* Q3 net profit $16 mln vs loss of $66 mln
* Revenue up 9 pct to $1.06 bln, avg freight rate up 10 pct
* Zim seeks govt permission to split company
By Tova Cohen
TEL AVIV, Nov 27 (Reuters) - Israel-based Zim Integrated Shipping Services said global economic uncertainty and overcapacity in the shipping industry could lead to worsening market conditions next year.
Zim on Tuesday posted its best quarterly results since the third quarter of 2010 due to a recovery in market conditions, cost-cutting measures and a positive seasonal effect as the third quarter is the industry’s peak season.
Despite the strong results and improvement in liquidity, Zim believes the industry is still in a vulnerable condition. Available capacity has increased, resulting in imbalances in supply and demand and putting pressure on freight rates. Volatile oil prices also affect the industry.
Zim President and Chief Executive Rafi Danieli said that while there has been some pick-up in demand, it is not enough to cover oversupply.
“Today about 4.5-5 percent of the world’s fleet is idle,” he told Reuters in an interview.
To cut fuel consumption, shipping companies are also reducing speeds.
“In the last two years we put a lot of effort into being more efficient. We made some organisational changes,” Danieli said. “We see a big improvement in our results which are now above the industry average. We are more focused on profitability and not on market share.”
This is reflected in a reduction in the number of vessels it charters, rather than idling ships, he noted. Zim has over 100 vessels in its fleet.
Zim, a subsidiary of conglomerate Israel Corp, had a net profit in the third quarter of $16 million, compared with a loss of $66 million a year earlier during a downturn in the shipping industry.
Revenue in the quarter rose 9 percent to $1.06 billion due to a 10 percent rise in the average freight rate to $1,444 per twenty-foot equivalent unit (TEU). Carried TEUs fell 4.5 percent to 617,000.
Zim’s liquidity improved in the quarter due to strong cash flow and refinancing transactions.
While trade has slowed on major Asia-to-Europe routes due to the weak European economy, Danieli said 40 percent of Zim’s routes are based in the Pacific, with routes from Asia to the Mediterranean and Europe accounting for 20 percent.
The CEO said it was difficult to predict whether the industry would see more consolidation but he expects carriers will cooperate more closely.
Zim is in talks with the government - which sold the company to Israel Corp in 2004 - regarding a possible split of the company between its Israeli and international operations. Such a move would make forming cooperation agreements and joint ventures much easier. International activities account for 85 percent of Zim’s operations.
Editing by Louise Heavens