Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:07] Speaker B: Welcome to the Lodestar Podcast. News in Brief we're going to be recapping last week's supply chain news and giving you a preemptive look at what you might see on the Lodestar this week. And before I start, I just want to thank this episode sponsor Etihad Cargo. At Etihad Cargo, it's never just an address, which is why they go beyond borders with their partners to ship valuable goods.
So getting into the news last week bought yet more tariffs. I'm sure you're sick of hearing this by now. US President Donald Trump expanded the scope of goods tariffed under section 232 to include imported timber and derivative wood products. There is a 10% global tariff on softwood, 25% on certain upholstered furniture, which will increase to 30% on the 1st of January, and 25% on kitchen cabinets and vanities, which will increase to 50% on the 1st of January. And he justified these additional charges by saying they would bolster American industry and protect national security. There is also another investigation underway to determine the effects of personal protective equipment and medical consumables and equipment also under section 232. Comments for this investigation must be received by 17 October, so there could still be more tariffs to come. And we reported that these new timber tariffs could quash any hopes of recovery in the Trans Pacific freight rate as according to Lionelitika, furniture shipments account for around 10% of Trans Pacific volumes. So the tariffs are likely to hurt the already weakening cargo volumes on that trade. And this seems like a good time to inspect what the current rate situation is with the help of Gavin Van Maul. So have we seen ocean freight rates slide yet again?
[00:01:48] Speaker A: Gav Yep, yep we have. It's been another week of mid to high single digit declines on the three east west trade according to Drury's World Container Index and Senators xsi, there's been no Shanghai containerized freight index this week, of course, because it's Golden Week. And to be honest, there's not a great deal of new analysis I can give you on this. I mean it's the same thing we've been seeing for several weeks now. Too much capacity versus not enough demand. We did run a story, an interesting story, on some new data that Sea Intelligence had produced which suggests that this is now a structural problem which the current order book and then factoring in natural capacity constraints such as slow steaming port congestion, the Red Sea reroutings and scrapping, the analysts at Sea Intelligence suggested that overcapacity as it is at the moment would likely peak in 2027. The takeaway really for both carriers and their customers is that the projected overcapacity will be nowhere near as bad as we had in 2009 with the onset of the financial crisis.
But it would be worse than what we saw in the final months of 2023, just before the Red Sea crisis erupted when spot rates were going down to really low levels. So, you know, this is just going to continue until we've got what we would see now will be wholesale service suspensions, you know, on top of blank sailings.
And at some point we will start seeing greater scrapping but also probably more use of the idling tactics that we've seen in previous periods of overcapacity.
[00:03:29] Speaker C: Yeah, I had a report last week based on a conversation I had with a shipper who said that they're expecting a very aggressive push from carriers for the GRIS to actually stick on the 1st of November as it's contract negotiation season. But they said any GRIS would likely align with more blanked sailing announcements to ensure they had stickiness. And obviously not on the Trans Pacific. But we did also have announcements from MSC and Hapag last week of rising FAQ UK rates on the Asia Europe trade from mid October.
So there is that attempt there from carriers to lift rates across the board.
[00:04:03] Speaker A: Yeah, I mean that, that, that was confirmed to me very late last week by European forwarders as well. You know, we've, we've quoted MSC and Hapag because those are the carriers that publicly published these FAK notices. But it appears that most carriers have been looking to apply pricing increases and the new FAK rates are all around that $2,000 per 40 foot mark for Asia North Europe. But what we were also told was that discounting had already begun. I had one guy say to me that yeah, these, these increases are set for the 15th of October, but I've already had discounts coming into my desk and it's only the 3rd of October, so.
So I think the general expectation is that there will be some price increases, but not by the margins that carriers are currently hoping for.
[00:04:53] Speaker C: Well, as well as tariffs and rates. Another thing we've been watching very closely is the USTR fees for Chinese vessels or carriers calling at US ports set to be implemented mid October.
And just like with the tariffs, we have now seen China retaliate. What happened last week?
[00:05:12] Speaker A: Yeah, this is from the, from government. They said that they would apply a tax on, on vessels on any country which puts a tax on their vessels. So it's. Yeah, you're right, it's completely reciprocal and it's obviously directed at the us although it's not mentioned by name. The main affected services by this, if it goes through would be. Matson has two Trans Pacific services and cma. CGM has a US flag Trans Pacific Service that uses only US flagged container ships and that's. It can carry cargo between US ports as per the Jones Act.
What we don't know from China, because I have to say the wording of the release was incredibly vague and really reminded me of the sort of wording that's been coming out of the US administration in recent months. So we don't know what the quantum is and actually also we don't really know whether it extends beyond carriers to other shipping interests. So I'm just going to quote one particularly murky phrase that it said it would prohibit and or restrict organizations and individuals of that country or region from obtaining data information and engaging in international maritime transport and its auxiliary services involving Chinese ports. So I don't know, it seems to me that that leaves open the possibility that they could start, I mean, rhetorical question I'm asking is could they target US forwarders or shippers or logistics? Could they restrict access? I mean, if it's data we're talking about, could they be restricting access to like the scfi? I don't know. It's very, it's very unknown.
[00:06:57] Speaker C: I mean it's absolutely brilliant timing because what we all need is a bit more uncertainty in the supply chain.
Finally, in ocean freight updates, the week before last we had reported that the interest in the all water Northern Sea route from China to Europe via the Arctic saw a resurgence with the launch of the China to Europe Arctic Express service from Chinese carrier Sea Legend Shipping. But you reported last week that the world's largest shipping line, msc, isn't interested in this route. So why is that?
[00:07:30] Speaker A: I mean, the reasons that MSC gave was that they don't need to do it because they've got plenty enough capacity to run normal Asia Europe strings.
They don't want to do it because it's an open secret that using the Northern Sea route could be incredibly damaging to the sort of very fragile Arctic marine environment.
And they ain't gonna do it. I mean, in my opinion the northern sea route is still a bit of a pipe dream. Okay? It's only open during summer and even then you need to have an icebreaker escort from the Russian Navy. So given the geopolitics at the moment, moment would you really want to place your assets worth hundreds of billions of dollars up there. Just going back to the environmental perspective, Sea Legend claimed that the fuel Savings amount to 50% compared to the routings via the Cape of Good Hope. But we still don't really know what the trade off is in terms of damage to the Arctic Ocean. I think the whole thing's a bit of a red herring, personally, but I mean, it might be. For example, you could see that there might be some Chinese operators who are carrying, let me put it, sensitive goods to Russia that they might prefer to use this route because, you know, it's not really covered by AIs and all that sort of stuff. But I think the most interesting thing about this story actually is the fact that MSC decided to take a leadership role on it.
[00:08:54] Speaker C: It's definitely going to be interesting to see what other carriers do if anyone makes any announcements.
Thank you very much for joining me today, Gav.
[00:09:00] Speaker A: You're very welcome, Charlotte.
[00:09:02] Speaker C: And now is a good time to remind listeners 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 that your valuable cargo is delivered with care, consistency and confidence. Etihad Cargo have an extensive network with expert handling at every stage. And it really does go beyond borders to meet your needs and exceed your expectations. So thank you to Etihad Cargo for sponsoring this episode. I'm now joined by Alex Lenane to chat about the air freight market. Alex, first we had the news that a US Government shutdown has been enacted after the US Senate failed to pass an appropriations bill that would have funded the government through late November. And I understand this had a bit of an impact on air cargo.
[00:09:54] Speaker D: Well, to be honest, Charlotte, it's not clear yet what kind of impact it will really have as we don't know how long it will go on for. But there could be some delays both in air and sea. Actually, one forwarder told us that with fewer inspectors and air traffic controllers, flight delays and bottlenecks at US Airports could quickly ripple through international cargo networks. And in ocean congestion at US ports could lead to vessel delays, reduce container availability, and potentially higher freight rates. He said that each day of disruption magnifies costs and undermines competition. But then again, agreed, shutdown won't have that much of an impact. So this is something we're just going to have to wait and see.
[00:10:34] Speaker C: And I mean, again, on the theme of US government. We've given them so much airtime, but they've also got their sights on aviation. What's happened there?
[00:10:43] Speaker D: Well, the US government loves airtime, as we know, but yes, we already knew that the US had imposed sanctions on Mexican aviation, but apparently it's now also looking at Europe.
Transport Secretary Sean Duffy is looking at airport access over Europe and said that the US would retaliate if landing slots for US carriers were curtailed. So he's looking specifically apparently at Schiphol, but also Dublin and Lisbon.
Now, I know you've mentioned furniture tariffs, but while we're on the subject of the US government, we were also promised pharmaceutical tariffs by October 1st. Now that doesn't seem to have come to pass as yet.
However, the threat is actually lessened for some countries.
So India's low cost generic medicines would not fall under the new pharma tariffs, while trade deals in Europe and the UK would also limit the impact. But again, we're awaiting the new executive order with interest.
[00:11:40] Speaker C: Lots and lots of waiting. Well, with all these travels you mentioned in aviation, I believe last week also came with some advice to shippers looking to move away from the sector.
[00:11:50] Speaker D: Yeah, one of my favourite parts of last week was the Flexport webinar which showed shippers how to use less air freight.
Now, you've got a fairly dull peak expected in air at the moment and forwarders are expected to suffer a bit financially as air makes up a really important part of their revenues and yields are pretty low.
So there is some dissonance in the idea of forwarder helping customers to spend less on air freight.
Now, this may in part be because Flexport is soon to issue a new visibility product.
Or as one ex Flexporter told me, air freight isn't necessarily key for Flexport, even though it has access to three Atlas Air freighters. But outside of all this cynicism, the advice Flexport gave shippers was pretty useful actually. It's definitely worth a look.
And apologies for two Flexport stories in a week, but it continues to argue with FreightMate over the theft of trade secrets that is an ongoing court case.
[00:12:45] Speaker C: Well, it's not just Flexport that's been in the courtro carrier Maersk was in the headlines last week. What was that for?
[00:12:52] Speaker D: Well, this is quite an interesting case which could have repercussions for others. I think in essence Maersk's US pension plan was pretty badly performing well under normal market rates of growth.
And so Maersk's staff are trying to initiate a class action lawsuit to claw back some of that lost retirement money. It could be quite an interesting one.
[00:13:14] Speaker C: Perhaps more to come on that one. Finally, Alex, I have to ask you, do you have any teasers from the Lodestar Premium for us?
[00:13:21] Speaker D: Yes of course there is a look at what would happen if there was an internal shakeup at DHL on a comparison with dsv.
Our new correspondent, the Staith, does a deep dive on the broken European road transport sector and he also provides some clarity on the distinction between all the Pls, the 2 Pls, 3 Pls, 4 Pls and so on. There is a look at Team Global Express, which was formerly part of Toll Group, a look at Malaysia's port group, MMC's planned IPO, which actually is set to be Malaysia's biggest flotation in a decade, and a dive into the profits or not of major 3pls. It's worth mentioning actually that Premium has now got quite a lineup of logistics stars, although many prefer to write anonymously, but I can tell you they're pretty senior and worth listening to.
I'd also like to suggest a podcast that we recently published with Raft on the use of AI in particular in customs. It was a good behind the scenes look at how AI is being used and fascinating if you are AI curious.
[00:14:26] Speaker C: Yeah, the Lodestar Premium anonymous articles are very interesting. Everyone gives you the gossip when they're anonymous, so yeah, definitely worth a read. Thank you so much for your help, Alex.
[00:14:36] Speaker D: Thanks Charlotte.
[00:14:43] Speaker C: Well now we have rounded up all the main points from last week's supply chain news. Here is what you might see coming up on the Lodestar. We are going to be taking a deeper look at popular trade lanes with angles such as rates or capacity and anecdotes from those shipping or forwarding on the trade. Gavin Van Maal will be examining the ocean freight lane, Asia to Latin America and also the intra Europe trade, while Alex Sunane will be taking a deep dive into an airfreight lane. So stay tuned to find out which I will also be looking at the India US trade and how shippers are responding to being hit with that 50% tariff. Finally, Alex Whiteman is looking into what changes the H1B visas in the US means for forwarders investing in the country to keep up to date with the loadstar.com to see all of this and much, much more.
Thank you so much for listening. We're now getting like thousands of listens a week from people all across the world, which is so incredible and it really makes these recordings a lot of fun and I want to mention that if you would like your story to be told in one of our podcasts, please contact me on charlotteheloadstart.com to find out more. And as always, I will see you next week.
