Episode Transcript
[00:00:00] Speaker A: Foreign and welcome to the Lodestar Podcast. News in Brief we're going to be recapping all the main events from last week's supply chain news and there was a lot of them. We weren't sure if we were going to do a News in Brief this week just because Gavin and I got back from TPM25 last week and we were just exhausted. The thought doing this really was like, it seems like quite a task, but there was just too much that happened last week to ignore. So we are going to get on with it. Just briefly, Gav, how did you find tpm? What were the main talking points that.
[00:00:36] Speaker B: You I found it was intense.
I mean it was really long hard working days, a news cycle that has just seems to have gone into overdrive and some really blurry evenings. I found myself completely wrong footed by the strength of some of the cocktails those days. Anyway, that aside, I mean fascinating wasn't it? For me, I think the chief one was Sorentoft and his Q and A session and I thought it was very interesting that he really broke down the effects of the US Trade Representative and the proposed actions under the 301 rule, which just to remind everyone is a proposal to charge any Chinese built ship, of which there are lots and lots in the world, of course, a million dollars per U.S. port call. So Sorento wrote that down and this is the effect that it will mean on the Asia US East coast route, typically 8 to 15,000 TU ships, they will then normally make four port calls on the US East Coast. So that would be 4 million per extra voyage and that breaks down to around an extra $800 per 40 foot container. So that's a significant hike in itself. On the transatlantic it would have a huge impact. So there you've got 4,000, 5,000 TEU ships. Again, the services generally call at four US ports. When you work it out it would be $2,000 per 40 foot, which is effectively the current freight rate. So that's a hundred percent increase in rates. So unless shippers and by extension US consumers are willing to pay these extras, the only option for carriers is to reduce port calls and this will lead to secondary ports like Oakland on the west coast or Jacksonville, Boston, Philadelphia, Baltimore will basically be removed from shipping schedules and then the cargo that would have gone to those ports will instead be funneled through the major hubs. LA Long beach on the west coast, possibly Seattle, Tacoma on the east coast it's going to be New York and then one of either Savannah or Virginia and putting all that cargo through those ports is then going to lead to port congestion. And here's the law of unintended consequences, because as soon as you get congestion ramping up in these ports, the carriers come along and apply port congestion surcharges.
[00:03:00] Speaker A: On that as well. At the Hapag Lloyd press briefing that I went to on the Monday at 7:30am, someone asked Rolf Haben Jensen how much of their fleet would be exposed. He said it was about 25%. And someone said, have you done a back of an envelope calculation how much this is going to cost you? And he was like, no, we haven't bothered because nothing's in stone yet. And it could all change. Although I don't know how true that necessarily was.
[00:03:25] Speaker B: I mean, I think Mr. Stoff's conclusion was he said, look, I really hope that this regulation, if it's introduced, is at least forward looking so that they're not being taxed on investment decisions that were made anything 10 to 20 years ago and we're not being penalized for making mistakes when we didn't even realize that they were mistakes. So you kind of hope that some kind of sanity might prevail to this because. Because once the regulators start to see through the implications of it, it's only going to affect them. So that was my sort of chief takeaway. But how did you find it, Sherlock? It was your first?
[00:03:58] Speaker A: Yes, it was my first tpm. Honestly, I loved it. I had a great time. I've only ever been to air freight conferences, so it was really nice to meet so many new people. I think the main themes that I noticed were contracts basically being pointless because everyone breaks them. All the experts have given up making predictions because it's impossible and no one knows what's coming next and everyone is desperate for reliability. So really looking at the Gemini partners to deliver, which currently they are on their 90% promise, although it's still very early days. We also had a Lodestar podcast from the TPM floor drop last week and I saw Mike King, our podcast host, going around and collecting lots of insight from some really exciting guests. But he was very, very busy. So defo, go and have a listen to that.
[00:04:40] Speaker B: He did a great job. Yeah, sorry, busy. You're right, it was 301, it was tariffs, it was new networks, Gemini rates, sourcing locations and schedule reliability, just to name a few.
[00:04:50] Speaker A: While we were there, as well as keeping up with all these panel discussions and interviews, there were also some other major news items which we had to report. Obviously Trump introduced the 25% tariff to Mexico and Canada as promised, plus the additional 10% on China on top of their already 10%. Then at the end of last week that was revoked for Mexico and Canada for anything that falls under the USMCA trade agreement. And this will probably have changed again by the time this is published, so let's not spend too long on that. There was also the news about TIL and Hutchison which you predicted would happen. Gav, what are the details and what does this mean for the market?
[00:05:24] Speaker B: Okay, so I mean I have to say my prediction was a rather tongue in cheek assertion that I thought MSC would buy Felixstowe. I certainly didn't think that they would buy what amounts to almost all of Hutchison, but I probably should have been paying more attention because of the entrance of blackrock. I'm just going to do a quick timeline for you and I'm going to make it as quick as I possibly can. In January 2024, BlackRock, world's largest head fund, $3 trillion worth of assets under its control, bought an infrastructure fund called Global Infrastructure Partners, which are very well known in the port industry. That was a 12 and a half billion dollar deal. So now TIL Terminal Investment Limited is 60% owned by the Aponte family, the owners of MSC, 10% owned by the Singapore, Singapore's sovereign wealth fund GIC and 30% by GIP, global infrastructure partner. So effectively BlackRock has become a 30% shareholder in TIL, which I wrote at the time. MSC has effectively been given a golden ticket to the world's largest Cash Point. Sorry listeners, Cash Point is an atm. So suddenly there's a lot of money behind msc, should it want to invest. Now, in November last year there was the news here in the UK that Maritime Transport, the UK's largest container hauler, had been acquired by Emersig, based at Felixstowe in a separate development. But we're not sure how related it is. It was announced by the Gemini Partners that they would be leaving Felixstowe and calling it London Gateway instead. And at the time I had said, well, Felixstowe has become a real MSC port. And it wasn't a great leap of the imagination to suggest that MSC would be interested in buying Felixstowe. And then suddenly you're right. On Tuesday last week this thing came through and the first news reports on it were all focused on the fact that TIL was buying the Panama Ports company. But when I looked at the investor thing and actually read at the full impact of it, it was no, this isn't just Panama Ports Company. That's only one part of it. This is actually 43 ports around the world. It's effectively everything in Hutch's portfolio except for its Pearl River Delta operations in South China and the mainland Chinese terminals. In terms of what it means to the market, we're still very much unpacking it. Worth bearing in mind that the seller and the buyers have agreed a sort of initial price of it was 22 point something billion dollars. But there is 145 day negotiating period in the UK. It's pretty simple, right? Felixstowe becomes MSC's home port on the edge of the EU, but outside the ETS scheme and so on elsewhere. I mean, I'm still drilling down on this, but just a few observations. You know, they're quiet. They'll be getting a big terminal in Barcelona. Right. But what happens? At the moment, most of MSC's traffic on in, on the Western Med goes through Valencia, very nearby. So how will it rationalize there in Australia, they basically become one of the three main terminal operators in the country. In Mexico, they become the largest operator. In Rotterdam, they become the largest operator. But then what happens to Antwerp? Because just as I mentioned in the Med, traditionally in Northern Europe, Antwerp has been MSC's base port. But now they're getting half of Rotterdam. Say, how will they figure this out? I don't know. The deal also includes a 30% shareholding in Port Klang in Malaysia. So then what happens to MSC's terminal in Singapore? There's areas where there might be considered doubling up bits that they might want to rationalize. I don't know. It's an extraordinary deal. Yeah.
[00:09:01] Speaker A: You seemed very stressed when they announced.
[00:09:04] Speaker B: Yeah, yeah. Well, my king laughed at me at the time. He's like, gav, you've been waiting for this story for 20 years. And he was spot on.
[00:09:11] Speaker A: Well, also towards the end of the week, CMA CGM announced a $20 billion investment in U.S. maritime transportation and logistics. They plan to expand the U.S. flagged fleet of APL from the current 10 vessels to 30 vessels. But they didn't mention vessel sizes. They will also develop port infrastructure in locations across the US such as like New York, Los Angeles, Miami. And they also plan to develop more warehousing and air freight capacity. What do you make of this, Gav?
[00:09:38] Speaker B: We worked out that they've got 10 US flagged ships at the moment. They said 30. So the calculation here is that they're going to build 20 ships in four years in the United States. I just don't see the capacity that the country has to be able to do that, I mean, Matson have a five ship order for $1 billion with, with, I think it's Philly, the Philly shipyard, that's been four years or something to complete those. So how you're going to build 20 ships over four years, I just can't see it happening. I get the reason for it, you know, and it's geopolitically, it makes sense, but I just don't see how they're going to be able to fulfill on this. Unless, for example, could they get a special waiver to have some of those vessels built in South Korea, Japan, traditionally US allies. There has been, I think in the Ship Ships for America act there was a proviso that for a certain number of years carriers would get an exemption to have the vessels built outside of the US but would then be US flagged and crewed by US individuals. That's pretty much the only way I can see that shipbuilding target being met.
[00:10:51] Speaker A: Well, it'll be interesting to see what they figure out. Hopefully there'll be some more details to come sooner. And I'm also now joined by Alex Linnane. And Alex, you were holding down the fort here while we were off in Long Beach. What happened in the world of air freight?
[00:11:05] Speaker C: Well, it's been a lot quieter here than it has for you guys and I'm really interested in the fact actually you enjoy TPM more than you enjoy the air cargo conferences. I think you said there was a bigger pool of people, more senior speakers, is that right? Did you enjoy it more?
[00:11:20] Speaker A: Yeah, I think it's probably because it's my first one, so it was just a bit of a change. I find it's quite repetitive at the airline conferences. It can be, yeah. But yeah, I wouldn't say I enjoyed it more. It's just. Just different.
[00:11:31] Speaker C: Yeah, very polite and diplomatic as ever. So, yeah, here of course, it's all been about tariffs. So let's start with the de minimis exemptions. Ironically, right now the likes of Shane and Tamu and so on are still not paying any tariffs, while other Chinese exporters are. Now the de minimis exemption is going to continue until the Customs and Border Protection has worked out a new process for the billion plus parcel entering the US from China. Now, it's been told to come up with a solution by April 1, but industry experts are saying it could take several months, if not more to install and activate the systems. But not being ready has not stopped Trump before. So we'll, we'll see about that.
[00:12:12] Speaker A: I actually got some insight on this at TPM from Cindy Allen and she is the CEO of Tradeforce Multiplier and an ex Executive Director of Automated Commercial Environment for the cbp. I asked her if the CBP is ready for all the extra processing that comes with additional customs checks and here is what she had to say.
[00:12:30] Speaker D: I worked with them in the automation area, so from an automation perspective, they are very well prepared to deal with the implementation of the tariffs. The systems that they have are very advanced and they're able to make those changes literally overnight. So I'm not worried in that aspect. Where I do have concerns are the enforcement, the outreach to the trade stakeholders, answering questions, being available for implementation issues.
That's really where I think CBP is going to be challenged to meet that demand right now.
[00:13:04] Speaker A: So I'm sure lots of people will be eagerly awaiting what is decided for the de minimis rule as that will definitely have a huge impact on a lot of businesses. Alex, you actually had an article on how the farmer and perishables markets have so far responded to all this trade uncertainty. What did you find?
[00:13:19] Speaker C: Yeah, we've had a couple of articles on it last week. So US Pharma businesses are looking to move production back to the US. Eli Lilly has announced plans to spend $27 billion on four new manufacturing facilities there, but it's going to take five years to get them going, so it's quite a long way off. If pharma moves back to the us, it could have an impact on international air freight for sure. And then we've been looking at the perishables market for the very brief period when Mexico was facing 25% tariffs and of course may do again. African perishable exporters began to worry that Mexico would look to send its product to Europe instead of the US which is where Africa sends its products. Ocean transport from Mexico to Europe is more viable for perishables than it is from Africa to Europe because of the whole Cape of Good Hope delays. Air freight out of Africa is expensive and lacking capacity.
And Mexico could, for example, supply most of Europe's high demand for avocados. Presumably they're now flowing smoothly back over the Mexican U.S. border and satisfying California's millennials. But as with everything that could all.
[00:14:31] Speaker A: Change, there were also a few financial results last week. Anything interesting there?
[00:14:35] Speaker C: Yeah, Kooner, Nagel, dhl, Lufthansa, cma, cgm. There was a lot last week. I'm not going to go into all the detail, but overall with a very broad brush, I would say that they were slightly disappointing I'm glad that last.
[00:14:49] Speaker A: Week was the week we're away. As you know, I hate doing the financial stuff. How have air freight rates been holding up?
[00:14:55] Speaker C: Well, we're just now starting to see the impact of the very brief end of de minimis exemption in the numbers. All the major rates platforms are now showing a fall in demand from China to the us. Shippers and forwarders are thought to be holding off, making block space agreements now and longer term contracts. They're playing the spot market and the hope presumably that rates will drop. And there's also some uncertainty from airlines who are looking to finalise their freighter summer season networks. So if there was, say, a big rush towards Vietnam, where people may be, you know, looking to avoid tariffs, that could result in overcapacity and low rates. It's a difficult kind of waiting game for them, to be honest. The transatlantic's quite strong, but then the summer season belly capacity will start to come in. The signs are starting to show really about these tariff uncertainties. We're going to get a roundup from Chinese companies this week to see how the feeling is right now there and what the future may hold because there's so much noise coming from the US that in fact we're not properly concentrating on what's actually happening in, say, Eastern markets. So that's going to be my plan for the week, is to find out how people in Asia are feeling rather than constantly reporting on tariff changes from the us. What did you hear from shippers at tpm?
[00:16:11] Speaker A: Well, I spoke with one shipper after a session on advice for moving sourcing from China to India and he was telling me that their company is really interested in that move right now. I think everyone at the moment is just kind of in that wait and see mentality, like you said, but it's not ideal for supply chain planning.
[00:16:28] Speaker B: Not at all.
[00:16:29] Speaker A: Does keep things interesting, though. Gav, what are the rates telling us on the ocean side? I read a bit from lionelitica last week that said MSC and the Premier alliance had been withdrawing Trans Pacific Services to stem falling freight rates. Did this work?
[00:16:43] Speaker B: Well, I think, as Lars Jensen said during the TPM in a couple of sessions that he was in that the sort of the withdrawal of capacity is really difficult at the moment because everyone's reshuffling their networks. So the traditional thing of blanking some sailings in order to try and prop up rates really isn't sort of working at the moment. Lars was saying don't mistake weak freight rates for a weak market. That was said with the proviso that one, there was no recession in importing countries this year and also that the Red Sea remains closed transit because you know that sucks up a considerable amount of capacity. That said, last week we saw end of 13 weeks of consecutive freight rate declines on Asia North Europe and Asia Mediterranean. So There were some GRIs brought in by the carriers from the 1st of March and the spot rate levels on Drury's WCI were 1% up on Asia North Europe and unchanged on Asia Mediterranean. So clearly, clearly that has at least halted the declines for one week at least, and that's normally as a result of the GRIS and sort of more aggressive pricing. What happens in the following weeks? I don't know. My experience of previous rate wars would be that we will now see a few more weeks of falling rates and new GRIs set for sometime in early April which will sort of level it off again. This tends to be what happens until demand and capacity are more evenly matched. The rates continued to slide on the Trans Pacific. They were down 9% into the West coast and down 6% into the East Coast.
So those declines are continuing. That's it really.
[00:18:21] Speaker A: Gav, thank you so much for joining me.
[00:18:23] Speaker B: Thank you very much for having me, Charlotte.
[00:18:32] Speaker A: So now we have finally recapped everything that happened last week. Here is what you might see on the Lodestar this week. Gav and I still have lots and lots of stories from tpm. There was just so much content that I'm sure you'll be seeing insights from that for quite a while on Monday. This week there is set to be a warning strike from members of German trade union Verdi demanding wage increases at Frankfurt Airport, Europe's leading hub for air cargo. The airport warned last week of massive disruption to flight operations. This is a one day warning strike so we might have a report on the impact of that depending on how big it ends up being. There are also a few webinars this week. On Tuesday Flexport are doing a freight market update and Transport Intelligence are doing an air and ocean freight rate tracker also on Tuesday, so tune into those if you're interested. Otherwise I'm sure we will be covering the highlights on theloadstar.com this week. We will also have a report on Zim's full year earnings and there is probably going to be a lot more noise coming from the White House. Truly, who knows what will come up at this point all you can do is keep checking the news and we will keep you updated with everything you need to know. Thank you so much for joining me and I'll see you next time.
