ZIM Integrated Shipping Services Ltd. (ZIM) Q4 2021 Earnings Call Transcript

ZIM Integrated Shipping Services Ltd. (ZIM 9.88%)
Q4 2021 Earnings Call
Mar 09, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. I'm Natalie, your course call operator. Welcome, and thank you for joining the ZIM Integrated Shipping Services Ltd. full year and fourth quarter 2021 earnings call.

[Operator instructions] 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 9th, 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 -- President and Chief Executive Officer

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 in segments the union strategy unfolding in Ukraine and the suffering of the people there. Our hearts go out to the men, women, and children affected by the environments. 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 to stay safe. We are also in touch with customers in Ukraine, and support them in any way we can. Our duty toward reserve human life exceeds all other considerations. [Inaudible] ZIM has donated to help build and operate [Inaudible] 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, making 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 period and giving ZIM -- and given ZIM an all 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 number five highlights, we highlight the number of key operational accomplishments that contributed to our 2021 record results.

It is important to me to thank our employees worldwide for the hard work and dedication during the 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.

On 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 -- 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 agreement for 36 new build vessels or 318,000 TEUs, most of this capacity is LNG powered. This access to EBITDA tonnage will enable ZIM to meet growing demand to deploy more carbon-efficient tonnage to assist our customers in meeting their own ESG targets.

In fact, given the significant new build capacity, there will be no carbon and cost-efficient when operating these vessels starting in 2023, then 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, record adjusted EBITDA, and record net profit, enabling ZIM to achieve its third full year 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 the 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 dividend, including interim dividends.

Today, we are delivering one -- 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 we are providing full year '22 guidance. Reflective of 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 to 6 -- $5.6 billion to $6 billion in 2022. Based on the midterm 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 are taking advantage to 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 [Inaudible] operating fleet and advance our proven strategy of charter engine, 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 [Inaudible] average duration of new charging is, in fact, longer, we successfully maintained upper 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 capitalize on the turnaround in the market dynamics.

Most notably, we identified the opportunity to promote an alternative mode of transport for e-commerce customers and launch 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 to Australia and New Zealand and now we have the new line to [Inaudible] and 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 longtail contracts. Another example of our ability to identify and grow profitable commercial opportunities 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. 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 and the plan.

Of the 36 new deals to be added to our fleet, 28 are LNG dual-fuel container vessels. This represents [Inaudible] new tonnage. When we take delivery of these vessels, approximately 40% of our operating capacity could be LNG fuel, positioning us at the forefront of carbon intensity reduction among global liners and supporting our customers in the ESG efforts to reduce the carbon footprint. While the need to decarbonize can be tricky like the threat in our industry for [Inaudible] and opportunity.

Given our strategy to finally 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 is right investment in container has allowed us to better support our customers during these times of growing congestions. We also renewed our reefers and today operate a best-in-class reefer fleet.

This new reefer utilize the most advanced technologies and again, offer customers more environmentally friendly solutions. Finally, we continue to position ZIM as a leading digital shipping company focused on restructure and innovation. Throughout 2021, we advanced multiple initiatives such as [Inaudible] We introduced disruptive technology and could be significant future growth engines for ZIM. Internally, we continue to employ data science and efficient intelligence team.

For example, we launched in 2021, a partnership with Data Science Group, DSG, to develop advanced models to focus 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 comment on our financial results and market developments. Please.

Xavier Destriau -- Chief Financial Officer

Thank you, Eli, and I also would like to welcome everyone and thank you for joining us today. On Slide 9, we highlight that on PR demonstrating our extraordinary financial performance. These were once again driven by continued elevated rates in the spot market as well as higher than specific annual contract rates. ZIM has continued to prioritize better-paying cargo and undertaken initiatives to capitalize on the e-commerce group, which are key differentiators that have allowed us to bear even higher rates.

Specifically, 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. That 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, that is mainly driven by the increased number of vessel fixtures that we concluded during the period and also higher volume, and for longer average duration. Over the same period, cash position grew by more than $3.2 billion, therefore, driving net EBITDA to a point that the company closed the period for 2021 in a positive net cash situation. Despite longer-term charges becoming more [Inaudible] the average remaining duration of our current charter capacity today in 36 or 12 months.

On this area, from the 34.8 months that we disclosed in November and rigor current operating capacity to the scheduled delivery of our newbuild vessels. Also, only 15 vessels are scheduled for renewal now 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 a [Inaudible] of fleets 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 the 5.3 in the first quarter of 2019 to zero. Importantly, we continue to be positioned in the [Inaudible] 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 EUR6.6 billion for 2021, compared to $1 billion in 2020, representing growth of nearly 540%. Our 2021 adjusted EBITDA and EBIT margin 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 million in the fourth quarter of 2020, an increase of more than 150% due to improved freight rate and increase in carry 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 margin of 68% and 61%, respectively, improved year over year and sequentially and continue to position being among the industry-leading performance. Our Q4 results include a tax expense totaling $374 million for the quarter and that is $1 billion for the full year 2021. As we previously indicated, in 2022, we will be incurring and subject to 33% of corporate income tax rate in this math. On the next slide, we highlight we're increasing 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%, volume growth of [Inaudible] and 22% in transpacific were for being the primary contributors. This close was a direct result of our focus on expanding our presence and entering new trade. Our expanded network is also the basis for our positive forward outlook. Though in 2022, we expect volume to grow in line with the market.

In the fourth quarter of 2021, this 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 and consistent with our mission experience across our industry. Eli mentioned our investment 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 have 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 operation. Other cash flow items in the fourth quarter including $344 million of net capital expenditure, $308 million of debt service, and $299 million of dividend that we attributed in analog.

For the full year, our adjusted EBITDA of $6.6 billion converted into a $6 billion cash flow from operation. 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 property view moving forward. While many including [Inaudible] initially expected a more normalized market toward the second half of 2021, these projections were pushing out port congestion worsened and demand remained robust.

Today, with the underlying market conditions, which caused record Q3 with an elevated [Inaudible] finally, sentiment is now turning to the second half of 2022 at the earliest. Moreover, we believe that even with the planned deliveries of 2023 and 2024, the need for [Inaudible] and the impact of IMO regulation expected to come into FX in 2023. Fundamentals remain favorable in both the near and the longer term and the statement of capacity is meaningful. The Ocean Timeliness Indicator demonstrates the depth of all objections as seen here on Slide 17.

The end-to-end transport time from the exported location to the fourth of definition of the factory grew from 45 days [Inaudible] to more than 110 days. As supply chain grows longer, there is a high demand for more vessels and containment to absorb its elongation. And investors on the move are growing larger as well. These measures show no signs that the supply chain prices [Inaudible].

Turning to the left to 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 [Inaudible] 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 duration. Turning to Slide 19, higher fixed costs were also incurred by the liners as the source tonnage in the second-hand market to meet demand.

2021 showed extraordinary sales and purchase activity in terms of volume, but more important in terms of price. We believe that higher fixed cost structure demonstrated the line of increased confidence in market strength sustaining. Looking at the chart of the right to the line, the demand for containment shipping continues to be robust and is being supported by the largest ever restocking cycle in the U.S. While sales of inventory ratio is slightly up, the data continues to suggest the pressure on retail-based inventory is partially speeding over to wholesale as well.

inventory replenishment for wholesalers continue to fail to keep pace itself, leading to 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. [Inaudible] we start to gradually decline starting in the second half of 2022. Our contract rates for the competitive trade will not further recover approximately 50% of our volume, and we did significantly higher than 2021 contract level. In 2022, we expect to grow our fund volume in line with global market growth.

Average copper price in 2022 will be higher than 2021. And as for charter rate, we expect that to remain stable in 2022. Yet I will remind you that our disposal to the charter market is unlimited in 2022. As already indicated, we had only 15 vessels as for renewal before the end of the year.

The approximately $700 million higher depreciation costs reflected in our 2022 guidance, which is a reflective division 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 since 2020 And third, the cost clarification impact as we increase the percentage of the long-term charter that in charter observation of more than a year, and therefore, shifting back to cost of opex down to right of lease asset depreciation. With respect to the impact of the war in Ukraine, as this side, we don't believe that suspending our services to Odessa and Russia will have a material impact on our 2022 financial results. We will evenly deploy or redeploy investment elsewhere given the current capacity.

The situation is not just, it's very volatile and to 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 we totaled $19.5 per share, representing 60% of 2021 net income. Taking into consideration is a special dividend of $2 per share that we paid in September 2021, we will return $21.5 per share to shareholders in dividend in our first year as [Inaudible] expenses.

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.

Questions & Answers:

Operator

[Operator instructions] And the first question is from the line of Randy Giveans from Jefferies. Please go ahead.

Randy Giveans -- Jefferies -- Analyst

Yes. Good morning, indeed. Congrats obviously, I mean on the quarter, the year, massive dividends. So I have a few questions, 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 rate 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 amount of volumes or average rate duration?

Xavier Destriau -- Chief Financial Officer

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 when it comes to 2022, growth volume assumptions, and that 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 [Inaudible] in 2021. From a rate perspective, as we've mentioned, I think, in one of the slides, our operating rate assumption for 2022, if we were to compare it to the average rate that we delivered in 2021 is going to be higher. And that 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 still very much there. SCFI continues to be extremely strong, therefore, pushing the -- or sustaining strong profit as we enter into 2022. And when it comes to the visibility of the second part of the year, this is where I think we get the also added visibility of what we expect to see in terms of the contract toehold that we secure with our contracted customers, especially relevant on the transpacific trade, 50% of our volume that we -- this is still not yet finalized that we have better visibility today. We expect to close on average the contract at a premium rate compared to what to be secured last season, which will also support the overall -- or the average pay toward the second half of 2022.

Randy Giveans -- Jefferies -- Analyst

OK. Can you quantify that a little bit better than is that 5% or 80%, right, in terms of the average rates? And then for the duration, is the majority going to be 12 months?

Xavier Destriau -- Chief Financial Officer

Starting with the second part of your question, when we talk about the duration, yes, the vast majority fee of our contracts are likely to be covering a 12-month's play, as it has been the norm in the past. That doesn't mean that we will not have some contracts that may extend the border beyond 12 months, but some customers are asking us to consider. But by and large, the vast majority should be for [Inaudible] and then when it comes to you, where we will be landing in terms of the average freight rate that we bear for the contracted volume, we can say that we expect it to be significantly higher than was in 2021. It's still a little bit too early for us to be to quantify to what extent that may be.

Randy Giveans -- Jefferies -- Analyst

That's target. 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 all for dividends, maybe not balance that with share repurchases kind of fall through that process?

Xavier Destriau -- Chief Financial Officer

Yes. What is very important for us is that we deliver on the policies we made to the market when we predicted it more than a year ago. And we always said that it was high in the agenda of the management of the Board to return capital to shareholders. And as you may remember, we have refined and updated our dividend guidance -- dividend policy over the [ first ] quarter of 2021.

So we ended up saying back in Q4 last year that the intention would be to pay between 30% to 50% to return between 30% to 50% of net income back to shareholders. We have closed in 2021 very strongly. I think the numbers do speak for themselves. When we also looked ahead into 2022, we are cautiously optimistic that in 2022, at least at the beginning of the year passed by strongly.

So we think all the conditions are actually met to deliver on our promises toward the 50% range as opposed toward the role of 40%. That's the rationale behind. We're also looking obviously at how do we best allocate our capital. We want to make sure we continue to invest in enhancing our commercial prospects, but we secure the equipment, the vessel that we need, that we are also continuing to invest in our digital transformation but the financial results of 2021, again, coupled with the outlook of 2022 will be justified for us to return on the high end of the range.

Now you also sequential buyback, why not considering a share buyback? We always did mention as well that there are other ways to return capital to shareholders, not only dividend, share buyback could be an adoption. For now, what we wanted to promote is again 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, as they will be paid quarterly, again, trying to set track record here, which we believe should unlock shareholder value.

Randy Giveans -- Jefferies -- Analyst

Got it. Thanks for that thorough answer. Share buybacks would have been the cherry on top, but otherwise excellent results. Thanks again.

Eli Glickman -- President and Chief Executive Officer

We see that you're consistent and it's OK. And we're looking forward, but we think that this is the best way to deliver and to show results to shareholders and looking around, say, the world stock shareholders, the stock rates today until the last. We think this is going to be the best way to deliver [Inaudible] to shareholders.

Randy Giveans -- Jefferies -- Analyst

Yeah. That's fair. Thank you.

Operator

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

Muneeba Kayani -- Bank of America Merrill Lynch -- Analyst

Thank you for the presentation. I firstly wanted to ask about kind of 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, 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 contact ending mid of this year? And how do you factor that into your guidance? And what's the impact on the spot change? And then if I could ask a third one, why do you -- with the strong growth in volumes last year and kind of your expectations for the market this year, why is growth slowing down this year? And kind of do you have any flexibility to be higher than kind of that 6%, 7% this year in terms of volumes?

Xavier Destriau -- Chief Financial Officer

Yes. So I will start with the first one [Inaudible] is very visible and I think under the spotlight, there are a lot of metrics that are being shared on a weekly basis how to best monitor the bottleneck that is very much prevailing in this terminal. There are a couple of things. Let's remember that today, our February is normally a week month in normal circumstances.

There is still a little bit of seasonality in our industry. We are just around just after Chinese New Year. And there are a little bit less pressure from a volume perspective point few weeks, which to some extent, also start to assist in clearing maybe some of the congestion in LA, hence why mitigate a little bit less vessels. Another thing is that, it does not necessarily mean because we see less vessel in the vicinity after the port of LA that those vessels are not being pushed back a little bit further down off of it and on their way to -- so the way you see that is to a reduction in span of a couple of weeks at the time where seasonality is also normally suggesting that the volume should reduce and is already [Inaudible] of a new channel.

That may be too early to represent. I would add to that when things are starting to get maybe a bit better seems to be getting a bit better in LA. Situation is worsening in some other terminals being of the East Coast or Vancouver commitment [Inaudible] So the congestion and the bottleneck are still very much there for us as an industry to navigate with. Then the second question that you were referring to, when is the expectation with respect to the negotiation of the unions that should take place in the coming months.

It's difficult for us to assess what could happen. And we know what happened when it lost on the agenda. Difficult to say what may happen this time around, but it is indeed adding an additional level of uncertainty as to when the quarter mix might finally ease in this terminal. And as we know, with the global network that we released, so this may have some long-term effect as well.

So there is uncertainty here as far as there is not much we can say as to what we anticipate in terms of potential additional disruption coming out. [Inaudible] And to the third question that you raised with respect to our ability to potentially capture additional growth in the market, we could always -- as you may remember, the mission of the strategy of the company is to grow when we see opportunity and not to go to capture additional market share. So if we see opportunities for us to continue to grow and to grow more than the market, we will potentially look at those actions and those opportunities. But after having grown by 23% in 2021, when it comes to providing guidance for 2022, we expect to remain conservative on that front.

We really don't know what is the situation, if it's a new trend. But what we can say that the vessels rating the Vancouver few weeks, we see some pressure [Inaudible] such as Charleston, Savannah, and New York. So the pressures in some vessels because the speed underway away from the west side of the Pacific. So the new regulation or procedures to go to low and we try to reduce the number of vessels working directly or close to low.

I cannot share what you say about the new situation.

Muneeba Kayani -- Bank of America Merrill Lynch -- Analyst

Thank you.

Operator

The next question is from the line of Omar Nokta from Clarkson Securities. Please go ahead.

Omar Nokta -- Clarkson Securities -- Analyst

Thank you, guys. Yeah. Congratulations on a phenomenal 2021. And clearly, 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, obviously, the biggest footprint for them is the transpacific. But in general, are you seeing any direct impacts from the current Russian Ukraine situation on your activities?

Xavier Destriau -- Chief Financial Officer

Yes. You're right. Obviously, we do see some impact, but in terms of the way we manage the services that we have that call the Black Sea, Ukraine, and we have city from Ukraine, Romania, and ex-Russia, the tons. So we are -- also we are exiting those two countries, Ukraine and Russia.

We are redirecting capacity. So from operations perspective, we are taking actions and we are making sure that the vessels will quite definitely struggle elsewhere. So this is what we do. From a financial impact perspective today, we see a very limited effect.

And again, for us, those services really present a not significant percentage of our overall tariffs. So really we see when we do take actions, but as of today, with the expectation or the assumption we said that the context remains local for us, we do not envisage a material effect.

Omar Nokta -- Clarkson Securities -- Analyst

OK. 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 you're viewing the business, but also with respect to the guidance you've given today? And how are you dealing with maybe heightened risk of impact on consumer spending?

Xavier Destriau -- Chief Financial Officer

Yes. So for now, we have to work with what we know. We need to make assumptions when we provide indeed our guidance. We cannot today anticipate what will be the duration of the conflict.

We cannot anticipate whether the conflict might spread to other locations and have potential additional impact on trade that would be more relevant to us. So, we are obviously monitoring and we continue to monitor the situation. And I'm not going to be saying on a weekly basis because we do it on a daily basis. And if there was to be some widening or some additional impact to be anticipated, we would obviously factor those in and we have to revise our guidance perspective that in the prior year, we would obviously do so.

When it comes to the effect which is very visible today, which is the increased bunkering cost, which is skyrocketing very, very quickly. We -- as you know, we have a quite efficient path to the [Inaudible] that we will continue to enforce to our customers, which in a way, a natural hedge part of mechanism. Anything has a limit, obviously, and if the fincos were to remain elevated for a very significant duration, then we will need to factor that into our future estimates. But very difficult to say today -- we anticipate today what will be the big price for the second half of the year, which is what is relevant to us when it comes to 2022 guidance by the way, because as you know, a pretty much [Inaudible].

Omar Nokta -- Clarkson Securities -- Analyst

OK. Yes. And just the -- you mentioned just on the bunker fuel, you were indicating that the latest spike, this is something we're able to pass through, I guess, in the short term and then potentially the long-term still needs to be assessed. Is that right?

Xavier Destriau -- Chief Financial Officer

Yes, there is a lot of uncertainty ahead as you likely pointed out, so we cannot make assumptions here. But if the situation was to remain or to continue to scale to a point where the fuel bunker cost would become significantly higher than it is today. The good thing maybe if you look at our expectations for the 2022, we already have assumed that the average freight rate I think on the spot market will gradually normalize and gradually come down leaving room in a way for additional product fuel cost, but we have to monitor and track the situation as we [Inaudible].

Omar Nokta -- Clarkson Securities -- Analyst

Great. Yes. OK. And one more, and I'll turn it over.

Just maybe more about the business. And obviously, for the past several years, trans-Pacific has been your main footprint. But intra-Asia now has really started to pick up and become over a quarter of your volumes. How are you seeing that develop here 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 getting larger?

Xavier Destriau -- Chief Financial Officer

We will see there is still a lot to capture [Inaudible] to contribute to the some extent that trans-Pacific goes today. But you're right that it is an extremely dynamic trade where we are growing quarter after quarter. Also, of course, the definition of intra-Asia includes Asia to Australia and also Asia to East and West Africa. So it's the Asia, I should really emphasize here.

And we've been quite active in growing our volume between Asia to Australia and between Asia to Africa. So we see quite a lot of opportunity to continue to grow in this region or also within the intra-Asia area. So [Inaudible] that from a volume perspective, we will catch up the intra-Asia in a way we catch up with the prevailing trans-Pacific trade.

Omar Nokta -- Clarkson Securities -- Analyst

Very good. Well, thank you. Thank you and congratulations, guys, again on a fantastic '21.

Xavier Destriau -- Chief Financial Officer

Thank you.

Operator

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

Sathish Sivakumar -- Citi -- Analyst

Yeah. Thanks again for the presentation and again, congratulations on the results. I've got three questions. So first on the booking visibility.

So Xavier, earlier you mentioned that [Inaudible] are and how visible -- and also you said that you had a strong Q4, you had a good visibility to Q1. So if you could actually comment on what are you actually seeing in terms of your bookings on the vessels like on which window forward that you can actually see it as of today?

Xavier Destriau -- Chief Financial Officer

Yes. So today, we continue to see very strong demand from a booking perspective. And as I pointed out earlier on, we are just a few weeks after Chinese New Year. So we see the business bookings coming back faster in 2022 than what used to be the case in prior year, which is a good indication that there is still a lot of unsatisfied demand.

And as you know, we also have because of the stronger -- the strong demand that we've been experiencing in the weeks ahead of the Chinese New Year, we had another rollover toggle that we have been taken on board also during those weeks on a non-Chinese New Year. So the recovery in volume from a seasonality perspective is very strong and it's coming in very fast, so which for the first quarter of 2021 did allow us to confirm that we expect a very strong first quarter in line with the first quarter of -- I'm sorry 2021. The first quarter of 2022 is coming in very strong in a similar type of shift than the fourth quarter of 2021.

Sathish Sivakumar -- Citi -- Analyst

OK. Thank you. My second question is on the charter capacity. In the Slide 18, you actually meant -- given a nice bit around how the industry has changed.

So there the average duration is 3.5 years, right? So that's again industry data -- so how does it actually come [Inaudible]? What is your average charter duration capacity today?

Eli Glickman -- President and Chief Executive Officer

When we charter or when we secure a new charter in contract, the vast majority of our charter agreements now are signed for a period of between three to five years. And I'm leaving aside the long-term charters that we entered into in 2021 for the guiding capacity, charter agreement that we secured for the usual providers today three to five. Part of that consummates when it comes to looking at what is the average reminder of the duration of the contract that were today of the 118 vessels that we were operating as of the end of 2021. This is a bit more than two years on average.

So I think it is a 26 months or so that there is a liability that you see on balance sheet as of end of 2021 represents, 26 months' worth of charter for 118 vessels.

Sathish Sivakumar -- Citi -- Analyst

So 26 months of charter is left on an average on your portfolio. And so, how does that would tally with the vessel deliveries that you are likely to get in '23 and '24?

Xavier Destriau -- Chief Financial Officer

You're right. It is very important that we've been working hard as early as of the second half of 2020, by the way, to make sure that we were in early 2021 when we decided to first [Inaudible]. So, we are looking at ensuring that when those vessels start being delivered to us as early as January or February, the first one will be delivered to us in 2023 and then one a month, so that we have the ability to either redeliver some of our currently operated capacity or keep the capacity of some of it and grow and increase [Inaudible]. So we will have the option to do either or take obviously the delivery of this new business and either renew these contracts, some of the contracts that we commit for renewal at that time or we negotiate and secure that tonnage for longer.

We have 30 vessels that we promised for renewal in 2023.

Sathish Sivakumar -- Citi -- Analyst

In 2023, yeah?

Xavier Destriau -- Chief Financial Officer

Yes.

Sathish Sivakumar -- Citi -- Analyst

OK. Thank you. And the last question is actually around the capex. So if you look at your 2021 capex, it was about $1 billion of capex.

And I assume that the majority of that capex is related to equipment, right? Is there any vessel-related payments that are done in 2021? And how should we think about going into 2022?

Xavier Destriau -- Chief Financial Officer

You're right. Most of the capex of 2021 related to equipment, close to $900 million of cash capex related to the 6,000 TEUs that we will see in our fleet of containers. We have a little bit of a cash capex related to -- remember, we acquired seven secondhand vessels in the course of -- in the fourth quarter 2021. We got delivery of five out of the gate.

And so, there's been some payment with respect a little bit more or less in the first quarter of 2022 when we will get the last three vessels that we acquired in the fourth quarter. But looking into 2022 in terms of cash capex, we will have a little bit of a vessel farness in terms of equipment, we anticipate may be around the $200 million of additional equipment to continue to renew and recognize our fleet of containers.

Sathish Sivakumar -- Citi -- Analyst

OK. Thanks again for your time.

Xavier Destriau -- Chief Financial Officer

Thank you.

Operator

The next question is from the line of Alexia Dogani from Barclays. Please go ahead.

Alexia Dogani -- Barclays -- Analyst

Congratulations for strong performance. I have three questions as well. Just firstly on capex following on the question earlier, if we had $1.1 billion of net capex in '21, how much does this step down in '22? And also with relation to the debt service payments that was $1.4 billion, how should we expect that number to fall in '22? That's one -- my first question. My second question is, I read down on the slide that you have the ambition of growing to 1 million TEUs.

By what period is that? And should we expect the 125 vessels you currently operate to increase by the statistics that are coming on board to get to that 1 million target? And then finally, can you just give us a little bit more color of what you think the practical implications of the new IMO regulations that are coming to effect next year will mean full capacity? Because when I look at the scrapping rate that Alphaliner expects, it's not significant. And so, I'm just trying to understand the levers to what happens post the introduction of regulation next year.

Xavier Destriau -- Chief Financial Officer

OK. So maybe starting with the capex question you had.

Yes. So the 1 million TEU refers to equipment containers. That's the capacity of containers that we have, not the capacity or the [Inaudible]. So we increased our fleet of equipment from 620,000 TEU at the beginning of the year, close to 1 million TEU at the end of the year.

And so, that's one thing. And then we, at the same time, increased our operating capacity when it comes to vessel, from 85 vessels that we [Inaudible] at the beginning of the year 2021 to 119 and 125 vessels that we operate today. So that's the -- maybe the clarification on the 1 million TEU related here to equipment. With regards to the question on capex for 2022, the overall cash capex that we would anticipate adding the $200 million of equipment, maybe doubling it to add a little bit more on the digital front to add on our IT investments and also cater for the what is left to be paid on the vessel side.

So $400 million, $500 million together, it should be a good assumption for cash capex into 2022. And with respect to the last question on the IMO effect, I expect the impact in 2023. Yes, the -- it's difficult to assess what will be the overall effect on the effective deployed capacity in 2023. Just to give maybe some indication, when we look at the [Inaudible] in the water, the 25 million TEU that [Inaudible] vessels altogether.

As of the first quarter of January 2023, half of that capacity will be 15 years old and older, 15 years old and older. And obviously, the over the capacity of the vessel, the more difficult vehicles of the more challenging it would be for that given vessel to meet the emission regulation criteria. So in 2023, gradually over time, what we anticipate is quite quickly that the regulation is imposed more and more restriction on part of addition, which will to some extent affect the effective capacity as it will improve on the vessel operator to lower the speed of operation. And I think there are some studies out there suggesting that if we were to reduce the speed value at 5%, it will have an effect of 7% of the effective capacity.

And that's what we are referring to when we think that there will be a lot of pressure on effective supply in 2022 and onwards.

Alexia Dogani -- Barclays -- Analyst

And can I just check on the debt service payments? Should we expect that number to be flat year-over-year? Or should we expect those 22 vessels that need to be recharged that will price in at a higher rate and drive a little bit of an increase? I'm just trying to understand what drives the $1.500 million increase in the depreciation. Obviously, capex is coming down and the cash capex coming down. So should the debt service payment go up?

Xavier Destriau -- Chief Financial Officer

You're making a good point. Let me just clarify to you. As I mentioned, now all the vessels that we currently operate or almost all the vessels that we currently operated on the long-term charter win, which means that from an accounting perspective, everything is classified as one of these assets on the balance sheet and dependent in the lease liability. So the debt that you see on balance sheet is mostly made of the lease liabilities that come as a result of us entering into that contractual obligation vis-a-vis the financial providers.

So -- and on the depreciation side, if you look at the depreciation line, what is it that we depreciate is the asset -- one of these assets that we've just booked on balance sheet when we secure those contracts, and you have the depreciation of the containers of the equipment. And with regard for 2022, you see that there is $1.5 billion difference between EBIT and EBITDA. This is the amortization of our assets, our assets being mainly the vessels I just talked about and the containers. Take $100 million for containers, the rest is assets.

This asset is of $1.4 billion that you see in amortization, [Inaudible] pretty much perfectly with the debt service because the debt, as we said, is also only the reflection of those commissions. So the debt service is a [Inaudible] with the amortization that you see on balance sheet. The one thing that I just would like also to highlight or two things that I would like to highlight to complete the picture here is that first, the -- as a result of the new relationship with 2M, we are no longer buying slots from our partners as we are only -- so there is no longer any financial exchange between Maersk and MSC, meaning that from a cost perspective, the chartering of the swap buy is no longer there in 2022 as from the 1st of January onwards -- 1st of April onwards. And so, that contributes as well to reducing our projects.

Second and last, very important as well, [Inaudible], meaning that if you look at the amortization of $1.5 billion, that includes not only the depreciation of the asset itself but also the revenue cost of operating those assets, meaning the [Inaudible] related the cost and the technical management of the vessel.

Alexia Dogani -- Barclays -- Analyst

Understood. And actually, if you don't mind, can I just ask a very quick one. On your guidance for '22, what is the bunker fuel assumption within the guidance range you've given?

Xavier Destriau -- Chief Financial Officer

That assumption is extremely relevant for me to disclose that information. As I mentioned earlier, we are working under the assumption that any increase in fuel costs will be platformed to our customers at the MBS or the bunker surcharge.

Alexia Dogani -- Barclays -- Analyst

OK. Thanks for that.

Operator

The next question is from the line of Sam Bland from J.P. Morgan. Please go ahead.

Sam Bland -- J.P. Morgan -- Analyst

Thanks for taking my question. The first one is on cash tax, which has been quite low for now. Could we have a bit of color on how to think about cash tax, particularly in 2022? Is there a catch-up element for that? The second one is on your exposure to contracted rates. I think across the whole portfolio, that was -- about 25% of volume was on contracted rates.

Is that still -- is it still roughly around that kind of level? Or would you like to increase it? And the third question is on the 36 new ships on order. Can you talk about the how much higher the unit cost is on operating those ships versus the ones you've already got [Inaudible] charter costs on those 36 new ships higher?

Xavier Destriau -- Chief Financial Officer

OK. So the first one on the cash tax, yes, in 2022, we will be paying whatever is left due in relation to 2021 and that is a $500 million benefit. And we will also pay on account of what is likely to be our overall tax liability of 2022. So there will be, from a cash perspective, a catch-up in 2022.

So that's for the first question. The second question with regards to contract, we indeed continue to see that expect to lock in 50% of our trans-Pacific volume for contract cargo and since trans-Pacific volume account for half of the overall volume that we carry, that's how we come to the 25% of the contracted cargo. So that number is -- normally should be similar year-over-year. And we should not expect a significant shift in this respect.

With regards to your third question and the expected cost of operation of the new build capacity that we've [Inaudible] and others. Actually, the cost of operation will be lower when they will get the delivery of that capacity compared to the cost of operating the capacity that we operate today. And this is exactly why we entered into those contracts early in 2021 because we wanted to get away from the [ too ] high reliance that we had on the spot charter market for vessels that we knew we had a long-term store. And so, we are -- and you have to look at those vessels in terms of costing in light of the newbuilding market, new building price as opposed to the charter market.

So the cost, the TEU of this new, more efficient, and green advantage will actually reduce compared to the cost that -- reduce compared to the capacity that it will replace when we take delivery of those as opposed to increase.

Sam Bland -- J.P. Morgan -- Analyst

Just to sure, is that a lower cost versus chartering a ship today or a lower cost versus, let's say, the pre-COVID level?

Xavier Destriau -- Chief Financial Officer

I mean, because if you look at the chartering market, it's been extremely volatile over the past few years. So pre-COVID, the chartering market was at low level. So I wouldn't suggest that this is the right benchmark to take. But clearly, if you compare the cost of operation of this in 2021 and what we expect to see in 2022 with what will be the cost in 2023 and beyond, once we take delivery of that vessel, it actually will improve.

Sam Bland -- J.P. Morgan -- Analyst

Thank you very much.

Xavier Destriau -- Chief Financial Officer

Thank you.

Operator

This ends the Q&A session, and I would like to hand back to ZIM's CEO, Mr. Eli Glickman for closing comments.

Eli Glickman -- President and Chief Executive Officer

Thank you very much, operator. 2021 was a remarkable year for ZIM. In our first year as a public company, we delivered record results significantly exceeding all our regional projections. This performance was driven by unusual market conditions, which pushed freight rates to historical high, but also thanks to our proactive strategies, which enabled us to outperform in terms of growth and profitability.

Today, we are sharing these remarkable results with our shareholders. In total, since our IPO, we are returning to shareholders approximately $2.6 billion or $21.5 per share. We also provided a strong outlook for 2022, according to which we expect our 2022 performance to be similar to 2021. My observation about ZIM's future, [Inaudible] on our anticipated performance in 2022.

In the past year, we utilized our strong cash generation to strengthen ZIM operationally and commercially to improve our competitive position, and we are excited to carry this strong swift momentum forward, reinforced by our forward view of container shipping, I'm very positive about ZIM's prospects and believe we'll continue to generate substantial capability and deliver long-term value to our shareholders. Thank you again for joining us today. Have a good day.

Operator

[Operator signoff]

Duration: 93 minutes

Call participants:

Elana Holzman -- Head of Investor Relations

Eli Glickman -- President and Chief Executive Officer

Xavier Destriau -- Chief Financial Officer

Randy Giveans -- Jefferies -- Analyst

Muneeba Kayani -- Bank of America Merrill Lynch -- Analyst

Omar Nokta -- Clarkson Securities -- Analyst

Sathish Sivakumar -- Citi -- Analyst

Alexia Dogani -- Barclays -- Analyst

Sam Bland -- J.P. Morgan -- Analyst

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