ZIM Integrated Shipping Services Ltd.

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 Q1 2022 Earnings Conference Call. Throughout today's recorded presentation, all participants will be in listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I will now like to turn the conference over to Lana Holtzman, Head of Investor Relations. Please go ahead. Thank you, Natalie, and welcome to ZIM's first quarter 2022 Financial Results Conference Call. Joining me on the call today are Eli Glickman, ZIM's President and CEO, and Xavier Ducille, 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 for 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 material. We 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 20F on 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 the CEO, Eli Glickman. Eli?

Thank you, Yana, and welcome everyone to today's call. Following an extraordinary 2021 closing, we carried out our strong momentum into 2022. I am proud to present another quarter of record results and exemplary execution. I believe that we are very well positioned today as an innovative provider of seaborn transportation to capitalize on market tailwinds and continue delivering superior profitability. Before I dive into our quarterly highlights, I would like to address the situation in Ukraine. The continued violence segments us deeply. In order to support the people of Ukraine, we have donated to SD and operate a field hospital to care for those affected by the war. We also continue to support our Ukrainian employees, customers and partners in any way we can. As I have stated previously, our duty to help preserve human life exceeds all other considerations. Now, turning to Zinc U1 and hear today's accomplishments. As highlighted in this slide, slide number three, we maintain our strong trajectory into 2022, delivering another outstanding quarter of financial results due to the proactive strategies we have implemented to capitalize on both the highly attractive market and regime differentiated strategy. In Q1, we generated record revenues of $3.7 billion, record adjusted EBITDA of $2.5 billion, and record net profit of $1.7 billion. Shareholders' equity was $4.3 billion at the end of the quarter. Consisting with our focus on profitability, We achieved exceptional margins as well, 68% for adjusted EBITDA and 60% for adjusted EBIT. We continue to outperform the library industry average as we have done for several quarters. Our results. also stand out operationally as we grew our carriage volume by 5% in Q1 compared to Q1 last year. This is an impressive achievement, particularly given the global volume decreased by almost 2%. Slide number four, you can see that our strong performance today Combined with the 2022 long-term contract trades that we have secured boost our confidence with respect to our 2022 guidance. The average rate of our long-term contracts which took effect starting about two weeks ago in May which left a rate increase in excess of 100%. In other words, more than double as compared to 2021. This long-term contract rate illustrates customer expectations for both the stem demand for capacity as well as the continuation of a very strong great environment As such, we are raising our full E22 guidance and now expect to generate adjusted EBITDA between $7.8 to $8.2 billion and adjusted EBIT between $6.3 to $6.7 billion in 2022. It is also noteworthy that our exceptional performance allows us to continue to return substantial capital to shareholders. There are policies to distribute a dividend to shareholders on a quarterly basis at the rate of 20% of net income. Our law declares a Q1 dividend of $2.85 per share. Slide number five. We remain focused on executing across our strategic pillars, including operational excellence. The core component has been strengthening our commercial proposition and improving our core structure by securing fuel-efficient fuel-bill capacity. Following our first long-term charter agreement for 1015,000 TULNG dual-fuel vessels, intended to serve our Asia-European East Coast service, our focus shifted to high university veterans. Since the beginning of 2022, we announced three charter agreements for a total of 17 new veterans with total TU capacity of approximately 96,000. We added three 7,000 TU LNG dual-Q container vessels to the 15 vessels already secured in 2021, as well as five 5,300 TU vessels and six 5,500 TU vessels. This is modern and efficient commerce, particularly well suited to serve on our extended network of expedited services, as well as other regional services. This versatility will allow us to maintain our flexibility and strengthen our market position and commercial process. In total, we secured 46 new business vessels, starting in Q4 2022 and throughout 2023 and 2024. Our fleet chartering strategy will enable us, based on prevailing market conditions in the future, to decide whether this new vessel will represent an extension of our fleet or replacement. It is also important to highlight that these 46 new vessels, 28 are ALG powered. Consistent with our sustainability core values, we continue to position them at the forefront of the carbon intensity reduction among global liners and support our customers to meet their own ESG objectives. We anticipate becoming the first container shipping company to deploy LNG vessels on the Asia to US East Coast trade. When we take delivery of these green LNG tube vessels, which will represent approximately a third of our operating capacity, they will be more carbon and cost efficient than they are today, improving our competitive position. i would also remind you that the role to decarbonization in our industry is an opportunity for zine given our mostly chartering capacity we can easily replace our operating capacity to more environmentally friendly so much moreover By opting to charter these energy vessels other than on them, we are also maintaining flexibility to transition to newer technology if and when to become commercially verbal. Slide number six. You can see that our ability to adjust our fleet size to market conditions and identify market opportunities are directly operational and commercial agility, and other strategic pillars. Zil now has an established track record of making nimble adjustments to meet changing market conditions, optimizing versus declining, supporting high utilization of assets, and exploiting specific trade advantages to drive outstanding results and superior profitability. Since the beginning of the year, we have increased our operative capacity by approximately 11%, and internally operate 137 vessels. It is important to remember that we have added significant operative capacity in recent weeks, in anticipation of the changes to our collaboration with the third partner. Viewing instructional success is based on our ability to act decisively and adjust quickly. We continue to identify new market opportunities, advancing our global new strategy to meet customer demand. Last fall, in 2022, we had launched 10 new lines, including six that are an extension of our network and four replacement lines to better meet our customer needs. Notably, in keeping itself focused on promoting alternative modes of transport for e-commerce customers, we recently launched our Baltimore Express Line, ZXB, a third of its kind, a single e-commerce service from China and Southeast Asia to the U.S. East Coast, operated exclusively by Zoom. As part of our vision strategy, we identified this opportunity to add another leading block in our Zoom e-commerce express lines, and launch the Baltimore service at a time when customers are seeking a competitive alternative to air freight. Importantly, ZXB offers customers a wide range of advantages, including expedite rail, air, and road connections to human destinations. Finally, as we discussed on our previous EARN call, we will extend our operational collaboration with the TN lines on the Azure to U.S. East Coast and U.S. West Coast trades, while we move to give independent services in the Azure to NET and TNW trades. The collaboration is now operating on the basis of a slot exchange and vessel sharing, making Zim an equal partner in these joint services, and we continue to meet growing demand and competitively serve our customers, particularly on key trans-Pacific roads. I will now turn the call over to Xavier, our CFO, for his remarks on our financial results in market development. Please. Thank you, Andy, and again, welcome, everyone. We delivered another quarter of outstanding financial performance as a result of both historically high takeaways as well as our differentiated and proactive approach. The slide 7 here illustrates our strong results and significant improvement across key operational and financial indicators versus the prior year respective quarter. Our record results were once again driven by continued positive market conditions which kept trade rates significantly higher than prior year. We have continued to prioritize vectoring cargo and undertaking reshaping to capitalize on e-commerce demand, which enabled us to improve cargo mix. Specifically, our average freight rate to TU of $3,848 in the first quarter was 100% higher compared to the first quarter of 2021. Those were 6% higher than our average freight rate in the preceding quarter. Our free cash flow in the first quarter totalled $1.5 billion compared to $645 million in the comparable quarter of 2021, an increase of 130%. Turning to our balance sheet, total debt increased by $984 million since prior year end, mainly driven by the increased number of better fixtures, longer charter durations, as well as higher daily charter rates. Over the same period, our cash position grew substantially by approximately $1.3 billion. As a result of the second consecutive quarter, Zinc's net debt has been driven down to a level at which the company closed the period in an effective positive net cash position. Our FITMAL accounts try to maintain optionality to match capacity with demand-demand impact. We believe that Zinc has retained the ability to adapt our FIT style to changing demand fundamentals. The average remaining duration of our current chartered capacity today is 28.6 months, slightly up from the 26.1 months in March 2022. And bridging our current operating capacity to the scheduled delivery of our newly vessels. Also, only 11 of our chartered vessels are now scheduled for renewal between now and the end of 2022. and 28 will be renewed in 2023, and 34 potentially also will be renewed in 2024. Next on Friday, you can see that we are delivering consistent improvement in earnings. At the same time, our net leverage has trended downward from 2.4 in June 2020 to 0. Importantly, we continue to be positioned in the third tier of our industry, which we are. deflecting the strength of our value shift. Moving on to the next slide, slide 9, our proactive strategy continues to generate record results. Revenue for the first quarter was $3.7 billion compared to $1.7 billion in Q1 2021, driven primarily by improved freight rates, and to a lesser extent, also an increase in carry volume. Most importantly, we grew profitably with Q1 net profit of $1.7 billion, representing a 191% year-over-year increase. Just as EBITDA was $2.5 billion for the quarter, compared to $821 million in the first quarter of last year, that is an improvement of over 200%. Consistent with our focus on the delivery industry leading margin, adjusted EBITDA and EBIT margins were 68% and 60% respectively, as compared to 47% and 39% in the first quarter of last year. Those margins were comparable to margins delivered in the prior quarter. I would like to note that as anticipated, VIN is currently carrying 23% corporate income tax rate in ISA, in q1 2022 when it began to be impacted and as such during the first quarter we paid back events in a total amount of 246 million dollars moving on to slide 10 we continue to outpace the industry in terms of growth in carry volume without compromising our profitability We carried 859,000 TEUs in the first quarter, compared to 818,000 TEUs during the same period last year. So we grew our product volume by 5%, while the general market contracted by almost 2%. Volume growth in Q1 in non-transpacific trade did compensate for the decline in trans-pacific volume, which was negatively impacted by conjecture. Sequentially, our Q1 2022 categories were flat compared to Q4 2021. While again here, the overall market shrunk by over 6%. Regarding our cash flow, in Q1 2022, we had a total cash position of $5.1 billion, which includes cash and cash equivalents and investments in bank deposits and other investment instruments. I will remind you that in April, we paid a dividend totaling approximately $2 billion. During the first quarter, our adjusted EBITDA of $2.5 billion converted into a $1.7 billion cash flow cooperation. Other cash flow items in the first quarter included $177 billion of net capital and $249 billion of debt terms. In the first quarter of 2022, PLATEC mainly related to the second-hand vessels we purchased into four of last year that we got delivered in the first quarter of this year. Moving to our guidance, we are raising our two-year guidance and now do expect to generate adjusted EBITDA between $7.8 and $8.2 billion and adjusted EBIT between $6.3 and $6.7 billion. The main reason for improved outcome for 2022 is better than initially anticipated contract rate. Volume growth is expected this year to be approximately 5%. Other assumptions we provided in March do remain largely unchanged. Turning to market and industry strength and our COVID review moving forward. The combination of poor congestion and strong demand, especially in the United States, are the underlying factors shaping the strong market we are currently experiencing. Poor congestion and supply chain disruptions have been a persistent strain on container shipping operations for over a year now. This reality is not expected to be resolved in the near future, and may even fail in 2023. Jury estimates that long tubes of shift wading outside port and slower shift turnarounds resulted in effective container shift capacity being 17% below its potential in 2021. The forecast for 2022 has also increased from 13% in March to 15% today. And the project hoped congestion to absorb 7% of effective capacity in 2022. Fletchport's ocean timing indicator demonstrates the depth of port congestion. As you can see, the end-to-end transport time from the exporter's location to the port of destination on China to US routes, which stood at 45 days pre-pandemic, more than doubled and is currently estimated to be around 23 days. This longer supply chain creates demand for more vessels and containers to absorb the significantly longer voyages. It is important to remember that congestion cannot be viewed as port-specific. Rather, a more global holistic view should be taken. As we saw in recent weeks, as the queue outside the port of LA and London shortened, congestion in East Coast ports started to be less. These measures show no signs that the supply chain crisis has passed. The next one shows that demand in the United States is expected to remain modest in the near future. Continued disruptions of global supply chains are expected to support high demand for container shipping as shippers are looking to guarantee space to maintain required inventory. Despite growing inventories in the United States, strong demand results in inventory to sales ratio remaining at the level which is far below pre-COVID or normal levels. You can also see here on the right that global volume in March 2022 is higher by 6% when compared to 2019, the last normal year experienced by our industry. Moving on to the next slide, the overall supply-demand balance remains positive for 2022, despite projections for 2022 being adjusted downward due primarily to the impact of the Libyan war in Ukraine and China's zero-tolerance COVID policy. The supply-demand balance reverted in 2023, when more significant nuclear deliveries, including these, were empowered, I expected. The order growth has also consistently grown over the past several months. Yet, our view on market fundamentals for the near and mid-term remains overall positive. We believe that the increased order growth is, at least partially, a response to the anticipated pressure to decarbonize shipping and renew aging fleet. With major retailers facing more aggressive reduction in carbon emissions than on basis, The motivation to scrap older, less efficient vessels will grow, reducing the growth in effective capacity. Supply chain discussions will also partially offset the effect of UBD's delivery in 2025. Next, in the more short term, we show that the decline in freight rates since January 2022 is indeed consistent with typical seasonality impacting the first and second quarters in our industry. The graph on the left shows a similar seasonality trend for the 2022 SPSI comprehensive index when compared to previous year prior to and following Chinese New Year. We believe that the Shanghai lockdown contributed to the slow stock rate recovery this year compared to prior years. Yet, when manufacturing in China returns to normal and demand decreases in peak season, the added volume labels additional pressure on already strained supply chains and congested ports in the United States and elsewhere. The graph on the right compares the development of threat rates from 2019 to 2022 today. And again, demonstrates the price decline in Q1 are consistent with typical seasonality. The downward trend in 2022 extended longer than earlier years, again, most likely due to the Shanghai lockdown. But we are starting to see rate stabilization in Q2 as would be expected. With respect to our overall expectations of threat rates, we would contend that certain factors, including the sustained historically higher than average threat rates, now entering their third year on the road, structural changes in container shipping, vertical growth strategy being pursued by various liners, and a higher cost incurred by all players, will keep threat rates from declining to pre-COVID levels when rates finally normalize. With that, I will turn the call back to Eli for the concluding remarks. Thank you, Xavier. We continue to deliver on our commitment to outstanding execution and profitable growth while positioning ZIM for long-term success. As Xavier just outlined, strong underlying market fundamentals support our optimism for the future as we leverage our global niche strategy to meet growing customer demand. Importantly, we have secured fuel-efficient new-build capacity that will strengthen our market position and commercial prospects moving forward while maintaining our flexibility in our operational capacity. We are pleased with our incredible progress today as a public company and excited to carry our momentum forward, continuing to advance Zyn's position as innovative digital leader of seaborne transportation and logistics services to maximize value for all stakeholders. We will now open the call to questions. Thank you very much.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to answer questions may press star followed by one on the touched on telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. And the first question is from the group. Please go ahead.

Hi. Thanks again for the presentation. I've got two questions. So firstly, on the contract rates, obviously your rates have been almost doubled. So if you could give some color on, given the spot rates have been moved so far, what are you actually seeing on your contract rates? Because Asia to U.S. is probably the negotiation is just starting on, right? So would you see that there is even more further upside as you go into Q2? Or should we think about contract rate element alone? And then the second one, obviously, if you look at your guidance and you take your EBITDA for Q1, and what does it imply in terms of H2, actually? Do you expect a steep normalization in rates? Because in one of your slides, you do say that descriptions might extend into 23. So I just wanted to understand what does it mean relevant to your spot rate expectations as you go into H2. And then, sorry, I could ask the third one. What is your current visibility on demand in terms of bookings that you see in your systems? Like, do you have, like, a two-month, three-month visibility, and how does that compare with, say, back in 2019? Yeah, those are my three questions. Thank you.

Yes, I think with the first one, I think the first one and the second one are quite intertwined, actually. The contract season for us on the Transpacific is starting from the 1st of May and will extend up until the 30th of April next year. So what we have done over the past few weeks is finalize all the discussions with our customers on the Transpacific trade to agree on both the allocation and the rate that will prevail for the next 12 months. And this is because we have concluded on average at rates that were higher than what we initially anticipated when we were in the middle of the discussions when we last talked in March, two months ago, than we had significantly explained while we are increasing our guidance. So we increase the guidance on the back of higher than anticipated contract rates that will start to peak in the 1st of May. So we largely impact Q3 and Q4, so the second half of 2022. With respect to what we anticipate in terms of stock market, what the stock market might do, and again, there is a lot of uncertainty today, but we need to make assumptions and work with those. We made the assumptions in our guidance that the spot rate would start to normalize in the second half of this year and that to some extent the reduction in the spot market would be offset by the incremental revenue that we will generate on the contract target compared to last year. So we see a conservative view in that sense that we believe that it is a possibility that the stock market will start normalizing in the second half of this year. And when talking about the third aspect of your question, what do we see in terms of the demand? Currently, as you know, there is this situation that has been affecting the whole of the industry, especially relevant in Shanghai, with the lockdown of Shanghai, and Shanghai being a very important surveillance area. exports to place out of China. So there's been a reduction in volume out of Shanghai. We also are hearing and reading the same as I think you do that the idea is that the situation should start to resume and production should start to resume and lockdown should start to ease so that by the end of June, production should go back to normal as far as Shanghai is concerned. Up until today, we have managed to compensate the shortfall of export travel from Shanghai by reallocating some of our volume to South China and also Southeast Asia. But at some point, indeed, if the situation was to remain as is and if the manufacturing sites were not allowed to come back to would deteriorate. But we don't see that happening. And in terms of looking forward to that, looking at our feeling factor, the vessels for the week to come and for the few months, a couple of months to come, are expected to stay afloat.

You dialogue about visibility up to two months, I think that's today.

I'm sorry, can you repeat that again?

No, I just wanted to clarify. So you've got about two months of visibility in terms of demand.

Yes, I understand. And then on the contract, we have a little bit more than that due to the contract. Not only do we negotiate contract rates, but more importantly for our customers today, space and value.

Okay, got it. Can I ask you another quick follow-up, actually? You've outperformed on volume growth versus the overall market, right? And what is actually driving that, is it? because of their exposure to the Trans-Pacific, or how should we think about, let's say, for the remaining part of the year?

If we look at the first quarter where we generated an increase of 5% versus the same quarter last year, we were affected by the, you know, the congestion on the Trans-Pacific, so we carried a bit less cargo than what we initially anticipated, but where we have been extremely active in the growing network is on the intra-Asia trade. We've opened quite a few new lines within the intra-Asia region, including between Southeast Asia to Australia. So the growth on intra-Asia has been quite dynamic and allowed us to compensate for the slight reduction we've seen in volume due to the congestion.

Okay. Thank you. That's quite helpful. Thank you very much.

The next question is from one of Muneeba Kayani from Bank of America. Please go ahead.

Thank you. I was wondering if you could talk about the union negotiations at the Port of LA and Long Beach. What are you hearing and what is your expectation for that? And is that a risk for further disruption going into peak season? And then secondly, in terms of new deliveries for the market that are expected in 2023, could those be delayed because of the lockdowns in China and disruption on the supply chain? Thank you.

Yes. First, the first question is with regard to the current discussions in the Union Discussions Board of LA. It's very difficult for us to comment on what could be the outcome. What we can say is, as is always the case, we hope for the best and get ready for the work. So it is a threat and a potential risk to the current existing supply chain disruption. We've seen some of our customers redirecting some of their cargo already in anticipation what could be the outcome of the discussions or if there was to be some action or some interaction in the port of belay. So some of the cargo has been moved already from the US West Coast to the US East Coast, which also explains to some extent why there is an increase in the congestion of the US East Coast terminals. With respect to your second question, as we all know, 2022 is not going to be a year where we will see a significant new building being delivered in the speed to 2023, on paper at least, and 2024. Indeed, there are, or were expected to be, significant amounts of new tonnage. The initial planning, and we are sensing that some shipyards, especially in China, maybe more than the shipyards in Korea, are being affected, as you suggested, by the zero-COVID policy that is being enforced in China, may struggle to deliver the vessels as per the original plan.

from a sliding in 2023 to a little bit later. So these are those that are concerned because you know that we are expecting 2023, the first one being expected to be delivered in February 2020.

We seem to be on schedule.

Thank you. And can you comment on what sort of demand you're seeing right now from the U.S.?

Today, the demand is to illustrate when we show and we keep on displaying that graph, which is the key metric. There is what's going on in the U.S. is one point of reference. The other one, as you see, the crisis in Europe, Russia, Ukraine is also having some effects on the Asian and Europe trade lines. But if you look at the Asia...

The trans-Pacific trade, which is the one we are exposed to, as we are not exposed to as yet in North Europe, as you know, the dynamic is not the same. The demand in the U.S. is the same as we haven't experienced so far, and it's happening more than we would expect.

in terms of seasonality on that front.

So customers are still looking to ensure that they stay in the coming weeks.

There is all the orders that have been placed prior to the Shanghai lockdown are still there and will need at some point to be lifted from China, Southeast Asia to to the U.S.

And what may also happen is the pre-Thanksgiving, pre-Christmas shopping season, which is the peak season for us in our industry, might start earlier than initially anticipated. So if all the stars are aligned, And the Shanghai lockdown indeed is before or somewhat towards June.

The only situation could be that there will be a surge in demand as early as June.

Thank you. The next question is from Chris Robertson from Jefferies. Please go ahead.

Good morning, and thank you for taking my question.

Good morning.

My first question is on the current average time charted duration. Could you talk about the average time charted duration and on average what percent?

We have 135 vessels, 437 vessels today. Pretty much all of them are on charter, with the exception of the second-hand vessels that we acquired late last year. So they are all for more than a year. We have contracted for more than a year.

The average remaining duration of the group of charters that we have is now 28 months.

When we renew a contract, since already late 2020 and throughout 2021 and today, still in 2022, when we renew a charter, when we fix a vessel, the average that has not changed, I think since now three or five quarters in a row, that's the rule of thumb that we should keep in mind. so three years now when it comes to and i think this is a very important point that you're raising in the second part of your question what is left in terms of in the process to comment and looking ahead into a 23 and into 2024 we have the charter will come to an end between now and the end of the year so then it is likely that we won't

between three to five years for those 11 vessels out again of the 135 so we are not that exposed to the stock charted market for the remainder that's where we recover the

the flexibility that we need and that we want in order to leave room for the new buildings that will be delivered in 2024.

So in 2023, we have 28 that will come to an end. And in 2022, that's all together that will come to an end in terms of charting agreements.

My second question is on the new Baltimore Express line, and you can speak generally, too, on the other Express and also the e-commerce lines. How should we think about that in terms of earning a premium versus kind of the market average rate?

Yes, those lines that are dedicated to time-sensitive cargo, the objective is to ensure that the transit time is as short as it can be, and also that we have, once the vessel arrives at the terminal work on arrival, that we have the chassis ready, that the inland transportation onto a rail can be organized swiftly. So this is the whole service that we provide to a customer when they book on those specific lines. So, yes, they do commend a premium. It is difficult to price it or to give an indication as to what is the percentage of premium that we are generating on those trade links. But we generate, on average, better than we would on a more traditional line.

Okay. And like the guidance, it's kind of locked in based on your contract negotiations.

fluctuations in spot.

When we look at the cargo mix or the trade mix where we currently operate, 45% of our volume is trans-Pacific. The rest is non-trans-Pacific, Asia, Atlantic, Asia to South America. So 45% is trans-Pacific, and that is where we are talking about a long-term contract. And 50% of are contracted on the European contract basis, and 50% will remain exposed to store.

That 25% of our volume is contracted, and we can apply that first line of The second one that obviously needs to be taken into consideration is that the trans-Pacific in terms of profitability may defer to the other lines in terms of EBIT margin per CEU.

So from a profitability perspective, it is more of the 25% of the future process.

Okay, great. Yeah, thank you for the call, and I appreciate the time.

The next question is from Barclays. Please go ahead.

Thank you for taking my questions. I also have three. Just firstly, Javier, in your comments that you're now operating 137 vessels. That is a significant increase from the 125 we talked about at the previous call, and yet carriage volumes are in line this quarter with the period, and how do you expect that to move ahead, I guess, as the lines continue? pick up. So that's one kind of clarification on the capacity. If you're able to give a capacity plan in terms of size of fleet, that would be very useful. And then just second, the customer customer makes or product makes on the volumes you carry, is there a high-level number you can give us in terms of exposure to e-commerce or retail? I guess I'm trying to understand what else can balance off if there is some weakness, some retail demand. I mean, you know, news from some of the largest U.S. retailers is a little bit confusing in terms of the sales growth being driven by price rather than volume and clearly there are some any corrections there would be great. And then the final question is on labor cost inflation. Is there something to flag in terms of kind of seafarer wages going up in line with deflation or is it more nuanced? Thank you.

We are operating more vessels, and remember as well that we include the size of our ship also to adjust to the new relationship with the partnership we have with the 2M. So now we replace also a truck with our own capacity. So that explains also to some extent why we are operating more vessels, and you don't see the exact same translation in terms of carry quantities. Because, as I said, we used to be a net buyer of space on board our partners' vehicles. Second element, which is, I think, important in terms of what we're asking about utilization. Utilization is extremely strong and has been very close to 100%. The one thing that has... ...have an impact nevertheless is the congestion issue, the waiting time, meaning that that translated into a longer transit time to carry the same volume of cargo from one place to the other. So there's been less voyages as a result of the an effect on the overall transit time from A to B. So utilization is very strong, more vessels to adapt our fleet with the current relationship with the 2M and the volume also in line with the impact of the congestion. Looking forward to the capacity plan that is out, we want to make sure, and we have taken all the necessary steps already, to ensure that our core alliance, that we have a very strong people, that we have the capacity that we need in order to not only defend but also increase our competitive position in those areas. very important trading and this is uh very much the 46 new building vessels that we refer to earlier on that we come our way in 23 and 24 which will allow us to get a very efficient uh and we've been astonished that the position is very strong we will continue to We explore alternatives and options and where we see opportunities to enter into new trade lanes. If it doesn't make sense, we will. And this is why we are very pleased to see that we will have the option to do so because, as I was referring to earlier on, in 2023-2024, the 20 or 62 vessels that we can have for renewal, if we see that there are opportunities for us to enter into new trades, then we will renew those tracers on top of the one or some of them, on top of the new capacity that we get the results. So we will have the option, not the obligation, to operate more vessels into the coming years. The second question that you raised, the question about e-commerce, percentage of our activity. We've been, I think, very aggressive in entering into this type of trade, starting with our liaison between Asia, Southeast Asia, China, to Australia, and then we expanded to the same type of trade between Southeast Asia to Australia and New Zealand. Now we just announced the opening of the same trade line between a similar between Asia to the U.S. East Coast. So the reason why we're opening those lines is because there is a demand, and our customers do wish that we provide this type of solution to them. So there's a split in terms of e-commerce trade lane. If you look at what it was over 2021, pretty much 25%. of our trans-Pacific trade, and to a lesser extent on the intra-Asia as well. With the Australia, maybe 20% of our intra-Asia trade were very much e-commerce trading. And then the last question, which is, what about cost of employment? Obviously, with the current situation impacting Ukraine, and as we all know, Ukrainians are great sea carers, And we, we, uh, we have a lot of other seafarers on board. For us, it has a limited impact because largely, as we mentioned, we are chartering in the capacity that we operate, and that's part of the charter rate, the daily rate that we do pay to the tonnage owner. That includes, as well, the management of the vessel, the ship management of the vessel, that includes the seafarer wages and the technical support. So if there is an impact, it's more for the product owner than it is for us to observe.

Thank you. Thank you very much, Javier, for that. And can I just ask one follow-up on the contract portfolio, actually? You haven't really changed your mix of contracted volumes. I mean, is there an opportunity to increase that 50% on the Transpac portfolio? to a higher level that locks in some of these increases for longer? Or are you more confident on the spot market?

We could have decided to increase the volume that we would contract on a long-term basis. It was not a lack of demand, in this respect, from our customers. And through the discussions, the first question that we were addressing with our customers was, the amount of space that we could allocate to each and every one of them. So it was more a strategy decision from the company to stick to the 50% allocation between contract and spot, as we also like to be able to benefit from the stock market, especially during the peak season, where normally it is to be expected that the spot can outpace the contract rates. So that has been a recipe that has worked for Veeam over the past few years, and we didn't see any reason to change drastically on that front for this very specific contract season.

Great. Thank you very much.

The next question is from JP Morgan. Please go ahead.

Thank you. Thanks for taking the question. I've also got three, please. First one is on these trans-Pacific contracts. I think they've roughly doubled. The rate has doubled. Could you talk about where the contracted rates are that have been agreed versus the current spot rate on that particular lane, please? The second question is on the 46 vessels. I think on at least some of those, maybe all of them, there's an option for a sort of upfront payment. Could you just kind of confirm if that's on all 46? And if so, is it known how big that upfront payment could be in 23 or 24? Or is there some flexibility around that? And the final question is, if we assume that you take all the 46 and renew the charters on the existing ships, 137, where do you think roughly the lease liability is? Would Max ask that, please?

Thank you. Okay, the first question with respect to the transparency contract rate, yes, we did mention that we settled or we agreed on average at rates that are more than doubled compared to what we assigned the same time last year. But there is also some... some latitude or some gap between the various states that we agreed. But by and large, versus the spot today, depending on where you are looking in terms of over the past few weeks, the rate that we contracted was not that far from where the spot currently is today. With regard to your second question, the 46th episode, We did indeed agree to pay some cash at the time we get the delivery of those vessels. And it was actually not a request from the provider, but more a request from us to be able to put our cash to good use as opposed to have to to remunerate the equity of the furniture owner that would otherwise demand a very strong remuneration of that equity. So it was a way for us to reduce the daily charter rate that we would be paying over the duration of the chartering agreement. And by and large, I think we did communicate for the first series of vessels where we will expand the 10,000-15,000 TEU vessels. We are talking about $13.13 million for vessels, $130 million altogether for the 15 vessels. And then for the subsequent order of the 7,700 TEU vessels, 18 of them, we agreed for $20 million. all together in terms of payment. So if you have everything all together, the commitment in terms of cash out at the time to reject the delivery of the new build will be the return of the 500 million dollars. And to the last question, it's difficult to answer that one, Sam, because obviously we don't know what the chartering renewal rate will be or would be if we were to renew the charter in 2023 and 2024, as opposed to let go of the vessels that we can operate to make room for the ones that would be delivered to us. So for that, it's a bit difficult to say, but obviously we would only do it if we felt that this was the right thing to do from a business perspective. As you know, it is very high on our agenda to grow profitably and to enter into trade where we believe that we can generate ongoing and sustainable profits. So we are very pleased to have the option to continue to grow, but in no way do we feel we have the obligation to continue to grow aggressively. Understood.

Thank you very much.

This concludes our Q&A session and the Zoom Q1 earnings call. Thank you for joining and have a pleasant day. Goodbye.