An interesting story of the shipping industry

An interesting story of the shipping industry - centered on a company called ZIM

Does anyone remember which company had the second highest net profit based on all companies in Korea in 2022. I think Samsung Electronics was the first one, but where was the second one? It was HMM, a name that was very unfamiliar to ordinary people, not Hyundai Motor, not SK Hynix, and not LG Chem. At that time, Samjeon's net profit was KRW 25 trillion, HMM was KRW 10 trillion, and Hyundai Motor, LG Chem, and SK Hynix were KRW 3 trillion. HMM's nickname in 2022 was Hemsla, but it wasn't given that name for no reason.

However, looking back to 2019, HMM's net profit was negative 5.8 billion won, and at this point, we cannot help but be curious about the logic of shipping companies like the roller coaster. Shipping companies increase sales through freight charges and spend expenses on ship operation costs, unloading costs, terminal usage fees, and capital procurement costs. Therefore, if the cost of freight increases, sales jump sharply, and vice versa, sales decrease. For this reason, the shipping company's profits are bound to have a high correlation with the freight index. For reference, the trend is that annual traffic volume increases to around 3-5% compared to the previous year.

There are various freight rates around the world, and Drewry in the UK releases a macro one-rate index called WCI. Of course, top and bottom SCFI is cited more in the industry, but I will talk about it based on WCI in a macro way here. The trends between them are similar anyway. This freight index has formed a box-office range between 1,000 and 2,000 for quite some time, and there was a time when the index suddenly jumped to 10,000, so it is from 2021 to 2022. Corona and Lu War were the reasons.

Due to the coronavirus pandemic, global trade volume dropped dramatically between 19 and 20, resulting in an explosion in demand in 2021 that exceeded 20% of the previous year. HMM did not earn 1 trillion won in net profit for nothing in 2022. Sales increased three to four times when the freight rate index suddenly increased four to five times. HMM's net profit in 2019 was -0.5 trillion won, while its net profit in 2022 was 18.6 trillion won. Of course, there was a difference in the volume of goods, but the actual cost of management was not much different in 19 or 22 years.

However, as the COVID-19 crisis subsided after 2022, the freight index began to fall sharply, and by 2023, the WCI had dropped to 1,300 units again. Interest in the shipping industry, which had been dormant like this, has risen again because of a recent phenomenon. The Houthi rebels launched missiles at a US container ship in early 2024, which exposed the Red Sea Route under the Suez Canal to a high risk, and the WCI soared back to 4,000. The freight index, which seemed to be quiet after the spark, is raising its head again in May because it is expected to cause a logistical disturbance due to the Israeli-Iran conflict.

In this macro situation, there was an interesting company, called ZIM, which was established in Israel in 1945. As a side note, Woosung Shipping has been in charge of the company's Korea agency since 1975, and the chairman of Woosung Shipping was a little famous because he was Cha In-pyo's father in the past. This is because it was an exemplary case of running a company on a professional management system without inheriting it from his son. In any case, this ZIM was listed on the New York Stock Exchange in 2021, not Israel, with a price of $15 per share and a market capitalization of 1.8B, or 2.4 trillion won. Since then, the company's stock has been a roller coaster, rising to the $70 range in March 2022 due to the outbreak of COVID-19 and the Russo-Japanese War as soon as it was listed.

However, the company's stock price has been reduced to 1/10 by the end of the year due to the rapid stabilization of the shipping freight index. At this point, you might think that this stock is just a miscellaneous stock. Interestingly, the reason why the company's stock price has fallen like this is due to the reasonable reason for the dividend loss. Everything that makes money is paid by the company to its shareholders. The total dividend history for the three years from 21 to 23 is $38.45. It paid a whopping $17 dividend per quarter in March 2022, but if the company purchased the company's stock for $15 when it IPOed, it would have received more than double the cost as a dividend so far. Self-development Dream…

When a company pays dividends, the stock price falls by that amount, and this is called Ex-divided price adjustment in jargon. This is because when dividends are transferred from the company to shareholders, the company's cash disappears and the corporate value decreases accordingly. In theory, from the perspective of shareholders, the dividend and the decline in stock prices are the same, so the shareholder value can be seen as the same. Of course, it will vary depending on taxes or market conditions.

In any case, ZIM's extraordinary dividend policy was suspended after marching until March 23, and over the past year, the company has been in a deficit and has not paid any more dividends. But what is it? The WCI index described above has more than doubled since the end of the year 23, and at this point, it is natural to think that ZIM's dividend may start again.

What the company did when it collected a lot of market money between 21 and 22 years was not necessarily paying dividends. One of the biggest challenges for shipping companies now is to change to low-carbon LNG ships, and when it made a lot of money, ZIM did a lot of this. As of the end of the year 23, there were 144 ships operated by ZIM, of which 128 container ships and 16 vehicle carriers.

Between 21 and 22, ZIM acquired 18 used container ships, and 46 new container ships will be delivered between 23 and 24. Already in 23 years alone, nine and eight 15,000 TEU-class LNG ships,