Israeli liner carrier believes it has renewed vigor now that restructuring is complete.
The container liner carrier ZIM said a corporate restructuring completed in July, after nearly 18 months of negotiations with about 100 different banks, shipowners, and other stakeholders, has dramatically improved its balance sheet, liquidity and outlook.
Before the restructuring, more than 99 percent of ZIM was owned by Israel Corp., a publicly-traded conglomerate with interests in fertilizers, chemicals, energy, automobile manufacturing and electronics. Under the new restructuring agreement, Israel Corp.’s stake was cut to 32 percent and 68 percent of the equity in the company was transferred to creditors in exchange for reducing ZIM’s debt by $1.4 billion.
“We had to bring them all to a common understanding about this restructuring,” said Rafi Danieli, ZIM’s president and chief executive officer. “It gives us the opportunity now to carry on with what we have done in the past two years with full force, which is more focus on our business and carry on with improving service to customers. We call it, from our point of view, the ‘new ZIM.’”
The company is a global carrier with services in many regions. For example, in the United States it sails from more than 15 ports and has services to Asia, the Mediterranean and Black Sea, Caribbean and Latin America. The United States is an important market for ZIM, with U.S. companies controlling both imports from Asia and exports to the Mediterranean. About 500 of the company’s global workforce of 4,500 people are based in the United States.
Danieli said the company is going to focus on growing selected trades. ZIM has exited the trade between Asia and North Europe and the U.S. East Coast and North Europe and is seeking to expand in:
- The transpacific, which today accounts for about 35 percent of its business. The company’s services from the Far East call both the East and West coasts of the United States. ZIM has several strings to the Pacific Northwest, calling the ports of Vancouver, Seattle, and Tacoma.
- The trade between Asia and the East Mediterranean and Black Sea, which accounts for about 20 percent of ZIM’s sales and the carrier plans to increase its activity on this lane.
- The intra-Asia trade, which accounts for about 7 percent of ZIM’s business. Danieli said “we are not a big player, but we have a good network and infrastructure and we are definitely going to increase our activity in this area.”
- Latin America trades, which accounts for about 6 percent of the company’s business. ZIM has services from Asia, the Mediterranean and the United States.
- Transatlantic business accounts for about 10 percent of its overall sales.
Danieli said the company has decided to focus on these trades because it has long involvement in each and believes container growth prospects are better on those lanes.
“We have tried to distinguish ZIM by emphasizing the trades where we can deliver value and be a significant player,” said Nissim Yochai, vice president of customer relations. As an example, he pointed to the Pacific Northwest, noting ZIM is one of the bigger players in Vancouver and through this port it offers intermodal services to inland points in the United States.
“If you look at the East Med and Black Sea, and we are the third largest carrier entering the Black Sea, these are places where we have added value to our customers,” he added.
ZIM has also worked to improve its systems for both sales and customer service.
Confidence. Danieli said the new board of directors has expressed confidence in the current management and the company’s restructuring plan.
In the first half of 2014, ZIM handled about 1.24 million TEUs, or 3,000 more than it did during the same period last year. Revenues were $1.74 million in the first half of this year compared to $1.89 million as recorded in the first half of 2013.
“I’m not looking only at the size of the company, or if our gross is X or Y. Market share is important, but it is not the main factor,” Danieli said. “Today, whatever we are doing, whatever strategy we are taking, we are looking at the profitability of the business… Profit is the name of the game.”
Of the 20 largest container shipping companies, 16 are now in one of four existing or planned global alliances on the major east-west trades: APL, Hapag-Lloyd, Hyundai, MOL, NYK and OOCL are part of the G6; COSCO, “K” Line, Yang Ming, Hanjin and Evergreen have formed the CKYHE; Maersk and MSC are awaiting regulatory approval for the 2M; and in September CMA CGM, United Arab Shipping Co. and China Shipping announced plans to form Ocean Three.
Chile’s CSAV plans to merge its container business with Hapag-Lloyd by the end of this year. Only ZIM, Hamburg-Süd, and Pacific International Lines are not part of any major east-west alliances, but instead cooperate with many different carriers.
“We are open to every possibility. As you know from our alliance structure, we work very closely with almost all shipping lines in different forms—joint ventures, swaps, vessel agreements. We have many different types of cooperation,” Danieli said.
“With the restructuring, we are probably in a better position to examine new possibilities as they develop,” he said. “We are open and it will be seriously evaluated as opportunities come through.”
Buy Or Charter? Alphaliner said in early September that more than 80 percent of ZIM’s capacity is on chartered ships as opposed to owned ships.
Yochai said the company will look at new vessels once the expanded Panama Canal’s new capabilities to accommodate larger containerships become clearer.
ZIM views its all-water services from Asia to the U.S. East Coast via the Panama Canal as key, but that right now its focus is on improving the company’s profitability.
Danieli noted large ships are not readily available for short-term charter and, if a company wants ships of 8,000-10,000 TEUs or bigger, it generally has to either build them or arrange for a long-term charter from an owner.
Even if a company is contributing just one or two ships to a string, if the partners are contributing large ships, they want all the partners to contribute similar size ships and also to have long-term control over those assets through either ownership or long-term charters.
Danieli said ZIM has 15 owned ships and 11 of those have Israeli crews as required by the Israeli government to ensure the country has a fleet that can provide a lifeline in the event of a war or other crisis. About 15 percent of ZIM’s activity is related to Israeli trade.
ZIM was established in 1945 and its early fleet included ships that were refitted to carry immigrants from Europe and much needed supplies during Israel’s founding, War of Independence and during the late 1940s. In 1969, about half of ZIM was acquired by Israel Corp., which was later privatized.
The company’s history has made it a lightning rod for those who oppose Israeli government policies.
In August, demonstrators in Oakland, Calif., protesting Israeli military action in Gaza prevented a ZIM ship from discharging and loading its cargo for several days.
While protesters claimed they were supported by members of the International Longshore and Warehouse Union showing solidarity with their cause, the union said in a statement that it had “taken no position on the issue.”
Danieli said other efforts to disrupt its vessels from working in other ports had not been successful.
He noted that ZIM today is no longer owned by the state, and is a private company with more than half the stock owned by non-Israelis, many of them banks or other investors from Europe, the United States and Asia.
Danieli said he does not know if the creditors will want to be long- or short-term investors in ZIM, but eventually the carrier could have a public offering to give equity holders more freedom to do what they want with their shares.
Looking forward, Danieli said the main problem facing the shipping industry is an oversupply of container capacity. “Until the industry finds a balance between supply and demand, I think the industry is going to suffer from pressure on freight rates,” he said.
He agrees with analysts that believe the industry may begin to see a balance between supply and demand in late 2015 or early 2016. “I think we are going to see some reduction in the growth of the supply side and, at the other end, we see some signal the economy is starting to pick up,” Danieli said.
“The market is very challenging, and it is not going to be easy, but I think after the restructuring that we have made, it has put us in a good position for the future,” he added.
This article was published in the October 2014 issue of American Shipper.
