Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Lodestar podcast where we are going to be rounding up last week's supply chain news. Coming up in this episode, we are going to be looking at peak season trends and we are also going to be looking at what shippers and forwarders are currently doing with contracting rates and lengths and how this is being influenced by overcapacity and external volatility. We are also going to be looking at air cargo and how the fuel shortage is no longer the industry's biggest problem. All this and more coming up in the episode.
My first guest for this episode. To help me unpack the latest in the ocean freight market, I am joined by head of procurement, pricing and commercial relations of Ocean Product at Noartem Logistics, Stephanie Loomis. Thank you so much for joining me. It's a pleasure to have you here.
[00:00:54] Speaker B: Thank you so much for inviting me. I'm happy to be here.
[00:00:57] Speaker A: Well, recently we have been looking at how seasonality and the peak seasons are changing on major lanes such, such as Asia to Europe and on the Trans Pacific. So I'd be really curious to know what you're seeing at the moment and whether you think seasonality is changing.
[00:01:11] Speaker B: I think seasonality to some degree has been thrown out the window and mainly because we've had several years now of importers having to deal with the disruptions, the geopolitical disruptions that have been happening.
You know, two years ago, the Suez Canal closure, then last year we had the implementation of the Liberation Day tariffs and all of these things. And now of course, the war in Iran and the closure of the Strait of Hormuz, the escalating fuel costs. And so I think the focus for a lot of these importers now is to try to minimize the exposure, whether that's cost wise, longer term, longer transit times, longer routings, and they're having to order at different times and different patterns in order to keep their products in stock. And so I think that that really has changed the traditional peak season that we've been accustomed to for many years in this business of at least in the United States on the Trans Pacific being, you know, end of July through October, I think it continues the last few years to get shifted much earlier.
[00:02:20] Speaker A: Right, and that's what you're seeing this year. Is it still earlier?
[00:02:24] Speaker B: Yeah.
[00:02:24] Speaker C: Right.
[00:02:24] Speaker A: Okay, so how is this volatility kind of translating into contracting right now? What are you seeing people being comfortable with in terms of lengths and rates?
[00:02:33] Speaker B: Yeah, this has been by far in my 30 plus year career, the most complicated and confusing Trans Pacific Eastbound contract season.
We've had decades of it being rather easy to contract in the sense that carriers are pretty aligned in pricing structures and what a base rate from one lane to another is. And baf, although it has always fluctuated quarterly, has not had dramatic impacts on the overall cost lane by lane or region by region. And now of course that's been completely thrown out the window. You've got very different methodologies carrier by carrier. Some are implementing these high EFS charges, emergency fuel surcharges, some want to change their bunker monthly. So we, we still saw for us most of our customers and, and new customers wanted tenders that are still pretty much an annual rate. But it, the complexity of, of figuring that out became much more complicated and you know, we had to back out baths and redo tenders. And I mean I am hearing in the market that, that there are a lot of shippers that, that are, you know, worried about the potential if the war were to finally really end. If we see an opening of the Strait of Hormuz that you know, that will, will change dramatically the capacity and the, and the vessel routings and that could impact spot rates. So I have heard more customers, more shippers and importers looking at shorter term deals, six months, more indexing.
But you know, I think, I think the big bcos in the United States for the most part were still looking at annual annual contracts and it just, yeah, it was a lot more fun.
[00:04:26] Speaker A: And how much of this is the capacity factor? Because we've been speaking about this kind of over capacity for quite a while and it's been kind of pushed off and pushed off and it's now really starting to materialize. I think it's supposed to hit its peak in 2028. But how is this having a big factor on rates at the moment and how car carriers are behaving in general?
[00:04:46] Speaker B: Well, I would say it's having a very large impact on how carriers are behaving.
I have said really since post Covid that we are dealing with a very different carrier community than many of us were accustomed to before COVID These are companies now that want to make money and that is their main focus focus is to keep their revenues moving and increasing and they have really increased the amount of carrier discipline and capacity discipline than ever before. So yes, there's certainly an oversupply in numbers on paper, so to speak, but the carriers are doing a very, very good job from their side, from their angle to blank a lot of sailings and reduce a lot of capacity. So going up, you Know, for, for what we're seeing right now, it is. It is not uncommon for the carriers to blank sailings before the May Day holidays in China. What was different, I think, over other years is that they were much slower to bring that capacity back.
Even knowing whether they knew or not, I don't know that we were probably going to see an influx of cargo, which is what we're seeing now.
Some of that is, is the change in seasonality, as I said. Some of it we think is potentially importers worried about probably a much higher bunker for third quarter. So they're trying to beat that. It's just also the change in contracts. If somebody signed for a higher rate, they might be trying to get freight in on their old contracts. So either way, we saw sort of a clash of more volume than probably normal coming out of China and Southeast Asia after the Mayday holidays and the carriers just not reacting as fast and, and that, I think, was very purposeful.
[00:06:46] Speaker A: Right.
[00:06:47] Speaker B: You know, overall contract rates are pretty flat from last year, maybe even slightly lower, which you can argue may be profitable, may not be profitable for the carriers. So they are still very focused on the spot rate market. And if they can drive the spot rate market up, that's where they're going to make, you know, good money. So that obviously is happening. We're seeing spot rates getting very, very high.
[00:07:13] Speaker C: Right.
[00:07:13] Speaker B: That's going into June.
[00:07:14] Speaker A: That's interesting. Yeah, I think, I think Vincent Clerk as well said in the, in the Maersk earnings that they were, they were quite worried about the overcapacity situation. I think he said, like, obviously would prefer it not to be the case. I think he said that there'd be some more slow steaming. I think as we go forward.
Something else that we were looking at quite a lot last week is tariffs. And we did a podcast with Container Trade Statistics and I spoke to their CEO who was talking about, he was giving me the volumes on the Trans Pacific and looking at the loss from China to the US and how the Southeast Asia had mostly made up for these volumes. He was saying that this was kind of an impact of what we saw in the tariffs, but that now this is starting to be cemented into people's supply chains. So it was an immediate reaction, but now people are like, well, it's working for us, so we're not going to switch it back. Are there any kind, kind of workarounds that you saw when the tariffs were implemented? That even though the IPA tariffs are now being ruled unlawful and refunds are being given, are there any Kind of different trade routes that you think have been cemented now.
[00:08:15] Speaker B: I, I definitely, I think it even started after Covid that people realized the, the volatility that they have of relying on China as their sole supplier base. So that just accelerated after the Liberation Day tariffs and. Yeah, I mean, you know, anybody that understands a supply chain knows this is never something that is easy to change. It's difficult to find new suppliers. It's difficult to put new ones in or take old ones out. So there was a very, very fast acceleration to expand, whether that was into Southeast Asia. Yeah, the statistics are clear that Southeast Asia picked up the vast majority of the declines out of China.
But I think we're still seeing a lot of interest in India, some Middle East, Turkey, places like that. I mean, it really depends on the commodity. There are still, unfortunately for some toy manufacturers and some of the lowest value imports are pretty stuck with China. It's much more difficult for them to move.
And Vietnam is obviously a much smaller country.
So, you know, I don't, I don't know that we're going to see a lot more of this, but I do believe that, you know, most importers are looking to have a much, much more robust and expansive supply chain. So we, we see a lot of the same things. I think India is really the next question mark on everybody's mind on what, you know, we've been hearing for a decade that India was going to be the next China. And I don't think that will ever happen, but, you know, they're hungry to take more business. And so we continue to see our customers very much looking for new suppliers and new alternatives to relying on simply China.
[00:10:05] Speaker A: Stephanie, thank you so much for joining me today. It's been wonderful to speak to you.
[00:10:09] Speaker B: Oh, thank you so much. It was a lot of fun. Anytime.
[00:10:12] Speaker A: Thank you. My next guest for this episode joining me for the third time in a row, I am with Alex Linnane. Hi, Alex, thank you for coming back on the podcast.
[00:10:20] Speaker C: You're welcome, Charlotte. And for the first time ever, at my actual desk, that makes a nice change.
[00:10:25] Speaker A: Nice, Nice. I say thank you for. Thank you for coming back on. It's not like you really had a choice, unfortunately, but I appreciate it nonetheless.
So we'll start with the situation in the Middle East. It's still effectively unchanged. The hummus is still not really viable for transits. Obviously, we know that there's been a multitude of knock on effects, but you reported this week of a new knock on effect that's happening. And this is about one of the biggest growth sectors in air cargo that is now being impacted. So what's happening?
[00:10:55] Speaker C: Yeah, well, as you say, we've spent a long time talking about fuel and rates and all of, all of that sort of thing. But there is another impact.
Lots of people are expecting that there will be some sort of delays to the, to things coming through the Straits of Hormuz and that will, that will end up in sort of later on manufacturing delays and things. So one of the things is helium.
So Qatar is the second largest exporter of helium, and helium is used in the semiconductor industry for AI servers, for the chip industry. So it's a really important component. And as we all know, it's becoming one of the biggest verticals for our cargo.
But with the challenges in the Middle east, it looks like there will be a shortage of helium coming along.
There's also issues in the US I won't go into here, but you can read all about it on the Lodar. But I feel that that could be one of the things coming along, one of many things coming along that could perhaps impact our cargo. And I just thought it was a really interesting, interesting. Now, the other thing that we recently learned about AI servers is that they're getting bigger and there is a need for 747s rather than say 777s for that.
So the whole vertical is going to create a kind of new, interesting element to air cargo, I would say. Right.
[00:12:13] Speaker A: A shortage of helium. Well, I'm glad that my birthday's already been this year because I'd be gutted to not have some balloons.
I mean, the biggest impact at the start of all of this was that fuel shortage. I think you mentioned it briefly in your answer there, but I read last week the fuel shortages, like, obviously it's still an issue, but people aren't that concerned about it anymore.
[00:12:32] Speaker C: Yeah, it's not that it's not over, it's just that it's not as acute as people thought it would be.
So much refining capacity and shipping flows were disrupted. It looked as if it could be problematic. So you had. Airlines were looking at sort of contingency fuel stops, mints were considering export restrictions, that sort of thing. But the market seems to have stabilized. There have been alternative supply routes have started up. I mean, as ever, you know, things flow like water when they're needed. Inventories have improved a little and airlines have adapted operations. So it does seem that, although I must add this, fuel prices are still very high, but they have come down a bit. And it doesn't look as if there's going to be shortages that will impact the industry. Right?
[00:13:17] Speaker A: Well, I mean, these fuel shortages were one of the main things driving costs up in air freight, as you said. So how are rates looking in general at the moment?
[00:13:25] Speaker C: Well, I mean, they're still really high. There's no getting away from it. They're still really high.
The really big increases we were seeing in March and April have definitely tailed off. In fact, the last TAC Index report showed that global air cargo rates have actually eased off a little.
It's still, as I say, still very, very high. But it kind of looks like the market's sort of normalizing at this level. I mean, there's so many other things going on. We're coming into the summer season, so demand might be lower.
I keep hearing there's a peak season in container shipping, so there's other factors that will obviously always play into air cargo, but at the moment it looks like it's found a kind of stable, if high level of rates. Who knows if they'll manage to come down again or not, but at least they're not going up.
[00:14:12] Speaker A: Right. I'd like to ask you as well about one of your more niche air freight stories from last week. This is niche because it's about one company in particular. This is one of the largest outsourced cargo and ground handlers in North America, AGI.
And it was facing safety allegations from workers at New York's JFK and LaGuardia airports. What are the details here? What was it doing?
[00:14:35] Speaker C: Yeah, it's found itself in the Dirty Dozen report, which no company wants to be anywhere near, to be honest.
It is quite a serious story. So workers and union representatives have accused AGI of multiple safety failings.
Poorly maintained equipment, inadequate staffing, that sort of thing. I've seen some of the pictures of warehouses. You know, there's a few bits and pieces, but AGI told me. So all these complaints were filed, I should say, with the Occupational Safety and Health Administration in the US ohsa.
But AGI told me that they hadn't been notified by OHSA and they hadn't heard the complaints.
They also made the point that safety is their highest concern and that it works to OHSA standards.
So I'm hoping that they will get it all sorted out. But at the moment, it's looking a little difficult all around there.
[00:15:36] Speaker A: Very interesting story there, and I can't let you go without asking what was on the Lodestar Premium this week. So could you give us a roundup, please?
[00:15:45] Speaker C: Yeah, I think My favourite this week is an article about Amazon and its class action lawsuit.
So it's being sued because it raised prices over tariffs but didn't apply for tariff refunds and so its customers are suing it class action lawsuit because it hasn't applied for tariff refunds.
I'll read you one line from the piece which perhaps might say something about it, which is the plaintiff's theory is that Amazon is sacrificing its customers money on the altar of political expediency. So make of that what you will, but it's an interesting story.
There's also a deep dive into the previously struggling toll group Japan Post.
There's a look at the anti cargo theft legislation currently going through the US And a piece on JB Hunt, whose stock soared after its first quarter results. So that's an interesting one to look at.
[00:16:42] Speaker A: Lots of good stuff on there as always. Alex, thank you so much for joining me yet again. I promise I'll give you a week off.
[00:16:48] Speaker C: Thanks Charlotte. It's been a pleasure.
[00:16:49] Speaker A: That is all we have time for on today's episode of News in Brief. Thank you so much for joining me and thank you to Alex and Stephanie for helping me out with this episode. Next week there will be no News in Brief, but we'll be back the week after as usual. And the first week of June, Alex and I are going to be at Tiaka's Executive Summit in Warsaw and I'm also going to be moderating a panel on E Commerce, which I'm very excited for. So if you are going to be in Warsaw, then do reach out to me Charlotteheloadstart.com and come and say hi if you see me there. And also do reach out if you'd like to be featured on a new episode of News in Brief sometime in the future. Thank you for joining me and we will see you next time.
