Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:07] Speaker B: Welcome to the Lodestar News in Brief. After a brief pause last week, we are here again to give you a roundup of the week's supply chain news and let you know what you might see on the Lodestar. Coming up now, at the start of the week, we had the news that the Supreme Court will expedite the hearing on the legality of Trump's reciprocal tariffs and the cases will be set for argument in the first week of November. So just as a bit of background, an appeals Court ruled on 29 August that Trump's reciprocal tariffs under the International Emergency Economic Powers act were a breach of his power. The Trump administration then escalated this to the Supreme Court, and under normal circumstances, the Supreme Court would not be expected to make a decision until early next summer. But the Trump administration requested that this be expedited. Obviously, if they are ruled unlawful, then shippers might expect to be getting a refund on any reciprocal tariffs they have paid. I'm sure that's one that not many people will be watching. And I'm now joined by Alex Linane. Alex, you wrote in your roundup report of the air cargo market that this legal battle had left air freight shippers in the dark.
[00:01:15] Speaker A: What did you mean by this?
[00:01:17] Speaker C: Well, I've spoken to a lot of forwarders recently and one thing has become clear, and that thing is that there doesn't seem to be very much consistency over shipper strategy.
So as you said, the tariffs are now under scrutiny by the Supreme Court. So shippers have a choice. Do they wait to ship on the off chance that tariffs will be rescinded, or do they keep shipping to ensure Christmas stock levels are high?
Forwarders seem generally to agree that shippers already have high inventory levels after all the front loading, so they may not need to ship as much this season.
Or they could wait and do more air freight nearer the time. There's been a lot of talk of modal shift recently, with shippers switching between modes to try to get the best results.
We've also heard that airlines are trying to put up prices for the fourth quarter, but without much success, according to one forwarder.
And we mustn't forget that the US Is just one market.
One forwarder told me he reckons that Asia Europe could actually be reasonably strong this quarter following the E Commerce transition from the Trans Pacific, and world ACD data seems to support that claim.
August also saw spot rates fall, but in part that was because of currency. According to Zenitha, the dollar's kind of lost ground over the past year, as everyone knows, and globally because of the reallocation of capacity to Europe from the US which is a cheaper lane. It has dragged down global rate numbers. There has been one other change in air cargo, which only people who've worked in it as long as I will remember.
So more than a decade ago, new phone product launches tied up huge amounts of freighter capacity.
Apple last week announced the launch of its new iPhone Air and iPhone 17 and all the rest of it. In past years, those announcements for these shipments would completely distort the market. They'd book up to tens of freighters, but this year we can't see any signs of that being the case. The smartphone market is not having a significant effects on rates and capacity as it used to.
[00:03:18] Speaker A: I can't believe Apple are on the iPhone 17. I feel like they release a new phone every month or something.
[00:03:24] Speaker C: I know, it's shocking, isn't it?
[00:03:26] Speaker A: But back to tariffs. It kind of seems now like people have had enough of being in the dark as a result of US policies and a kind of shifting trade away from this region, as you mentioned. So what is going on there?
[00:03:38] Speaker C: Yeah, I mean, we had a question on the site asking us to look at U.S. exports, so we did, because we're very nice like that. So one point to note is rising anti American sentiment, which was pointed out by this sort of iconic US jeans maker, Levi Strauss, which were worried about sales in the UK and Europe.
Overall, exports to the EU from the US were relatively strong in the first quarter, but they fell 3.4% in the second, while US exports to China rose significantly in Q1 before declining in June.
Air freight rates out of the US are falling too, as we noted.
[00:04:15] Speaker A: Of course, it's not just America that is intensifying this tariff mess. You had a story at the end of last week that Mexico wants in.
[00:04:23] Speaker C: Yeah, well, this is adding more confusion to the scene, but yes, Mexico is considering raising tariffs to the highest possible level under WTO rules for countries that it doesn't have trade agreements with.
So what this means in practice is that it could see 50% tariffs on Chinese cars, which account for about 20% of the Mexican new car market.
Now, Mexico is hoping that tariffs will bolster domestic production while also offering something of a SOP to the us which obviously is trying to stop Chinese imports into Mexico, which then spill over the border.
And the usmca, the North American Free Trade Deal, is now under negotiation again. So Mexico has several reasons to make the US happy. But in my article I pointed out that China does Play it quite tough in these situations. And we looked at the US soybean export market to China.
It used to account for about half of Chinese soybean imports. But this year China has ordered precisely no soybeans from the us, which is of course very bad news for US farmers.
So the Mexican tariff plan has the potential to irritate the Chinese and the Chinese may well fight back. So we'll see. Although to be fair, Mexico is not as reliant on exports to China as the US is.
[00:05:41] Speaker A: I can't believe that. Not one single soybean.
[00:05:43] Speaker C: Not one single soybean.
[00:05:46] Speaker A: Just before we bring Gavin Van Mael in to discuss the ocean freight market, we heard last week that there had been huge job cuts at dsv. What are the details here? What spurred this?
[00:05:56] Speaker C: Well, everyone knew that after it took over Schenke there would be some serious job losses. And to be fair, they do come round kind of every, what, year or two.
But last week saw a massive talk of job cuts at many major forwarders. So Lodar Premium has seen some internal documents from Kuhner and Nagel and I encourage you to read Premium, which is getting more news on this by the minute. It seems the numbers are that DSV is going to cut between 10,000 and 13,000 jobs.
Koonagel's US reorganisation should also lead to job losses. C.H. robinson Expeditis are also both said to be looking at job cuts. So it's a bit brutal out there, but as I say, it does happen from time to time.
[00:06:40] Speaker A: Yeah. Ali Pasetty over on the Lodestar. Premium seems to know everything as soon as it happens.
Talking of, can you give us a roundup of Premium recently, please?
[00:06:49] Speaker C: Yes, of course. So, as we've said, exclusive revelations on the Coon and Nagal restructuring, including via an internal memo. There's also a great open letter to expediters from our new columnist on why the company may have moved on from its no job losses promise. He also wrote an article with the best headline which made us all in the office start singing Gloria Gaynor. The headline is once I was afraid, now I'm terrified. Sorry. That's so good.
And I took a deep dive into Plexport's trade finance deal and looked at whether banking is a better business than forwarding. Just a little spoiler alert it is. And then plus the usual roundup from the ever busy Reuben Hoover.
[00:07:28] Speaker A: Thank you, Alex. I think that song's probably going to be in all of our listeners heads.
[00:07:31] Speaker C: For the rest of the day. Thanks, Charlotte.
[00:07:33] Speaker A: Thank you so moving over to ocean freight now. And something that was in the news last week were these looming USTR port call fees. So first there was a bit of analysis about who would be the worst impacted by this. What are the results?
[00:07:47] Speaker D: GAV Pretty much what we thought they would be.
So just to sort of set the context from this, you know, the United States Trade Representative action is specifically to combat what the US Says has been unfair influence on the maritime industry by China, mostly through its sort of state subsidies to its shipbuilding industry, as well as the ownership of major shipping lines, most notably Costco and 00 Sierra. The thing is here, it's important to remember that this policy predates the second Trump administration.
And even if it appears to be born of a sort of similar sense of grievance that underpins the tariff, it's not. It was a bipartisan bill introduced during the Biden presidency. It's been passed through Congress, although the actual fees themselves levied have been decided by Trump's appointees. But it's important to clarify this because it's not going to be subject to the same sort of legal objections that the tariffs have been. But that all said, it'll be no surprise to you, Charlotte, or any of our listeners to discover that OOCL and Costco are set to be the most heavily penalized because they will be subject to A$50 per net ton fee, irrespective of whether they're deploying a ship built in China or elsewhere. Now, according to hsbc, who ran an analysis on this, the fees will cost Costco $1.5 billion a year and 00cl $650 million a year, with the very important caveat that it is based on their current networks.
And I think we can be pretty certain that these two carriers are in the process of redesigning those networks. So it's still way too early to actually know what the full impact of these extra charges are going to be.
[00:09:40] Speaker A: But I mean, interestingly, even though French carrier CMA CGM is in the ocean alliance with both of these carriers, Double OCL and Costco, it assured customers last week that it wouldn't be implementing a surcharge. What do you make of this? Do you think others will follow suit by not implementing a surcharge?
[00:09:58] Speaker D: I mean, you're right to focus on CMA cgm. They, along with Evergreen, are in the ocean alliance with the two Chinese carriers and are obviously most exposed by this. CMA CGM's exact wording was CMA CGM does not plan to implement a surcharge at this time to cover USTR related fees as currently structured. I'm trying to put a bit of emphasis on those last two words because the fees are actually set to see two or three successive hikes over the next three years. So clearly they've, they've given themselves a bit of wriggle room to change the policy.
I mean, personally I expect the no surcharge line to be a pretty general one from all carriers and I expect that we'll see that confirmed over the next month as the 14 October deadline draws nearer back. Lloyd CEO Rolf Pavan Janssen has already gone on the record to say that it won't be adding a surcharge because it's got enough ships in it and Maersk's fleet, or rather the Gemini Corporation has enough ships built elsewhere that it can serve the US entirely through non Chinese dock ships. So in that respect one assumes that Maersk will do the same. And then, you know, with sort of Maersk CMA basically setting a precedent now, I think it'd be very, very difficult for any other carrier to come out and say, hey, here's a USTL surcharge. Particularly in a time when, you know, demand is weak. Overcapacity is increasingly a feature. Whoever implements a USTR surcharge will find themselves at a competitive disadvantage.
[00:11:40] Speaker A: Well, I'm very glad you brought up the Gemini Corporation. It makes it very easy for me to transition into this next question. But you wrote about a change in their Trans Pacific services recently. I mean, what happened? Presumably this is to do with the tariff fallout.
[00:11:53] Speaker D: I mean it's very difficult to see how it couldn't be related to the tariffs. So yes, the first wave of blankings that Gemini announced included this TP9 service and said it would be blanking. I think it's about three weeks prior to Golden Week and then they've decided to withdraw the service altogether, certainly until the end of the year.
The TP9 is an interesting one. It's the smallest of their Trans Pacific services. It was actually only launched in June to cater for that brief demand spike that we saw during the tariff pause.
Now that that pause is over, of course, and demand is waning and there's lots of supply, it's basically deemed to be surplus to requirements. The TP9 represented an average 18,000 TEU capacity monthly pro forma. So if we exclude the tail end of this service in October, the total average pro forma capacity for the Trans Pacific from July through September, it's about 2,600,000 TEU a month, which means that the TP9 represented about 0.7% of total offered capacity during its short lifespan. So I think this is just the beginning of the capacity cuts on the Trans Pacific and there's going to need to be more if there isn't a kind of blood bath after Golden Week finishes.
[00:13:17] Speaker A: Well, one place it seems that Maersk do want to put their capacity is on the Intra Asia trade. And we actually had a chat about this on our recent podcast with Container Trade Statistics in a lot more detail that you will all have to go and listen to if you're interested in an analysis of that.
[00:13:32] Speaker D: It's fab, by the way, even if.
[00:13:35] Speaker A: You do say so yourself.
[00:13:36] Speaker D: Even if I did say so myself, yes.
[00:13:38] Speaker A: But Alpha Liner data found that since last August, maersk had added 100,000 TEU to now reach nearly 300,000 TEU across the intra Asia trade. That's excluding domestic lanes. And the trade has seen an overall 13% growth year on year. And this has actually been largely because many companies are diversifying, sourcing away from China and manufacturing between countries like Cambodia, Vietnam, India, Indonesia and Thailand. It's all getting more integrated, which is resulting in increased transshipments.
But another trade that we reported that has been less lucrative for the Gemini carriers was on the Asia Europe. We wrote that they were slashing rates to fill slots due to bad capacity management on this trade ahead of Golden Week. And I kind of want to ask you what has happened overall with the rates this week? I mean, we had 11 consecutive weeks of ocean freight rate decline on the spot rate indices and then there was a little edge upwards. So what are we looking at this time?
[00:14:38] Speaker D: Yeah, I mean there's still life on the Trans Pacific in terms of pricing across all the indices that we cover. You know, Drew's wci, Zenith xsi, the Shanghai Freight Index and the freightos fbx. You know, they all saw similar movements this week, so there was a little bit of both. Rates on Asia to the US west coast and to the US east coast were both up on last week. I know that might sound kind of counterintuitive for many of our listeners, but you know, they seem to still be enjoying the benefits of the 1st of September GRI's in the run up to Golden Week.
And there's another GRI due to be implemented today, so we'll see how that fares next week and then we'll really be able to see whether this is a kind of mini rally in terms of pricing, just getting the last bits in before Golden Week. Or whether it was a more isolated instance of a localized freight hike back to Asia Europe, it's not looking good. Rates were down 10% week on week, both sort of North Europe and the Mediterranean. And we've now got to the position where we can see that the best of the peak season actually took place in early July, even be frank, even if it didn't feel like it at the time. I mean, I remember this period and I remember going to people and saying, you know, has the peak season kicked into action yet?
No, not really. No one never really had that sense. It's a subject that we go into much more depth in our conversation with container trade statistics.
So, yeah, early July, that's really the highest rates that we've seen in the peak season. The rate on Asia North Europe at the moment is 38% down on where it was at the beginning of July.
So carriers still have quite a lot of big capacity decisions to make because the outlook for the remainder of the year is pretty bleak, I'd say. And people are now beginning to sort of think about the annual rate negotiations for Asia Europe, which traditionally take place in the fourth quarter of the year, and the context within which those discussions will take place.
The carrier's negotiating position doesn't look to be very strong. I think that's the best way of putting it.
[00:16:57] Speaker A: It's definitely going to be an interesting fourth quarter. Gav, thank you so much for your insights today.
[00:17:02] Speaker D: Thank you very much, Charlotte.
[00:17:11] Speaker B: So now we have rounded up all the recent events in supply chain news. Here is what you might want to look out for. Well, if you're listening to this on Monday morning, then this week marks the start of London International Shipping Week.
[00:17:24] Speaker A: I will be heading to a few.
[00:17:25] Speaker B: Of the events across the week, including the headline conference at the International Maritime Organization.
Plus I'll be attending some seminars on ship fires, geopolitics and shipping risks, so you can look out for some content from that.
Also, we have our brand new podcast with Container Trade Statistics CEO Nigel Pusey, so definitely go and have a listen to that. He gives some really interesting insights into the current dynamics of the ocean freight market.
And finally, I also want to mention that the introductory subscription offer that we have on the lodestar ends September 26th at midnight. So you have just two weeks left to save £50 on an annual subscription to all of our editorial content. The subscription is at the moment just £70.
So if you're not already subscribed, you should definitely take advantage of that offer to get access to breaking news stories and exclusive content.
[00:18:18] Speaker C: Content.
[00:18:18] Speaker B: Thank you so much for joining me and I will see you next time.
