BlueWater Reporting takes deep dive into ZIM

Date: Thursday, October 25th, 2018
Source: American Shipper

ZIM Integrated Shipping Services has taken a unique approach in the liner shipping industry by continuing to remain out of an alliance, unlike the majority of other prominent liner carriers on major global trade lanes.

The Israel-based company refers to itself as a “global niche carrier,” meaning it is not on every prominent trade lane, but it strives to be a key player on the trades in which it does participate. “ZIM operates in select trades where it has a competitive advantage and where it can provide superior service,” the company said. “In these trades, ZIM is a significant player with a sizable market share. We maintain a flexible partnership approach with other major carriers, and our new line structure is a much-needed alternative to customers concerned about the current alliance-dominated market.”

The three major ocean carrier alliances that work together on key east-west trades are:
• The 2M Alliance, comprised of Maersk Line and Mediterranean Shipping Co.;
• The OCEAN Alliance, comprised of COSCO, Evergreen Line, Orient Overseas Container Line, CMA CGM and APL;
• And THE Alliance, comprised of the Ocean Network Express, Yang Ming and Hapag-Lloyd.

ZIM Chief Financial Officer Xavier Destriau told BlueWater Reporting in October that the company does not currently have any desire to join an ocean carrier alliance, although it is very open to “selected partnerships” with other carriers.

In September, a slot purchasing agreement between the 2M Alliance and ZIM on the Asia-U.S. East Coast trade entered force. ZIM said the term of the cooperation is seven years.
Under the agreement, the 2M Alliance operates four loops in which ZIM purchases slots on, and ZIM operates one loop in which the 2M Alliance purchases slots on.
ZIM currently is not a slot purchaser or vessel operator on any other loops on the Asia-U.S. East Coast trade outside its agreement with the 2M Alliance, and although the same goes for the 2M Alliance, it does operate a loop that serves the Asia-U.S. Gulf Coast trade.

Prior to ZIM’s partnership with the 2M Alliance, ZIM only operated two standalone loops on the Asia-U.S. East Coast trade, while the 2M Alliance operated four loops on the trade (plus its Asia-U.S. Gulf Coast loop).

Destriau said the collaboration with the 2M Alliance on the Asia-U.S. East Coast trade improved ZIM’s service offering by adding more ports of call and increasing its weekly sailings on the trade from two to five, as well as allowing the carrier to cut costs by joining forces.

The chart below, built using data from BlueWater Reporting, illustrates the five services that the 2M Alliance and ZIM cooperate on together from Asia to the U.S. East Coast. Together, these services collectively allocate 33,290 TEUs per week from Asia to the U.S. East Coast.

Additionally, ZIM has entered into a cooperation agreement to purchase slots between the India Subcontinent and Mediterranean on two loops operated by MSC.
ZIM began purchasing slots on MSC’s IMED loop with Tuesday’s departure of the MSC Abidjan from Mundra, BlueWater Reporting’s database illustrates. ZIM calls this loop the ZIE. Although the IMED sails between the Mediterranean, Middle East, India Subcontinent and the Mediterranean, ZIM only purchases slots on the Middle East portion of the loop.
ZIM also will began purchasing slots on MSC’s Indus Express loop with Friday’s sailing of the MSC Bilbao from Nhava Sheva. ZIM refers to this loop as the ZII. Although the loop operates between the India Subcontinent, Mediterranean, the East Coast of North America, the Mediterranean, the Middle East and back to the India Subcontinent, ZIM only purchases slots on the westbound portion from Nhava Sheva and Mundra to Haifa.

ZIM Over the Decades. ZIM has come a long way since being founded in 1945 by the Jewish Agency, Histradrut labor federation and the Israel Maritime league.
The company purchased its first ship, the Kedmah, in 1947.
ZIM said its early fleet included ships that were retrofitted to carry immigrants and supplies from Europe.
In 1969, about 50 percent of ZIM was acquired by Israel Corp., and in the early 1970s, ZIM made the bold move into container shipping. “ZIM was a pioneer in this area, one of the first carriers in the world to adopt the technology that was new at the time, yet destined to dominate the shipping industry in the decades to come,” the company said.
In 1999, the Ofer Brothers Group became the controlling shareholder of the Israel Corp., and in 2004, the Israel Corp. acquired the remaining ZIM shares held by the government, completing ZIM’s privatization process. Currently, Kenon Ltd., a spin-off from Israel Corp., holds a 32 percent stake in ZIM, while other financial institutions and shipowners hold a 68 percent stake in the company.

As of June 30, ZIM’s fleet consisted of 76 chartered vessels, seven owned vessels and five vessels on long-term financial lease, according to Destriau.
Because ZIM relies so heavily on the chartering market, it allows the company to ensure that at any given time it has the right vessels on the right trade lanes, Destriau said.
Due to the fact that ZIM is largely relying on the chartering market, he said that to some extent, ZIM also is less exposed than its competitors to the IMO’s 2020 sulfur cap regulation in which the global cap on the amount of sulfur in marine fuel will be lowered on Jan. 1, 2020, from 3.5 percent to 0.5 percent. ZIM is looking to potentially charter vessels that use scrubbers on the Asia-U.S. trade in order to comply with the impending sulfur cap, but on smaller trades where ZIM operates vessels, the company does not currently believe scrubbers are the best method, Destriau said.
ZIM allocates the largest portion of its capacity to the Asia-North America trade, followed by the Asia-Mediterranean trade, as illustrated in the chart below, which was constructed using data from BlueWater Reporting. The figures represent how much capacity (TEUs) ZIM-operated vessels allocate to a specific trade lane each week.

In the Red. As with most prominent carriers, ZIM recorded a net loss for the second quarter of 2018. ZIM’s net loss of $33 million for the quarter was down from a net profit of $2 million for the second quarter of 2017, as illustrated in the chart below, which was constructed using data from ZIM’s financial statements.

“Since the second half of 2016 and through the third quarter of 2017, increases were recorded in freight rates as well as in bunker prices,” said Eli Glickman, who took the helm as ZIM’s president and CEO in July 2017. “Commencing the fourth quarter of 2017, freight rates have decreased while bunker prices, as well as charter rates, continued to increase. As a result, the industry as a whole was negatively affected in Q1 and Q2 2018 compared to the same period of 2017.
“In the face of this tough business environment, ZIM continues to outperform the industry and increase its carried quantities,” Glickman said. According to Destriau, ZIM has consistently outperformed the industry average in terms of EBIT margin percentage for the past 14 consecutive quarters.

For the full year of 2017, ZIM managed to post a profit of $11 million after recording a $164 million net loss for 2016, as illustrated in the chart above, which was also created using data from ZIM’s financial statements. The carrier also increased revenues from $2.5 billion in 2016 to $3 billion in 2017 and increased container volumes 8 percent year-over-year in 2017 to 2.6 million TEUs.

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