New era for Zim

New era for Zim

Newly privatized Zim Israel Navigation Co. is formulating growth plans that include new businesses, more ships and possibly stepping up its slot-charter arrangements with other lines.

After 59 years of part-ownership by Israel's government, Zim is comfortable operating as a private-sector firm, said the carrier's president, Yoram Sebba. "The owners know this business inside out," Sebba said in an interview. "The sky is the limit."

Zim is a global container line, but in most trade lanes it operates out of the spotlight. In the U.S. trades, Zim ranks 15th, with a market share of 2.5 percent, according to the Global Container Report published by the Port Import/Export Reporting Service, a sister company of The Journal of Commerce.

On Feb. 5, Israel's government sold its 48.9 percent share in the company to Israel Corp., which is run by Yuli and Idan Ofer in Haifa. Although Israel Corp. for the past 30 years held a slim majority of Zim shares, the company never exercised its authority, Sebba said.

This was not a good business model in a country where the government's general policy is to avoid involvement in private-sector enterprises. The government invested little in Zim, yet the carrier had to pay dividends to the government as a major shareholder.

While Zim remained profitable under this arrangement, it lacked the capital to take on other global carriers. Zim last year began to phase in 13 vessels of 5,000-TEU capacity, but the carrier lags the Asian and European lines whose fleets are dominated by post-Panamax vessels with capacities of 6,000 to 8,000 TEUs.

"Zim needs to have some more vessel acquisitions," Sebba said. With global carriers having firm orders for more than 100 vessels of 8,000- to 9,500-TEU capacity, Zim is flirting with the idea of acquiring modern-generation, 8,000-TEU ships. "Even if you don't like it, you have to think about it," Sebba said.

If Zim is going to place any sizable order for post-Panamax ships, it will have to stand in line behind other carriers that have filled the world's shipyard order books into 2007. Sebba believes that if Zim decides to expand its fleet, shipyard capacity will be found. "In Israel we do not expect miracles. We take them for granted," he said.

Expanding its fleet right now could prove to be costly. Zim charters more than 65 percent of its capacity. In today's superheated charter market, many ships are tied up in multiyear charters, and the vessels that are available are going for near-record rates.

For Zim, growth entails more than acquiring vessels. Although the owners have not completed their plans, the expansion could include establishing a supply-chain logistics subsidiary, acquiring container freight stations, forming a forwarding company and possibly entering a joint venture as a terminal operator.

Zim may also expand its slot-chartering arrangements with other carriers as a way to quickly increase its market share in key trade lanes. Since its founding in 1945, Zim has never acquired another shipping line. "All of our growth has been organic," Sebba said.

Some recent economic studies indicate that companies that grow through acquisitions end up paying too much and duplicating enterprises they do not need, Sebba noted. Zim believes that in ocean shipping, the most efficient way to grow is through internal expansion and slot-charters with other lines.

Zim's growth also will require more revenue through compensatory freight rates. After several years of poor returns, the global liner industry reported strong profits in 2003. In past years of profitability, carriers raised their rates dramatically because demand exceeded supply in the major trade lanes. Last year, supply and demand were in balance, but the lines secured rate increases of as much as 40 percent.

Sebba is not surprised by this outcome. Carrier chief executives last year took control of pricing from their sales people on the street. Sebba sees a similar development this year, and he applauds the carrier chief executives. "They are responsible to the owners for the income side of this business," Sebba said.