Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:06] Speaker B: Welcome to the Lodestar podcast. News in brief. We are going to be recapping last week's supply chain news and giving you insight on what you might see on the Lodestar this week.
Last week we started to get some more information on what the one year delay to the IMO's net zero by 2050 measures would mean. I spoke to Albrecht Grell who is the Managing director of Oceanscore, and he was basically saying that the one year delay means a rejection, not a delay, as nothing is likely to change within that year. And he also said that another likely consequence would be that all the individual nations will continue with their own decarbonisation rules and measures rather than doing this under the proposed unified IMO framework. So it's not going to mean no regulation, but instead it is every country for itself and lots of different carbon taxes overlapping, which will likely cause heightened uncertainty and therefore costs. This is nothing new with shipping. There is always some sort of source of uncertainty. Another one of those last week was the possible resumption of the Suez Canal transit after almost two years of rerouting around the Cape of Good Hope. This is being spoken about more and more and with a little more confidence for the near to medium term after the ceasefire in Gaza. At present it is still very uncertain if it will hold, but I'm now going to speak to Gavin van Marle. Gav, if a return to the Suez should happen, what would this look like? And do we have any kind of time frame?
[00:01:33] Speaker A: There's no time frame. I mean, you're not going to get an exclusive update from us on the Gaspee negotiations.
You know, it could be one week, could be 10 years. I really, really, really don't know. But what we do know is that at some point transiting sewers will be viable once more. So the premise remains the same. How do you do that in a way that doesn't completely overwhelm you? Europe's ports, because the decision to return to Suez will basically be taken, will come into effect one moment to the next. You know, once you've made the decision, that's it. But if all the vessels en route to the Cape of Good Hope suddenly change course to Suez, there'll be a rush of cargo, resulting port congestion that could take months to clear. And I mean, this is something we've discussed several times over the past year or so, but new analysis from Sea Intelligence last week calculated the sort of volume growth that we might be looking at. So if all vessels returned overnight, European imports will grow by 60%. In just two weeks. And there's really no way, given the current capacity constraints that they've got, that the ports could handle that. However, if the return of vessel to Suez was, say, phased in over eight week, that import surge could be spread across that time period and would be a sort of 14% level, which would be much more handleable, much more manageable. The question which remains unanswered is how the industry, the competing carriers, the different alliances, can manage this return to Suez when everyone's always looking for a competitive edge. And that seems to me the really thorny part of all of this.
Everyone knows that it's a problem, Everyone can see that it's a problem on the horizon, yet no one really knows how to tackle it.
[00:03:30] Speaker B: Yeah, it's difficult because there's. I mean, there's question marks over the time frame and as you say, how people are going to manage it. So, yeah, it's very, very uncertain. So onto something that is perhaps a little more certain and that is, of course, numbers.
[00:03:43] Speaker A: Gav.
[00:03:44] Speaker B: Last week we spoke about how rates had gone up after a long succession of declines as carriers pushed through some GRIs and halted that slide that we seen. So what happened this week? Did the GRIS hold?
[00:03:57] Speaker A: They did, yep. Spot rates edged up another week on the Asia Europe and on the Trans Pacific trades, they edged down slightly on the transatlantic and actually in the last fortnight, the transatlantic's gone in a slightly different direction to the other two east west trades. There are a couple of points of interest from last week, really. Firstly, Asia Europe. It's just pertinent at the moment because the annual contracting season in Asia Europe has sort of got underway now.
So spot rates from Asia Europe are still below average contract rates, according to Zeniter.
So they're around 10% blow into North Europe and by my calculations, around 30% below going into the Meds. So given that contracting season has just begun, carriers are clearly in a weak position for those currently. They've got a lot of work to do over the next few weeks and that's going to be difficult for them to move the needle. The other notable thing from last week was that there was a real divergence of the Shanghai Containerized Freight Index away from the other indices. We've talked about this before. The SEFI, as it's known, is made up of 15 carriers and 15 freight buyers and they amalgamate the quotes that they get and give a rate to the various routes. And last week it was looking really ridiculously optimistic in terms of Asia Europe. You know, it was 30% above the WCI and XSI into North Europe and almost double the rate into the Med. In fact, it was quoting Asian med rates around $500 above rates from Asia to the US coast which has simply never happened. So I mean, you know, the conclusion is really that it's just made me at least a little bit suspicious about the numbers coming out of there certainly in the future. I don't think it's a last week. At least it's a properly accurate reflection of where the market is.
[00:05:55] Speaker B: On the theme of finance and numbers. It is that time of year again when companies start announcing their Q3 earnings report.
There have been so many external factors this year that these reports should be really quite telling. Gav, last week we had some big names in the forwarding world. Kuna and Nagel and DSV both reported. So how did they fare? I mean, I had an article earlier this week that DSV could be in trouble because European road freight rates were hanging in quite a fragile balance according to Transport Intelligence and APPLI's latest data. And obviously DSV after its acquisition of Schenger holds quite a large portion of the European road freight market. So what happened?
[00:06:35] Speaker A: Yeah, you're right. I mean, in fact they reported on exactly the same day. So DSV gave their earnings call at around 10 o' clock in the morning and then it was Kuhn and Nagel at 2. So it was a really busy day. It left us as well as the sort of financial analysts, you know, with the. The very simple compare and contrast operation just on the road business. Then of course both of most of their markets in the European road freight business, as you mentioned, the weakness hasn't disappeared. I mean, both DSV and Kuhn and Nagel report soft conditions.
A lot of that's related to the European automotive industry which is in the doldrums as has been for a while and logistics providers are feeling it. We did also see, though, and you alluded to this, the impact of the Schenker acquisition on DSV. It was particularly prominent in road freights.
DSV's quarterly road freight revenues shot up from 10 billion Danish kroner in the third quarter last year to 23.4 billion this year. So it's clear that going forward the Schenker component is going to represent the big the rump of VSVs road freight services. To be honest, probably. I mean, you know, that's the European road trade industry. Probably more interesting to our listeners, Charlotte, was the comparative sea freight performance.
You know, K Nagel has Long held and long cherished its position as the world's largest sea freight forwarder. But blimey, DS3 is coming close to it now. So the Kuna Nagel handled 1.1 million TEU in the third quarter.
The DSV plus tanker combination handled 1.073 million. So the gap has narrowed to a mere 27,000 TEU, which is effectively one ultra large container ship.
The results actually also showed how vulnerable Cunanago has become. The Trans Pacific market where it's traditionally been one of the largest forwarders and I think probably too critical. But I think you've got to question why Kanagal hadn't concentrated more of its efforts on developing other markets this year, particularly ex China. I mean the exit of large volumes from the Trans Pacific trade is something that we've covered for what, the last six months anyway, in response to. Because it did actually there's some pretty sharp double digit declines in EBIT reported by Kudanagel. And in response to it's launched a Swiss Franc 200 million cost saving program which by our calculation represents around 5% of its annual forwarding cost. So we will see over the next year how effective that program is to its bottom line. But you know, make no mistake, I think the management in Switzerland is coming under quite some pressure.
[00:09:37] Speaker B: Well, I'm sure we'll have lots more on that. And it is the start of Q3 earnings season so it's going to be interesting to see how the rest of the market has fared.
I now want to bring Alex Linnane into the conversation because Alex, before these major forwarders reported their finances, you mentioned that the numbers might give some indication of how air freight has fared this year. Do you have any info for our listeners?
[00:10:01] Speaker C: Well, such was our excitement at waiting for the DSV and Cunanagal numbers. So we just thought we'd have a quick look at some airline results to see if there was any indication of what may be going on.
So Korean Air, for example, reported that revenue from Cargo was down 4.7% in the third quarter and demand measured by CTKs was down 2.1%. Yields were down 2.7%. Load factors were also down.
So we started to think maybe the Q3 wasn't great.
And then DSP and Koonagel reported both their freight divisions delivered sort of solid if not very spectacular results for the third quarter.
DSV's volumes were obviously up a lot because of schenker. That was 64% year on year. But organic growth, it said it was Below the market.
It said that technology and pharmaceuticals had led its air freight divisions. Hakunanagal's air volumes did better. They rose 7%, which was driven by semiconductors and perishables, which offset E commerce weakness. It said. Yields were steady. Profitability stayed alright.
They were helped by SMEs and high tech traffic. But Bose forwarders said there would be no traditional peak season in air freight.
But on Friday we saw that a basket of rates from China to Europe offered by Chinese forwarders actually grew 13% in the last two weeks. Asia Pacific to the U.S. also saw a rebound with a 7% increase in the week up to October 19, according to World ACD.
So origin China was up 19% in the week to the U.S. japan was up 16%, Taiwan up 7%, South Korea up 6%.
So things are definitely on the move.
Greater capacity also increased significantly in the past week. Over the previous week it was up 9%, with notable rises on the Trans Pacific up nearly 20% and Asia Europe up 16%.
So yeah, there is some movement finally.
[00:12:07] Speaker B: Well, it's no secret that a big part of how the air freight market behaves is tied to E commerce, as kind of probably indicated in those Asia to Europe and on the Trans Pacific volumes there. I reported last week with some data from World ACD that there has also been a general trend of pharma premiums declining, but that rates in the high tech vertical, including E commerce, were going up. So that's quite interesting as well. But one area that is not benefiting from this E commerce boom is the US after a decline in traffic from China post the de minimis exemption removal. We spoke a bit about the complications for UPS in the last episode, but you also reported that Anchorage Airport has taken a hit.
[00:12:47] Speaker C: Well, we thought we'd take a look at Anchorage just to see how things are faring there. It's quite an interesting airport to look at.
So northlink, which operates part of the airport, had been hoping to develop it as an e commerce hub. But what we've seen from the data is that there was actually some shrinkage on routes to Hong Kong and back from Hong Kong. But Taiwan, which is obviously the home of semiconductors, traffic has grown sharply to Anchorage. Meanwhile, the E commerce landscape, according to northlink, is evolving and we're seeing more helpful importers now. So DHL, for example, launched a consolidated clearance service for U.S. imports. And so we're expecting to see more tech solutions to help shippers with new compliance rules.
Whether that will counteract the extra costs involved, I don't know, but things are going to be more smooth anyway. I suspect.
[00:13:41] Speaker B: That's good. It definitely sounds like people need all the help they can get at the moment. While we are on the air freight sector, there were a few tragic events that occurred last week. First, last Saturday, there was a fire at Dhaka Airport which saw damages estimated around $1 billion. And the next day, two airport authority staff members were killed when an empty Air act airlines Boeing 747 freighter collided with a ground patrol vehicle while landing at Hong Kong International Airport. Alex, did either of these lead to delays or any kind of impacts on the cargo operations at Dhaka or Hong Kong?
[00:14:18] Speaker C: Yeah, it was. It was bad week for air cargo, really. Interestingly, though, now that Dhaka Airport doesn't have an inbound storage facility because it burned down, goods have to be picked up within 36 hours rather than 72 hours, which actually makes it a far more efficient airport than it was before, ironically. But yes, a lot of goods were lost in the fire, some of which we understand weren't insured.
So that is going to be a series of nasty court cases, I expect.
And then, of course, there was the tragic incident at Hong Kong. We don't know much about it yet, to be honest, so I'm sure there'll be more to come on what actually happened. The only sort of point to make really is that Emirates, which was leasing in these 747s, now has one less for the fourth quarter, which it won't be so pleased about, I'm sure.
[00:15:04] Speaker B: Yeah, that's a good point, actually. I didn't think about that side of it. Finally, Alex, so we are able to leave the episode on a cheerier note. Can you please give us a rundown on what's been on Premium recently? I mean, as we get into earnings season, I'm sure there's plenty going on over there.
[00:15:20] Speaker C: Of course, I know that Alessandra is super busy with earnings season, but yes, obviously there's been a strong focus on both DSV and Koon Nagel, which obviously the top forwarders. But there's also been a look at Prologis, another one at xpo, quite a fair bit on cyber attacks and the rise in them.
And of course something on the tequila scam, which is a story everyone loves.
[00:15:41] Speaker B: That sounds like my kind of scam. Thank you very much for joining me, Alec.
[00:15:45] Speaker C: Thanks, Charlotte.
[00:15:54] Speaker B: So now we have recapped the main events from last week's news. Here is what you might see coming up on the lodestar. Well, Q3 earnings season will be continuing with UPS on Tuesday the 28th, which will be very interesting in light of all the parcel chaos that was seen post de minimis removal in the US.
Then we've also got another major forwarder, C.H. robinson. They will be reporting on Wednesday the 29th. And finally XPO will be reporting on Thursday the 30th. And this will be an interesting look at the LTL sector because we had a report last week that the US Less than truckload carriers have fared a bit better than their counterparts in the full truckload sector in terms of stopping a rate erosion. But we also reported that the latest price increases are unlikely to find success. You can of course go back and read the full story on theloadstart.com if that interests you. I thoroughly encourage you to do so. Finally, we had a report that Brazil could be in for good news on the US Tariff front. I don't want to get anyone excited, but there are rumors that the looming meeting between Presidents Trump and Lula could result in a reduction in Brazil's 50% tariffs, and India could also be looking at a reduction in its same 50% tariff if it stops buying Russian oil. We had details of that story last week and of course we will continue to update you as the situation progresses.
Thank you so much for joining me and I will see you next week.
