By Mike Wackett
After completing its painful debt restructuring in July last year, Zim posted a net profit of $11m in the first quarter of 2015 – the first time that the Israeli carrier has traded in the black since 2012 – a result which it mainly attributes to “seizing business opportunities” and leaving the Asia-North Europe trade.
The turnaround of Zim’s financial health has propelled the container line to fifth in Alphaliner’s carrier operating profit margin (OPM) table with an OPM of 7.7 per cent on revenue of $792m, gleaned from carrying 560,000 TEUs at an average rate of $1,251.
Zim President and CEO Rafi Danieli said: “We are pleased with our performance in this quarter and our return to profitability. The continuing improvement of our business results stems directly from the comprehensive initiatives the company advances, implementation of the business plan which focuses on opening new lines in profitable trade areas and seizing business opportunities.”
However, the total number of containers carried in the first quarter was down 9.2 per cent year-on-year while revenue declined by 8.6 per cent, proving that volume is not the sole route to profitability in liner trades. Moreover, Zim did not seem to suffer any shipper backlash from the ending of the Asia-North Europe liner services in May 2014 – but it did find plenty of support for a number of ad hoc sailings it operated to North Europe during the extended peak season of last year. But the carrier was quick to pull up the ramp and discontinue these ad hoc sailings once the slack season arrived, leaving its rivals to fight each other for diminished cargo volumes.
It was also quick off the mark to recognize the significantly increased demand to U.S. east coast ports from Asia during the period of acute port congestion on the U.S. Pacific coast, which nicely coincided with the North European downturn and lasted into the first quarter of 2015. In fact, the carrier offered a number of Asia-USEC ad hoc sailings during this period, benefiting from freight rates that were on average double those available for the west coast.
Moreover, with some shippers apparently unwilling to revert back to U.S. west coast gateways, Zim has announced that it will launch a regular Asia-U.S. east coast liner service at the end of this month, where spot rates are still at around $1,600 more per 40ft than the west coast, at approximately $3,140.
However, the danger for shippers is that if freight rates for the route drop dramatically as supply starts to exceed demand and cargo eventually returns to the west coast ports, there is a high likelihood that Zim will follow its new strategy of shutting unprofitable routes and pull the service. And with many carriers struggling to make returns on routes that have become saturated with tonnage, Zim may not be the only container line that adopts a policy of dropping unprofitable services from its network. Indeed, after Maersk Line’s first quarter record result was termed “disappointing” by analysts, due to its loss of market share, low ship utilization levels and a reliance on tumbling bunker fuel prices, senior executives were quick to react.
Talking to Danish publication ShippingWatch Maersk Line’s new Chief Financial Officer, Jakob Stausholm gave a stark warning to shippers. He said: “We have different tools in our toolbox that we need to use. One of them is that we will withdraw capacity where it is needed.” Shippers that have so far been able to work round temporary blanking of sailings may have more difficulty if capacity is withdrawn or services are culled completely as carriers embark on a more ruthless strategy.
Reprinted courtesy of The Loadstar (www.loadstar.co.uk)