ZIM Integrated Shipping (NYSE:ZIM ) has lost more than 50% of its market cap since its highs earlier this year. With inflation soaring, the Fed's decisions keeping the market on edge, and concerns of a recession mounting; the picture for container shipping might appear dire. However, despite all this bad news, some rates continue to rise and Matson ( MATX) (another container name) has announced stunning preliminary results for quarter two. All in all, ZIM appears oversold and undervalued.

Matson recently announced preliminary second-quarter earnings results, and if these are any indicator of what ZIM's numbers could look like, we're in for a treat. Matson indicates that demand for shipping from China remains strong, and even if it has slipped some in recent weeks, shipping companies can expect to close out the year strongly at these levels.

The increase in consolidated operating income year-over-year was driven by continued strength in the China service. Currently in the Transpacific tradelane, we are seeing solid demand for our China service as China's factory production continues to recover from the COVID-19-related supply chain challenges. However, in recent weeks we have seen a gradual decline in the Transpacific freight rate environment off the highs experienced earlier this year. This indicates that rates have likely peaked for now, and, at this time, we expect an orderly marketplace for the remainder of the year with our vessels continuing to operate at or near capacity...

As a result, Matson has guided for diluted EPS of $9.31 to $9.42, which would make this a better earnings report than Q1 ($8.29) and on par with Matson's best-ever quarter from last December ($9.40).

If Matson is preparing to report its best ever quarter now, despite all the fear in the market and slipping freight rates, this is a good sign that the fear may be overblown for other shipping names like ZIM, as well as Maersk (AMKBY, AMKBF, OTCPK:AMKAF) and Hapag-Lloyd (HPGLY, OTCPK:HLAGF).

Here we are, yet again, in a year of "supply chain chaos." Clarksons' container ship port congestion index just reached a new high, at 37.9% of capacity, exceeding the previous high from October 21 last year. In China, congestion at ports is up 20% compared to 2021. All of this is evidence of continuous tight supply in the container shipping industry.

This, in turn, is evidenced by the continued high prices being paid to fix charters. These new charters also show the confidence of cargo liners in future demand remaining high and their business remaining profitable, with liners fixing multi-year charters a year or two out at these record rates. Recently ONE secured two 6,500 TEU ships from Costamare (CMRE) for three years at $59,000 a day.

Companies are also outright buying secondhand vessels at spectacular prices, such as Maersk purchasing a 2010 8,800 TEU neo-panamax for $133 million.

As I mentioned in my last update on ZIM, despite all the concerns and hullabaloo about "falling rates," these freight rates are still fantastic for cargo lines. Even at half of the then-current Freightos Container Index of $7,621 ZIM would still be raking in a tidy profit of $20 a year or more.

And rates have not nearly fallen that far. As of writing, the index is still $6,319. At this level, ZIM is doing just fine.

Freightos Baltic Index (FBX): Global Container Freight Index (Freightos Data)

Freightos Baltic Index (FBX): Global Container Freight Index (Freightos Data)

Additionally, while the broader index may be down, many routes are more profitable than ever. Rates for shipping a container from Asia to the West Coast of the US have fallen.

FBX 01 Asia to North America West Coast (Freightos via MacroMicro)

FBX 01 Asia to North America West Coast (Freightos via MacroMicro)

But rates from the EU to the US East Coast or South America are up.

FBX24 Northern EU to South America East Coast (Freightos via Macro Micro)

FBX24 Northern EU to South America East Coast (Freightos via Macro Micro)

What this may be indicative of, is the new normal. Rates appear to be converging and normalizing at a very high level. And though ZIM (and most other shippers) is, of course, most present on the dominant Asia to US West Coast route, ZIM's positioning as a "global niche player" gives me hope that management is taking advantage of these other still-rising routes.

ZIM's shares have sold off dramatically since a high of over $90 per share earlier in the year.

And once again (this is becoming an article theme if you haven't noticed), despite all the negative noise and selling in the market, analysts have been consistently raising ZIM's EPS targets for 2022 and 2023 since the beginning of the year. In fact, the earnings expectation for ZIM has doubled since December.

ZIM Earnings Per Share Revisions (Seeking Alpha)

ZIM Earnings Per Share Revisions (Seeking Alpha)

This disconnect in the market suggests ZIM's shares are meaningfully oversold. At a share price of around $45, ZIM is trading at 1x 2022 earnings. Additionally, the company has no debt and a mounting cash pile. Right now, ZIM is offering you the chance to buy the cash on its books for the end of the year and take all future earnings for free.

And we can't forget ZIM's dividend. I stand by my earlier projections for ZIM to conservatively pay out $10 per share in dividends this year (and likely way more, possibly twice that amount). At the current share price, ZIM has a dividend yield of at least 22% and it could go to nearly 50%.

ZIM, and container shipping more broadly, is hardly without risk. The largest risk in the market remains the macro-economic situation. Inflation and rising economic pressures may push consumer demand meaningfully lower, which would dampen demand for container shipping and could put further pressure on rates. This is not a small risk, to be sure, but as I outlined above, rates have a long, long way to drop before ZIM ceases to be immensely profitable.

Additionally, 2023 deliveries of new vessels could increase supply and let up some of the tightness in the market. Though, with new environmental regulations expected to take effect, older vessels may also be taken off the water.

ZIM has seen intense pressure on its share price over the past few months. Rates have fallen as well. But the situation is far from as dire as many would have you think. Looking at the individual route indices, several routes' rates continue to rise. The projections from Matson further suggest a strong second quarter earnings season for container shipping names. In this environment, ZIMs shares look meaningfully oversold and poised for a bounce on what should be a strong earnings report and dividend announcement.

This article was written by

Disclosure: I/we have a beneficial long position in the shares of DAC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is for informational purposes only and should not be regarded as investment advice. This article should not be the sole basis for a financial decision, including the purchase or sale of stock. Any personal financial decision should be made on the basis of your own research and consideration of your unique financial goals and investing ideals.