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. And this episode we are going back to our roots and we are only having guests on from the Lodestar team, that is of course, Alex Linnane and Gavin Van Marle. Now, this episode we are going to be looking at yet another round of surcharges from the ocean carriers, a major disruption for cargowise users and what we make of market rumors of a major takeover in ocean freight. All of this and much, much more coming foreign.
My first guest for this episode. To unpack all that has been going on in the ocean freight market, I am joined by Gavin Van Maal. Hello, Gav. Right, so first things first, at the end of last week, very annoyingly this was after we had already recorded the podcast saying that the situation was worsening and it was all very uncertain. It appears that the US and Iran have come to a ceasefire agreement with the subsequent opening of the Strait of Hormuz. So what do you think, think of this? Is this the start of the, is this the beginning of the end of the uncertainty?
[00:01:09] Speaker B: I mean, it's a, it's a start of sorts, isn't it? I mean, I, I think it, it, I mean there's some sort of MOU has been signed. We're told, I think the details of it have yet, the full details of it have yet to be revealed. I mean it, it depends on what your base case is, right? Will a police agreement actually stick and, and passage, freedom of passage restored? Will it, will it fall apart? I mean, no one really knows, right? I mean, no one really knows. So, so then the question is how do carriers respond to the fact that they probably don't know what's going to happen? And the answer to that is probably with great caution, as, as. And they were reminded about this, you know, on April, the, what was April 18, when there was sort of initial signs that things might be, have been allowed and, and people started to try and move their ships and very quickly the Iranians sort of made it clear, I mean, they fired warning shots both figuratively and metaph.
The sort of, to the industry. So, so that's that, that's the uncertainty question. And then on top of that you've got how many mines are there? What's the clearance rate of the mines? I mean the estimations I've seen are anything from, from one month to six months, depending on who you speak to, what's going to be Israel's response?
And overall, of course it is also obvious that this sort of Hormuz probably needs to reopen before you can start looking at the Red Sea opening. So that's like on a, on a broader, broader time scale. Longer time scale, yeah. It's, it's very, I mean I think it'll very much a day by day thing and, and, and it will be the ship owners, the manning crews and, and the, and the insurers, you know, sort of deciding when these things are safe to, to, to go. I mean presumably the, the, the priority would be getting the ships that have been trapped there and weren't supposed to be trapped there out. Right?
[00:03:02] Speaker A: Yeah. So I mean still quite uncertain, but definitely a positive step.
Now I spoke about this quite a lot with James Hookham on last week's episode, but this week has seen yet another wave of surcharges from the carriers. We saw Maersk, Hapag Lloyd and CMA CGM all introduce various gris and peak season surcharges. A lot of these out of China.
What is currently happening with rates? I know you don't have the exact rate rate numbers at the moment, but I mean are we seeing a general rise at the moment?
[00:03:32] Speaker B: I mean they really are on the rise. Yeah. I mean all carriers, you mentioned a select few there, but all the carriers are introducing peak season surcharges and it's pretty much on all trades. I mean we've seen some really big ones on the transatlantic as well.
CMA CGM announced a $2,600 per 40 foot PSS on Mediterranean to North America in, I mean that's, that's, that's, that's a big hike and, and, and if it's, if it's, it's peak season surcharges on, on contracted volumes and of course on spot markets it's being done through FA ks for instance, MSC this week announced a new FAK rate of 6000 from Asia to North Europe. They have announced another one for the first of July of $7,500 per 40 foot to North Europe.
So these are all being done on a fortnightly basis. And so we're most likely to see this is what typically happens in these sort of market scenarios is you see the carriers push up prices on a sort of fortnightly basis. The weeks in between those price increases, the rate increase will sort of level off plateau somewhat and then goes up again.
And then when we sort of know when this has come to an end is that bit when a fortnightly price increase comes in and nothing happens to the rates. And that's when you sort of think, right, the apex has probably been passed, but at the moment only one way and that's up.
[00:05:13] Speaker A: You make. You're gonna sing a song about it.
We'll spare the listeners that. Now a lot of these are peak season surcharges but Gav, is the peak season outdated? I mean you did a comment piece on this this week. So what are your thoughts?
[00:05:30] Speaker B: 20 years ago when I was working for a magazine called paper called International Freighting Weekly, there was only one peak season. It was the summer peak season, right? There was the, basically it was the pre, it was the peak season that lasted from sort of late July through to the end of September.
And this is 20 years ago. So this is back to, this is like yes, this is 20, 25 years ago. And I remember there was a colleague of mine which older listener remember called Matthew Beddo who was the managing editor of a venerable title called Containerization International. I remember one January around this early part of this century and him saying to me, I can't believe this but I'll delete the name of the shipping line but such and such shipping line has, has just introduced a pre Chinese New Year peak season surcharge. He said, I just cannot believe this. This is ridiculous. Since when has early January been a peak season? But you know, here we are 10, 15 years later and sort of two peak seasons were established, right? The summer one and then the pre Chinese New Year one. Just the second one wasn't as much of a peak as the first one. But now you just seem to have these mini peaks that appear out of, that seemingly pop out nowhere all over the place and, and then, and almost, so that, so that the market is almost constantly phasing in and out or it's phasing out of one peak just as another one seems to hit. Do you see what I mean? It's, it's like these peaks are happening with such sort of, and I, I don't mean regularity but they're, they're happening such a lot that, that the idea that one period of the, of the shipping season is a peak in comparison to everything else has just become ameliorated, right? It's, it's, it's, it's just sort of frayed. So you know, if we look at this year for example, we can, I mean everyone says we're in a peak season now. I was talking to forwarder recently saying okay, so say this lasts until the end of July.
You're then going to have all These roll pools that have built up in Asia, you know, the shipments that have missed their allocation or shipments are above allocation, didn't get on thing or whatever you'll have, you'll spend August clearing the roll calls and before you know it, we'll be back to pre golden week when there'll be another peak season because the factories in Asia going to shut down again soon. So it's, it's, it doesn't seem as if, you know, the traditional peak season really exists anymore.
And this of course is a massive problem for shippers in terms of their budgeting because there's very little foresight on when they might be expected to pay higher charges. You know, I mean in normal life we all know that if you go on holiday during the school, during the school holidays, you're going to be paying, you're probably going to be paying more for your air tickets and your hotel prices, right? That you know that because it's a period of peak demand. But when the peak demand. When you don't know when the peak demand is.
[00:08:25] Speaker A: Yeah, that's, it's really fascinating to see how it's kind of changed over the last 20 years. I mean I've only been in the industry for about three years, so I can't really comment on that. But it's interesting, it's interesting to hear about and I'd be curious to see how it adapts over the next few years as well. Gav, you had quite an interesting article this week about a container cartel. This is about a class action lawsuit alleging that the world's biggest box manufacturers colluded to restrict output, inflate prices and police each other's behavior during the pandemic supply chain crisis. This sounds extremely juicy. So what are the details? What, what is a container cartel?
[00:09:03] Speaker B: It is juicy. So it stems from the U.S. department of Justice.
They indicted seven executive and six companies which in sort of combination control around 95% of the world's container manufacturing capacity. They're all based in China.
And I mean the evidence is pretty damning.
On the back of this indictment, a U.S. shipper, C.A. spalding and a U.S. trucker, Day Daybreak Express, independent of each other, have launched class action claims against the defendants in this case and that those claims were filed with a whole bunch of evidence in the, in, in court dockets.
And as I say, it's pretty damning, damning on how they controlled output. You know, they signed a contract limiting the different companies to how many containments they could build, even to the extent that they installed something like 87 CCTV cameras in the factory production lines to police the various companies to make sure that they weren't exceeding the agreed output. I mean now I should say this is all allegations, right?
These people haven't been convicted of this, they just stand accused of it.
But most damning of it all really to my mind is that there is just these emails and messages between the different executives explicitly warning each other to not say this because it might break anti monopoly laws or don't say this or let's present it this way so that we don't. So that we don't. Yeah, like I say, so we don't look like a cartel which I mean
[00:10:55] Speaker A: that's, I mean writing that in an emailing me breaking.
[00:10:59] Speaker B: Yeah, it really looks like you're knowingly breaking the law.
But like I say this is all allegations.
[00:11:08] Speaker A: Allegedly.
[00:11:09] Speaker B: Allegedly. I mean it's some, it's some quite serious figures. I mean ssto who's, who's the. I think the chairman of Singer Mass but is quite an important figure in the Singaporean shipping industry.
He's had to step down from his roles and stuff. So these, these. Oh yeah, these are, these, these, these are very serious. I'm not, I have no idea what's sort of informed enforcement capabilities of the DOJR in respect Chinese companies and stuff
[00:11:35] Speaker A: like that but well I definitely, I definitely would encourage listeners to go and read, read that article that you wrote if that sounds interesting to them.
Finally, Gav talking about allegedly. I don't think there's much to this but there was a rumor circling last week that msc, which is obviously the world's biggest container shipping line was looking to buy Hapag Lloyd pretty much straight after Hapag Lloyd has bought Zim. I mean it's quite a good tactic. Let them acquire someone else and then acquire them. But what, what do.
Surely this isn't true.
[00:12:03] Speaker B: Well okay, just so, so, so HAPAC has agreed to buy Zim and Zimmons agreed to sell but it hasn't actually received all the regulatory approvals. But yes.
So yeah, this is where we make ourselves look real. This is a great opportunity for making ourselves look really stupid. Charlotte.
I hope we don't fail.
Yeah, I agree with you. I think it's a bit of a non starter. The origins of the story. I have had some, I had to look into it and speak to my people in Hamburg and stuff. The origins of the story essentially are that CSAV which is a Chilean company and owns 30% of Hapag Lloyd has had A change of management in Santiago and the, the, the, the people who've replaced the old incumbents are understood to be less interested in the shipping, their shipping shareholder holdings than the previous incumbents. And that apparently led the Apontes to think that there might be a way in for them to acquire Hapagloid.
Here's a few, just a few sort of bullet points on it really. So CSME has 30% shareholding. Klaus Michael Kuna, of course the owner of Kuhn and Nagel also has a 30% shareholding. Now I understand that these two groups, the Kuna and CSAV have a, what they call a voting pact so that they'll vote in the same way and that holds through to 2030.
So it's difficult to see how that could be navigated.
I mean maybe CSAB could, could come out of it there.
There's also the question of public opposition in Hamburg. I mean, I know that, you know, MSC acquired the 49.9% stake in HHLA, the terminal operator there. Interesting to note that the other, the majority stake is still held by the city of Hamburg and the city of Hamburg owns something like 15% of Hapag Lloyd as well amongst the people of Hamburg that I know. Right. These are my friends there who aren't in shipping. These people I went to school with.
There was quite a lot of opposition to that HHLA sale. There was a sense of selling off the family jewels. So, and I, I would suspect that a similar attitude would be held towards Hapa Glory on a, on a different thing more broadly. I mean, we recently reported the MSC's global market share hit 21.5% which is high. I mean that's, that, that's the first carrier to ever break the 20% barrier. And of course its market share will be higher in some particular markets, possibly the European ones. So there might also be monopoly concerns about it acquiring Hatbag.
And fourthly, and this is the sort of thing that, I think we've talked about this before in terms of MSC and its acquisition strategy, but it's never really done liner M and A, you know, it buys ports, it buys haulers, it buys intermodal companies, it buys companies which support its broader supply chain penetration if you like, but it's never really gone out and bought another shipping company. And I remember I had a conversation with one of the very senior people 15 years ago, he said we just don't understand what we would get from that. You know, we can acquire vessels either secondhand and they have been as you can See, or we can go charter or build our own. What actually do you get from liner M and A? And they said goodwill. What does that mean? So, so certainly there's been less. There's been less of an appetite for liner M and A in that company. Now last recently of course, the Gianluigi Aponte, its founder stepped down.
Management was transferred to his son and daughter. They put out a press release about this. Maybe there is a change of thinking in the new. The new controllers of MSC that that would be a possibility. But as it stands don't see this as a single story. I mean you just wait. Let's just wait for an announcement next week that says MSC is agreed to buy Hapag Lloyd.
[00:16:08] Speaker A: Maybe we should see if MSC wants to buy the lo start.
Offer them this podcast. Msc, if you're listening, get in touch.
Thanks for your help, Gav.
[00:16:17] Speaker B: Yeah, everything's for.
[00:16:18] Speaker A: Thank you for your help Gav. Really appreciate your time.
[00:16:21] Speaker B: Hey, thanks very much Charlotte.
[00:16:23] Speaker C: Pleasure.
[00:16:23] Speaker A: My second guest for this episode is Alex Lenane. Hello Alex. Thank you for coming back.
[00:16:28] Speaker C: Hi Charlotte.
[00:16:30] Speaker A: Now Alex, I want to start the episode by speaking about something that we used to speak about quite a lot on this podcast but we haven't mentioned in quite a while. And this is CargoWise. Its users faced some issues issues this week. There was widespread login failure and disruption to electronic messaging. I mean there are quite a few cargoise users out there. What kind of impact did this have?
[00:16:52] Speaker C: There are quite a few and that's one of the interesting things about this story. So cargo wise customers around the world reported being unable to access the platform for about two hours. There were widespread login failures, disruption to messaging.
WiseTech activated its major incident protocol and worked on a fix. But customers told us the issue appeared to be both cloud hosted and self hosted users, which was slightly surprising. Wisetech confirmed to us that it was a data update issue which they have since rolled back.
So the reason it's particularly interesting, people have outages. That's not so so special but because CargoWise caters for such a large sector of the forwarding market, it's kind of focused people on on how much dependency there is on that particular product.
We'll be doing more on this. I've already spoken to quite a lot of CargoWise customers and many of them say they still absolutely love the products and wise tech and I think the CEO Zubin Apu has been very much at the forefront of this. Customers have been saying if there was a problem they can just contact him directly and he will help them, which is pretty amazing for the CEO of such a large company.
I think people don't mind the problems if they can talk it through or if they can understand what happens.
Having said that, I asked Ystat for an interview a few days before the outage and they told me that they're in a quiet period now until pretty much September, which given that most companies quiet periods are two to four weeks, isn't the most effective response ever. Having said that, they did give me a statement about the outage. But yeah, we'll be covering more on this and whether, you know, it's a risk for the industry to be so dependent on one provider or whether it's a good thing. We'll just check theloadstyle.com for more.
[00:18:43] Speaker A: Yeah, a lot of the cargowise wise tech stories do come back to that single point of is dependency on one single product a good thing? But that was a good exclusive from you there, so thank you very much. Now onto air freight in general. I had an article this week based on some Trade and Transport Group data looking at trade post de minimis exemption removal in the US and it found the percentage of general cargo on the Trans Pacific has grown massively since the removal of de minimis. I guess as you would expect. But the the data is quite interesting. So back in 2015 general cargo account from China to the US accounted for about 80% of total air traffic with the remaining 20% like express packages. And then by about 2024 this was 53% to general cargo and the remaining was express.
So it was about 50, 50 and since then, so I think it was about since March this year, general Cargo was about 72%.
See the major growth from general cargo now that express has declined. I thought that was quite interesting.
Obviously de minimis has brought around some major trade shifts. This isn't anything new.
You looked into one of these in particular last week. This was India as a popular sourcing destination and Europe as a growing consumer market. What is the latest here?
[00:20:03] Speaker C: Yeah, well India's definitely one of the big beneficiaries of the changes we're seeing in global trade. I mean it's been viewed as a major air cargo destination for some time. So that's not going away. And trade is, you know, sourcing is more diversified than ever as we know. So Challenge Group is the latest to add a new freighter service to Mumbai. It's added one to Shanghai as well actually. And it joins a growing list of operators who've been growing in the Indian market, including Emirates, for example. And there's lots of airlines now setting up at the new airport in Mumbai, just briefly on the market. So rates have eased off slightly from India to Europe recently and more capacity has gone in. And there is, there's a few issues currently. There's a bit of congestion in the ports, especially Nava Shiva in Mumbai.
And one forwarder told us there'd been some operational issues at Air India which had led to capacity being a little bit tighter than anticipated.
But I think those are, those are very sort of slight problems. And in general it is very much a growth market.
The big question, as always over any destination where airlines start to fly in and look for yields is that as soon as they all go in, the rates go down. So there is a sort of longer term concern about it. But so far the capacity seems to have been absorbed and yeah, India's doing well.
[00:21:20] Speaker A: Do you have any idea how the kind of market is behaving in general? I mean, we're seeing so many changes with the Middle east in particular, I guess is the main factor. And there are a few regulations like the one in Europe coming up. So there's a few different external factors how a ship is approaching contracting at the moment. And what are you seeing in terms of rates?
[00:21:39] Speaker C: Well, yeah, I mean, you've spoken to a lot of shippers recently, Charlotte. I mean, we know that in sea freight they're pretty pissed off, but in air the mood's a little more cautious.
So with the high rates we've been seeing, understandably a lot of shippers want to delay tenders and extend existing contracts rather than locking themselves into new long term high rate agreements. There's a bit of a feeling we've peaked in rates in air cargo for now and especially with tentative signs of, well, if not war, then slightly more peace in the Middle East. I don't quite know how you say, does seem likely that rates then, which have recently sort of flattened out a bit, will start easing off a bit as capacity comes back fully.
And of course we all hope that fuel prices might come down sooner rather than later.
So, yeah, caution and hoping for rates to lower themselves is what we're seeing from shippers at the moment.
[00:22:35] Speaker A: Yeah, definitely. When I spoke to the Global Shippers association in Warsaw for Tiaka's Executive Summit, Mark Chadwick was, he was saying that they used to sign two year agreements in air freight. He was like, that's just absurd. Now no one is signing anything longer than a year, but I'm ideally shorter. So. Yeah, very interesting. And finally, Alex I can't let you go before asking what was on the Lodestar Premium this week?
[00:23:00] Speaker C: Yeah, Low Star Premium has been playing with blinder recently. It's an absolute hub of fascinating nuggets of information, mostly on the top forwarders.
One article was about the wave of job cuts hitting large forwarders and how AI is impacting companies.
There's another deep dive on Siva Logistics, which the coverage has been fantastic on. If you need to know anything about Siva, I would definitely read Lodestar Premium. And there's also quite an interesting piece on how private equity has quietly brought up the US's short railroads. As ever, there's loads on there. Go and have a rummage.
[00:23:34] Speaker A: Yeah, definitely. If any of that sounds interesting to you, then head over to the Lodestar Premium to read more. Alex, thank you so much for joining me. I really appreciate your help.
[00:23:42] Speaker C: Thanks Charlotte.
[00:23:43] Speaker A: That is all we have time for on today's episode of News in Brief. And I should just say we recorded this on Thursday 18 June, so if anything changes between now and when we release it, then that is why. Thank you very much for joining me. If you are watching on our YouTube channel please like share, subscribe, comment, all of that and if you're not watching on YouTube then do head over to our YouTube channel. Unfortunately there will be no News In Brief next week because I am on holiday, but the week after that we will be back as usual. Thank you very much and we will see you next time.
