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.
Winter is most definitely here in the Northern hemisphere, but instead of jetting off for warmer climbs, I for one would not be anywhere else but right here with you all for this holiday special. On this episode, for your delectation, Lodestar journalists will be delivering their collective analysis of 2024. And we'll be doing our best to predict what happens in 2025. What could possibly go wrong? Plenty, I hear you say. Well, fear not, because this perilous journey will be undertaken with expert guidance in the comforting form of Senators. Chief Analyst, it's Peter Sand.
[00:00:53] Speaker B: Don't think Trump brings a lot of uncertainty. He may actually bring the opposite. Just pay attention to what comes out. Right direction is pretty clear. It may not be on target in terms of 100% tariffs, but you will get something that is nasty, right? So when you talk about a one sided uncertainty here, you never know what you're going to get. Like Forrest Gump's mother told him, well, I think this time around it may be that we're actually going to get what's in that chocolate box.
[00:01:24] Speaker A: Hello everybody. I'm Mike King. Welcome to the Lodestar podcast.
Now, as I'm sure you know already, you can find this podcast on all platforms. Please do like and review us. It really does help people find us. We're Also on the lodestar.com where you can subscribe to receive this podcast direct to your inbox and follow breaking supply chain stories from around the world. And honestly, there really is a lot to keep on top of right now. Indeed, 2025 looks certain to be just as manic as 2024 as we'll hear today. With no further ado, let me introduce my fellow travelers. First up, we have Lodestar publisher Alex Lenain. Hello, Alex.
[00:02:09] Speaker C: Hi, Mike.
[00:02:10] Speaker A: She's joined by Lodestar managing editor Gavin Van Mol, who I've promised not to make fun of today because he's had a right go at me this week. How are you, Gav? How's everyone at low? All set for Christmas?
[00:02:23] Speaker D: Well, yeah, sort of. I'm just waiting to see what potential pitfalls you throw my way over the course of the next hour or so.
I don't believe that you're going to go, gentlemen.
[00:02:34] Speaker A: Honestly, honestly, unless I think of something as we're going on.
And last but not least, we have the returning Peter Sand Chief Analyst at Zena. How are you, Peter?
[00:02:45] Speaker B: I'm doing very well. It's been a crazy year, so I'm very happy to be in your good company. Looking back and forward to perhaps an even crazier 2025.
[00:02:54] Speaker A: Your team, Bayern Munich, top of the table. I've had a great week because Liverpool have beat Madrid and City in the top of the Premier League and the Champions League. And Gav, I could have made a bit of fun out of you here, but I'm going to say it in the most positive way. Norwich are doing quite well in the Championship, so it's not a bad end to the year. Alex. And all this really means a lot to you, doesn't it?
[00:03:16] Speaker C: Oh, I'm thrilled by all of it, Mike. It's been absolutely scintillating.
[00:03:19] Speaker D: We just focus on Norwich for a little BIT. We scored 10 goals in the last two games.
[00:03:25] Speaker A: Alex, have you ever been dragged to Cairo Road?
[00:03:27] Speaker C: I have and actually it was really fun. They did great pies there and the spirit is lovely. So, yeah, it's a fine city.
[00:03:35] Speaker D: In fact, as you come into Norwich, it actually says that. Welcome to Norwich. Fine city.
[00:03:41] Speaker A: Excellent. Well, I should visit. I've been to Ipswich. It. Support me off the area slightly. Sorry, Ipswich. Sorry, Ipswich.
Okay, let's get going. I want to look at what's coming down the supply chain for shippers, forwarders and other stakeholders in January particularly, but also the rest of 2025. But let's. Let's work backwards first. Let's do this chronologically and start with 2024. In three words, how would you all describe the year we have had and why? And while you're thinking of your words, I will kick things off. I'm going for elections. Elections, elections. And let me explain why. Somewhere between 1.5 and 2 billion people voted this year, which is a record. We've covered that on this podcast before. That's elections in almost 50 countries, including major democracies such as India, Indonesia, Mexico, which now has its first female president. The uk, the European Union, Taiwan, which now is a very much pro independent president, which China isn't very happy about. South Korea, where opposition parties delivered a major rebuke to President Yoon Suk Yeol, who this week tried to impose martial law to get control of the national assembly before being forced to turn course, which is all breaking as we're talking today. And of course, last but not least, the us. I'm very glad nobody challenged the US results as some feared they might. Many of these elections were in places that are Important for our industry. And we'll see how that filters through in policies during 2025, no doubt. But in general, in these days of authoritarian drift and misinformation from bad actors, I was actually quite glad, I was maybe surprised a little bit to see democracy is still firing around the world. Alex, what's your three words that sum up 2024, please?
[00:05:30] Speaker C: It's slightly more than three words, so. But I've gone with a more divided world. E commerce and strong men.
So the first one is. So the Red Sea issue is kind of divided the world. There's people that can pass through and those that can't. But there'll be more on that later from better informed people like Peter and Gareth. But there's a sort of similar thing in air freight, which has seen Middle Eastern and some Asian airlines able to overfly Russia and US and European carriers can't. And that didn't happen this year, it happened the year before. But those differences in flight times and costs and capacity and strategy is really starting to bite. So carriers like Finair have completely changed their strategy and divided geopolitically. We've got the BRICs versus US and the EU now, the US potentially versus everyone on tariffs. And then Russia is trying to play havoc into parcel networks in Europe and the US with some success.
So that's quite divisive. And then E commerce, keeping the airlines very busy, creating higher costs for other shippers and strongmen. I don't know if this is going to happen, but the thing I'm most looking forward to is a fight between Harold Daggett and Donald Trump. I think that would be a corker, but which side it all falls, we don't know yet, but I'm fingers crossed. I'm looking forward to that.
[00:06:47] Speaker A: When you said strong men, I was convinced you were talking about Gavin. Anyway, Gav, over to you. Give me three words that. Oh, actually go. Follow Alex's lead. Take as many as you want. But if you've got three words, three words that distill the year we've had in supply chain, I have kept this.
[00:07:04] Speaker D: Very much edited at three words. I'm going for hooties for obvious reasons. Hinterlands, for reasons that we will come to over the course of the next hour or so. And I wanted a third H, but I couldn't get one. So I'm going to pronounce. I'm going to do a Dutch pronunciation of Gemini.
[00:07:21] Speaker A: Of what? Say that again. Gemini.
[00:07:24] Speaker D: Gemini. My third word is Gemini, but I was pronouncing it in A Dutch accent with the. Hey, so it's Gemini. So you've got Houthis, Hinterland and Gemini.
[00:07:33] Speaker A: All right, thanks, Gav. So I'll just clarify for listeners the Gemini cooperation we'll be talking about later. But that's, that's the new alliance that Hapag, Lloyd and Maersk are starting next year. It's very, very interesting, which we'll come back to. Peter, what words best describe 2024 for you?
[00:07:49] Speaker B: Well, a lot of three words come into my mind, but I decided to stay sober on the midfield, going for chaos, front loading and timing of tendering and contracting. So those three words is basically how I see the evolution of 2024.
[00:08:07] Speaker A: Thanks, all. Okay, let's have a look at who has been winning and losing, and I'll go first again. I'm going to say my winners are the Republican economists who think tariffs drive growth and national strength, not inflation and worsening relations with U.S. allies and partners. Just to update on the tariff front, we have so many statements out there from the Trump camp, it's quite bewildering and impossible for everyone in our industry to plan for. We've got threats and more tariffs against pretty much everyone, including the eu, China, Mexico and Canada. The BRICS nations are being told they're going to be looking at 100% tariffs if they try and undermine the dollar. China, of course, is part of the BRICS grouping. Will these tariffs be on top of those in place already or the new ones threatened against China? No one knows, which is not very helpful. What we can guarantee is new US tariffs will be met by reprisals. This could easily hit global trade in 2025. I'm sure Peter will reference this later. This protectionism. It continues to erode the idea of globalization in my view, as a force for good. And it makes me think what comes next. Is it the BRICS v. The West? The U.S. v. The Rest? More regionalism? A new Cold War? Who knows? So my loser is all the institutions set up post World War II primarily by the US itself. So I'm thinking the UN, the WTO, the IMF, the IATA, the IMO, they set the rules that enable world trade to grow and help drive millions out of poverty. But those rules are increasingly being ignored or undermined. So they are my losers. And I'm just going to have an affiliate loser as well, because I'd actually say that would be American power or America's ability to project power, because by making trade a stick rather than a carrot in bilateral negotiations with friends and foes, Alike, they're leaving a vacuum in my view that China will probably fill or is already filling and I'll post on LinkedIn a chart that demonstrates this over the last 20 years. This is the opposite of what those Republican economists and leaders are trying to achieve in this race for dominance that they've entered with China. So that's me, Peter, who are your 2024 winners and losers please?
[00:10:24] Speaker B: I think you, you start off on a very thought leading foot here, Mike, really painting a, a challenging picture. Allow me to go a little bit more operational into the winners and losers of 2024. As I see I have selected five winners and losers here. So let me be as brief as I can be on this, right? So for one, a clear outright financial winner. If you look at the performance of carriers, right, they went from a disastrous outlook loss making freight rates to a dream outlook with all the problems attached and of course subsequent massively high freight rates. So clear winners from a financial perspective if I single out one carrier, perhaps also arguably MSC and their power play against former friends turning them into foes. I'm talking about Harper Gloyd and their takeover of Hala in Hamburg, very powerful play. Also fighting Futurf in the home country of Maersk, fighting for a new terminal being set up in the biggest container shipping port in Denmark. So definitely also former friends turning foes now. So arguably a winner also from a power play position. Then of course also those happy and fortunate shippers that were capable of locking in long term freight rates one year ago with carriers that actually ended up honoring not only the MQCs but also perhaps on top of that, right, Arguably also winners of 2024 crazy market as certainly was two losers as I wrap it up here, relative losers, I must also say shippers once again paying top dollar for an appallingly poor service. But admittedly of course also I say they are relative because, well, the magic that came about to solve the chaos as I call it in the opening, right, coming about from the Red Sea disruption, I mean we saw goods moved, we saw actions taken and we saw manufactured goods actually ending up in the right places, not at the right time or agreeable time, but in the end we didn't see empty shelves across the main consuming regions, right? Finally I think the outside loser or the outright loser perhaps a little bit more forward looking than backward looking the American consumer, right, Starting a trade war with the rest of the world is only harmful to them from any perspective. Inflation, quality of goods selection to choose from and just the fact that, I mean you should embrace global trade, not fight it.
[00:13:03] Speaker A: Just on that MSC Mersk relationship, I was talking to someone. I won't name who it was, but they described it as a bit like the movie Alien where the alien devours its human host. And in their description, MSC was definitely the alien.
We can come back to that. Alex Lenane from the world of air freight supply chains, who has been the winningest and the losingest in 2024? I've just made up some words there for you.
[00:13:29] Speaker C: I would say that the winners are the airlines, all of them, even if they don't carry E Commerce particularly. So according to McKinsey, E commerce volumes account for about 70 wide body freighter departures a day of which there are 200 in total leaving China. So that's 35%. So the yields have basically been higher for everyone. The losers are of course those shippers who may have expected lower rates this year because there wasn't so much demand in other cargo. And of course forwarders not involved in E Commerce possibly losers. And then I would say probably the biggest loser of the year is Boeing. They've had strikes, you know, there's mistrust about them, there's production issues that's going to limit the amount of capacity coming into the market in future years. So Emirates, Tim Clark, he's actually sort of voiced his displeasure. He said that they're really frustrated because of the lack of planes and the airlines have had their wings clipped. So this is going to put pressure on capacity in the coming years. And E Commerce is growing at about 7.6% a year annual growth rate. And not all of this will go by air, but much of it will. So again, a lack of capacity is going to keep prices high, hurting shippers. I'd really like to be able to say that Timuchain and Amazon hall will be the losers of this year with increased E Commerce regulations and scrutiny and stuff. But it's simply not the case. I think they're going to adapt and be absolutely fine.
[00:14:55] Speaker A: And gav your winners and losers please.
[00:14:57] Speaker D: I think what Peter said just now, he hit the nail straight on the head. You know, the shipping lines are clearly winners from this msc. Obviously its considerable war chest has been further replenished over this year. But also a special mention to Zim who delivered some outstanding third quarter results. And I think Peter's right. I mean it sort of remains to be seen. I'm thinking looking at Hamburg and the HHLA deal that MSC did, I think it sort of, it remains to be seen whether Hamburg itself as A port and as a city will be a winner or loser from this deal. You know, jury's bit sort of out on that. In terms of ports, I think another mention should go to London Gateway, which has been doing very well and looks to be the chief winner from the forthcoming alliance. Rejig the losers. And again, I would underscore what Peter said about shippers and so on, but if I was to look at one company that I think has really performed much worse than it would have expected to, it would be Lineage Logistics, which is a very large US cold store operator, cool chain for stored frozen and temperature controlled foods. They did an IPO earlier this year and since then they've lost about a quarter of their value. And it's just, it's been a really a corrupt change in a corporate narrative that for about a decade and a half they were private equity funded and it was basically a tale of constant growth, bolt on acquisitions, the building up of a really big network. And it looked on the face of it like a really juicy ipo. I mean it was a very big, it was the biggest one in the US this year. But the performance since then has been really disappointing. I mean, it's clear investors don't seem to like the stock. And when I listened into their first public earnings call, there was quite a sense of that. They had yet to really win over the sort of investors and the analysts. So lineage logistics one to look out for in 2025 I think maybe linked.
[00:16:58] Speaker A: Into that domestic freight recession they've had in the US a fair bit as well. Let's have a look at some of the other big stories of 2024. It's been huge for M and A. The big one was DSV's 14.3 billion euro purchase of Schenke from Deutsche Bahn in the third quarter. That's around $15 billion in today's money. This further emphasized that DSV wants to be a global market leader and has this pretty unsurpassed ability to swallow up its rivals, which includes panel pina. Back in 2019, Gav, all parties to this deal, was keen to stress that DSV would invest 1 billion euros in Germany in the next three to five years. But how are we expecting DSV to manage this outside of Germany based on its previous modus operandi?
[00:17:45] Speaker D: Well, that's a very leading question, isn't it?
I think we pretty much know. I mean, I think they've said that they've had about 50% of the various competition clearances that they needed for the deal to go through. And you're right. I mean the question itself, Mike, implies that really the biggest obstacle for them to get this deal over the line was political opposition in Germany, outside Germany, in the sort of what we would call, you know, weaker jurisdictions in terms of employment law. We will expect to start seeing staff being shared, particularly where there's areas of overlap and principally that will be in the air and ocean forwarding segment of dsv. And so you would, you would expect to begin seeing redundancies in the second quarter of next year, I should think. I think one sort of caveat to all of this is that the deal itself has entered a very strange period because I mean it won't have gone unnoticed that there's quite a bit of political upheaval going on in Germany at the moment. There's a new election scheduled for, I think it's February next year and there's simply no precedent that we can find of a state owned company or a German owned company which has agreed to be sold and that the owner itself, I. E. The German government is about to change. So there is still, you know, whether deal does go ahead or doesn't go ahead. It's still up in the air a bit.
[00:19:08] Speaker A: Yeah, they've had a really tough year in Germany. I mean, I guess some people would be looking at it. They've sold off the family. Silva, you mentioned Hamburg with DB Schenker. They've also got this terrible economic growth that the politics is a bit of a mess and now they're looking at tariffs when they're so dependent and have been always so dependent on exports. Maybe Peter might want to come back on this. But Gav, you've been tracking what MSC has been up to as well. We've mentioned them rather a lot today, apart from all of the other things. They've been buying up all sorts of bolt on businesses. They've been swallowing up second hand chips, ordering new ones left, right and center ahead of the breakup of the 2M alliance with MERS next year when MSE is going to go it alone. It's established itself as this clear market leader, the world's biggest fleet and the biggest order book. What is their strategy in your view?
[00:19:56] Speaker D: Well, this is why hinterland was one of my three words of the year because my feeling on it is that it's all about them building up the inland container supply chains and their capacity to service those supply chains. So it seemed to me pretty clear, for example, if we just once again mention the HARLE deal and it seemed that the thing that really attracted MSC to it because previously their German hub had been Bremerhaven, but it was the intermodal subsidiary of Harle called Metrans, which the acquisition of that gives MSC basically a ready made one of the largest inland transport networks in Central and Eastern Europe. And it just, it's ready made for them. At the same time, sort of less noticed globally. But this year also saw MSC by maritime transport. Maritime transport is the largest container haulier in the uk.
So on the quiet they have effectively developed or purchased or putting together an overland transport network that stretches from northern UK all the way down to Trieste. And they've been building up their stakes in Spanish rail freight companies as well. So that's the, that's the sort of hinterland thing going on.
[00:21:09] Speaker A: Interesting, Alex M and A. What have been the big ones or the most interesting from, from your point of view?
[00:21:15] Speaker C: Well, obviously gav's spoken about MSC and dsp, but this year we also saw the integration of Bolleray into ceva, which is of course owned by cma. Cgm. A CMA strategy has been sort of slightly less well defined than someone like Maersk, but it is also basically a one stop shop now. But it has come at a price internally according to sources in the organization that have pointed to a really highly politicized environment, in some cases a bit toxic, where people have just been fighting for their jobs. Some staff inside CBRA have told me that it's not a very successful company, so it'll be quite interesting to see how it fares next year after the integration is fully complete. Although to be honest, the CMA won't tell us how it's doing. So yeah, we'll have to guess really. And they also integrated Jeffco a year earlier after doing quite a nice deal supported by the French government. It's worth pointing out here that relations with the French government and CMA have soured somewhat after legislation on a windfall tax was amended to make the tax permanent. Which has gone down like a bucket of cold sick with CMA quite frankly. The other just tiny thing to mention is that atsg, who has been fined for Amazon, it's got maintenance and it's quite a big conglomerate in air freight. They have been or been bought by private equity and so they will be delisting as Atlas Air did, which is a shame for us because there's slightly less transparency.
[00:22:40] Speaker A: But yeah, that's from me, Peter. The leading container lines reported profits of over $17 billion in the third quarter. They've certainly got the cash for more investments in their fleets and supply chains. But at the moment we have this order book which is getting quite close to a third of the in service fleet. How do you see these investments that we've seen this year and do you think they'll continue in 2025?
[00:23:05] Speaker B: I think definitely we're going to see carriers reinvesting in the market. They know so well, they've done so before and they are apparently not scared of phasing over capacity once event they will all return to the Red Sea for transients again. But I would also expect carriers to spend their money in a smarter way going forward. They have different words for it. Haberg Lloyd calls it pure play plus. Right. So they invest in their inland transportation capabilities or at least the interface getting into strategic ports and locations as we see with APM terminals and other carriers that have their own basically terminal network on a global scale. And I think especially with the scenario that we are facing from 1st of February with the reshuffle of main alliance players, at least where we will expect them to gain the most from their current investments in key terminals in key hubs around the world, that will be a part of the play going forward and not only in 2025, but also forward when they seek to spend the win for profits from 2024 in notching the footprint into the hinterland. So Gap, we did not compare notes coming into this session, but I think we great minds think alike. Right. So that hinterland focus is definitely something that not only integrators think about but also any carrier around the world.
[00:24:39] Speaker A: Great minds indeed. Peter Rates the big driver of container shipping. Freight rates spot and long term markets has of course been the de facto closure of the Suez Canal to most container services. Diversions around the Cape of Good Hope have swallowed up a significant chunk of global capacity. How would you describe how this played out in 2024? Just briefly on the different lanes And I'm assuming we see more of the same in 2025. Unless Trump has a magic wand that solves the world's crises. But I guess if it does play out as it the same and there isn't a magic wand, lions continue to do quite well, don't they?
[00:25:15] Speaker B: Yeah, for sure. If we just Briefly look at 2024, it looks like a very fun place to be if you think of six Flag Magic Mo as your favorite place to go to. Right. Because it's been a significant roller coaster. Right. And right now with the most recent hikes into North Europe and Mediterranean, a significant comeback from what seems to be, well, the calmness of the trade lanes. Finally, with some sort of, let's say new level that we would see for global freight rates that would equal to free Red Sea disruption levels plus a premium of a $500,000 right to cover the cost and the inconvenience for everyone involved within shipping. But we should definitely expect continued say volatility in the market. We should expect that no two trades are alike. They do of course get their global bumps from Red Sea disruption, from US east coast port strike from disruptions also in Asia. Getting into the picture of everyone's minds, right? But up and down as we, as we continue into 2020, 25 with their most focus upfront on US and North America as the trade war starts its traction. Let's see, let's see how crazy it will turn out to be. But ample risks to manage going forward. But in essence a volatile spot market and long term rates that are very much in the minds of in particular the European shippers are right now as they have been kicking that can down the road for a while now, postponing negotiations as they saw the market only getting in their favor with falling short rate. Right. But come about first November while some u turn in the market, a lot of shippers feeling caught out on the wrong foot here and now hesitating to sign long term contracts. So a lot of focus on where those long term contracts will be in the coming weeks and months as inevitably they will need to sign some sort of a long term agreement with the carriers regardless of the fact that they're signing at highly elevated levels, literally levels only seen during the COVID years.
[00:27:24] Speaker A: Very interesting. I'll just have to follow up on a couple of points there you mentioned there. One's this crazy January and the other one's Asia Europe long term contract rate negotiations. Let's look at January 1st which I can't really think of a month like it. We've got possible new tariff regimes, we've got a possible lockout of dock workers on January 15th on US east and Gulf coast ports which I'll get Gav's view on in in a bit as well. Got new container shipping line is launching. They're going to have a realign in these networks and services and we have an early new lunar new year which means all the factories in China will be closed. So why aren't we seeing spot rates rising more than they have been or some of them have been falling? They're slightly perkier on Asia, Europe, but we're way down on the highs of the Summer, is this, is this inventory levels, is this people taking a wait and see approach to tariffs and all this other disruption? Or and then coming into the second point, is this something to do certainly on Asia, Europe with this negotiating strategy from shippers? Are these things tied together?
[00:28:26] Speaker B: I would say everything is tied together and yet they are impacting trade lanes in different ways depending on where you ship from and to obviously. But coming into January, I would say that the number of risks to manage has never been that intense since. Well, maybe global financial crisis should be a little bit extreme, right? Because you had your ups and downs a weak China in 2016, you had the first stint of President Trump in the White House starting the trade war 2018 and now you basically see something really critical also boiling for January, but reflecting a little bit on the rise into Europe in the spot market that we have seen for more than a month now. You may argue that it's early peak season, but I'm not so sure actually because in terms of demand indications that we see are really that strong enough. It also comes about much earlier than even then Chinese Lunar New year starting on the 29th of January would prompt. Right? So I say it's perhaps a little bit more confident carriers actually managing to bring them back at level with the North American rates because we did see in late October, if you compare to the peak level of freight rates, European bound trade lanes were already down by 60% whereas the North American bounds were only in the mid-40s. So in a tight market like this, carriers are confident and they are actually also successfully pushing on gris or whatever surcharges they can bring around. So we saw that lift in European bound rates and I wouldn't be surprised to see that the next turn we will see in the market will probably be into North America, not only because of the concentration of risks related to the US but also because of Europe now running a little bit ahead on the upside for the short market. So watch this space for a turn in trend in North America as they may be catching up this time around at the expense of shippers, but at the benefit of Keris Gav, you did.
[00:30:29] Speaker A: A great article highlighting the meticulous work undertaken by John McCown on US import volumes. This year global volumes in the third quarter hit a new record, surpassing pandemic driven demand of the second quarter of 2021. But as John noted, the key driver was US import volumes which were up by double digits year on year. Has this all been about the strength of that US economy that keeps surprising economists and what are you hearing about U.S. imports and those trans PAC rates which have been falling just as we discussed when you'd think really they should be rising.
[00:31:07] Speaker D: It's probably worthwhile. I mean John, in his monthly analysis of U.S. volumes and pricing he does make the point and I'm sure Peter would be able to underscore this of the difference between spot rates and contract rates, right. And the fact that so many of the volumes going into the US Are under contract rates. So it seems to me, and actually I'd be really interested to hear what Peter thinks about this. But what it seems to me that the spot rate levels on the eastbound Trans Pacific aren't a very good indicator of demand and capacity and the whole basic the demand supply equilibrium.
[00:31:44] Speaker A: PETER maybe you want to come back on that. And just as a rule of thumb to our listeners, when people talk about the contracting season traditionally we've talked about that on the Asia Europe trade for container shipping as around about the end of the year. So it starts starting now through to January and on the trans pack where there's always been this much higher volume moving under long term contracts, that's May, June. But do you want to give us a bit more maybe you can put a bit more precision on that for us?
[00:32:11] Speaker B: PETER well, definitely it's prime time for the European shippers right now as many of them work on the calendar year for their annual contract negotiations. So many of the shippers have have been very much in their tendering work for several months now. But we have definitely also seen some deliberately postponing them getting back to that say negotiation can being kicked down the road. Right. So for the traditional tendering season in Europe, the Red Sea disruption and the much elevated market in the short term we have seen a thinner and thinner long term contract market. So what we are seeing in the European market right now, it's actually a later peak for getting those contracts signed. So we should probably expect that to get into the first quarter of 2025 before we actually see the lion's share of long term contracts being signed. But getting back to your question, GAV also on the say China to US east coast or Far east to US east coast, whether or not the short market is a worthwhile indicator to use when going into to the contract negotiations with your logistics service providers. Right. It's of course always something you mentioned. Right. But at the end of the day I would say shippers prepare themselves and arm themselves with much more information about the underlying market than ever before. So it's not just looking at A spot rate right now around $5,000 from China into US East coast and a fairly thin long term contract market signed at around $4,000 that is right now. So they arm themselves with much more than that. Reliability, transit time. What kind of say service levels would I actually require more than anything on this specific trade that would prevent me. And then of course ensure that you get the triggers right in your contract, right for renegotiating clauses. So if we see a massive change in the market and you're not doing like an index link contract, but at least trying to get some flexibility into a stable relationship, ensure that you're not getting caught out by signing one long term contract. Way too high because you know better. But you also know that carriers hold strong hand. Right now they are seeing their network stretched, they are seeing still very, very high utilization rates or filling factors. So there's a limit to how good a hand you actually hold in that poker game when being a shipper right now. But of course it should prevent you from knowing more about your own requirements as well as the market developments.
[00:34:54] Speaker A: In essence, Gav, just bring you back in on some of this January madness we've got. The International Longshoremen's association is currently saying if it's a fight they want, it's a war they're going to get. Now that's aimed at the US mx, that represents port interests and liner interests on those US Gulf and East coast ports from Maine to Texas.
Pretty much everyone I've asked about this thinks Trumps will back the ILA head Harold Daggett and paint the USMX as non American. I wasn't expecting everyone to tell me that, actually. I thought there was a case for Trump to maybe just back the American consumer, but maybe not. I should add that Laurie Chavez Direma, who is a pro labor Republican, which is unusual in itself, she's Trump's back for Labor Secretary and that's. That choice has been widely welcomed by unions, including the Teamsters. So I mean, what's your take on this Gav? Do you see any way of compromise between ILA and USMX over. They're stuck on automation, aren't they?
[00:35:54] Speaker D: Yeah, they are, yeah. I mean, you know, because they've already agreed a 62% wage increase for the next contract. So it's not wages, it's automation's like an existential issue for the ila, right? You take workers out of the dock workforce and the ILA get less union membership fees.
So they are, it's basically they're fighting for their or they feel they're fighting them for their survival. Everything that I've seen about Donald Trump suggests that he doesn't give a hoot about the American consumer. He doesn't seem to give a hoot about absolutely anything at all, except for Donald Trump. And one of the things that, although what is evident is that he likes strong men, doesn't he? This is going back to Alex's thing, he likes those sort of people. So you would sort of feel that him and Harold Daggett are kind of of like soulmates, you know, in a, in a funny kind of way. So it's a very easy thing to blame the foreign shipping lines. I mean, Biden did it a couple of years ago when he was saying back he was going to. What was it? After the pandemic rate peaks, Biden called out the foreign shipping lines. I would, I would expect Trump to do pretty much the same thing. It's the easy win, isn't it? Just get the foreign shipping lines to pay more. Get the foreign shipping lines to promise that they won't bring in automation in and if they, and if they don't promise it, then bar them from the country. That seems to be the negotiating tactic that he's applying elsewhere and other policy areas.
[00:37:18] Speaker A: There's quite a good movie out at the moment called the Apprentice, which is about Donald Trump's early years, where his relationship with Roy Cohn, who represented a whole bunch of gangsters in New York, is explored quite interestingly. And I only mentioned that because Harold Daggett's also been linked to organized crime in New York as well.
Peter, anything out there that makes you think the ILA won't strike or a deal will be done? Well, I say strike shut out wherever the contract ends January 15th.
[00:37:45] Speaker B: Short answer is no. I see a strike coming about on 15January when the port strike suspension, I think is like the legal term of it is concluded. Right. So depending on what the President elect will do or intend to do, we will see a strike in some sort here. So. So they have essentially agreed on nothing. They have agreed on wage in principle, but not signed a single line. Right. Because that would prevent the ally from, from going on strike. So I see no other way around than another port strike hitting the US east coast and Gulf coast with the adjacent disruption happening. And hey, let's see if MSC decides to go to Halifax once again with boxes that, that shippers will be asked to pay for relocating themselves. That's probably unlikely, but let's see how it plays out. But I cannot see a Way around another strike commencing on the 15th of January.
[00:38:41] Speaker A: Well, and US boxes into Canada might have tariffs on them very soon indeed. Alex, all this is a boost for air cargo in January. Potentially just another thing to throw in there to this chaotic month that we're looking at. Could also be a change to the US de minimis rules.
[00:38:56] Speaker C: Yeah, as we've said, there's quite a lot going on there, but so we're hearing that inventory levels are actually okay. But then you've got Chinese New Year. So I imagine if there is a strike and which most people think there will be, and if it goes on for any significant length of time, then air freight will definitely profit from it. If you look at the 2015 West coast port strike, it gave air cargo a real bounce in what would have otherwise been a pretty poor year. As far as E commerce rules go, I don't know if it will particularly change the needle for air freight initially anyway. An ex CBP like customers and border protection sort of high level officer just said that he doesn't think that new rules that have been proposed will change very much. He said that what's actually needed is more staff, better data and better technology and more penalties for inaccurate data. But yeah, I don't know whether there'll be any significant change to E Commerce really.
[00:39:50] Speaker A: So is E Commerce going to be the main determinant for air Cargo Markets in 2025? I mean it's massive driver this year, hasn't it?
[00:39:57] Speaker C: Yeah, it's been huge. It's thought to account for about 20% of total volumes and one third of freighter capacity. And whoever you ask, they all say it's here to stay. You know, that cat's well out of the bag. And so I think people are expecting a reasonably similar year next year. And that's good for air freight because some other verticals have suffered, aerospace being one in particular, increasing numbers of perishables going by sea, which has always been the case really. One commodity is doing well is servers for AI, which is a nice little boost, but I think E Commerce will continue to be the backbone. But I remember us chatting about this last year, Mike, and the same podcast last year, and I said then that I think much of the E commerce by air is unsustainable economically as well as environmentally. Now there are some suspicions that Trump may lessen some environmental rules, but that won't stop other countries from trying to, you know, put in their own rules. And then there's also the tariffs which could lead more E commerce players to try and set up in the US and more goods and materials brought in by sea perhaps rather than air. But then E commerce is growing anyway. So either way air freight is going to keep doing well from it.
[00:41:10] Speaker A: Peter Zenita also covers air cargo market. Anything you want to throw in there?
[00:41:15] Speaker B: Yeah, I can, I can echo just a little bit of what Alex said that air cargo will do fine then. But we're still also just reflecting thing on a fairly weak peak season that has just been almost concluded. Right. If we compare the 12% spot rate change from the beginning of the peak season to where we are now, that is significantly lower than the 25% that we saw in terms of changes during the peak season last year. Right. So we are an absolutely higher level. But I would say the the peak season may just be also a result of very very high and strong demand throughout the year as we see on ocean right front loading throughout the year. So there's a limit to how much more inventories you need. But still peak season is a peak season and we've seen that as limited and as powerful as we normally have seen it.
[00:42:04] Speaker A: Peter we mentioned the alliance system changes coming in early next year. There might be a few teething problems on top of everything else in January. The big one for me is Hafac Lloyd and Merce promising 90% of reliability of service by mid-2025 now seems to be the deadline. Rolf Haben Janssen said the other and Gav, feel free to come in on this too. Will they be able to achieve this as part of as this Gemini Cooperation alliance? And how does this fit into the various other changes and strategies for other carriers?
[00:42:36] Speaker B: I think they will definitely do whatever they can and the proof is obviously in the pudding. We saw now Halving Janssen going out saying that okay, we expect a full implementation of the network to be around somewhere mid year. So at that point in time we are pretty happy to be measured against the 90%. But I still believe that 90% measured from one hub to another hub may defeat a little bit of the point of being reliable in the eyes of the shippers. Right. Because they don't ship hub to hub, they ship port to port. So. So unless you have that feedering network also up and running, I wouldn't care so much about the 90% we're going.
[00:43:17] Speaker A: To get Hapag Lloyd on at the start of next year to explain this in a bit more detail but Gav, what's your take on this, this aligned shakeup?
[00:43:26] Speaker D: Well it's just on that 90% thing, the goal, the goalposts have moved quite a few times, haven't they? I remember they came out when they first announced Gemini. They said we're going to do 90 and we're actually going to put a financial commitment to achieving 90% I. E. If your cargo falls outside that scope then we'll pay. But, but then it seemed to be that for a while they were saying actually it's going to be 80% on time reliability. And now he's saying 90 again. I thought, I seem to remember about mid year I think it was Rolf or maybe it was Vincent Clerk, Vincent Clerk at Mercer, one of them saying I would think it'll be 80% reliability for about a couple of years and then we'll get up to the 90% reliability. And then all the mention of the financial commitment to hitting those reliability targets seem to have been quietly dropped. The key thing is going to be the operations in the transshipment HubSpot. I mean our ex colleague Mike Wackett used to run a feeder line in his previous career and the biggest problem he had in serving his customers, which were the liners of course was being able to get a berth at the ports. So it seems to me what the success of Gemini is really going to hinge on how well these hub ports that they've chosen, which they say we chose because we control the capacity of them, we control the birth scheduling and how well they get those boxes onto the feeder connections, that is going to be the key thing. One other thing and I'm putting it back to Peter, sorry it wasn't clear to me on the 90% reliability level. Is that door to door or is it port to port or is it hub to hub?
[00:45:01] Speaker A: I don't think it was hub to hub. I think it was port to port.
[00:45:04] Speaker B: Well I guess time only will tell but as I recall it's hub to hub. But you're absolutely spot on. It's the operational capability of running the feedering network work around that, that that does make it all either happen or not happen. But it's definitely been their claim to fame. So they, they know that we will measure them on that quest.
[00:45:25] Speaker A: Peter, what pressure would this put on all the lines? Even let's say it was 80% and it's port support and I'm going to get Hapag Lloyd to clarify all this but let's just say they got up to 80%. Now the averages at the moment for most lines are sort of, for most of this year they've been around 50 to 60% puts the pressure on does it?
[00:45:42] Speaker B: Well, it's the one thing that singles them out, right? So if everybody doesn't care really about the reliability, which if I reflect on it, carriers have never been able to ask for a higher freight rate on the back of a high reliability and Maersk may have been the champion of this all along. So I guess they just need now to change their game in some way and see if they can still will deliver some added benefits also from a financial perspective on higher reliability. But I mean if they are not delivering on their 90% promise, which is the one thing that should set them aside, why should customers care? Right? So put to the test, bring it on. Shippers have never seen such great variety in the offering from carriers and alliances since the say basically the invention of the conferences a long time ago. So finally we are capable of seeing different products being offered, more complex products, more challenges also in deciding what to go for. But yeah, let's see, 2025 will definitely bring more clarity into that.
[00:46:46] Speaker A: Okay guys, prediction please. Each of you make one big call about freight markets or the supply chain industry for next year.
[00:46:55] Speaker B: How easy can it be, right? I don't think Trump brings a lot of uncertainty. He may actually bring the opposite. Just pay attention to what comes out. Right direction is pretty clear. It may not be on target in terms of 100% tariffs, but you will get something that is nasty. Right? So when you talk about a one sided uncertainty here, you never know what you're gonna get. Like Forrest Gump's mother told him, well, I think this time around it may be that we're actually going to get what's in that chocolate box. So finally, sorry to bring in another prediction here also because it seems to be some sort of, well, I'm not really sure whether it's widely debated but at least at Senator, we believe the Red Sea disruption will stick around. But let's see, fingers crossed it will not. But it seems as if nothing massive is about to change anytime soon.
[00:47:45] Speaker D: I think that seems really reasonable. My prediction is that there's going to be, with Trump in power, I think there is going to be at some point next year a big focus on Taiwan and the relationship that China has with it. And I think that that could, that would be a fresh bout of uncertainty to add in to what's coming up. So I, I really feel like Taiwan's going to come become a bigger issue over the course of next year.
[00:48:09] Speaker C: That's my prediction and my Trump related as well. I'm going to borrow from Peter's colleague Neil Van der Bouwer at Zenita, who said that you think Vietnam is the one to watch as people move out of China and near Shoring, which will sort of start to happen a bit more. And the other thing is that Trump promised to end all wars, so there's that.
[00:48:31] Speaker A: Well, I hope he's right. I predict he's wrong. Right. Finally, you could have the expression on.
[00:48:38] Speaker D: Peter's face that's brilliant.
[00:48:42] Speaker A: But finally.
It's a bit silly, but it is the holiday season. I want to know what each of your song is for 2025. I was going to say you'll Never Walk Alone for reasons I mentioned earlier, but instead I'm going to go for Mr. Blue sky by ELO, because despite all of the evidence we've discussed and all this geopolitical turmoil around at the moment, I'm having such a good week and I feel very optimistic about next year. Gav.
[00:49:08] Speaker D: For me, it's additions of you by Roxy Music, mainly because it's a great tune and it's got the most frenetic rhythm section behind it and it's just the music itself. Just. It's. To me, it sums up the kind of uncertainty that the world's looking at.
[00:49:26] Speaker C: Alex, I'm going with the almost the opposite of Gav. I've gone for Let It Be by the Beatles. I think it's quite good advice for anyone in power who's thinking about retribution, retaliation wars or generally stirring the political pot. It might be a good thing not to. And it's also quite calming, which is going to help me get through all the noise coming out of the US.
[00:49:47] Speaker A: And, Peter, what's your song for 2025? No, it's not Eurovision, is it? We don't. We don't think of Eurovision songs in the UK because we always lose.
[00:49:57] Speaker B: Well, but you're always very enthusiastically participating in the contest and hey, you. You paid top dollar to go into the top five. Right? But that's. That's just. That's just you guys. Well, as. As big a fan of. Of Eurovision that. That I am also, I'm kind of like in a split decision here. I'm stuck in a Christmas mood. So my favorite tune right now, without doubt, is Jingle Bells sung by Bing Crosby supported by the Andrews Sisters. Please check it out. It's super duper cool. But if you want to look further ahead into 2025, freezing moon by Mayhem is probably what brings my mind into the side of 2025. So a lot of crazy things going around and you might be facing a freezing moon at some point in time as well.
[00:50:42] Speaker A: Peterson, Zenita, chief analyst, Alex Lorraine, Lodestar publisher, and Gavin Van Mal, managing editor. Thanks for joining me today on this holiday special Lodestar podcast.
[00:50:52] Speaker C: Thanks, Mike.
[00:50:53] Speaker D: Thank you very much, Mike.
[00:50:54] Speaker B: Pleasure, Mike, indeed. Happy Christmas.
[00:50:59] 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.
