Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:06] Speaker B: Welcome to the Lodestar podcast News in Brief we're going to be rounding up last week's supply chain news and giving you some insight on what you might see on the Lodestar this week.
So obviously last week marked the re implementation of Trump's so called reciprocal tariffs on all countries that have as of yet been unable to make a trade deal with the US So it's these next few weeks now that we're really going to start to see the full impact that these tariffs are going to have on shipped volumes and rates. Negotiations are still ongoing in some places, so the advice is don't get too comfortable with the tariff levels as they stand. We did also see the news at the end of last week that the US was set to add an additional 25% tariff on Indian imports. That is on top of their already negotiated tariff 25% tariffs. So that brings the total tariff on Indian imports to the US to 50% which is 1 of the highest rates. Along with Brazil, Trump said that this was a sanction on India in response to the country purchasing Russian oil.
CEO of Transport Intelligence John Manners Bell told us that this will throw many global manufacturers, China plus one strategies into disarray, obviously because India has been a main alternative to China for sourcing, particularly for phone manufacturers like Apple. We recently saw they moved a significant portion of manufacturing to India and John Manis Bell said that given that one of the primary reasons for these tariffs were to lessen the U.S. economy's dependence on China, he said that these new tariffs seem a bit self defeating in Europe. The fallout of all this uncertainty saw a Q2 drop in European road freight rates due to weak demand.
But the Q2 report from Ti Appli and the IRU noted that the contract rates have inched up a bit in the same period and they said that the weak demand was likely only to be short term. So perhaps some positive outlook on the horizon for European hauliers. In the US road freight sector, we reported that shipment volumes rose 2.4% from the first quarter and at the same time freight spend rose 1.2% and this is the first time in three years that both segments have shown sequential gains. The US bank's director of Freight Business Analytics, Bobby Holland, described it as a welcome shift after years of contraction.
But he did warn that with all the tariff related volatility potentially impacting trucking activity, it is too soon to say if the market has turned the corner. So that is definitely one to watch. As I said at the start, it is the second half of the year when tariff rates are set and hopefully remain concrete, that we will see the real impact on volume demand across sectors. And obviously, while the tariffs have been getting a lot of media attention these past few months, there is also the continued threat of the Houthi attacks. Last week we had a very interesting report from Alex Whiteman that carriers have been warned to proceed with extreme caution following the major widening of the Houthis sphere of attacks that was announced the week before last. But the Houthis warned they would target all ships that belonged to any company calling at Israeli ports. That includes Haifa. A Lodestar analysis with the help of our friends at EC found that Hapag Lloyd, Ocean Network Express, Yang Ming and CMA CGM could all be vulnerable based on slot charter agreements, even if they don't directly call at Israeli ports with their owned vessels.
Now, to talk a bit more about the dynamics impacting the ocean freight market, I'm joined by ex Lodestar writer, chartered ship broker and owner of MJW Consulting, Mike Whackett. I'm just cutting in here with a brief intermission. I do have to give a brief disclaimer about this next part of the pod, so I had a great chat with Mike and this was a call that I recorded for the podcast. But it does unfortunately sound like Mike has called in from a submarine, although I'm pretty sure he actually called in from Essex. So it's just an annoying technical glitch. But the content of what he is saying is very interesting, so I did not want to cut it out.
But just bear with it and we'll return to our usual crisp quality next week. Thanks for joining me Mike. It's great to have you back with the Lonestar to join me on the podcast today.
[00:04:34] Speaker A: Hi there Charlotte. Great to be back on the Lone Star News Brief pod.
[00:04:39] Speaker B: Well, last week was a continuation of the Q2 earnings report and we had quite an interesting set of numbers from Maersk. We've spoken a bit about this over WhatsApp, Mike, so I'm keen to hear more of your thoughts on what their numbers indicate. I'm just going to set a bit of context before we get into it. Maersk saw a revenue growth of 2.8% from the previous year, an EBIT of $845 million and an EBITDA of $2.3 billion. So what do you make of this, Mike?
[00:05:06] Speaker A: Yes, it was a really good performance by Maersk in the second quarter.
CEO Vincent Clerk was pretty chipper during the earnings call last week, largely crediting the good performance promotion despite 9.6% year on year average rate erosion to the new Gemini Corporation alliance with Hapag. Vincent alluded to better flexibility within Gemini to adjust supply to demand than with Maersk2M partner MSC and so far I've just not heard of any major disagreements from my contacts on Gemini schedules, whereas that was certainly not the case with 2M. And I think it's been a big win win for Merce with its terminal business revenue soaring by I think it's some 20% and that he credits largely to those Gemini calls. I think it was also no surprise having that H1 under its belt and with good visibility for Q3 to see the typically conservative Maersk adjust its full year from an EBIT break even of 0 to 3 billion to 3.5 billion.
But it does suggest that Q4, which Maersk themselves described as an unknown element, will be challenging for demand and thus rates will be under intense pressure. And that I think explains why Japanese carrier 1, its fiscal year runs from April to March has slashed its full year Profit forecast from 1.1 billion to 700 billion, as it clearly anticipates difficult trading conditions in the next two quarters.
[00:06:53] Speaker B: Yeah, it was interesting the comparison of the two, and also just about how bullish Maersk were with their full year outlook. It came as a bit of a surprise because most people are expecting demand and subsequently rates to drop in the second half of the year.
[00:07:06] Speaker A: I think actually that they are also banking on this 90% reliability target considerably to be something of a commercial advantage to them. And in Crump's situation, I think they're banking on the fact that they will do better than others. And also generally Maersk have a lot more cargo under contract than some of the others, so they may be better protected.
[00:07:32] Speaker B: So to put Maersk's results into context, Container Trade Statistics data showed a global volume uptick of 4% in Q2 from the year before and Maersk's loaded volumes saw an increase of 4.2% compared to the same period last year. So that puts them just above the average market growth for Q2. Total global first half year volumes were up 4.5% compared with the first half 2024 according to container Trade Statistics. So that indicates that demand was very robust in the first half of the year. We're also seeing a big spike in demand for feeder vessels right now, both for new orders and for charter demand. So Mike, having come from a charter background yourself, I was keen to hear your take on this. Why are carriers so hungry to acquire tonnage right now. And how do you see the charter market progressing for the rest of the year?
[00:08:22] Speaker A: You've got, you know, a situation where demand is increased and obviously where you get port congestion, there's more requirements for feeder vessels, etc. Or shuttle vessels as Gemini like to call them. And that has kept the charter market very, very firm. The other thing we can say really is that whilst you've got daily charter rates significantly in excess of vessel operating costs and owners having locked in charters for extended charter periods, there's just virtually no scrapping. And why would they scrap if they're still earning money from those older ships? There's very little tonnage that's coming open and hence when you do see a really good ship, there's a number of carriers after them and that will keep rates firm. I think despite what he expects a downturn in the coming quarters. And the freight side, I mean the NNOs are sitting pretty with our fixed rate long term charters which insulates them against any freight rate collapse.
[00:09:23] Speaker B: Well, it's interesting you mention a freight rate collapse because last week they declined 3% week on week for the period ending 7th of August. That's according to Drury's World Container Index. It did note that the heavy fall that had begun mid July has kind of lost momentum now and the rate of decrease has actually slowed down considerably. But still, I mean Shanghai to Los Angeles was down 4% week on week. The Shanghai to New York leg was down 7% week on week. Shanghai Genoa down 4% week on week. Shanghai to Rotterdam was flat. But I mean what do you think rates are going to do for the rest of the year? Mike, do we have any indication obviously.
[00:10:01] Speaker A: As you alluded to there, I mean rates have been falling for a while and they're now I think on both trades, Asia, Europe and the TransBAC down something like about 60% on this time last year and those carrier August GRI has seemed to have failed miserably. There could I think be a slight uptick ahead of the Chinese October holiday, but who knows on that one with the Trump tariffs that are hitting everybody. But it does seem at the moment that the only way is down. And then you've got this something like about 2 million tu of new build capacity hitting the water next year and that means the outlook is looking bleak for carriers and particularly those with a high exposure to the spot market.
[00:10:47] Speaker B: Mike, thank you so much for your thoughts and for joining me this week. It's been a pleasure.
[00:10:51] Speaker A: Thanks for having me. Charlotte and I look forward to chatting again real soon.
[00:10:55] Speaker B: I'm going to finish this podcast by giving you a quick rundown of the air freight market There wasn't a huge amount of major news in the air freight sector last week. We did hear from stakeholders that the market is at a bit of a crossroads awaiting tariff confirmation and to see what happens once the de minimis exemption is officially removed. On 29 August, Trade Data Service showed us some data that revealed not only are seasonal volume peaks and troughs unusual this year, but also the mix of commodities has been shifting drastically from one month to the next. There was a larger surge of high value commodities front loaded before the tariffs came in, but recently there's been more of a surge of low value commodities to get ahead of this de minimis deadline. As I just mentioned, shippers involved in air freight contracting are advised to make flexible contracts and many are sticking to the spot market.
According to Zenita, Global air Cargo volumes have risen 5% in July from the previous year. And this is really unusual. Usually we see a bit of a lull in July, but despite this slight pickup, global air cargo spot rates declined in July to $2.55 a kilogram. That is 2% lower than July 2024. This is all very volatile and it depends on each trade lane because they vary drastically. Asia to Europe has been very robust and seen a very large injection of capacity recently as carriers look to more stable markets. We also had some earnings reports. American Airlines, United and Delta all posted increases in overall revenue for Q2 and did cite front loading as a reason for this. And also they cited the high volume of pharma shipments as well. And finally on the Lodestar Premium this week there's been some very detailed analysis on Maersk's earnings and how it impacted investors, if that interests you. And similar analysis of DHL's Q2 earnings too. There was a look at management changes for expediters and also an update to the ongoing expediters court case that we've been covering.
And of course Premium released an exclusive look at Alex Lenane's long read on what it's like to be taken over with a specific look at dsv. This is really interesting. It focuses on culture shifts at a company that undergoes a merger or an acquisition and gives you some advice on what to do if you find yourself in that position, which it seemed like is becoming more and more likely.
And if you are intrigued by this, you don't have to miss out if you're not subscribed to Lodestar Premium, although you should subscribe to Lodestar Premium of course. Um, but this article is going to be released in four parts on the main Lodestar page, so keep an eye out for that this week.
So now that we have recapped all the major points of last week's supply chain news, here's what you might see on the Lodestar this week. We are assuming this week and next we'll likely see a big rush of front loading de minimis shipments to the US from everywhere except China. Of course, they've already had their de minimis exemption removed. I also spoke to International parcel solutions company EPOST about the postal network's role in the de minimis exemption. So I'll be writing up the article on what I found about that this week. And we will also see Hapag Lloyd release its Q2 results on 14 August. So it's going to be interesting to see how their earnings compare to their Gemini partner and how their growth matches up to the market's growth as reported by Container Trade Statistics last week.
Our news editor Alex Whiteman will also be writing about the US Road freight market and addressing the problems within the sector. He's also going to be examining how carriers are looking to get around the US Trade Representative's proposed fees for Chinese ships calling at US Ports. We've had reports that this will be implemented from mid October. So you can keep an eye out for Alex's report this week if you are interested in that. Thank you so much for joining me and I will see you next episode.
Sam.
