ZIM Integrated Shipping Services’ (ZIM – Free Report) top line is benefiting from robust operational capacity. The collaboration with Hoopo also bodes well for the company. However, ZIM is grappling with increased operating costs, adversely impacting the company’s prospects.
Factors Favoring ZIM
ZIM’s top line is bolstered by impressive growth in both freight rates and carried volume, driving total revenues to $2.77 billion for the third quarter of 2024, a notable increase from $1.27 billion in the same period of 2023. The company carried 970 thousand TEUs (Twenty-foot Equivalent Units) in the third quarter of 2024, up from 867 thousand TEUs a year earlier, while the average freight rate per TEU surged to $2,480 compared to $1,139 in the third quarter of 2023.
ZIM’s operational capacity continues to expand, with the average vessel size now 50% larger than two years ago. The company’s fleet transformation program plays a significant role in this growth, as it replaces smaller, less cost-efficient vessels with larger, more modern and cost-effective newbuilds. As of now, 42 of the 46 newbuild vessels ZIM committed to join its fleet have already been integrated, including LNG-powered ships and various TEU-sized vessels, reinforcing ZIM’s strong operational trajectory.
The company focuses on niche markets and high-margin trade routes, allowing it to avoid crowded, low-margin segments and maintain strong pricing power, which supports profitability. The company’s operational efficiency benefits from investments in digitalization and innovative technologies. These advancements not only enhance ZIM’s bottom line but also enable it to capitalize on emerging trends, such as the rising demand for eco-friendly shipping solutions.
ZIM’s proactive initiatives to boost talent acquisition are impressive. This campaign highlights ZIM’s unique corporate culture and values under the slogan “Hear the Difference. See the Difference. Be the Difference.” It focuses on attracting candidates for customer service, sales and other key roles, leveraging social media, job platforms and mobile billboards to reach potential employees. ZIM offers opportunities at its new offices in Virginia Beach and New Jersey. ZIM USA president Nissim Yochai highlighted that the initiative aligns with the company’s growth vision and commitment to its team.
The collaboration between ZIM and Hoopo represents a significant technological advancement in container shipping. The benefits, including enhanced tracking visibility, improved security, reduced operational costs and long-term sustainability, are likely to set a new standard in the industry. As other shipping lines adopt similar technologies, this innovation could drive the widespread adoption of smart containers, which will further transform logistics operations globally.
The company’s commitment to rewarding its shareholders through dividends is praiseworthy, having returned $5.2 billion, or $43.26 per share, since 2021, including the current quarter’s dividend. In the third quarter of 2024, ZIM’s board of directors declared a special dividend of $100 million in addition to the regular $340 million dividend, which reflects 30% of the third-quarter net income, in line with the company’s dividend policy. On a per-share basis, ZIM will distribute $3.65, consisting of $2.81 per share from third-quarter results and an additional $0.84 per share as a special dividend.
Owing to such tailwinds, ZIM shares have surged 64.6% over the past year compared with the industry’s growth of 3%.
Image Source: Zacks Investment Research
ZIM: Key Risks to Watch
The surge in operating expenses is adversely impacting the company’s bottom line. In the third quarter of 2024, operating costs increased by 15.7% year over year.
ZIM’s financial metrics reveal a high level of leverage. As of the third quarter of 2024, the company’s long-term debt stood at $4.3 billion, resulting in a debt-to-capitalization ratio of 52.5%, higher than the sub-industry average of 35.2%. In contrast, ZIM’s long-term debt was significantly lower at the end of 2021, amounting to $2.3 billion.
ZIM’s Zacks Rank
ZIM currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Investors interested in the Zacks Transportation sector may consider American Airlines (AAL – Free Report) and United Airlines (UAL – Free Report) .
American Airlines currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AAL has an expected earnings growth rate of 16% for the current year. The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average beat of 124.4%. Shares of AAL have risen 16.4% in the past year.
United Airlines currently carries a Zacks Rank #2 (Buy). UAL has an expected earnings growth rate of 1.3% for the current year.
The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 26.9%. Shares of UAL have climbed 122.9% in the past year.
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