Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Lodestar Podcast News in Brief, where as always, we are going to be rounding up the main points of last week's supply chain news. We will be discussing in this episode the latest ocean freight dynamics, including obviously an update to what is happening in Hormuz and with ocean freight spot rates, plus what all this has done to carriers and sheets in Q1. We are then going to be discussing DSV's latest tech announcement and a little look into the current air freight dynamics.
My first guest for this episode, helping me unpack the latest dynamics in the ocean freight market, is Zeniter Senior Market Analyst Destinee Ozegur. Thank you so much for joining me.
[00:00:45] Speaker B: Thank you so much for having me, Charlotte. Lovely to be here.
[00:00:48] Speaker A: Yeah, it's great to have you here. And to kick off this segment, I think we should talk about something that is on the top of everyone's minds and has been for pretty much the whole of Q1. This is something you post about on LinkedIn quite a lot. You do very regular updates which are really helpful. What is the latest with the situation in the Middle east and the Strait of Hormuz? What have we seen this week?
[00:01:06] Speaker B: This week I think the highlights are really that there is still a formal ceasefire in place, but operationally the situation is highly unstable. They continue to face significant risk, despite the US Navy trying to coordinate exits through the Project Freedom that they announced a couple of weeks ago.
From an operational standpoint, carriers are still dealing with elevated war risk premiums, emergency fuel surcharges, dependence on intermodal routing into the GCC markets, and rising schedule volatility across those established alternate routings.
Over the last two weeks alone, we've recorded again average delays of at least four days across those critical GCC access ports. So ports like Jeddah, Khorafakhan, Sahar, all the ones that you read about when they're announcing the new strings, and then I think it's like one in five vessels is more than seven days late right now into the region, right? Yeah. So quite a few ports there, including ports in the Indian subcontinent like Namasheva and Mundra, are really feeling that operational strain.
As for actual transit activity on the ground, it remains really, really limited low. We saw 11 vessels, container vessels, transit since the ceasefire was initially announced. And I think that amounts to something like 170,000 tu, which to put it into perspective, is barely half of what the Gulf states used to receive in terms of weekly capacity. And that's what we saw in the entire month of April.
So very Very limited in terms of the commerce that's happening there outside of those few isolated transits that we've. There was a CMA CGM San Antonio incident last week on May 5th when a vessel was attacked and its crew was injured and that was quite significant.
And then just before that a smaller CMA CGM vessel had successfully transited which I don't think was as widely reported. But besides for those two, we haven't seen any transits from major carriers in that time. So mostly Iranian linked small vessels.
And then the last concerning development that we've seen this week is that it seems like the IRGC is really making good on their sort of operational claim which has now broadened what they consider the part of the Hormuz trait that they are, they are controlling. So, so I don't know if you saw the map but the borders have been expanded to now include Fujairah and Khorfakan.
There was an Indian livestock carrier that was attacked off the coast of Oman and another vessel that was seized in the last two days.
And we've also been looking at a small Maersk feeder vessel that's kind of like hopping around and bouncing between Sahar and Fujairah and Khorfal Khan trying to cloak its activity probably to avoid detection and end up in the same situation.
[00:04:13] Speaker A: Right, so it's, I mean still massively a no go zone then. And I should just say that we are recording on the 14th of May in the afternoon just in case anything changes between now and publication. We actually reported that the peak season for Asia, Europe might come early this year because shippers obviously when we see this kind of disruption, first and foremost everyone just wants to be prepared.
So we might see some front loading there. But also I guess if this fuel shortage continues then we might see blank sailings and yeah, just less voyages. So is that something that you think could be true? Do you think the peak season might be coming early this year?
[00:04:50] Speaker B: I would be cautious about it, about saying that I wouldn't lean too heavily into it maybe because this disruption is really unusual and the peak, a big part of it is that the cycle where it lands has collided exactly with contract season. So what you're seeing is shippers delaying tenders. They're challenging surcharges and they're, they are still trying to hold on to their annual contracts and negotiating flexible quarterly BAF structures where it's possible. And then you've got the higher fuel prices and that doesn't just impact shippers. Right. There's the Downstream effect.
So it's starting to feed into inflation. And that, that creates what I consider a counterweight on the demand side, especially in Europe where consumers tend to respond more cautiously to inflationary pressure, I think historically.
So that doesn't mean that demand disappears, but it slows procurement decisions and it's going to increase spending. Caution.
And then as for the blank sailings, we, right now, what we're forecasting for July, for June, and July is roughly on trend with what we've seen in previous years. Of course that can change because we see more and more of them coming in at the last minute every year. It's like, feels like that line just gets shorter and shorter.
But April was crazy. We saw, I think a 37% increase year over year against last year. Right. With blanks announced in April.
So in practical terms they're using blinks defensively and operationally. Right?
Yeah.
[00:06:29] Speaker A: Well, well, speaking of carriers, I mean we had some indication this week and the week before, now we're in Q1 earnings season of how this disruption is impacting carriers balance sheet. And we've said before on this podcast, this disruption isn't like others where carriers profit from it. But as you just said, this kind of weighs negatively on demand, which obviously is not good for carriers. So have you had any indication from what we're seeing with Carri Q1 results on how this is impacting them?
[00:06:58] Speaker B: I think so. I mean, like you said, it's the, it's, it's a combination the fuel, the fuel factor and the fact that it's, it's no longer a short term exception. Right. This is a sustained disruption and it's being, it's forcing them to, to reroute through a very operationally restricted area.
And that's making things quite difficult. It's very different from the Red Sea in that case. So, um, what stood out to me, at least from what I saw reported, was Maersk citing something like 500 million in additional monthly operating costs tied to this disruption, specifically the Middle East. Huge.
And then I broke that down a little because I was like, well that's a really big number and my, my brain needs to understand that better. So that's 125 million a week. Right. And if their quarterly revenue was 13 billion, which is a billion per week, that means that the additional operating costs are something like 12% of their weekly revenue. And that really puts it into perspective for you when you're thinking like, okay, why are carriers behaving the way they are? They're not really chasing volumes Right. They're trying to prioritize protecting their margins and creating network resilience where possible.
But of course, from a shipper perspective, the war risk and fuel surcharges, especially when it's outside of the immediate conflict zone, are understandably frustrating. They appear opaque. It's right during contract season.
At the end of the day that cost structure is going to get passed down somewhere.
[00:08:35] Speaker A: Well, I mean, one of the main things that obviously does impact carriers balance sheets is rates.
For the past few weeks we've kind of seen freight rates, spot freight rates being quite low, but obviously it's the surcharges that are making them so high. So what are you seeing with rates at the moment on some of the major lanes or is there any kind of specific thing that stuck out to you with rate movement this week?
[00:08:53] Speaker B: So week over week it's actually moved relatively sideways for the last couple of weeks, especially since the start of May. And I'm talking about Asia to Northern Europe, Asia to the Mediterranean and then Asia to the US west coast. On Asia, Northern Europe and med, we are now something like so Northern Europe, it's now 5% higher than what we saw at the start of February.
That's not so surprising. But the Mediterranean rates are now 9% lower than they were on February 1st. So that was a little bit interesting to me. The gap between the two remains roughly like a thousand per feu.
And then in contrast, Asia West coast rates, US West coast rates are now 40% higher than they were at the start of February, which is huge. And I'm sure we've reported on that somewhere. But when I took a step back and I looked at it sort of from a bigger picture, what really stood out to me is that this is the first time since November 2025 when Asia, US West coast and Asia Northern Europe rates have converged almost exactly at 2,800 per feu. When that happens, which is already rare because they're very different trades, it's usually super short lived. Right now it looks like this has been the trend since mid April. But to get there they had to come from different directions. So that trend was asymmetric. Right.
So on the west coast we saw rates rise sharply, and on Northern Europe we're actually seeing them drop after that initial shockwave of the Middle east disruption.
So it's kind of a really fascinating example of the different dynamics on those two trades.
And there's a few reasons behind that as well. Just structurally speaking.
[00:10:44] Speaker A: Yeah, that's right.
[00:10:44] Speaker B: Yeah.
[00:10:45] Speaker A: I was literally. That was my next Question. I was going to say, do you know what's, what's driving that?
[00:10:49] Speaker B: Yeah. So, you know, without the certainty of not being an economist, but my assessment there is that.
So the reason those trends are, are converging in a different way is there's stronger inventory demand in the us. There's the delayed procurement cycles that we're seeing in Europe and the fact I think this one's really big, is that capacity discipline is going to be much, much easier on the Transpac than what we see in Asia Europe. It's generally much, much more straightforward, the routes are shorter, there's less disruption along the way. So capacity discipline is a. For carriers on Transpac.
And then even though we're seeing operational costs elevated on Asia Europe, those Middle east related surcharges did start to ease throughout April, I think, as we've seen.
But combined with the widening gap between effective capacity and advertised capacity, I believe that carriers are finding it more difficult to justify and sustain those, those high rates indefinitely on Asia Europe.
[00:12:03] Speaker A: Destiny, thank you so much for joining me on the podcast. It's been really interesting. You've illuminated some great points.
[00:12:08] Speaker B: Thank you so much, Charlotte. It's been a pleasure.
[00:12:10] Speaker A: And now to help me unpack the air freight market and some other things as well, I am joined by Alex Lenane. Hello, Alex.
[00:12:17] Speaker C: Hi, Charlotte.
[00:12:18] Speaker A: We're going to start the episode by talking about. Well, not the episode, this segment. We're going to start this segment by talking about the other things that I mentioned. And that is one of the biggest stories from last week that we had. This is the DSV and cargo wire Tango story. This is something that you spoke about quite a while ago, I think back in February or something you predicted and there were a few skeptics and now you can officially say I told you so. So what, what happened?
[00:12:42] Speaker C: Yeah, so we broke this story in February that DSV is moving away From CargoWise towards DB Schenker's systems, basically so Tango and also Star. And as you said, there was quite a lot of skepticism at the time. In fact, so much so I had to go off social media for a couple of days because there was just qu lot of stuff going on. No one believed me anyway, happily, DSV last week in its capital markets day confirmed that it is indeed moving away from Cargowise to Tango and Star. In fact, I think it's already 25% of its systems are already on Air and sea are already now on Tango.
And it's not just doing a straight swap of one TMS for another. It's also introducing an AI and kind of enterprise data solution with it and it's calling it CargoWise1 to tango, which so count to one. One process, one system and reducing dependency on third party providers. Now it says it's going to be more reliable, cheaper and more resilient than anything it could buy off the shelf. So the interesting thing is here, because everybody thinks Cargowise is really the only system, it's sort of DSV moving away, kind of allows other people to start thinking in the same way. And with the advent of AI, this could be quite significant, I would say, for cargo wise. And we're actually hearing that other systems are also losing customers at the moment. In fact, there's quite a lot going on. But you'll have to read the Lodestar in the next few weeks to find out more on that.
[00:14:17] Speaker A: Yeah, it really has opened the floodgates there. And if it helps, Alex, I never doubted you for a minute. And that is such a good advert. That is such a good reason to subscribe to the Loadstone. I mean, you called this like months ago, so very well done. Another exclusive that you had this week was to do with Emirates and some personnel changes there as they reported their Q1 results. So what's happened here and how did they do this quarter?
[00:14:42] Speaker C: Actually, given the amount of stuff that's been happening in their area, they did pretty well. But the results did reveal a few bits and pieces about what's been going on operationally with the conflict. Now, they described it as extremely challenging, which is probably something of an understatement.
They've had to reroute operations, rebuild cargo corridors, use alternative airspace. They've had quite a lot going on. And they also said it was one of their busiest periods ever for their cargo side and their freighters. And they even ended up using 14 passenger airlines to ship cargo, much like we saw in Covid, which was interesting. And they've set up new trucking corridors and multimodal routes. So they've been incredibly busy and cargo's been quite a huge focus of the last sort of few months for them. And yes, we also revealed that Nabil Sultan, who led Emirates Sky Cargo after Ram Menem, is now on the passenger side. Actually, he is off to become CEO of Donata, so that's quite an interesting move. He's very well respected and it's coming at a really interesting time for the group overall.
[00:15:51] Speaker A: Well, as someone else who has been affected by what's happening in the Middle East, I mean, pretty much everyone, but someone that you spoke to last week was Cargo Lux and you spoke to their CEO, Richard Forson. So what did he have to say about everything that's going on? Is he worried?
[00:16:04] Speaker C: To be honest, he's more optimistic than he usually is. I talk to him at least once a year and he generally is reasonably pessimistic. But this time he was quite optimistic for the future. But not for another sort of four to five to six years, he said.
But yes, on what's going on at the moment, he was pretty pessimistic. And he says that it's not just jet fuel that's going to be the problem, it's going to be overall demand that's the big issue. So the Strait of Hormuz closure is not just impacting energy, it's also impacting industrial supply chains and it's going to cause inflation. He thought so. He talked about risks of the shortages of diesel gas, fertilizers, even helium for cooling data centers, which obviously is a big part of air cargo at the moment that's going to be in short supply. So he was quite worried about the sort of, sort of short, medium term of demand and how it's going to look for air cargo. But he said right now, actually demand is quite resilient.
Electronics, as I said, AI infrastructure, pharmaceuticals, specialist cargo still going strong, but it's a very difficult time for airlines. And he said that he's had to dance around a bit trying to work out their Middle east strategy. So it has been tough for them. But I should mention they also did another set of really strong results.
So they're in quite a good place. There'll be more coming out in the Lone Starback Cargo luxe over the next week.
[00:17:31] Speaker A: I look forward to reading it. And in general at the moment, how are air freight market dynamics, like rates, capacity, what are you seeing?
[00:17:40] Speaker C: Well, we're still in this kind of unusual place, which is sort of completely affected by the Middle East. Volumes have softened slightly in the last week because of the Mother's Day in large parts of the world, the flower shipments have now ended. There's been various holiday slowdowns and stuff, but rates are not yet really properly declining. World ACD said that tonnage in April was about 5% higher year on year, but rates were about 28% higher year on year. And the Middle east is obviously the big distortion fact factor here. Capacity is gradually returning all over the place, really, like Qatar, we see every day they're restoring routes and so forth. So Zenitha has argued that actually this was all fundamentally a supply shock rather than a true demand boom. And so once the capacity stabilizes, rates should start easing. But then of course, you've got fuel prices. So it's hard to tell at the moment, but I imagine air freight will continue to be quite expensive.
[00:18:39] Speaker A: And finally, Alex, I'm going to ask you something that I ask you pretty much every episode.
What has been on Lodestar Premium this week? Anything good?
[00:18:48] Speaker C: Well, yeah, Premium's just so full of juicy gossip.
If anyone listening and watching is interested in the big forwarders, Premium really does have all the juice you're ever going to want to know about.
So there's quite a delicious story on cma, CTM and CVA with some personnel changes, commentary on what's going on at Kuhn and Nagel, which as we know is not happening. Having the best time of it.
So. Oh, and there was a live feed of DSV's Capital Markets Day, which was really fascinating.
And one other thing I might mention was another deep dive on the massive rail merger in the US and spoiler alert, everyone who isn't Norfolk Southern or Union Pacific doesn't like it. And it's going to be a huge, big battle, I would imagine, coming up.
[00:19:37] Speaker A: Alex, thank you so much for joining me this week. It's been a pleasure to speak to you.
[00:19:40] Speaker C: Thanks, Charlotte.
[00:19:41] Speaker A: And that is all we have time for on today's episode of News in Brief. Thank you so much for joining me. If you want to watch this podcast, then please head over to our YouTube channel and like subscribe, comment, share all of that good stuff. We really, really appreciate it and we will see you next week on theloadstar.com thank.
[00:20:06] Speaker B: You.
