Analysts have speculated ZIM could be the next firm swept up in the wave of consolidation in the ocean shipping industry, but the Israeli carrier has outright rejected the idea it is looking to sell its global operations.
If it seems like we’ve been talking a lot about mergers and acquisitions, and rumors thereof, in this column, it’s because we have, and for good reason. Last month, we debunked speculation that industry leader Maersk Line would pursue a purchase of the two largest ocean carriers in South Korea: the now insolvent Hanjin Shipping, which had already filed for court receivership in Korea, and Hyundai Merchant Marine (HMM), which had just come through the other side of a financial restructuring of its own.
As noted in this month’s cover story, 2016 has been a blockbuster year for ocean carrier consolidation. Following the merger of state-run Chinese lines COSCO and China Shipping (CSCL), French carrier CMA CGM’s acquisition of Singapore-based APL parent Neptune Orient Lines, the proposed merger of Germany’s Hapag-Lloyd and United Arab Shipping Co. (UASC), Hanjin declaring bankruptcy, and the combining of the container businesses of Japan’s Big 3—NYK Line, MOL and “K” Line—the industry will have essentially lost six of the top 20 carriers in the past year alone, and seven if we go back a little to include Hapag-Lloyd’s tie-up with Chilean liner company CSAV.
Then in early November, just after the Big 3 Japanese carriers announced their joint container venture, another rumor surfaced. This time anonymous sources “familiar with the matter” told the Wall Street Journal Israeli container line ZIM was actively shopping its global shipping operations. According to those sources, ZIM is looking to split itself in two, selling its vessels and services between the Mediterranean, Asia and the United States, while holding onto a “handful” of ships to continue operating in the intra-Mediterranean trade.
When reached for comment, however, ZIM rejected the rumor outright, and although denials are standard in these situations, in this case, I tend to take the company at its word. “We have been a global player for the past few decades and we have no intentions whatsoever to stop being one and providing worldwide services to our clients,” the carrier said.
ZIM CEO Rafi Danieli in October told American Shipper the company had become a “global niche carrier,” concentrating on specific global trades, including between Asia and the U.S. and Canadian Pacific Northwest, where the carrier now operates four services, and Asia and the U.S. East Coast, where it participates on five loops. Like its container-carrying competitors, ZIM has been under intense pressure from weak global trade growth, coupled with persistent overcapacity. This fundamental imbalance of supply and demand has caused rates to plummet and resulted in “bad results for the whole industry,” Danieli said.
The adjacent chart, built using ocean carrier schedule and capacity database BlueWater Reporting’s Carrier Fleet Ranking application, compares the operating fleet capacity for the top 11 ocean carriers worldwide. (It should be noted Hanjin’s roughly 650,000-TEU fleet has been removed from this list pending the result of its bankruptcy proceedings, which have already seen many of its vessels either sold or returned to charter owners. Capacity belonging to subsidiary lines—such as Maersk’s MCC, Safmarine and Seago—is included in parent totals.)
Once all is said and done in terms of the mergers and acquisitions already on the books, ZIM will be the 11th largest container carrier worldwide by operating fleet capacity with 382,406 TEUs. That figure pales in comparison to its competitors, nine of which have operating fleets with capacities of more than 1 million TEUs. With more than 3.1 million TEUs of capacity, leading carrier Maersk Line alone sports close to 10 times the capacity of ZIM.
Source: BlueWater Reporting
Perhaps more important to the viability of a sale is the fact that most of ZIM’s ships are too small for any of the global carriers, and with an average age of about six-and-a-half years, many are older and less efficient than the newer builds that belong to its competitors. In all, ZIM currently deploys 48 ships on direct liner services around the world, but only three of those vessels have capacities for more than 10,000 TEUs. In addition, only eight of the carrier’s 39 smaller, 4,000-TEU to 5,999-TEU ships are owned by the company, while the rest are leased via charter agreements and, therefore, not eligible for sale by ZIM.
Interestingly, the company that purchased Hanjin’s Asia-U.S. operations (a reported five ships) may be taking the same approach in the transpacific trade. Although unconfirmed at the time this issue went to press, one analyst speculated Korea Lines, previously a non-container shipping company, may use those five ships to offer a niche transpacific service between Busan and Long Beach, Calif. The idea being to capture some of the outgoing Korean exports previously handled by Hanjin, HMM and their alliance partners.
Of course, it’s always possible that ZIM is just blowing smoke and that the carrier is indeed shopping its global network assets to potential buyers, but at this point it seems unlikely. Given the company’s stated objective of becoming a niche player with global scale, as well as the relative size and age of it vessels, this M&A rumor—like so many others before it and those still to come—seems to be just that.
Ben Meyer is Managing Editor of American Shipper and Research Analyst with BlueWater Reporting. He can be reached by email at bmeyer@shippers.com.