以星航運 (ZIM) 2021 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. I'm Haley, your Chorus Call operator. Welcome, and thank you for joining the ZIM Integrated Shipping Services Ltd. Q2 2021 Earnings Call. (Operator Instructions) And I would now like to turn the conference over to Elana Holzman, Head of Investor Relations. Please go ahead.

Thank you, operator, and welcome to ZIM's Second Quarter 2021 Financial Results Conference Call. Joining me on the call today are Eli Glickman, President and CEO; and Xavier Destriau, CFO. Before I 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 statement reflects 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 2020 Annual Report filed on Form 20-F on March 22, 2021. We undertake no obligation to update these forward-looking statements.

At this time, I would like to turn over to Eli Glickman. Eli?

Thank you, Elana, and welcome to today's call. We are excited to discuss our record results and several notable second quarter year-to-date accomplishments outlined on Slide #4. First, we maintained our strong trajectory in the second quarter. Once again, we generated all-time record quarterly results with adjusted EBITDA of $1.3 billion and net profit of $888 million. Both are higher than for the full year of 2020.

These results are based on the quality strategies we continue to implement to capitalize on both the highly attractive market and ZIM's differentiate approach. For the second quarter, we also generated our highest ever operating cash flow of $1.2 billion and significantly strengthened our balance sheet, growing shareholder equity to $1.72 billion.

Importantly, we continue to deliver industry-leading margins, outperforming the liner industry average. Our Q2 2021 adjusted EBITDA margin was 56% and adjusted EBIT margin was 49%. We remain committed to our goal of consistently performing as one of the top 3 players in terms of EBIT margin. Based on our strong second quarter performance, the sustainable robust environment and the contribution of our freight contract secured at higher rates, we are once again raising our 2021 guidance.

Specifically, we now expect to generate in 2021 adjusted EBITDA between $4.8 billion to $5.2 billion and adjusted EBIT between $4 billion to $4.4 billion. Based on the midpoint of today's guidance versus the guidance provided in May, our new forecast represents almost a 90% increase in our EBITDA guidance and more than double our EBIT guidance.

Our strong results have also enabled us to make important investments to position ZIM for long-term success. In July, we announced a second strategic agreement with Seaspan for the long-term charter of 10 x 7,000 TEU LNG dual-fuel container vessels to sell across ZIM's global niche trade. This vessel, which will be delivered to ZIM starting in the first quarter of 2023 and through 2024 are ideally sized to be employed in multiple places in which we operate.

We also hold an option until the end of August 2021 for the long-term charter of 5 additional such vessels. This transition follows our initial agreement with Seaspan in February 2021 for the long-term charter of 10 x 15,000 TEU LNG fuel vessels to serve our Asia to U.S. East Coast trade. With these 2 agreements, we secured high-quality green tonnage, consistent our sustainability values while maintaining our proportional agility.

In Q2, we also redeemed the entire $349 million principal amount outstanding of our Series 1 and 2 notes. As we mentioned last quarter, we achieved this important accomplishment sooner than expected and earlier than the stated maturity by 2 whole years. Further strengthening our balance sheet and enhancing ZIM position to take advantage of favorable fundamentals for the benefit of shareholders.

On Slide #5, you can see that over the last 9 quarters, our revenue have consistently increased, and we delivered consecutive record quarters. At the same time, our leverage continue to trend downward. ZIM's net leverage decreased from 5.3 in Q1 2019 to 0.3 this quarter, positioning us in the top tier of the industry.

Moving to the next slide, Slide #6. We continue to advance major initiatives related to our strategic pillars. First, for ZIM, our exceptional operational agility is a testament to our differentiated asset light and global niche model. Today, our fleet includes approximately 113 vessels, reflecting our ability to quickly adapt our vessel deployment strategy and grow our fleet based on changing demand fundamentals.

As you can see, we proactively adjusted our vessel capacity over the past 18 months as we effectively did with the initial negative effects from the COVID and then quickly grew our capacity to capture the dramatic increase in demand, we recognized in the market. Notably, we accomplished this important objective despite the increasingly tight charter in market.

In addition to successfully increasing our capacity for the benefit of customers and shareholders, we continue to grow on our commercial agility to identify market opportunities and develop new growth engines. During the second quarter, we launched 9 new lines, including premium high-speed services to meet the explosion in e-commerce demand and provide the viable alternative to airfreight. Importantly, these new high-speed lines and the others that we added during the quarter has been instrumental in driving our record results as well as our positive forward outlook.

Since launching ZEX, our initialized speed premium line between China and Los Angeles, we have opened additional high-speed lines including lines between Asia and Australia and between Australia to New Zealand. The other lines opened during the quarter from within our various trade lines, including a new service from Asia to East Africa.

In addition, we continue to take steps to further strengthen our trans-Pacific presence, which remains a key trade for us through our partnership with the 2M Alliance, we launched our joint -- excuse me, joint Asia East Coast line service, which commenced in June. We also continue to leverage our partnership with other leading players, expanding our service network and meeting increased customer demand.

Additionally, during the second quarter, we announced the extension of our cooperation with Alibaba as we continue to grow our presence in new markets and further capitalize on positive e-commerce trends.

Next, our operational excellence continue to position us well for the future. First, consistent with our focus on sustainability and reducing our carbon footprint, we enter into long-term charter agreement for green LNG fuel vessels. Once delivered together with the first 10 x 15,000 TEU vessels, approximately 50% of our operating capacity will begin. In doing so, we established ZIM as a leader in terms of carbon intensity among global liners.

With this charter agreement, ZIM secure the cleanest technology currently available. This will help us address increasing regulation on carbon emissions and meet customer demand to have the cargo transported on more eco-friendly vessels. We also maintain flexibility to transition to newer technology as they become commercially viable.

Second, since the beginning of the year, we've entered into agreement for the purchase of equipment, mostly new build container. Given our higher-than-expected growth this year, combined with the current congested market and with the availability of container, our substantial investment in new equipment supports our ability to provide the best and more reliable service to our customers now and in the future.

To further advance our growth objective, we also established and strength our local presence in various new existing markets during the second quarter. We launched operations in countries where we were not present in recent years, including Australia, New Zealand, certain African countries, East Russia. We also strengthened our infrastructure and presence in other countries such as Mexico, where we replace a third-party agent we sell on.

We remain committed to our customer-centric approach, which is key to our long-term success. Finally, we continue to invest in tools that help us prioritize profitability over volume or market share and to employ forward thinking and disruptive digital strategy. Embracing big data and artificial intelligence, we recently launched a partnership with an Israeli startup to develop innovative artificial intelligence tool for implementation in ZIM operational environment.

The joint teams are tasked to develop advanced model to focus demand, plan shipping routes, automate logistics process and more. As we continue to focus on profit optimization. We also continue to see broader industry adoption of WAVE BL -- electronic BL of letting technology, a groundbreaking blockchain-based platform, supporting paperless trend in shipping industries, which we were first to embrace. We are pleased to see the growing acceptance of WAVE technology by other global carriers as well.

I will now turn the call over to our CFO, Xavier, for his comments on our financial results and market development. Please.

Thank you, Eli. And again, welcome everyone to our quarterly update. As Eli mentioned, during the second quarter, our differentiated approach and proactive strategies served as well as we generated another consecutive record performance. I will now briefly discuss our KPI specific to Q2 and H1 figures and also our robust cash position. Slide 7 highlights several KPIs, demonstrating our exceptional financial performance, including outstanding earnings and further improved cash position, resulting in our lowest leverage ratio in ZIM's entire history.

In Q2, we benefited from the new annual contracts with trans-Pacific customers, which went into effect on May 1 and reflected an average rate of slightly above 50% higher than 2020 as well as strong momentum in the spot market.

ZIM capitalized on industry tailwinds that prove freight rates higher. But moreover, our prioritization of a better paying cargo mix and initiatives to capitalize on the e-commerce boom were a key differentiator that allowed us to earn even higher rates. Specifically, our average rate -- freight rate per TEU rose by 119% in the second quarter of 2021 to $2,341, compared to $1,071 in the comparable quarter in 2020 and 22% higher than the average freight rate of $1,925 per TEU in the first quarter of this year.

For the 6 months of the year, our average freight rate per TEU was $2,145, almost double compared to last year's first half. Turning to our balance sheet, we have significantly increased our cash position, which I will discuss in a moment. And our leverage ratio continued to decline to 0.3x. Total net debt in the second quarter decreased by $132 million, resulting from a net decrease in financial debt, mainly related to the early redemption of our Series 1 and 2 note in June and an increase in cash position, offset by a net increase of $523 million related to lease liabilities, almost entirely reflecting us successfully fixing additional charters in the quarter despite a very tight market. Our free cash flow in the second quarter totaled $867 million compared to $115 million in the comparable quarter in 2020, it is an increase of over 650%.

Turning to Slide 8. As we look at our remarkably strong quarterly revenue, EBIT and EBITDA and net profit growth sequentially and year-over-year, it is clear that our unique approach continues to yield positive results. Total revenues in the second quarter were up $2.4 billion compared to $795 million in Q2 last year. That is a 200% increase, 3x more.

More importantly and consistent with our primary objective to grow profitably, second quarter net profit was a record $888 million compared to $25 million in Q2 2020, growing by more than 3,400%. Adjusted EBITDA in the second quarter also significantly increased to $1.3 billion compared to $145 million in the second quarter of last year. Adjusted EBIT increased to $1.2 billion in the second quarter compared to $73 million in the comparable quarter of 2020.

Then Q2 2021, adjusted EBITDA and adjusted EBIT margin of 56% and 49%, respectively, continue to position us among the top performers of the industry. I would like to point out that our Q2 2021 results include increased tax expenses totaling $224 million. As I explained last quarter, considering our current and expected full year 2021 performance, we reassessed our entire carryforward tax losses and we now do expect to utilize all of them for the tax year of 2021.

Next, we review our significant improvement across all financial metrics during the first half of 2021. Revenue for the 6 months period were up $4.13 billion compared to $1.62 billion last year, already exceeding full year 2020 revenue. This 155% increase was driven by the improved freight rates as well as carried volume growth, which I will discuss very shortly.

Again, consistent with our focus on profitable growth, net income for the first half of the year was $1.48 billion compared to $13.4 million for the first half of last year. Adjusted EBITDA was $2.16 million for the first half of 2021 compared to $242 million for the first half of 2020, representing a growth of 791%. Our 6-month adjusted EBITDA and EBIT margin also improved to 52% and 45%, respectively, this year versus 15% and 6%, respectively, last year.

Turning to the next slide, Slide 10. Our increased current volume is a direct result of our proactive efforts to launch new expedited and other services as a response to identify growth in demand and our enhanced position in the Pacific trade and intra-Asia. While global volume growth in the second quarter was approximately 15% year-over-year, this carried volume increased by 44% from 641,000 TEU in the second quarter of last year to 921,000 TEUs in the second quarter of this year.

Though it should be noted that the second quarter of last year volumes were negatively already impacted by the then emerging pandemic. Compared to the first quarter of 2021, our volume increased by 13% with intra-Asia and the Pacific trades, both contributing most significantly to the increase. For the full year, we continue to anticipate carried volume growth of circa 30% as compared to 2020.

Consequently, as already mentioned by Eli, given our higher-than-expected volume growth in 2021 combined with current congestion impacting the availability of containers, we contracted $763 million of new equipment in 2021, growing our container fleet by approximately 265,000 TEU equivalents. This is about $175 million more than we previously guided last quarter.

Containers at a cost of $406 million as already been delivered to us during the first half of the year. We have to increase our investments in containers to take further advantage of our significant cash position and we made the prudent capital allocation decision to purchase this containers rather than rely on more expensive leasing solutions.

Turning to cash flow, Slide 11. We ended Q1 2021 with a consolidated cash position of $1.2 billion. During the second quarter, our adjusted EBITDA was $1.3 billion, taking into account a decrease of $154 million related to working capital and other, $314 million of investing cash flow and $544 million of debt service, we finished the quarter with a cash position of $1.5 billion.

Now I will review the strong market fundamentals that we continue to see in the liner sector and share our positive view going forward. On Slide 12, market supply/demand fundamentals remain positive with expectations that global demand growth will surpass supply growth in 2021 and also in 2022.

On the supply side, the order book-to-fleet ratio recently increased from historically low levels and attempt to renew the fleet and meet demand growth. Specifically, while newbuildings on order have risen to slightly above 20% of the total deployed capacity, we continue to view fundamentals as favorable, considering the need for replacement tonnage and current forecast for demand growth.

Moreover, we view the threat of overcapacity as a low, even in the less immediate term, when additional capacity delivered in 2023 and onwards due to 2 unrelated factors. One, forthcoming environmental regulation that will likely go into effect in 2023, will promote slow-steaming necessitating additional capacity to keep on carrying the same volume.

And two, congestions or set part land infrastructure, particularly in the U.S., will continue to adversely impact port efficiency. In other words, while COVID exacerbated this phenomena as demand continues to grow, operational constraints in the U.S. are likely to persist.

As such, land-side bottlenecks and slow-steaming as part of decarbonization efforts are expected to partially offset 2023 net fee growth reflected in the increased order book.

Turning to the next slide. As you know, freight rates continue to rise well above the past decade average, driven by supply chain bottlenecks, equipment shortages and port congestions. We expect these market conditions to continue for the remainder of 2021 and very profitably into 2022, supporting these historically high freight rates. On the cost side, rising charter higher trends are correlated with demand as is reflected by higher charter renewal rates.

You will also note the changing of the charter market, impacting availability of chartered tonnage. First, most of the fixtures concluded in the past 6 months have been from BL TEU charters. And second, the large number of small and medium-sized vessels sold by tonnage provider to carriers in the last year, causing the nonoperating fleet to shrink. This has also impacted our approach to secure longer-term commitments.

Now looking at demand expectations in the U.S., the extremely high demand is supported -- is being supported by the largest destocking cycle in the U.S. ever. Base U.S. retail trade inventory to sales ratio stood at 1.09, significantly below the 1.47 average of 2019 and despite months of high demand. We expect retailers to target the same inventory to sales ratio they had prior to the pandemic, which will continue to support the restocking trend, especially as we enter into the traditional peak season to Christmas. This, in turn, is expected to sustain strong demand for container shipping for the remainder of the year through the Chinese New Year.

Turning to the right-hand side of the slide. The price of oil has recently increased and accordingly, we have assumed slightly higher bunker prices when providing our current guidance as compared to our assumptions last quarter. So turning to our full year outlook, based on the strong second quarter performance, the sustained robust market environment and the contribution of our freight contracts secured at higher rates, we now project to deliver in 2021 adjusted EBITDA within a range from $4.8 billion to $5.2 billion, and adjusted EBIT within the range of $4 billion to $4.4 billion.

The underlying assumptions driving this improved outlook includes, as we mentioned, expected higher average freight rates and also higher charter costs as well as slightly higher bunker rates as compared to our expectation and assumptions when we provided our guidance back in May.

As previously indicated, we expect our volume in 2021 to be approximately 30% higher compared to 2020. Turning to the next slide, our dividend guidance remains unchanged. And based on our strong and improving earnings outlook, we are well positioned to return substantial capital to shareholders. In September -- in a few weeks from now, we will distribute a special dividend declared in May of $2 per share. And separately, 2022, we will distribute subject to Board approval, 30% to 50% on our 2021 net income.

Now I will turn it back over to Eli for his concluding remarks.

I'm very proud to our team's solid executions since going public in January 2021. ZIM today is an innovative digital leader of seaborne transportation and logistics services poised to capitalize on distinction we share global commerce and container shipping. We delivered record earnings and profitability in the first half of the -- as Xavier described in his prepared comments, we expect this exceptional market condition will persist through the second half of 2021 and possibly even longer into 2022. Therefore, we have a very positive outlook for the second half of 2021 and expect it to be even stronger than the first half of the year.

Our strong performance and cash generation has allowed us to pay down debt and plan to return a significant amount of capital to shareholders. In addition, we continue to prudently allocate capital for future growths, including strategically investing to secure our core operating fleet, investing in equipment and exploring M&A opportunities. We are excited about ZIM prospect and look forward to taking advantage of our unique model to continue to profitability grow and create and viewing shareholders value. We will now open the call to questions, please.

(Operator Instructions) And the first question is from line of Randall Giveans of Jefferies.

Congrats obviously on the epic quarter here. Pretty dramatic increase in EBITDA and EBIT guidance. We thought we were relatively bullish, but clearly not enough, I guess, considering the $5 billion midpoint. So with that, you mentioned volume growth of 30% year-over-year.

So I guess that means 3Q and 4Q volumes will both be close to around 1 million TEUs. Is that correct? And then what are you using for expected quarterly TEU rates in the third and fourth quarter to get to that midpoint guidance.

So to your first question, indeed, our volume is going up as we now get the full benefit of the new lines that we've opened over the past few quarters. So yes, on the quarter early Q3, Q4, we should be expecting a bit less than 1 million TEU per quarter.

That's very close to those numbers and as we put together our forecast for the full year and especially relevant for the second half, when we think about the guidance, we are still very much in the industry, which is a supply-demand driven, as you know, and there we continue to see the congestion issues having and putting pressure on the supply side.

And then we also continue to see the demand side, a very strong support in terms of demand, especially relevant in the U.S., which is indeed driving -- continue to drive the freight rates up.

Okay. I'll let to leave it there. And then you mentioned you operate 113, I believe, vessels today. What is the size of your fleet currently in terms of TEU capacity for those 113? And then following those 9 new lines. Are there additional lines you're looking at acquiring or M&A opportunities for smaller liners?

The answer is, in general, yes. We opened this line -- this new 9 line, and we are checking with all the options are open for new opportunities, including M&A.

Talking about the M&A and it goes along with our capital allocation. We are looking at options to potentially acquire smaller shipping lines that would operate in the regions where, first of all, we already have a very strong footprint and where we also potentially see a potential for growth that is significant.

So that is relevant on the intra-Asia trade and especially focusing on the Vietnam, Thailand that are -- areas and countries that are growing very fast, and we anticipate the growth opportunity on those 2 countries and this market to be strong, and so same goes also for South America.

To your first question on the overall TEU capacity. We are by increasing just our number of vessels, on average, you should consider that we are growing in the smaller segments. The large capacity vessel that we deploy on the Asia-U. S. East Coast are very much stable. So there are 10,000 and above.

So when we are opening the new lines and new trades that we are entering into today, this is more a kid of extra size vessels. So if you take the 10 additional vessels that came in over the quarter on average, you should consider roughly 50,000 TEU additional tonnage evening.

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

Yes. So there are various areas where we intend to allocate our capital. The first one, the obvious one, where we already have initiated quite a few actions here is us investing in containers and equipment. We're growing our fleet and as we grow our fleet, we also take the opportunity to rejuvenate in terms of hedging our fleet of equipment.

So we talked about $760 million of investment in this respect. Second, as you will recall, we have a hybrid structure with Seaspan, same replica of the transaction that we already secured with them back in February, whereby we enter into a long-term charter agreement, which is a hybrid structure, where we will deposit cash upfront at delivery in order to put our cash to good use and replace system equity in the transaction itself and benefit from lower chartering rate throughout the charter period.

So that is a second area of allocation of cash. We have also, to some extent, at this 6 months, we paid debt, but there is a little more that we will do going forward in this respect. We talked about M&A, and we will also want to make sure that we can seize any opportunity if we end up identifying one or few in this respect. Hence, why we want to keep access to capital.

And lastly and very importantly for us, by the way, as we did mentioned it back in February when we went on to our IPO, we plan to return significant capital to our shareholders. This is why we are very pleased. We are very pleased to repay early on those back in June freeing ourselves from all the limitations of the indenture allowing us to announce this $2 per share dividend payment in September.

We -- when we look at the implied results that comes from our renewed guidance 30% to 50% dividend distribution in 2022, we'll come to a very significant dividend payout for our shareholders. And we are looking at every single potential way to allocate the capital between ourselves and the company, the growth that we see and our shareholders and dividend, share buyback, everything is on the table.

The next question is from the line of Omar Nokta from Clarksons Securities.

Congratulations another strong quarter and obviously on the epic guidance, as Randy said, for the rest of the year. clearly, completely transformative deal for ZIM and I'm sure the industry overall, but definitely specifically for ZIM. I guess, I do have a question just maybe a bit more broadly in the market and then just had a follow-up on ZIM specifically.

Obviously, freight rates are at record levels across most regions. And we've seen really a lot of discussion revolving around congestion and really equipment shortages being kind of 2 key drivers that have caused this tight supply, obviously, against the backdrop of very healthy demand. And as you're investing in, we've seen a lot of containers or boxes being built and they're starting to deliver in higher numbers here in the coming months.

Do you see that as aiding and reducing the shortages that we're seeing at port and does that lead then to reduce congestion? Or did the issue simply the fact that basically ports worldwide are just unable to handle ships that are coming in as fully loaded as they are here, as we've seen over the past few quarters. Any sort of color you can give on that perspective.

I will begin and Xavier will complete. First, we see kind of this order -- kind of only in the supply chain -- in the whole supply chain. It began with China with the side of the supply, shortage in supply in January, February, March 2020. And the next, the shortage of -- let's say, not the supplier, but this time, the high demand from the Western country, mainly, as you know, from the United States, European countries.

The shortage on the supply side and change quickly the position of the shipping company from, let's call it from shipping of item to a shortage in the number of vessels and containers. We in ZIM, we prepare, and as you know, we grew a lot from around 50 something vessels in the beginning of the crisis, to around 113, on the way to 120 in these days.

On the side of the container, we grew dramatically. In the last 18 months, from 600,000 plus TEU containers to more than 900,000 plus TEU containers. We don't have, as of today, any shortage in number of vessels for containers. But we see high demand and we see congested, let's call it, in the terminal side. And you know very well what's going on in L.A. and other U.S. terminals.

We're just saying, we see it in routine some of the terminals as well. Not to speak about special events such as Suez Canal and Yantian and the other ports in the last one is Ningbo. So these -- all the supply chain is very sensitive. And the fact every small change affect the supply chain in this sensitive situation.

So I don't think that as of today, we can pinpoint that we can solve this issue with small vessels or more containers because it's a complex situation in a very sensitive high-demand market.

Just maybe to add to what Eli said, we agree with you Omar that the bottleneck issue is not a pure container shipping liner issue. We, as a container liner do our utmost to keep the cargo moving. That mean that every single vessel that is available is on the water. We source and we bring in as many containers as we can. We redirect cargo when there is an issue in a terminal to an adjacent terminal in order to do our utmost to keep cargo moving.

But there is also issues that we have no control over and the potential issues at the terminals at the port or even inland are beyond our control. It's some wider issues. This is why we really do believe that the congestion issue is here to stay and it will take time to be fully resolved.

Yes. I guess, yes, I mean, it's a very kind of a situation. And wondering, have you seen any response from various key ports while you mentioned in the U.S. Are they doing anything? Is it as simple as perhaps getting past COVID restrictions?

Or does there need to be some sort of infrastructure-related investment on the part of some of these ports in order to be able to smooth out this congestion? I know it's a complex question, but I just wondered if you have seen any kind of response from ports to expand their ability to handle the tonnage coming in?

Well, I think there are quite a few initiatives and this is especially true in the U.S. to expand and to extend the terminal capacity as there is, I think, a common acknowledgment that today, the terminal capacity are not sufficient to meet expectations when it comes to demand. So there are initiatives in this respect. But obviously, this doesn't happen and is not being sold overnight.

Okay. And then just 2 quick follow-ups. I guess, just obviously considering the amount of cash you're generating and you do have some M&A targets or some ideas in hand. As you think about the dividend potential for -- or as the board potentially think about it for next year, a 30% to 50%, does the range of 30% to 50%, is that sort of -- is there anything that the Board would be looking at that would make it prefer to pay out 30% versus 50%? Does it hinge on simply an M&A opportunity? Or is it -- are they mutually exclusive?

No. I mean I think it is the management and the Board to make the final decision at the time when we will also have additional visibility going forward in terms of how do we see the situation develop. And that is one element that we do not control today, obviously.

And yes, in terms of M&A transaction as well, whether we have something in the line of sight or not, will also be an element of appreciation for the convenient of the Board to make a final call on what should be the percentage in terms of dividend payout.

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

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

1-5, you said 15?

Yes, 15% to 16%.

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

That's for the full year.

Okay. And then in '22, does that change or is that kind of the same.

In '22, and we will be liable normally to the tax rate that applies here in Israel, which is 23%.

We are negotiating.

The next question is from the line of Sathish Sivakumar of Citigroup.

I actually got 3 questions here. Firstly, on the freight rates and volume, actually. If you compare with Q2, what are you actually seeing currently in terms of rate progression as well as on the volumes? And also, if you could just give any color on within your network, which are the regions that are actually standing up strongly from a volume perspective? And how did you see business coming through?

Yes. to start with in terms of freight rates, we see the freight rates going up. That's the trend that has been relevant. And if we look at all the indices, the SCFI, the CCFI, that you are very familiar with, you see the trend is on there and we obviously see the same thing here at this. So all the places where we operate, be it trans-Pacific, be it via transit port, be it intra-Asia, be it Latin America, we see the positive momentum in terms of freight rates everywhere.

We -- for us, obviously, a stronger impact on any variation that relates to the trans-Pacific rate due to our heavy exposure to trans-Pacific, Asia, U.S., East Coast; and Asia, U.S., West Coast. When it comes to the volume increase and where we have opened our new lines, there have been a few initiatives again on Asia to the U.S. on the trans-Pacific or both, by the way, to the West Coast and to the East Coast in conjunction with our partners with the 2M and there is also some growth expected to continue on intra-Asia trade.

And when we need intra-Asia, we also include here Australia and New Zealand, so from Southeast Asia to Australia and New Zealand. So the growth is very much driven by the trans-Pacific and intra-Asia, and I should add Asia to East Coast of Africa as well.

So when you say growth is driven by mainly by trans-Pacific. So what is the -- actually the current booking windows like on trans-Pacific versus the other region? What is the visibility you have right now?

On the trans-Pacific today, we have a good visibility for the next 3 months, again, depending on the transit time. But if you look at what is the transit time, for example, on Asia to U.S. East Coast, it's 77 days rotation for us. So we -- and we have in terms of booking window 4, 5 weeks ahead. So we have a good visibility up until the middle of Q4, which is less the case when you see on the shorter lines such as intra-Asia.

Okay. Got it. So my second question is actually around the transit time on the condition. You said about 37 days, right, on the trans-Pacific. And that is today, what was it like, say, go back 2 years ago in 2019. What was the typical transit time on port to port basis? And then if I had to just actually understand a bit more say, how long now it takes to ship a box, say, a box of container from a manufacturing plant in, say, in China to warehouse center in California.

So Sathish, I'm not sure I heard you. I just want to clarify on Asia, U.S. East Coast when I say the transit time is 77 days -- 77, so that's 11 weeks is the pro forma of the line. This is where we deployed 11 ships that rotates one after the other to guarantee weekly service. So that's -- the pro forma hasn't changed in this respect between Asia to the U.S. East Coast via Panama, that's still of 77 days, and it was 77 days before.

What we see on Asia U.S. West Coast where we have our expedited services, it's shorter because the vessel also run faster. We had 35 days. That's also on the pro forma basis. Now when we look at what is the effect of the congestion issue, and when we see the -- when we add to that the effect of the congestion we incur a bit of delay in Asia. Today, on average, it's maybe 4 to 5 days delay after the area of departure.

And depending on where we end up in the U.S., we also may be slightly delayed, to some extent, in some ports, significantly delayed for the vessel to be able to enter and to discharge due to the congestion we were talking about, and that can take another week or 2. So you see, altogether, the effective time that it takes to move a box, a port to port is maybe 20% higher in terms of duration than what it would be if we're able to meet the pro forma, if you are focusing so much into time.

Okay. Got it. And just to understand here, this 20% more, is it driven by just a port condition? Or is this because the boxes don't arrive in time at the ports or the productivity levels that the port is playing a role?

It can be a little bit of everything. But by and large, today, we think -- I mean we see it more driven by the port congestion because we've taken already all the measures that we could take in order to increase our number of containers in order to offset the fact that indeed, sometimes the containers come back late to the terminal for us to put it back on the next rotation. So that we've addressed already. And what we can't influence is obviously the productivity of the terminal and the COVID-19 related effect.

Got it. And my third question, actually the final one. In terms of the volume exposure, if you look at some of the other liners have come out and said the contract volumes have gone up, since, lets just say, last year. It kind of makes sense because there is the spread between the spot and contract is much wider versus the typical $300 to $400 delta that you see.

And also, your charter vessels are no longer in duration, which also makes sense to extend your volumes more towards contracts. So what is your plan around to offset your longer charter duration of your vessels? And then how you're going to bridge the gap within the spot and contract rates?

Yes, the contract season for us on the trans-Pacific run from the 1st of May to the 30th of April, meaning that the discussions for the yearly contracts that normally start after the TP conference early in the year, and the discussions are concluded around mid-April. So this is ahead of us. This is a discussion that we are going to have by and large with our customers in -- that we will start to initiate with our customers in 6 months from now.

And a lot can happen in the next 6 months in terms of the visibility of what will be the expectation for the industry into 2022 and beyond. So obviously, we will take that into consideration when we formulate our strategy in terms of allocating spot or contract. But what you say it does make sense for us to consider, obviously, in the context of the dynamics of the trade that we will continue to monitor, obviously.

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

I mean it can be depending on which line and depending on the week, it could be quite significant. But this is not the way we look at it. Obviously, we have negotiated and agreed with customers on the 30th of April last year, volume commitment and the space protection and with the rate, so we deliver on that.

And then on the spot market, obviously, we've seen the rates that are going to a very high level. But it's a bit of the mix between contracts that we have to honor, and we do. And this is important for us because this is a long-term relationship with our customers and this is something that we do value and we make sure that we protect every single time.

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

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

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