In the face of mounting losses for the second consecutive quarter, Israeli shipping firm ZIM is taking strategic measures to curtail cash burn and restructure its operations. The company reported a staggering deficit of USD 213 million in its latest financial period, while simultaneously unveiling plans to rationalize capacity and mitigate financial strain.
The adverse impact of the planned redelivery of multiple vessels, previously sold and leased back by ZIM in 2018, added an additional layer to the financial turmoil, contributing to a non-cash after-tax loss of USD 51 million. Operating profits also registered a bleak picture, plunging to USD -147 million (compared to USD -14 million in Q1 and USD 1.8 billion in Q2 2022). In a corresponding downturn, revenues nosedived by 62%, settling at USD 1.3 billion—falling below predictions set forth by analysts.
The company has promptly revised its full-year projections, forecasting an operating loss ranging from USD 100 million to USD 500 million for the year 2023. This strategic pivot reflects ZIM’s skepticism about any imminent enhancement in freight rates. Notably, the Transpacific route, which now constitutes only 30% of the business on contract basis, is also anticipated to face stagnant growth. Faced with these challenges, ZIM’s proposed approach revolves around minimizing losses through the redelivery of chartered capacity, a realignment of its network and services, and forging partnerships—such as the one with fintech platform 40Seas.
In the broader market, the efficacy of remedies like slow steaming has been rather modest in mitigating the issue of oversupply. As ZIM highlights, the sluggishness in tonnage oversupply remains a significant concern. The company’s report underscores that despite a revival of global shipment volumes post the initial pandemic-induced dip, the persistently elevated levels of manufacturing inventory pose a hurdle to a full recovery.
Of pivotal concern is ZIM’s dwindling cash reserves. Over the span of six months, from December to June, the company’s total cash reserves plummeted by USD 1.4 billion, settling at USD 3.2 billion. This pronounced decline in liquidity is paralleled by a shift from a net cash-positive stance of USD 279 million to a net debt position of USD 1.6 billion as of June 30, where debt has overtaken cash on hand. In contrast, ZIM’s counterpart OOCL parent OOIL recently reported a noteworthy net cash position of USD 6.2 billion.
ZIM’s investor-attracting dividend strategy, once an emblem of financial prowess, now stands challenged. Despite upholding its dividend policy of distributing 30% to 50% of annual net income, the company’s current position deep in the red is expected to hinder substantial dividends in the short to medium term.
As ZIM navigates through these uncharted financial waters, industry observers and stakeholders will be closely scrutinizing the company’s multifaceted strategy aimed at shoring up its financial standing and charting a course toward sustainable growth.
Source: Alphaliner
