Officials from Zim said they are hopeful that general rate increases being announced by carriers to take effect at the beginning of July will stick and improve the outlook for the container shipping industry.
Zim “is generating good utilization of the vessels,” Guy Eldar, the company’s chief financial officer, said in a telephone interview with American Shipper on Thursday, after the Israel-based carrier released its first quarter results.
“In terms of freight rates, freight is not picking up as everyone expected and some of the trades are even going down. We are expecting and it is expected that freight increases will take place at the beginning of July, and hopefully they will stick. If that is the case, then everybody would benefit,” he said. “That is similar to what was done in 2012, at a similar time of year. If that is going to be the case, we will definitely enjoy that.”
Earlier this week the Transpacific Stabilization Agreement recommended rate increases of $400 and $600 per 40-foot container on cargo moving from Asia to the West and East Coast, respectively.
Several carriers have announced rate hikes from Asia to Europe. For example, Hapag-Lloyd said May 14 it will increase rates on the Far East westbound trade by $1,000 per TEU on July 1. It also announced a peak season surcharge on cargo moving from East Asia to North Europe of $500 for August and September.
Today, Maersk said it’s increasing the size of a July 1 GRI from $750 to $950 per TEU.
Zim plans to announce its own Asia-Europe rate hike in the next week or so.
“If that will hold, everyone will benefit from that. The main message of Zim—it has been a constant message over the last few quarters—is that we are, in terms of operational profitability, on par with the average of the market. Before, in 2009, 2010, we were lagging behind the market in terms of profitability,” he said. “This is good news for the company.”
Eldar said the company continues to cut costs, optimize its network, and improve customer service.
Nissim Yochai, vice president of corporate customer relations, pointed to high ratings the company received in shipper surveys by Lloyds List and Containerization International for European and Asian shippers.
“We see a lot of our efforts in the last two years in terms of improving customer service, customer satisfaction, investing resources in our sales force really paying off now. We hope with that to be able to increase and improve our customer mix and yield,” he said. “Even though the market is not picking up as we would like it to, still we would like, where possible, to get the higher range of market rates instead of below market rates.”
He said trade is “weak all over. I don’t think we are experiencing any part of the world which is surprisingly better.”
On Thursday, Zim reported a net loss of $112 million in the first quarter. While markedly smaller than the net loss of $163 million in the same quarter a year earlier, Eldar said the company’s ability to report a profit this year will depend on not only better freight rates, but other factors such as fuel costs.
“The volatility that we have experienced with bunker costs is just insane,” he said.
If rates increase in the Asia-Europe trade, “there is a fair chance that we will make some profit, similar to what happened last year in Q3 when the company ended the quarter with a positive bottom line. I don’t see any reason it will not happen again this year, but again it has some dependency on the market performance,” said Eldar.
Yochai said the company saw only some minor rate increases when transpacific contracts were renewed this year
Zim is involved in space-sharing agreements with many alliances and carriers, including the G6 alliance, Maersk, MSC, COSCO, China Shipping, and Evergreen. “That puts us in a very flexible position,” he said.
He noted the company is continually fine-tuning its network.
For example, on Thursday, Zim announced it had realigned its Asia-Europe Express Service (AEX1).
The AEX 1, operated jointly with China Shipping, deploys nine ships of 8,500 to 10,000 TEUs of capacity and has added the ports of Antwerp and Nansha. From mid-June the rotation will be Shanghai, Ningbo, Yantian, Felixstowe, Hamburg, Rotterdam, Antwerp, Nansha, and Shanghai.
The first sailing under the new alignment is the vessel Xin Ya Zhou, which will depart from Shanghai on June 12. Zim will contribute three 10,000-TEU ships, the Zim Antwerp, Zim Rotterdam and Zim Tianjin.
In March, Zim announced plans to cancel orders for five new ships, delay delivery of other ships until 2016, and postpone payments due this year for other orders. All told, it said the agreements relieved the company from off-balance sheet obligations amounting to $1.4 billion, and the company was also refunded $30 million in advance payments for cancelled orders.
The carrier said “following the support and agreements achieved in the end of the quarter to delay principal payments until the end of 2014, and further concessions amounting to $400 million, an achievement which demonstrates the full trust of the financing banking system.”
Zim has eight ships on order. From Hyundai Heavy Industries it has four 8,800-TEU ships on order, with an option to have them redesigned to a different size, perhaps in the 10,000-TEU range.
“But we are not talking about 16,000 TEUs,” Eldar said. “When the need comes we will decide on the type of vessel.”
The other four 12,600-TEU ships are on order from Samsung, and these are the vessels on which the company has an option to cancel and perhaps enter into a new order at better prices. – Chris Dupin
Zim: July 1 rate hikes key for container industry
