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 from last week's supply chain news. And coming up in this episode we will of course be bringing you an update to the situation in the Middle East. We're going to be taking a look at Kuna and Nagel's Q1 results and how the Middle east conflict is impacting air freight, including jet fuel shortages and a deep dive into the outlook for Cathay cargo. We're also going to be looking at ocean freight schedule reliability and the latest spot rates foreign.
But before we get into the episode I've mentioned on the last few episodes now, we are currently looking at what the real impact of AI is in the supply chain for forwarders and shippers in 2026. So if you are able to take a few minutes to fill out our State of the AI survey as a thank you, you will get the raw data and exclusive early access to the report before we release it. If you are interested in taking part in the surve, click the link in the show notes to participate. My first guest for this episode is Chief Analyst at Zeniter, Peter Sand. Hello Peter, thank you for coming back on the podcast. It's great to have you here.
[00:01:14] Speaker B: Hi Charlotte. My pleasure.
[00:01:16] Speaker A: Well, let's get in to the main item of last week's news which is of course this disruption in the Middle East. Now I don't think much has changed since last time we spoke.
Obviously there's still this kind of standoff between us and Iran and the Strait of Hormuz has basically been inaccessible now for about two months.
Bunker price prices are still high.
But what has perhaps changed is the disruption in the Red Sea and the Suez Canal. I mean it's still very uncertain. This mostly impacts container shipping. But we reported last week that CMA CGM have doubled their transits through the Suez Canal. So what do you think about this? Do you think this might prompt more carriers to do the same or is it still very uncertain?
[00:01:59] Speaker B: I think the whole situation around Middle east and the baby landed transits are very uncertain. But I think one thing is for sure that CMA CGM have always throughout the crisis been the standout carrier when it comes to transits in terms of the Babel Mandep and entering the Red Sea. So where we see CMA now with Med5 and Med2 we've seen that all along, but the OCR service is a new one. And will this prompt more carriers to get back to Red Sea transits?
I doubt it.
[00:02:32] Speaker A: Right, that's interesting. I mean because obviously the cost savings are quite big, especially now that fuel prices have increased and the alternative is going around the Cape of Good Hope. And there's also this lucrative Red Sea cargo. Analytica mentioned this week that if other carriers did start to do the same, it might prompt a bit of a rate war. So what are your thoughts on this and where do rates currently stand?
[00:02:54] Speaker B: I think carriers eventually will get back to the Red Sea, but they are in no rush now and for various reasons. Of course they, they have one sizable disruption to handle currently which is the, the Middle east on top of all the others. Right, so. So mention Houthi rebels, mention Trump tariff wars, mention Russia's invasion of Ukraine. So, so you got them left, right and center. There will only be a full scale return once they can see that this is safe thing to do. This is a steady thing to do and we can reset our networks the way they were at least through the Red Sea with Suez Canal transits as we saw them back in 2023. Right. So but rates, I mean if we compare rates to, to the levels that we had prior to, to the Middle east crisis now it's actually a very interesting development because we see somewhat of a split development. Whereas the trans into US West coast and East coast are up by roughly 50% over the past two months at the same point in time carriers have managed that in a smart way. Right, so only up by 3% to the east coast and down by 3% to the west coast. And this compares to rates into Europe, North Europe and Mediterranean that peaked three weeks ago. So that speaks into the perspective that you also mentioned that is there a lot of things going on. Well, arguably in the corridors but, but also on, on rates where we have seen that decline into to Europe by some. Well, rates compared again to Red sea levels, sorry, three Middle east crisis levels up 7 to 14% on, on. On the European bound trade lanes and capacity also up by 6 to 9%. So, so a mixed picture right now as as we still need to find somewhat what could be determined as the, the next, the next normal.
[00:04:55] Speaker A: Well, is that 50 increase into, was it the east coast? Is that to do with the tariff softening that we've seen the IEP tariffs being ruled unlawful, do you think?
[00:05:04] Speaker B: I think there are many factors playing into the. Yeah, I think it's 52 into there to, to the East coast and, and 46 to to the west coast and part of it arguably being due to, to, to the smart capacity management partly due Chinese Lunar new year. But 50% up is also testament to the fact that carriers have successfully been pushing up rates amidst all the uncertainty that ship has arguably also had to handle. So I probably say that is a bit of the sentiment in the market.
It's also shippers perhaps fearing that what could be as we face the traditional peak season in the third quarter, massive congestion in the main hubs in Southeast Asia. So a lot of shippers have decided let's move my goods forward. I think it may not be lodestar but but some other top flying outlet talk about Adidas for instance front loading their cargoes ahead of the the World cup. So so we see this due to the disruptions as well as the large scale events that that that that shippers decides better safe than sorry bring my goods in so so I won't run short at a later stage with some unforeseen headwind.
[00:06:21] Speaker A: Right so lots of moving parts there.
Finally Peter, I wanted to ask you about schedule reliability because Zenith released its schedule reliability scorecard this week for March and it's actually improved but Zeniter did also warn not to take this at face value.
So what's what's going on behind the scenes here?
[00:06:40] Speaker B: That's a really good question because obviously when you have two months of disruptions as you've seen right now and our scheduled reliability scorecard going out focus on March, the first month of the crisis with an improvement on scheduled reliability and part of it is due to the fact that coming out of the Chinese lunar New Year month of January, mostly February this time around gives a natural boost. But also if you look into some data also available in the Senator platform blank sailings by carriers. So so when they take out a actually a solid amount of of sailings that perhaps wouldn't make it in time as as they have been accounted late or or disruptive in some way prior, you basically get those ships that do sail arrive also more punctual going forward. So so we've seen a solid lift on Transpac but also onto the Europe say bound destination.
So there's always more to the numbers than meets the eye and I think this time around probably even more so with disruption from seasonal factors as well as capacity management factors.
[00:07:54] Speaker A: Peter, thank you so much for joining me and for giving me all that great insight. Really appreciate it.
[00:07:58] Speaker B: Always a pleasure. Happy to be back.
[00:08:00] Speaker A: And now to help me round up last week's air freight news, I am joined by Alex Linane. Hello Alex, great to have you back on the podcast.
[00:08:07] Speaker C: Hi Charlotte, thanks for having Me back.
[00:08:09] Speaker A: Alex, I've got quite a general question to start off with, and that is, in light of all this volatility, how is the air freight market responding? I mean, there's still fuel shortages, but how are we seeing this translate into rates and capacity at the moment?
[00:08:22] Speaker C: Yeah, so this week we're starting to see a bit of a shift in the air freight market, but it's not a straightforward slowdown. So on the one hand, rate increases are definitely losing some of the momentum that we've seen. So world ACD data shows only a marginal week on week rise. So that's the slowest rise or sort of pace of rise since the start of the war with Iran.
But if you look at the TAC Index, it shows the market's still very elevated overall, so rates are still high. So the Global Baltic Air Freight Index was up another 4.1% week on week and it's now 32% higher year on year. So rates are still historically at historical levels, really. And that's the key dynamic of the market. Rates are still rising just a bit more slowly and capacity is coming back. So particularly in the Middle east and South Asia, airlines are rebuilding their networks and we're seeing more and more of that capacity in the Middle East.
But at the same time, as you said, fuel shortages are acting as a bit of a constraint for airlines. So jet fuel is still very expensive and it's in short supply. So aircraft can't always operate at full payload is what we're seeing now. And some routes are still being disrupted. So we've got a market where the capacity is improving, demand is softening slightly, but rates are staying high. So it's not an ideal situation.
So Tech Index's lane data really shows that sort of mixed picture. So rates out of Hong Kong and China are still edging up, particularly to the us Some Asia Europe lanes are starting to flatten or even dip slightly after earlier spikes. So the market's managing the volatility, but it is still very fragile and quite uneven. I would say a bit of a bumpy ride.
[00:10:12] Speaker A: Well, we also reported last week that there's been flight cuts at Chicago o' Hare Airport. This was criticized by the Air Forwarders association, who basically said that when there's less capacity, then costs are going to go up.
What is the reason for the flight cuts? I mean, was this related to the fuel shortage?
[00:10:28] Speaker C: I mean, not really. It's been in the cards for a while, actually, and it's more of a structural issue than a sort of temporary fuel war. Related one, but it is also adding to supply side pressures. The FAA has told airlines to cut flights by about 10%, which is from about 3,000 at peak times to about 2,700. Forwarders, as you say, aren't very happy about it because any sort of reduction like that, it's such a major hub like o', Hare, it cuts cargo capacity, pushes up costs half a time sensitive shipments and so on. So it's not directly linked to the fuel source shortage, but infrastructure and staffing issues are really the problem and particularly air traffic control.
So it's just adding another layer of pressure on forwarders and shippers. So capacity is kind of being squeezed from multiple angles all at the same time.
[00:11:19] Speaker A: I bet, I bet those at Chicago Rockford are rubbing their hands together right now.
Alex, as we know, we are now in Q1 earnings season and Kuna and Nagel released their earnings this week. Did they have much to say about how their air freight division was responding to the market at the moment?
[00:11:36] Speaker C: So you actually had quite a sort of calm tone around air freight. They said that the Middle east crisis had very little impact on their air freight performance in Q1 and they expect Q2 to be sort of broadly stable as well. So although air volumes were flat, yields were a bit better than they expected, perhaps due to their. They did a product mix shift, so towards higher value cargo like semiconductors and tech and so on. So that's always a bonus. And they're passing on the FUE surcharges obviously, so that's going to protect their margins.
And they also said that they felt quite well covered on capacity. They've got a good mix of block space agreements, charter operations, so they're kind of less exposed than smaller forwarders perhaps on the capacity side.
So it's kind of manageable disruption, they said, rather than something fundamentally damaging. For now at least. Who knows what the next hour even will bring?
[00:12:28] Speaker A: Yeah, no, absolutely.
Now, Alex, to finish the episode, I usually ask you for a roundup of what has been on preview Premium. But there was one story in particular that I want to kind of do a bit of a deep dive into this week and that was the analysis of Cathay Cargo's operations and how they're being impacted by what is happening in the Middle East.
So what are the consequences for the carrier and what does this mean for the forwarders and shippers that. That give it custom?
[00:12:54] Speaker C: Yeah, so, so Cafe Cargo, this, this article in Premium. So it's a really good one and it really highlights the contradictions in the market right now. So on the one hand, demand is reasonably strong and volumes for sort of specialist and high value cargo are on the up. But at the same time you've got the Middle east crisis which is undermining Cathay's network quite considerably. They've lost key Gulf routes as many airlines have and they've lost Dubai as a refueling and transit hub. So that's forcing some Asia Europe carriers, freighters to fly direct, which means payload restrictions, so they can't carry as much cargo per flight. They're also trimming some passenger capacity because of fuel costs and that's going to reduce belly hold capacity on key long haul routes. Poor Cathay, they always have such a hard time of it somehow. I mean, lots of airlines are going through that. But you know, Cathay have just the worst time in Covid, so I always feel a bit sensitive when they're struggling.
So basically for forwarders and shippers, that essentially translates into less available capacity, higher rates and fuel surcharges and less reliable transit times. So not a winning formula really.
And the broader issue is that there's very little spare capacity elsewhere because other carriers are facing similar constraints. So Cathay's got this sort of paradox where it's got strong demand but its operations are getting more constrained and more expensive. So that's the Cathay story. But I will just. I will. You didn't ask me, but I am just going to round up Premium curry.
[00:14:21] Speaker A: That was my next question.
[00:14:23] Speaker C: Okay.
There's an article by our partner publication, Germany's DBZ on DAXA and its sort of ambitions to grow. That's really interesting.
It's also earnings season so you'll be able to find a lot of information on the major companies there. But it's worth taking a look at an article on DSV from last week that's interesting. And there's a dive into Vietnam's port sector, among other things. So as ever, lots there.
[00:14:50] Speaker A: Yeah, lots and lots of good stuff over on Premium and they do particularly shine during earning.
Alex, thank you so much for your help this week. I will see you next time.
[00:14:59] Speaker C: Thanks, Charlotte.
[00:15:00] Speaker A: That is all we have time for on today's episode of News in Brief. Thank you so much for listening or watching. If you are over on YouTube, please like share, subscribe, comment, all of that. And thank you so much to my guests Peter and Alex for helping me out with this week's episode. Unfortunately, there will be no episode of News in Brief next week because I'm on holiday. But the week after we'll be back with a double bill podcast week because the News in Brief will be back as normal and we're also going to be taking a look at the first quarter Demand and price index with container trade statistics, so stay tuned for that. Please do get in touch if you would like to feature on a future episode of News in Brief. We'd always love to have more opinions and voices on the podcast, and if you do have a few spare minutes, please take some time to fill out the state of the AI survey. The link is in the show notes. We will see you not next week, but the week after. Goodbye.
