Annual contracts are being negotiated between shippers and container shipping lines on the trans-Pacific shipping route. ZIM warns if rates are too low, the carrier will stop shipping.
Spot container freight rates have plummeted from a record high, and ZIM's average freight rates fell 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 a foot, 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 carriers know that there is a space in between that is a natural equilibrium that we should all be aiming for,” 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 disruption could also affect shippers. If we do not receive a price that we believe is reasonable to continue shipping, we will stop shipping, and then if we stop shipping that may have a stronger impact on our ability to ship. secure the supply chain of their customers,” 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 heard today from our customers is that they are very satisfied with ZIM and we have received a lot of positive feedback and comments about us being the first shipping line to launch the service. LNG [Fueled] on the Asia route to the US east coast. And that resonates very strongly with our customers,” he said.
“So now we hope that it translates into final negotiations on rates at a level that both shippers and we are happy with.”
ZIM is looking at a split ratio of about 50-50 between contract and spot commodities, but the final rate will depend on where negotiations end with customers. “If rates are not satisfactory to us, we may reconsider that percentage allocation and agree to more exposure to the spot market. We think the second half will be better than the first."
On the outcome of the negotiations, Destriau said: “It is still a few weeks before we finalize the negotiations on the freight contract whether we will end up above, below, close to the price. immediate delivery, it remains to be seen.”
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