Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:06] Speaker B: Welcome to the Lodestar podcast News in brief. Thank you so much for joining me for another episode. And this episode is sponsored by Etihad Cargo. Etihad Cargo. No, it is never just an address, which is why they go beyond borders with their partners to ship valuable goods. We saw a turbulent start to the week for Air Canada. There were around 700 flight cancellations last weekend due to a flight attendant strike. But after the Canadian International Relations Board ordered the union that represents the flight attendants to return to work, the union actually told its staff members to ignore the order, which elongated the strike for a few more days. This was then ended shortly after, at the start of the week, after the party said they'd made a new agreement. But Air Canada did warn that it could take around 10 days for operations to return to normal. So just bear that in mind if you're shipping air cargo to or from Canada.
So that was all over and done with fairly swiftly. But something that is always in the background is these US tariffs. Last week we saw another round of products classified as steel and aluminium derivatives. There were around 407 codes added to the list and shippers were urged to ensure full supply chain visibility for steel and aluminium products, to be able to accurately declare the country of smelt and or cast and provide supporting documentation to U.S. customs if requested. And we actually spoke to a CBP spokesperson to try and get some clarity on specific rules.
A lot of the orders that have been issued are quite confusing and wordy. In particular the issue of trans shipment and how they classify that. I mean, unsurprisingly, they did not address this question, but they did say that they would aggressively combat duty evasion. And they have recently uncovered more than $400 million in duty evasion schemes. So I think comply was main their main message there. I mean, one consequence of the US tariffs, especially on China, having already had their de minimis privileges removed, we reported that according to Chinese customs data, its exports of low value and E commerce items to Europe essentially doubled in the May to July period. And the decline in US markets, which was between 40 to 50% according to trade and Transport Group in May to July, had been offset by this growth to Europe.
And what's really interesting, perhaps unrelated, perhaps related, is that Lufthansa Cargo announced an MOU with Chinese E commerce giant Shein or Shein. And the main reason for this was to scale up the use of sustainable aviation fuel on Lufthansa Cargo's flights for the e tailer within six months. But the MoU did state that this marked the beginning of a long term collaboration between the companies and said it would also encompass further areas of cooperation.
So this will hopefully be a good step for sustainability in the sector. Although I'm not sure how sustainable moving fast fashion is, even if you do it with sustainable aviation fuel. But possibly this also indicates that Lufthansa is vying for a slice of that European e commerce import market that seems to be growing. And before we move to Ocean freight, here is just a quick reminder that this episode is sponsored by Etihad Cargo. At Etihad Cargo, every shipment represents more than just a destination. It is a connection, a promise and a responsibility. And that is why Etihad Cargo works closely with its global partners to ensure your valuable cargo is delivered with care, consistency and confidence. With an extensive network and expert handling at every stage, Etihad Cargo goes beyond borders to meet your needs and exceed your expectations.
So to chat through some highlights of last week's ocean Freight news, I'm joined once again by ex Lodestar writer, chartered ship broker and owner of MJW Consulting, Mike Wackett.
[00:03:56] Speaker C: Thank you so much for joining me on the podcast today.
[00:03:58] Speaker A: Hi there Sianna. Yeah, great to be back on here and this time back from the beach. So the audio quality should be better.
[00:04:06] Speaker C: So to round off earnings season, we had a Q2 report from Israeli carrier Zimmer. And to give a bit of context before we discuss this, its total Q2 volumes dropped 6% year on year, prompting a 15% revenue dip and pushing EBIT down a huge 69% year on year. So what stood out to you from its earnings, Mike?
[00:04:28] Speaker A: I think really we're seeing as we've seen the trend from some of the other results of a very much declining market demand wise and thus rate wise. I mean, Zim really I looked at the numbers and they were down to a net profit of something like 24 million. So they're probably running on break even at the moment. In the Q2 earnings call last week, the CEO, he referred to considerable uncertainty in the market, unpredictability, et cetera. And I think that Zim will be one of the most challenged carriers in the downturn of the next few quarters. And that's by reason of their heavy exposure to the spot market, which is their strategy and also their reliance on charter vessels. I mean Zim has something like 90% of its vessels that are chartered in compared to, I think the top five are looked at was something like 40%. That's fine if you've got flexibility on those Charter time periods but a lot of these ships are on long term charters fixed rate so they could well challenge there on the cost side.
Nevertheless, you know Zimmer's been there before and they've proved in the past their resilience and ability to seek more profitable trades when the going gets tough. And that's maybe not necessarily good news for shippers on those routes that they decide to ditch.
[00:06:02] Speaker C: What I thought was interesting is that I mean everyone expects the second half of the year to be a huge downturn but Zim actually increased the midpoints of its full year guidance. Maersk also did this like why are carriers doing this?
[00:06:14] Speaker A: Good question. I sort of looked at that and I couldn't find a reason really for Zim anyway doing that. I mean they've increased their EBIT outlook from I think it's 350 million to 550 million. I mean the half year they're already on 612 I think that came in.
So obviously they're expecting like all the other carriers break even or even worse. But I didn't see any particular reason why they sort of increased their low point outlook but they obviously have reasons to do that.
[00:06:50] Speaker C: Well, rates this week were certainly on the downturn again. They continued their downward trajectory that they've been on for quite a while now. Zenith said there was a gradual decline on Trans Pacific trade to US West coast down 2.3% since 14 August and into the US East coast was down 1.9%. So US West coast and East coast front haul trades are now down 67% and 56% since the 1st of January.
Zenith also said it expects a downward trend for the remainder of Q3 and Q4 also into North Europe's down 9.5% since 1 August and down 5.2% to the Mediterranean. So I mean Mike, you, you've kind of got your finger very close to the polls on the charter market which is a good indication of the supply and demand balance and how that might play out.
[00:07:40] Speaker A: Well I think there are dark clouds on the horizon. I think really they are already here to be honest.
I mean we see the spot index is going down, contract rates are going down, everything's going down.
The GRIs are just not going to work at all and it's difficult to see how rates are going to start going up again even before Chinese New Year, which next February. You've got this forward loading. Basically for the States for instance, where I mean people are talking about having shipped Halloween products in June of last year so the demand is just not there. And there's a lot of capacity around facing that lower demand. You mentioned the charter market, but that really is a disconnect, really, because you're having a situation where the charter rates are still higher, mainly boosted by a lack of available tonnage. And those operators really have the advantage of long term fixed rates that are going to remain elevated. And that's going to be a double whammy for carriers facing elevated charter rates but lower freight rates.
[00:08:53] Speaker C: And there's so many things at play in the market at the moment. We've still got the Cape of Good Hope reroutings, we've got tariffs. And of course, European port congestion is one that's been cropping up massively over the last few weeks and months. Have you heard anything about this port congestion?
[00:09:08] Speaker A: Carriers love it. Well, they don't commit to that, of course, because the operators are pulling their hair out about getting vessels on schedule. But I was looking across the river at Felixstowe the other day, noticing many of the cranes boomed up. I think that demand has really fallen off a cliff. A lot of the carriers with their advisories would like to suggest that there's a lot of congestion because that helps them to keep the rates up. But I, I really don't, don't see that continuing if it indeed is happening. And on the Red Sea thing, I mean, if the Houthis stop firing on ships and ships resume their transits by the Suez Canal, then we're in for a line of shipping bloodbath, I'm sure, because that extra capacity coming in during really slack demand is going to crucify rates and really some of the weaker carriers are really going to suffer.
[00:10:05] Speaker C: So actually what carriers need is another Black Swan. Eventually, yes.
[00:10:09] Speaker A: I mean, just prior to Covid, rates still low at the time of COVID at the start of the lockdown, you know, they were looking at really dismal earnings. But of course, who knew that there would be that rebound when ships were all over the place, containers were all over the place, which led to that massive spike in rates from that demand.
And then just as things were starting to collapse again for them, along came the Houthis to help the carriers again. So, you know, another Black Swan event would be more than welcome, I'm sure, for carriers.
[00:10:46] Speaker C: Well, I don't want to tempt fate with this, so we'll end the chat there. But thank you so much for your help, Mike. I really appreciate that.
[00:10:52] Speaker A: No problems, John. Talk to you soon.
[00:10:54] Speaker B: And finally on the Lodestar Premium this week there was a financial analysis on how DSV values its client relationships. There was a bit of market gossip about a possible next in line for the Maersk CEO title. There was a Freightos Q2 Earnings deep dive and a look at how C.H. robinson has smashed records this earnings season. So do go and give Premium a look if you like, in depth, exclusive insights, especially when it comes to investing.
So now that we have rounded up last week's supply chain news, here is what you might see on the Lodestar this week. Well, it's a national holiday in England on Monday, so we won't have any editorial coverage on 25 August, but we will be back to normal after that. Our news editor, Alex Whiteman has been researching an article on the logistics side of humanitarian aid, which has been particularly prevalent due to the conflicts and just horrors we are seeing in both Gaza and Ukraine and just, I mean so many places all over the world. So definitely a very important topic right now. I will also be heading to London Heathrow Airport to do an interview with Air Canada, so you can expect some insight to come from that later in the week. And of course on Friday 29th of August, the US will remove its de minimis exemption for parcels below $800 for the rest of the world. Obviously this has already been removed for Chinese imports, but it is after this date that we're going to start to get an idea of how this might further shape air cargo in terms of demand to the us so you can look forward to that.
[00:12:31] Speaker C: Thank you so much for joining me.
[00:12:33] Speaker B: This week and thank you to Etihad Cargo for sponsoring the episode.
