Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:06] Speaker B: And welcome to the Lodestar Podcast News in Brief. This episode is sponsored by Air Charter Service. Air Charter Service is the aircraft charter broker of choice for thousands of shippers globally. So if charter is the answer to your shipment, then contact Air Charter Service for a no obligation quote. So we recently had the very unfortunate news that another ship fire has broken out, this time on at the 18,250 TEU container ship the Marie Maersk. There aren't really any details yet to the cause of this, but when we see fires like this, it has in the past often been linked to misdeclared cargo that could contain lithium batteries or chemicals that haven't been properly handled because they've not been labeled correctly. This news came on the same day that we had Sri Lanka rejecting port of refuge status to the previously ablaze one high 503 that caught fire back in early June. The vessel is now going to have to be towed outside of Sri Lanka's exclusive economic zone. Another major news item from last week was the announcement that the US and China had extended the pause on so called reciprocal tariffs until 10th November.
As the end of the deadline of this extra 90 day extension coincides with the typical pre Christmas peak season specifically for air freight, we reported that there could be a rush of demand the end of October or early November. Now to give us some more information on the current status of the air freight market, I am joined by managing director of aviation consultancy Avion, Marco Blumen. Marco, as I said, we have just had the news that the reciprocal tariffs between the US and China have been postponed for 90 days. So should we brace for some more front loading? I mean what impact is this expected to have on the airstreight market?
[00:01:53] Speaker A: Hey, thanks Gerald. Hey, to be fair, I mean if you put it into the perspective that, you know, back in April we saw the announcements were actually enormously severe, right up to 145% and then later on back to 30%.
The effect of that I think has already been happening. So basically in April and May you saw diversions from China to US trade to other markets, especially in the high tech electronics sector and laptops and smartphones and things like that.
With the market being down from ChinaTV, that's roughly 20%.
Now, in June that's another 15%.
Most of the front loading has already happened. And also people were expecting that this announcement of the delay of another 90 days would be in place. You know, China and US are just two large trading partners that have to come to an agreement somehow and Yeah, I guess they need some time.
[00:02:44] Speaker B: Yeah. I have heard that there might be a bit more front loading maybe a bit later on, maybe around October time. But aside from US and China, I'm curious to know what the impact's been more globally for air cargo. As we've seen one of the world's largest consumer nation hit a multitude of countries imports with different tariffs. So what stuck out to you from all of this chaos that we've seen in the last few weeks and months?
[00:03:08] Speaker A: Well, I guess we were already scared when the EU got hit with 15% and that was sort of seen as a very good agreement. Let's just keep in mind that last year the average tariff rate between the EU and the US was just roughly 1%. So 15% starts to kick in. But then keep in mind the latest news of other countries. For example, Brazil got 50% recently.
You know that that definitely is priced elasticity strongly. India was 25% but got another 25%. So that is also at 50%, except of course for some of the sectors and companies that are willing to invest into the US as well. Right. So I think the smartphone sector might not, might not be hit that much. But 50% for India is really a big number.
But even countries like Ecuador, which have of course the very, let's say, prices, the flower market gets a tariff of 15%.
You know, the question is how much of the flowers can actually take that kind of price hit. So it's to be seen what's going to happen. And of course the other example that everybody's talking about is Switzerland, you know, 39%. The biggest airfreight commodity by the way, is manufacturing equipment from Switzerland into the US and on top of that, you know, the high value pharma, if that gets to 39% starts to kick in. And the famous watches as well. Right. So if you have to pay for a certain watch 39% more than you're used to, then it starts to become really pricey.
[00:04:33] Speaker B: I mean, I don't want to kind of push for some more uncertainty in the market, but it would be nice to see these rates go down a little bit.
It's also important to bear in mind that we're about two weeks away from the end of the US de minimis exemption for the rest of the world. Obviously it's already been removed for China. But is this something that you think is going to be a big hit.
[00:04:51] Speaker A: To volumes, to be fair, not really.
China is by far the largest E commerce production market in the world. And China to the US in particular. When the de minimis hit we saw a 40% decrease from China to the US and then China basically looking for alternatives in Europe, in Gulf, in Latin America to get the E commerce product. But 80% of everything that is cross border e commerce is originated from China anyway. So I would not expect it to be a major factor. I think it's much more relevant to watch what's going to happen with the flows from China to all these other countries in the world. So far we still see very strong growth so we're expecting that to continue.
[00:05:32] Speaker B: Do you have any advice for shippers and forwarders before you leave?
[00:05:37] Speaker A: Well, I would say watch the tea leaves. I've said that before is business is so volatile now it can literally we see it in the data. It just changes by the week if you will and it changes in big volumes. So really follow what's happening to E commerce because it has an effect on air cargo or demand supply relationship.
[00:05:56] Speaker B: Thank you so much Marco. I appreciate your help.
[00:05:59] Speaker A: All the best. Thanks a lot.
[00:06:01] Speaker B: I just want to give a shout out to this episode's sponsor, Air Charter Service. With a network of 34 offices worldwide and 650 aviation specialists, AirChart servers can always deal in your preferred language, time zone and currency no matter where you are located. Their team is available 24,7 to help you with your charter requests. So Air Charter Service can find the perfect solution for you quickly and efficiently. So now that Marco's given us some context on the current status of the air freight market, I'll give you some insight into what the rates have been doing recently. Freight has revealed that airlines are currently shifting capacity away from lanes with easing demand and to trades with increasing volume.
And this has thus far been keeping air freight rates stable overall. But they are still lower compared to last year.
On the ocean side, there was yet another weekly decline, a downturn of 2%. On Shanghai LA according to Drury's World Container Index, the Shanghai New York leg was down 5%, Asia to Europe and the Med rates fell 4% and transatlantic rates were down 3%.
And our news editor Alex Whiteman reported that at this point a slowdown in rate declines is all carriers can hope for as the demand outlook for the second half of the year is fairly muted. But Tapag Lloyd CEO Rolf Habon Jensen did say in the group earnings call that he expected ocean rates to improve in the third quarter from the second quarter. And he also said that any hopes of pre Covid rates are long gone. And he explained that the base cost for liners is a lot higher now and this was actually reflected in Habergloid's first half of the year financial result. They showed a reduced profit despite a massive 11% volume increase and a 10% revenue growth. And they said that this was due to the higher overheads like a phasing of the Gemini Networks and longer Cape of Good Hope transit times. But they actually raised their expectations for the second half of the year slightly. South Korean line hmm also reported they had an overall positive first half of the year. But when we kind of looked at the individual quarters you can see that this is mainly due to the first quarter. Their numbers showed net profit in the first half of the year was up 5.7% from the same period in 2024. But the second quarter's net profit was actually down 28.7% from the second quarter of 2024. So that just kind of illustrates the impact of all that frontloading we saw in the first quarter.
And finally on the Lodestar Premium this week there was a deep analysis of Flexport's finances plus of toll groups and forward airs results and there was a useful breakdown and summary of what the FedEx CFO had to say in an interview with a Deutsche bank analyst. So very useful insight over on Premium this week and it really puts earning season into context. So do go and have a look over on Lodestar Premium Foreign.
So now that I have rounded up the important points of last week's supply chain news, here is what you might see on the load start this week. At the start of the week we might see some impact of the Air Canada strike and subsequent staff lockouts. So the contract between Air Canada and the union representing air stewards expired in March and the two parties are now locked in a wage dispute. The union issued a strike notice and the airline subsequently issued a lockout notice explaining that a planned shutdown was the safest and most predictable way to cease operations. A full shutdown of Air Canada's operations happened on Saturday after two days of gradual wind down. This will impact the belly capacity of Air Canada's flights, which I mean the majority does fly in the belly hold. So this could see serious cargo delays to and from Canada.
Air Canada has requested arbitration and so the Canadian government might step in. We will keep you up to date. Also coming up, Israeli ocean liner Zim will be releasing its Q2 results on Wednesday.
So we will be covering that. I'm also going to be doing a report of the on time performance of different airlines. We usually do look at schedule reliability in the context of ocean liners, because that is historically not great. But actually, the data from airlines also tells a very interesting story, so stay tuned for that.
And finally, there is always a likely possibility that we will see more news related to tariffs and the consequences on the market. I'd be very surprised if we didn't see any tariff news, so do keep an eye on the loadstart.com, sign up to our email bulletins and Follow us on LinkedIn so you never miss an update. Thank you so much for listening for bearing with my long monologues this week, and thank you to Airchart Service for sponsoring this episode. I will see you next time.
[00:10:51] Speaker A: Sam.
