Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Lodestar podcast, News in Brief, where, as always, with the help of my guests, I'm going to be rounding up last week's supply chain news in both air and sea. And coming up in this episode, we are going to be looking at the latest tariff announcements and what this is doing to the Trans Pacific trade in both air freight and sea freight. We're going to be taking a look at recent rate movements and the growing role of SME forwarders in air cargo, plus much, much more.
My first guest for this episode is a returning favourite. For the News and Brief podcast. I am joined by the Lodestar managing editor, Gavin Van Mah. Gav, how are you?
[00:00:38] Speaker B: Hello, Charlotte, how are you?
[00:00:40] Speaker A: I'm all right, thank you, how are you?
[00:00:41] Speaker B: Yeah, not bad, not bad.
[00:00:42] Speaker A: Good. Right, we will get into the news from the week. So, to start the episode, we had a few bits of tariff news out of the White House. Firstly, President Donald Trump placed an additional 50% tariffs on hundreds of Canadian products, which is likely to be felt Most across the US Canada road freight network. Plus there was the 20 25% tariff on Brazil that came into effect this week. Gav, you took a bit of a deep dive into the US this week, in particular the sales to inventory ratio and what is happening with rates and capacity on the Trans Pacific trade. So what is the latest here?
[00:01:15] Speaker B: Start with inventory. So, according to the latest US Census Bureau data, there's been a rise across the three sectors covered, which is manufacturing, wholesale and retail. And in each of those sectors, inventories have been replenished over the last few decades, weeks straight months. But sales in each has also increased and by a greater amount than they've actually been replenished, which means that the sales inventory ratio has actually declined. And that's normally a situation which would induce importers to place more orders. But the worry is that if sales declined and we don't know what's behind the recent sales search, I mean, it could well be the World cup, for example. You know, there's been stuff going on there that, you know, I think they had a million odd visitors. So if the sales declined, then the ratio would reverse very quickly. And so the fear is that you would then have an inventory buildup which would lead importers to do exactly the opposite, that is to cancel orders or postpone shipments, and that would ultimately crash Trans Pacific container volumes. I mean, on the trade itself, I get the feeling that peak season's sort of coming to an end, at least in terms of pricing. Spot rates are on the decline into the US west coast and have been for the past fortnight but they have actually started to decline into the US east coast as well. But there has been capacity constraints on Asia, US east coast traffic and actually just shortly before we started recording today I was reporting on Panama Canals has sort of announced its first sort of transit restrictions in preparation for the this year so, so yeah all of this with the exception of the weather could change on the announcement of further tariffs. You know that, that as we've seen before new tariff rules do change every.
[00:03:03] Speaker A: Yeah and I mean that is probably very likely. To be honest I feel like it does change pretty much every day. So we will keep an eye out for that one. Gav, I want to have a look a bit of port news. Now firstly I want to ask you. So there's been an update to Maersk and MSC's bid for Santos's Tekon 10 terminal. We've spok about this kind of a few times across the news and brief podcast but what, what's the latest on this one?
[00:03:26] Speaker B: Okay, so tech on 10 just for a very quick recap, a million TU greenfield term in the terminal in Porto Santos, Brazil's largest when it's built it's going to be claimed to be the single largest terminal in Latin America. I haven't verified that.
And in Santos at the Moment There are three main terminals. There's the BTB BT which is as you say D50 MSC and Maersk operation. There's Santosh Brazil which is owned by CMACGM and then there's DP World's Embra port and under the anti competitive regulations at the moment an operator of an existing terminal isn't allowed to bid for the Techon 10 terminal unless they divest themselves first. So, so basically what's happened is the MSC and an Maersk have together gone to the Kazi, the competition regulator and look, let us bid for the terminal and if one of us wins it then we've got an agreement that the one who didn't win it will buy 50% stake share of the one who did win it.
[00:04:29] Speaker A: Right, that's fair.
Do you think, do you think it's likely to be, to be fruitful for them?
[00:04:36] Speaker B: No, no, I think that there is also at the same time there's, there's, there's two things going on in the. The Chief of Staff office to the President has actually been requesting that the, the Antac, Brazil's waterway, the regulatory body that would hold the auction for Santos. It's been saying that it wants to do away with this restriction altogether. So that's one thing. On the other side, you've got the federal courts in Brazil who have also looked at this case and they've recommended extending the restrictions to carriers.
[00:05:08] Speaker A: Right.
[00:05:08] Speaker B: Because to try and avoid any vertical integration of the sort we were just talking about in relation to Drury's GTO report. So it's really difficult to call.
[00:05:19] Speaker A: Well, we'll definitely follow along with the updates and we'll make sure to update the podcast and our articles.
[00:05:24] Speaker B: Yeah. One thing we can be certain of is that it's going to be delayed. Right?
[00:05:27] Speaker A: Okay.
[00:05:28] Speaker B: It's already delayed.
[00:05:29] Speaker A: Well, also in a similar vein, gav, after Panama's courts nullified CK Hutchinson's port concessions at Balboa and Cristobal in January and reassigned them to APM terminals and til the terminal operating arms of Maersk and msc, Panama has now, and this is according to a recent article that we did, bowed to US pressure to reduce Chinese influence over the Panama Canal.
So how is China retaliating to this?
[00:05:56] Speaker B: Well, I mean, actually this has been going on since March and it's using a mechanism called the Port State control, which is internationally agreed. I mean, it's basically to maintain vessel standards. So when a vessel comes into a port, Port State control checks the vessel to make sure that its technical specs are working, that the engines are working, bilge pumps are working, fire prevention systems working, all the various safety measures that you need to run international shipping. Right. And, and, and, and it has. And you know, they were ejected in February and since March.
Completely, entirely and utterly coincidental. That's dramatic pause laced with irony. It took place just after Hutchison completely ejected from Panama from its Belvoir and Cristobal operations. So it was first noted by FMC Commissioner Laura DiBello. I confirmed it. I trawled through the Tokyo Memorandum of Understanding that that's the Asian part of the Port State control. So basically, in March, the number of Panamanian ships detained by Chinese port state control was 91, compared to just 32 vessels flying other flights flags. So that was just in March and it's carried on since then. Lionelitica reported last week that Panama flag detentions in China are up 700% since March. Now, Chinese say that Panamanian ships have the most efficiencies and that's why they're arresting them. Although it is worth noting that just this month the Paris Memorandum of Understanding, which is the European equivalent, actually moved the Panama flag to its white list, which is, you know, that's Creme de la creme. So make of that what you will. Right.
Just looks like a tit for tat thing. The one irony of this is that it seems to have caught a lot of Chinese shipping firms. At least 100 ships have actually reflagged out of the Panamanian flag and over half of those vessels are owned or operated by Chinese shipping firms. So I think that tells you all you need to know about.
[00:07:56] Speaker A: Thanks Gav. Right, I just want to finish by looking at the ocean rates because we took a bit of a look at the capacity sit situation again last week. So the charter market is still very active and carriers are managing this kind of often discussed over capacity quite well. We looked at a sea intelligence report that showed container shipping has entered a new era of structurally constrained capacity as they found that carriers routinely withdraw 10 to 14% of scheduled space through blanked sailings. The full report of this with all the trade lane data breakdown is available to read on the Lodestar. So I won't go into all of that now but I mean as we know this kind of supply demand balance is one of the main factors influencing rates. So how is this all translating into the rates this week? I mean we all kind of assumed that this over supply would dampen rates this year. But what is the data showing?
[00:08:50] Speaker B: I mean the weekly spot freight rates they're down on all three east west routes this week, down on the transatlantic, on both the Asia North Europe and Asia Med and Asia to West coast, the U.S. west coast and to the east coast all by sort of mid single digit budget declines. But I would say I think that the sort of the downward momentum in pricing is gathering said earlier on. I just feel like we've sort of come to the end of the peaks or coming out of the peak season. There's still sort of roll pools to work through in Asia and stuff. But in general, in general the heavy period of demand is easing off the forward as I speak to particularly on the Asia Europe trades aren't having difficulty finding space. They aren't seeing allocations being ripped up or not fulfilled as it were and they aren't seeing rollovers.
The key thing for me was 15th of July when there was the new FAK rate levels introduced and those just bombed basically. You know that's the market speaking I think just on a. So that's where we are at the moment. And as you reported last week Charlotte, that's just going to mean more blank savings coming up and I think several have already been announced for next week. So the carriers do this blank saving thing because it's very, it's very reactive for them.
[00:10:06] Speaker C: Right.
[00:10:06] Speaker B: They can, can respond to market movements much quicker through blank sailings than wholesale withdrawal of capacity or idling ships or scrapping them. The sort of overcapacity that you're talking. But we have talked about from what I understanding at the moment is we're really going to see that kick in next year in 2028. That seems to be when the big tranche of deliveries are coming through and that's when that sort of, that big structural capacity over capacity will make itself feel felt. But at the moment, at the moment it's really just weakening post peak season demand, which. Yeah, that's it. It's really that sort of. No, it'll put. I mean what we're looking at now is a sort of relatively fallow period until we start building up to the Golden Week, which is what, beginning of October? Yeah, so there's, so there'll probably be, you know, there'll probably be some sort of resumption in, in bookings and, and possibly higher rates coming into September depending on how traders then. And then you've, and then you work through and then you've got Christmas and then it's the pre Chinese New Year peak.
[00:11:11] Speaker A: So yeah, no, I did, I went to a freight house webinar and a Flexport webinar both this week and they both basically said exactly what you're saying, that they're expecting demand to kind of trail off now. And I think someone from Flexport was saying they were advising people not to jump on the first fixed term price that they get offered because it's probably going to be reduced at least until Golden Week. So just kind of keep an eye out, keep your options open is what they were saying.
[00:11:36] Speaker B: Yeah, that sounds about right. I think the other, the other unknown is of course we've still got this war going on in. And you know, you can see oil prices really starting to hike again and then what effect will that have on consumer demand, especially in sort of Europe and North America as people are paying more for petrol or whatever that's been. The big fear is how this thing will eventually impact consumer demand. I mean, obviously there are much greater fears about war going on in the Middle east and certainly consumer demand. We just through this, the prism of
[00:12:08] Speaker C: course, of a market.
[00:12:10] Speaker A: Yeah, well, I mean we will continue to monitor those developments of course on theloadstar.com Gav, thank you so much for your time this week. It's been great chatting to you. My next Guest for this episode. To help me with the air freight news for this week, I am joined by Christos Spiro, CEO and founder of Neutral Air Partner. Hello Christos, welcome to the Lodestar podcast. It's great to have you here.
[00:12:28] Speaker C: Hello. Thank you so much. Thank you for inviting me. Me and I'm really happy to be here.
[00:12:31] Speaker A: So we're going to get straight into the air freight news from this week. A recent bit of Zenith guidance that I read suggested that annual air freight contracts are becoming increasingly difficult to maintain.
And they were saying that tighter capacity and greater reliance on the spot market are forcing both forwarders and shippers to rethink their long term pricing strategies. So your company Neutral Air Partner has more than 400 air cargo partners across 150 countries. So you're in a great position to see what's happening globally.
What are you seeing in terms of contracting today? Are businesses favoring shorter agreements, more flexible pricing or something else?
[00:13:06] Speaker C: Yes, unfortunately what I'm seeing on a daily basis and communicating with all our members around the world, it is true. Unfortunately we're moving towards the death of the annual airfare contract. So what we're seeing over the last months, I would say over the last six months, airlines are increasingly shifting to dynamic pricing either through their own portals or through third party digital portals. And we see less and less traditional contract cargo that they used to have in the past with the big boys and a few master collaters and consolidators. So now what we see is that that type of control cargo is replaced with large E commerce and high volume accounts. So what we see is like they're going to the lower yield with the E commerce and then they try I would say to get it back by offering the rest of the capacity on the spot market with dynamic rates to spot pricing to maximize yield as a result. I mean we see that we don't have any more static rates, no tariff rates and the long term contracts are disappearing. There are though a few exemptions. I mean if you look at China, that's a completely different animal in terms of procurement model. So in China still you have BSAs, the airlines will outsource the airlines that will sell the entire capacity to a number of 10 global forwarders or the so called local masteco loaders. Right? That is still happening. Block space agreements on a uld basis with 30 days equalization on 15 days and then those mastercle orders they will resell to the rest of faith holding communities with dynamic rates or spot rate pricing. So China is still on where you either have, you know, annual contract rates or you have a low season, peak season, middle season, different rates. You also have a few destinations like Australia or South Africa, which for different reasons that it takes a while to explain, we can explain at different times. You also see some contract rates on these destinations. But other than that it's absolutely changing. The market is changing towards dynamic prices.
[00:15:05] Speaker A: It's really interesting to see kind of just how fast that shift has been happening. Actually that seems like quite a recent trend.
[00:15:11] Speaker C: Exactly. But that has a big impact, right? It's a big impact on the supply chain. So shippers can no longer budget their logistic costs. I'm not talking about long term, but even short term. At the same time for worlds are expected to quote quarterly or annual rates. Especially when it comes to big customers, big shippers. And then they're risking, I mean the gambling actually on a day to day with the capacity. So rates are changing daily. The other problem that we see, I would say problem, it challenge. It's very difficult for the forwarders now to give economy rates back to shippers through weekly scheduling consolidations. I mean what is consolidation? Actually you aggregate either the container's actual weight, you combine smaller shipments into a larger signal into consolidation. But this cannot be happening anymore because you don't know, cannot budget. You don't have static rates, you don't have contract rates with the airlines. So you're not risking or waiting one week in order to develop a consolidation because maybe the space or the rate will change daily. So the shippers now don't have the ability to get economy rates through consolidations. That's another problem that we see. The third one, the booking process has become more and more complex. So as an, as an effort for what the day you need to log in in three or four different platforms, the airlines platform and then or booking platforms for rates and capacity, the, the top three or top four well known ones. And then you, you end up by seeing completely different rates for the same flights, different capacity on the different portals. And then sometimes when you book for example cargo on a wide body aircraft through the system, it turns out that is a narrow body aircraft, they cannot move your cargo and then the system automatically rolls over your cargo in the next seven to 10 days. You have no human to talk to, no customer service. That creates a huge, huge problem in the industry and for the federal.
[00:17:00] Speaker A: Yeah, I can imagine. I wanted to ask you actually about the kind of the role of the freight forwarder because another one of these trends we've been kind of hearing more about recently is the growing role of SME freight forwarders and consolidators. I mean despite the consolidation that we've seen among the global logistics players, these kind of major players, these smaller and mid sized companies now represent quite a significant share of the air cargo market. So from your perspective, what is driving that? And are airlines increasingly looking to partner with these businesses?
[00:17:31] Speaker C: Yes, that is correct. It's changing rapidly and we see that we mutual a partner in the network and we see also the increase of the business of our members. We also have data so we can see here by year the revenue and the tonuts we contribute to the airlines and we see a big percentage year on year. So the main reason for me is diversity. The airlines, they want to diversify the client's base. You can't go to your boss and show him or show here that you have four clients controlling 60% of your revenue. Right? So the airlines need to diversify the clients. So especially post consolidation, that's even more important. So that is for me, number one. Number one. So by attracting the, the more SMEs you diversify your risk and you diversify your client's base. Number two, very important specialization, the SMEs. They have access to different type of clients which they control special cargoes. And special cargoes can generate higher yields. It can be time critical. Automotive, aerospace, pharma, fresh live animals. This you will not find it mainly on the global forwarders. Global forwarders, they will have a back to back contract that will move the Siemens, the ge. They have a special SOP that it's very difficult for them to go out of their own procedures and SOP world in order to have to make flexible decisions and attract those type of shippers that the SMEs do. So that is very important for the airlines particularly because as we said before, they don't have the capacity they had before. A lot of it is sold to for e commerce cargo. They want to maximize their yield. So what do they do? They're looking for I would say time critical products. They're offering time critical products with higher yields. Where do you find this business? You find it through the SMEs because they control those SME shippers that they have those type of special cargoes.
[00:19:21] Speaker A: That's really interesting because I feel like when I speak to airlines increasingly they are talking about this kind of high tech vertical or the pharma vertical and they kind of, they're emphasizing that those are the markets that they want to capture. So no, that does Absolutely make a lot of sense with what you're saying. Something else I wanted to ask you about this week was from Fresh tariff News. Recently we've seen Brazil and Canada in the headlines.
More broadly though, how are US Imports looking at the moment with air, I mean, are tariffs still playing quite a big role in decision making from airlines, do you think, and freight forwarders and shippers, or do you think that businesses are kind of starting to adapt to this new normal?
[00:19:58] Speaker C: I think the market will adapt as it always does. I mean we have seen it over the years and particularly on one of the biggest markets in the world. Right. Like United States. So definitely will adapt. There's an impact, certainly. But that is more on the integrator Express and B2C E commerce sectors where tariff regulations directly affect, I would say directly affect high volume shipments, but also the consumer's decision. So in that perspective, yes, there will be an issue that will take more time. But if you look to additional B2B2B airframe imports, it's steady and businesses can adapt to Tariq or anything else. But what the industry needs and the businesses is stability.
So when it's the ability to be able to plan ahead. And we don't have that now either with the tariffs, either with airlines changing, I would say the policies we talked about, rates and dynamic rates, we see also the trends. I mean the airlines are not, they're not using, I mean they're replacing the GSAs anymore with AI with robots. Right. At least few years back you could pick up the phone and call the GSA of the airline. You speak to a human.
The airframe is people's business. We still need humans to drive the industry. And this is for the, for the sake of air cargo. And airlines are, I would say, the most fundamental part of the air cargo. So it will fire back. If they don't realize that these changes have an impact on the supply chain, it will fire back.
[00:21:19] Speaker A: Yeah, no, definitely. I mean it does feel like there's something new every single week to contend with. So I do think that resiliency is probably the main work so far.
[00:21:27] Speaker C: As a media, you have a lot of work over the last few weeks.
[00:21:29] Speaker A: Definitely, definitely. It keeps me busy. Christos, thank you so much for joining me this week. I've really enjoyed speaking to you.
[00:21:35] Speaker C: Thank you so much. It was really my pleasure.
[00:21:37] Speaker A: And that brings us to the end of the episode. That is all of this week's news and a massive thank you to my guests Gav and Christos for their help with that. And thank you to you all for listening and watching. If you are on YouTube please like subscribe, comment, share all of that. You know the drill by now and we will see you next week with another news in brief.
