Supply Chain Digital profiles CMA CGM, the world’s third-largest container shipping operator
Written by Ian Armitage & Produced by Adiele Nazer
Maritime transport has always been the backbone of international trade, dominating the world economy, and many companies have enjoyed the benefits of this through the years. However, in 2009, shipping is an industry in turmoil: a slump in world trade has caused rental rates for vessels to decline and owners have responded by slowing down their ships to cut fuel costs, reducing staff and idling vessels.
This, and the resulting losses brought on by the biggest crisis to hit the industry in recent times, has led to a major restructuring of several firms, including CMA CGM, the third-biggest container shipping operator, which is now seeking equity investors to reduce debt.
The company, based in Marseilles and privately owned by Syrian-born Jacques Saadé and his family, expanded fast through acquisitions and ship purchases during the industry’s boom years. But the story is very different today, as the industry tries to adjust to the downturn.
In a statement made on September 29, 2009, CMA CGM said that it had formed a committee of French, European and international banks, including banks from Asia and Korea, in a bid to achieve just this.
“The committee will propose suitable measures to address the group’s short- and medium-term financing requirements with a view to strengthening CMA CGM’s capital structure and, in so doing, ensuring its ongoing development,” CMA CGM said.
The launch of the rescue efforts followed talks between the company and France’s economics ministry, although it appears that the state is not directly involved in the rescue efforts.
“The French state is aware of this initiative and will be kept regularly updated on the progress made,” the company said.
The release explained: “CMA CGM reached agreement on the establishment of a committee comprised of French, European and international banks, including certain major financial institutions from Asia and the Republic of Korea. The committee will propose suitable measures to address the Group’s short- and medium-term financing requirements with a view to strengthening CMA CGM’s capital structure and, in so doing, ensuring its ongoing development.”
CMA CGM said that, since the summer of 2008, the entire world container shipping industry has experienced severe market conditions.
“Compared with the second half of 2008, the first half of 2009 saw record decreases in freight rates and shipment volumes on all main shipping lines around the world,” the statement said. “The level of activity began to improve again during the third quarter of this year and, so far, this recovery is sustained in the fourth quarter. Forecasted load factors and freight rates for the beginning of 2010 suggest a possible continuation of these recent positive trends.
“CMA CGM will continue with the initiatives started during the course of 2009, including notably with respect to the re-negotiation and, in some cases, the cancellation of certain ship deliveries,” it went on. “Regular working sessions of the committee are already scheduled. CMA CGM is aiming to reach an all-encompassing agreement with the help of the committee by the middle of November.”
VULNERABLE
CMA CGM has long been seen by industry commentators as one of the lines most vulnerable to a slump in traffic volumes and earnings – currently gripping the industry – due to its obligations to pay for ships ordered during the industry’s boom.
The company has issued no financial figures since its numbers for the full year 2008 but is, like other container lines, expected to be losing money.
Rodolphe Saadé, Chief Executive Vice-President CMA CGM, writing in the 39th Issue (summer) of the firm’s magazine, which Supply Chain Digital believes was released before the current attempts to reduce debt were made public, said: “Despite the slowdown in the world economy, CMA CGM is well prepared for 2009-2010, relying on the Group’s many strengths to weather the current crisis successfully.
“CMA CGM has adopted new cost-saving measures in every area of operations, from stevedoring and intermodal operations, to equipment and chartering. And because three-quarters of the fleet is chartered, CMA CGM has significant leeway in adjusting to market demand. Over 180 vessels will come out of charter in 2009: some will be returned to their owners, while others will be replaced or have their contracts renewed at attractive rates,” he added.
“The Group will continue to respond to fluctuations in international trade, streamlining services in sluggish markets and establishing a stronger presence in growth areas. Several major lines have already been reorganized and are receiving larger vessels, improving the productivity. New regional services have been launched, offering a better port coverage for our customers. A level of responsiveness that only a global operator like CMA CGM can achieve.”
NOT ALONE
A series of other container lines like Hapag-Lloyd, Zim Israel and CSAV and CCNI have all announced restructuring plans in recent months as rates have plunged well below levels that cover costs.
Several have demanded reductions in the fees charged by owners of chartered ships, often in conjunction with offers of equity in the shipping line in return.
CMA CGM said it hoped to reach an all-encompassing agreement by the middle
of November.
ABOUT CMA CGM
According to its website, CMA CGM operates a fleet of 350 ships with a slot capacity of over 800,000 TEU (Twenty Foot Equivalent Unit) and its mission is to “become one of the worldwide leading container shipping groups, offering its customers top quality, door-to-door solutions and increasingly comprehensive global coverage”.
CMA CGM has become a global carrier and operates on all the world’s oceans.
FACTS AT A GLANCE
COMPANY NAME: CMA CGM
FOUNDER AND PRESIDENT: Jacques R. Saade
OPERATIONS: Container shipping
ESTABLISHED: CGM - 1977; CMA - 1978
EMPLOYEES: 17,000 worldwide
REVENUE: $15.1 billion
www.cma-cgm.com
View Digital Corporate Profile of CMA CGM in SupplyChain Digital November 2009