ZIM warns to stop sailing on transpacific route if rates fall too low

A containers of ZIM (Photo: ContainerManagement)

Spot container freight rates have plummeted from a record high and ZIM's average freight rate has dropped 42% year-on-year to $2,122/TEU. Spot rates are down from a year ago and Drewry's World Container Index (WCI) for the week ended March 9 stood at $1,806/FEU, 80% lower than the same period last year.

On that basis, ZIM and other container shipping lines are currently negotiating contract prices on the trans-Pacific route from Asia to the US. In a recent discussion of ZIM's Q4 2022 results, Xavier Destriau, CFO and Executive Vice President of ZIM, described the current situation as "unique" like like the moving picture of a pendulum, in which the unusual market situation of the past two years has now moved “very strongly in the opposite direction”.

“I think both shippers and liners know that there is a middle range that is the natural equilibrium that we should all tend and lean towards,” he said. However, if this does not happen and shippers insist on extremely low rates, there is a warning of a serious impact on service levels.

“Otherwise, the disruptions might affect the shippers as well. If we don't get the rates that we believe makes sense for us to continue sailing we will stop sailing, and then if we stop sailing then it may have a more drastic effect on the ability of our customers to secure their supply chain,” warned Destriau.

As the negotiations are going on now and ZIM has contracted most of its customers both in terms of quantity and price, and Destriau has given a positive picture of those negotiations.

“What we are hearing today from our customer base is that they are very pleased with ZIM and we hear a lot of positive feedback and comment on the very fact that we are the first liner to deploy an LNG [fuelled] service on the Asia to the US east coast. And that resonates very strongly to vis-a-vis our customer base,” he said.

“So now we do hope that it will translate into the final discussions on the rate to levels where both shippers and ourselves are happy.”

ZIM is looking at a split ratio of around 50-50 between contract and spot commodities, but the final rate will depend on where negotiations end up with customers. “If the rates are not satisfactory to ourselves, we might revisit that percentage allocation and agree to expose ourselves more to the spot market. We think that the second half is going to be better than the firs."

On the outcome of the negotiations, Destriau said: “There are still quite a few weeks ahead of us before we finalise the discussions on contract cargo whether we will end above, below, close to spot remains that remains to be seen.”

Read more:

• ZIM's profit drops 76% in Q4 2022
• MSC, CMA CGM, Evergreen and ZIM to have strongest growth in 2022
• ZIM profits more than USD 4.2 billion in the first 9 months of 2022

Source: Phaata.com (According to SeatradeMaritimes, Yahoo Finance)

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