Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:06] Speaker B: And welcome to the Lodestar podcast. News in brief. We're going to be recapping last week's supply chain news and giving you insight on what you might see coming up on the Lodestar. To kick off the episode, we should probably update where we're at with tariffs, as we know this is changing all the time. Alex, I will give you the honour of doing this one.
[00:00:23] Speaker C: Thank you, Charlotte. The latest news, I think is on Switzerland, which we can all remember was very shocked by its 39% tariff. But the US and the Swiss have agreed now, although it's not been put into law yet to be fair, but they've agreed the conditions for a tariff reduction to 15%. Now, as part of that deal, the Swiss must reduce their own import duties and grant bilateral tariff quotas.
And apparently Swiss companies have pledged about some $200 billion in US investment by the end of 2028. Although as with all the other deals that Trump has done, it's quite hard to see how enforceable this is. Perhaps more crucially though, Trump is starting to focus on food prices, possibly because he's concerned over Democrat wins recently.
So he has eased some of the reciprocal tariffs on quite a range of agricultural products. Some are more surprising than others. So it perhaps makes sense not to tariff foodstuffs which don't originate in the us Sort of tropical fruits and nuts, coffee, tea, cocoa and so on. Beef was perhaps a bit more surprising as the US is a major producer, but it's also a major importer, especially from tariff hit Brazil. So that did cause a rise in prices. And of course we know the Donald loves a beef burger as well as well done steak.
So he, maybe he was concerned over his own shopping basket, we'll never know. But the difficulty with the easing off of tariffs is that they will require refunds, a word I expect we will hear quite a lot of in 2026.
[00:01:51] Speaker B: Yeah, I mean, it sounds like a positive step anyway. I guess any reductions are good. Although something that we actually also noticed last week was that trade deals kept being made, either reciprocal figures or tariffs down to like 15%. So we might also expect some new tariff announcements coming soon. But obviously that does just underscore how things are changing one day to the next. And obviously, as you said, this new layer of refunds is definitely going to be a complex one to work out. I mean, have the CBP got enough capability to do that, do you think?
[00:02:18] Speaker C: Most people say that there are very few import delays actually, but there are a lot more queries and CBP is looking to grow its ranks. It's asked retired officers to rejoin for up to four years now. CBP has been short staff for a while, but it's been asked to do so many more things than it was before and on a more granular level. If you add refunds into this, as one forwarder said, it's going to be a nightmare. So, yes, they are recruiting, but whether there'll be enough and in time, we don't know.
[00:02:48] Speaker B: Yeah, that's going to be an interesting one to watch unfold. I mean, as we all know, this whole tariff initiative from Trump is all part of the America first policy.
Not really sure it's having that desired effect. But anyway, it's not just imports that threaten this, but apparently also possible changes to the US Railroad. Shareholders at both Norfolk Southern and Union Pacific voted overwhelmingly on Friday to support the merger. I think it was something like 99%. But some Republican state attorneys general warned that it threatened the America first policy and even national security. I'm not really sure how. Alex, do you have any thoughts on this?
[00:03:21] Speaker C: Well, they reasoned that the merger would result in undue market concentration that stifles competition and therefore creates higher prices, lower reliability, and less innovation at the expense of American manufacturers and ultimately America's consumers. But the Norfolk Southern CEO, Mark George, said that the vote marks a key milestone and he expects the formal merger application to be filed by the start of next month. So I'm not really sure that this pushback is going to make much of a difference, to be honest.
[00:03:50] Speaker A: What about you, Gav?
[00:03:50] Speaker B: Any thoughts?
[00:03:51] Speaker A: Well, it's, it's, I mean, you can see why they're, why they're apprehensive about it because it's, it's monopolies creation. And we're just, we're, we're, they're taking the country back to the robber barons of the late 19th century.
I mean, they've, you know, they, they, the US had in place a very strict thing that it wouldn't go above 6, it wouldn't go below 6 railroads for exactly this point. That it would create too much concentration of competition. But Trump doesn't care about that. I can see the point. The point is, for customers, it's, it's not a great deal because it's going to just put more power into. It becomes an oligarchy.
[00:04:31] Speaker B: But I mean, at the same time, there's this expanded interline agreement between the companies, BNSF and csx, which they said would offer even more immediate value to their customers by increasing speed, flexibility and options. That's what they said. Um, but it will be interesting to see how rail transport in the US behaves with both of these major consolidation moves happening at the same time.
[00:04:52] Speaker A: Yeah, I mean who wins from these sort of this, these massive M and A deals? Who actually wins? It's normally the shareholders of the companies because they get an inflated share price for a brief period of time that they're able to cash out on.
[00:05:04] Speaker B: So I think we should move over to ocean freight now. We've given rail freight enough airtime. The Q3 reporting from all the major carriers has now commenced. Obviously bar MSC because they don't publicize their results. There was quite an interesting pattern that we noticed in that the Asian mainstream shipping lines posted much better profit margins than the European. So what is the reason for this Gav and have you identified any winners and losers for Q3?
[00:05:29] Speaker A: Well there's a few, but it really very much depends on what metric you're talking about. I mean the story that we ran should really have come with a massive caveat which was that they were basically comparing EBIT margins.
So which, which basically means that the depreciation and amortization aspects that are factored into a carrier's balance sheets principally on what the value of their vessels are, is absent from this, from this, from this metric. Anyway look, numbers never lie. So on an EBIT margin basis it was basically found that carriers with a higher percentage of owned vessels delivered a higher profitability metric because the ship owners, basically the non operating ship owners aren't fleeting them through sky high charter rates. So if you look at a quick comparison basis you would have Wanhai which owns almost all of its fleet had an ebit margin of 25%. Costco and Evergreen have fairly high percentages of owned vessels were at 23% while CMA CGM was at 15%, Maersk at 6.2 and Hapag of 4%. So that was the basis of that. And it should be noted that three things on this is that firstly we're talking about the liquid charter market rather than the long term mortgage type charters that the likes of C Span arranged. So you're talking about time charter rates. I mean you've written articles about the disconnect between the charter market and the freight market. Charlotte and the liquid time charter market currently has very high rates and obviously that's hit into profitability. And actually there was further evidence of this right at the end of last week Zimline released its results. I think that made it the last of the main carriers to do so. And that showed a 15% EBIT margin. So the same as CMA CGM and yet it charters almost its entire fleet. However, those charters are on long term 10 year type deals rather than from the liquid charter market. And in fact DIM has been getting rid of all the vessels on time charters that it can. Personally I sort of, if I was to look at the third quarter results, I thought the most interesting aspect of it was the volumes. That was probably the most revealing and actually there were quite a few carriers, including a number of the Asian carriers that don't report their volume numbers, which in itself is even more revealing. Sort of understand me because basically when you compare it to the market growth, it's a very easy metric of seeing whether a carrier's gain or lost market share. Right. It's very simple. On the basis the global market as per container Trade statistics grew 4.7% in, in the third quarter compared to the third quarter 2024 combined volume of 49.23 million tu. That's a hell of a lot. Right, but it completely changes the picture that we've just been talking about because on a volumes carried basis carried 7% more containers. Hapag Lloyd carried 6.1% more containers. So both of those above market at the market growth rate which clearly indicates they've won market share on a global basis. While CMA CGM volumes are up just 2.3% and Zim Zim's carryings were down 5%. So EBIT margin good market share less. I mean you make of that what you will, but there are a number of ways of measuring success.
[00:09:03] Speaker B: That's interesting that Maersk and Hapag were up. I wonder if shippers are preferring that because of the reliability thing and if them saying that they're going to charge more for this reliability is going to have any impact on that.
I guess we'll see in the coming quarters.
[00:09:17] Speaker A: Maybe look at third quarter stuff in terms of spot rates. Both Maersk or certainly Maersk was identified as one of the big sort of discounters on the Asia Europe trade. So they've, they've definitely been on a sustained market share gain drive.
[00:09:33] Speaker B: Well, I mean that brings me on to my next question actually about rates. And I was wondering if there'd been any kind of mitigation from carriers to like bolster their back pockets before the end of the year. I mean I heard from one of my sources that, hmm, MSC and Hapag were pushing gris of about $3,000 per high cube container from Asia to Europe and they said that this was probably partly because of a pre Chinese New Year cargo rush, but they also said that the spot slash FAK rates that carriers were giving were for like a two week validity so that they can keep trying to push these rates up. What are your thoughts on that? And, and what were the rates showing last week as well?
[00:10:11] Speaker A: So you know there is a, there is a kind of difference between GRIS and faks. Right. The general rate increases. I think what they're talking about on the Asia Europe trade is that there have been almost fortnightly announcements of new FAK levels certainly from those three carriers that you mentioned. Yes, indeed. And each time that the new F8 and this has happened since this, what we've been now where, yeah this has been going on since either mid October or the beginning of this month. But basically they've been pushing these things. So the first one came in at I think around $3,000. Next one was, was 32 or something, then it was 3 4. So, so what they're trying to, and that's on a fortnightly basis, they're trying to just nudge up that FAK level. I mean the FAK levels that were introduced earlier this week, which are around 3,100 if memory serves. Correct.
And you compare it to where the Drury spot rate is. I mean there's still quite a, there's quite a big spread. There's still about a thousand dollar spreads. Last week's Shanghai Rotterdam rate as per Drury's World Container index stood at $2,200 per 40 foot. You know you get the sort of idea that there's a, there's a, there's quite a spread between the FAK rates and what the actual spot as per the indices are. Nonetheless, right, These, these FAK introductions have, they've had the desired effect in terms of movement. I mean spot rates on the WCI into North Europe and the Med have risen for seven consecutive weeks, which is surprising if you look at November additional snack period. Last week they were up another 8% into North Europe and another 6% into the Med. And what generally happens is that you know, price increases, they stick if there's enough demand and they have partially stuck. The other aspect of this, and it's been much acknowledged recently that is that the carriers and shippers are now doing the annual rate negotiations and spot rates tend to act as an important guide for that. And just if you want a point of contrast on this is if you look at the Trans Pacific, so the Trans Pacific also had a Whole load of general rate increases introduced on the same day as the new FAK rate levels on Asia, Europe. And yet last week's CCI rates into the US West coast were down 7% and they were down 10% into the US East Coast.
So that shows you what happens when the road basically falls completely flat.
One other aspect of that is that also because under the Federal Maritime Commission regulations, any price increases to the trade have to be notified 30 days in advance. So basically what you find on the trades into North America is that the carriers just every two weeks they just go and they just say, yeah, we're going to implement a GRI on this day. Now whether they do or don't will depend on the market conditions. And sometimes those gros stick and sometimes they just don't bother even applying them at all because they know there's going to be absolutely no, no, no demand for that.
[00:13:14] Speaker B: Yeah, I mean it's quite evident that the Trans Pacific really is not doing well compared with the other trades. But looking to the upcoming week, I mean we're coming up to Black Friday and Cyber Monday which might give it.
[00:13:24] Speaker C: A bit of a boost.
[00:13:25] Speaker B: I mean it's now seemingly the whole month rather than just the two days than it was at the start. But this is probably going to mean a busier few weeks for air freight in particular and E commerce demand also in the run up to Christmas. So we might have some stories on how that's been impacting supply chains, but we've already had reports on how air freight rates are up and demand into Europe especially that. But, but I also did hear that that is not going to translate into European road freight volumes for full truckloads. So sorry to any hauliers that might get their hopes up.
Instead it's going to be mostly focused on last mile delivery. Alex, do you think that we are finally in that peak season that we've been anticipating all year?
[00:14:05] Speaker C: Guess it depends how you define the peak. We tried to do it in the office recently and everyone came up with a slightly different definition. But it is the season that's traditionally peaky and rates are certainly going up. The TAC Index said last week that its global index has risen nearly 5%.
Rates out of China are higher to Europe and the US and the transatlantic's even having a bit of a moment. We're also starting to see a little friction between forwarders and airlines on rates which generally says that something's going well for someone and badly for someone else.
The other interesting thing in air cargo right now, I think is the launch of an electric aircraft airline, Esmart Avia for middle mile and E Commerce deliveries, which launched at the Dubai Air show, which incidentally also saw Silkway and Etihad order more freighters. Other than that, those things aren't going to change the dial this quarter. But yes, in answer to your question, rates are on the up.
[00:15:01] Speaker B: Yeah, that E Smart Avia is quite interesting. It does seem like E Commerce is becoming more and more of a focal point for solutions providers because it doesn't think, I don't think it's going to stop anytime soon. Can you give us a roundup of what was on premium last week please?
[00:15:16] Speaker C: Yes, I can. There was an exclusive on various changes at CMA CGM Group, well CMG to be honest, and a look at how Freitas finances are really doing. There was news on Yellow Core bankruptcy and its legal action with the Teamsters, more on tariffs in the Supreme Court and as well insights into African rail freight among other things. Now I also happen to know that there's going to be a good stream of exclusives coming up in premium over the coming weeks, so it's well worth keeping your eye on that. Gav and I have lunch with DHL Global Forwarding's new CEO Oscar Debok, which should be pretty interesting. I'm looking forward to it.
[00:15:56] Speaker B: What about you Gav?
[00:15:57] Speaker A: I've just heard that I've got lunch with the DHL CEO, so that's interesting.
No, well, I guess what we're doing really is just continuing to look at how people are preparing stroke mitigating from Suez. I mean we don't know. We of course we're still at this thing when we don't know when Suez Canal transits might resume and the Houthis and all that sort of stuff. It's still up in the air, but it's certainly exercising a lot of people's thoughts. And there was a really interesting press briefing given by Hapag Lloyd last week with with Lars Jens and also Michael Aldwell, the head of Sea Logistics at Cunanago. And one of the interesting points that was made was that this idea that when the sewers opens there'll be a sort of an upsurge in European port congestion that as we have sort of said before is is is probably a given. Right. But the interesting thing here was that Rolf made the point and it was something I hadn't sort of really connected before. But he said the thing I'm most worried about is the inability of shippers or importers to collect their cargo from the terminal yards. So that is where the congestion really takes place.
In fact, Michael Ordwell from Kuina Naga was saying that they're advising their clients. You know, now's the time to sort of invest in warehouse yards, dot container storage in order to, to relieve the pressure, not just to relieve the pressure on ports, but to get your cargo out of it. There is also I did a, I did a story last week and it wasn't that particularly interesting in and of itself. It was about APM terminals expansion at the Suez Canal Container Terminal. And I was doing a bit of reading on this and it. And one interesting thing is that there's a massive amount of port capacity that's, that's about to or has just been released in Egypt. So Suez Canal container terminal opens 2.2 million TU expansion project last weekend Anytime now. What's known as the Damietta Alliance Container Terminal, which Hapag Lloyd is a major shareholder, is about to open its first tranche which will probably be about another 2000 TE capacity. And really both of these expansions come just as if Suez Canal transits do resume, say in the first half of next year. And there is significant port congestion in Europe, particularly in the Med, where it's predicted to be at its worst. There will actually be significant storage space for a lot of these boxes, well to the tune of about 2 million boxes in Port Said and Damietta in Egypt. Just a thought.
[00:18:34] Speaker B: Well, thank you very much for that. I do also want to mention that we are going to be releasing a podcast on Africa's role in global logistics in collaboration with DP World.
And we also have a very exciting announcement coming up to do with the podcast that you are listening to right now. That's news in brief, of course, but you will have to stay tuned to find out what that is. Thank you both for joining me this week.
[00:18:54] Speaker A: Thank you very much, Charlotte.
[00:18:55] Speaker B: And thank you everyone for listening. We'll see you next time.
