Israel-based ocean carrier Zim (NYSE: ZIM) is cutting its exposure to the freight market by offloading multiple leased vessels. News of its divestment strategy was first reported in late June and fresh details are now emerging.
There have been reports this week of seven early charter terminations by Zim as well as two sublets. Two of the early charter terminations were confirmed by the vessels’ owner.
Charters terminated early for Euroseas duo
Euroseas (NASDAQ: ESEA) said that charters of its 4,250 twenty-foot equivalent unit Rena P and 4,250-TEU Emmanuel P were terminated by mutual consent, with the vessels rechartered to another ocean carrier starting in August.
Ship brokerages Banchero Costa and Braemar said the vessels are being redelivered by Zim and taken on new charters by Hong-Kong based OOCL.
The two ships — originally named the Seaspan Manila and Seaspan Melbourne — were purchased by Euroseas from Seaspan for a combined price of $37 million in May 2022, with the charters to Zim attached.
The original charter for the Emmanuel P called for Zim to pay $19,000 per day through March 2025. The charter for the Rena P to Zim was at $20,250 per day through April 2024, then at an index-based rate with a floor of $13,000 and a ceiling of $21,000 per day through February 2025.
The new charters are at $21,000 per day for 20 months plus an option of four additional months.
“These charters are expected to contribute between $2 million and $4 million in additional revenue” versus the terminated charters, said Euroseas CEO Aristides Pittas.
The Rena P and Emmanuel P handoff was not without hiccups, according to Braemar. “After having previously failed [to close] the deal, OOCL returned to the market and refixed [the ships]. Consequently, the owners then agreed to terminate the existing charter with Zim.”
Asked whether any termination fees were involved, a Euroseas spokesperson told FreightWaves: “There was no compensation since Euroseas chartered the vessels at higher rates. The termination was agreed, not forced. It would only occur if Euroseas managed to recharter the vessels. Otherwise, there would have been no termination.”
Other moves by Zim to cut market exposure
Braemar reported further moves by Zim to reduce its market exposure via the subletting of leased ships.
It said Denmark-based ocean carrier Maersk has chartered the 6,078-TEU Zim Pusan for two to five months at $36,500 per day. The Zim Pusan, previously named the Conti Stockholm, was chartered by Zim in December 2021 for three years at $55,000 per day, according to a reports at the time. The Zim Pusan marks the carrier’s second relet in recent weeks, said Braemar.
In addition, Zim had the 4,258-TEU Volans on charter from Costamare (NYSE: CMRE) through April 2024 at $24,250 per day. According to Braemar, this vessel has just been leased to Germany’s Hapag-Lloyd at $21,750 per day for 11-14 months starting in August.
Tradewinds — citing Europeans brokers — reported Monday that the 4,250-TEU Zim Vancouver, Zim Shekou, Zim Yokohama and Zim Qingdao are being sold to the world’s largest ocean carrier — Switzerland’s MSC — by current owner Chartworld, releasing Zim from charters of those vessels in the process.
Charter rates weaken but still top pre-COVID levels
Charter rates had held up surprisingly well until recently, outperforming the freight market.
“Time charter rates as well as periods [charter durations] have obviously come off significantly in recent months, which is triggering some new demand in the market,” said Braemar this week. Meanwhile, new supply is being created as operators like Zim market surplus tonnage.
The Harpex index, which gauges charter rates for vessels 8,500 TEUs and smaller, is currently at 1,121 points. This is down 10% from early June, however, it is still 76% above index levels at this time in 2019, pre-COVID.
Zim vows to ‘actively manage and rationalize’ fleet
Zim is the world’s 10th-largest ocean carrier. Unlike other shipping lines, it leases over 90% of its fleet; most carriers own around half their fleet and lease the remainder.
As of June, Zim operated 138 container ships, with 17 up for charter renewals this year and 27 next year, compared to the deliveries of 40 chartered newbuildings during the same period. In addition to letting charters roll off on schedule, early terminations and sublets allow Zim to offset newbuilding capacity and the effect of weaker-than-expected demand.
Zim slashed its earnings guidance for full-year 2023 on July 12. “We no longer anticipate an improvement in freight rates in the second half of 2023, consistent with seasonality, as previously assumed,” said CEO Eli Glickman.
“During this downturn, we will continue to actively manage and rationalize our fleet and services to maximize our cash position,” he said.
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