Episode Transcript
[00:00:00] Speaker A: Foreign and welcome to the Lodestar podcast News in Brief, where we're going to be rounding up all the main events from last week's supply chain news and this episode is sponsored by Etihad Cargo. Etihad knows it is never just an address, which is why they go beyond borders with their partners to ship valuable goods. So thank you to Etihad Cargo for sponsoring this episode. At the very start of the week, we had the good news that the US and China had finally worked through their tariff differences and come up with sort of trade deal. The US said it would cut tariffs on Chinese goods from 145% to 10%, plus a 20% fentanyl tariff. So that's kind of 30% overall, with China confirming it too, would cut tariffs on U.S. goods back to 10%, and that is for 90 days, after which the tariff on Chinese goods will revert to 34%.
And the US changed its de minimis charge, that is on postal goods worth less than $800, it was 120% of the value of the item. It's now 54% or a $100 flat fee, which will no longer be doubled in June. As initially planned, this new tariff plan will apply for 90 days starting the 14th of May. So I'm now joined by Alex Lenane. Alex, how is this going to impact air freight?
[00:01:24] Speaker B: Yeah, it already appears to have had an effect.
So in the last three days of last week, freighter capacity from China and Hong Kong to the US went up 30% compared with a week earlier. That's according to Rotate's live capacity database. Interestingly, though, capacity from China to Europe has also gone up substantially by 20%.
And at the same time, capacity from Africa to Europe has dropped 20% and South America to North America has also declined 9%.
So there's a lot of movement in the world of freighters. And there are going to be other factors related to this change, but that is probably the biggest one.
So the new de minimis rules will certainly bring back a boost to E commerce. Now, we understand that a large number of American SMEs were expecting to go insolvent because of the tariff situation. They're unable to pay for the new rates, and some, I expect, will be saved by the slightly more affordable level.
The big E Commerce players tend to charter freighters, so the demand drops a few weeks ago mostly resulted in canceled charters rather than effects on the spot market. But it all has a domino effect, essentially. Anyway, at the lower tariff level, Chinese goods are likely still competitively priced so you'd expect to see a fairly robust return to the market.
But I do think we'll see these capacity shifts for quite a while. Now, you wrote a story from CNS about capacity shifting to South America. So actually, how was cns? Was it fun or did you just work really hard?
[00:02:55] Speaker A: Yeah, no, it was fun. It was very difficult adjusting to the US time zone for literally, like one full day and back in the uk. But, no, it was. It was a good conference. It was my first cns and it was interesting to see all the deals going on, the conversations going on in all the different nooks and crannies of the hallways. But at the start of the conference, I also showed some data on yields and volumes. And it updates this every six months. It updates its forecast for the year every six months. The timing was quite unfortunate for this one because it's set to make its next update in two weeks. But it will come as no surprise that IATA's director of sustainability and Economics, Andrew Mattes, revealed that the 6% growth forecast that IATA made in December would be lowered as well as yields. I mean, I guess that's just in the wake of tariffs and everything that's happened. But just in general, though, lots of airlines and forwarders seemed quite excited about the opportunities in South America with the capacity shifts. South America was something that just kept getting mentioned, and it does seem like that is going to be the main beneficiary of these capacity shifts. There was also some other areas mentioned. You wrote about this.
[00:04:02] Speaker B: Yeah, I think India people have got an eye on India for sure. Although Trump said last week that he wanted Apple to sort of pause its plans to build all its mobiles in India and obviously bring some back to the US instead.
Exactly. So it could well be that the interest in India is mooted, but I suspect it will take Apple quite a long time and money to set up in the us, but more importantly in India.
And I know you're going to come onto the Pakistan India situation in a little bit, but Chalabi Aviation, which is a pretty significant ground handler, has had its aviation security clearance revoked in India. I think this is pretty big news. So, according to the Indian government, Celebi has Turkish ownership and India thinks that Turkey has helped Pakistan. That's the very basics. But whatever the ins and outs of the actual political situation, I think, yeah, it's quite significant.
Chalebi operates at nine airports in India, including Mumbai, Delhi and Chennai.
There were already issues in the Indian aviation sector, given the problems with Pakistan. We've had Closure of airspace and so on. Some 32 airports had to stop operations a couple of weeks ago. So there's been a lot going on. You add the Chalebi situation to it. It's quite significant. Now the government has said it's doing everything it can to keep airport operations running smoothly and is deploying special teams. But we will have to see how all this pans out this week. It could be quite disruptive for Indian air cargo.
[00:05:36] Speaker A: Well, like you said, now seems like a good time to give an update on the India and Pakistan tension.
Pakistan's main container gateway of Karachi and Port Qasim were reportedly facing serious congestion after mainline carriers halted direct calls there in the wake of the trade ban with India. The disruption followed the 2 May order by new Delhi preventing carriers from moving Pakistan origin cargo through Indian ports. And if this wasn't bad enough for those involved in the Pakistan trade, we reported that several carriers had hit exports with an emergency surcharge. MSC added fees for all Pakistan exports on major westbound route and a charge for intra regional trades. Hapag Lloyd also did this for Pakistan cargo moving to Europe from mid May, plus a GRI of $1,500 per container for cargo from ports in northwest India and Pakistan into the US east coast. Mercer will also introduce an emergency operational surcharge on cargo in and out of Pakistan. And we also saw carriers such as One and Hepag Lloyd revising and suspending certain services related to Pakistan and India trades. Hopefully this situation is eased very soon. I'm now joined by Gavin Van Malt. Gav, what implications will this China US Trade deal have for ocean freight?
[00:06:55] Speaker C: Let's start off with the headline figure that came from Rolf Havan Janssen during this week's first quarter earnings call at Hapag Lloyd. He's the CEO there. The earnings call was held on Wednesday.
The deal was on, what was it, the weekend. So he said in those two days between the deal being announced and the earnings call he was presenting the Monday and Tuesday, there had been a 50% rise in bookings in those two days compared with the week before.
A bit of nuance to this. What we don't know is whether that is cargo that had just been stored in bonded warehouses in China or in container freight stations in China and it had been stored there when the first settlement tariffs were announced.
And so whether it was just cargo that had been waiting to be moved or whether it was actual new cargo coming. So I mean he was like, we don't know whether this is going to last. For a few days or whether it's going to be 60 days or whether it's going to be 90 days. And as ever, short term up to date demand data is very scarce. So the way that we look at this to try and get a gauge of where the market is going is looking at what carrier capacity actions have been taken because they're the people on the front line obviously taking bookings.
The Gemini carrier, they told us today that they are upsizing their vessels in Trans Pacific. So yes, they're seeing a surgery bookings. And interestingly, the premier line at the end of last week announced the relaunch of its PS5 transpacific service which does a Qingdao Ningbo Long Beach Oakland rotation, if memory serves correct.
So that service itself had previously been indefinitely delayed due to the initial introduction of the tariffs. So short answer, short term demand, no one's got any idea how long it will last.
[00:08:50] Speaker A: And with this sudden short term demand, has there been any change in rate?
[00:08:54] Speaker C: And there has, yeah. The WCI last week showed rates on Shanghai LA up 16% and rates on Shanghai New York up 19%. That's both week on week.
And interestingly, the Shanghai Containerized Freight Index, which records the quotes from last week so often gives an indication of the price pricing coming the following week was up 31% into the West coast and 22% into the East Coast. So that gives an indication that we could well see further increases this week. Now there's just one other thing I'd just very briefly like to talk about here Charlotte, in relation to this because after the deal was announced there was a lot of talk about rates shooting up and carriers imposing peak season surcharges on the Trans Pacific trade. You can't do that. The FMC regulations are that any price increase has to be lodged with the Federal Maritime Commission 30 days in advance. So it wasn't PCs and surcharges. What it was was a series of general rate increases From I think seven or eight carriers ranging from $1,000 per 40 foot to $3,000 per foot, all of which were slated to come into Force on 15 May. As luck would have it, that was two days after the tariff pause announcement. So basically what happened last week was that demand suddenly shot up and that coincided with the very fortuitous implementation date of a series of general rate increases. And the fact that we saw the spot rates go up by the quantum that we did is reflective of the fact that those general rate increases actually, and this is for the first time in several months.
[00:10:42] Speaker B: Right.
[00:10:42] Speaker C: They actually stuck. Normally they don't. Normally they're just ignored by everyone. So it was a lucky week for some of the carriers.
[00:10:51] Speaker A: Well on the land side last week we had new data from Apply Transport intelligence and the IRU's European Road Freight benchmark for and this indicated a quarter on quarter dip of 2.3 points in contract rates for the three months leading up to April and spot rates dropping even more, falling 3.8 points quarter on quarter. This was primarily attributed to weak consumer demand. The good news though is that a push to encourage European made goods brings the potential for increased demand for long term agreements in the medium to long term. So perhaps something to look forward to or European truckers and this is a very good time to remind listeners that this episode is sponsored by Etihad Cargo. At Etihad Cargo every shipment represents more than just a destination. It is a connection, a promise and a responsibility. And that is why they work very closely with global partners to ensure your valuable cargo is delivered with care, consistency and confidence. So with an extensive network and expert handling at every stage, Etihad Cargo really does go beyond borders to meet your needs and exceed expectations.
Back to ocean freight now. And another thing we had on our radar was the USTR fees on Chinese carriers and China built ships. Gav, you had said in the previous episode that this was a win for Caribbean ports that are likely to see increased transshipment as under the USTR's current proposals. Sailing distance under 2000 nautical miles from the US will not be subject to these fees. And you had a little update on this last week.
[00:12:20] Speaker C: It's almost as if I was predicting the future.
So very interesting. The announcement came out by that DP World and the government of the Dominican Republic had agreed a big investment package in the region of about 3/4 of a billion dollars for the port of Calcedo. The containment terminal there is operated by DP World. It has done for a number of years. Interestingly, the investment package also includes portion of it going into the adjacent free trade zone in support of sort of manufacturing jobs in the in the country. You've got two factors going on here and to me it looks like a really interesting hedge bet. Right? Because on the one hand you've got expansion of the containment terminal, the USTR fees on Chinese built ships still due to come in in November. We've talked about this before, how that will give a lot of opportunities to Caribbean transshipment hubs. So that is something that this deal positions the operator to take advantage of. But Also, longer term, the idea of reshoring to the U.S. well, everyone I've spoken to about it basically agrees that it's shorthand for relocating production from China to Mexico. That's essentially what reshoring to the US Means in practice, to offer a new location in the Dominican Republic actually presents a near shoring alternative for many of those producers. You know, if land and labor prices rise very much in Mexico, or if Mexico comes within Donald Trump's field of vision again and, you know, he starts to go after them again, then Dominican Republic might be an alternative place to source light manufacturing activities, for example.
[00:14:06] Speaker A: Gav, I wanted to ask you about something else. This is completely irrelevant, but I wanted to ask you why policymakers seem to love this period of 90 days. We've obviously had the tariffs being implemented and then paused for 90 days. And then you reported last week that the Suez Canal Authority would be offering a 15% discount on container ship transits from 15 May, but only for 90 days. So what is this about?
[00:14:28] Speaker C: I don't know. I mean, it's a nice round number. It's three months. It's a quarter of a year. From a shipping perspective, three months actually is a really nice window because it allows you to make a decision if you want to rejig your networks or something like that. If someone was considering a permanent move back to Suez Transit, for example, a 90 day window is a nice sort of period with which to design that and basically get all your ships in a row to do that. In terms of whether the 15% transit rebate will attract carriers on mass back to us, I just don't think it's a starter at the moment other than, you know, cma CGM as a service that goes through there, I think MSC does as well. And, and several of the smaller shipping lines do continue to transit, but for most of the deep sea lines, you listen to their earnings calls, no one wants to go anywhere near it. And you listen to the stuff coming out as Gaza each day. I think Vincent Clark said it a couple of weeks ago and I think he was absolutely right that what's going on in Yemen is absolutely connected to what's happening in Gaza. And while whichever side of the political debate you stand, you just look at the reality of what's happening on the ground and then try and say be willing to put a $200 million ship with lives of 25 seamen and billions of dollars worth of cargo anywhere near that, you'd be mad.
[00:15:56] Speaker A: I would like to finish on some good news for this podcast, and this relates to the air cargo industry. Alex, you reported that TIACA has made a great step towards inclusivity and representation with its latest chair. What are the details here?
[00:16:09] Speaker B: Well, first of all, I have to admit that I made a mistake and I've had to edit the story.
But the gist of it is is that Rose Bakker, who you probably know from Gibble Cargo, is in fact the second female chair of Tiaka, not the first, as I originally wrote after Dora K. Who was from Hong Kong Airport, who held the position for a year in 2003. I do not want to forget about poor Dora K. So sorry about that.
But Rose, who now works for an aviation security company, will take over the chair of Thiaca from November.
She's very grateful to a new company who had to sign up to be a Thiaka trustee at a cost of some $10,000 or something to allow her to do this. The role is unpaid. It's something like 12 hours a week and the term is generally for three years, although she will be taking over from Stephen Pullmans who managed in a sort of Putinesque way, double his term to six years. And the vote for vice chair takes place this week, I think. But anyway, congratulations to Rose, also the first person under 40 to hold the role. So that's exciting.
[00:17:13] Speaker A: Yeah, that's amazing. Huge congratulations to her. Thank you, Alex.
[00:17:17] Speaker B: Thanks Janet.
[00:17:25] Speaker A: And that is everything rounded up from last week's supply chain news. So here is what you might see on the Load Star this week. I've still got lots more stories to come from cns, including the panel discussions and interviews I conducted. This will include commentary from the Air Forward association and xprate who very kindly gave me interviews at the event. Talks between South African state run port and rail operated Transnet and the labour union UNTU were taking place at the end of last week and if a resolution is not found soon, we are likely to face a strike which will obviously further worsen bottleneck problems in South African ports which we have seen for a very long time.
And for those wanting to provide input to potentially amend the USTR proposal for fees on Chinese shipping into the us the deadline for input as well as the hearing will be on the 19th of May. So that is the start of this week and we will probably have a report on that for you. Also, Ocean carrier ZIM will be reporting their Q1 results today. So that is Monday this week and our news editor Alex Whiteman has an interview with ZIM following their earnings report. So we will have some good insight for you there. It is also going to be interesting to hear how demand plays out along the next few weeks, what with the easing of the US China trade war. So we might have some reports of what forwarders are seeing. And as always, there are going to be those stories that you just can't predict. But we will keep you updated with whatever you need to know on theloadstar.com thank you so much for listening. And thank you to Etihad Cargo for sponsoring this episode. I'll see you next week.
Sam.
