. The definition of intra-Asia includes Asia to Australia and also Asia to East and West Africa, which is crucial. We have been quite active in growing our volume between Asia to Australia and between Asia to Africa. We see multiple opportunities to continue to grow in this region and within the intra-Asia area. Therefore, from a volume perspective, we can expect intra-Asia to catch up with the prevailing trans-Pacific trade.