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OM in the News: ZIM Shipping’s Competitive Advantage

January 13, 2021

Israeli container ship operator ZIM Shipping is turning its small size into an advantage in a business dominated by outsize carriers running megaships in global supply chains, writes The Wall Street Journal (Jan. 7, 2021). The company is touting its “flexibility and agility” to capitalize on the surging demand from retailers looking to circumvent shipping logjams by using premium-priced, point-to-point services.

ZIM controls just 1.5% of global container capacity. The company competes against ship operators 10 times its size and that have grouped into 3 global operating alliances. Those 3 groups, including giants such as A.P. Moller-Maersk of Denmark, CMA CGM of France and China’s Cosco, collectively handled 83% of all seaborne imports into the U.S. last year.

“Our small size is now an advantage,” said ZIM’s CEO. “Our competitors use big vessels and operate on volumes and quantities. We are offering custom services to loyal customers that are willing to pay a premium for speed and reliability.”

ZIM’s biggest ships can move a maximum of 12,000 containers, roughly half of what is stacked on the ultralarge vessels operated by the sector’s leaders. Backups at ports have been keeping many of those behemoths waiting for days outside major ports, pushing back deliveries and saddling cargo owners with delay charges on top of record-high freight rates. ZIM’s smaller ships present higher charter-market flexibility and agility to redeploy across different routes, a significant benefit in times of volatile or uncertain market dynamics.

Airfreight services typically cost far more than ocean freight but offer rapid transport in exchange. The gap in delivery times, which can amount to several weeks in normal times, has narrowed because the grounding of passenger jets has left shippers waiting for space in capacity-strained aviation markets. “The regular air service is 5-6 days,” ZIM’s CEO said. “A number of clients wait for 5 more days and use our ships. They save 80% of the airfreight cost.”

Classroom discussion questions:

  1. What are the 3 ways firms can gain competitive advantage? (Hint: see Ch. 2 in your Heizer/Render/Munson OM text).
  2. What is ZIM’s strategy and why is it working?

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