Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:07] Speaker B: Welcome to the Lodestars News in Brief podcast. We are going to be rounding up all the main points of last week's supply chain news ahead of a fresh week and giving you insight on what you might see coming up. Last week we saw Category 5 Hurricane Melissa make landfall in Jamaica. Popular transshipment Point Kingston container terminal was temporarily closed as you would expect, but had operations resumed by the end of the week after suffering little damage.
Israel also resumed airstrikes in Gaza which shows that the ceasefire and thus viable Red Sea transits are still very much uncertain.
And an update to the fire at cargo village in Dhaka airport that we mentioned last episode. Several airlines and express operators including emirates, DHL and FedEx have stopped bringing shipments into Bangladesh and garment factories have been unable to receive samples which has delayed production.
In good news though, which is definitely needed. China and the US have agreed to suspend port call fees on one another for a year after a meeting in South Korea between US President Trump and Chinese President Xi Jinping. And whilst this is obviously a positive update in the trade war, this yo yoing and 365 day deadline has once again highlighted the uncertain trade environment.
The US is also reducing the fentanyl tariffs by 10%, which reduces the overall tariffs on China to 47%. Currently, the finite deals of all of these, such as date of implementations, are yet to be revealed, but as I said, this does show positive indications on the trade relations between the two countries and it seems like this is just in time. I'm now joined by Gavin Van Maal and Gav. You reported that there had been some fresh evidence of the damage on US container volumes as a consequence of these tariffs. What did you see?
[00:01:58] Speaker C: We've come to the stage, Charlotte, where the impact of the tariffs are sort of beginning to bite. The data was from September, the top 10 largest US ports as per data compiled by John McCowan from Blue Alpha Capital.
These saw volumes declined 6.6% in September compared to September 2024.
Those year on year comparisons are really expected to sharpen. By which I mean that the declines from 2024 are going to get through the last three months of the year, probably and actually probably continue for the first quarter of next year, depending what happens to the tariffs. I mean, you know, more tacoing from Trump and maybe there'll be a little bit of a demand surge on the Trans Pacific prior to Christmas. It's very difficult to know. For example, zenitha's chief analyst Peter sand argued last week that inventory is already pretty full in the Us, you know, there's an impact lurking down the road, but it's murky.
We don't know where this impact is. We don't know what form it's going to take. I mean you either get a volume surge, a volume drop, prices rise, prices decline, there's overcapacity, therefore there's blank savings. I mean there's actually a very limited number of options, but we just don't know which way the latest sort of tariff news will move the market. And as has been constantly said, that just makes it really hard for everyone to plan properly.
[00:03:26] Speaker B: Yeah, I mean this uncertainty and subsequent dip in demand has been one of the driving factors of low rates for the past few months that we've seen. And I actually reported on some sea intelligence analysis that after factoring in inflation rates on Asia to North Europe, Asia to the Med, and Asia to the US east coast were now below 2019 levels, which is pre pandemic and to the US west coast were only just marginally above. But after many weeks of successive declines on the spot rates, the last two weeks actually saw upward movement after GRI rise and blanks from the carriers to mitigate that slide. Obviously worked out in their favor. But Gav, I'm curious, what did the most recent movement show?
[00:04:06] Speaker C: Much the same as the week before actually Charlotte, but it depends on which index you look at, right? Because actually what we saw this week, and I think we talked about it last week as well, there was quite a divergence from the Shanghai Containerized Freight Index compared to the other ones that was again on show this week. Although I might have an explanation for that. So just bear with me. I think what we've really been using as the standard is Drew World Container Index that gives you the movement of the market over a sustained period of time. Unfortunately, my job is sometimes to try and reconcile these indices and it can be difficult. So Asian North Europe rate up 3% on the week before.
If I look at an amalgam if you like, of average across from the World Container Index and Senators Short Term Index, you're looking at Asian North Europe rate of between 1800 and $2000 per 43rd and between $2000 and $2.3000 to the Mediterranean. So both slightly up. Now if you compare that to the Shanghai Freight Index, it's Shanghai to North Europe was up 8% last week. So it hit basically $2.7K per 40 foot. And then I can't really believe this is what I'm about to say, but from Asia to the Med The SEFI has it adjusted under $4,000 per 40 foot, up 12% on the week before. I just, I can't see how they've managed to get a rate which is like almost $2,000 above the world Container Index and the Zenith Index, except for one thing, which is of course the next raft of FAK increases are set to come into force November 1st. And the CFI is a compilation of quotes for the week ahead. But interestingly, Mediterranean shipping companies, new FAK from the Far east to North Europe rate that's coming into force tomorrow is $2,700 per 40 foot. That's exactly the same level as last week's CFI. So I think the SEFI numbers are factoring in the increases which have yet to be applied. Just concentrate on the Asia Europe trades at the moment. They kind of look about the right level. I mean, what do you think, Charlotte? You've been talking to shippers about their annual contracts and stuff, and I think it's safe to assume that when we put our heads together and compare notes that you're looking at what a sort of fifteen hundred dollars for a forty foot is, is around the kind of range that the contracts be settled at next year.
[00:06:41] Speaker B: Yeah. Someone that I spoke to said that the carriers were not bullish going into contracting. And obviously there's the sue is opening to contend with, which no one knows when it's going to happen. But obviously you've got to kind of maybe factor that into your contracts if you're going annual. So there's lots and lots of moving, lots of moving parts. But to wrap up the ocean freight segment, gav, we had quite a lot of stories last week about ports and the updates that they were seeing. There was Maersk's port operating subsidiary APM Terminals, who agreed to a contract extension with the Alabama Port Authority for its concession in the Port of Mobile to run to 2058. Then CMA CGM's port subsidiary CMA Terminals signed a joint venture to develop a new terminal in Saudi Arabia's port of Jeddah and also finalized its agreement with Moroccan port operator Marcel Maroc to develop the new West Container Terminal at Nadal West Med. Plus there was investment by CMA CGM into Eurogate's Hamburg terminal which could be back on the table. Gav, do any of these projects pique your interest in particular?
[00:07:44] Speaker C: I mean, they all do because I'm sort of ports nerd, to answer your question very briefly also, there was a whole load of investment announced in India last week as well. But let's put India aside. I mean the development of India's logistics infrastructure I think is probably going to take me through to retirement. So briefly on the rumors that CMA CGM is talking to the German terminal operator Urogate that comes from Elfliner and one of their top analysts is a Hann Hamburg residence. So I don't doubt the veracity of that report. I think it makes a lot of sense. The terminal they're talking is Nurogate's container terminal in Hamburg cth and that terminal they have an agreement with Hamburg Port Authority to do a big expansion projects like 30 hectares and the creation of a kilometer long quay. And for over a year there's been quite a bit of disquiet in Hamburg that Urigate doesn't have the necessary funds to be able to pay for that expansion on itself and they've been urging it basically to get a joint venture agreement in place with a money bags carrier and you know, secure some, some base cargo. CMA is the obvious one there. We know that these two companies were talking about a year ago. We also know that those talks came to naught. So you know, it doesn't mean just because they're talking doesn't mean that anything will happen. But staying with CMAC gym yet nada west, that's in Morocco, that's a transshipment hub that's designed to provide overflow capacity for Tangier, should come on stream in a couple of years that will boost WestMed truant shipment capacity.
I think the Jeddah deal is very interesting because you've got a couple of aspects to it. One is that CMA very explicitly said that they wanted to turn it into a transshipment hub for that sort of Red Sea region. So irrespective of what happens in terms of what sue is opening, as you mentioned earlier also the other point to that is that actually it's only the second time that Saudi authorities have permitted a shipping line to take a stake in one of its terminals. I think Costco has a stake in one of the other terminals in Jeddah. So I think it's significant that Saudi's allowed that. And I'm purely speculating here but I suspect that there's quite a bit of pressure on public finances in Saudi Arabia. Right? I mean we've all read about the troubles that the Neom, you know, the line Cythius had. It's instructive to see them looking to outside private capital to help them build this terminal infrastructure. And then lastly actually if you ask me which of These stories piques my interest the most. It's actually Mobil in Alabama. I did some reading around it when I was reporting on this story last week and it's really interesting. If you look at the service portfolio of the carriers going into Mobil, it's all deep sea traffic, right? If you go along that coast, if you go Miami to Houston, you know, along the US Gulf coast, and then you look at the container services going into places like Houston and New Orleans and Everglades and Tampa and so on and so forth. A lot of it is Caribbean, Central American, Shortsea, you know, feeder intra regional traffic. There's a couple of deep sea services going to Houston, but Mobile on the other hand is only deep sea services. There's only nine, I think it was nine or eight services. Five of them are Asia North America services via the Panama Canal. One's a transatlantic service and then the other is a India straight Middle east service to North America. So the fact that they've got this service portfolio and the fact that they're building another berth so they'll in a couple of years they'll basically have a three berth system at each berth able to handle a 400 meter long ship. What you've basically got is you have developed this port into a genuine sort of Gulf coast alternative to the U.S. east and West Coast. It's interesting just to see that there's like a sort of diversification going on in the States. And I think the fact that they've extended the concession agreement for such a long time sort of indicates confidence that they've got in this new gateway.
[00:11:52] Speaker B: Now on the flip side, I am joined by Alex Linane to speak about some recent developments in air. Alex, as well as US stakeholders being on the back foot recently you had a report that European air carriers had a bit of a blow last week.
[00:12:04] Speaker A: Yes, well, they haven't had a blow yet, but it could be that they're about to.
So Russian media is claiming at the moment that Japanese and South Korean airlines are looking to restart direct flights to Russia, which of course would mean that they're going to overfly the country and they get their overflight rights back. Now that would be a big blow to European carriers who continue to avoid Russian airspace at obviously great expense.
So Russia never actually stopped Japanese or Korean carriers. They imposed it on themselves. But it looks like it's going to come to an end. And if that's the case, we might expect to see Europe impose some sort of counterbalance to that to ensure a more competitive level playing field. But we'll have to see.
[00:12:47] Speaker B: And what is freighter traffic like in general at the moment? I mean, we're coming up to Christmas, that is the usual air freight peak season. Have you seen any liftings in rates?
[00:12:54] Speaker A: Yes, we have in fact, but not dramatic ones. One new and interesting angle is that aluminium is being flown at the moment after a fire at a New York mill which provides something like 40% of the US's requirements for aluminium sheets.
It's now being flown in coils, we understand, despite very high tariffs on the metal at the moment and presumably high cost of airporting it.
Other big demand at the moment is from salmon and AI servers. But the other interesting point is how we know it's not a peak season. And one forwarder told me this, and it's a very good point. We know because there are no peak season surcharges which normally would have started to come in at this point in the year. Just briefly on rates. According to freightos fax index, rates from Europe to North America have gone up 17% actually, which is quite high. Southeast Asia to North America peaked at the start of October at $5.70, but has dropped soon after and has been rather bumpily rising up again.
It's about $5.14 now. On a similar lane, Greater China to North America has gone up from its year low of $4.05 at the start of October to $5.95 now, which is a 47% rise. But actually, if you look at that lane this year, it's been characterized by peaks and troughs. So it's not necessarily the start of a big run on rates. Southeast Asia to Europe is trending upwards. Greater China to Europe peaked on 3 October, but has now fallen back again slightly. So there you go. The rates have gone up a bit.
[00:14:29] Speaker B: Yeah, I feel like peaks and troughs very much characterizes this whole year, to be honest. And I actually reported on UPS's Q3 results and that kind of reflected a lot of this bumpiness. I mean, its consolidated revenue was slightly up on last quarter, but it showed a year on year decline of 2.6%.
Obviously this decline was due to a drop in volumes because of the removal of the de minimis exemption. But in the earnings call they said that the drop in volumes had actually to some extent been mitigated by a higher revenue per piece and air cargo revenue. They did also speak about the large amount of job cuts that they've announced recently and building closures. They said this was a cost saving measure, but they did assure that they were still within the terms of their Teamsters contract because part of the terms of the contract for job quotas allows them to offer full time positions to part time employees, so it doesn't actually change the headcount. I'm not really sure how fair that is, but if it's in the contract I guess it also predicted a revenue increase for Q4, so it was quite bullish about that. In the earnings call it said it had more certainty around tariffs and clear up peak forecasts from its larger customers, so it's in a stronger position to offer guidance than they were at the end of the second quarter when they actually declined to give a forecast because of all the tariffs and de minimis back and forth that was happening at the time. Obviously I mentioned the job cuts, but it wasn't the only company with job loss announcements. Last week Amazon said it would cut around 14,000 jobs as AI gets a bigger role, which is following other companies similar announcements such as Wise Tech. And actually UPS did say that they were employing a lot more AI into their systems, but what do you think Alex? UPS said that they could give a clearer forecast, but do you think uncertainty is reducing? Earlier in the episode Gav and I spoke about the US relationship with China, but you also reported last week on a development between US and Mexico which has added more confusion to the air cargo market.
[00:16:27] Speaker A: Well, the US has been pretty upset with Mexico about this forced switch of freighters to the new airport.
I mean, it did happen quite a while ago. Other countries don't seem too worried, but as we all know, the US is a little thin skinned at the moment.
So the Department of Transport has decided to add a bit more fuel to the fire and proposed a ban on belly cargo brought into the US by Mexican carriers from Mexico City International Airport.
And it has also refused some 13 applications by Mexican carriers for new routes or frequencies into the us.
Now there is some time to comment or appeal and if the belly ban is approved, it won't start until sometime around the end of April.
The US has noted that the ban is not in the interest of shippers and consumers, but it claims that Mexico's Department of Transport is uncooperative and that has resulted in an untenable competitive imbalance.
So this move of course follows its earlier play when it forced Mexican carriers to submit flight schedules for review and imposed a ban on charters on large cargo aircraft.
So yes, this is pretty significant and it'll be interesting to see what comments other airlines make. I'm expecting US Airlines to push the DOT to carry on and Mexico obviously to complain, but we'll see.
[00:17:46] Speaker B: Gosh, the US is just taking no prisoners at the moment. It's not getting on with anyone.
Finally, I briefly mentioned earnings season earlier on in the episode. That is of course an area where the Lodestar Premium shines. What did they have for our subscribers last week?
[00:18:00] Speaker A: Yeah, of course there's some fascinating deep dives on UPS, of course, as well as C.H. robinson actually. There's also quite a timely analysis on fuel prices and perhaps more importantly on labour costs globally, which is always one to watch. Plus among other things there's a look at container ship capacity and how that will develop. So as ever, a lot in there.
[00:18:20] Speaker B: Thank you so much, Alex.
[00:18:22] Speaker A: Thanks Charlotte.
[00:18:30] Speaker B: So now we have rounded up the main events from last week's supply chain news. Here is what you might see coming up on the Lodestar. The big one this week is that the US Supreme Court starts hearing arguments on tariffs on Wednesday 5th November, so hopefully we will soon have some clarity on whether the reciprocal tariffs are here to stay. This will certainly be a very tense week for those whose businesses have been hurt by increased tariff costs. But we will be bringing you all the updates of the hearings on the Lodestar. Alex Lin is off to Abu Dhabi for the International Air Cargo Association's Air Cargo Forum. She is moderating a panel on the opportunities and challenges in air cargo right now, which is sure to be very interesting. There are a lot of them so if you are there then please do go and check that out and say hi to Alex. She is speaking to Etihad while she is out there so you can look forward to hearing what they had to say in an article.
We also have a couple of Q3 earnings reports from major companies that we will be reporting on. Plus, as always, the Lodestar Premium will have the more in depth analysis. On Tuesday 4th November we will have a report from expediters and towards the end of the week Maersk are reporting. That's Thursday the 6th of November and DHL is also on the same day. Thank you so much for joining me and I will see you next time.
