Ladies and gentlemen, thank you for standing by. Welcome to the ZIM Integrated Shipping Services Ltd fourth quarter and full year 2020 result conference call. All participants are present in a listen-only mode. Following management's formal presentation, instructions will be given for the question and answer session. For operator assistance during the conference, please press star zero. As a reminder, this conference is being recorded March 22nd, 2021. I would now like to turn the call over to Ms. Elana Holzman, ZIM's Head of Investor Relations. Ms. Holzman, please go ahead.
Thank you, operator, welcome to ZIM's fourth quarter and full year 2020 financial results conference call. Joining me on the call today are Eli Glickman, ZIM's President and Chief Executive Officer, and Xavier Destriau, ZIM's Chief Financial Officer. Before I begin, we would like to remind you that during the course of this conference call, we will make forward-looking statements regarding expectations, predictions, projections, and 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 2020 annual report filed on Form 20-F today, 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?
Thank you, Elana. Beginning on slide four, I would like to welcome everyone to ZIM's first earnings conference call as a publicly traded New York Stock Exchange company. Our successful IPO marks a major milestone in ZIM's 75-year history, and we are honored to be the first global container liner to list in the U.S. When I joined ZIM as a CEO in 2017, it was clear to me that the shipping industry was ripe for disruption. Over the past few years, we have navigated ZIM through a once in a generation transformation, conducting a complete turnaround of the company. Similar to Airbnb, Amazon, and Uber that have disrupted and changed their industry dramatically, we are focused on changing the shipping narrative, emphasizing the fact we do not need to own the majority of our fleet, and the critical importance of technology to our business.
We are proud that we succeeded to add new strength to the company, an exciting spirit, and a promising outlook for operating within the new realities of shipping. Today, ZIM is a robust, innovative, and agile digital shipping company. On today's call, we'll discuss our strategic objectives, accomplishments, and priorities moving forward, but before that, I would like to briefly highlight a number of important milestones. First and foremost is our milestone of generating breakout profitability in the fourth quarter and the full year of 2020. It is clear that our unique approach is yielding strong results, highlighted by our success in proven our EBIT and EBITDA generation. ZIM has shown consistent earning growth and is one of the leading carriers in terms of profitability.
I'm happy to report that our Q4 EBIT and EBITDA results were at the high end of the guidance range that we provided back in January, just before our listing. As anticipated, in Q4 2020, we delivered all-time record results, outperforming the industry average with our EBITDA margin reaching 39%, and EBIT margin reaching 32%. ZIM continues to deliver industry-leading margins. In addition, we dramatically reduced our leverage ratio to 1.2x, positioning us at the top tier of the industry. Later on the call, we will also share with you our 2021 guidance and an update on the planned dividend. Shortly after the pricing of our IPO, we announced a strategic long-term chartering agreement with Seaspan for 10 green 16,000 TEU LNG dual fuel container vessels. By adding these state-of-the-art vessels to our fleet, we'll achieve a number of important objectives.
First, we'll strengthen our position to meet the growing market demand on the Asia-U.S. West Coast trade. As we will discuss later on the call, this is a core trade lane for ZIM, where we have sizable market share of about 9%. Second, we will also enhance our ability to provide top-level, reliable service to our customers on this growing trade. Consistent with our sustainability values, these LNG-fueled green vessels also advance our commitment to environmental issues. Specifically, they will help to preserve clean air and reduce the industry carbon footprint, two critical objectives to both ZIM and our customers. We are proud that this transaction will position ZIM as a leader in terms of carbon intensity among global liners. We are also delighted to partner with industry leaders, Seaspan, and Samsung Heavy Industries, and look forward to delivery of these first vessels in less than two years.
Going to slide five. Turning to the next slide. We will now discuss the new ZIM. ZIM is unique in container shipping. We are a smaller company competing with giants from all over the world, which requires us to be different and innovative and play by new rules. Our strategy is centered on the following components. We are a global niche operator. We do not operate in every market or compete on size and volume. Rather, we serve markets where we have a competitive advantage and can provide exceptional customer experience and maximize our market position and profitability. We also employ a unique asset-light model. By chartering in most of our capacity, primarily on short-term charters, we are able to optimize vessel deployment, support high utilization of vessels, and exploit specific trade advantages based on market changes.
We'll discuss this in more details on the next slide with example of our operational agility. Next is our focus on profitability. We've used big data, business intelligence, and artificial intelligence to facilitate a shift away from volume and utilization to operations focused on maximizing profit. Applying the most advanced technologies and in-house capabilities, we manage our vessel and cargo mix to prioritize higher yield and enhance efficiency, cost savings, and profitability across the company. Innovation is the core of our culture, and we promote creativity and utilize sophisticated digital strategies to power new service and business opportunities for customers. Specifically, we harness our startup nation DNA to develop growth engine with startups and industry leaders providing us additional revenue streams beyond our traditional shipping business. Lastly, we are a customer-centric company that puts customers at the core of our commercial strategy.
We partner with our customers to develop smart solutions that significantly enhance their experience and drive their face-to-face business success. We call this powered by our customers. Going to slide six. As we move to the next slide, our strategy, which is uniquely tailored to our strengths, enabled us to achieve impressive results in 2020. These achievements were based on four main pillars, operational and commercial agility, operational excellence, innovation, and digitalization. During the global pandemic, we confronted challenges directly and deployed a strict COVID-19 management plan that enabled us to perform better than the market. We identified the magnitude of the crisis very early and prepared for worst-case scenario immediately, revising our strategy. Implementing cost reduction and avoidance measures, successfully aligned with our 2M partners to adjust capacity to lower demand.
All of this success was only possible thanks to ZIM's exceptional people, organizational culture driven by our unique Z Factor vision and values which fully align with and support our strategy and long-term goals. Hand-in-hand with operational excellence, we were able to demonstrate exceptional operational agility this year. Based on our asset-light model, quickly adapting and aligning our capacity to the changing market condition. Specifically, we optimized vessel deployment and size for our fleet in 2020 to support high utilization of vessels and explore specific trade and advantages given market condition. Prior to COVID-19, our fleet included 68 vessels and was reduced to 59 in May 2020. As global trade began to reach pre-pandemic levels, we identified new opportunities and expanded our capacity, growing our fleet to 98 vessels. This was all done in one year. Our commercial agility was also evident and reflected in our move to increase capacity.
We developed new growth engines like the ZEX and the CAX, launching these two new premium high-speed services to meet market demand in response to growing e-commerce trends. We also expand our partnership with Alibaba in entering logistic services to its customer and service provider. This innovative incorporation helps Alibaba offer its customer a more affordable transit alternative relative to air freight with seamless and easy-to-use interface. Finally, we continue to invest in developing best-in-class digital technologies. A few example are ZIMGuard, an artificial intelligence system to detect misdeclaration of dangerous cargo. Ladingo, a technology company developing real-time software for cross-border shipment with which we cooperate. The last example, this is [theEYE], an internal digital revenue management tool. Going to slide seven.
As I mentioned, our first lot of financial results reflect our consistent earnings growth and are at the high end of the initial guidance range that was provided. As importantly, we are on a continued deleveraging trend, which company net leverage improving from 5.3x to 1.2x over the previous eight quarters, positioning us in the top tier of the industry. We are one of the leading carriers in terms of profitability and are committed to consistently being one of the top three carriers in terms of EBIT margin. I will now turn the call over to our CFO, Xavier, for his comment on the financial result. Please.
Thank you, Eli, and welcome everyone. I will now briefly discuss our KPI, specific Q4 and full year 2020 figures, including our strong cash position. Before I do, I'd like to start by reiterating Eli's comments on ZIM's operational agility, as we did maneuver through the year that was highly atypical. This strategy drove our financial performance and as we continue to show consistent earning growth and industry-leading margin. On the next slide number eight, I'd like to highlight several KPI on a year-over-year basis, reflective of our record results as discussed, including strong cash generation and the continued de-leveraging of our balance sheet. 2020 presented unique challenges due to the COVID-19, our profitable growth illustrates our ability to quickly adapt with our asset-light model, delivering substantial benefits throughout the year.
We employed one approach that was appropriate for the first six months, and then when market conditions shifted, we altered our strategy accordingly during the second half of the year. Initially, with the extent and duration of the pandemic still unknown, we acted diligently, extracting costs and returning vessels to vessel providers to minimize the potential impact of an industry downturn. This is a clear distinctive benefit of not owning vessels. As global trade rebounded, driven by increased demand for consumer goods rather than services, ZIM responded immediately to seize the opportunity. We added vessels into our fleet when it made economic sense and expanded capacity, launching new premium services to capture the growing e-commerce demand and focus on selected routes that were underserved.
While the rest of the industry tended to carry less volume in 2020 due to COVID-19, ZIM carried volume slightly increased when compared to 2019. This was critical to drive our record results as the average freight rate achieved rose by 22% in 2020 to $1,229, compared to $1,009 in the prior year. It is important to note that not only did ZIM benefit from industry tailwinds that pushed rates higher, the company's prioritization of better paying cargo mix and initiatives to capitalize on the e-commerce boom were key differentiators that allowed us to earn even higher rates. Regarding our balance sheet, we significantly increased our cash position, which I will discuss shortly. We also continued to improve our leverage ratio, which decreased to 1.2 x from 3.6 x in 2019.
Turning to our free cash flow, it totaled $846 million compared to $409 million in 2019, representing a 107% increase. Moving on to slide nine. Our ability to adapt to changing market conditions is proving effective and is clearly evident by the year-over-year improvement in all of our financial metrics. Looking at our top line, total revenues in the fourth quarter were $1.4 billion compared to $827 million in Q4 2019, a 64% increase. Full year revenue increased to $4 billion compared to $3.3 billion in 2019, a 21% increase. Even more importantly, we grew profitably as we successfully shifted towards promoting better paying cargo over seeking additional volume and market share. Net profit was a record $366 million in the fourth quarter, compared to $1.2 million in Q4 2019. Full year net profit increased to $524 million, compared to a loss of $13 million in 2019.
Adjusted EBITDA in the fourth quarter also significantly increased to $531 million, compared to $116 million in Q4 2019. Adjusted EBIT increased to $439 million in the fourth quarter, compared to $47 million in the prior year period. As Eli mentioned, these results were at the high end of the guidance range we had provided, and also our all-time records. Full year adjusted EBITDA increased to $1 billion, compared to $386 million in 2019. Full year adjusted EBIT increased to $729 million, compared to $149 million in 2019. Importantly, consistent with our strategic focus and asset-light approach, adjusted EBITDA and EBIT margins were dramatically improved and continue to position ZIM at the top of the industry. Q4 EBITDA and EBIT margins were 39% and 32% respectively, the best results for ZIM ever. Moving on slide 10.
Despite the COVID-19 crisis and the overall decrease in global trade the shipping industry experienced, ZIM volume on the contrary, slightly increased in 2020 compared to 2019. This is mostly due to our new expedite services, ZEX from South China to Los Angeles and CAX from China to Australia that we opened in the second half of the year as a response to identified growth and demand. You can see that we did enhance our position in our strategic Pacific trade, growing our volume by more than 10%, from 117,000 TEUs in 2019 to 126,000 TEUs in 2020. On our intra-Asia trade, despite the additional volume from our new CAX line, our intra-Asia volumes increased slightly compared to 2019, mostly due to COVID-19's impact on the Asian volume during the first half of 2020, which were not fully recovered in the second half. On slide 11, cash flow.
We began 2020 with a consolidated cash position of $183 million. During the year, our adjusted EBITDA was of $1 billion, taking into account the adverse effect of $155 million of working capital and other, $35 million of investing cash flow, $470 million of debt service, and $11 million of other, which we need this year with a cash position of $570 million of cash. This year-end cash position obviously excludes IPO proceeds, which were received in the first quarter this year. Thank you, and I will now hand over back to Eli.
Thank you, Xavier. I'm going to review the strong market fundamentals that we continue to see in the liner sector and our positive view going forward. On this slide number 12, we show that market supply/demand fundamentals are positive. In terms of supply, the order book remains at record lows, supporting favorable near-term dynamics, and demand remains strong, which has elevated both charter hires and freight rates. Specifically, new business on orders, including the recently placed order by Seaspan, currently represent less than 13% of the total deployed capacity, which is a significant lower level versus previous years, with levels as high as 61% in 2008. It should be noted that considering the lead time for vessel newbuilding require a firm review on the supply forecast.
Though the order book grew from its lowest level of 8% in October 2020, we believe that current supply/demand fundamentals are favorable, taking into account the demand growth forecasted for the same period. The low order book, combined with robust demand, has resulted in higher rate and spot rates, which in turn have driven charter rates higher as well. By increasing the size of our charter investment fleet during the year, ZIM was able to generate record profitability despite these higher charter rates. This highlights an important point I made earlier about the agility associated with our asset-light model. In slide number 13, looking at the freight rates, we can see that comprehensive Shanghai Containerized Freight Index is maintaining its positive trend.
This crossed above 1,000 points for the first time since Q4 2014. The carriers have experienced a very large cumulative shortfall in unit revenue since 2015, and the recent increase are marginal in terms of filling up the gap. We are currently seeing long-term contracts signed much earlier than previous years. Today, we have signed 5x as many contracts as compared to the same period last year, and at a rate of about 50% higher than 2020. The current record high contract rates are expected to last until spring 2022. On the next slide number 14, we discuss inventory and bunker prices. Retailers' inventory levels are the lowest in 28 years. We expect retailers to target the same inventory to sales ratio they had prior to the pandemic.
In terms of the impact of container demand, we expect import growth for the entirety of 2021 to remain elevated compared to 2019, simply to rebuild inventory. A typical development in sales in the United States could show inventory replenishment sustain strong import container growth for all 2021. Prices have posted significant gains in the month of February, which grown optimism for improved demand as widespread vaccine rollout continues. Turn to slide 15. We have significant momentum. The shipping industry, like many others, is changing at a record pace, and the key to success is to act decisively and adjust quickly. I am extremely proud of the progress we have made completely transforming ZIM into an innovative leader of seaborne transportation and logistics services, well-positioned for the 21st century. As we steam ahead, we will maintain an unwavering commitment to fueling ZIM's growth and maximizing profitability into the future.
With a strong foundation of talented professionals, a commitment to utilizing big data and technology, a culture of innovation, and clear sustainability values, I'm excited for our future. This is the time to go to guidance, slide number 16. Guidance for 2021. We intend to continue our positive trajectory and expect to deliver a full-year 2021 EBITDA within a range from $1.4 billion-$1.6 billion. Full-year EBIT is in a range from $850 million-$1.05 billion. Our guidance is based on assumption of expected higher volume and higher average freight rates, but also higher bunker rates and charter rates in 2021 compared to 2020. We would like to also provide some clarity of what can be expected in terms of dividend distributions. We intend to distribute a yearly dividend beginning with 2021 earnings.
The first dividend can be expected to be paid one year from now in Q1 2022. Investors could reasonably expect a dividend payout between 30%-50% of our 2021 net profit. Thank you very much.
We will now open the call to Q&A. Operator?
Thank you. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press star one. If you wish to cancel your request, please press star two. If you are using speaker equipment, kindly lift the headset before pressing the numbers. Your questions will be polled in the order they are received. Please stand by while we poll for your questions. The first question is from Omar Nokta of Clarksons Platou Securities. Please go ahead.
Hi. Thank you. Hi, guys. Congratulations on such a strong performance, obviously in terms of results and stock price, very nice to see so early on in ZIM's life as a public company. Clearly, the results are very strong. Your guidance points to things just continuing to stay firm for quite a bit longer. A couple questions for you. I think, Eli, you mentioned this in your remarks just a few minutes ago. I wanted to ask about the revenue mix and the shift into some of your business being more term. Could you just go over that again? Did you mention that the contract business is about 5x as much that you've booked so far this year relative to last year?
The answer is yes. We do see high demand for long-term contracts as compared to this time in 2020. If we compare, we see as high multiple by five. Speaking about the more, let's call it quantity of contracts that have been signed, and we're speaking about much higher rate, at least 50% higher rate compared to 2020. We're speaking about contract that the plan was to begin in May 2021 until May 2022. In fact, the customer have already asked us to implement this contract as of the day that we signed the contract. We are in much better position and very high confidence, positive confidence towards 2021 and the beginning of 2022.
Okay, interesting. What do you think that, as you think about ZIM's footprint today, you're up to, I believe, as of late February, around 98 ships. You've taken a handful of vessels in earlier this year on TC. How do you feel about your existing footprint? With that type of visibility becoming more, I guess, longer, did you see opportunities to add more ships? Do you want to increase ZIM's footprint today, or you feel comfortable where it is?
I will begin. Xavier maybe will follow suit. Last week, we announced together with the 2M, Maersk and MSC, on expanding our Trans-Pacific agreement, 2M, with a new service from Vietnam, Southeast Asia to Savannah, U.S. East Coast. Speaking about the Trans-Pacific, we are growing first with our partners, actually competitors. We are growing with them on the service that we cooperate with. We have many services as part of the partnership, strategic partnership with the 2M. More than that, we have decided, as you know, to go to 10 green LNG vessels. We are growing with our vessels. We are going to give the 2M, Maersk and MSC, their part, the same percentage on the new vessels. We are growing with them.
More than that, there are some services directly, e-commerce line, for example, from L.A. to directly, e xcuse me, from Shenzhen, South China to L.A., and in this service, we developed the e-commerce line by ourselves. In this line, we are not part of the cooperation with the 2M.
Maybe, I just want to add to Eli's point that we at ZIM will look at the market and see every opportunity that we can identify. We have, as you pointed out, we have opened new trades in and towards the second half of 2020, and we will obviously capitalize on those trades in our 2021 full year. If we see trades that are still unserved, we will obviously continue to expand and open new lines as Eli just mentioned.
Got it. Thanks for that color. Maybe just one final question a bit more broadly for the industry. Obviously, we've seen freight rates at very elevated levels, and they've held here kind of steady for the past couple of months. We've seen early signs maybe that the indexes are showing some signs of softness, but nothing material. Maybe just from your vantage point, how would you characterize the current situation when it comes to, say, the squeeze on box availability and port congestion? How has that maybe changed here today versus, say, three months ago?
I think, if we look at what happened towards the second half of 2020, the volumes came back very strongly, very rapidly, and took, I think, maybe everyone by surprise, creating also all the operational issues that you are referring also. We think there is still some issues with this effect, and those will eventually, hopefully ease and they are already starting, by the way, to ease as we speak. But by now, the question is, I think maybe behind the direct question that you're asking, what is the expectation of the new normal for the industry? What is to be expected? It's difficult to say. We don't have a crystal ball here.
The one thing that I think is important, maybe from where we sit, we think that we are positioned in trades where we obviously have competitors on the seaborne type of a market, but we are also capturing additional cargo, which are a result of a model shift from air to sea, and we are also capitalizing on the growth of the e-commerce trade. We think that COVID-19 has been an accelerator of a trend in this respect, and that after the COVID-19 situation is hopefully resolved, we think that customer behavior will remain very strongly geared towards also e-commerce, where we are extremely active and with a very significant footprint here. There will be some sort of new normalization. We don't expect any sort of collapse in this respect.
Let's also remember that the industry has demonstrated its ability to navigate through a shift and a significant shift maybe in demand. That is maybe the lesson learned from the COVID-19 situation, especially towards the first half of 2020.
Yeah. Clearly new territory, and it'll be interesting to see how things develop from here. Well, thanks again, Xavier and Eli. Congratulations on such a strong performance.
Thank you.
The next question is from Randy Giveans of Jefferies. Please go ahead.
Howdy, gentlemen. How's it going?
Thank you.
Hey. Congrats, obviously, on the IPO, in your first call as a publicly traded company. A few questions on my end. Looking first at your net debt in the balance sheet, right? It's fallen to $1.2 billion. Net leverage has fallen to 1.2x . I guess, going forward, how much in net debt and what kind of leverage are you expecting, maybe at the year-end 2021, 2022? How low are you willing and able to take it?
Thank you, Randy. Maybe I take this one. You're right that we have had a very, I think, impressive de-leveraging trajectory over the past few quarters. We are now closing at a level of 1.2x. How low can we go? With the expectation, the guidance that we are providing for 2021, we should continue to expect a very strong cash conversion from EBITDA to cash. Therefore, naturally, if we do not incur additional debt on balance sheet, the leverage could even decrease. The idea for us is not to go back to a higher leverage.
We are very fortunate to be in a position now where our balance sheet will allow us, if we require, to engage and maybe bring in additional debt on top of, obviously, the debt that we will keep on incurring and regenerating when it comes to the vessels that we would cover on the charter exceeding one year. We are very pleased with the capital structure today, which opens opportunities to the company.
Got it. Okay. Sure. In terms of the dividend, I guess two questions around that. Why an annual dividend instead of a quarterly dividend? Secondly, how, do, or maybe will you determine that amount within the 30%-50% range?
I think we're starting with your first question. We are clearly in an industry which we hope is getting less and less volatile. Nevertheless, it is. There are a lot of parameters that we do not control. We can talk about bunker, we can even talk about charter. There is supply, demand, the dynamics that we have to react, anticipate to. There is that seasonality as well in our industry. In this respect, we truly believe when you are a global player, that what makes sense is an annual dividend distribution policy. That is why we've opted for that. I'll go to quarterly.
When it comes to setting what will be the recommendation of the management to the board of directors in terms of dividend distribution, we are pleased to update that, as Eli mentioned earlier on, that we think that the right position should be between 30%-50%. This is what we can say at this stage, and obviously, we'll say more when we close the 2021 financial year.
This is improvement for our last, let's say, dividend policy that we share with you during the prospectus before the IPO, and we are speaking specifically on 2021.
Got it. Yep. Sounds good. Then briefly, just to wrap up the question around your contracting on your volumes. Historically, you contract about 25% of your volumes on this one year fixed-rate bookings with your customers. I know you said the rate is about 50% higher. What is your plan for percentage of volumes to be contracted here in the next few weeks for a year?
For us, the reason why you are referring to the 25%, just maybe to clarify here. The trades that you very much prone to long-term contract with the trans-Pacific trades. That represents indeed close to 50% of our volume. What we've done traditionally or historically is secure, give or take, in the region of 50% of our overall charter, hence why the 25% that you're referring to. We want to keep a significant percentage of the volume that we carry, and keep an exposure on the spot market. Today, there is no real reason to think that we will shift materially in terms of overall percentage of contract cargo versus spot increase.
Got it. Okay. Around the same numbers. Good deal. Well, thanks again. Yeah. Nice to see the stock getting off the floor there and well above the IPO price. We will talk soon.
Okay.
This concludes the Q&A session. Mr. Glickman, would you like to make your concluding statement?
I would like to thank those who believe in the company, to thank those who asked the questions, and we are here to support the company. Looking forward to break the new records that we already achieved. Thank you very much.
Thank you. This concludes the ZIM Integrated Shipping Services fourth quarter and full year 2020 result conference call. Thank you for your participation. You may go ahead and disconnect.