Episode Transcript
[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 main points of last week's supply chain news. And in this episode we are going to be taking a look at an update to the conflict in the Middle east and what this currently means for container shipping and air cargo. We're also going to be obviously taking a look at rates in ocean freight and air freight. And we are going to be taking a look at news of a step forward in the tariff refund process. We're also going to be examining the upcoming implementation of Article 295 of China's revised maritime code and what this means in practice. But before we get into the episode, I need to ask your help with something. We are taking a look at what the real impact of AI on the supply chain is for forwarders and Customs brokers in 2026. So if you could take a few minutes to fill out our State of AI survey as a thank you. You will get the raw data and exclusive early access to the final report before launch. If you could take a look at the show notes and fill out that report, that would be great. Thank you so much. Let's get into the episode. Foreign.
My first guest joining me for this podcast is director of Supply Chain Advisory at Drury, Chantal McRoberts. Chantal, thank you so much for joining me today on the podcast.
[00:01:19] Speaker B: No problem.
[00:01:20] Speaker A: Glad to be here to start the episode. Are you able to give me a Middle east situation update as it currently stands, I should just say we are recording on Thursday 16th April at about 5.30pm in case anything changes.
We are currently day nine into the two week ceasefire. So how are things looking at the moment?
[00:01:39] Speaker B: Well, obviously it's a really, really fluid situation with something happening. Well, every minute of every day it feels like at the moment I think, you know, we tend to look at it in three ways when we're trying to figure out what's going on. We're looking at it from operational perspective. So what are the impacts on operations? What are the impact on costs? So that's fuel related obviously. And then for shippers, what's the impact on rates and carriers actually, and we're tending to bucket it all in those three areas. So we sent an update out to our ship community on the 15th of April and the key takeaways were, you know, operationally since the ceasefire, only a handful of container ships with a few carriers, mainly CMA and Cosco, have transited the Strait of Hormuz.
And it confirms that carriers are still really reluctant to return, as is any vessel operator, because it's just not deemed to be safe. Obviously, since the start of the conflict, we've seen the ocean carriers curtailing the number of port calls in the Middle East. I mean, that is to be expected and increase the number of port calls to a degree in Southeast Asia. But they seem to have kept them relatively stable at the main transshipment hubs, which we thought would change.
Unsurprisingly, we've seen, you know, port calls at the likes of Jebe Ali collapse and, you know, they've been adding a few substitute ports, such as Corfu Khan, to try and absorb the existing flows within their existing networks.
Obviously, it's really fluid and the carriers, you know, for all their faults, are doing a really great job of keeping the cargo still moving. From an operational perspective, perhaps one of the more sort of contentious issues is how they've been dealing with the increase of fuel costs.
Obviously, the marine bunker prices have continued to rise and fall since the start of the conflict. On Monday 13 April, after the ceasefire, the average global bunker price stood 64% higher than the day before the conflict started. But that was actually a partial improvement from the peak of the 19th of March, where it was absolutely up 92%.
Obviously, we can't rule out any other rises and falls. We're seeing them every day. If you're tracking shipandbuncrun.com, you'll see that happening. And obviously any change in sort of geopolitical strategy is having a direct impact on those fuel costs. But we have seen shippers adopt a number of different strategies. So we're seeing some switching from quarterly bafs or bank bunker adjustment fees to monthly to negate the emergency BAFT charges that have been levied upon them. We've seen some negotiate those and then some accept them. So, you know, we're seeing lots of different strategies happening and they're ongoing post ceasefire. But I think one of the main interesting things that maybe we're not touching upon, which is impacting shippers as well. We've seen emergency inland fuel surcharges being applied to the pre and the post carriage moves and we don't know how they're being monitored, you know, in terms of, you know, who's dictating what that levy is and when does it come off, so. So, you know, lots of different things happening in the market, even in a ceasefire.
[00:04:44] Speaker A: Yeah, definitely. I mean, the fuel issue really does seem to be like the biggest one at the moment. And as you said, it is very, very fluid. So I really don't want to get into kind of crystal ball territory. But I attended a webinar last week with some of your colleagues. It'll be this week, but yeah, last week by the time this goes out. And they kind of outlined two scenarios and I thought it was really interesting. They kind of, it was lengths of time that this conflict could go on for and what it could mean for supply, ch and rates. So what is Drury anticipating for each of these timelines? Could you, could you outline them for me, please?
[00:05:18] Speaker B: Yeah, of course. Because we don't know how long it will be before the hormones is fully opened. We have done two cases. We've done a short term case lasting until the end of June. So that's effectively our short term disruption option and that is now our base case. So when you see a jury forecast, that's what it's running off of.
We have a prolonged disruption case lasting 12 months, so effectively running until February 2027. We're regarding that as a pessimistic case. In that event, under our base case, short term disruption would result in a little more than a temporary spike in freight rates driven by the higher fuel surcharges, a modest dip in global volumes, and some demonstration of supply chain resilience hitting quite quickly. Under our prolonged disruption case, we can see that would be far more far reaching, impacting everybody.
It would drive oil prices up exponentially. It would deliver a severe shock to the global economy. It would trigger a toxic mix of energy and food shortages, rapid inflation and most likely global recession.
Under that scenario, global trade would contract, geopolitical tensions would intensify, and basically we would be in a dire situation in container shipping. Obviously we are reissuing our forecaster every quarter, so we will be monitoring the situation like everybody else and adjusting our base case and pessimistic case accordingly. But at the moment, we have downgraded our expectation for container port throughput growth to 1.8% from 2.2 in February. Obviously, any further escalation is going to force us to make a bigger downgrade. And under that pessimistic case, I don't really want to say the numbers out loud, but demand growth could sink to between 0.5 and 1.3% globally. So, you know, that's pretty dire for the industry.
[00:07:16] Speaker A: Yeah, definitely. What I thought was really interesting that one of your colleagues was saying is that obviously this isn't like Covid, where the demand went up at the same time as the disruption. I mean, this would completely sink demand. And as we know, this is one of the main drivers of rates. So how are rates looking at the moment? I think we've kind of heard for the past few weeks that actually spot rates aren't that high. It's just the fuel surcharge is making the cost so much. So what are you seeing on the Drury platform at the moment?
[00:07:42] Speaker B: So it's been a. You know, you're absolutely right. This is a very different situation to Covid.
You know, underlying the container industry is normally supply and demand that drives that which is intrinsically linked to the global economic outlook. So any impact on the global economic output will impact the numbers from a supply side. And as I've just alluded to, this is not a boost growth scenario. This is quite the opposite actually.
Recently on the spot rates, obviously we've seen them surge because they're looked at on an all in basis. So that includes the fuel, which is what's triggering, I think, you know, post ceasefire the bunker prices fell 9% in terms of relative to the rates. But obviously the rates rose 1%. So we're seeing, you know, the direct impact this week we've actually seen the WCI drop by 2.7% and rates on Asia, Europe and the Transpac both falling about 3%. So we've within that. That's probably being driven by those falling fuel prices. But it also demonstrates that demand is really soft, particularly on trades like Asia, Europe.
The demand just isn't there and we still have the issue of excess capacity on those trade lanes.
[00:08:56] Speaker A: Right. And Drury actually runs some tenders on behalf of shippers. So what are you seeing from that aspect? How are you recommending that shippers approach bids at the moment?
[00:09:05] Speaker B: Well, based on our recent experience, we confirm that, you know, or we can confirm that going to bid can still secure base freight rate reductions or more favorable base freight rates than last year, should we put it like that? But obviously shippers need to be aware that the bunker surcharges are going to be higher right now and for the duration of disruption. So although it shouldn't be the driving force of whether you go to bid or not, if you have to go to bid, you have to go to bid. Obviously you've got to file with the fmc etc, you know, it is just being mindful of how you handle that BAF element within your tender. So whether that be that you have it on a costly basis or you've switched it to a monthly monitoring or you are thinking about negotiating on your EBAFs, those things can still go ahead and you can still do all of that. But we would recommend to focus on that pure ocean base rate. Don't let it get all lumped in together because you'll, you'll, you'll lose that negotiation position on the base rate. But, you know, from what we've seen, shippers are still getting favorable rates, particularly by the end of their bids. Maybe not at the beginning, but certainly by the end. That has been coming through on the tenders that we've been running.
[00:10:17] Speaker A: I mean, that's good, that's good to hear a little bit of good news then.
Chantal, thank you so much for joining me. I really appreciate your insights on the podcast today.
[00:10:25] Speaker B: Okay, great. Thanks.
[00:10:27] Speaker A: My next guest today is a familiar face for the Lodestar News In Brief podcast. I'm joined by Alex Lenane.
[00:10:32] Speaker C: Hello, Alex. Hi, Charlotte.
[00:10:33] Speaker A: Alex, before we jump into the air freight side of things, I want to ask you about a maritime story from last week that could be quite an important development. This is the upcoming implementation of Article 295 of China's revised maritime code, which is effective on the 1st of May. Now, I'm not going to get into all the legal jargon, but this will have implications for governing law, jurisdiction and enforcement in international shipping contracts. Do you have any details on what this means?
[00:10:59] Speaker C: Yes. I mean, it is quite technical, but it could have some real importance to people who are shipping to and from China, which is many, as we know. So from 1st of May, the Revised Maritime Code in China is going to give Chinese ports more scope over how international shipping contracts are handled, particularly where it comes to sort of jurisdiction enforcement.
So even if a contract specifies another governing law, there's a greater chance that it could end up being dealt with in China instead of the other country.
And that's raising some sort of concerns across the industry about legal uncertainty, especially for foreign carriers and foreign cargo owners. So it's definitely one that people are starting to watch quite closely. It's quite dry, so I'm not going to go into all the details, but it's important for contracts. And you can find out more on the loestar.com Exactly.
[00:11:54] Speaker A: And I have sent a few questions out to some of my legal contacts. So we might have some more on this next week. Now, Alex, I want to ask you about something that I'm sure most of our listeners this is exactly the reason they've tuned in. This is what most people are interested in. Are you able to give us a situation update regarding the conflict on how air freight is being impacted currently. Like, has the ceasefire allowed for any reprieve in the air freight sector?
[00:12:15] Speaker C: I'm glad you said that. I thought you're going to ask about the conflict in general and. No, I'd rather not. But in terms of air freight, that's a bit easier. It's more of a stabilization than a recovery, I'd say.
So the CESAR has taken some of the immediate shock out of the market, as has time, I guess we're seeing capacity start to return on some lanes. So the Gulf carriers have definitely regained their confidence. I'm getting emails that Emirates, Qatar, they're operating, if not normally, then a lot more than they were before.
There's more capacity between India and the Middle east, which has eased rates on those lanes a little bit.
But the underlying issues haven't really gone away.
The biggest pressure point is fuel.
So prices have surged during the conflict, as we all know, and although they've come off a little bit, they're still at very elevated levels.
There is ongoing concern about fuel availability, especially in parts of Asia where there's export restrictions and supply chain disruption.
We're seeing numerous carriers cut frequencies or routes, although, I mean, that's the world over. But it's mostly for their domestic market. So it's not so much going to hit air freight capacity at the moment, but it is showing that they are worried about what's coming up this week. On Wednesday, I think it is. The European Union is going to publish guidelines and recommendations on fuel shortages and what can be done.
So overall things are a bit calmer, but the market is still very much under pressure and it's not back to normal.
[00:13:50] Speaker A: Do you have any of the recent rate numbers for us? I mean, last week we had Avian's Martin Volmer on the podcast and he said that normalization is still a very long time away, as you said. I mean, presumably the rising fuel costs are the main driver of these high costs.
But do you have any kind of idea of what, of what rates are looking like? I mean, we just heard from Chantal McRoberts as well say that the ocean freight rate spot rates are actually pretty low if it wasn't for the fuel surcharges put on top. So yeah, I'd be curious to know what this is looking like in air.
[00:14:20] Speaker C: Well, one, thanks to Martin for doing my job last week. Much appreciated.
Yes, global air freight rates are up again last week about 1.4% and they're nearly about 20% higher than a year ago in general, which puts them at kind of peak season levels, which is all wrong for this time of year.
So Martin's point still holds. We're still a long way from normalisation and what's driving those rates is a combination of high fuel costs, disruption and constrained capacity. But it's a very uneven market. So China origin routes still very high, Europe is a bit more mixed and the US is softer now on some lanes, but we're seeing some extremes. Tacindex pointed out that Heathrow, for example, it's seeing rates up more than 70% year on year. So, yeah, that's the key takeaway. Rates are still high, fuel surcharges are high, and what's more, it's all pretty unpredictable and it's leading to a lot of volatility for shippers who, you know, are having, as ever, a really tough time.
[00:15:23] Speaker A: Yeah, I mean, unpredictability and volatility seem to be the two words that keep cropping up this year.
I mean, at the start of the year, I thought this was all going to be to do with tariffs. So, yeah, this has just come out of nowhere, really. I mean, while there are still many big unknowns to do with this, we did report last week that shippers who have been in the dark about the tariff refund process after the US Supreme Court ruled Trump's IPA tariffs unlawful now might have a defined pathway to submit their refund requests. What are the details? Are things looking a bit clearer?
[00:15:53] Speaker C: A little bit clearer, yeah. There is definitely some movement there. So what's happened is that importers now have a defined process to submit refund claims. US Customs is about to activate a thing called Cape, I think next this week to handle refund processes at scale. So from a technical point of view is fairly straightforward. Companies upload their entries, their data, and if it passes basic checks, it moves into processing.
But the big gap is sort of what happens next, because there's no real clarity on how those claims will be assessed, what evidence might be needed, what legal standards might apply and so on. So it's been described as a sort of a great update and it's progress. But the reality is that most importers are still fairly much in the dark about what they'll need to get their money back.
Although a recent judge ruling last week, it's still secret, so we haven't got the full details, but the idea is that the government has said it will start refunds potentially this week and potentially we'll start with $100 billion worth of refunds. So we're just going to have to see what happens this week.
[00:17:02] Speaker A: Yeah, I'll be interested to hear if anyone ever does actually get their money back and how long that will take.
Finally, Alex, to round up the episode, can you give our listeners a preview of what was on Premium last week?
[00:17:15] Speaker C: Indeed. So we got JB Hunt's Q1 numbers, which were not great, not bad. That's a quote.
We had a thorough deep dive into US rail, M& A and the Surface Transportation Board.
We've had a look at the EU's carbon border tax, what's happening with the USMCA negotiations which are due to start in July.
And probably the biggest story is some insights into how the Iran war is going to impact the earnings of the big hitters. So Maersk, Kuhnenagel, dsp, dhl. That's well worth the read, I'd say.
[00:17:49] Speaker A: Yeah, definitely. I mean, I usually dread earnings seasons. I hate doing the earnings reports. But I'm actually quite looking forward to it this quarter. I think it's going to be very, very interesting. Alex, thank you.
Definitely. Thank you so much for your time. Alex, you later.
[00:18:01] Speaker C: Thanks so much, Charlotte.
[00:18:02] Speaker A: So that is all we have time for today. Thank you so much to Chantal and Alex for joining me on today's episode and helping me recap last week's supply chain news. We will of course be back next week with another Instagra installment of News in Brief and I hope you enjoyed watching. If you are over on YouTube, please like subscribe, comment, share. And if you're listening, then do head over to YouTube and watch the episode over there. And please subscribe so you never miss an update. We'll see you next week. Thank you.
