Episode Transcript
[00:00:00] Speaker A: You're listening to the Lodestar, the supply chain and logistics industry's leading source of insight. This podcast was created and produced by MK and Associates and your host Mike King.
It has been one of the most event filled starts of the year in memory. So today we've got a container shipping special just for you and we're going large with with views of the market from multiple perspectives. We're covering new regulations and tariffs, contracting dynamics, chaotic markets and even more chaotic politics. We're looking at the positives of an averted port strike and potable peace in the Middle East. But all of that is happening under the cloud of looming disruptions and we're talking new container shipping alliances. All of this with old friends, not least the Lodestars. Gavin Van Maal, Scan Global's Daniel Cachiotti, Swire Shipping President, Harry Stones and Hapag Lloyd's Global Commercial Development Managing Director.
[00:01:02] Speaker B: It's Henrik Schilling and will then gradually phase into Gemini given the scale of the case over and to be honest, also the experiences we had from other alliance shifts in our history. Of course there may be some initial in the first cycle, some adjusted allocations on a few services in the first departures, but that will normalize already in the second one. So that is really thoroughly planned. We expect the full face over to be completed and operations to stabilize towards 90% schedule liability from summer.
[00:01:36] Speaker A: Hello everybody, I'm Mike King. Welcome to the Lodestar podcast.
Greetings one and all. As I'm sure you know by now, you can find this podcast on thelowstar.com and on all podcast platforms. Please do like subscribe, comment and review and you can find me Michael King on LinkedIn if you've got any comments or there's anything you would like us to cover. Okay. Wow, what a start it has been to the year for container shipping and what a relief for shippers that we haven't had a strike on the US east and Gulf coast ports. But we still do have a lot of disruption to come. Not least a rather frantic run into Chinese New Year and possible new tariff regimes from a new President. And that's just this month. I'll be speaking to Daniel Cacciotti, Global Head of Ocean Freight at Scan Global Logistics, and Gavin Van Moel, managing of the Lodestar about all of this later on and more generally about what 2025 holds for the world of freight and container shipping supply chains. Also popping in will be Harry Stones, President of Swire Shipping North America, about an interesting and rather reliable service into the US From Asia. But first up, we're going to hear how all this looks from the viewpoint of one of the world's largest container shipping lines. Henrik Schilling, Managing Director for Global Commercial Development at Hapag Lloyd. Welcome to the Lodestar podcast, Mike.
[00:03:04] Speaker B: Thanks for having me. Looking forward to our conversation.
[00:03:06] Speaker A: You're very welcome. So, Henrik, a good start to the year, would you say, with the evasion of this strike in this tentative deal between the ILA and the US AMEX over a new master contract covering container terminals on the U.S. gulf and east coasts?
[00:03:21] Speaker B: Mike? Yes, absolutely. We welcome the tentative agreement of the ila, representing the dock workers, as you said, of the major US Eastern Gulf coast ports, and the usmx, where we, as Hapag Lloyd are of course, also represented. That was reached last week. I think it will help to keep the supply chains intact, which is especially crucial for us in this phase where we want to transition from the airlines to Gemini cooperation.
[00:03:45] Speaker A: Can I ask a very specific question about the US market? This came up on social media and I thought I'd get an answer while you're here with me. There's this discrepancy at US Ports versus ports elsewhere in the world in that carriers don't publish terminal handling charges. Why is this? Wouldn't it be useful for other industry stakeholders to be aware of the extra costs of US Ports versus ports elsewhere, which are more automated? And I think this particularly interesting because from what we've been told about this tentative deal, the parties have agreed that automation will be stifled or productivity gains at those terminals might be stifled pretty much for the rest of this decade. So could you just explain the terminal handling charges and how that works?
[00:04:28] Speaker B: That is a rather specific question. So let me probably try to try to answer it as follows. I mean, every shipped container globally incurs cost, loading cost at the origin terminal and discharge cost at the destination terminal, which we as carriers, we as Hapag Lloyd pass on via, as you mentioned, the terminal handling charge. In fact, we have 2 of them tho, thd terminal handling origin, terminal handling destination. Also for the US market, we have tho and thd in our regional tariff for each port. So the roughly 20, almost 20 ports we are covering in the US with our network, you can find very transparently in our tariff search on our website what our THO and THD would be. That said, and I think this is also where the question arises from next to the context now of the ILA agreement that was reached, market practices are different around the world, where in a lot of Places, this is a separate surcharge. There are trades like Asia to the us like Middle east to the US and others where you use all in rates. And there of course also our hapagloid guideline rate terms reflect those market practices and then the THO or THD are included or are not subject to. So this is rather a market resource, I would call it topic than a publishing topic if you ask me. Personally I would have nothing against showing it the same globally, meaning that we put it as a separate charge because the data is there and the costs are certainly there. Yeah. That said, whoever is a bit more interested in that for our fully digital product offerings which we call Quickboard Quickboard Spot, we actually have an airline like Journey since the end of last year for our customers. So with three clicks, origin, destination date, you get a quote and if you want to even a booking on a specific voyage there you see also the full detailed price breakdown with information and if you there put different OD pairs you will see that sometimes it's separate, sometimes it's included, sometimes it's subject to and you have to look it up elsewhere. So this is the market practice. I wouldn't have you know anything against harmonizing that. From a personal note, we, we are just following so to say the market results, especially if those thermal handling charges over the next six years according to the agreement are also of course increasing year over year.
[00:06:57] Speaker A: And are you expecting them to increase?
[00:07:00] Speaker B: Well if the I think if the personnel costs are increasing, so to say, that is also partially then reflected in the loading and discharge costs in the end I guess. Plus also whatever is then being done on the automation going forward.
[00:07:13] Speaker A: Okay, thanks for clarifying that Henrik. Before we come to some major changes in your services, what's your general view on the market outlook for 2025? Has it been a good start to the year ahead of Chinese New Year? Have you seen a bump in demand ahead of possible new tariffs? Of course, the strikes as well. We've got these new tariffs from the incoming Trump administration and on a general level, is it going to be a good year for Hapag Lloyd I would.
[00:07:38] Speaker B: Agree with your incoming statement. So far it has been a solid start into the year. Of course, you know, being very early days prior Chinese New Year, it's too early to, you know, make any meaningful predictions. That said, demand is strong in the first weeks of 2025 and as you are aware we we are still on very healthy freight rate levels despite the recent softening, which of course in spot rates was also kind of an expectation or an effect out of the positive US News, let's call it like that for the full year. Honestly speaking, I do not have a crystal ball, but of course we are thinking in scenarios. Yeah, we are aware of the potential uncertainties supply demand situation, especially on the with the catalysts around new buildings, of course also around the further development of the Suez Canal that will have an impact if it comes in 2025 and continuous and potentially also new geopolitical circumstances or risks. You, you just mentioned also one in your in your question. I personally though am cautiously optimistic. Why? Analyzing our short term bookings as well as our committed volumes that we were able to already secure, also growing into our Gemini Cooperation, plus the thorough preparation and also the initial customer feedback that we have had with our upcoming alliance shift, give me comfort that we are in a good position beyond that. And I guess that always accounts for shipping. We have to stay agile and react swiftly to whatever happens to global trade. Regarding your comment on the new Trump administration, I would say fluctuations, as said before in trade volumes are common to us. We have seen that global trade volumes did not shrink during the first Trump administration, so in effect they continue to grow. So if that is any data point, I'm not worried that we could see it similar this time. Cargo needs to move and the trade will find its way.
[00:09:30] Speaker A: Thanks Henrik. You mentioned the Gemini there. I'll just explain to our listeners. So we've got some big changes to the alliance system. And for you guys, for Hapag Lloyd, you're leaving the alliance. This included Yang Ming. Hmm. And Won. This is being rebranded as the Premier alliance and will cooperate with MSC on the Asia Europe trade. MSC is mostly going it alone though. Hapag Lloyd is joining up with MSC's former partner in the 2M Alliance, Maersk. As you mentioned, this is called Gemini Cooperation, which launches at the start of February. This covers seven trades and 57 services consisting of around 340 vessels. Can you explain the organization involved in realigning your network to get this launched? And I think most pertinently, are you ready to go on the 1st of February?
[00:10:20] Speaker B: Yes, we are. We are ready to go. And in fact we are also excited to finally launch our new Gemini cooperation as of 1st of February. Going forward. In fact, Mark, finally we picked a really good date for our podcast. It's on the day one year after our announcement of Gemini cooperation. It was the 17th of January. Yeah. So since then our whole organization has been thoroughly preparing for it. From network to trade, from commercial to operations, from procurement to our communication. So we really feel that we are well prepared. We have gone through different alliance shifts in our history beforehand, but this Gemini cooperation for us is really different because we want to raise the bar to what customers can expect from a modern shipping company like us in terms of reliability, in terms of connectivity and in terms of sustainability. I would say our strategy 2030, which we rolled out last year at the core, stands for undisputed number one for quality and next to service quality. How reachable are we? How good are we in resolving issues? It also means operational quality. And here the Gemini Corporation will be a key enabler how because of the hub and spoke system. And I think we probably also talk a little bit about a little more about that going forward. Our promise to the customers, not only a new network, but actually a step change in consistency and punctuality. And this we believe will really address this pain point and hence yes. Ready and excited to finally start.
[00:11:58] Speaker A: Okay, I'm going to come back to some of those reliability promises in a sec, but just on the operational level. Firstly, one quick point. So did you is the timing around this, is this so you can use this Chinese New Year break to help with get everything set of any sort of leftovers you need to get shipped in the right place, equipment in the right places. Was that one of the reasons for the, for the timing? And then my second point, you started taking bookings in December is this across all trades and how has this been going?
[00:12:27] Speaker B: I think first one is a good question and the honest answer is a yes. So as said beforehand, we have prepared the transition from the airlines to the Gemini network very thoroughly, including timing. So it is, I would call it, it is not by surprise, but it is rather by design that it is at this point of the year because as you were kind of also assuming with your question, I guess is every alliance reshuffle has to have a cutover phase out and phase in and that needs to be orchestrated smartly in order to minimize disruptions during this phase over towards our customers. And here, of course, blank sailings in accordance with market demand around Chinese New Year are common practice. So we have planned the blank sailings after Chinese New Year as per market practice and they help in this phase over to minimize any disruptions towards our customers. When it comes to your second part of the question, the bookings, absolutely correct. Since 3rd of December we have opened for all trades, the Gemini voyages for bookings. And furthermore, since then we have also, or on that date we have also fine tuned our network setup, added some additional feeder Services and so to say also reflected the latest cutover, planning, booking, uptake looks promising. So far we have the system works. Our customers book for instance on the Trans Pacific. That said, the cutover of course is being done as of 1st of February, voyage by voyage, vessel by vessel. So on the Trans Pacific or on the Asia Europe, they start in Asia, so we have the first export sailings there. As of early mid February, again vessel by vessel, voyage by voyage. But the first export sailings, ex Europe back to Asia or ex North America back to Asia are of course then only in late February, early March or so. So of course there due to the usual booking patterns of our customers, we see all the differences overall though well on track. But to be honest, the crunch time is now and in the upcoming weeks.
[00:14:34] Speaker A: Henry, just on that point there, how do you go about the planning of all this? Can you lift up the hood or something? Someone was telling me about digital twins and how that would allow you to envisage what would happen when you have so many different variables with something like this. I mean it sounds very complex. How do you go about planning and game playing what will happen with different scenarios when you've got so many moving parts, so many ships, so many boxes involved with all of this, so many people.
[00:15:02] Speaker B: I think there were different phases in the ramp up of Gemini cooperation as we discussed earlier in our podcast. One year ago, on the day we announced the Gemini Corporation, but before that of course we also did in a smaller team, including network and trade, of course already the preplanning of the network that then was further detailed out initially as you're also aware, we did that of course on the Suez network which we then later on in the year, I think we announced that around October last year where we then said okay, now we have to decide and we of course for the time being go for the Cape of Good Hope network. So regarding your question, there was an additional variable because we had to basically plan two full networks in parallel and then at some point had to decide because you have to secure birth windows and we needed a different number of vessels for the Cape of Good Hope network and so on to secure that tonnage. We do that in our freight information system FIS connected to a couple of add on tools, I would call them like monetization, where we really spell out the different voyages, including the steel. Well steel is probably internal lingo. These ships and everything that is connected to it, the port rotations and then, and this is of course not on the commercial side where I am, but purely on the Operational on the network side. Also the alignment with our partner Maersk. Yeah, because here we also have a clear agreement. We have an equal decision making, right? 50, 50. And we also have contractually agreed who brings how much allocation, meaning then also vessel space, that, that is also aligned. So that's a very complex task, especially if you have to do it twice. We are used to working in alliances and corporations though, and we have a good system that is the backbone for that.
[00:16:45] Speaker A: Okay, fascinating. Okay. The, the, the big promise with Gemini cooperation is reliability. You're talking about at least 90% schedule reliability. Now according to Sea Intelligence, in November you guys managed around 52 or 53%. Maersk was just over 60% which is an improvement. How are you going to make that jump and from when does that promise hold? Does it vary by trade and is this something that's going to be ready to go in contracts like this year?
[00:17:15] Speaker B: Perhaps you're absolutely right that besides connectivity and sustainability, reliability is the key promise from Gemini Concrete. We are aiming for an industry leading schedule reliability, as you just said, of 90% on every Gemini service once the network is fully phased in. And I'll come back to that later. Why if the core of our strategy, what I said earlier, is undisputed number one for quality. You basically mentioned the problem. It cannot be that only every other service you know, rounded they are within a day up and the rest is not. It was clear to us that we have to step change also on the on time delivery, in the end, the on time delivery on a box level towards our customers. Poor reliability is in our perspective a big issue in our industry, not only for our customers, but also for our cost base. Because you have to then have all these, call it cleanup and divergence costs. And hence we need to solve this how we are tackling that. And this was probably the longest and most dominating topic also in the discussion together with Maersk. How can that be done? And we came to the conclusion that we have to improve the way we run a network at their most vulnerable points, which is smaller disruptions that are scaling into bigger ripple on effects. This is what you kind of have to tackle if you really want to do a step change. Not from what you said, from 53 to 55 and sometimes you get lucky and are close to 60, but to do a step change to 70 to 80 to 90. And for us that means an efficient mainliner network with controlled hubs and owned shutters. That's the way to improve reliability. And by the way, then also port coverage. So a network Centered around hubs which are jointly controlled and managed by the Gemini cooperation partners, plus a large and dedicated shuttle network, again run by the Gemini cooperation partners, which will serve this port network, which is also complemented of course by fidas and then synchronized connections. Frequent shuttles to the reliable mainliners will clearly reduce, we think, even half in dwell times and will also then allow cargo to reach destination faster. So this is really the difference where we believe we honest, we are also leaning a bit out of the window, but in a calculated manner. And then to round it up, Hapag, Lloyd and Maersk, we are strategically aligned partners how to operate that network with equal decision making rights within Gemini. So we believe that should also allow faster decision making and in fact is also in our operating agreement backed by.
[00:19:53] Speaker A: Contractual obligations, this reliability, just following up from that. So just to confirm the reliability promise, this is not hub to hub, it's port to port.
[00:20:02] Speaker B: Correct, port to port. That means it includes mainliner and shuttle services of our Gemini network.
[00:20:08] Speaker A: Okay, there has been some confusion out there in some of the reports I've read and I clarify this with you guys before now you mentioned there the feeders. So you're going to have control of the hubs, you're going to have control of the vessels. You said mostly they're going to be owned or dedicated feeder networks. Can you give me a rough idea of what sort of percentage is going to be owned or dedicated feeders? Because there's going to be third parties involved, isn't there?
[00:20:32] Speaker B: The 57 services that you were referring to, which are mainliners and shuttles are fully owned and managed by us. Feeders additionally can be third party. That's true. But the core of our network, which is the mainliners and the shuttles is fully under control.
[00:20:47] Speaker A: Okay, I only mentioned that because a lot of the analysts have said, okay, that's where the weakness could be in the hub and bespoke system. This really is a big commitment. 90% reliability. Are you expecting customers to pay more for this better service? And I say that having interviewed lots of shippers over the years and lots of lines. People always say they want better service, but they're not always willing to pay for it.
[00:21:10] Speaker B: Let me try to answer as follows. Once more, refer back to our strategy. We want to become undisputed number one for quality. And Gemini will be a key enabler, as I said before, reliability, connectivity, sustainability. We believe our customers benefit from that and also welcome those quality promises. And even more so, of course, the delivery. And we will deliver in 2025. Clear is pricing needs to be competitive for our customers for that in my view in an asset heavy cyclical industry like we are in, it's a prerequisite that the cost base is razor sharp. And here again our Gemini cooperation will help us in achieving that bigger ship, better utilized, faster turnaround times with less disruption because we are not so vulnerable. This is how we can then also achieve that cost and hence have competitive pricing. This is how I would answer it that we need competitive pricing. Our industry goes without the There is.
[00:22:09] Speaker A: A theory that this type of hub and spoke system covers up the fact that Maersk and Hapag Lloyd don't really have the ships to maintain global coverage any other way. So firstly is that a fair point and secondly you both have a lot of orders in place. In fact hapag Lloyd ordered 24 new container ships with dual fuel propulsion in November. Will these new ships help you offer more varied or maybe I'll say complete services in the future?
[00:22:37] Speaker B: Let me take those two questions maybe one by one. Your first question, I think that's pure conspiracy theory. Don't you worry? Or that don't anybody so to say worry Hapag Lloyd and Maersk will always have enough ships. We are shipping lines and we know how to do that. On a more concrete note maybe to answer that, yeah we have defined the lineup of all of our 345 to be exact vessels which form the backbone as said earlier from our Gemini operation and that ensure sufficient capacity for all of our customers cargo. Our cutover plans from the airlines to Gemini cooperation as of 1st of February onwards are final. So to say there is no train of doubt or whatsoever will there be a phase over period? I guess this is not so much the question whether there are enough ships but so to say how smooth is the faceover. Yes, of course like with every other reliance reshuffle by the way and also here as we said earlier we are minimizing any disruptions by the thorough planning in that phase over vessels will complete the alliance around voyages and will then gradually phase into Gemini given the scale of the phase over and to be honest also the experiences we had from other alliance shifts in our history. Of course there may be some initial in the first cycle, some adjusted allocations on a few services in the first departures, but that will normalize already in the second one. So this is really thoroughly planned. We expect the full face over to be completed and operations to stabilize towards 90% schedule liability from summer. Your second part of the question is absolutely correct that we ordered 1216,812, 9200 state of the art dual fuel LNG vessels last year. Their delivery is end of 2027 to end of 2029. They are an essential part of our overall strategic fleet plan to improve competitiveness, to significantly lower our emissions. They are needed for replacement needs for capacity growth. We are talking if I multiply that out of cetera with 312,000 additional TEUs. Yeah, so that's part of our overall plan, but not directly connected actually. They are very versatile. Because your question probably is also a little bit. Are you filling holes later on that you right now have. No, yeah. This is our strategic fleet plan. We have a commitment to decarbonize. We have an obligation to be competitive. That means we have to reduce lot costs. This is why we continuously renew our fleet and we will put further orders going forward. Of course as a shipping.
[00:25:18] Speaker A: The conspiracy theory has been squashed. There's no Mike's conspiracy theory by thank God.
[00:25:24] Speaker B: But, but literally, literally I mean that.
[00:25:26] Speaker A: No, it's what a number of shipping analysts. I've raised that. Raised that.
[00:25:30] Speaker B: Anybody on anybody? Boring.
[00:25:32] Speaker A: Are you going to order any more ships? Is that something that's on the. Have you got a fleet development program? Will we see more orders of ships at some point down the road?
[00:25:41] Speaker B: We have ordered those 24 ships last year. And then of course our fleet department is looking always at our overall fleet composition and what to do at what point in time.
[00:25:52] Speaker A: Looking at the global fleet, I think it's around about 30% of the in service fleet. There's an extra 30% of that amount is under order over the next few years. Now some of those orders can be pushed back. But are you concerned that with such a large order book that we could have global excess capacity if say the, for example the Suez Canal reopens and I'd say that we've got very positive signs there at the moment with the ceasefire in Gaza.
[00:26:21] Speaker B: I of course also read the news. That sounds very promising to be honest. How quickly that then also resolves, so to say the ripple on effects we will see. I would nevertheless probably separate the two topics you mentioned to a certain extent because one new build global fleet is about a global strategic fleet renewal. The other one, as you said, is a current reality that will hopefully change soon. And yeah, let's see. Yeah, to the first one, you are right. 8.2 million TEU corresponding to 27%. Not quite. Not, not quite. Not to be a smarty here, but not quite 30. Yeah, but 27% irrespective of how you look at it, of course the, the current global order book is high. On the other hand. Well, first of all, of course we all know that the deliveries are spread out to three plus years. But even more important is that new, efficient, innovative vessels are absolutely necessary over the next years to achieve our joint global sustainability goals. Because otherwise with the current fleet you cannot reach any of those decarbonization targets. And also the increasing regulatory requirements around that. So we honestly believe, and we also have made that public that shipping and hapa shipping, HELS2 and hapag Lloyd will play its part in decarbonization. So this is kind of, I think why that is needed. Of course it needs to be managed throughout this cycle. Of course we are also seeing supply, demand. And so to say that there's a loss a lot coming the eventual to the second one, the eventual return from Cape of Good Hope to Zurich network, I would rather consider as a one off. Once sufficiently safe, so to say to do it again, that just needs to be managed smartly. Of course we are also aware that right now the Cape of Good Hope rerouting probably absorbs up to 10% so to say of capacity. At least if you measure it by TEU mileage. Yeah, but as you also indicated, our industry can manage this. Scrappings are at very low levels still also in 2024 for carriers, charter returns of inefficient tonnage is always an option. Layups or postponements so to say are capacity measures that can be taken. So I would say over time that can be managed. Will that have an initial reaction in the spot rate? I mean, of course, but I wouldn't worry over time that this cannot be managed by the industry. Just to once more confirm also when it is sufficiently safe again to, to use Suez, then we are not only committed to do that, but we even have a plan in place because as we discussed earlier initially planned our Gemini network on Suez. Yeah, so that's all.
[00:29:03] Speaker A: So there's a plan B. Can I take the conclusion from what you've just said there that if Suez opens up right, there'll be, there'll be a lot of the Gemini alliance will have to be realigned again. But you've got a plan B. But this would also be a good opportunity, not just for Hapag Lloyd, but for other carriers to ramp up those that scrapping again and bring in these more carbon efficient ships over a period of time. That would be a good opportunity for that because there'd be less stress on the overall Network.
[00:29:31] Speaker B: Yep. And I would even sort of say at the plan B used to be our plan A. So.
[00:29:37] Speaker A: So it's actually a pretty good course.
[00:29:39] Speaker B: And of course then we manage a swift transition. Yeah. Once, once we could switch.
[00:29:43] Speaker A: So the opening of Suez Canal could be good for the environment. We'll get these more efficient ships be take over a larger proportion of the over time.
[00:29:50] Speaker B: Over time. It goes without saying that we would all expect the same reaction on the SCFI the Friday after that happens.
[00:29:57] Speaker A: Yeah. And of course we'd have, you know, less emissions because it'd be a shorter route. Okay. And just to finish, can you give me any insight into long term contracting on the Asia Europe trade versus a year ago? A lot of those contracts are generally being finalized now or some of them will have been already finalized.
[00:30:13] Speaker B: Yeah. Well as said before, we are, we are cautiously optimistic about global growth and that that stays intact throughout 2025. And I would say not least because of the long term contracting that we already either have in our books or are in good discussions at this point in time. As you are saying for Asia Europe, I would say for us at Hapag Lloyd in particular, as said, growth and quality where Gemini is one of the key enablers are the two center stage commercial themes for 2025. And we are optimistic that we are there on a good way.
[00:30:45] Speaker A: And how about on the Trans Pacific? Those contracts are normally agreed second quarter. How's that looking versus say last year?
[00:30:51] Speaker B: I would say similar positive though as you are saying at a totally different stage. So here I would say the call it more. The customer engagement went well so far and as I mentioned earlier in this podcast also the current bookings are looking quite good. So those are positive signs. You're absolutely correct though that the tender season is still to start later. As you know, TPM in Long beach usually is the first good, how do you call it indicator where we stand, where then the real negotiation starts then or is then taking place thereafter in the weeks and months thereafter. So maybe when we meet there we know more in that regard. Yeah. There's also been a reason. So so far so good. But here as you know, season wise, too early to tell. There's also a reason why we publish our outlook for 2025 rather mid of March than mid of January.
[00:31:38] Speaker A: Was that a promise of a TPM exclusive there? I'll be there myself.
[00:31:44] Speaker B: That I think is with Rolf. Yeah.
[00:31:47] Speaker A: Okay. In a moment I'll be speaking to Daniel Cacciotti Global head of Ocean Freighter Scan Global Logistics. The Lodestar's Gavin Van Marl, Antoire Shipping's Harry Stone. But for now, Henrik Schilling, Managing Director for Global Commercial Development at Hapag Lloyd. Thanks for joining me today on the Lodestar podcast, Mike.
[00:32:05] Speaker B: Thanks a lot. It has been a pleasure. Looking forward to speaking again.
[00:32:11] Speaker A: Okay, just a quick, quick shout out. Next week I will have an episode of the Freight Buyers Club out and we'll be looking at many of these topics from a shipper's perspective with Alan McTaggart. He's the group Logistics Director at Tektronic Industries, which is one of the biggest shippers in the world. I'm also speaking to Philip Damask Drury, Managing Director and head of Drury Supply Chain Advisors, for his take on ocean freight markets and some contract negotiation advice. So please check that out on all Freight Buyers club podcast channels, YouTube and you'll also see a few mentions on the lodestar.com next week. Now back to container shipping and I'm delighted to welcome the Lodestars. Gavin Van Moll. How you doing, Gavin? I know you're taking time out to join us. Fix in. Was it a gang plank or something to do with some sort of piracy in the grayness of Britain's east coast? It must, this must be welcome relief coming on the podcast, right?
[00:33:07] Speaker C: Oh yeah, let's talk freight rates rather than gangway fixings. Any day, any day.
[00:33:13] Speaker A: And joining Gavin today is Daniel Cacciotti, Global Head of Ocean Freighter Scan Global Logistics. Hello Daniel. Welcome to Lodestar Podcast. Did I get your name right?
[00:33:22] Speaker D: You got it right. Well done.
[00:33:25] Speaker A: Excellent. Well, thanks for joining us. Gav, can I start with you? We were all quite surprised the strike didn't go ahead on the US east and Gulf Coast. That's a positive for shippers, I guess. But do you think there's a few intermediaries or liner executives who might have liked to strike for a few days to bump up rates perhaps?
[00:33:45] Speaker C: Certainly that's what some of the more well known analysts in the industry thought, didn't they? They thought that the container shipping lines would probably benefit from a period of congestion. And you know, we saw it during the pandemic and in other periods that when you get a period of sustained port or terminal congestion, it's a real earner for people in the industry for terminals, for the lines and for forwarders.
[00:34:10] Speaker A: Maybe. Daniel, come back on that in a second. But Gav, have we seen much movement in Trans Pacific freight rates since the strike was cancelled on January 9?
[00:34:20] Speaker C: So it's probably worth what are we now? We're only six days after the signature. We certainly saw when I was doing the rates spot rates roundup last week we'd only had a day effect. And actually, sorry, just for listeners, we're Wednesday today. The WCI for the latest week is due out tomorrow. So it's probably tomorrow that we'll see the first material effect if we see one. Right. But I mean in general, rates on the Trans Pacific have been pretty strong for the last three, four weeks or so, partly in part, bit of front loading for a strike. We've also got Chinese New Year coming up in a few days and whatever comes out of the new Trump administration. I'd be very, very interested to see what Daniel's experience has been just for listeners.
[00:35:03] Speaker A: Wci, that's where Drury's World Container Index just quickly Gav, how the Asia Europe long term contract negotiations progressing?
[00:35:10] Speaker C: Okay, so I did a, I did a little straw poll. This is mainly UK forwarders, but I did a little straw poll of some of my contacts yesterday in preparation for this chat. And most of their clients are holding back their tendering for annual contracts until after Chinese New Year. It seems to me that the, the Asia Europe calendar, which used to run January to December, has really slipped in the last year or so and it's much more sort of March to March type of scenario now. But, but that's, that's what it seems to be. And, and at the same time, spot rates have lost around about $2000 per 40 foot since the, since the beginning of this year, according to my sources.
[00:35:56] Speaker A: Daniel, your view on Asia Europe is that time with what gav's hearing?
[00:36:01] Speaker D: Yeah. I mean you have different phases on the Asia Europe trade. I would say some of them are the, are the early ones which were starting already in December and we have seen a couple of those ones already. And obviously now we see also the other ones who are deciding now to wait a bit post Chinese New Year and also with the changes which are now coming in pretty soon and then having those negotiations. But what we have seen right now is there's a tendency that compared to the rates what we have faced or seen last year, there are some increases coming up. But it would be interesting obviously to see how the market and the rates wise further develop post Chinese New Year and when the new, also the new alliance is coming really into effect.
[00:36:45] Speaker A: So has the Asia Europe contracting season structurally moved in terms of when most people are like finalizing those deals or was it specific to this year? Because obviously January we had that strike looming over us. We had Chinese New year is quite early this year. There was a bunch of things going on. It's quite an unusual month.
[00:37:03] Speaker D: Correct. But normally you have depending on the vertical, I would say the retail part mostly tendering after Chinese New Year or starting the contracts normally in Chan Feb. And that's the kind of trend. And then you have other verticals in that industry who are starting already, Oligarch being the technology side of it. Those are the ones who are starting pretty much earlier. And I think that's the common practice. What we are seeing for many, many years on the Asia westbound trade just.
[00:37:34] Speaker A: Switching on to that trans pack. Daniel, Donald Trump got a lot of credit for averting this strike. What's your take on this? But more generally, how are you planning for this incoming administration, tariffs, etc. There's lots of changes out there that might happen or may not.
[00:37:49] Speaker D: True. Indeed it was quite interesting because obviously due to the imposed potential tariff, what we have seen already a couple of months back, you have seen quite a surge in terms of the bookings, especially on the TPE spawn trade. Right. Obviously the way we plan is I think there may be a potential shift but at the end of the day I would say the trade flow will continue to be. I would say there could be a potential that maybe from a sourcing perspective that certain companies are already planning to assemble parts in other parts of the world, but still then bringing it into the US or into a third country then eventually bring it over. So this is the way we prepare and also in talks with our clients to give them a kind of solution and alternatives what they're going to potentially face in terms of the tariffs.
[00:38:42] Speaker A: Is it hard to plan for that though Daniel, with so much noise coming out, I mean it's a bit like whack a mole it seems. Oh, I'll move it to Mexico. No more tariffs on Mexico, maybe Canada. No, we're going to get rid of our North America trade deal. You know, where would be next I guess is the question.
[00:38:57] Speaker D: That's a very good question and I think we have to see how things further playing out. Right. But obviously as I said before, the alternatives are still out there and we have to see eventually what kind of additional tariffs he brings in because we have to also be mindful some of the companies already paying quite some tariffs there potentially might be the gap not too high what they already pay. Also we have to be mindful what we are hearing from certain companies.
[00:39:24] Speaker A: Gav, we're also hearing stuff about Greenland, about the Panama Canal. Is this all saber rattling or Is this all a case of we're just gonna have to. To wait and see?
[00:39:33] Speaker C: It's very difficult to envision. I mean, it was not so difficult for me. I mean, I'm 50 years old and I remember American troops besieging General Noriega in the old city of Panama right back in the day. But it is difficult nonetheless to sort of envisage American troops parachuting into Panama and forcibly taking control of the canal is. I mean, I can't see that happening, but you never know. His last administration was chaos, and so it's difficult. I don't know, Mike. I really don't know. Obvious it's slave rattling because that's a tried and trusted tactic of Donald Trump's both in business and in politics. But whether it means something more profound once he takes power, I really don't know.
[00:40:17] Speaker A: Fascinating to watch, Daniel, these various container shipping risks we're looking to as we're talking today, like maybe something positive is going to happen in the Middle East. Maybe we have peace in the Middle East, Maybe the Suez Canal opens up, maybe it doesn't. But there's, as we mentioned, tariffs. We've got possible blanks coming up after Chinese New Year. Poor congestion was quite a big factor last year. How do you, I don't know, rank these various possible disruptions or plan around them?
[00:40:45] Speaker D: For me, the biggest disruption would be the port congestion side because I think that will certainly continue due to the weather conditions what we have faced, especially last year. And I think that trend will certainly continue because also when you are seeing when the vessels arrive at the ports, it takes also some times in terms of the birth waiting times to get the cargo cleared. So obviously what we do in terms of the preparation, we have to stay agile and flexible and provide what if scenarios towards our customers and then obviously plan accordingly, because I think that would be something you have to be mindful and prepare about when it comes to the Red Sea. I think as soon as it opens up, you have to also be aware of that it potentially could be between 7 to 8% capacity facing out of that element as a whole, but that takes another two to three months when the vessel is going to be fully be rotated back to the original schedule. So I think that maybe takes a bit longer and that would be, not, for me, the highest priority in terms of the disruptions.
[00:41:52] Speaker A: And we've got all these changes to the alliance system from the start of February. Daniel, is that something you're factoring in that maybe leads to a few hiccups here and There as those networks are.
[00:42:01] Speaker D: Restructured, certainly the service disruptions, I think that we're going to also plan because if you are be thinking about, you have six out of the nine, nine largest carriers who are basically reshuffling all the services. And obviously that then coupled with the Chinese New Year, coupled with the blank sailings in place and all these rotations are coming into place, yes, there will be certainly certain service disruptions coming into play, and we are preparing for that.
[00:42:29] Speaker A: Gav, what do you see as the big takeaways from these alliance restructures in terms of maybe from a buyer's or a low star reader's point of view.
[00:42:36] Speaker C: Big takeaways, a sort of big chief noticeable sort of thing. I think it's interesting what's happening on the transatlantic. I think the way that the Premier alliance has sort of structured its east west network using a variety of VSAs with, you know, with MSC on the Asia Europe and with the Ocean alliance on the Transatlantic, it looks to. It feels just like it really hasn't been properly thought out, if I may be rude enough to say that. And that's probably. I'm sorry, I really don't mean to offend any liner executives or network planners in the Ocean alliance, but it does have a sort of ad hoc feel to it in comparison to Gemini, which is, you know, people have sat down and really worked out how they're gonna. How this thing is gonna operate now, whether it work, whether it works in operation as it's planned, it remains to be seen, but it just has a feeling of it very, very highly structured. So we're really looking to see whether Gemini will maintain this 90% reliability, even if they'll hit the 90% reliability in the first place, because that's obviously way, way, way, way ahead of current reliability levels. And msc, I mean, it's big enough to run its own global network. Extraordinary. First time that's happened in container shipping.
[00:43:51] Speaker A: Thanks, Gav. I mean, I personally, I think this question of line of service reliability is super important because seemingly the major carriers have had very little incentive to prove any of this in recent years. So what Gemini does and what it means will be really interesting. It's easy to think that schedule reliability improvements are really difficult to make, but they have been made in the past and some carriers are doing quite well now. And one of them is Swire Shipping, which runs a service linking Asia to the US called the Sun Chief Express. I caught up with Harry Stones, president of Swire Shipping North America, and I started by asking him what ship Swire is using, when the service was set up and what sort of schedule reliability they are achieving.
[00:44:33] Speaker E: The service was designed through the second half of 2021 and officially launched at the opening of 2022. So it was a collaboration between Swire Shipping and Uwl, which is a US asset based freight forwarder. And the philosophy behind the service was to bring a different way of shipping covering Southeast Asia into the Pacific Northwest, offering both local services as well as a special array of rail solutions. And so what do we mean by different? It's around total consistency. Our vision is to be the reliant partner the market requires, focused on both speed and reliability. So the reason why we collaborated with Uwl was to bring the best of both worlds. That being the commercial expertise that UWL offers, along with their technical expertise in the Trans Pacific market, along with our SWAR Shipping's long history of operational excellence as a carrier. So the service itself comprised of three Swire owned vessels, all 2700 TU in size, which call Haiphong, Ho Chi Minh and Seattle in the US. And then with respect to schedule reliability for 2024, as a reference point rated by Sea Intelligence, our on time performance has averaged 92%. So this is something the partnership remains relentlessly focused on. In that timeframe, we only had two months that were not 100%. So that is a core focus for us moving forward.
[00:45:45] Speaker A: Very impressive. Just a couple of follow up questions on that, Harry. So uwl, they deliver a foundational sort of level of traffic, I presume. And secondly, what sort of guarantees on speed and reliability you're offering customers, you know, and more or less at what cost? The big key point there.
[00:46:03] Speaker E: Yeah, great question. Well, I think on your first question, this is a true partnership in which Swire Shipping and UWL work hand in hand with respect to customer engagement and contracting. This is a continuous evolution as our product has matured, as well as the different requirements appearing in the market. So as partners, we have a constant engagement on strategy and execution and this is clearly provided and works to the benefit of our customers. With respect to your second question on guarantees, we have had a mixture of contracts and agreements with customers on protecting that speed and reliability. I'm sure, as you can understand, Mike, these are confidential matters and they are a myriad, so I'm not going to dive into too deeply. But the long and short of this is if we do not perform to what we set out, which is market leading reliability, then our market segment will simply look elsewhere. So as you can probably remember, Ront Hill's favorite tagline does what exactly says on the tin. So this is our ethos and we'll invest heavily in keeping it a reality.
[00:46:55] Speaker A: My favorite advert, Rons Hill. It does what it says on the tin. Excellent. Who does this type of service work for? Is this for customers who can afford to pay a bit more to get their cargo on time because of the sector that they're in?
[00:47:09] Speaker E: It's actually a really interesting topic, Mike, and one we've learned a lot in. So I mean, to a degree, yes, but as we've developed the service and gotten to know our customers at a much deeper and wider level, it's actually a lot more complicated than that. It requires a higher cost structure to provide this kind of speed and reliability we offer. But to many of our customers, the value this brings to their supply chain far exceeds that cost. So we know our product is not for everyone and we're okay with that. But what it does do is bring greater choice and options to the market. So as an example, some customers at different times of the year, they need that agility in their supply chain and speed. So for some we're exactly that, a seasonal carrier. Others as you mentioned, simply need speed and reliability above all else and have built that into their annual requirements. So the last piece on this for me really is we're focused on being what the customer needs us to be. We've built a small offering in a grand brand specific scheme of things and a laser focused on delivering that time and time again so our partners can set it and forget it when they utilize this product.
[00:48:05] Speaker A: Harry Stones, President of Swire Shipping North America. Thanks for running through this with me for Lodestar listeners today and best of luck with what is rather an innovative new service.
[00:48:14] Speaker E: Thanks Mike, really appreciate your time.
[00:48:18] Speaker A: Daniel, what are your thoughts on this service from Swire and how useful are these promises from from Gemini around reliability? Are customers willing to pay for this and do their supply chains really need this or does it depend on the vertical?
[00:48:33] Speaker D: I think it would be hard to pay more for it, but it certainly brings up the reliability up because if you have look at the couple of years now, obviously the last four to five years we have not achieved anything up to that level. And I think pre pandemic we had in one year level of between 75 and 85% globally. So I think it if it proves the point that they can make it then obviously it also puts some pressure on the other alliances to also bring the schedule liability up. And I'm pretty sure that customers are needing it and requiring it to plan for their supply chain, does it mean it will automatically they're going to pay more there?
[00:49:15] Speaker A: I have my doubts, Daniel, if you're talking to an SME shipper, maybe they're not so attuned to what's going on in the container shipping market day to day. Are they understanding about the fact that ships are coming in at only 50, 60% reliability into the port? Do they understand that or are they demanding, well, I just want something better and more reliable.
[00:49:34] Speaker D: They want to have something better and more reliable. That's a fact because obviously they, they also plan and you can also add certain buffers into your a supply chain leading time. But at the end of the day it needs to be also be clear when eventually the goods arrive.
And therefore I think the planning and the preparation side obviously is a key element.
[00:49:55] Speaker A: Daniel, these new alliance services, will they influence the type of KPIs or terms that people want inserted into long term trans specific contracts that will be negotiated during the second quarter? I'm assuming these will be too late to include into long term Asia, Europe. They're being finalized around about now, most of them. So. But is the Trans Pacific, will this become a key negotiating point?
[00:50:21] Speaker D: I think it's too premature potentially for the next contract season period when it proves the point that obviously the 90% schedule liability has been settled into the market and it's achievable. But I would say for this contract period, I would say no.
[00:50:38] Speaker A: Gav, your thoughts on new entrants into the Trans Pacific offering more reliable services? We've seen this a little bit before, haven't we, in the past.
[00:50:47] Speaker C: So I mean we've seen on the Trans Pacific during the pandemic and other periods where you've had suddenly very elevated spot rates that you'll have what we call sort of opportunistic startups which will be a carrier launching a new transpacific service is pretty easy to launch. Right. You need four ships to have a weekly rotation. We saw carriers chartering for large feeder ships, one and a half 2000 TU and running a transpac service for two or three months while the rates were high. And then you know, once the rate levels start dropping off, those smaller ships are sub economic and they're returned to their owners, you know, short term charters. So it's, it's that kind of trade.
[00:51:29] Speaker A: Yeah, I mean you've been doing some research on this trade. I'm going to tie it in with a couple of other things that have been going on to do the Trans Pacific or more specifically to do with China, US relations. There's a few things have happened, so I'll just summarize them. We've had a new US probe that found that China is unfairly dominating shipbuilding and logistics through forced technology transfer and subsidies to Chinese companies from the state. Secondly, Chinese state owned shipping firm Cosco and container manufacturer CIMC have been added to the US Defense Department sanction list. And tying in with what you've just said, Gav, you did a great article on the Ships for America act on Lodestar Premium. The full title of that act is the Ship Building and Harbor Infrastructure for Prosperity and Security for America Act. It's a real tongue twister. Excellent. Thanks guys. For container shipping, the key proviso is more capacity on US flagship service in the US from China. China. Now your analysis that I was referring to it found that surprisingly little additional capacity would be required on a month to month basis. Maybe just one additional twice weekly service offering coming to about 20,000 TEU per month to hit that was it 100,000 TEU, Mark? Yeah, that. Right.
[00:52:46] Speaker C: Okay. Yeah. So just personally I should just clarify that the U.S. department of Defense didn't add Costco to a sanctions list, but it has been added to its list of entities that it suspects as having links to the China's People Liberation Army. So it's not that it's actually been sanctioned, but it's not allowed to carry US military cargo, that sort of thing anyway.
[00:53:09] Speaker A: It's not, it's not an enforceable thing anyway.
[00:53:12] Speaker C: No, it's not.
[00:53:12] Speaker A: It's not the same mechanism but it might lead to more enforcement later.
[00:53:16] Speaker C: Right, exactly, exactly. Whereas, whereas the US Trade represent. The office of the US Trade Representative and this probe that you're talking about, and we're waiting for the actual report any day now, but it's been quite substantially leaked to Reuters. So we've got a good idea of what's in it. And whereas that they can impose penalties because it's basically there's a section in the 1976 U.S. trade act called Section 301 and you're allowed to apply penalties. And what they are requesting is that due to Chinese state subsidies, the US ports add extra port fees on Chinese built ships to recoup some of that state subsidies. Anyway, that's the thing. Back to the Ships for America act which is a diff. Which is a bipartisan bill in Senate at the moment. One of. One of the stipulations on it is that within 15 years of the act coming law, 10% of all commercial cargo carried from China to the US must be carried on US flagged vessels. The basic reason for this is that it wants to revitalize the US shipping and the shipbuilding industry. And you know, it's the same supply chain resilience that we talk about in the commercial natural world. Right. It's like now the US government has got on the thing and realized that it's quite vulnerable because of the amount of cargo carried on foreign ships. If you look at current volumes from containers, trade statistics, and I'm ballparking these figures quite substantially, but it's around about a million TEU a month is shipped from China to the US.
So you want 10% of that, that's 100,000 TEU a month that you want to be going on US flagged vessels. So then I went to the fleet fleets of Matson and cma, cgm, their US military, their US flagged fleets and added up their total. Their capacity combined is about 80,000 TEU. So you would only actually need an extra 20,000 TEU per month to make up that hundred thousand. Again, just going back four ships on a Trans Pacific string, someone comes along, charters 4,5000 te ships, that would cover that bit. There is a provision in the act that you're, that the US fleet is allowed to use foreign built ships for a certain period on an interim basis until the US shipbuilding industry is back and upon its feet. The one other point about this, just before anyone screaming down at the thing saying what about Maersk Line? Maersk Line does also. Maersk Line Ltd. In the US has a fleet of, I think it's about 20 US flagged container vessels. But as far as I can tell, looking at all the deployments, these are all deployed on US military sea lift services in the Middle East Gulf region.
[00:55:57] Speaker A: But it's not just about getting more of US trade on US flagships, it's about building up the shipbuilding industry, isn't it?
[00:56:03] Speaker C: Absolutely, absolutely. Yeah, yeah. I mean, and actually to be honest, so is the US trade representative thing. It's all about that. I just see these, they're all focusing on, on the same thing and it's rebuilding the US's like heavy industrial capacity.
[00:56:21] Speaker A: Which some of the politicians involved have said you can't fight a war without this type of capacity.
[00:56:26] Speaker C: Totally, totally.
[00:56:27] Speaker A: Daniel, just to bring you in on the politics, but from a forwarder's perspective, can you tell me how you view this ramping up of China US rhetoric? Some of it, it's regulation elsewhere we've got an incoming President Next week we might have more tariffs to look at. But it's not just us, China. I mean there's more tariffs elsewhere. We've got the Ukraine war still ongoing. We've got tensions in the South China Sea just on a more general level. But feel free to comment on any of those things if you wish. But how does a forwarder or a 3 PL or any sort of logistics entity plan for your customers around this more fractured trading landscape that we're seeing emerge?
[00:57:07] Speaker D: Look, I think if everyone has said about the last three years there's a new norm, I think the uncertainty and the volatility, what's happening in the world in my view will continue. That's why in order to have resilience in terms of the supply chains, I think the key is really to be flexible, agile and also look for what if scenarios if certain things can happen. And obviously that we are in close dialogues with our customer or generally that's recommendation what we are giving to have a really resilient supply chain because who knows what's going to happening next, right? I mean there are so much things still going on around the world and will continue.
[00:57:48] Speaker A: And what can we expect from scant global logistics this year? You guys purchased ITN Logistics Group in Canada in December and you also snapped up a few acquisitions in Europe and Latin America. Any expansion plans you want to share here exclusively with Lodestar?
[00:58:05] Speaker D: I would love to, but I can't.
[00:58:09] Speaker A: We will tell no one.
[00:58:12] Speaker D: Absolutely not. The only thing more but I can tell you obviously the expansion plan will continue in certain strategic areas where we see a potential strategic fit and then happy now that obviously the closing now with it and logistic has been materialized.
[00:58:27] Speaker A: So okay, if I can't get you an exclusive on plans for 2025, how about Crystal ball on rates? Where do you think rates are going to go? Just pick your trade pick, pick your pick your factors that might decide it. Is it all about Suez or is there other things in play here?
[00:58:46] Speaker D: I will not give you an exact number for any specific trades. But what I can tell you, I do think that obviously there will be some, some pressure. I think on the spot market sooner or later there will be some corrections coming along. Whether then obviously when Suez will open then I think it will be a completely new game. But generally I do believe that the spot market will be coming under pressure.
[00:59:11] Speaker A: Gav, do you want to put your neck on the line?
[00:59:13] Speaker C: It always is.
I mean I think Daniel's right because I think what Daniel is alluding to here is that there is a structural over capacity in the liner industry that at some point this year is likely to make itself felt. And there's still a lot more. There's still a lot more ships lined up for delivery this year. I think spot rate. Yeah, I think you're going to have quite a weak spot rate market for the first quarter, particularly on Asia, Europe. I don't know about the Trans Pacific. I imagine that I think also there'll be some secondary trades that will remain very strong. I think India, the trade between Asia and Far east and India I think could remain very strong this year.
[00:59:51] Speaker A: Thanks for that, guys. Daniel Cachotti, global head of Ocean Freighter Scan Global Logistics and Gavin Van Moel, managing editor of the Lodestar. Thanks for joining me today on the Lodestar podcast.
[01:00:01] Speaker C: Thank you very much, Mike. Great to be on it again.
[01:00:03] Speaker D: Thank you, Mike.
[01:00:07] Speaker A: Big thanks to my editing team, Karen Ball and Tom Matthews and most of all, gratitude to you all for listening. We'll be back soon.
