THE Red Sea crisis has given a much-needed financial boost to container lines, with the impact on Israel-based Zim particularly notable, reports London's Lloyd's List.

Zim is yet to publish its full-year earnings for 2023, but in its third-quarter results recorded a US$2.1 billion non-cash impairment, was expecting an operating loss of $300-$400 million for the year.

Chief financial officer Xavier Destriau said at the time that the supply and demand imbalance would affect the market for the foreseeable future and into this year.

But a new research note from Jefferies suggests the narrative has changed for Zim as the hike in freight rates since December has sharply increased revenues.

"Zim's high spot, high cost and high leverage platform was a major concern in a period of low freight rates, but it now provides substantial upside given the rise in spot rates," said Jefferies analyst Omar Nokta.

"Red Sea diversions are likely to continue for an extended period, tightening capacity for longer, and Zim is set to capitalize."

It said Zim's strong cash position was positive, despite its high cash burn rate.

"We estimate Zim ended 2023 with $2.6 billion of cash and, prior to the latest surge in freight rates, Zim's quarterly cash burn was in the $300 million range," Mr Nokta said.

"With operating costs, including leases, at close to $1,700 per TEU and its realized freight rate falling to $1,200 per TEU in 2023, the gap was significant. However, current freight rates point to Zim capturing an average of $2,100 per TEU across its service lines."

While it expects Zim's fourth-quarter results to be weak, Jefferies said the first quarter of this year would see a bounce-back and would set the stage for a stronger second quarter.

"We believe [Red Sea disruption] will be stronger for longer as the geopolitical situation in the Red Sea has become more complex, prompting shipping companies to divert from the region in rising numbers," Mr Nokta said.

"We estimate containership capacity utilization has jumped from 78 per cent pre-diversions to 87 per cent currently, taking liners from a market with limited pricing power to one with meaningful pricing power. Given Zim's levered platform, we see the equity revaluing significantly in the coming months."

Container fleet balance had tightened considerably due to ongoing re-routing of ships away from the Red Sea and freight rates were likely to be supported at far above break-even levels in the coming months, he added.