[00:00:00] Speaker A: Hello and welcome to the Lodestar podcast News in Brief, where we are going to be rounding up all the major points of last week's supply chain news. We have been on a brief two week break but we are now back and ready to deliver all of the main highlights of the news. And in this episode we will be discussing the supply chain impacts of the recent news of the two week ceasefire between the US and Iran, plus a look at how the air freight market has responded and of course, a look at the latest freight rate developments.
Later in the episode I will be joined by Avian's head of consulting, Martin Boermer. But currently I am joined by a returning staple of the Lodestar News In Brief podcast, Gavin Van Maal. Hello, Gav.
[00:00:48] Speaker B: Hello Charlotte. Nice to be back.
[00:00:51] Speaker A: It's great to have you back. And obviously the big news from last week that we must discuss is the positive news of the ceasefire between the US and Iran. This is two weeks and it includes, includes the de facto opening of the, of the Strait of Hummus. This was announced, I should just say, because it's probably going to change by the time this episode is out, but this was announced yesterday, which was Wednesday 8th April. We are currently recording on Thursday 9th April, and talks between the US and Iran are supposed to take place this coming weekend. So Gav, what is the situation looking like? Is this having any impact on shipping at the moment or is it simply too early to tell?
[00:01:32] Speaker B: I think you probably answered that almost just, Charlotte. I mean, you're right, the base case that we're working out is that everything's probably going to change by the time this podcast is released and probably, in fact by the time we've actually finished recording it today. Right, yeah, so it's so. But I mean, you know, that said, you know, there's been a trickle of bulkers and tankers which have passed through Hummus since the supposed ceasefire to add to the trickle beforehand, which were mostly sort of uranium vessels, apart from of course the CMA CGM Kribi, which managed to sneak out last weekend, reportedly by sort of hugging the Omani coastline.
I mean, I think, you know, as far as the wider container sector goes, Charlotte, there haven't been any real changes on the wave, so to speak. And there's good reason for it because as you said, it's still early days and since most of the carriers have sort of begun to re accept bookings to the Gulf, but via the sort of Gulf bypass ports such as Jeddah and Corfican And Salalah, they'll probably concentrate most on those until the Hormuz situation really sort of calms down.
The quote that I have selected that really sums it up I think is from Zenita's head analyst Peter sand, who said the conflict has displaced 250,000 TE of weekly container shipping capacity and carriers of a lot of effort and expense into establishing alternative routings to allow goods to flow into the region. You don't suddenly toss that out of the window because there's a two week ceasefire. So, you know, end quote. And you know, and according to zenitha data, weekly capacity into Jeddah and King Abdullah Port, those are the two big Saudi facilities on the Red Sea coast, has increased 19% as carriers introduce new services to. Into what? The Gulf land bridge.
So you know, there's been a lot of effort, time and effort put into that to continue these goods going into the Gulf populations. We've talked about that on previous podcasts.
And so in any case, my assumption is that when container shipping lines feel that it is safe to send their ships through the Strait, that it'll actually be the major, the priority would be getting the ones that are currently stuck there out because I think those crews really need to come out of the region.
[00:04:06] Speaker A: Yeah, it sounds like it's quite a similar situation to what we had with the Cape of Good Hope reroutings where I mean carriers have found these alternatives, they've bedded them in and you know, we've seen that if they've tried to go back through the Red Sea and the Suez Canal, that it's completely backfired. So yeah, I think we probably will see what we're seeing at the moment for quite a while. But obviously this is a positive step for one shipping line though it's been quite devastating. So what are the detail?
[00:04:33] Speaker B: Yeah, so this is a story on Singapore headquartered Sealed Shipping. So Sealead they launched operations in late 2018. They then saw very fortuitous because they then saw tremendous growth during the pandemic with what we called at the time sort of opportunistic niche services which set up all over the place to scoop up demand that couldn't find space on the main deep sea carriers vessels.
And as the pandemic came to an end, it sort of switched its focus to the fast growing Asia Middle east trade.
So you can probably see where this is going.
However, there is one further sort of twist in the tale and that is mid last year, 16 of its chartered vessels were accused of sort of sanction busting activity in regards to Iran by the. By the us. By the us.
The company returned all its vessels to, or turned all of those vessels to their owners, but still has a Department of justice case hanging over it.
And meanwhile its operated capacity, and this was noted by Linolytica last week, has fallen from a high of 208,000 TEU shortly before it redelivered those 16 vessels in the middle of 2025 to 62,000 TEU capacity today, which is across just 14 ships. So it's, it's quite a reversal in fortunes frankly.
[00:06:06] Speaker A: Yeah, that is quite a drop. It's interesting, I was reading a report by market consultant Braemar earlier this week and they said that there are market rumors that Sealed is actually going to cease operations. I mean they didn't name Sealed, they said one shipping line. But I think we deduced from the were talking about Sealed and they kind of suggested that if, if this were to happen then all the ships that it currently operates are going to have to seek re employment. Which will be great for carriers because other carriers in the market, because we've seen so far this year that despite all the volatility, carriers are still trying to snap up secondhand capacity. But it's been quite slim pickings. I mean there's only so much secondhand capacity to go around. So if, if Sealeed does cease operations then yeah, we might see lots more moves on the secondhand container market.
[00:06:51] Speaker B: Probably. Probably have to have a quick sort of look at the. The ownership structures of those. Are those vessels owned? Did they say?
Are they Sea Leader?
[00:07:00] Speaker A: I believe so. I think they said. They did say that there's already some rumors that they have found re employment on some of them.
[00:07:06] Speaker B: Right. But rumours very interesting. Yeah. It's a very constrained market. Any, any extra tonnage will be much welcomed by the other carriers, I should think.
[00:07:16] Speaker A: Exactly. Something we'll definitely be watching.
[00:07:18] Speaker B: Yeah, yeah.
[00:07:20] Speaker A: And now to take a look at the current state of the air freight market, I am joined by Avian's head of consulting, Martin Vormer. Martin, thank you so much for join on the podcast. It's great to have you here.
[00:07:32] Speaker B: Yeah.
[00:07:33] Speaker C: Hi Charlotte. It's, it's indeed great to be here. So appreciate, appreciate the invitation indeed.
[00:07:38] Speaker A: Thank you very much. And I know that it has recently just happened, the news has just broken a few days ago and it's still very, very uncertain. So it's quite mean of me to ask you, but do you have any indication of the impact of the two week ceasefire on the air freight market? Can we expect any Normalization anytime soon.
[00:07:57] Speaker C: Yeah, that's hey, you're indeed being tough with a billion dollar question. Indeed. But no, I think it's, hey, it's going to be super interesting to watch sort of the air freight market over the coming weeks and months.
But indeed, I think hey too, to also answer that question, let's also look back at sort of what has happened since the conflict started because effectively we've, we've now lost for the past five and a half almost six weeks, we've lost almost six percentage points of expected air freight growth every week globally. Right. So that means that for the full year we would now be looking at sort of a 1 percentage point decline in global capacity growth. Right. Remember that at the start of the year we were expecting 5, 6% growth. So we've lost now 1 percentage point of that. So that's already a big impact. And then indeed, yeah. What, what have, what, what might this ceasefire do in my view? I think, I think normalization is still very, very far away for, for many different reasons. And obviously fuel is, is one of the, one of the large, large driving forces there with indeed shortages being being reported in different parts around the world. And it will simply take time before that is, that is being restocked. Even if the Strait of Hormuz opens.
I recently looked at the tanker sailing to Rotterdam. It takes 39, 40 days to get there. Right. So it'll simply take a long time before those volumes are reaching the destinations.
So that'll keep fuel prices extremely elevated.
I think now in Asia it's about 160% larger, higher than it was last year. So that is obviously making big, big, big impacts on networks, on carriers, et cetera. So before that normalizes, I think, I think that'll take time, way more than the two weeks ceasefire.
[00:10:08] Speaker A: Yeah, definitely. I mean everything is so uncertain and that's been a theme throughout the whole of the year. So yeah, I can't imagine that that would change anytime soon. Now, aside from the conf the Middle east, are you seeing any kind of regular seasonality patterns? I mean, are there any lanes or verticals that are showing us particularly strong or is everything just completely skewed by this external volatility that we.
[00:10:31] Speaker C: Yeah, it's a mix of both obviously.
But hey, maybe, maybe starting with sort of the, indeed the, this skewed piece. Right. So Asia, Europe is obviously heavily disrupted because of the lack of capacity to the Gulf. There's more indirect flying now, so people are changing their tech stops along the way to Europe.
There is like I said more direct flying in itself between Asia and Europe, which also means very long flights. Right. Because a lot of airspace on the way is actually closed.
So that impacts payloads.
It also impacts fuel usage, which is amplified by the, by the fuel rates. Right. So, so from a capacity perspective that is, that is really, really obviously the big lane or the big corridor where, where we do see a lot of changes in terms of the other sort of regional trade lanes.
Yeah, it's, it's, it's in line with, with what we saw last year. So there's not too much, too much difference difference there.
There are however three verticals I would like to point out and those three are effectively the perishable goods, the E Commerce business and the data center related goods. And I want to highlight those three for basically different reasons. So with the high fuel prices, perishables are definitely most exposed because of their relatively low value density, the low value dollar value per per kilo of perishables. So hey, I know that that vertical is really very much under stress of those increased fuel prices. So expect an impact on volumes there.
Hey, from, from an E Commerce perspective.
E Commerce, hey, looking back at last year, it grew 16% in terms of volumes for the first two months of this year it actually followed that trajectory almost the same at 13% growth.
But a big underlying driver there is that the value density of E Commerce has been going down. Right. So the sort of the growth in weight is indeed driving it, but not so much the growth in value. So what that means is that lower value density also potentially makes that vertical relatively more susceptible to the higher fuel rates.
So it's interesting to monitor and to watch that space to understand what will happen if these fuel rates continue to be elevated for longer. And then thirdly from a data center related goods perspective, that vertical was already the driving force or one of the two driving forces last year in terms of volume growth and also because they're high value of the goods, expect that to also definitely continue for the time being even despite, I would say the high fuel prices. So those were the three verticals that I think are indeed important to watch because of their size and also their difference and how they might be susceptible to the current situation.
[00:13:57] Speaker A: Yeah, I think the E Commerce one is particularly interesting because obviously there's that change in de minimis regulation in Europe that's coming up later in summer. So yeah, that's obviously going to make it more expensive.
So that will definitely be an interesting vertical to watch for the rest of the year. Martin, thank you so much for joining me on the podcast today. I really, really appreciate your time.
[00:14:16] Speaker C: Yeah, perfect. Thank you, Charlotte.
[00:14:18] Speaker A: So, Gav, with all of this in mind, what is the latest with the ocean freight rates? I know that over the past few weeks, obviously we haven't been recording the podcast, but we've had various articles about shippers complaining about multiple war risk surcharges that weren't transparent. I mean they had no idea exactly what they were being charged for. And also we've seen carriers kind of stacking bunker fuel surcharges that are supposed to be included on index linked contracts. I think that's the very nature of them, that all the surcharges are built into the cost. But then some carriers were kind of putting these over the top of index linked contracts. So a lot of perhaps shifty business going on with surcharges, which obviously meant that freight rates were very high.
What is the current situation? I assume that the latest rate data won't have registered the ceasefire. So what are we seeing at the moment?
[00:15:12] Speaker B: Yeah, it's a kind of murky picture just on your thing there about the surcharges. They shouldn't be added to index linked contracts. That's absolutely true. But they can be added to fixed rate contracts when it's. Yeah, that's, that's just to sort of clarify that the.
And they were, and you're right though that they were being added to index link contracts already in certain cases because we know we had, we had some legal, a lawyer confirming that he'd had cases of that passed across his desk. So anyway, back to spot rates.
I'm still of the view that actually the closure of Hormuz doesn't really matter as far as.
I mean it does matter and the whole thing in Iran matters gravely, but it doesn't really matter as far as the main deep sea trades, the Trans Pacific, the Asia, Europe, it doesn't really matter apart from the fuel cost issues. And that's. Well, you know, obviously that's going to have an effect on fuel prices when you take out 20 to 30% of global supply.
But anyway, as far as the rates go, as far as the actual rates go, really it's quite irrelevant.
Here's the evidence to prove it. I mean, jury's dubbed World Container Index is just out as we speak.
Rates were down to North Europe and the MED by 9% and 3% respectively compared to the week before, while on Trans Pacific they're up 9% to LA and 7% to New York. Right, okay, so that's Quite different movements on those two big trades. Now according to one of our sources on the US west coast, these increases were largely driven by the implementation of new fuel surcharges. And the timing works on this if you sort of calculate it because it's been just over a month since the conflict began and Hormuz closed, the FMC still requires 30 days notice of new surcharges. And that ignoring carrier, please, I mean carriers have spent the last, have spent March going to the FMC and asking that 30 day notice period to be reduced to two weeks, but they were, that was turned down. So these fuel surcharges, the emergency fuel surcharges were eventually applied this week. Right. And that's why the W, that's why the Trans Pacific WCI is up, but the Asia Europe one is down. And to further underline this because the Asia Europe one's been already applied. Yeah. And to further underline this, look at the WCI's Rotterdam New York route. Right. This week. Okay. Now this is the famously stable transatlantic trade where rates barely budge an inch and yet this week we've seen the spot rate jump 25% against previous REIT to bring it up nearly up to $2,000 per 40 foot. So and that is a movement almost unheard of. Now Drury's analysis claims that capacity on the route has been reduced by 13% against last month. But I would also argue that as it's an FMC controlled or FMC regulated trade, that the new fuel surcharges also played the part, played their part in the increase that we've seen there this week. So to conclude, right, spot rates, as in just the rate for the freight is actually still in a weak place, but freight costs thanks to the war, are on the rise.
[00:18:52] Speaker A: Right, okay, so now that there's this ceasefire, can we expect to see these costs going down soon? Probably not.
[00:19:00] Speaker B: Right, well this will be the thing, so it'll be interesting to see the. How quickly carry if the fuel prices come down quite quickly and you know, I don't know, I don't know enough about fuel to know whether that's the case or not and how quickly it takes to get refineries back up and so on and so forth. But if they came back, you would expect on the more dynamic trades that the fuel searches, fuel surcharges would be reduced. But a lot of the carriers review their bafs on a quarterly basis and I wouldn't be in the least bit surprised to find that, you know, BAF levels that reflect today's elevated fuel prices remain in place for a number of weeks after the conflict finishes and the prices come down because carriers will be saying, yeah, yeah, no, don't worry, we'll be, you know, we review our BAF levels quarterly and we'll be doing so when the next quarter arrives. Call me a cynic.
[00:20:00] Speaker A: Well, I look forward to the next earnings reports. I'm sure it'd be quite interesting to tune into some of the calls and hear the Q and A. I mean,
[00:20:10] Speaker B: there's no doubt that the carrier's costs have gone up massively, haven't they? I think Hapag Lloyd, CEO of Rolf Hapn Janssen was talking about an extra $50 million that have been added or basically taken away from its balance sheet as a result of this. So, you know, they do, they will have to recoup these high prices. It's just a question of how long they recoup them for. I think is.
[00:20:32] Speaker A: Yeah, yeah.
[00:20:33] Speaker B: Whether it's a case of recouping or just cooping.
[00:20:38] Speaker A: Just cooping.
Finally, could you give us a recap of what has been on the Lodestar Premium this week, please?
[00:20:46] Speaker B: Sure. Well, obviously truncated week because it's the first week back after Easter and the Lodestar, we have a bank holiday in the UK on, on Mondays, but, but it's been another cracking week.
So we had a fantastic double header analysis of the Hutchison vs. Mers case in Panama and why it doesn't seem to be extending to msc. We had a behind the scenes look at why Russia is contemplating banning all foreign carriers from its container trades.
There's a guest column from the WiseTech CEO Zubin Apu and a deep, deep, deep dive into the Amazon versus US Postal Service versus UPS package delivery scene in the United States.
So it's great stuff.
[00:21:30] Speaker A: Deep, deep, deep, deep dive, Deep dive.
[00:21:32] Speaker B: It's a big one.
[00:21:33] Speaker A: Gonna have to go and read that.
[00:21:34] Speaker B: It's a long read. It's a long read. Make yourself a cup of tea and a couple of slices of toast and snuggle down to read about Amazon versus the United States Postal Service.
[00:21:45] Speaker A: That sounds like a brilliant evening. Well, on that note, I'm, I'm off to go and put the toaster on, so I will speak to you episode Gav, thank you so much for joining me. It's been wonderful to have you.
[00:21:57] Speaker B: You're so welcome, Charlotte. Thanks very much.
[00:21:59] Speaker A: So that is all we have time for on this episode. Thank you so much for joining me today and of course thank you to my guests, Martin and Gavin. I really hope to see you next
[email protected] thank you for joining me.
