Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:07] Speaker B: And welcome to the Lodestar podcast. News in brief. We're going to be rounding up last week's supply chain news and giving you insight on what you might see on the Lodestar this week. And a lot happened last week, so strap in. We're going to try and summarize it as best we can. But before we begin, I just want to say that 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.
Well, last week has finally given some countries tariff level clarity, but some are worse off than others. So some key figures that we've got from negotiations, India was given 25%, Brazil a huge 50% and the EU 15%.
Vietnam is on 20% and China is on 30%.
And as of the end of last week, reciprocal tariffs are now back on from 7 August after the end of the pause that was given by US President Donald Trump. And also big news at the end of last week, the US removed its de minimis exemption for all countries from 29 August.
At the moment, it is currently in place for all countries besides China.
The CBP confirmed it has now got the adequate systems in place with lots of automation to deal with this huge load of extra processing that is now going to be coming its way. Now obviously most of the air freight volumes from parcels that were under this $800 de minimis threshold were coming from China. So actually the biggest loss of volume has already happened. Alex, you also looked into the huge flurry of new tariff rates. Did I miss anything important in my roundup at the start? I mean, there's quite a lot to get.
[00:01:51] Speaker C: I mean, to be honest, Charlotte, there's very little we can add to the tariff announcements that were made last week.
One thing is that everyone was looking for certainty. So we were hearing that Asian exporters have been waiting to find out the most cost effective supply chains while also hoping for a definition of transshipment.
Now the latter of those has not been cleared up. So 40% tariffs will be applied to an article determined by CBP to have been transshipped to evade applicable duties.
But tranship has not been defined as yet and those countries with particularly high tariffs, such as Canada, which is on 35%, are hoping to carry on negotiating. So again, it's not quite the certainty that everyone was hoping for.
And then of course there is this court case. So it's bought by a selection of shippers and 11 Democrat led states now the court heard oral arguments last Thursday and while Most of the 19,000 or so words are not so easy to read for a non lawyer, the gist seems to be that the judges were quite sceptical of the President's claim that the trade deficit is an emergency which can trigger emergency powers. Now the government argued that the trading deficit had reached a tipping point which affects the US Military readiness and domestic manufacturing capabilities.
On the other side, it was claimed that the President's tariffs are a breathtaking claim to power that no President has asserted in 200 years and the consequences are staggering. But even if the President loses, it's highly likely it will go to the Supreme Court. So there's still quite a long way to go on this. But for now the impact on trade and of course logistics is going to be how companies price their products and US consumer confidence. How much it's going to impact the US and actually economies around the globe is still quite unknown. So there's still a lot of things to watch out for.
[00:03:44] Speaker D: Yeah, a lot of unknowns. So I think we are going to start to see a clearer picture of the actual impact of these new tariffs if they stay the same. And this removal of de minimis in.
[00:03:53] Speaker B: The coming weeks, this is likely going to be another huge blow to air freight volumes after, as I already mentioned, the loss of volume from China. We heard from one forwarder that this year's peak season is still uncertain as the market is traditionally led by China volumes. Zenitha data shows that air freight rates from China to the US have been down consistently year on year since February. This is when the de minimis was removed, including double digit deficits since mid June. And the global air spot rate fell for the second consecutive month in June, down 4% from the previous year. IATA's June data revealed that globally air cargo demand grew by just 0.8% from the previous year. We're going to be watching this very closely to observe the changes in the coming weeks and months.
And before I get Gavin Van Mahl here to discuss the impacts on sea freight, we're going to have a look at the land side of things. So what is the latest with the rail freight merger between Norfolk Southern and Union Pacific? Alex?
[00:04:53] Speaker C: Well, we've now had confirmation that the two are going to attempt to merger which will create a $250 billion company and the first one company controlled transcontinental railroad. Essentially Union Pacific is buying Norfolk Southern for $85 billion. The UPCO is going to stay on, but there are so many hurdles to Clear. First, the unions obviously will have something to say. The IAM has already said that history shows that less competition is not generally in the interest of workers or customers and that it's going to use every resource to ensure members livelihoods over the lengthy process. I think this merger is going to go on for a very, very long time and has the potential to be really quite messy.
But also on the M and A market we've seen a couple of other moves recently. So NYK or Use and Logistics has acquired a European healthcare logistics company, Walden Group. JAS Worldwide has acquired the UK's Pentagon Freight Services.
And then someone was fault and was telling me that in such a dull logistics market, acquisitions is about the only way companies are going to show any real growth this year. So we might expect to see more of those.
And then there's Flexport as ever, which has bucked the trend by selling something.
So a couple of years ago you may remember the much sort of fated unicorn brokerage platform Convoy ran out of cash and shut down. Now Flexport paid reportedly $16 million for its tech and a handful of staff.
I'm not sure if Flexport had much in the way of a plan for it, and there were also concerns about whether a forwarder owning a neutral platform would work.
But in the intervening period since it bought it, it sort of touched up the tech and turned it into something good.
Well, according to DAT Freight and Analytics, a transport information provider, it clearly says that Flexport had done it well and has again reportedly bought it for $250 million, which is a pretty nice rate of return.
None of it was planned, Flexport confirmed Lodestar. It was just an aligning of the stars they said. But I imagine that cash injection, which represents about one fifth of its 2024 revenues, will be hugely welcomed in the year Flexport has pledged to make a profit.
[00:07:08] Speaker D: Everyone loves a Flexport story. It's quite interesting what you said there about the forwarders and the only way to grow is acquisitions at the moment because I did a report last week on the ocean freight market and how it was the complete opposite and you've got these top 10 major carriers now all fighting for organic growth. It said that MSC was the winner and Maersk was somewhat of a loser in that category. But you will have to go and read the full report on the Lodestar if that sounds interesting to you. Thank you so much for your help Alex.
[00:07:35] Speaker C: Thanks Charlotte.
[00:07:36] Speaker B: Before we move on to Sea Freight, I just want to take a moment to thank our sponsors, 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. Avery are trusted by some of the biggest names in aviation and their customizable platform boosts efficiency, visibility and control.
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[00:08:11] Speaker D: I'm now joined by Gavin Van Mull who's been reporting on the Q2 earnings season. Last week Gav, you looked at UPS and the big one after its acquisition of dbshenka dsv. So what were the highlights of the earnings that you looked at?
[00:08:25] Speaker A: Yeah, second quarter results for UPS and dsv. Yeah, I mean they both sort of broadly in line with the financial analyst consensus. Just looking at broader trends, a few sort of interesting things sort of going on here. They're both sort of talking about exiting various unprofitable sort of business lines.
[00:08:43] Speaker E: And in the case of ups, of course, that's very famously it's sort of disengagement with Amazon, what they call the Amazon glide down, which is taking, I.
[00:08:53] Speaker A: Mean the best part of a year.
[00:08:54] Speaker E: Which is not surprising given the depth of the relationship between the two companies or as it was.
[00:09:00] Speaker A: And in DSP's case, again this is.
[00:09:03] Speaker E: A process that takes a certain amount of time. But you know, they've been exiting contracts, particularly on the retail side with shippers that basically weren't profitable enough.
[00:09:13] Speaker A: There's quite an interesting point made by Chief Executive Jens Lund who said the.
[00:09:20] Speaker E: Rapidly losing interest, I'm paraphrasing here, but rapidly losing interest in, in the perishables trade, I think he said that they'd only ever made maximum gross profit on a ton of perishables was something in the region of 300 to 350 krono, which to translate that into dollar terms is about $30 or something.
[00:09:40] Speaker A: Not very much. Right.
Especially not when you normally look at.
[00:09:44] Speaker E: The margins in air freight.
[00:09:45] Speaker A: Ch. Robinson also reported last rate, again roughly.
[00:09:48] Speaker E: In line with the consensus.
[00:09:50] Speaker A: But all three of these companies, ups, DSV and Robinson are all in the middle of sort of long term corporate trans information projects which, which kind of suggests to me that actually the industry itself is about to sort of change cycle. I'm not quite sure what it's going to look like. The Q and A sessions certainly for.
[00:10:12] Speaker E: UPS were absolutely dominated by the tariff stuff that I'm sure you and Alex have spoken about earlier.
[00:10:18] Speaker A: To the extent that UPS actually basically said we're not going to give any guidance for the rest of the year.
[00:10:23] Speaker E: It's so uncertain.
[00:10:25] Speaker A: But yeah, DSP on the other hand.
[00:10:29] Speaker E: Totally focused on the Schenker integrations.
[00:10:31] Speaker A: The Schenker deal completed two months ago, so we were given the first sort of insight into how that's going.
[00:10:38] Speaker E: Go and read Lonestar Premium Football for.
[00:10:41] Speaker A: The full story because otherwise. Otherwise we'll be here for hours.
But I think the really interesting one was the fact that there'll be no Jochen. It seemed to come as news to Jens Lund who said, you know, I haven't actually heard from Joachim, but you know, we wish him well. He is going to a competitor. We don't know who yet. But Jens did say that, you know, as soon as Jochen's non compete clause has expired, then we're going to see him as the CEO of one of our competitors. So expect more on that front.
[00:11:16] Speaker D: Something I thought was really interesting from your analysis was that you said that Jenslund had taken a slightly more jovial tone after all the allegations about his harsh management style had been coming out.
[00:11:26] Speaker A: This is a bit of an aside, but I remember listening to a program and they were Talking about how Radio 4 announces the cadence they use on their words and if you smile while.
[00:11:37] Speaker E: You'Re speaking, you can actually hear it in someone's voice.
[00:11:40] Speaker A: So it seemed, it seems if Jens had had a bit of that. The allegations that didn't come up at.
[00:11:47] Speaker E: All in, in the Q and A session, but he.
[00:11:49] Speaker A: Yeah, but you could definitely hear a.
[00:11:51] Speaker E: Smile in his voice.
[00:11:52] Speaker D: I did also take a look at some of the Q2 earnings results I reported on CGM. Their Q2 volumes were fairly similar to last year and quite flat actually.
But compared with the most up to date container trade statistics data, it actually kind of indicates that CMA might have lost market share in Q2. Interestingly, their CFO did say during the company's earnings presentation that it would be interested in the sale of Hutchison Port holdings after the negotiations deadline with the MSC Blackrock Consortium expired. And so we might hear more on.
[00:12:28] Speaker B: That in the coming weeks.
[00:12:29] Speaker D: The details are quite scant at the moment.
[00:12:32] Speaker A: Yeah, it was just an addendum to what you were saying about CMA and the Hutch portfolio. There was sort of further clarification out of Panama right. At the end of last week. The Comptroller General has concluded Hutch's contract.
[00:12:44] Speaker E: With the Panamanian government is, I don't.
[00:12:46] Speaker A: Know, illegal or not warranted. So Panama is looking at possibly doing a private public purchase of those two terminals. In Balboa and Cristobal. I don't know. We'll see. There's a lot more to come on the Hutch thing. A lot more to come as ever.
[00:13:01] Speaker D: With the earnings results. There was more conference call, redux on premium, which are always highly entertaining. Plus on premium, we did an analysis of the Union Pacific Norfolk Southern merger. We took a look at the Air India crash and how companies should manage crisis communications.
And we also did an examination of the age of carriers feeder fleets. This found that just under 30% of the global feeder fleet is over 20 years old, which is considered ancient in cargo shipping. And MSC in particular have about 60% of its feeder fleet in this category. But last week MSC did actually place a mammoth order for 120 feeder vessels. And it's also rumored that CMA CGM will be revamping its feeder fleet soon, but no details confirmed. Gav, do you think the shipyards can keep up with all of these orders?
[00:13:50] Speaker A: So here's the thing. If their carriers are placing orders with yards with a view to avoiding the.
[00:13:56] Speaker E: US trade of fees on Chinese built.
[00:13:58] Speaker A: Ships and place those orders in South Korean or Japanese shipyards, then yeah, it will be difficult to keep up with.
[00:14:05] Speaker E: That kind of ordering.
[00:14:07] Speaker A: You're talking now a four year lead time. If you're placing an order now, it's going to be delivered 2029 at the earliest. It's a long lead time. It's a very long lead time. I mean the standard sort of lead time if there's not a backlog at shipyards would normally be two years from signing the order, getting the ship built, doing the sea trials, blah blah, blah, all that sort of thing. So basically two years between order and, and hitting the water the last time I remember that shipyards being as full as they are day would be not long before the global financial crisis 2008. And in the aftermath of that there was a multi year sort of whiplash. You had the financial crisis, trading became rather depressed in terms of demand and so on and suddenly it sent the industry into what, five, six, seven years of constant over capacity and it didn't.
[00:15:06] Speaker E: Stop until Hanjin went bankrupt in 2016.
[00:15:09] Speaker A: There is a big difference this time, which is if I went back 10 years and I was looking at, looking at those ships hitting the water then and they weren't needed, but unfortunately they were all ultra large container vessels. Obviously this time we're talking about feeder ships. So there is a, there's a line of difference in the way that the overcapacity story might Manifest itself. Although having said that, in the next, I think it's the rest of this year and next year there's still a.
[00:15:35] Speaker E: Considerable amount of larger ships due to be delivered.
[00:15:38] Speaker A: The other interesting thing was the effect on the charter market and the impact that this has on non operating ship owners because they're left at the moment, they're getting offers, very good offers, their tonnage from the carriers. But they're also looking at a market where charter rates daily, higher rates are still very strong. So it's a kind of do they stick or do they twist? Do they sell off their ships for a decent profit margin and then go order some more or do they think that I'm going to hold onto it and you guys can carry on paying the high charter rate? And we don't know what's going to happen in six months time. You know, if demand drops off a cliff or if this sort of overcapacity shadow that we've been talking about for what best part of 18 months, if it starts to materialize, then the Noos could be hoping to get high charter rates. Suddenly the charter market crashes and then you're probably going to see a bit more scrapping. Who knows? I thought it was really interesting, really interesting.
[00:16:37] Speaker D: Well, speaking of rates, last week saw a huge amount of tariff levels solidified. I mean for now and as I said with air freight, I'm assuming in the coming weeks and months we'll understand more what the impact will be on volumes and rates. But what happened last week with rates.
[00:16:55] Speaker A: Flat, flat, latter day flat?
Nothing really. There was very little on the WCI. There were small 2% week on week declines into the US west and East coast.
The routes to Europe, both North Europe and the Med were unchanged.
[00:17:16] Speaker E: So really pricing hasn't gone anywhere apart from, you know, the gentle slope downwards on the Trans Pacific for the best.
[00:17:23] Speaker A: Part of a month. Now think that the real story of this week, and I've been checking this.
[00:17:29] Speaker E: With my sources and with other analysts.
[00:17:31] Speaker A: And stuff, is there's just no peak season, there just hasn't been one. And I've got a funny feeling that there isn't going to be one. Or if there is, we've already had it, you know, with the sort of kind of strength into northern Europe front loading the stuff that went on in June on the Trans Pacific. I think that might have sort of done what the peak season would do. I mean we won't know this really for another six to eight weeks.
But if I'm right, then the story for the next two months is all going to be about how carriers manage capacity.
[00:18:09] Speaker E: Is it going to be blank sailings will be service withdrawals or suspensions?
[00:18:14] Speaker A: And I'm going back to my last point. Are we finally going to see some.
[00:18:18] Speaker E: Sort of crease in scrapping?
[00:18:19] Speaker A: Because there's no doubt that there's a.
[00:18:21] Speaker E: Lot of older ships there on the water.
[00:18:24] Speaker A: The thing about older ships is they're less fuel efficient, the unit costs are higher.
[00:18:28] Speaker E: You know, it's probably time to start retiring some of these, these old ladies.
[00:18:34] Speaker D: Well, your predictions do often prove to be to be correct. So we will have to wait and see. Thank you so much, Gav.
[00:18:43] Speaker A: Thank you very much, Charlotte.
[00:18:51] Speaker B: So now we've summarized for you everything that happened last week. Here is what you might see this week. Now, unless there's any more curveballs thrown to us, we will have a proper look at what the tariff levels and de minimis rules will mean for stakeholders and trade in general. Q2 earning season will also be ongoing this week with reports from the likes of Maersk Expediters and gxo. So we will have some reports on those plus a more in depth look on the Lodestar Premium.
And we will start to run a short series with comments from insiders on what it's like to be taken over by DSV or to be part of a mega merger with the impact on staff. This is obviously a very hot topic at the moment. So we're going to be looking at company culture, mental health and what you should do if your company is taken over.
So look forward to that this week. Thank you so much for joining me and I will see you next time.
[00:19:43] Speaker A: Sam.
