Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Lodestar podcast. News in Brief. And after a short summer break for the News in Brief podcast, we are back as usual and ready to recap this week's supply chain news. Now, coming up on this episode, we are going to be looking at what the latest conflict escalation in the Middle east and Russia means for supply chains. Recent impacts of port congestion, recent rates in both air and sea, and details of an interview between WiseTech and the Lodestar. Let's get into the episode.
My first guest for this episode is Nils Rosch, chief strategy officer at BetterSea and founder of Solvan's Advisory, also an exec at PIL, Maersk and CMA. So you're a great person to chat to about all things container shipping. Nils, it's great to have you on the podcast.
[00:00:50] Speaker B: Charlotte is entirely my pleasure. Long time, Lucy.
[00:00:54] Speaker A: Yeah. And you're in a very wonderful setting as well. Very much beats my white wall that I've got behind me. It looks very nice where you.
[00:01:00] Speaker B: It's called France and Aquitaine region, which once upon a time was British. Right. Territory. So I understand why you would conquer that for sure.
[00:01:08] Speaker A: Well, let's get back to logistics. So first of all, Nils, this week we saw yet another escalation in the US Iran conflict with both parties exchanging missile and drone attacks. So the Strait of Hormuz has now been basically untenable for six months.
But at the same time, we're starting to see more carriers pick up Suez Transit. So according to Sea Intelligence's recent analysis, 19% of Asia, Europe capacity is now transiting the Suez Canal. So what do you think of these two factors, like of uncertainty around Hormuz, but then increasing certainty around sewers? What do you think that means for the industry in the second half of the year?
[00:01:46] Speaker B: I think it's important to highlight that Red Sea crisis, which is lasting for more than a thousand days now. Right. I mean, it has been a crisis with viable, not, say, intensity, because the threat of life is always the same to me, but variable scoping. Right. So when the Houthis started, first they, of course, you know, attacked everything that that was basically sailing around. And then they narrowed it down to the US and their allies. And some days they expand this list, some days they reduce this list. And now you have very few ships of US And Israeli ships in that vicinity, but what you have are Saudi tankers. So they are the core targets for those attacks. Which means that since it's quite visible that they are the core targets, you have carriers that may Feel a bit more comfortable having ships sailing through. Right. This has been exacerbated by the fact that the homeless crisis has pushed the brand very high. I was looking yesterday was 95. I don't dare to look today to see if it's 100 or not.
But basically it's an incentive more because it's cost. Of course we don't compare cost and safety but it is a pressure, more additional pressure to answer to a board on, you know, why is a certain French carrier transiting and we are not? And for what we have seen recently, the return of some services for Maersk is to me it's only that of course Maersk would like to resume. They have human capital that they don't want to put too dangerous, I understand that, but they also have a board and management that are asking questions and they need to answer that. I think that beyond almost on one side and retail on another side, we must read androgenous factors or external factors that are happening, which are of course the congestion, the port congestion mainly born in Asia. We must remind people of that.
This adds delays, delay means that carrier needs to recover. They don't have more speed to give, they're already going fast. They don't have more ships because we are still lacking a few ships despite some moves.
And therefore this has an added vector you could say to push carriers into the direction of finding solutions, finding shortcuts of course, while remaining in safety for the crews and the ships.
[00:03:59] Speaker A: Yeah, definitely. I mean that bit about port congestion is quite important because it's really a vicious cycle when you get that port congestion and then you get empty containers and then it's just knock on effects. Because obviously it's not just the geopolitical disruption that's causing this. I mean last week we saw a typhoon cause congestion in the Chinese ports of Shanghai and Ningbo, which are the two busiest ports in the world. We reported that ships are having to wait 10 days to birth last week, which then led to July schedule reliability suffering its sharpest monthly drop in over five years according to Sea Intelligence data. So is this a big issue at the moment for shippers or do you think that people are managing it well?
[00:04:37] Speaker B: We went from Caribe to Sila, so we went from the worst to the worst. Right. So we had three to five days chronicle congestion. Every time you call Chinese port in past years you have three days delay to of course a typhoon that may have terrible impact and consequences of 8 to 10 days.
What my colleagues in the industries and guys tell me is of Course, right now they're in contingency mode, so they need to find solutions and plans. Shanghai and Ningbo especially are now impossible to not call. If you want your ships to be full departing Asia, you can sometimes under extreme duress like now, we can consider calling one or another. And that's what basically my colleagues, they do, they wish for cargo and nominations and try to fill the ship by calling only one of the two to have the least pain for everybody. But even that won't suffice. You will have losing sailings. That will happen because we're batting basically one to two weeks late compared to the agenda. And you could say that basically the baseline in the past month was one week late. Now it's going to be two weeks. So it's another sailing loss. You know very well that losing sailings means that again, supply and demand will be imbalanced. Freight rates may very well rise. And I don't like to say may they will rise.
Carriers may try to pick up some ships from other trade lanes to balance that which will create consequences in others.
I think what we should watch, and especially the shippers and the freight forwarders are the current schedules, how they will evolve in the coming, let's say a couple of weeks. And what does it mean for the ships coming back for Golden Week? Because what I see or foresee anticipate is of course that some of those ships, they may well be supposed to come just before the Golden Week. They will now be in Golden Week or after. So if I had to guess, I would say that the concentration of blank savings around Golden Week is going to be very important just because of this typhoon and we are not yet at the end of the typhoon season, unfortunately.
[00:06:36] Speaker A: Well, that will be interesting to watch what happens ahead of Golden Week. Nils, I just want to kind of change the topic slightly and ask you about a bit of a rogue story last week. This is allegations that Costco has been using their vessels to spy on US Military communications. This was according to two senior Trump administration officials who basically said that Cosco has a decades long intelligence collection partnership with Beijing that allows China to collect communication signals from vessels and aircraft operating across Europe, North America and Asia. Obviously, China's embassy in Washington rejected these claims. But what, what do you make of this? I mean, is it a bit of a cause can cause for concern when shipping matters kind of get tied into geopolitical ones?
[00:07:17] Speaker B: Yeah, so I was piling because, you know, I haven't been recently on the coast coast ships, but I've been on ships I've never seen or witnessed such kind of procedural equipment that could be hidden. Of course, who am I to say that this, what they say is impossible, but very unlikely.
If I may just, you know, I'm not very much a leftist, so in general, I don't like to just beat on the Trump administration. If I can just have a little pun. Recently they published a mega report and legislation associated that says that transshipment is forbidden and that some countries had been helping other countries to evade tariff through this, you know, incredible, incredible fraud which was just a transshipment. So if they misdefine a transshipment, who is to say that they don't think that the radars we have on the ships are not spy antennas while they are just, of course, here to help us navigate and spot objects. Right.
I think, you know, it's just follow suit to the US placing Costco on this blacklist. Right. The list of civil entities that are associated to and helping the People army of China.
I don't think it's the end of it. I actually have a crazy theory that I've been mentioning in a podcast recently with Zenetta and Bertrand and to my friends that listen to my terrible stories by the bonfire for a few years now, which is I see a world. I see a scenario where the U.S. will ban Chinese ships from calling the U.S. i know it's extreme, but what we see today happening, though, it makes us smile and for now is anecdotal, it goes into the same direction. And you know what will happen in such a world where such the blackest swan ever could happen? Well, you know, for me, I've seen cargo and cargo always flow. So, you know, carriers and alliances will realign, will likely have European carriers serving the US And Chinese carriers, whatever the US definition of that is, will rebalance themselves and their fleets onto the north, south, which is quite natural trading partners, right, that they have today.
And, you know, we'll make it. We'll just work under a new framework of sorts. Let's see.
[00:09:18] Speaker A: That's a very bold claim from you. But if it does come true, then that would be a very good claim to fame for the rest of your career. I can tell. I can tell. So finally, Nils, we are now moving out of the summer peak season.
So do you think we can expect a reduction in rates? I mean, what have you seen from the latest rate developments across the major trades?
[00:09:37] Speaker B: Right.
I've been reading for one month analysts and some journalists that say that, you know, the pig is over and trades will drop and everything I talk every weekend to fight forwarders in the us, in Canada, some, some guys, of course in Europe, et cetera.
I don't think we are seeing the end of it.
You know, maybe what I'm going to share with you right now is anecdotal, but it could also be very representative of the markets I'm going to talk to.
We still have, you know, rates to the US east coast at 10,000 plus. I have freight forwarder, a friend of mine in the US that is locking and trying to get space and make it happen that with a Panama that you guys write fantastic articles about becoming harder and harder to cross.
I have actually a podcast on the Nino that I'm supposed to air out. I'm a bit late on that. I had a scientist from noaa, so the American administration, scientific administration on that.
It's, it's not the end. What we see for now is also far away from the 2023 and other very low Panama water levels that we have seen before. So it could get worse. On the US west coast rates are healthy and I was saying before, we haven't seen yet the end of the typhoon seasons surprisingly in the numbers when you look at it, there's not really much more typhoons with global warming and El Nino, but for sure we still have a few more to go through before the season is finished. On the India trade, I think that's one of the key bottlenecks that people I talk to, each time I talk to them say I have really no time and the rates and the capacity are going crazy. And you have seen recently, maybe there is an empty terminal strike. There's a terminal strike in Mondra, I believe in India. Right. So that's not going to get better. And now if I go back to the old Europe, my favorite place in the world at least we have first preliminary discussions of strikes in Germany. There are even strikes being discussed, I think in the Netherlands that again combine to the low Rhine water levels and the need for truckers and for a smooth supply chain that we see leads me to think that though the Asia Europe trade, of course the rates have decreased and are a bit more manageable level, they are increasing again and they will continue to increase. I clearly can say that all of those trades plus the rest, which of course are interdependent of them going in September and leading to Golden Week for sure are going to be at the same level about that, that what we have.
[00:12:09] Speaker A: Right?
[00:12:09] Speaker C: Very interesting.
[00:12:10] Speaker A: I'm sure that's the last thing that shippers and forwarders Want to hear?
[00:12:13] Speaker B: I don't know, you know, because I had a very interesting podcast with Michael King and on the Freight Buyers, right, with Mark Chadwick, which represents the Global Shipper association. And I believe you have him as a guest soon also, or had him.
He said that he's happy that carriers are making money because they are partners of the shippers and they need to make money to be serene and sustainable partners. And now you also have some people saying, okay, ports are congested, terminals are not equipped, the infrastructure is not there. It's the fault of the carrier. Everything is the fault of the carrier. Too much ships, not enough ships. Terminals, not so. So, you know, I think we are in a world, we are in an environment, a system where carriers are making money. I don't think it's bad. Could it be a bit less, could be a bit more? That's for market to decide. It's not for us, as you know, outsiders, let's say, to have a strong, strong opinion on.
Yeah. And you know, just to look back. Yes, Vincent, Claire and now even Sorentoft are saying what I've been saying for three years, that the bottleneck is going to be transferred from the ships to the ports. You can have more ships coming. I don't think that the order book is. I think the order book is non event. Again, strong words from the bold man, but I really think so and for now, reality proves me right.
Does that mean that we need to blame the terminals and it's a blame game? I don't think so. But you know, when you had 15, 16, 17 years since the first triple E of Musk, with all the industry telling you we're going to have 24k, 25k ships. I don't think that you can sit targeting a certain English consultant right now and sit and say, oh, we could have done nothing. We invested what we could and we invested regularly and everything is fine.
Clearly the numbers show you wrong.
So, yeah, don't be too much carriers. Right. Not everything's our fault. A strike in Hamburg, a strike in Rotterdam is not the front of the carrier, but will add pressure to the market and consequences on the shippers.
[00:14:09] Speaker A: Nils, thank you so much for joining me. This episode, you've been wonderful. I made some very bold predictions. It'd be interesting to loop back in a few months and see if any of this has come true. Or a few years. I don't know how long that will take to materialise, but I really appreciate your time.
[00:14:23] Speaker B: Take me on those. All of them will come true.
[00:14:26] Speaker A: Safe Travels.
[00:14:27] Speaker B: Cheers.
[00:14:28] Speaker A: My next guest for this episode back to help me with the supply chain news is Lodestar publisher Alex Linane. Hello, Alex. Welcome back.
[00:14:36] Speaker C: Hi Charlotte.
[00:14:37] Speaker A: So Alex, to kick off the episode, we have been seeing the impact of the EU de minimis removal and the €3 small parcel fee that they introduced. So how severe has the capacity cut been to Europe?
[00:14:49] Speaker C: Well, first of all, I've got to do a bit of a mea culpa because on my first day back at work after a holiday, I used the wrong data.
We have since, of course, changed the article and updated it. And using the correct data, we discovered that airlines have cut freighter capacity between Asia and Europe since the EU introduced the new low value import rules.
So in the weeks we looked at the week before those rules came in, freighter capacity was 15% higher than it was in a similar week in August.
So that's quite a reduction overall in that time, by the way, global freighter capacity reduced as 2%. So that was significant year on year. Hong Kong, Europe tonnage was 33% down in the week ending 23rd of August, but mainland China Europe traffic was only down 8% according to World ACD. And actually World ACD thinks that it's now bottomed out and that volumes might start to rise again on that on those routes.
[00:15:49] Speaker A: Well, I don't think anyone can blame you for the discrepancy in data at the beginning of your your first shift back after a month in the sun. I think that was bound to happen. I'm headed to Liege next week for the E Commerce forum, so I'm sure I'm going to hear a lot more about this.
Does this drop in capacity also mean a drop in rates?
[00:16:06] Speaker C: Well, actually China, Europe, spot rates have rebounded now from their sort of late July low. They fell for six consecutive weeks up to week 31 and then they rose for three consecutive weeks after that.
Hong Kong, Europe rates have been slightly less resilient. They're now only like 3%, 5%, sorry, above where they were last year.
I just had a quick look at freightos terminal and their fax rates have actually dimmed again in the past week just a little bit. So still not entirely clear on rates, but hopefully we'll get more firm data next week.
[00:16:41] Speaker A: Alex, I spoke earlier on in the episode to Nils Roche about the kind of impact of this geopolitical conflict that we're seeing on sea freight, but I wanted to ask you about what's happening in air freight. So we've had this conflict escalation between us and Iran and at the same time Russia and Ukraine as well. So is this having any impact on Middle Eastern or Russian airspace?
[00:17:03] Speaker C: Yes, it is.
So in the Middle east, the European Safety Agency has extended its recommendation from the end of August to the end of September now that airlines don't operate in Iranian airspace and parts of the Gulf. So there are some restrictions, reroutings and some congestion.
Perhaps the more significant development is in Russia where Ukraine has warned that Russian airspace is not safe as it's starting to use longer range drones and so on.
Moscow airports as a result have suffered closures, cancellations and delays this week. Of course, Western airlines largely avoid Russian airspace, but Chinese carriers and some Asian carriers, Central Asian Gulf carriers can use Russian airspace, but they're being told they probably better not. At the moment, Russia, I think, is denying that there's any problems, but better to be safe than sorry, I reckon.
[00:18:02] Speaker A: Yeah, absolutely. And I mean, it's such a fast moving story and it changes all the time. I mean, we should just say that we are recording on Thursday afternoon, Thursday 3rd September. So if anything changes between now and when this is released, which is very likely to, then that is why, Alex, as I said at the beginning, you've been away for about a month now and while you were gone, wisetech reported their first half earnings. Wise Tech we've spoken a lot about on this podcast and you actually had an interview with them very recently. So what came out of that interview? Did they say anything about their finances?
[00:18:32] Speaker C: Honestly, to be honest, I didn't really ask them about their finances because there's so much more going on at wisetech that to me seems like the dullest part of it all.
I really like the CEO Zubin Apu.
He's very approachable and I don't know, he seems quite honest and quite candid, which is very refreshing.
One thing he didn't want to talk about was the recent raid by the Australian Competition Authority, which is sort of fair enough. I wasn't really expecting him to. But he did talk about DSV and the future relationship with them.
He spoke about the CargoWise value pack and the way they've had to amend the pricing.
He talks about the outage, the IT outage they had earlier in the year.
We've actually broken the interview into two parts. So the first one was focused on sort of Wise Tech and all the noise around wisetech and the second part will be on Cargo Wise and the future of TMS and how Wise Tech fits into all of that. So, yeah, I thoroughly recommend reading it. It was a really interesting interview. I thoroughly enjoy talking to him.
[00:19:36] Speaker A: Sounds like there's going to be lots of exclusives within that as well. So I would definitely encourage our listeners to go over and read that on theloadstart.com Finally, Alex, what has been on Premium this week?
[00:19:46] Speaker C: There has been a nice amount of analysis on the UP Norfolk Southern merger.
More on that cyber attack on Siva Logistics and what the outcome of that might be. A really interesting article about compliance, actually and the future of freight forwarding following the Koonanagal Apex probe into whether it violated export restrictions. That was really interesting.
And there's an analysis of Costco shipping. So definitely, as ever, go and go and check out premium.
[00:20:15] Speaker A: I'm intrigued. What constitutes a nice amount of analysis?
I'll have to go over and read that. Alex, thank you so much for your time. It's been lovely to chat to you.
[00:20:23] Speaker C: Thanks Charlotte.
[00:20:25] Speaker A: So that is all we have time for this week. A huge thank you to Nils and Alex for joining me and helping me recap this week's supply chain news. And a huge thank you to you all for listening watching. If you're not watching then please do head over to YouTube to watch the episode and please like subscribe, comment, share all of that. I've said it a million times but it really does help us out. Thank you very much and enjoy the rest of your week.
