News / Zim takeover raises questions for transpac shippers – and MSC

Photo: VesselFinder

The effects of the planned takeover of Zim by Hapag-Lloyd are likely to be most played out on the Asia-US east coast trade, which could lead to increased market share for the Gemini partners, but leave MSC exposed.

The upshot could well be the launch of a slew of new services as carriers try to maintain market share.

According to new analysis from Sea-Intelligence, the merger of the Zim and Hapag-Lloyd fleets and services will leave transpacific shippers, and their freight forwarders, questioning “how this shifts the commercial control of capacity across highly specific gateways” on the route between Asia and the North America east coast.

The chief issue is what happens to the five Asia-North America east coast services currently operated under a vessel-sharing agreement (VSA) between MSC and Zim.

Two services, marketed as ZCP and ZXB by Zim and Amberjack and Emerald by MSC,  are operated by Zim vessels, with MSC reserving around 30% of the slot capacity – a situation reversed in two other services, the Z7S/America and ZNS/Empire, which have MSC as the tonnage provider. A fifth service, the ZSL/Lone Star Express, sees both carriers providing tonnage.

How Hapag-Lloyd integrates these into its network, and how MSC responds to the potential loss of its partner, remains open to speculation. The Zim-MSC VSA expires in February next year, while Hapag-Lloyd said last week it expected the takeover to be completed by the end of this year.

Assuming the Zim-MSC VSA is not renewed, Hapag-Lloyd is faced with the relatively straightforward option of either continuing the Zim services as a standalone operation – the Israeli carrier has achieved some success with marketing its transpacific services as a “premium offering”, an alternative to air freight for e-commerce cargo owners – or simply integrating them into the Gemini network, which Sea-Intelligence sees as the more likely scenario.

“Maintaining an independent, direct-call service loop makes commercial sense for retaining Zim’s time-sensitive e-commerce clientele; however, it risks generating structural friction with Maersk within the Gemini alliance,” it explained.

“Operating premium direct strings outside the alliance effectively positions Hapag-Lloyd in competition with its own shared hub-and-spoke infrastructure, which could potentially draw high-yield cargo away from Gemini’s core network.”

However, the integration of Zim’s Asia-US east coast services into Gemini would also pose challenges, given Gemini’s hub-and-spoke model and 90% on-time delivery target, because “routing the time-sensitive, legacy Zim cargo through these hubs would require careful product design (like protected express options, inland fast-links) to avoid undermining customer expectations”, added Sea-Intelligence.

To overcome these problems, while also enjoying the greater connectivity the Zim network brings, will likely result in two further developments, Sea-Intelligence argued: vessels upsizing on the core routes where networks currently overlap, such as into Shanghai and New York; and the launch of “at least one new, specialised service to manage the newly acquired market reach to Boston (New England).

“This new service could capture cargo on this lane without disrupting the wider hub-and-spoke model’s reliability targets,” it said.

For MSC, the departure of the Zim-operated ZCP and ZXB strings “would decrease MSC’s region-region connectivity by 34% and port-port connectivity by 35%” on the Asia-US east coast trade, and represent a “material shift in accessible capacity”, because the two services together comprise 11% of the capacity on the route, which is, ultimately, likely to force the carrier to develop new strings entirely.

Given MSC’s strategic positioning and preference for standalone operations, it is highly unlikely the carrier would cede this market share.

“The volume at risk is substantial enough to potentially justify the deployment of independent capacity,” commented Sea-Intelligence.

“To prevent ceding this strategic territory – and an entire destination gateway – to Gemini, MSC’s most logical response would likely be the deployment of a new, independent service aimed squarely at US South Atlantic gateways and New England,” it said.