Episode Transcript
[00:00:00] Speaker A: Foreign and welcome to the Lodestar Podcast News in Brief. Now, if you weren't paying attention to last week's news, you don't have to worry because in this podcast we are going to be neatly wrapping up all the main events from last week's supply chain and logistics news and also giving you an insight on what you might see in the news this week. So to start off the episode, we're going to go straight to the main story of last week, which is of course that the ILA has called off their 15th of January strike and I think this was to the surprise of many, but also obviously to the delight of many. I'm joined now by the Lodestar publisher Alex Linnane, who looked at the details of this Alex, what was it that stopped this strike that everyone seemed to be braced for?
[00:00:43] Speaker B: Well, according to the ila, it was Trump that stopped the strike and his intervention does seem to have sped things along a little. I mean, as yet we don't know the details of the deal, but according to various US Media sources, the ILA asked for one extra job for each automated crane or something in that kind of region. There was also talk of renegotiating the wage increase that had already been agreed with the ila, and in the end it's going to be fascinating to find out who conceded what and therefore what the sort of future for US port automation will be, and also to find out if there'd be any sort of higher costs for shippers, whether a greater wage deal would mean that they have to pay more somewhere along the line. But for now, shippers can breathe a huge sigh of relief, although I mean, I imagine a fair few logistics providers will actually be quite disappointed. It looked like it might have been the perfect opportunity to do a little price gouging. Not that everyone would have done that, but there certainly some would have been. But anyway, it's not ratified yet, so things could always change.
[00:01:48] Speaker A: Now I'm sure this ILA deal has come as a big relief to a lot of people, but don't start celebrating yet because we also reported last week that DSP had sent warnings of expected disruption around Chinese New Year and this is going to include longer transit times, flight cancellations and void sailing schedules. And it said that this year would likely see more disruption than previous years due to the alliance reshuffle that coincides around the same time, and it warned the impacts could even linger until summer. MSC also sent a warning about this and it told customers that it foresees general operational disruption during the first months of the year due to the phase in of the networks of msc, the Gemini Corporation and the Premier Alliance. But CEO of Sea Intelligence, Alan Murphy noted that the unknown element in the phasing of the new networks might mean that carriers look to prioritize getting their vessels phased into the new networks and so not blanking as much capacity as they usually do. In previous Chinese New Years, the Sea Intelligence data showed that carriers have so far blanked 9% of available capacity, and that's the lowest in 10 years. So for comparison, the average 2016 to 2019 reduction was about 18.3%. I'm now joined by Lodestar Managing Editor Gavin Van Mael and Gav, you had a really interesting story on Premium last week of discussions in the US to form a new shipping line dedicated to serving the country's importers. And there was rumors that this had support from a major logistics integrator that you labeled as a genuine Household names. What is the background and can you give some more details?
[00:03:21] Speaker C: So I'm afraid that it's going to be very difficult for me to give details because of, you know, the obvious things of confidentiality for our market sources. The background is that we've been aware of, I don't know, I think it must be up to about six months that very senior logistics interests in the US had been talking about the possibility of going into the charter market, getting hold of some ships and introducing a service presumably on the Trans Pacific serve US importers. I would look at it as being a bit like the US carrier Matson Line. We cleared it with our sources that we could sort of mention this last week. The phrasing that I used was agreed. Right. I mean, let's face it, there are only a handful of household logistics names in the US So it's a fairly small lineup of usual suspects. Shall we flip that way when we can talk more openly about it, we will do so. The background to this has been an ongoing investigations by the Arizona Senator Mark Kelly. You know, he's an ex merchant mariner and he, along with some Republican senators, have been looking at how the US should respond to the maritime threat posed by China. The Ships for America act, at its core, is about rebuilding the U.S. shipbuilding industry. Right. And it's using every lever in the shipping industry that it can, that it can do. And as far as the container sector is concerned, one of the stipulations of the Ships for America act is that within 15 years of its passing, at least, or at least 10% of all commercial cargo transported from China to the US has to be carried on US flagged vessels.
So we did a sort of analysis as to what that might actually entail. According to this container trade statistics numbers, what we're looking at at the moment is around about 1 million TEU a month is shipped from China to the US. That's our base case. So if you're looking at 10% of that being carried on US ships, the US flagged fleet is going to need to provide around about 100,000 TEU of capacity each month. Now currently US flagged vessels, and this is on the Trans Pacific which, which comprises Matson Line and also CMA CGM's APL subsidiary. And together those two carriers account for around about 80,000 t of capacity on the Trans Pacific. So to hit that hundred that the Ships act authors would like to see, you're going to need another carrier or the existing ones to add around 20,000 TEU a month. So if we're looking at in the context of a new shipping line coming into the trade, you need four ships to do a weekly transpacific loop. So a new entrant should really be looking at providing eight ships of around 10,000 TEU capacity which would allow it to operate to weekly trans Pacific services and would get up to the 100k grand that the Ships for America act calls for. So it's quite interesting you're about to mention the Costco thing. I'll preempt you slightly in just saying that there's a lot of movement going on in the US politically and of course once you get political momentum behind it, then commercial interests can start lining up their investment plans and there's just a lot of movement for the US to bulk up its, if you forgive the pun, but to bulk up its, its shipping capacity on, on the trade and you know, not be so dependent on foreign carriers.
[00:07:07] Speaker A: I mean, you mentioned Costco there briefly, but just to our listeners. So this was another ramp up in the US China trade war from last week. And US regulators branded Cosco the shipping line a military asset and they included the Chinese container line on a list of designated entities operating in the US and there was 133 other Chinese entities on the list and that also included China cargo airlines. So Gav, do you think this is going to present issues for Cosco's Ocean alliance partner CMA cgm?
[00:07:39] Speaker C: See there being a problem was that if CMA CGM and APL had deployed its US flagged vessels in an Ocean alliance service, would there be issues about cargo booked with Cosco then being carried on on a US flagged CMA ship. Actually, I don't think it is. The spaceships are all deployed on its Eagle Express service. It's totally standalone. So as far as that aspect goes, I can't foresee any problems. Yeah, so I think it remains to be seen. It looks to me like it's just part of this broader move to put a little bit more pressure on the Chinese.
[00:08:17] Speaker A: Well, if manufacturers are looking to move away from China, which many are. We reported last week of a government led investment program in India estimated at around 7 billion doll billion. This is for multiple projects in Candelab Port which is one of the major cargo handlers on the West Coast. Plans there include a large shipbuilding facility which is going to cost around three and a half billion dollars and a new port complex over 8,000 acres and that's around $3 billion. And in other positive news, on Thursday last week, 47 governments and industry groups agreed on an emissions pricing mechanism for greenhouse gases to raise a fund to decarbonize shipping and they are now pushing the International Maritime Organization or IMO to implement this. So what is this going to do and what is the background here, Gav?
[00:09:07] Speaker C: I think the first thing to notice about it that there is something of a unified approach to creating a fund for the decarbonisation thing. So you've got a lot of signatories there, but notably not the US or China. But other big important flag states include Germany, Greece, Panama and Liberia. But basically it would be a market based measure and the idea is that it would reduce the price gap between fossil and zero emission fuels. They've been trying to agree on how this fund should work and how it should be levied. They've been talking about this for the best part of a decade, if not longer. So to have 47 countries plus the EU all coming under the International Chamber of Shipping's proposals for when the IMO's Marine Environmental Protection Committee number 83 meets in London between 7 April. They've got some properly concrete proposals to discuss there. If they go ahead with it mepc, then it's likely to be adopted in October and then this could actually be in place by 2027.
[00:10:23] Speaker A: While we're on the topic of sustainability, Alex, you reported last week that one major cargo airline was looking to get into sustainable aviation fuel, or SAF, as it's more commonly known. What did you find?
[00:10:34] Speaker B: Oh, this has been really interesting. There has been no confirmation from cargolux. In fact they've ignored my calls and emails But a small paragraph has been inserted into its Articles of Association in the Luxembourg Business Register and it says that alongside its normal activities, it will either also be investing in or providing services to produce and distribute saf, which is quite something for an airline. And we don't yet know what exact form that will take, but it's obviously sort of sufficiently on the table for cargolux to actually make an amendment to its business. Cargolux, as we all know, did pretty well in the pandemic. It's got some cash reserves and I happen to know that CEO Richard Corson thinks that the environment and the regulations supporting the environment is one of the biggest threats to aviation. So we just have to hope that cargolux explains what it's up to soon.
[00:11:26] Speaker A: Well, in further air freight news, at the start of last week we reported on Lufthansa Cargo's optimism for air cargo in 2025. In an interview with the Lodestar, they said that this was due to E commerce, global economic development and air freight being a beneficiary of disruption, of which there is set to be a lot of this year. It seems like some other players were optimistic about Air Cargo's future too.
[00:11:49] Speaker B: It does seem that way, yeah. We've had a flurry of new routes launched between Asia and Europe in particular and Airinchian which is taking over Asiana's 13 freighters sometime soon. We expect the future for air is starting to take shape. It's got planned destinations in Europe and the US and there have been route announcements as well from Maersk, Dibishenko and msc. And there are more freighters coming on stream as well. We've got starlux in Taiwan which was founded by Evergreen and Eva's founder's son. Interestingly, that's betting on cargo. They've doubled an order of a 350s to 10, although I don't know yet when they're going to deliver. And a slightly weird little story. Eastern Airlines, which is a US carrier during the pandemic, announced plans to sort of Semi convert these 777 passenger aircraft, but never managed to get the scheme off the ground. Anyway, it's gone out and bought a 38 year old 737 freighter. It's not the same as a dozen triple sevens, but I guess it's a start.
[00:12:53] Speaker A: Thanks Alex. Well, we're going to finish the air freight section by taking a little look at rates. Zenitha's end of year market report found that 2024 ended with the 14th consecutive month of double digit demand growth. So December showed an 11% year on year uptick in volumes and this meant that spot rates were 15% higher than the year before. But Zenita's chief air freight officer Neil Vanderwae, did warn that air freight had become a market increasingly reliant on E commerce volumes and he noted that the market does still remain susceptible to geopolitical tensions. Whether this high rate and high volume surge will last throughout 2025 is yet to be seen. But how does this compare with ocean freight rates?
[00:13:35] Speaker C: Gav, we've started the year with a bit of divergence here. Basically Asia Europe trades are continuing to go down and Asia to North America Eastern Gulf coasts are rising. Clearly we've had the agreement with the US east coast port strike, but that came pretty late in the week to actually have much effect on this week's spot rate levels. So on Drury's WCI, the Shanghai Los Angeles spot rate was up 13% week on week. Shanghai New York was up 10% week on week. Compare that to Shanghai Rotterdam which declined 8% week on week and Shanghai Jena declined 4% week on week. We carried a report at the beginning of last week that there are initial signs of a new rate war breaking out amongst carriers, especially on Asia North Europe. Maersk have been discounting below the $4,000 per 40 foot mark. Just for the record, the WCI's Shanghai Rotterdam leg this week finished on $4,375 per 40 foot. So you know the carriers are beginning to quote under market rates. That's normally an indication that we're about to get some form of rate war going on. I don't know how severe it will be. Red Sea crisis still continuing. You've still got the geopolitical tensions that you've already mentioned. Nothing's changed other than the US east coast and Gulf coast are going to be open for business, which is a good thing for Trans Pacific shippers.
[00:15:08] Speaker A: Thank you very much Gav.
[00:15:09] Speaker C: No worries. Thanks Charlotte.
[00:15:17] Speaker A: So now we have covered all the main points of last week. Here is what you might see on the load Star this week I'm going to be looking at how ocean shipping stakeholders are adapting to the new fuel EU initiative that was introduced on the 1st of January and obviously that coincided with the ramp up in cost of the EU ETS as well. So I'm going to be talking to a few experts on that. Alex Whiteman is going to be delving into European road freight rates. So hopefully going forward we will be providing the same weekly or regular coverage as we do with the air and sea freight rates, because actually we had someone write in who said that they love the podcast, so thank you very much for that. But they would like to see some more focus on road freight. And yeah, it's a great idea. We definitely want to include more road freight. So you can look forward to that going forward. On Wednesday this week, the World Economic Forum will be releasing its annual Global Risks Report. Me personally, I'm going to predict that it's going to include trade, wars, climate change and maybe the threat of false information and AI, but I'll be intrigued as to what they identify. Shout out also to bifa, who are hosting an awards night on Thursday to celebrate British freight forwarding. So good luck to all those who are nominated. And Alex Linnane is going to be attending on behalf of the Lodestar. And finally this week, Mike King is back with the first episode of the lodestar podcast for 2025. This is coming out in the next few days and it's an Ocean Freight special. Mike is joined by not one, but two Liner Shipping executives. His guests are President of Swire Shipping North America, Harry Stones, Managing Director, Global Commercial Development for Hapag Lloyd Henrik Schilling, Global Head of Ocean Freight for Scan Global Logistics, Daniel Casciotti, and the Lodestar's own Gavin Van Mahle. So I'm really looking forward to that and hopefully now you are too. Thank you so much for joining me this week and I will see you next time.
