Nov 17, 2021
Operator
Ladies and gentlemen, thank you for standing by. I'm Natalie, your Chorus Call Operator.
Welcome, and thank you for joining the ZIM Integrated Shipping Services Ltd. Q3 2021 Earnings Call.
Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session.
I would now like to turn the conference over to Elana Holzman, Head of Investor Relations. Please go ahead.
Elana Holzman
Thank you, Natalie. And welcome to ZIM 's Third Quarter 2021 Financial Results Conference Call.
Joining me on the call today are Eli Glickman, 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 the 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 2020 Annual Report filed on Form 20F on March 22nd, 2021. We undertake no obligation to update these forward-looking statements.
At this time, I would like to turn the call over to Eli Glickman. Eli?
Eli Glickman
Thank you, Elana, and welcome to today's call. I'm very excited to present our record results and discuss multiple third quarter 2021 update outlined on Slide Number 4.
Our continued outstanding performance is a testament to the execution of our team, including the proactive strategies we have implemented to capitalize on both the highly attractive markets and ZIM differentiated approach, of note ZIM's revenue of $3.1 billion adjusted EBITDA of 2.1 -- adjusted EBITDA of $2.1 billion and net profit of $1.5 billion. This is for the third quarter of 2021.
These are the highest in our history. We also generated our highest several operating cash flow of $2 billion in the third quarter and further strengthen our balance sheet.
Growing shareholder's equity to more than $3.1 billion. Importantly, we continue to deliver industry-leading margins, outperforming the liner industry average.
Our Q3 2021 adjusted EBITDA margin was 66% and adjusted EBIT margin was 59%. Based on our exceptional financial performance today and our favorable market outlook, we are once again raising our full-year guidance.
Specifically, we now expect to generate in 2021 an adjusted EBITDA between $6.2 billion to $6.4 billion and adjusted EBITDA between $5.4 to $5.6 billion. Based on the midpoint of today guidance versus the guidance provided in August, our new focus was representing a 26% increase in our EBITDA guidance and a 31% increase in our EBIT guidance.
Returning capital to shareholders also remains a priority for us and is a central component of our capital allocation strategy. As such, we announced earlier today a change in our dividend policy that will allow us to return capital to shareholders more frequently.
Effective immediately, we'll distribute the dividend on a quarterly rather than annual basis. The interim dividend will be a direct of approximately 20% of the quarter's net income with the total annual amount to be distributed to shareholders remaining 30 -- between 30% to 50% of our annual net income.
According to the new policy, we declare a dividend for Q3 2021 of $2.5 per share. The dividend will be paid in December 2021.
On Slide Number 5, you can see that over the last 11 quarters, our earning has consistently increase and we deliver consecutive record quarters. At the same time, our net leverage as strength downwards reaching 0 this quarter, if it's 0 this quarter, as compared to 5.3 in Q1 2019.
We are proud to be positioned in the top-tier auto industry in this regard. Turning to the next slide, Slide number 6, we continue to execute the highest level across our 4 strategic pillars, while remaining committed to profit and growth.
Our exceptional operational agility continues to be a core differentiator for ZIM. Currently, we continue to operate a fleet of 113 vessels.
For ZIM, vessels are a means to achieve profitable growth and our primary strategy of chartering in the vast majority of our fleet and this is unchanged. Notwithstanding, we recently took advantage of attractive vessel acquisition opportunities to purchase 8 second-hand vessels to secure much needed operating capacity and meet strong market demand, while remaining committed to delivering industry superior profitability.
Going forward, we may selectively acquire secondhand tonnage when the purchase opportunity arises while executing our chartering-in approach. Complementing your efforts to secure capacity to serve our customer and benefit shareholders of commercial agility has also been instrumental in driving our record results.
Relying on the Charleston market is our primary approach to securing capacity allow us to ensure that we sold the fleet we need to capitalize on attractive fundamentals and new opportunities. While navigating through challenging these circumstances in the charter markets over the past several months, we have successfully maintained a high level of fleet flexibility to further advance our global niche strategy and best serve our customers.
Despite longer-term charters becoming more common, the average remaining duration of our charters capacity to date is now 24.8 months compared to 15.3 months as of December 31st, 2020. Also, charter representing approximately 23% of our total operating capacity are scheduled for renewal in '22.
This gives us the ability to manage our fleet and adapt to changing demand fundamentals in the more immediate term. Turning to operational excellence, we believe that ZIM is well-positioned for future success.
In September, we exercised the option to long-term charter of 5 additional 7,000 echo LNG dual-fuel container vessels from systems. Under the transaction that we announced in July.
After exercising option, ZIM a total 15 7,000 TEU vessels as into the 10 15,000 TEU vessels, dual fuel, we could it earlier -- that we earlier in February. The 15,000 TEU vessels are ideally suited to serve on the Asia to U.S.
East Coast trades. While the 7,000 TEU vessel, are versatile vessel and can be used in multiple trades.
When we take delivery of these vessel, ZIM will deploy the cleanest technology currently available. This will help us address increasing regulation on carbon emission and meet customer demand s to have their cargo transported on more eco -friendly vessels.
At that time, over 40% of our operating capacity will be LNG fueled, positioning us at the forefront of reducing the carbon intensity of our fleet operations among global liners. Notably, by opting the charter -- to charter these LNG vessels rather than own them, we are also maintaining flexibility to transition to newer technologies as they become commercially viable.
We have also leveraged our improved cash position to make long-term investments in equipment, mostly new build containers, with our container fleet totaling 1 million TEUs. Given our higher-than-expected growth this year, combined with current congested markets and limited availability of containers.
Investing in our container fleet has supported our ability to respond to customer needs, now and we'll continue to do so in the future. Now, more than ever responsiveness has high impact on our customer overall service experience.
As such, we're and then telling human response capabilities to enable us to provide best-in-class customer experience via all channels including phone, form, email and chat. While we continue to advance our powered borrower customer digital tools.
Finally, we continue to use digital strategies to power new services. In October 2021, we launched ship forward a digital freight forwarding platform, targeting the SME market.
ZIM recognized the global need to simplified shipping services through the use of mobile device especially among small and medium-sized businesses, and introduce ship forward in response. Ship forward, innovative approach enables anyone to be a self-shipper, with a simple and digital solution, making the transfer of goods worldwide just a few clicks away.
Ship4wd is consistent with our strategy of developing growth engines which complements our core business and aligns with our innovate spirit. We are excited about the market opportunity for Ship4wd and expect it can become a meaningful player in the multibillion-dollar freight forward industry.
I will now turn the call over to our CFO, Xavier, for his comments on our financial results and market development.
Xavier Destriau
Thank you, Eli. And again, welcome everyone to our quarterly update.
During the third quarter, our execution remains strong and regenerated outstanding, operational and financial results. They, on our differentiated approach and proactive strategies.
We know we can discuss our KPI specific Q3 and year-to-date figures and also our robust cash position. But I have 8 highlight several KPIs demonstrating our extraordinary financial performance, including record earnings and further enhanced cash position.
A 1-year contract with strong statistic of which reflects an average rate of slightly above 50% higher than last year, as well as strong momentum in the spot rates continued to drive our results. ZIM capitalized on industry tailwinds that pushed freight rates higher.
But moreover, our prioritization of a better paying cargo mixes and initiative to capitalize on the e-commerce boom were a key differentiator that allowed us to earn even higher rates. Specifically, our average freight rate TEU load by 174% in the third quarter of 2021 to $3,226 compared to $1,176 in the comparable quarter in 2020.
And all 38% higher than the average freight rate of $2,341 in the second quarter of this year. For the first 9 months of the year, our average freight rate per TEU was $2,510, more than double compared to last year's first 9 months.
Turning to our balance sheet, we have significantly increased our cash position, with our leverage ratio now at 0. As of September 30th, total net debt decreased by $1.2 billion compared to year-end 2020, resulting primarily from: first, an increase of $1.37 billion related to lease liabilities, offset by a decrease in other financial indebtedness following the early redemption of the Series 1 and Series 2 notes in June.
And secondly, an increase in cash position of $2.17 billion. The increase of $1.37 billion related to lease liability is almost entirely attributable to additional charter we did in commitments that we incurred in 2021.
Our free cash flow in the third quarter totaled $1.72 billion compared to $237 million in the comparable quarter of 2020. It is an increase of over 600%.
Once again, we leveraged our strength to profitably grow our business, as evidenced by our success in substantially increasing quarterly revenue, EBIT, EBITDA, and net profit, both sequentially and year-over-year. Total revenues in the third quarter were up $3.1 million compared to $1.01 billion in the third quarter of 2020, an increase of more than 200%, three times more.
Most importantly, and consistent with our primary objective to grow profitably, third quarter net profit was a record $1.46 billion, compared to $144 million in the third quarter of last year, growing by more than 900%, . Adjusted EBITDA on the third quarter also significantly increased to $2.08 billion, compared to $262 million in Q3 2020.
Adjusted EBIT increased to $1.86 billion in the third quarter, compared to $189 million in the comparable quarter of last year. This Q3 2021 adjusted EBITDA and adjusted EBIT margin of 66% and 59%, respectively, improved sequentially and continue to position us, to positions ZIM among the leading performers of the industry.
Our Q3 2021 results include increased tax expenses totaling $358 million for the quarter. As I previously indicated considering our current and expected full year 2021 performance, we will be utilizing our entire carry forward losses for the tax year of 2021.
Next, we'll review our significant improvements across all financial metrics during the first 9 months of 2021. Revenue for the 9 months period was $7.46 billion compared to $2.63 billion last year.
Driven by the improved freight rates as well as an increase in current volume sent to new lines that we launched, especially in the second half of last year. Again, consistent with our focus on profitable growth, net income for the first nine months of the year was at $2.94 billion, compared to $158 million for the first nine months of 2020.
Adjusted EBITDA was at $4.24 billion for the first nine months, compared to $504 million for the first nine months of last year, representing a growth of 740%. Our 9 months adjusted EBITDA and EBIT margin also improved to 58% and 61% respectively this year versus 19% and 11% last year.
Turning to slide 10, our increased carried volume year-over-year is a direct result of proactive efforts to launch new expedited and other services is a focus on expanding our presence or entering new trades in order to drive profitable growth. Our enhanced position in the Pacific trade and in Intra -Asia, which came in the form to identified growth demand there, continues to serve us well.
And while global volume growth in the third quarter was approximately 1.6% year-over-year for the industry, ZIM carried volume increased by 16% from 752,000 TEUs in Q3 last year to 884,000 TEU s in the current quarter. Our Q3 categories were relatively flat sequentially, and this was due to supply chain bottlenecks and consistent with conditions experienced across the industry.
To help alleviate some of these pressures, as well as in response to our higher-than-expected volume growth in 2021, we have contracted to purchase $898 million of equipment this year, adding approximately 307,000 TEU to our old container fleet. This is about 135 million more than what we previously indicated last quarter.
Containers at a cost of $689 million have already been delivered to us during the first 9 months of this year. Regarding our cash flow, we ended Q3 2021 with a total cash position of $2.76 billion.
Our total cash position includes cash and cash equivalent and investments in bank deposits and marketable securities. During the third quarter, our adjusted EBITDA stood at $2.1 billion, converting into a $2 billion cash flow from operations.
Other cash items included $288 million of net capital expenditure, $274 million of debt service, and $237 million of dividends that we distributed in September. Now I will review market fundamentals that we see in the line expected, and our positive view also going forward.
We continue to view fundamental that's favorable in both the near and the longer term, considering the need from replacement tonnage, and current forecast for demand and growth. In the immediate term, supply chain challenges are persistent and there is no near-term sign of import weakness.
The queue at the Port of Long Beach has recently reached as high as 80 vessels. With the fourth continuing to struggle in the shareholding of Key U.S.
inland logistics bottleneck remain with truck driver shortages, shacking shortages limited in LED warehouse space. We expect these market conditions to continue at least over the next six months supporting elevated freight rates.
Second looking towards 2023 and beyond, we continue to view the threat of overcapacity as low due to 2 unrelated factors. 1, forthcoming environmental regulation that will likely go into effect in 2023 will promote slow steaming, necessitating additional capacity to carry the same volume.
And by some estimates, for every 1 knot in average speed reduction of global fleet, these would result in an effective supply reduction of 4% to 5%. And 2, congestion or set part land infrastructure, particularly relevant in the U.S., will continue to adversity impact for efficiencies.
One pandemic related supply chain disruption has exacerbated challenges as demand continues to grow, operational constraints in the U.S. are likely to persist.
And as such these 2 factors, I expected to partially offset 2023 net fleet growth reflected in the increase order book. Now turning to the next slide, although the airport trend, we have seen in freight rates over the past several months has softened possibly in conjunction with China's freight rates do continue to be well above the past indicative average driven by high demand, which is met by supply chain bottlenecks, equipment short aging, and port congestion, circumstances, again, we do not expect to change in the near future.
On the cost side, charter hire rates co-relate with trip rates, and despite the continued shortages of ships, we see a positive trend of charter hire rates beginning to plateau. Next, looking at the demand expectations in the U.S., pressure on the supply chain into the U.S.
is not expected to decrease in the near-term. The robust demand for container shipping is being supported by the largest de -stocking cycle in the U.S.
ever. That continues to suggest that pressure on retail inventory is partially spinning over to wholesalers, as well.
Inventory replenishment for wholesalers continues to fail to keep pace with sales, leading to inventory to sales ratio being well below average. And we expect retailers and wholesalers to target higher inventory to sales ratio, which in turn is projected to sustain strong demand for continuous shipping.
As for broker , as the economy bounce back from COVID induced slump, the demand for oil is driving prices up, which we accounted for in our updated guidance. Turning to our full-year outlook, activity mentioned by any based on our exceptional financial performance today and our favorable market outlook, we now project to deliver in 2021 adjusted EBITDA within a range from $6.2 to $6.4 billion and adjusted EBIT within the range from $5.4 to $5.6 billion.
The underlying assumptions driving this improved outlook include, expected higher average fit rates and slightly lower long-term expenses, partially offset by higher charter expenses and slightly lowered carried volume as compared to our expectations and assumptions when we provide d our guidance back in August. We nevertheless still expect our volumes in 2021 on a full-year basis to be approximately 25% higher when compared to 2020.
Turning to our new dividend policy, we are confidently transitioning to a quarterly dividend rather than a single annual payout while keeping our underlying policy of distributing between 30% to 50% of our annual net income to shareholders. The payout for each of the first three quarters of the year will be approximately 20% of the net income generated in the quarter.
And each fourth quarter once a year, then we'll pay a dividend so that the cumulative distribution amount will total between 30 to 50% of the annual net income. And we are pleased to implement this effective immediately and accordingly declare an interim cash dividend of opportunities $296 million or $2.5 per ordinary share, reflecting approximately 20% of our sales quarter net income and this dividend will be based in December.
Now, putting back to Eli for his concluding remarks.
Eli Glickman
Thank you, Xavier. Then continues to be well-positioned for the future as an innovative digital leader of transportation in logistics services.
Once again, we deliver record quarterly earnings and profitability reflective of our differentiated global strategy and outstanding execution, leveraging strong underlying market fundamentals. We are excited by the progress we've made advancing this proven approach.
In the recent quarters, increasing our capacity to support customers and benefit shareholders while successfully maintaining a high level of fleet flexibility. Our innovative spirit continues to be on display as evidenced by multiple initiatives advanced throughout 2021.
Most recently, as I said, we launched the Ship4wd, our digital freight forwarding platform, which we expect to become a significant player in the freight forwarding industry. We remain focused on developing growth engines complementing to our core business to provide added value.
Lastly, we are proud of our capital allocation track record in the short period of time as a public Company. In addition, equivalently allocating capital for future growth, including paying down debt in previous quarter, strategically securing our future coal energy fleet and investing in equipment and innovation.
Zim is supposed to return a significant amount of cash to our shareholders. We will now open the call to questions.
Thank you very much.
Operator
Ladies and gentlemen, at this time, we will begin the question-and-answer session. One moment for the first question, please.
And the first question is from the line of Randall Giveans from Jefferies. Please go ahead.
Randall Giveans
How do. .
How's it going?
Eli Glickman
Good morning, Randy.
Randall Giveans
Good morning. Congrats, obviously on the epic quarter, improved dividend policy.
I have a couple of questions. Been pretty bullish on ZIM, but I will try to keep it brief.
I guess, first, on the EBITDA guidance front, you have one quarter remaining, 4Q should be at least in line or possibly better than 3Q based on that EBITDA guidance. So, with that, looking at the volumes, they seem to have ticked down from 2Q into 3Q.
What is this trend looking like for 4Q? Do you have much volume left to sell this quarter?
Xavier Destriau
Yes. When it comes to the volume, we've seen a little bit, as you rightly pointed out, reduction quarter-over-quarter between Q3 and Q2, which is very much linked to the current bottlenecks that we're experiencing in the terminals, especially relevant on the U.S.
West Coast but also to some extent in some other locations also on the East Coast. So, the situation today is -- as it is, we expect -- we hope that all the actions that are being taken by all the stakeholders in this industry will assist in the easing, as opposed to further deteriorating the current situation.
So, when it comes to our volume expectation for the fourth quarter, we do not anticipate that those would further reduce compared to what we experienced this quarter around.
Randall Giveans
Perfect. And following up on that, we've seen some headlines around spot rates falling.
Maybe one of the reasons is customers switching from bookings spot to longer-term contracts. So, with that, have you signed some new long-term maybe at least 12-month contracts with your customers starting in fourth quarter, or are you kind of waiting until early 2022 for those contract agreements?
Xavier Destriau
For us the contract season which is relevant for the trans-Pacific volume is a little bit later than what is the contract season for the Asia to North Europe, which is based on the current year. When it comes to the trans-Pacific, the contracts run from the 1st of May to the 30th of April, so we really, we up today at the very early stage or very early days of initial discussions with that customer to agree on the volume and on the rate that we prevail for and a from the 1st of May next year.
So, we said it's too early to say for us and no, we don't see the rates at the the contract that outlook. So, there will be too early for us to either here to where we'll land, although at the market conditions today, a hint towards significant increase in the average contracted rates that prevail next year.
On the spot today, yes, you’re right there are some fluctuations on the week after week and then let's not forget that we are still in an industry subject to seasonality. We are just flat after at the end of what we traditionally call that the peak season and there was also the Golden Week effect in China.
So that said, it's a moving a little bit up and down but our assumptions for the fourth quarter, and obviously we have with visibility on that is on average, we don't expect our average revenue to TEUs to decrease.
Randall Giveans
Yeah, that makes sense. And then lastly, in terms of capital allocation, you clearly have X billions to spend.
You've been active on securing some long-term charters with new buildings. You've been buying those second-hand container ships with more prompt delivery at 0 net debt.
I guess how will you further balance this in terms of acquisitions, maybe some M&A activity, equipment spending on the boxes, or maybe most effectively, repurchasing shares directly from some of the legacy shareholders?
Xavier Destriau
You know, for fourth, the capital allocation is obviously very important. And first and foremost, we are making sure that we dedicate a cash resource to further in the business and to make sure that as you rightly pointed out, that we feel the tonnage that we need in order to continue to deliver those very good results that we managed to deliver quarter-after-quarter.
That's meant that we acquired some of the secondhand tonnage as you see, that's also meant that we need to set aside some cash in order to acquit from payment for our energy vessels that we secured the Seaspan, that also allowed us to invest a significantly this year on containers and bringing in the badly needed containers also to tackle the current bottlenecks that we are experiencing today. That's one.
The second is obviously also, as we have always mentioned, returning capital to shareholders is high on the agenda of the Company and obviously forward. We are very pleased with what we've achieved, that so far if we just go back down and remember that over the first 9, 10 months since we've been a listed Company, we started by raising close to $220 million, $250 million back in January, and already 9 months down the line in September, we returned that same amount to our shareholders and the exceptional dividends.
We are announcing another one in December, so within less than a year, we would have reserved to shareholders twice as much as what we raised back in January. We are looking at all the ways relevant for us to return value to shareholders.
We are also very pleased to transition from annual to quarterly, which I think is that also we will allow us to a better visibility from our shareholder base. Shareholder buyback is something that is also on the agenda that the Company might consider it if this is something that becomes relevant.
But for us again, we are looking at creating long-term shareholder value and we believe that today the strategy and the decisions that we're making achieved just that.
Randall Giveans
Perfect, now that all make sense. I can go on and on, but I'll hop thanks again for the time.
Keep up the great work.
Eli Glickman
Thank you.
Operator
The next question is from the line of Omar Nokta from Clarkson Securities, please go ahead.
Omar Nokta
Thank you. Hi, guys.
Good afternoon. Also, congratulations on another strong quarter and exceeding a lot of people's expectations, including mine of course.
We want to touch Randy's question about the freight contracts. I know it's a bit early as you highlighted dig here the -- with the May contract in periods still a bit away, but did want to ask because we did see some reports in some discussion for the Asia, Europe legs that we were think freight contracts being entered into that whereas as long as 36 months in duration and just wanted to ask, did you see that type of interest?
I know it's a small piece of your business, but did you see that type of interest and also, are there any indications that we could be seeing something like that on the trans-Pacific? I know it's early, but any color you can give on that?
Eli Glickman
You're right. We would look in there and look at what's going on Also, trades where we are not an active player, but it seems important for us to know what is happening there because they may us indication as to what our customers may want to discuss with us on the trades where there is relative.
Through Atlantic, Asia, and Europe, we've heard and read the same thing as what you are mentioning right now. As far as we're concerned now, we have some customers that throw the idea to whether longer-term more than 12 months is something that the Company would entertain.
We haven't made a final decision as of yet. First of all, for us, the primary questions that we want to give an answer to is that what is the allocation in terms of contract cargo versus spot that we want to secure for the next season?
Xavier Destriau
And then when we focus on the percentage of the contract cargo, whether it will double to be 12 months, as it used to be the norm, or in some cases more than that, will be subject to the discussions that we will have with each and every customer. But it's a little bit too early for us to comment on this at this stage.
Omar Nokta
Got it. I appreciate at least some of that insight.
And then just you also highlighted in your comments earlier just on some of their activity going on in the West Coast in the U.S. where everyone is getting involved trying to sort out the excess containers and there has been the threat of fees on idled boxes at the ports of Los Angeles and Long Beach.
And it looks like that threat at least has worked because the containers apparently have come down and volume and they pushed out when they're going to implement those fees. But generally speaking, about that, given you have a big footprint in the trans-Pacific, do you see that as a concern having to pay those fees potentially?
And how do you think about being able to pass those costs on to the customer?
Xavier Destriau
Firstly, I start by saying that nobody has any interest in incurring cost and then passing the cost to customers. All the stakeholders in this industry need to work together and are working together to try to ensure that the equipment is going out and coming back as efficiently as possible.
detention of deaverage chalk is to incentivize the return of the equipment back into the network. So, we -- the terminals, the shipping lines, the customers, all need to work together to thrive we need alleviate the.
currency issues that are highly visible indeed, in the . So, for us, what we are doing is trying to make sure that first of all, we communicate with our customers on a daily basis, letting them know that they are customers when we talk about that needs to be picked up by the customers that they are available for them to pick up, that they are in places where they are accessible because there is also this question about inaccessible and accessible equipment.
So, we've made sure that we repositioned the containers full to places where customers could come and pick up the cargo. And indeed, it is bearing fruit.
And as far as we are concerned, they're looking at the ZIM equipment that is sitting in the Port of L.A. We've seen adaptive reduction of give or take 50% of the overall containers within the past 2, 3 weeks that have been now put back into the overall network.
So that's -- what is overly important for us, again, is to all work together to try to make sure that the customers get the cargo, that we get our customers back, that the ports can work and continue to work efficiently.
Operator
The next question is from the line of Sathish Sivakumar from Citigroup. Please go ahead.
Sathish Sivakumar
Yes. Thank you.
Thanks for the presentation. I got 3 questions here.
Let's say on the share of contract versus spot. Just to clarify, is it still around 20% of your volumes are contract?
And then just related to that, what is your exposure to the spot premium market actually in terms of volumes? And secondly, on QIP, CapEx guidance, if you look at the nine-month CapEx, it's about $755 million and the seven vessels that will purchase in October, is it about $320 million?
Is it the type of thing that you've done for full-year it might be around to $1.1 billion of CapEx for the year? And --
Xavier Destriau
Sorry.
Sathish Sivakumar
Sorry, maybe I can ask it's idealistic this too, and then I can ask the third one later.
Xavier Destriau
Alright, so easy answer to your second one issue, which is the capex guess you're right. When we look at combining the investment in the second-hand vessels and the equipment, the boxes, we will be a little bit in excess of $1 billion overall for the year 2021.
To the first question, in terms of what is today a feel the mix between contracts and the . Yes, we are on the trans-Pacific give or take at 50-50.
50 50-year contracts. And for next year, it is very possible that we will continue with the same type of a split.
Sathish Sivakumar
What is your split on the spot premium market?
Xavier Destriau
The premium is something that is fluctuating week after week as it is very much a function of whether a customer want to jump the queue in a way and have the cargo loaded in the as opposed to waiting for additional weeks. So, it is marginal, to be honest with you, as far as we are concerned.
If you look at the break down of premium versus non-premium offload, normal if you will, if you want to call it that way. To give an indication of percentage, I think you said some 10% of premium cargo.
Sathish Sivakumar
A quarter. Thank you.
For my third question actually, cash conversion. If you look at it, it's actually down from 90% to 83%.
Is it mainly driven by longer duration of charters on offshore and think about the normalized cash conversion?
Eli Glickman
I think what we provided here in terms of a cash conversion is free cash flow conversion. So, there is the effect of CAPEX that we just talked about, which has been quite significant in 2021 when compared to prior year.
In the years ahead of us, if we were to revert back to a more fully charter, that type of strategy as opposed to also acquiring in the second-hand market and also considering that from an equipment perspective, we made a significant investment in 2021 that we do not intend to replicate to the same magnitudes and levels
Xavier Destriau
in the years to come, the cash conversion rate will normally increase.
Sathish Sivakumar
Okay. Got it.
And will you go back to 90% or you should still expect it to normalize somewhere between 85 or 90?
Xavier Destriau
I would say between 85 to 90 would be a reasonable assumption.
Sathish Sivakumar
Okay. Got it.
Yeah. Thank you.
Thanks again for your time.
Xavier Destriau
Thank you, Sathish.
Operator
The next question is from the line of our Alexia Dogani from Barclays. Please go ahead.
Alexia Dogani
Hi. Good afternoon, gentlemen.
I have also 3 questions, please. Just firstly, following up on Eli's comment at the start, am I correct in thinking that 23% of your total capacity is on charges less than 12 months.
And is that the number that we compare at the term of the appeal of being around 70%? I just want to check, is that 23% enough for you to maintain your agile approach to capacity.
That's my first question. And my second question is on -- just CAPEX and lease CAPEX.
Very helpful. Have yet to comment on 2021 cash CAPEX.
Can you just give us similar comment on lease CAPEX and CAPEX for '22, '23, if possible, between cash and lease? And then finally, on the supply chain disruption point.
Clearly, based on your comments on major supply demand balance, you don't expect operational reliability to recover from the current trough levels. What do you think are the implications if therefore the supply chains remain more costly and lengthier for longer?
That's it for me. Thanks.
Xavier Destriau
Right. Thanks, Alexia.
The first question, which is a clarification question, I guess, on comments that we made. The 23% relates to the tonnage that is up for renewal indeed in 2022.
So, give or take in terms of the vessels, we are talking 25 -- I think 25 vessels that will come up for renewal in 2022. So, to your point, we are navigating trying to solve a difficult equation here because let's remind ourselves that first of all, we are growing.
Unlike the industry that's growing at 5%, we expect to grow in 2021 at 25%. So, with that growth comes also additional need when it comes to capacity tonnage vessels, so we need to find a source that's for vessels.
Then, we need to find the arbitrage in terms of looking all sales for duration that we are happy to entertain, and that needs to be linked to our perception of the midterm long-term view that we have on the access to tonnage. And we are of the view that for the reason I've explained the environment tolerability issues, for one, that there will be continuous pressure on tonnage.
It's okay for us as we are going to a shift towards a little bit over longer average duration. For 25 months now versus 50 months as of the end of last year.
So, the average duration about charter is indeed increasing, but that's okay. And it is also important when we look and compare at least 25 months on average, if you add 45 months to where we are today, we ended in '20, '23, '24, a write-off when we are going to get deliveries of our energy vessels, the C-span vessels.
For then, we will be able to make the also the arbitrage as to whether we are continuing to grow as we renew and extend the charter because we need it, or we don't and the energy vessels that we take deliveries from come in as replacement capacity and we would just return to the policy providers those vessels. So, we feel good about the fact that we are making the right arbitrage and come to a situation whereby we answer to the fact that we need to secure tonnage for the longer term.
We need to keep the flexibility especially again, when we are going to get delivery of that significant amount of new vessel in 2023, 2024, and that we continue on the growth path to the network where we operate. On the second question with regard to CAPEX, me to give you an indicator in terms of the chapter assumptions for the four years to come and it will also be a function of what the market and the drivers of the market are like.
Shortly when it comes to forecasting, we are taking a conservative assumption and then we linked our revenue for two assumptions with the charter market and for as long as we see a positive trend on the revenue side, we will make sure that we do a account for the fact that there would be then no reason for the chartering market to . That's something that we look hand-in-hand in our forecast.
For the cash capex perspective, as I mentioned earlier on are very much where the drivers for this year, we've now more than 300,000 to use our total container capacity is exceeding 1 million TEU. Depending on what the situation looks like towards the normalization of our industry which will happen one day that we should be one, but it will eventually happen.
We think that we will have that enough container to carry the cargoes that we assume to carry and then we will deliver and then scale-out the older equipment, keeping the brand-new boxes with us. And then the last question of the supply chain disruption, it's very difficult to say.
As what we can just acknowledge is that they are still the same drivers that are very much there, very strong demand, on the one hand, especially year 2 in the U.S., and there are no signs of softening of those demand driver from a productivity aspect of things, from a landslide operations aspect of things, from a lack of truckers, difficulties to move the cargo inland, that is a similar version of an issue and things that occurred before it actually gets its result.
Alexia Dogani
Thank you very much.
Operator
Mr. Omar Nokta from Clarksons Securities.
back after disconnecting. Please ask your question.
Omar Nokta
Hi. Thank you.
Sorry about that, Xavier. I just had one follow-up and apologies if you already addressed it, but wanted to ask about M&A.
I believe last quarter you had highlighted looking at potential deals like some of the smaller scale Asian liners. I just wanted to get an update on that.
And also, just in general with regards to M&A, if you felt continued horizontal activity was ideal or if you were looking at also doing vertical integration as well. Thank you.
Xavier Destriau
Yes, Omar. What we said last quarter remains very true as of today, so we will continue to explore opportunistically options for us to acquire smaller shipping lines, that's what we are looking at.
in the same regional trade and where we see potential for growth, very much on intra -Asia and also to some extent on the Latin America or South America region. So, nothing changed here, we are looking for opportunities.
In this respect, we will continue to do so.
Omar Nokta
Okay. And then anything on going into the protocol aspect of the industry?
Xavier Destriau
Sorry. Yes.
No, we are focusing on being a pure-play shipping player we developed a distant activity, but more on the digital front and we announced and launched not so long ago and shift forward that per quarter. That's how we potentially diversify a little bit away from pure core shipping activity than what it costs to M&A potential deals we offer some our research on shipping players.
Omar Nokta
Got it. Very clear.
Thank you, Xavier.
Operator
This concludes our Q&A session, and I hand back to Eli Glickman, President and CEO.
Eli Glickman
Thank you very much to all of you. See you next quarter.
Operator
Ladies and gentlemen, the conference has now concluded and you may disconnect your telephone. Thank you for joining and have pleasant day.
Goodbye.