ZIM sets floor for Transpacific contract container rates

Container spot rates have plummeted from record highs and ZIM saw a 42% drop in average freight rates year-on-year to $2,122 per teu. Spot rates have plunged from a year ago and Drewry’s World Container Index (WCI) for the week ended 9 March stood at $1,806 per feu, 80% lower than the same week a year earlier.

It is against this background that ZIM and other container lines are now negotiating contract rates on the Transpacific trade from Asia to the US. In a conference call for ZIM’s Q4 2022 results Xavier Destriau, CFO and Executive Vice President of ZIM, described the situation today as “unique” using the analogy of a pendulum where an extraordinary situation market situation for the last two years has now swung “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. If this does not happen though and shippers insist on extremely low rates there was 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,” Destriau warned.

As it stands negotiations are ongoing and ZIM has engaged with most of its customers on contracts both in terms quantity and rates, and Destriau presented a positive picture of those discussions.

“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 roughly 50 – 50 split between contract and spot cargo, but the final ratio will depend on where discussions conclude with individual 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 first.”

On what the outcome will be of 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.”

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