Episode Transcript
[00:00:06] Speaker A: Good morning and welcome to the Lodestar podcast. News in brief, we're going to be recapping all the main events from last week's supply chain news and giving you some insight on what you might see on the Lodestar this week. Now I'm joined first by Gavin van Mull. And Gavin, we reported last week that container traffic from the beginning of the year to the end of May hit an all time high of 74 million TEU container traffic, overtaking the previous record hit during peak of COVID in 2021. And I think we all kind of established a while ago that we are now in the midst of an early peak season. So what does this tell us about the traditional peak season?
[00:00:41] Speaker B: So it probably means that the calendar with the Red Sea crisis persisting has undergone a fundamental shift. The reason for that is pretty obvious, and I should say that this is particularly applicable to the Asia North Europe and Asia Mediterranean trades because they're the ones most affected by the Red Sea crisis. So we know that ex Asia ships traveling to north Europe need an extra two weeks sailing time. So that effectively means that the peak season in terms of loading vessels in Asia is now two weeks earlier than it otherwise would have been, representing a further adjustment the shippers have to make to their calendars. So for example, let's work this back. A european retailer, for his goods to be on the shop shelves in time for the Christmas shopping season, those goods need to be on shop shelves by the sort of first 2nd week of December.
In order for them to be there by then, they have to be in retailers warehouses and distribution facilities a couple of weeks before that. So we're going back to around 23rd, 24 November, something like that. Now, because the transit time from Asia to north Europe has been elongated by two weeks. We're now looking at a transit time of 44 to 47 days between Shanghai and the first european port of call. Right. So in order to meet the 23rd, 24th deadline of having your containers unloaded off the ship, you're going to have to be loading them on a ship in Shanghaiden around about the 5 October. All of our listeners hopefully will know that that's smack bang in the middle of China's golden week holiday where everything's closed in China. So you're probably, in order to make this year's peak season, if you're a european retailer, you're going to need to get your goods on a ship before the beginning of October if you want to be selling those goods for Christmas. That is a big difference because if you go back to previous years, prior to the Red Sea crisis, the last date you would have for loading a vessel in Asia would be probably the second or the third week of October. So everything has been brought forward and that in itself serves to underline that. Yeah, we've been living through an early peak season now, what it means for a traditional peak season, who knows? If people are having Christmas goods loaded on vessels from after golden week, they're not going to be arriving in Europe before Christmas. So it probably means there's going to be some real bargains to pick up in the January sales.
[00:03:32] Speaker A: Yeah.
[00:03:32] Speaker B: No, really.
[00:03:33] Speaker A: Well, you mentioned that goods are going to be, I mean, for Christmas, be in the shops by early December. But I feel that's quite optimistic. I feel like I always see Christmas stuff in the shops in like, September.
[00:03:44] Speaker B: You often do. But, hey, who knows how much of that is last year's stock?
[00:03:48] Speaker A: That's true. And I'm curious to know what's happened with the rates this week. I know it's your favorite thing to talk about.
[00:03:52] Speaker B: It is. I love the rates. No, actually. So in the midst of all this stuff about shippers really having to scramble for space, one breathing spot from this week was that rates were essentially flat. They remain elevated. You know, we're looking at just over $8,000 on Drury's world container indexes Shanghai Rotterdam route, but that is no change from the week before. So pricing is elevated, but it hasn't increased. You know, we will see what happens this week, as ever, you know, who knows?
[00:04:22] Speaker A: And we also looked at how renewed discussions for a ceasefire between Israel and Hamas caused the chinese shipping stock prices to drop. I mean, why do you think this is, and is this going to have any real impact?
[00:04:33] Speaker B: So I've sort of said to people, it's a sort of pithy comment, but it has its own truth in it. The rates were falling very rapidly before the Red Sea crisis and in fact, most carriers were looking at making a loss this year. Obviously, Red Sea crisis changed that, which the only obvious conclusion of all of this is that the biggest threat to carriers balance sheets was peace in the Middle east. Yeah, I know, it's absurd. So what was basically said was that as soon as the prospect of peace in the Middle east appears, investors have basically sold shipping stocks. Because once the hooties stop attacking vessels and Suez transit resumes, spot freight rates are going to fall off a cliff.
[00:05:15] Speaker A: How awful for them.
Thanks, kev.
[00:05:18] Speaker B: Yeah, you're welcome.
[00:05:19] Speaker A: And now, moving on to air freight, I'm joined by Alex Linnane. Hi, Alex.
[00:05:23] Speaker C: Hi, Charlotte.
[00:05:24] Speaker A: Alex, it seems like it's not just ocean shippers dealing with the high rates at the moment. We reported last week that soaring air freight rates had actually pushed some shippers to consider a modal switch. Could you give some details here?
[00:05:35] Speaker C: Well, it's sort of sometimes all too easy to forget that air cargo does move things other than e commerce. Perishables used to be pretty much one of the only things we talked about. But airlines have long sort of moaned that the yields in perishables are quite low, although they do offer some sort of backhaul volumes in some markets. It's currently the season for both mangoes and avocados, and there have been reports that air freight rates are simply too high for some exporters. The cost of fly to Europe has more than doubled for Bangladesh mango exporters. So they're starting a trial on sea freight to see the quality of the goods after sea freight and the ease of doing it. And the cost is four to five times lower than by air. We've also heard that Kenya is looking to send all its avocados by sea. Now, one company's first ever avocado shipment by sea arrived in India in May. But at the moment, there's another issue, which is that exporters are a bit stymied by a combination of the Red Sea crisis causing delays and a shortage of reefer containers, which is a story we looked at on Friday last week. But air should be aware sea is trying to eat further into its perishables market.
[00:06:44] Speaker A: Well, actually, modal shift was a bit of a hot topic last week. We reported that in the UK, Royal Mail is cutting 18 domestic flights in favour of road transport. They said that was to improve customer reliability and minimize carbon emissions. And, Alex, you actually mentioned to me that this could be a trend that we're going to start to see see elsewhere.
[00:07:01] Speaker C: Well, actually, it was you that reported in December that Amerijet had had to ground some aircraft, in part as a response to the loss of the contract with the us postal service, which is also attempting to bring its services to the ground. So we're now looking at whether other countries postal services are doing the same thing and whether a trend like this is going to impact the demand for smaller regional freighters and, of course, the airlines which offer them.
[00:07:25] Speaker A: Well, like I mentioned, the driving force for some of this modal shift has been cutting emissions as the industry desperately waits for sustainable aviation fuel, which is something that everyone talks about all the time. They really need production to ramp up there, and this seemed like it actually might start to happen with Shell's proposed biofuel facility in Rotterdam. But unfortunately, it transpired that this was put on hold. This is something that you reported on last week, but why on earth would they stop steps to produce SAF if it's so desperately needed?
[00:07:54] Speaker C: That is a very good question that we were all wondering about. So Shell decided to pause work on this much heralded biofuels facility in Rotterdam. But it's a very curious situation. Shell has had to put a $2 billion impairment in this quarter's results because it suspended the work, which is not a small amount of money. But this is despite the fact that from January, all flights leaving the EU and UK must have 2% SAF in their tanks. Shell says it needs to control costs and it wants to look at project sequence. But there are other suggestions about this suspension. One is, you know, quite cynical that Shell would prefer to focus on more profitable parts of his business, which are oil and gas. But the other suggestion is that the biofuels market is being flooded with cheap imports, particularly from China and Malaysia. Now, I've got to emphasise that some companies I spoke to, a company called Eco series last week, they claim that they can trace their feedstock, have used cooking oil, but others claim that there is a fraudulent market which is actually using cheaper palm oil, which is, of course, not sustainable.
But either way, it appears that a mixture of competition, lower yields and lack of enthusiasm seem to be holding up Europe's biofuels ambitions.
[00:09:12] Speaker A: Smells quite depressing, really, isn't it? Well, finally, last week we looked at trade sanctions against Russia and how some companies are bypassing this and the calls for shippers to do more to prevent it. And you've got a bit of an inside scoop here. Alex, what have you found?
[00:09:26] Speaker C: Well, we're working on a story at the moment. We've heard that a major airport in the US, which handles large amounts of aircraft spare parts, has seen a huge rise in exports to central Asia. So russian airlines are under sanctions and are unable to source spares for their western made aircraft. So it does seem highly likely that aircraft spares are going to Central Asia and then going on into Russia. One source said that multiple companies, forwarders, airlines and so on, are knowingly exporting Airbus and Boeing spares and turning a blind eye in the name of profit. So we've got more on that to come.
[00:10:01] Speaker A: Thank you so much, Alex.
[00:10:03] Speaker C: Thanks, Charlotte.
[00:10:10] Speaker A: I feel like that was a really jam packed episode, but I hope that gave you a good reminder of everything that happened in the supply chain last week. Now, we also saw Hurricane beryl wreak havoc across the US Gulf coast that forced terminals in Galveston and Houston to close temporarily. We also had reports of drought in the Amazon region. This led to hapag Lloyd introducing a low water surcharge in Manaus of $4,800 per container that will be effective August 10. And Maersk did this the week before last with a surcharge of $5,900 per container will also be coming into effect in August. And on top of this, there's been severe weather reported on the south african coast. Now, this is a country that already struggles with its port's operational abilities, but the strong winds and heavy rain there have led to some carriers omitting certain south african ports. So all of this to say that these things all happen at once, which is just going to add to the issues that we're seeing because of the Red Sea, the port congestion, the container shortages, and, you know, when it rains, it pours. Pun not intended, but we really could see extreme weather becoming a real problem this week. We will, of course, keep you updated with any operational constraints to supply chains if this is the case. Now, last week we also reported that Hapag Lloyd adjusted its 2024 financial guidance. The carrier said in its stock exchange announcement that this was because of recent strong demand and the increased short term freight rates that have exceeded expectations. So we might also see some other carriers following suit and adjusting their financial guidance. Obviously, we have now reached the second half of the year, so we are going to start to see second half reports, but that will probably be towards the end of the month. And of course, we've still got rail strikes looming in Canada. We're waiting for a decision from the Canada Industrial Relations board on whether canadian rail can be deemed as an essential service. And then we might see the TCRC union go on a nationwide rail strike in Canada, which would have serious consequences on north american supply chains. We've also got the ongoing negotiations between germane trade union Verdi and the Central association of German Seaport Operators. They had their fourth round of bargaining on Thursday and Friday last week. So we will likely have some news there this week about whether they've come to an agreement or whether Verdi are going to be initiating some more strikes. Thank you so much for listening, and I will see you next week.
