News / Zim expects customers to pay a premium for greener fuel

© Jiri Hrebicek

Eli Glickman, president and CEO of Israeli carrier Zim, believes with pressure coming from customers to decarbonise supply chains, those in the US will pay a premium for low-carbon fuels.

The line expects to see the first deliveries of 28 LNG-powered vessels, ten of 15,000 teu and 18 of 7,700 teu, in the spring, with arrivals completed next year. The vessels, ordered by non-vessel operator Seaspan, will be on long-term charter to Zim.

Mr Glickman told The Loadstar: “We expect shippers such as Ikea, Home Depot and Target will see Zim as the first-choice carrier and will pay a premium to use services with LNG ships.”

Zim will target premium rates in what it sees as a challenging market for liner shipping companies, illustrated by the Israeli carrier’s returns.

An expected spectacular fall in ebitda this year to around $2.2bn – from $7.54bn in 2022 – is evidence of the more challenging market and Zim sees its strategy of diversification, cost-cutting through more efficient vessels and technology and port rotations that differ from its larger competitors, offering a competitive edge.

Announcing full-year results for 2022, the company reported that its fourth-quarter income dropped substantially, although its full-year results were comparable with 2021.

Q4 net income fell to $417m, from $1.71bn in Q4 21, while net income for the year was $4.63bn, following $4.65bn in 2021. Adjusted ebitda for Q4 was down 59% to $973m, whereas full-year ebitda showed an increase of 14%, year on year, to $7.54bn.

Volumes in Q4 declined 4%, to 823,000 teu, while full,year liftings were 3.38m teu, a 3% fall. The decline in volumes globally has driven freight rates down, and for Zim that meant a 42% year-on-year decline in Q4’s average rate to $2,122 per teu, but 16% up over the full year, to $3,240.

According to the carrier a dividend of $769m, around 44% of 2022’s income, was returned to shareholders.

Xavier Destriau, Zim CFO, claims the cost of operating the LNG ships, will be 50% less, due to their greater efficiency, irrespective of the amount of cargo loaded.

Brushing aside the question of carbon charges, which are expected to include a significant hike for fuels emitting methane, like LNG, Mr Glickman said: “LNG is a better solution right now, but it is not the ultimate solution, that could be green LNG.”

He added: “If I were them [shippers], I’d give priority to those types of [low-emission] vessel.”

Given the challenges presented this year as capacity growth far exceeds demand, greater cost savings will be sought as the carrier leverages its digital offering, including new e-bills of lading and Fintech investment packages aimed at supporting SMEs including financing and cargo insurance.

In addition, the company is revamping services, with the Zim Xpress Baltimore (ZXB) service to be operated by the new 15,000 teu ships with a new rotation: Jakarta, Laem Chabang, Cai Mep, Haiphong, Yantian, Kaohsiung, Panama Canal, Kingston, Baltimore, Norfolk, New York, Boston, Suez Canal, Jakarta.

The new vessels will also allow Zim to launch new services, like Asia to Australia (TFX), announced on 1 February, which will call at Malaysian, Thai and Vietnamese ports on the way to Australian terminals, and the Zim Colibri Xpress (ZCX), also announced on 1 February, which will link west coast South America to the US east coast with six vessels of around 1,700 teu calling at Chile, Ecuador, Peru, Colombia, Jamaica and Philadelphia, and will offer a “competitive service for refrigerated cargo”.

However, Mr Glickman accepts that selling these services, particularly where the LNG ships operate and the carrier expects shippers to pay a premium, will be problematic in the current climate.

“Customers signed long-term contracts [last year] but by August/September the customers were not willing to accept those contracts, we understand the customers’ view,” explained Mr Glickman.

He said as the spot market collapsed, Zim did not “push its customers into a corner”, and so expects there will be reduced contract rates, “but relationships will be better”.

Cost savings will be crucial in this context, with Mr Destriau acknowledging that any savings from developed digital offerings would be dependent on customer take-up. So Zim will offer “digital with a personal touch”, he says, and believes smaller customers will find these services save them time, while larger customers want the direct contact.

“Technology is ok as long as all is going ok; if there’s a problem, you need to have direct contact,” added Mr Destriau.