Zim pact with 2M to trim two strings from US East Coast trade

Zim pact with 2M to trim two strings from US East Coast trade

Zim and other carriers are moving quickly to adjust to a dynamic market defined
by rising costs and slowing growth.
Photo credit: Shutterstock.com.

The strategic partnership between independent Zim Integrated Shipping Services and the 2M Alliance will remove two strings from the services currently offered on Asia-US East Coast routes by the carriers and continue a capacity-reducing drive by container lines in pursuit of declining volume.

Zim currently operates two loops on the Asia-US East Coast while 2M Alliance members Mediterranean Shipping Company and Maersk Line operate five loops on the trade. When the partnership begins in early September, with the option of extending it from four years to seven, the number of loops will fall to five with Zim operating one and the 2M carriers four.

Carriers have been making sharp cuts to capacity deployed on the trans-Pacific, mainly on the Asia-West Coast routes, where by the end of June the lines had removed 21,300 TEU, or 6.7 percent of the total capacity, according to Alphaliner.

US imports from Asia were 2.7 percent lower than in April 2017, and May imports were 0.1 percent lower year over year, according to PIERS, a sister product of JOC.com. The data show that while growth resumed in June as volume rose 5 percent compared with the same month last year, the 4.6 percent growth in the first half to 7.8 million TEU was slower than the 5.9 percent increase in the same period of 2017.

As with US from Asia imports as a whole, traffic to the US East and Gulf Coast fell in April and May before rebounding in June, although the East Coast rebound was much more pronounced. US West Coast imports from Asia fell 0.1 percent in April and 1.4 percent in May before inching up 0.5 percent in June. US East Coast imports from Asia fell 9.8 percent in April, and 0.9 percent in May, before jumping 12.5 percent in June. 

A Maersk Line spokesperson said on the four strings operated by 2M from Asia to the US East Coast, Zim will have a fixed capacity allocation, and vice versa for the one string Zim will be operating. Some of the capacity will be via slot exchange and some of it will be slot charter, but in contrast to the Hyundai Merchant Marine strategic partnership, 2M will not be operating Zim vessels and neither will Zim be operating any 2M ships.

MSC said in a statement, “The parties will swap slots of all five loops of the new cooperation, a process which helps each individual carrier to manage capacity and customer demand and adds new flexibility to cater for shippers’ requirements.”

Southeast Asian exporters will see a new direct service between Laem Chabang port, Thailand, and US East Coast ports as far as New York. The revised network will include calls at Colombo to facilitate shipping opportunities for cargo from nearby India, Pakistan, and Bangladesh.

The 2M partnership with Zim follows a strategic agreement between the alliance and HMM that has been in force since April 2017. HMM currently operates three Asia-US West Coast services, one interestingly with Zim as a co-loader, and five all-water services to the US East Coast. The 2M carriers take slots on the services, but a Maersk Line spokesperson told JOC.com that this would not be affected by the Zim deal.

“Today’s announced cooperation will not have any negative impact on the partnership with HMM,” the spokesperson said.

Carriers react as profit pressure rises

Carriers are searching for a way through the current business environment that has darkened considerably since a profitable end to 2017. Bunker fuel prices are more than 50 percent higher than a year ago accompanied by the worrying decline in container volume on the major trades.

This has brought cost cutting through trimming capacity and better utilization of vessels back to the center stage and is a key reason behind the Zim partnership.

“The new arrangements are expected to generate economies of scale and efficiencies, helping carriers to navigate tough prevailing business conditions. Better management of capacity and demand also cuts fuel consumption,” the MSC statement noted.

However, the arrangement is equally important for a niche independent carrier such as Zim. Like most of the other lines, Zim saw a profitable 2017 erased in the first three months of 2018 as operating costs rose and rates weakened, recording a loss of $21.6 million.

Zim said the 2M partnership would generate cost efficiencies and improve its services on the East Coast trade. Eli Glickman, president and CEO, said the carrier planned to remain independent and would continue to service all trades in its current network.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.


2M Alliance hits market with bunker surcharges as fuel prices climb

Trans-Pac spot rates rise again amid third service cut