Episode Transcript
[00:00:00] Speaker A: Foreign Good morning and welcome to the Lodestar podcast. News in brief. We're going to be rounding up all the main points of supply chain News from week 13 and this episode is sponsored by Air Charter Service, the aircraft charter broker of choice for thousands of shippers globally. So if charter is the answer to your shipment, then contact Air Charter Service for a no obligation quote. The start of last week saw a very exciting update from something that I have been monitoring for a while and that is South Africa's logistics network, in particular its port and rail sector. This is largely operated by government owned Transnet who have neglected funding in the sector for decades. That's left the country very far behind in terms of what it can offer shippers. But on Monday last week, the government initiated steps to remedy this with a request for information to gauge interest in from private sector investors and an outline of where that investment would go. One of these points was the push for South Africa to become a popular transshipment destination. Submissions closed on the 9th of May. So this is an ongoing process but very positive for stakeholders. Now another party that had a positive week was Chinese state shipping line Costco that reported bumper profits in 2024 like all carriers. Gav, can you give some insight please?
[00:01:25] Speaker B: I can try.
There was no surprise that it made a profit because everyone has been as you mentioned Charlotte, but it did see a 10% volume growth which was well above the market average of 6%.
It probably reflects its servicing of Chinese exports. So we heard at TPM in Long beach that while trade growth grew 6%, Chinese containerized exports, exports in 2024 grew 11%. So it's particularly strong year and a lot of those exports were Inter Asia traffic as well as obviously to the US and to Europe. It's often overlooked how important the inter Asia trade is to carriers, especially to the Chinese carriers. It's about twice the size in terms of volume of the Trans Pacific or the Europe Asia trade and sort of serves to remind that even with all the noise and stuff going on at the moment that there are other container trades out there. Right. And there are other places where carriers can make money. Over all of this of course we've got tariffs and we've got the US Trade Representatives proposed 301 rule. Certainly the second of those legislations is directly attacking the Chinese shipbuilding industry. Chinese shipbuilders are largely state owned. Cosco is largely state owned. It has a huge number of Chinese vessels in its fleet. I'm sure that most of its orders are placed with Chinese yards and it will be one of the most vulnerable should the US Trade representatives proposals actually become reality.
[00:03:04] Speaker A: Yes, that brings us nicely onto last week's main focus which was of course the hearing from the US Trade Representative for the proposed 301 rule that threatens to slap Chinese built vessels and Chinese carriers calling at US ports with fees of up to $1.5 million per port call. The two sessions took place Monday and Wednesday last week and we reported that the proposal was met with lots of criticism from stakeholders fearing that the fees would make US product uncompetitive. Alpha Liner had a very interesting bit of data from last week about which of the top 10 carriers would be worst affected by looking at their US port calls in February and what percentage of these were completed using Chinese built vessels. So zim, cma, CGM and COSCO would be the worst hit by fees on Chinese built tonnage, while Evergreen and HMM could be unscathed because a lot of their tonnage is Korea built. Interestingly, MSC had a similar number of impacted port calls to Zim. But Alphaliner said that MSC is better equipped to switch Chinese built ships to other trades and replace them by vessels built in other countries due to just the sheer size of its fleet, while ZIM has just acquired lots of China built vessels on long term charters. But who knows if this proposal will even materialize. The U.S. trade Representative will now be reviewing the testimonies and written submissions to determine the appropriateness and feasibility of the proposed actions. But we don't have a timeline yet. Definitely one we and I'm sure everyone else will be following very closely. More from the White House last week and this time targeting the automotive sector. Alex, who is going to be impacted by this?
[00:04:46] Speaker C: Well, pretty much everyone to be honest. It's a 25% tariff on all finished vehicle imports, so that's mostly going to affect Mexico, Canada, Japan, Korea and Germany. Eight million cars were imported into the US last year and if the tariffs are passed on per imported car, it will add about $37,600 to the price of a car in the US which is quite substantial. That's according to the investment bank Jefferies. So analysts are forecasting a 30% decline in demand for cars in the U.S.
now that is going to impact transatlantic and Trans Pacific volumes. Head of Automotive at Geodesk, Sander Van der Meer told us last week that to save money, car makers are going to start looking to use sea freight instead of air freight where possible. But the more complicated tariff I think which is set to be introduced on May 3, is on autopilots so given the integration of the automotive industry, especially in North America, this will be pretty far reaching and very difficult to manage. But there is of course still a day or two for Tran to change his mind or let some countries off. So as ever, we're just going to have to wait and see.
[00:05:57] Speaker A: Wait and see, yes. Something else that we've been following very closely is schedule reliability. We touched on Gemini's early figures a bit in last week's episode, but Gav, I believe you had some numbers from the other carriers.
[00:06:10] Speaker B: Yeah, there's some really good companies out there doing schedule reliability figures. Sea Intelligence Easy. So we had figures in from one of those that confirmed that the Gemini carriers got off to a very reliable start. I mean, it's still early days, but they counted a 94% scheduler reliability from origin.
I thought it was particularly interesting that the study also looked at the other alliances and noted that in the same period, MSC's reliability was at 79.6% and the Premier Alliance's was at 60.4%. So across the range there's been some pretty good performances from these new groupings, shall we say, as they sort of bed in. Interestingly, compared to all of this, the Ocean alliance, which has largely remained unchanged, its schedule reliability was at 54.1%. While shippers who are still on the remaining the alliance and 2M services, because obviously there's still a bit of time while those are being phased out, their reliability was in the sort of high 40s. I should say it is really early days. I know we're all really keen to see how Gemini does and whether they stick to their reliability targets, but Charlotte, it's a bit like judging a marathon after the first 100 meters.
You know, as everyone says, that the proof will be in the pudding. There's a very, very long way to go.
[00:07:39] Speaker A: They did say. They did say by the second half of the year that's when it's going to really start to kick in on the reliability front. So that is when we will be paying a lot more attention to it.
[00:07:49] Speaker B: That's absolutely true. I mean, we'll really get into the meat of it in the second half of the year. Also, of course, last week we saw the first proper announcement of blank sailings, with MSC announcing six blank sailings on their eastbound Trans Pacific services. There's a couple of points on this. Firstly, just in terms of schedule reliabilities, it always reminded me that blank sailings won't show up on the schedule reliability figures because if a sailing didn't happen. You can't measure it.
That won't come as any great solace to shippers who suddenly find that the ship that they're expecting to leave that week isn't being left. That can. They have to find another one. But you know, that's just by the by. We have been saying for a number of weeks that we expected blanks to start being inserted because spot rates have been declining. And I think really the big question that we will probably see being answered this week is how the other carriers and the other alliances may respond to msc, particularly on the Trans Pacific.
So I would expect that there will be further blank announcements this week from the other shipping lines and vessel sharing.
[00:09:02] Speaker A: Agreements now shifting the focus from sea to air. And this would be a good time to remind everyone that this episode of the News in Brief podcast is sponsored by Air Charter Service. Now Air Charter Service have a network of 34 offices worldwide and 650 aviation specialists. So that means that Aircharge servers can always deal in your preferred language, time zone and currency no matter where you are located, which is very, very useful in the business of supply chains. I can imagine Air Charter Service teams are available 247 to help you with your charter requests so that they can find the perfect solution for you very quickly and efficiently, which again is perfect for supply chains. If charter is the answer to your shipment, then contact aircharge Service for a no obligation process. Quote Alex, you had a really interesting story last week regarding Canadian carrier Westjet and some upcoming changes to its cargo arm. I understand you've spoken to some sources to get this information. What did they say and was this expected?
[00:10:04] Speaker C: Well, yes, it's been on the cards for quite a while to be honest. Westjets didn't take the force freighter that it was going to have. But let's start at the beginning. So Christian de Bruyne left Qatar airways to head WestJet's cargo department, although I understand it did take her quite a while to get a visa. WestJet had ordered freighters in the COVID era but struggled to get certification from Transport Canada.
So essentially the capacity arrived as the pandemic was ending. So that left the no cost airline in a spot of bother really. They definitely tried and there was quite bizarrely quite a lot of press attention on WestJet and they did try several things. They did a deal with Flexport for Backhor to China, but nothing really worked on a year round basis. I don't want to get into sort of personal situation, but I do understand that Christian de Bruyne is moving to the US now and has quit WestJet Cargo and that its three freighters are now being shopped around. This would have come of some disappointment to the CEO Alexis Tom Hunsbridge, who was, you may recall, CCO of Lufthansa Cargo for a while, so he's got good cargo credentials. WestJet still has a cargo sales team in place and has recently done a BSA with Virgin Atlantic to sell their daily capacity from Toronto to Heathrow. So WestJet is still in the game, but it has lost its head of cargo and is shortly to lose its freight as we expect.
[00:11:32] Speaker A: Well, something slightly more positive. Air freight carriers seem to have a new best friend after their e commerce volumes could be in doubt in the wake of looming de minimis and tariff changes. Can you explain a bit more please?
[00:11:45] Speaker C: Yeah, sure. I mean, it's not really replacement traffic as such, but semiconductors and servers are now one of air freight's key commodities. Obviously the growth in AI and so on. There's a lot of demand at the moment, but they are challenging to carry. They can't be knocked around or bumped, there can't be vibrations, they need temperature control and they're pretty expensive so no one wants to hurt them and they need careful handling. So Qassar Airways Cargo announced that it had developed a product which protects servers and semiconductors. I asked Casao a few questions and head of Car guy Mark Drusch responded really fluently. On the semiconductor market, there's huge growth in part because of the CHIPS act in both the EU and the us. There's changes to the EU one coming, we expect.
And of course in the US the CHIPS act is now in doubt because Trump seems to prefer the stick to the carrot, so he's now eyeing tariffs on foreign semiconductors rather than incentivizing production in the us. But whatever he does, huge amounts of investment is now going into the UN semiconductor industry and it could be quite a reliable source of volumes for carriers if they do it right, of course. I also spoke to Robert van der Beg, who's a real man about town in the world of freighter airlines, sees Ex Cargo, Lux Atlas, abc, klm. He's done it already. Anyway, he's now left ECS Group and gone back to his beloved airline world, taking on the CEO role at Mass Air in Mexico. I'd really encourage listeners to read the article that we posted last week. Anyway, he said that semiconductors are certainly part of his business, but not huge. They mostly do perishables. But he's now working on A global network of partners. So I would say Mass Air is definitely one to watch. More so than WestJet now.
[00:13:36] Speaker A: Anyway, finally looking to rates, how is it in air?
[00:13:40] Speaker C: I think it kind of depends who you ask to be honest. Demerco put out a report last week and it said the market had looked a little rosier out of Asia Pacific because shippers wanted to move goods before the end of quarter. But it said it had seen block space agreements and charter cancellations. World ACD meanwhile, said that rates had mostly risen, but the volumes had fallen in the third week of March, interestingly, Siva Logistics announced it was offering a freighter charter on a 747 from Wuxi in China to Chicago. It kind of does make you wonder why. Where was this capacity previously? Was it on an E Commerce charter?
[00:14:21] Speaker A: Was it.
[00:14:21] Speaker C: Why has it just announced this route? It said it was offering the service in partnership with the airport, which in China can mean that a flight is being subsidised by the region. So I'll be interested to see how long this charter operates for and whether there is sufficient demand for it. Anyway, overall demurco said it was expecting a weak market through to June and to be honest the summer's pretty done anyway, so it'd be weak for a while. It also said it expected capacity to move to intra Asian routes which are actually holding up quite well. But as with everything right now, it's pretty unpredictable and shippers, as we wrote last week, are having to make some pretty hard choices about who pays tariffs, whether they try to avoid them, whether it's going to impact demand. So there are many, many factors in play at the moment.
[00:15:08] Speaker A: Yeah, very interesting port shippers. I feel terrible for them. Finishing off with ocean now finishing off with ocean freight rates. We had a report last week that Europe to East Asia box rates were plummeting with low backhaul demand and that carriers are surviving on still moderate westbound rates. And one forwarder had even told the Lodestar that they'd been offered a rate of just $7 for a 40 foot high cube container and another had been quoted just $1 obviously before add ons like the ETS or other surcharges. So what are the rates doing overall? Gav, do you have any numbers you can share?
[00:15:43] Speaker B: Of course. Let's start with Head hall because that that sort of is easiest to get out the way. Head hall is obviously the high demand route. So for shipping that's Asia to Europe, it's Asia to North America, it's on the transatlantic, it's North Europe to North America. So on the head haul routes, Asia, Europe, Asia, North America, these were all down single digit declines on last week. There were indications. However, this is on the wci. WCI measures rates paid in the last week. The Shanghai Containerized Freight Index. The SCFI measures quotes made in the last week. And on the SCFI there was a 1% increase on Asia, Europe and I think it was around sort of 10 to 12% increases on Asia to US West coast and Asia to US East Coast.
So that would indicate that the rates will either stabilize or should show some kind of upward movement next week. And that would chime with a series of general rate increases that are being implemented on Both trades on the 1st of April. Not an April Fool's joke, that's for real. But what we generally see in these kind of periods of freight rate weaknesses is you'll see two to three weeks of sliding rates and then an announced GRI which temporary halts a slide or even pushes up slightly and then the following weeks the downward trend is resumed. And this looks to be a continuation of that on the backhaul trades. I mean, $7 is absurd, but we checked that and we checked it again and our sources were adamant that that was the rate that they had been offered. Although on the WCI this week the backhaul rate from Rotterdam to Shanghai was actually up about 7%. But it's still only $500. Right? So it's only 20 to 25% of the head haul rate I'm going to end off with. If I may just. I'm just going to give you a direct quote from a forwarder because obviously we took that $7 rate one saying that it even been quoted $1, right? And so we took that to a load of our contacts and said, what do you think of this? One chap replied to us, open quote marks it's reality, which is unreal, but that's reality. I mean, how can you move a container 100 yards for $1? But that's the fucked up freight commodity market based on supply and demand. One year it's $20,000. Leave it a few years accounting for inflation and it's $1 for the same service and movement. Bonkers.
[00:18:29] Speaker A: That sums it up perfectly. Thank you very much, Gav.
[00:18:32] Speaker B: You're very welcome, Charlotte. Thank you very much for having me on once again.
[00:18:41] Speaker A: Now we have nicely summarized last week's supply chain news in one neat little podcast. Here is what you might see on the Lodestar this week. Obviously this week marks the start of April, which is crazy. I feel like March has just gone so quickly. But this also means the possible implementation of lots and lots of tariffs in the us. I'm going to put an emphasis on possible there because as we all know by now, this is very subject to change. On 2 April, Donald Trump has said that there will be multiple tariffs coming into effect. This includes the recently announced Automotive Import tariff of 25% like we mentioned earlier, and the Reciprocal Tariff act where the administration will examine the arrangements with all the US's trading partners and determine an equivalent reciprocal tariff for each of them. Now when the latter the reciprocal tariff was announced mid February, the White House said that within 180 days the Director of the US Office of Management and Budget will assess the fiscal impacts of the reciprocal trade and tariffs plan and deliver an assessment in writing to the President. So technically this should be a lot further away. But Trump has since said that this will be implemented on the 2nd of April. Please bear in mind that this was on a post on Truth Social, so yet to be seen and highly likely to change. So perhaps expect some yo yoing. Alex Whiteman, I'm sure will have some stories from his visit to Rotterdam with Maersk. He reported last week that Maersk bidding for the same volumes as forwarders was described as healthy competition. So it's a very good article. Definitely go and give that a read from last week if you haven't. And finally, some of you may have noticed that we've started a pop up survey when you enter our website. Last week's question focused on contracts and where shippers are placing which of their volumes on spot or contract right now. So hopefully we will be sharing the responses with you this week. Very exciting stuff. Thank you so much to you our lovely audience for listening this week. Thank you also as always to Alex and Gav for their additions. And finally a big thank you to Air Charter Service for sponsoring this podcast. I will see you next time. Goodbye.
