Episode Transcript
[00:00:06] Speaker A: Good morning and welcome to the Lodestar podcast news in brief, where, as always, we're going to be recapping the main events from last week's supply chain news and giving you an insight on what you might see on the Lodestar this week. Now, for the last few weeks, average global ocean freight rates have been pretty much staying put or on the slow decline as we exit what has been an early peak season. So what movement did we see on the rates last week, if any?
[00:00:31] Speaker B: Oh, no, there was a steep decline last week. It got much worse focus on Asia european trades because they were most affected by it. So WCI Shanghai Rotterdam dropped by 14%. That's basically $1,000 per 40 foot was lost in pricing to Rotterdam. The party is over for the carriers on that particular trade. Very interesting that new container trade statistics data came out late last week which actually showed that the Asia Europe volumes in July were actually down on June. So for customers, I think they can be expecting some continued price reductions over the next few months. And the only way that carriers will be able to halt those declines will be through limiting capacity.
[00:01:20] Speaker A: One of the big news items from last week was that Wanhai's general manager created industry spectrum speculation when he announced that the taiwanese shipping line had been invited to join an alliance, but he didn't disclose which one. And you actually had some theories about this on your column for the Lodestar premium?
[00:01:36] Speaker B: Yes. Obviously, the background to this is Hapag Lloyd's departure from the alliance and its forthcoming launch of the Gemini corporation with Maersk. According to some figures I was looking at from Alpha liner, if you take the two largest trades, the alliance operates on Trans Pacific and Asia Europe, Hapag Lloyd currently contributes about 750,000 te of capacity to the alliance. On those trades, we take out Hapag Lloyd's contribution. That leaves the remaining the alliance of carriers, which is, hmm, Yang Ming and won with a total of 2.2 million capacity on Asia North Europe and Asia North America. Now, this compares to the Ocean alliance, which has about 4.2 million capacity on those trades, almost double, and in fact, is the same as MSC will offer on those trades on its own. So what this means is that there's a large capacity gap now between the alliance and the Ocean alliance. So when general manager Tommy Hsieh, when he talks about, we're talking about joining one of the alliance, really the most obvious candidate would have to be the alliance, because it desperately needs more capacity to remain competitive with the Ocean alliance. Even if Wanhai is talking to the. To the alliance. It still leaves the existing the alliance carriers with some hard decisions to make because the capacity gap between it and the ocean alliance is still going to be very big no matter what Wanhai brings to the party. And so what does it do then? Does it then talk to other carriers? But of course, the greater the number of partners in a vessel sharing agreement, the greater the complexity it has. So I think there's some very difficult strategic decisions ahead for Juan and Yang Ming and. Hmm.
[00:03:31] Speaker A: It will definitely be interesting to see how that unfolds. Now, I have to bring up the ILA president speech last week about just how serious the union is with their strike threats for the 1 October. And he said that right now the union and the employers can't even get past the economics of the contract and they are very, very far apartheid, adding that the workers won't hesitate to strike on the US east and Gulf coast ports if their demands are not met. Then after this saga is over, Harold Daggett said he is looking to create this sort of mega union for all the dock workers in the world, and they would band together to block certain carriers from operating if they started to bring in automation to the port. So, gav, what do you make of all this? Does it indicate that a strike is indeed looking likely?
[00:04:12] Speaker B: I mean, it was great theater, wasn't it, Harold Daggett's speech. In practical terms, it doesn't really make a great deal of sense. I tell you what, it rather reminded me of King Lear. Shakespeare does. Still manages to illuminate our present times, doesn't it? The thing about having a global union of dock workers and going to bring down all the automation. I mean, you know, automated terminals have been operating in Rotterdam for 30 plus years. What are you going to do? Go in and stop all of that? It just doesn't sort of make much sense. But the reality on the ground is, of course, that the ILA, they're in a strong bargaining position. They do the power to effectively close the eastern Gulf coast, and no one wants a shutdown like that. And it might well be that the ILO feels that it has less to lose in doing that than carriers and their customers. It's a mexican standoff.
[00:05:03] Speaker A: Watch this space.
[00:05:04] Speaker B: Yeah.
[00:05:04] Speaker A: And finally, I wanted to ask you about MSC's acquisition of maritime transport. What were the details of this sale, and do you think there are any winners and losers?
[00:05:13] Speaker B: Well, it's very scant on details. So sale of one private company to another private company. We went through Maritime Transport's latest company house filings, their financial year runs calendar. So in the year ended 2023, they recorded a 400 million turnover. This is in pounds, 20 million pounds operating profit. We valued the deal. It was probably worth about 400 million pounds in terms of acquisition price, although that is a lodestar guesstimate. Maritime Transport is the largest container haul here in the UK. I mean, margins in container haulage in the UK are paper thin. And actually, many of the contacts in this neck of the words that we've got have continually marveled at John Williams, who was the owner of Maritime Transport, how he managed to make such success of the business in such a difficult market. Although, interestingly, in the press release that accompanied the announcement of the sale, he did note that the company was in need of fresh investment and MSc is able to provide that, given its cash reserves. Our sources within MSc have indicated that management considers the UK overland market to be a very robust one. So in terms of who's the winners of the deal, MSc as well as maritime transport shareholders. The real issue, of course, because maritime transport currently carries a lot of containers for a lot of carriers, is once the integration is complete and it's medlock running that haulage fleet, 1600 trucks, a large range of intermodal services. Are the other carriers going to be willing to put their business into what is effectively their biggest competitor? Never say never. But the indications we've had from the markets, that's not something particularly comfortable with.
[00:07:03] Speaker A: Thank you very much, Gav.
[00:07:05] Speaker B: You're very welcome.
[00:07:06] Speaker A: And now to talk about all things air freight, I'm joined by Alex Linane. Hi, Alex.
[00:07:10] Speaker C: Hi, Charlotte.
[00:07:11] Speaker A: Alex, it's been a great year for air freight so far and August was no exception, as air cargo demand continued its double digit growth streak, rising 11%, according to Zenita data. So what's driving this growth and how long do you think it's going to last?
[00:07:26] Speaker C: Well, first of all, I think we need to note that different lanes are doing different things, as ever, so it's not 11%. Across the board, everyone seems to be talking up a very strong fourth quarter. Neil van der Waal from Zenita warns shippers must have capacity booked and he thinks it's going to be a very busy end of the year. As to the airlines, he added that sort of Taimew's app, that the chinese shopping app was downloaded 37 million times in July. But not everything is rosy. The same company, Taimou, just lost more than 30% of its value, or $50 billion after disappointing revenues, which was because of increased competition, probably regulatory challenges. You're going to an e commerce conference this week, so you'll probably find out more. But general Air cargo hasn't had a brilliant year. As you can see in the forwarder results, they don't do so much e commerce. E commerce charters obviously have. Kanye just launched a freighter service between Xi'an and Liege and that market sort of continues to do pretty well. But I think there is bumps on the horizon and January could be a bit bleak, which, to be fair, it normally is.
[00:08:33] Speaker A: There was also some other slightly bleak news in air freight. Last week, Cathay Pacific sent out a warning that some of its a 350 flights were cancelled due to an engine part failure. So what happened there?
[00:08:45] Speaker C: Cathay noticed a problem, one of its a 350 engine fuel nozzles. So Cathay went to check all of its aircraft and that was a process that finished at the end of last week. But now the European Aviation Safety Agency has requested that all airlines operating a 350s with that same component in their Rolls Royce engines must go and be checked. So that, I think could cause a few delays over the next few weeks. I've asked the airlines involved, they haven't replied yet, so we'll find out soon how long that will take.
[00:09:18] Speaker A: Finally, you reported at the start of last week that unconventional incendiary devices are being sent via air freight services. What are the risks here and where do you think this story is headed?
[00:09:29] Speaker C: Well, it seems a bit scary, really. I'm not sure it's all via air freight, but there's certainly several fires have started in the european parcel delivery network. So two german authorities warn that there appears to be some sort of campaign to put dodgy devices that can catch fire into Europe's supply chain. So it's suspected to be russian actors. And while no one has publicly linked them, the TSA added another layer of security recently in America, and now Transport Canada has also increased its requirements. It's all rather sort of dry, exactly what needs to be done, but if you need to know, check all the details on thelaystar.com dot. Thanks Charlotte.
[00:10:09] Speaker A: And now for a quick weather report. Last week, Typhoon Yagi hit the Philippines and caused flooding there. Then it doubled in strength and was carrying sustained winds of 210 km/hour near its center as it headed towards the south coast of China and to northern Vietnam, Laos and Thailand over the weekend. And obviously disruptions to air and ocean port operations in the region were expected. And we also reported that container flows out of Indias west coast ports were under severe pressure as the terminals there battled cargo bottlenecks from extreme weather on top of the already lingering capacity pressure linked to the buildup of volumes. Container lines reported significant vessel delays at Mundra port after torrential rain and flooding swept through the coast the week before last. A senior executive at one of the leading carriers told the lodestar that flooding had brought the entire shipping system at Mundra to a standstill for at least three days. But they did say that the Adani terminals were making every effort to clear up the backlogs and bring vessel berthing back on track as swiftly as possible. And finally, for supply chain news last week, a quick update on the DB Schenker takeover, just to give a brief background, DB Schenker is being sold principally to finance some much needed upgrades to the german state railway network and to reduce its high level of debt. A consortium led by private equity firm CVC Capital Partners and danish forwarder DSV are the only bidders left, both bids being estimated in the 14 billion euro region. Now, according to Reuters, quoting sources close to negotiations, DSV sweetened its takeover bid for DBSchenko by promising a 1 billion euro investment within three to five years. But a source told the Lodestar at the end of last week that this needs to be seen within the context of the much higher estimates of Schenkers investments needs as set out in its business plan. And they said that given the size of the company, the 1 billion euro investment would probably be soaked up rather soon. DSV also reportedly provided a guarantee that the workforce of DB Schengen, that's around 76,000 staff in more than 130 countries, by the way, will remain intact for two years after the sale, but DSB has declined to comment on this rumor. Now this is interesting because labour union Verdi has been campaigning heavily in favour of the CVC bid as it calculated that 5300 jobs could be lost in the event of a DSV takeover. Now, CVC does already own scan global logistics, but a source told the Lone Star it has no plans for a merger between scan and Schencke if its bid is accepted, so no job losses would be expected there. The source also confirmed that the consortium has put in a 14 billion euro bid for 100% control of Schenke, while also tabling an offer for as much as €16 billion that would give the german government the option of reinvesting roughly a 25% stake in the company. CVC's bid also makes provision for a possible ipo when market conditions permit. Deutsche Bahn has a board meeting scheduled in mid September, at which point the winning bid could be announced so it's widely expected that a decision will be reached by the end of the month, definitely one to keep an eye on.
Now, last week's supply chain news is hopefully fully refreshed. In your mind. Here's what you might see on the Lodestar this week. For the next few days I'm going to be attending the EU CBEC forum in Liege, and this is an EU cross border e commerce forum centered around the growth of cross border e commerce. Obviously, I think it's safe to say that e commerce is the biggest factor affecting cargo demand right now. So I am really interested to learn more about this vertical and where it's headed, what's being done to facilitate this huge influx of demand, how b two c supply chains differ from b two b how sustainable it is both in terms of environment and longevity. And hopefully I'm also going to get to speak to some industry leaders in this field, so you can expect some stories to come from that this week. There might also be some news on rescheduled negotiations for the VRD union in Germany who rejected their employer's offer on the 23 August and they said they were looking to enter another round of bargaining. But at the moment, no one really knows what the timeline for that will be. So hopefully we will have some updates there for you. And I can't not mention the ILA. We are now 23 days away from the 1 October strike deadline, so I'm hoping that we will get some information about whether negotiations will indeed happen or whether it will boil down to the last minute. I'm sure that's got quite a lot of shippers worried. Thank you so much for joining me this week and I'll see you next time.
