[00:00:06] Speaker A: Good morning and welcome to the Lodestar podcast. News in brief. We are nearly finished with January, thankfully, and I am joined by Gavin Van Mael and Alex Linnane. So this is going to be a good episode aside from a few other newsy things which we will get to towards the end. The two major themes from last week were the Gaza ceasefire agreement and talk about tariffs. So let's start with the ceasefire of on Sunday. Last week a ceasefire between Israel and Hamas meant that the Houthis confirmed they would stop targeting merchant vessels. But carriers are still not returning to the Suez Canal as of yet and many analysts pointed out that this is because it just takes so much to bed into a new network, as obviously was seen with the initial Cape routing chaos, and that they're not going to revert back to Suez transits until they are absolutely 100% sure that the passage is safe and that the ceasefire will hold. Now this we reported is creating a bit of an issue for developing long term contracts because the Suez passage would mean that the TEU mile would go down and so capacity is more available and rates are lowered, which therefore means that if we keep going on the longer route then rates are going to be higher. Some stakeholders advised last week that index link contracts are the way forward or just sticking to the short term and spot market as a way to mitigate. But you could be waiting on there for a long time. No one is really sure what's going on at the moment. But gav, are we seeing this ceasefire have any impact on rates?
[00:01:35] Speaker B: Not this week, because as you mentioned before, no one's yet going through the Suez, but I mean rates were really, really weak. Again the w the Drury's World Container Index had the Asia North Europe component down 19% week on week. So it's about $3,400 per 40 foot. But I mean I was quoted from some Chinese forwarders late last week of rates of 2,300 from China to the UK so they're really going down. The expectation at the moment is if you open Suez and ships returned to transiting the Suez Canal en masse, then you're probably going to get some form of congestion taking place in Europe particularly and this might hold rate levels steady or even push them up in maybe a fortnight to a month time type period. But the long term prognosis for spot rates is really bad for carriers and I think the general expectation is that spot rates certainly will be very weak for the foreseeable period.
[00:02:38] Speaker A: Well Alex, this confirms your story last week about how Freight markets were expected to soften largely because of high inventory levels. Can you elaborate on this?
[00:02:46] Speaker C: Well yeah, there was some data out showing that the big retailers have high inventory levels and then when I looked into it, you've got people like Target really saying that they've got too much stuff through the last quarter that was or through the second half of last year even partly because it was front loading because of tariffs after November the now of course scrapped US port strike and there's also concern over inflation in the US due to tariffs and the impact on consumer spending. So will anyone buy all this stuff, this that's already there or will it need to be discounted? It's more to do with container shipping but I feel that you shouldn't look at air cargo in the sort of silo that it's generally looked at because there's always going to be knock on effects. Airlines so far have been living off E commerce as we all know, but that too is currently in decline obviously end of the holiday period and so forth. But we're not sure how it's going to go this year, whether it's going to be as busy as last year. On the upside for airlines, tonnage has just gone up last week and the week before since the end of the Christmas lull and because pre Chinese New Year presumably and according to world ACD volumes are broadly similar to the same time last year. So it's not all bad news for carriers, but there are some worrying potential signs on the horizon.
[00:04:02] Speaker A: Well I think everyone kind of knows that this stocking your inventory was because schedule reliability was just so bad. No one knew what was coming when this was kind of confirmed last week when EC published their ocean schedule reliability scorecard and they found that it was again worsening in Q4 of 2020 to a global average of 4.8 days delay. Obviously there were various port strikes in Q4 that contributed to this. Well speaking of this, actually we should just mention that port workers and dockers in France's Le Havre container port have begun intermittent industrial action set to take place over the next month. And this is to protest the state pension reform and there are warnings that this could spread to other French ports. So definitely one to keep an eye on. But the good news is that persistent schedule reliability decline could be on the way out as the quarterly decline is becoming more moderate. So schedule reliability obviously is a huge buzz topic at the moment because of the reshuffling of the alliance, in particular the Gemini alliance between Maersk and Hapag Lloyd that has promised 90% schedule reliability, which at the moment just seems so far out of reach. But Gav, you did an analysis on this for Premium, so can you give some thoughts on here, please?
[00:05:14] Speaker B: Yeah, I had great fun with this and before I start, you know, chapeau to whichever graphic designer in Maersk or Hapag Lloyd's department who decided to model their network map on the map of the London Underground because it makes it considerably easier to look at how all the connections working. So partly this was spurred and once, you know, we've mentioned it before, but the really excellent interview that our podcast host Mike King did with Henrik Schilling from Hapag Lloyd. So on the basis of that, I then went and spent a day having grapefruit on looking at various network maps that the two partners have provided. And as Mr. Schilling said, it's going to take a lot of work to get from their current level of what around 55 to 60% reliability up to 90% as a massive leap in performance.
Okay, just randomly, a few, couple of takeaways. When you look at the network thing, one thing becomes very clear and that is that the beating heart of the Gemini network is going to be the port for Tanjun Pelapas in Malaysia, which Merce set up about 30 years ago as a sort of alternative to Singapore. Altogether, Gemini's like 57 routes, 29 deep sea, 28 feeder shuttle services, they call it. 12 of those deep sea routes call up PTP and altogether it's going to be host to 20 Gemini service calls, which is great because it's completely controlled by apm and that's what they want, you know, they want their hubs to be controlled by their own teams so they can, you know, work on the service things. It does also mean that of course if something happens at ptp, then there could be massive issues elsewhere in the network. We saw last year that when Singapore got congested, it affected places all over the. You know, there were reports all over the globe that were being hit by delays either out of or into Singapore. So there must be a vulnerability to. That's sort of inbuilt within this system that if something happens at Tandem Pelopus, then there will be problems elsewhere in the system. The other really interesting point that I've discovered was that the Gemini partners are going to be using third party ports. I mean, Singapore also has a large number of calls at it, but all of its calls are basically on the back hall routes of services. And all the APM and Hapag facilities are all on the head hall routes. So it's when the containers are loaded with cargo, that's when the two partners will be exercising. And I'm massive air quotes here will be exercising sort of their control on the supply chain. But once you're talking about the empty containers, then you will find that the bulk of the calls and especially at the transshipment ports, these are taking place at third party places like Singapore and Dubai. So I don't know. I mean, the proof will be in the pudding.
[00:08:02] Speaker C: Can I just add that if you're interested in the Gemini alliance and its breakdown, Gav says he had fun going through it all, but he really has spent a large amount of time doing it. And it's worth reading Lowstar Premium if you want more insights on it.
[00:08:16] Speaker B: I've got to color in little dots and everything.
[00:08:19] Speaker A: Now we're going to be moving on to tariff talks if everyone's not bored of that. But obviously on Monday last week, Donald Trump got inaugurated as president of the US Alex, you reported one of the first changes actually that the TSA would see an admin change. What are the details and what are the implications going to be for air cargo?
[00:08:37] Speaker C: Well, because the previous head of the tsa, David Pukoski, I think you say, was appointed by Trump, it was assumed that he would stay. The TSA has kind of extraordinary powers to impact cargo flows. And now there is a bit of uncertainty over whether a new administration will listen in the same way to cargo stakeholders. There is apparently a tendency, according to Brandon Fried from the US Air Forwarders association, that in the event of some sort of security threat, the TSA will just go, let's hold the cargo, which is not an ideal outcome for anyone really. And so, you know, it'll be interesting to see whether the new administrator will listen as effectively as the old one did. But it's not just the tsa, it's the CBP as well, Customs Border Protection that will also change. So now there's uncertainty about whether the recently proposed de minimis changes will hold or whether they'll change again. And over in Ocean, the head of the Federal Maritime Commission is also changing. Democrat Daniel Maffei is out and Republican Louis Solar, who is already an FMC commissioner, actually is now in charge. So there's quite a lot of uncertainty all around about new positions in the.
[00:09:47] Speaker A: U.S. yeah, Trump signed a lot of executive orders in his first week, but none so far on tariffs, although he has promised to implement lots very soon. Soon. But where and how much is currently unknown. Also at the Davos conference on Thursday. He did say that he was not only looking to tax countries importing, but individual businesses, not manufacturing.
[00:10:08] Speaker B: In the US that's just a tariff on all imports.
[00:10:11] Speaker A: It's just everyone. No one's safe.
[00:10:13] Speaker B: I mean, that's just a universal tariff.
[00:10:15] Speaker A: Yeah, well, this is set to escalate an already ongoing trade war. In fact, Alex, you reported that the EU was thinking about retaliating already. What did they say?
[00:10:23] Speaker C: I'm pretty sure the EU won't use the words retaliate.
Trump did say that the EU is very, very bad to us. So they're going to be in for tariffs. It's the only way you're going to get fairness.
So the EU Commissioner for Trade told CNBC that the bloc would respond proportionately. But they also warned that the IMF has estimated that tariffs are going to mean a reduction of the world GDP by up to 7%. So it's quite significant. Proportionate, I imagine, is that is the key word here.
[00:10:53] Speaker A: We've also seen a few other countries respond to the tariffs threatened by the U.S. gav, you reported that the South Korean government has set aside $250 billion to aid exporters. Can you give some more details to this and is this likely to be seen in other countries?
[00:11:07] Speaker B: South Korea is a very export orientated economy. The money is there to support exporters liquidity, especially in sort of high tech things like semiconductors, batteries, not so much in traditional industries like shipbuilding. And I think, you know, we talked about shipbuilding last week, didn't we? And the Ships for America act. The amount of efforts that seem to be taking place in the US to revitalize its shipbuilding industry.
And I suspect that actually the South Koreans and the Japanese are going to be quite important allies as the US does that, because there are provisions in the proposed acts that U.S. maritime interests could continue to use foreign built vessels on an interim basis and given their reluctance to employ Chinese assets, will ultimately be using South Korea built and Japanese built ships. So that's it.
[00:12:01] Speaker A: Well, obviously one of the reasons Trump is implementing tariffs is to boost regional U.S. trade and their economy. We reported last week that the American Trucking Association's truck tonnage index for December 2024 showed a drop of 1.1% in tonnage from November and a decline of 3.2% year on year. But the American Trucking association is predicting a volume rebound for this year with revenues predicted to rise 1.6% from $906 billion in 2024. So what do you think? Is this a Trump factor?
[00:12:34] Speaker C: Well, it looks, it looks like it's a mixed bag really. Tariffs could heighten trucking demand because of increased regional demand in the US on the other hand, there are warnings that tariffs could spark inflation which would stifle demand for cargo. So who knows?
[00:12:48] Speaker B: Also the revenue, there's a danger of conflating factors here because the US Trucking firms have spent the last two years in a pricing doldrum and they don't earn much revenues. Spot rates and stuff have been depressed for two years plus. And if you look at the results that have been coming out last week, JB Hunt, Knight Swift, they still got a load of problems. What I'm saying is overall revenues for US Trucking doesn't necessarily reflect volume growth.
It's also to do with pricing. Pricing's weak.
[00:13:20] Speaker A: Now, finally, to look away from tariffs. Alex, you had an interesting story last week that DSV had been accused of bait and switch tactics. What is a bait and switch?
[00:13:30] Speaker B: Tactically, it does sound like fishing equipment.
[00:13:33] Speaker C: It does. It's not fishing equipment. Bait and switch is when a merchant baits the customer by advertising a product or service at a low price and then when you go to buy that thing, they tell you it's unavailable. That's kind of what one of DSV's customers is claiming. As a produce company with farms over South America, they said that DSV offered them a good deal to ditch their existing forwarders in the Ecuador market, which it did. But then a few months later, DSV asked it to switch its forwarders in Colombia too. When they declined, DSV said the original deal was off the table, which cost it something like $850,000 in extra costs. Now this is just one half of the court case. This is the claim against DSV. So we don't know what DSV's response is as yet. Forwarders are saying it's a pretty common tactic in forwarders, but it's normally used by smaller forwarders rather than great big ones. Some people have suggested it's a rogue manager who may have been involved and which, when you look at the court case, it may well be the case. So I'm pretty sure it's not company policy. It's a one off. But it's an interesting case nonetheless.
[00:14:43] Speaker A: Thank you both very much.
[00:14:44] Speaker C: Thanks, Charlotte.
[00:14:52] Speaker A: Now you are all caught up on the main events from last week's supply chain news. Hopefully, if we've done our job right, I'm now going to give you a sneak preview on what you might see on the Lodestar this week. Very excitingly this week we are launching the Lodestar Air Cargo podcast. This is going to be a monthly special hosted by Mike King and our first guests are Tom Bradley, Director and General Manager of Amazon Air Cargo, and Jan Krems, Manager of United Cargo, plus the Lodestar's own Alex Linnane. What a first episode. I am really looking forward to listening to that and you can get that on all major podcast streaming platforms plus theloadstar.com and speaking of air freight, I'm attending the World Cargo Summit this week in Bruges, currently probably on the Eurostar, if you're listening to this on a Monday morning. So you can expect stories to come from the panels at that. I also have a few interviews booked. One I can confirm is with Eline van der Berg, who is a supply chain specialist at Royal Flora Holland. I'm really, really looking forward to hearing what she has to say say. So don't worry if you couldn't make the event because you can catch the highlights in my
[email protected] obviously we mentioned previously in the episode that DSV had been accused of bait and switch tactics. DSV have to respond in court by 27 January, so it'll be interesting to see what they say. And also today, Monday, Maersk is holding a press briefing on its upcoming Gemini alliance, so I'm sure we'll have a report on that as well. And finally, this week marks the beginning of the Chinese New Year holiday, so things might start to get a bit quiet on the trans perspective trade. We've heard from some forwarders that shippers have been holding off tendering on the Asia to Europe, so we might start to see tendering for that surge after Chinese New Year. Who knows? Well, if you want to stay up to date with the latest on this and all other supply chain news, keep checking TheLoadStart.com and our LinkedIn page and of course our wonderful podcasts. Thank you so much for joining me and I will see you next week.
