Episode Transcript
[00:00:00] Speaker A: Foreign Good morning and welcome to the Lodestar Podcast. News in Brief. This episode is sponsored by Avery Aviation Software. Avery Aviation Software powers digital transformation in air cargo from booking to billing and everything in between. Streamline your operations with one smart platform.
So last week we started to get some new tariff figures come through. Hopefully they don't change again. This is a reevaluation of the so called reciprocal tariffs and we're looking at 15% on Japan, 19% on Indonesia, 19% on Philippines and 15% on the UK.
So all around the 15 to 20% margin so far. It is important to note that not all of these have been formally accepted, but it kind of gives us some insight into where negotiations could be headed.
Of course, at the end of the week we saw the European Commission release a list of countermeasure duty rates it was prepared to enact come the 1st of August if no deal is reached. And from the kind of ongoing trade war between the US and China, we got some data last week that illustrated the impact that it's been having on air cargo. I'm now joined by Alex Linnane to chat all things air freight. Hi Alex.
[00:01:24] Speaker B: Hi Charlotte.
[00:01:25] Speaker A: So trade data service showed low value Chinese Exports to the US were down nearly 50% on the year before and there was a year on year decline for the first six months of this year of 8%.
But then China's customs data actually shows a 38% increase in exports for the first half of the year, not to the US just in general, and a 35% year on year rise in June. So it's clear that this volume that was lost in the US is being made up for in other markets such as Europe and other parts of Asia. Alex, do the rates or capacity data from last week tell us anything about what is going on with the current air freight demand?
[00:02:03] Speaker B: I had a great chat with Asian forwarder DeMurco last week.
Right now, as it has been for some weeks, in fact, the air freight market is really quiet. You're right, China is indeed looking for new markets. But while Europe is obviously quite attractive because it's large, demand is quite weak and consumer confidence is still pretty low. Mirco did say that Latin America in particular, Brazil and Mexico are seeing growth in Chinese imports, as is Peru apparently.
But overall shippers are still in wait and see mode because as you said before the tariffs, most manufacturers have production lines set up in China as well as Southeast Asian countries and so they can now switch easily between the two. They're just waiting to see where tariffs are going to be lowest.
Taiwan is apparently waiting with bated breath. They're seeing strong demand for service into the US which are currently not tariffed. But in general rates and capacity is broadly flat. A combination of sort of low demand and worries over tariffs.
[00:03:07] Speaker A: I'll be curious to know if things change drastically over the next few weeks after some further tariff deals are announced.
Also last week we saw a pretty significant restriction on Mexican aviation given by the US and you wrote that this had caused charter operators in particular to be quite confused. So what are the details and what are people saying about this?
[00:03:29] Speaker B: Oh, it's really complicated issue as far as I can tell. After the US claimed that Mexico had breached its air transport agreement with the U.S. the U.S. put restrictions on Mexican carriers. Much of it's related to filing paperwork in advance of flights and stuff, but there was also an order that some Mexican charter carriers must request charters 30 days in advance.
Now most charters are done with like one to two days notice, so this is quite significant.
But. So when I asked carriers and brokers what impact that would have on the charter market, no one seemed to know or understand the new rules. The DOT has confirmed the rules, but there is still confusion over the word large.
So only large aircraft will have to file 30 days in advance. Now I had thought that large would mean widebody, but according to Stratagem Aviation, by its definition and by looking at the list of airlines that the DOT has mentioned, large aircraft include aircraft like the Embraer 120, Saab 340, so really quite small aircraft. Most people seem to think that the whole thing is a bit of a negotiation. The Mexican carriers I spoke to said it's all going to work itself out. The US and Mexico will come to some kind of agreement, but if they don't, there's going to be some disruption for time sensitive charters into the US and the whole thing, to be honest, looks like a bit of a mess.
Mostly because the players in the market don't really seem to know what's going on. So it's definitely one to watch.
[00:04:58] Speaker A: So this has all kind of come from these rules, from the dot. And interestingly you had a report that the Department of Transport was actually being investigated by the US government. I mean, are these two stories linked? What's going on here?
[00:05:10] Speaker B: No, no, they're not linked at all. It's not being investigated so much as the US Government Accountability Office, which looks through various things that the federal government does, it's done a massive study into the US air cargo market and its infrastructure and it's concluded that the DoT has failed to properly communicate with air cargo stakeholders and hasn't fully assessed the reliability of its data, which has made planning much harder. It's a really thorough study, actually worth a read if you have the time, and if I have the time, I'll try and proceed for readers next week. But the recommendations are that they fully assess the reliability of air cargo data, they evaluate the existing sources of information, and they communicate with air cargo stakeholders. Now, one of the things they found, which is completely unsurprising, is that ground infrastructure at major airports is outdated, inefficient and congested.
That will come as no surprise to anyone, but the US Air Forwarders association is really pleased with the report and is hoping that will lead to some significant change on the ground in the.
[00:06:18] Speaker A: US now slightly less glamorous than air freight. I want to ask you about rail freight. I believe there's been some quite interesting developments in the US Rail freight sector. What has been said here?
[00:06:29] Speaker B: Well, yeah, this could be hugely significant. I'll start at the beginning. So the US Rail regulator, the Surface Transportation Board, put in really restrictive rules on mergers in 2001. But the new chief who came on board in January has said that these rules should be read pragmatically and that appears to show that new mergers might be possible.
We already had a North south merger last year which created cpkc, but it's the east west mergers that are the big ones here. Now Union Pacific has said is in talks with Norfolk Southern.
If that merger happens, that would leave BNSF rather out in the cold.
Now BNSF previously said it didn't think a merger was in the best interests of shareholders, but it is now said that it's looking into merging with csx. But even with a more pragmatic regulator, most observers say any rail mergers would be very complicated and still likely to be turned down.
But it looks if they're going to try anyway.
The other issue in usrail is that with this lighter regulatory touch, the railroads are again looking into one man cruise.
But I'm expecting to hear quite a lot of noise from the unions on that particular issue.
[00:07:43] Speaker A: Thanks, Alex.
[00:07:44] Speaker B: Thanks Charlotte.
[00:07:45] Speaker A: This episode is sponsored by Avery Aviation Software. Avery Aviation Software delivers end to end digital solutions for the air cargo industry, helping airlines, GSSAs, forwarders, air charter brokers, OBC providers and more to automate everything from quoting and booking to tracking and invoicing. They are trusted by some of the biggest names in aviation. Avery's customizable platform boosts efficiency, visibility and control Discover how Avery's ERP platform can transform your business at Avery Aero.
The end of the week had some very interesting developments related to the port of Santos in Brazil. This is a story that we've been following as it progresses, but it relates to the construction and operations of a new terminal at this port. I'm now joined by Gavin Van Marle. Gav I previously spoke with an exec at Ocean Network Express who was kind of explaining that as the global fleet expands and ports become busier and berth base is like gold dust at the moment, it's quite a lucrative thing for carriers to be operating these terminals and it generally means they get priority for their vessels. So what is the latest in Santos? Who's going for this terminal?
[00:08:57] Speaker C: So yeah, this relating to the TechOn10 terminal, Lyn Santos, which has been on the table for a number of years. Like we're in President Lula's second term at the moment and it was on the table in his first term.
It's the construction operation of a 3 million tier capacity terminal.
By way of reference, current capacity is about just over 6 million in Santos. Santos is Brazil's biggest port, so you know, it's a 50% addition to the country's major gateway. Under Brazilian law, current operator of a terminal in a port is not allowed to bid for new concessions unless they give up their existing concession. Now Maersk, which operates a terminal in the port in cooperation with MSC has launched a bid to challenge this and saying it should be allowed to bid. You know, it's of scale and operating arm APM terminals, has the experience necessary and so on and so forth. Their appeal was to launch a new public hearing into this law that has been rejected by a judge. So if that is upheld and the law continues to be upheld, what it means is that the existing operators in Santos won't be able to bid for tech on Ted now the existing operators include Maersk and msc as we've already mentioned. They also include CMA CGM which acquired a majority stake in Santos Brazil earlier this year. It also includes DP Worlds which operates the Embra port terminal. And as far as I understand it, it also includes Filipino port operator ICTSI ixi which bought Libra Termini, I hope I pronounced that correctly in a sort of distressed asset sale a couple of years ago.
So the interesting thing then is like who does that leave? Right? Because the guy you were talking to was absolutely correct. What has happened a lot in concessions around the world in the last few years is the big, the big guys and I'M talking, you know, Terminal Investment Limited MSC and APM Terminals and CMA have been winning a lot of these concessions. So instead of that, we've got South Korean Line. Hmm. Have already publicly put their hat into the ring.
Would be stunned if we didn't also see a bid submitted by Hapag Lloyd's recently formed Hanseatic Global Terminals.
But then the really interesting thing, of course, is the Chinese. You know, Costco's no stranger to building ports all over the place. In fact, its newest facilities across the continent, over in Chiang Kai and Peru. And especially given the sort of stuff that's going on at a geopolitical level between, you know, Brazil and the Americans and the Chinese, I would suspect there'd be a very strong bid from either Costco or China merchants. You got India's Adani Group, you've got the Turkish Airport, you've even got, given that DP World can't bid for it, you could have Abu Dhabi Ports Company bidding for it. So it's quite an interesting development, really.
[00:12:01] Speaker A: More to come on this story, I assume then. And I do look forward to finding out who wins out in the end. Yeah. Previously in this episode, I spoke about the tariff impact and the chaos it's caused on the general market. You reported that this had a bit of an impact on Kuna and Nagel's second half result because of the weakness of the dollar. And you also actually did a redux of the earnings call on premium, which for anyone who doesn't know, it's kind of like a sketch based on the earnings call. So, Gav, what were your main takeaways from this call and from their results?
[00:12:31] Speaker C: Yep, revenues up 8% year on year, but EBIT was down 4%. Volumes were rather stable. The big drag, as you mentioned, Charlotte, was FX was the currency fluctuations. And basically the fact. I don't know, I think it was like $1 was like 91 Swiss S teams and. And now it's like down to 70 or something. So there's been quite a significant suction in the dollar value against the Swiss franc. KO reports in Swiss francs. But of course, all of its sea freight business is done in dollars. So to give you an actual effect on that, the CFO said that per container it was costing them the currency exchange rate difference. It was now costing them 30 to 35 Swiss francs per container.
They did something like 1.16 million containers in the first half. So, you know, you're talking significant. It's material, as he said. A couple of other takeaways there's no peak season on the sea freight into the US which I think we were largely concluding anyway, but there will be one for Europe and they are loving air freight in particular.
They're getting into this. I've never heard this phrase before. Have you ever heard of hyperscalers? Apparently you use hyperscalers for like big data centers.
I didn't know about that. They've never mentioned it before. But there was a really interesting little snippet that Stefan Paul, the CEO, said he was asked if there had been any sort of tailwinds really from the DB DSV deal.
And he said, yeah, well, okay, two things. One, customers come to us, but really interesting. It's like it puts a lot of good people coming into the marketplace. And he said, we've hired some of those people and these are the people who are allowing Koon and Nagel to get into transporting all logistics of these big data centers. Previously, this wasn't on their radar at all, but presumably because someone was released by DSV following their acquisition of Schenker, Kuhn and Nagel snapped them up and they're now looking at sort of healthy business in the transport and provision of hyperscalers.
[00:14:34] Speaker A: More analysis of that on premium. You can go and have a look. It's very interesting.
I just want to also highlight what else was on premium last week. There was a look at Legared Forward Air, where investors are celebrating the news that private equity is looking to acquire it. There is a deep dive on the port of Rotterdam and on container shipping and a look at Qantas cyber attack and how the airline coped or didn't. More results analysis to come on premium next week as well.
Gavin Ocean freight rates have been on a decline now for the last few weeks after kind of demand, it seems, has trailed off. So what was it looking like last week?
[00:15:13] Speaker C: Yeah, it's down again last week. Sort of gentle slides. The Asia to Europe trades 1% off on North Europe, 2% off to Med ports and Trans Pacific, 5% down into the US West Coast, 7% down onto the US East Coast.
There's not a great deal to report, really. We've mentioned Kuhn and Nagel's comments that there's not going to be a peak season on the Trans Pacific this year, or if there is one, it'll be very muted. We're waiting to see what happens on Asia to Europe. I think we talked last week about the reduction of allocations. That's happening a little bit, but that's been confirmed. So some of the Forwarders who run short term contracts on behalf of shippers, they're seeing their space allocations being reduced because carriers are opting to carry sort of higher paying spot cargo.
And as a result of that, everyone's really waiting for the August 1st peak season surcharges, which are currently around sort of $500 per 40 foot. Most people seem to expect that that will stick for a little bit. It'll very much depend on the strength of demand into Europe, which, you know, for the most part this year has really held up in a surprising fashion. So yeah, we're sort of waiting to see what sort of shape the peak on Asia Europe's gonna take. But other than that, it's pretty flat to be honest. Charlotte.
[00:16:39] Speaker A: So keep checking back on the Lodestar and we will keep up to date with any indicators of that. Asia Europe peak. Now, finally this episode. Does anyone remember the story of the Express Pearl? This was in 2021. It was a vessel carrying chemicals that caught fire off the coast of Sri Lan and it caused a huge environmental disaster for the country. This was about four years ago, but last week the Supreme Court of Sri Lanka ordered the non state parties involved in the casualty to make an initial payment of $1 billion to the country's Secretary to the treasury within a year as compensation for the damage caused. The vessel was owned by Singapore shipping company Eosro and at the time of the casualty was subject to various contractual arrangements. There was more information on the load star, if you're interested in that story. But a very large sum of money indeed.
So now we've caught you up with all the main events from last week's supply chain news. Here is what you might see in the news this week. Well, hopefully at the end of this week we will start to get some actual clarity on what the tariff rates will settle up as. So right at the end of this week, on Friday is of course the 1st of August. This is the deadline that the world was given by Trump to arrange trade deals and set tariff levels.
So if nothing else, hopefully we're gonna get some certainty. Although honestly, who knows? We reported last week that the U.S. treasury Secretary Scott Besant said that this was a pretty hard deadline, so hopefully they won't get extended again. He also predicted that tariff levels will, and this is verbatim boomerang back to the reciprocal level from 2 April, but then negotiations would continue in the background, so of course could change again.
Last week obviously saw the start of Q2 and first half earnings season and this week we will have financial reports from the likes of DSB, XPO, UPS and C.H. robinson, so you can look out for our analysis of those. Thank you so much for joining me this week and I will see you next time.
