$ZIM - Playing spot exposure of containerships

Really was baffling to see it move down today. Had been on a pretty solid up turn and thought it might get some sympathy or outlook with DAC solid earnings. But DAC was also down overall. Have 1 June 17 70c. So hopefully we get some good news in AM. This is one of those companies I feel is wrongly beaten down and is below fair value.

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ZIM beat earnings handily, but is somehow down.

ZIM Integrated Shipping Services press release (NYSE:ZIM): Q1 GAAP EPS of $14.19 beats by $1.38.
Revenue of $3.72B (+113.8% Y/Y) beats by $230M.
Adjusted EBITDA for the first quarter was $2,533 million, a year-over-year increase of 209%
Operating income (EBIT) for the first quarter was $2,243 million, a year-over-year increase of 228%
Updated Full-Year 2022 Guidance: The Company increased its previously provided guidance for the full-year 2022 and now expects to generate Adjusted EBITDA of between $7.8 billion and $8.2 billion and Adjusted EBIT of between $6.3 billion and $6.7 billion.

As JM notes, its trading at EPS+Cash. Absurb.

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Shouldn’t fight the trend though… so not buying in just yet. Will hold for Shanghai to open and see how freight rates respond.

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ZIM is doing the right thing today and moving up, after that impressive earnings beat.

Nevertheless, it is affected by sentiment and this piece which came out yesterday probably did not help. (Freightwaves is apparently widely followed in the logistics industry)

They make the case that spot rates are going down and may get to point where they replace contracted rates.
25% of ZIM’s volume is contracted and the rest are spot, so they do have some exposure to this, as per the earnings transcript. (Which has some other useful information too.)

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That spot rate has been going down recently. Everyone is pinning hopes on Shanghai reopening for them to rise again.

All in all, need to keep an eye on those rates - ZIM will follow them pretty closely.

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Looks like they are starting to lift the lockdown in Shanghai, this could be bullish for ZIM and other pacific shippers.

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It hit 62 today which was probably a good entry. I’m waiting until below 60. Best luck.

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FreightWaves came out with this piece today, that says:

The latest ocean container bookings data reveals that despite the strong levels of inbound cargo during the first five months of 2022, import demand is not just softening — it’s dropping off a cliff. Because capacity on the trans-Pacific has remained relatively stable, Drewry’s container spot rates from China to the West Coast have plunged 41% month-over-month to $9,630.

Freight forwarders will enjoy expanding margins on ocean freight, while U.S. trucking carriers and intermodal volume providers may start to see volume risks.

Consumer buying patterns are rapidly normalizing to pre-COVID levels, and U.S. retailers are stuck with too much inventory. Target (NYSE: TGT) shares dropped Tuesday morning after executives said the company would mark down unwanted items, cancel purchase orders and move quickly to get rid of excess inventory.

Container imports bound for the U.S. have dropped over 36% since May 24. (This index measures departing container volumes at the port of origin). This is a troubling sign for domestic U.S. freight markets that have been benefiting from an unprecedented surge of containerized import volumes over the last 18 months. Since ocean transit times for these inbound container volumes have recently been averaging between 30 and 35 days, we will begin seeing the softer volumes show up at U.S. ports in the first couple of weeks of July.

They note the following reasons - details in the post:

  • There is inventory glut from consumers reverting back from goods to services
  • Consumer is “getting crushed” (added quotes as not sure of the solidity of their argument - consumers take credit also when they feel good about their finances)
  • The Shanghai container surge we’re expecting with reopening will not happen because most of those were routed to other ports

The Drewry Index has remained flat while the Baltic Index has actually gone down, so at the very least, the data does not contradict what FW is saying.

Let’s keep an eye on this, and if the Shanghai reopening bump doesn’t show up in a week or two, we might have to consider that the good times in containerships is over for now.

In terms of positions, will wind down the outstanding call I have, though will hold on to the ZIM commons as their cost basis makes the dividend still way worth it.

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Looks like Zim dividend paid out today just parking here… forgot I got those two little shares back from the bigger dividend was paid out

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https://twitter.com/VesselsValue/status/1534472878749515776

A lot of these ships should start showing up on the US coasts in four to six weeks. Some (myself included until recently) were hoping for spot container rates to move as a result. If they do not, FreightWave’s interpretation will have been proved to be accurate - that between bloated inventory and rerouting to other ports, this is not the catalyst we were hoping it would be.

There may still be a positive impact in a month on internal trucking/logistics, that we are tracking here.

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back in with a small position

https://seekingalpha.com/article/4517500-zim-dont-buy-the-muppet-show-induced-turmoil-buy-the-company

Biased but a good read.

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went back in as well, i still have a conservative position. will probably unload my calls on a bounce.

So - good for DAC/GSL but bad for ZIM, right?

Also, thanks for sharing this good piece - ZIM’s valuation is a little absurd at this point.

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Grabbed the following:

  • Bunch of commons at market price for my longer term portfolio, about 1/3 the average position size
  • JAN 19, 2024 35C (yes, 18-month expiration) @ $19.50.

On the Leaps - Jan 2023 35C had IV of 92% while Jan 2024 35C had IV of 77%, making them almost the same price. No reason not to get that extra 12 months of runway for a about a dime’s worth premium. If ZIM doesn’t hit $55 again in the next 18 months, I should just quit trading.

Limit orders for:

  • Another 1/3 of average position size at $45 - feel like we might actually hit this next week if market is red enough and analysts pile in
  • And yet another 1/3 of average position size at $40 - this should really not hit, but if it does, it’s a gift. If it does not, I’ll just reprice it to whatever a reasonable price seems to be on the uptrend.

ZIM is a long term play, though it might take a while for the negative sentiment and relative supply chain slump to work out. Hence the longer term bet with commons and 18-month Leaps.

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Good writeup on current ZIM/shipping situation: https://www.reddit.com/r/Vitards/comments/vbo96d/almost_everything_you_need_to_know_about_zim/?utm_medium=android_app&utm_source=share

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Shanghai seems to be more or less back to normal wait times for various cargo ships, and both Drewry and Freightos indices are slightly lower.

The downward trend for ZIM is likely as a result of this. Still plan to load up on $45 and then again on $40, if we get there. Assumption is when market is reminded of juicy dividends again, stock will respond.

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Just saw this article on CNBC, didn’t realize things were so backed up in Europe due to labor strikes?

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Looks like FreightWaves is now realizing its not quite as doom and gloom in shipping as they were making it out to be.

According to The McCown Report, imports to the top 10 U.S. ports rose 5.9% year on year (y/y) to 2.16 million twenty-foot equivalent units, exceeding the 3% y/y gain in May and 5.1% gain in April.

Compared to June 2019, pre-COVID, import volumes to the top 10 U.S. ports were up 26.9% last month, said McCown. East/Gulf Coast ports were up 40.3%, West Coast ports 15.8%.

(Chart: Descartes. Data source: Descartes Datamyne)

According to Descartes, which just released its own report on U.S. containerized imports, “Every month in 2022 has been a record month when compared to the previous years.”

Descartes reported that there were 2.48 million TEUs imported to all American ports in June, up 3% y/y and up 26% from June 2019, pre-pandemic.

More than halfway through July, there’s still no sign of a material dropoff in traffic at America’s import gateways.

Meanwhile, the number of ships at anchor off U.S. container ports is still increasing. This is creating a growing “inventory” of import terminal demand.

The overall queue has now risen by 12% from 125 ships on July 8 and by 52% from 92 ships on June 10. Waiting ships hit a high of around 150 in January-February.

Nevertheless, they still note there is a “more moderate” peak season ahead…

Interesting thing is prices have actually started to move up:

Even though the freight rates are going down steadily:

The drop earlier was because of the downgrade from BofA and I suspect DAC also sold a chunk of shares, which they tend do after dividend payments.

Having said that, ZIM is much more exposed to spot rates than its competitors, so there is a danger they give weaker guidance. So considering taking a bullish position but not holding it through earnings.

There seems to be a secular tailwind on shipping. Probably some combination of higher volumes than 2021, upward adjusted guidance from MATX and earnings coming up, for dividend capture. I didn’t end up catching any of the spreads - they ran away from me and I did not feel like chasing on a green day. Thinking of getting Aug ATM calls instead though, not just on ZIM, but on three other tickers: DAC, GSL and CMRE.

Earnings are as follows:

  • DAC: 01 Aug
  • CMRE: 26 Jul
  • GSL: 01 Aug
  • ZIM: 18 Aug

I like these most out of the ones I track. They also have liquid, or somewhat liquid options.

Please use this link to check out the group of shippers we could choose from.

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