Episode Transcript
[00:00:00] Speaker A: Hello and thank you for joining us on News in Brief, this podcast. We are going to be rounding up last week's supply chain news. And coming up, we are going to be recapping updates to the escalation of conflict in the Middle east, what this means for supply chains and what it means for rates in both air and sea. We're also going to be taking a little look at some tariff updates and a strike from one major airline.
And we have a slightly different episode this week in that I'm going to be joined by some unfamiliar faces. I am also going to be joined by Alex Lenane a bit later on in the episode. But as I mentioned last week, we want to get some new guests on to offer some fresh perspectives. But we are still going to be talking about the main news from last week. So let's get into the episode.
The first of my guests for this week's episode is Marco Forgioni, Director General of the UK Chartered Institute of Export and International Trade. Hello, Marco. Thank you very much for joining me on the podcast today.
[00:01:01] Speaker B: Charlotte, good day and it's a real pleasure.
[00:01:05] Speaker A: So I guess the main thing that we need to talk about is the rapid escalation of conflicts in the Middle East. We saw this pick up at the end of February, February 28th, I think it was. So how are things looking this week? What's the current situation?
[00:01:21] Speaker B: Well, it's changing on a minute by minute, hour by hour basis. You know, we've heard overnight of more attacks on shipping going through the Strait of Hormuz that seems to increase even during the day. So the disruption, the uncertainty and the instability is just increasing. And this afternoon, the newly elected leader of Iran has announced that he has every intention of continuing to stop and prevent shipping transiting the Strait of Hormuz. So, so I think things are escalating and not in a good way, and that the global supply chain, the integrated supply chain, is being really significantly strained and we're seeing that reflected in the global markets.
[00:02:09] Speaker A: Yeah, it was a bit of an unfair question to ask you, to be honest, because by the time this is out, the situation probably will have changed again. But what are we seeing so far in terms of impact on trade? I mean, do you think supply chains are now set up for this kind of volatility?
[00:02:23] Speaker B: No.
[00:02:24] Speaker C: So
[00:02:26] Speaker B: the restructuring and realignment of some integrated supply chains and value chains has been able to respond and to divert, find alternative routes. And we're seeing that the price of air cargo has gone up dramatically, the shipping prices have gone up, and there's a real lack dearth of containers available and indeed for bulk carriers the additional supplies pretty much exhausted.
These are all kind of short term immediate issues. I think there is a much more significant medium term challenge which will come about through the inability to ship LNG liquefied natural gas and crude through the Strait of Hormuz. About 20% of global supply comes through. And the difficulty that is emerging now relates to container and being able to store the LNG and the crude oil that can't get out through the straight because once that storage capacity reaches maximum limit then you have to shut off production.
And it's not like switching a light switch. You know, if you shut down production it takes a long time to restart that production. And with regards to lng, there are key byproducts that come as a result of the processing both LNG and crude oil. And particularly relevant for LNG is helium.
And helium is important not just for birthday balloons. Helium is a vital partner in the development of microchips, processor capacity, for medical devices, for a whole range of consumer products and more importantly components around automotive and high tech manufacturing. And with pretty much 20 to 30% of global supply disappearing, that's going to have an impact on everything from mobile phones to televisions and beyond. So I think that there is a medium term, much more significant medium term challenge because of the constraints that we impose through lack of helium and other chemical products.
[00:04:57] Speaker A: Yeah, for sure. I mean the ripple effects are going to be absolutely huge.
Another topic that we've been covering a lot so far for the last year really has been tariffs. Obviously we had the decision that the IEPA tariffs, the IEA tariffs are going to be refunded. I think currently the CBP said that they don't have processing capability for this, but they are working on that. So perhaps the refund thing will kind of go on in the background. Although I'm sure probably in the forefront of a lot of people's minds right now. But I think the most important thing in the short term is this 15% global tariff that is going to come online I think sometime in July.
So have we seen any kind of changing behavior because of this extended tariff threat? Do you think people are near shoring or front loading? I mean we actually had a report last week that said, I think based on the DHL Global Connectivity Index that basically said that actually near shoring isn't happening on the scale that people are talking about and supply chains actually becoming more stretched. What are you seeing from your perspective?
[00:06:04] Speaker B: I think that's your Research is spot on. I think the reality is at the level that the talents UK businesses but global, most of global supply into the US they'll be able to adapt and tolerate the tariffs for the benefits of having access to the US market where there's still a great demand for imports. And you look at the balance of trade, the growing balance of trade deficit that the US has, you can see that imports are still flowing in.
So I think what's happened, we've seen a readjustment both to pricing and, and a little bit to the structure of the global supply chain. But that hasn't impacted with regards to lots of business in saying we're now no longer going to trade with the us. Now that may all change, of course. A couple of points I think are interesting. You mentioned of course, the refunds.
The reality is the US administration has themselves declared it's going to be many years before any repayments or any refunds will be made, if any at all. Now there are businesses that are pursuing that and undoubtedly have to go through a legal process.
But I think for most businesses it'll be a long time before any refunds materialise. I think the more important piece, and this is something that we raised at the time, is that President Trump will use the period now between the shift to the amended tariff rate and it's ending the 180 day period to start to exert additional pressure to secure bilateral trade arrangements, including a tariff rate for imports nations. And we saw last night that that is exactly what's happened. So section 301 in investigations into a range of nations, including China and India and the EU as a trading bloc have been initiated and undoubtedly the result of that will be a finding of unfair, perceived unfair trade practices by those nations, by the trade bloc of the EU and therefore the right for the administration to impose additional tariff rates on either specific sectors or indeed blanket tariff rates against those organizations, but those nations or the trading bloc. So we're going into a period now of even greater uncertainty and instability with regards to global supply chain, not just because of what's happening in the Middle east, but by that very deliberate use of trade as a geopolitical weapon to put right what President Trump perceives as decades long abuse of America by its trading partners. So unfortunately, I'm afraid to say that we are going into a period of even greater uncertainty and instability, not just because of the world, but also because of the trade policy of the U.S.
and ongoing uncertainty in global supply chains and the disruption of technology. So it is a period of almost generationally defining uncertainty and instability and realignment as we have a President in the United States who is very muscularly and very determinedly picking the global multilateral system that's grown up over the last 50 years.
[00:09:41] Speaker A: And here I was thinking that things could not possibly get more uncertain than they were last year. You constantly learn new things in the logistics industry. So Marco, thank you so much for all your insights and yeah, lots and lots of moving parts this year. Appreciate your time.
[00:09:55] Speaker B: Pleasure.
[00:09:57] Speaker A: My next guest is a familiar face for this podcast. I am joined by the Lodestar publisher, Alex Linnane. Hello Alex.
[00:10:04] Speaker D: Hi Charlotte.
[00:10:05] Speaker A: Alex, in light of everything that is going on, we just had a brilliant update from Marco. He said of course, that things are more uncertain now than ever. What are things looking like in air freight? What's the latest there?
[00:10:19] Speaker D: There's quite a lot going on as you would imagine.
Mostly there's a lot of new workarounds being put into place which just it's the logistics industry at its finest as ever.
First, we're seeing that forwarders and airlines are booking a lot of RFS road freights in the Gulf region, particularly in Saudi Arabia for road air services.
Saudi operators are really busy. So Saudi Arcargo has activated a new Sea to Air logistics route via Jeddah Islamic port which is allowing cargo to arrive by sea and then transfer quickly to air freight because essentially at the time of recording the UAE is all but cut off really. So Saudi is such a key port at the moment, otherwise capacity is pretty tight. So Qatar is still operating kind of single digit numbers of flights in the day we've heard.
I won't ever be able to get this confirmed, but we've heard that Emirates is operating flights after being in touch with all the actors in the area, including Iran and the US to find out when it's safe. Again, I can't confirm that, but that's what we understand.
Aman Air is doing. Its best business is normal. It's trying to get hold of a narrow body freighter to try and do some local freight operations.
Gulf Air has relocated its aircraft from Bahrain, which was the airport was hit and so it's moved its aircraft to Saudi and DHL has moved seven freighters from Bahrain as well.
And then non Gulf operators have also cut a lot of services. So cargolux, Air France, klm, Lufthansa, Cathay, all of them really.
IAG in fact said it won't fly to Abu Dhabi for the rest of the year. So that's something interesting.
So it'll be Interesting to see how all this plays out in the long run, particularly for the Gulf carriers and sort of the world's dependency on them. Really. I think it's been rather a shock to the system.
[00:12:21] Speaker A: Yeah. And it's very important, as you say, to make the distinction that this is all at the time of recording, which is the afternoon of Thursday at 12th March.
Alex, in light of all of this and the fact that a lot of aircraft can't fly and this tightening of capacity, what is happening to rates?
[00:12:38] Speaker D: Well, yeah, just before we came on this podcast, I had a quick look at freightos terminal for its fax rates, and I've looked at the last 10 days. So since March 2, so Southern Asia to Europe has seen the biggest rise. Rates are up 67% and they're up 56% to North America.
Southeast Asia to Europe is up 23% and to North America it's up 24%.
Greater China to both regions is not quite so significant. So it's up 3% to North America and 8.5% to Europe.
But along with all the rate rises, perhaps more importantly is rising fuel costs. So jet fuel globally is up 59% in a week, with Asia seeing the biggest rise, up 77% and the Middle east up 74%.
Europe's up 58%, North America up 47%.
But this is now, of course, translating into fuel surcharges. And several airlines have started announcing fairly hefty fuel surcharges.
And the other major cost is war risk insurance, which we're hearing is now quite substantial, but I'll need to find out more about that one.
As a result, basically, costs for shippers are skyrocketing.
And we spoke to Global Shippers Forum James Hookham this week, and, yeah, shippers are pretty cross.
[00:14:02] Speaker A: Yeah, these price increases are absolutely huge. I went to a Flexport webinar and they were not only advising people to get capacity up to like, three weeks in advance, because obviously no one knows how long this is all going to go on for. But they advise shippers to be in very close communications with their forwarders and carriers and basically set thresholds and say to their forwarders, look, if costs go up 30%, 40%, whatever you can afford, basically just agree to that ahead of time so that the forwarders can make these decisions and get your cargo moving as quick as possible. They said to extend current contracts if you can and let carriers basically impose surcharges, is what they were saying. If you need your cargo moved in a very timely Fashion.
[00:14:44] Speaker D: That's really interesting. We also had, Sorry, this isn't shipping, but we also had a really good story about forwarders saying that their cargo, this is mostly, as I say, seafreight, just being dumped absolutely anywhere by the carriers and then charged for storage.
So there's going to be. It's a bit like Covid. There's going to be a lot of angst between carriers and shippers. I think at the moment.
[00:15:06] Speaker A: Yeah, I mean, carriers are able to get away with a lot, which, yeah, is very interesting. And I guess as all this consolidation happens, I mean, if Hapag Lloyd manages to acquire in, then there's even less choice for shippers. So, yeah, lots and lots of moving parts.
[00:15:19] Speaker D: Many.
[00:15:20] Speaker A: And before we take a look at how this compares with ocean freight rates and what has been on premium this week, I want to take a look at some news on the ocean freight side of things. So this is the ongoing development to the Panamanian ports saga that we have been speaking about for the past few episodes. So, as a bit of background, in February, temporary management of Balboa and Cristobal terminals were handed to APM and MSC's terminal operating arm, respectively. Sorry, GAV usually covers this. This is more his area of expertise. But I'm going to do my best.
Panama Ports Co. Filed a claim under the International Chamber of Commerce seeking 2 billion in compensation for what it said was the unlawful seizure of its port operations. And then this week, Costco suspended its line of services to Panama's Balboa port in what is believed to be a retaliation for for the Panamanian government's revocation of Hong Kong based CK Hutchinson's port concession. Bit of a mouthful. Maersk and MSC were also called in for separate talks with the Chinese Ministry of Transport regarding their international shipping operations, which is very vague. There was not really any confirmed information or details to the outcome of this meeting, but there is speculation that China might attempt to leverage Maersk and MSC's business exposure in China. As I say, this is not confirmed. A lot of speculation and I'm sure GAV will have more to say on this next week. Finally, Alex, while I still have you here, are you able to give us a look at what was on premium this week, please?
[00:16:56] Speaker D: I can, yeah. There's a really good insight on the sort of inner workings of msc, which is quite a private carrier, as it happens, but yeah, really worth a read. And there's a look at debt at Amazon Scan Global's quite disappointing results and what may be the future for it.
And A nice call from our resident lawyer on what happens when AI makes mistakes in a customs declaration, which is something that might be affecting a lot of people.
And of course there's a whole lot more, but those are the ones. My top picks I would say.
[00:17:31] Speaker A: Thank you very much, Alex. Great to have you on the podcast as always.
[00:17:35] Speaker D: Thanks Charlotte.
[00:17:37] Speaker A: Now with all of this in mind, I am joined by chief analyst at Zeniter, Peter sand to talk us through what is happening on the ocean rate side. Hello Peter. Thank you very much for joining me on the podcast today.
[00:17:49] Speaker C: I sure utmost pleasure. Not from the submarine, but from the office.
[00:17:55] Speaker A: Well, it's great to have you on and it's been a very, very busy week. I can only imagine that with oil prices rising, capacity tightening, a lot of air freight routes aren't available.
I mean are rates going up? Surely they're going up. What's on the zenitha platform this week?
[00:18:11] Speaker C: Yeah, I mean if you look at air freight rates which we're not talking about now but, but they are as you could imagine, going sharply up, we see a little bit more of a muted effect as up until now on, on ocean rates. But, but we know from, from early Senator data also that we will see quite a correction in the market in a few days because it's only just trickling through. You mentioned the oil prices going up obviously. But if we look at where we are right now, let me just conclude that, that the market is a little bit split this week. We have seen freight rates from, from far east into, to the US east and west coast softening somewhat this week mostly into the US West coast down some $36 per 40 foot container sitting right around $2,100 on our average. Right. And it's, it's driven down to some extent also by I would say four week running now with carriers offering quite low levels of capacity. Right. So, so that's of course the one thing that, that make rates move capacity against demand. And I think one thing for sure, demand into the US is really weak at the moment. So, so that's, that's keeping a lit on on the Trans Pacific rates currently.
But next week. Yeah, let's see where they're going. We know that more services will come live at that point in time. But Charlotte, let's just cover also those rates into Europe because of course the Middle east crisis evolves by the day. And if we look at some of the early data that I alluded to just before, let me give you a sneak peek into what our customers also know by now.
Far east to north Europe looking at some $4,000 in a few days, if not already Far east to Middle east looking at $5,000 right now. It's not the market average, I can tell you, but as you will also be aware, during times like this we really see massive volatility, an opening of the spread for what customers are actually paying their forwarders and carriers. So rates slowly but steadily climbing into Europe by approximately 2% from.
And yeah, that's going one way for sure.
[00:20:32] Speaker A: Well, when we started this year, it really seemed like shippers were going to have the upper hand. I mean, has this changed the fortune of the carriers? Do you have any advice for people who are moving freight right now or even contracting?
[00:20:44] Speaker C: Yeah, we got a complete reversal of fortunes with the strikes beginning in Middle east because, well, I think Gavin did go to tpm, right. So, so he, he probably literally saw the tables turning, right.
Carriers now with the upper hand, they are in no rush. They see rates elevated short term market more than anything in the foreseeable future. At Senator, we anticipate this, this elevated level and volatility also in, in the wake of it to last for up to four months. Again, it's still, I'm sorry to say, early days for this crisis. It may just drag on and we saw that also with the strategic Petroleum reserves being released only last week. Right, sorry, earlier this week. Right. So, so hey, the advice to, to, to customers is be sure to assess your options. Right.
And, and that of course regards to cargo already being underwater to, to. To how do I actually sign a contract? And it seems as if say the bid and ask spread in the market between shippers and forwarders and carriers have really opened up a gap again. So how do you bridge that? Well, I think index link contracts, you have been talking about that also multiple times in the podcast. That's probably the one thing that could bridge it right now, benefiting both buyers and sellers up freight. So that's one key advice. And then of course also be very much on top of your own requirements when you talk to overly busy forwarders and carriers trying to solve the immediate challenges.
[00:22:23] Speaker A: Definitely. Well, as you said, it is very, very early days. So I'm sure there's going to be lots more to come on the ocean freight dynamics for the rest of the year and we will certainly be very, very busy. Peter, thank you so much for joining me today.
[00:22:36] Speaker C: My pleasure, Charlotte.
[00:22:38] Speaker A: So there we have it. Thank you for staying tuned throughout the episode and thank you very much to my guests this week, Alex Marco and Peter it's been a real pleasure chatting to you all. And yeah, once again thank you for listening, watching and if you are watching on YouTub, like share, subscribe, comment, all of that good stuff. You know the drill by now. It really helps us out. And do let me know again if you would like to feature on News in Brief. We would love to have some fresh perspectives talking about the week's news and we will see you next episode. Thank you.
