Episode Transcript
[00:00:06] Speaker A: Good morning and welcome to the Lodestar podcast, News in Brief, where, as always, we're going to be recapping the main events from last week's supply chain news and giving you insights on what you might see on the Lodestar this week. Now, I haven't been here for quite a long time, actually. I've been away this week, so this episode is actually going to be me catching up as much as it is going to be you catching up. Now, I was at Aviation Connect in Istanbul last week and it was a really good event, really interesting, and I learned a lot. One of the main things that kept coming up was how airports and airlines can speed up their processes to gain a competitive advantage. And I think the general consensus from the event was that this has to be done on the ground. Two shippers that were there, one from the Kainau Group and one from Early Health Group, said that a way to do this would be to facilitate communication across stakeholders in the airport. And one big thing that was mentioned was that if airports and airlines could have a standardized communication platform, then this would be a lot quicker. Someone said to me, kind of off record that they didn't think this would ever happen because. Because no airline wants to be the first to change their systems and there's just so much updating that needs doing, especially with E commerce providers platforms, that there's just no way that integration's ever going to be standardized.
[00:01:15] Speaker B: That sounds very like the air cargo industry. Yeah, standardization is very difficult and they're quite slow.
[00:01:21] Speaker A: And one of the other things was obviously this capacity shortage that we're seeing in air cargo and someone basically said that this was going to be carrying on until the end of the decade. So not much positivity there.
[00:01:32] Speaker C: Is that an airline that's said that it was.
[00:01:33] Speaker D: Yes, yeah.
[00:01:34] Speaker B: Right.
[00:01:35] Speaker A: Now, obviously, I've been reading the Lodestar while I've been away and one of the things that I thought was really interesting and quite scary actually, was that four people were arrested in Poland, thought to be linked to these exploding parcels that have been sent from Russia to disrupt EU supply chains or supposedly. But what's happened there, Alex?
[00:01:53] Speaker B: Well, yeah, I'm not sure we're saying directly that they were sent from Russia, allegedly.
[00:01:58] Speaker C: Polish police are, aren't they?
[00:01:59] Speaker B: Yes, they are.
So the packages are being sent from the Baltics. We have been contacted by one or two people who are quite worried about this. It's very hard to find out more about it, to be honest, but I think the packages are filled with very Low level explosives, so it's really hard to detect and they're meant to ignite on movement, so there's a likelihood that if they're in an aircraft or a truck, that that's when the problems will happen. DHL's unfortunately been sort of in the headline for this one. But it's not just dhl, it's all different networks. The idea is to disrupt as much as possible across most of the parcel networks. So, yeah, it's a pretty scary thing. Maybe after these arrests there might be a slowdown, but we'll have to wait and see.
[00:02:43] Speaker A: It's also been that time of year again where companies share their Q3 earnings. So I'm quite happy that I was away actually last week when we were reporting on that.
But what's the market looking like at the moment?
[00:02:56] Speaker B: Well, Maersk released its results last week and they were very strong. In fact, they said the word strong 31 times in their earnings call. For anyone who's interested in that level of detail. But to be honest, more interesting than the actual EBIT and EBITDA and all of that was it talked quite widely about the Gemini Network and how it's sort of really hoping there won't be any disruption when it brings in its new network. And probably quite significantly. I mean, there's quite a lot going on with this company. But it said it will not be buying gxo. I will leave the GXO question to someone else to carry on with.
[00:03:29] Speaker A: Just before we get onto gxo, how did Maersk's earnings compare with One's? I know that was when you were looking at.
[00:03:35] Speaker C: Look, it's no surprise that the carriers are starting to reveal results of this level. Right, because spot rates in the third quarter were really, really strong, both in Asia, Europe and Trans Pacific. And even in the latter part of IT, the transatlantic SO1 or Ocean Network Express, to give it its full name, it was reporting second quarter because it worked slightly different financial year. Its second quarter EBIT was up 5,916% year on year.
[00:04:06] Speaker A: Wow.
[00:04:06] Speaker C: Yeah, yeah. They posted an EBIT of $1.87 billion and achieved 100% utilization on eastbound Trans Pacific sailings. I mean, every single ship.
[00:04:19] Speaker B: That's pretty unheard of, isn't it?
[00:04:20] Speaker C: Completely 100% utilisation. You've got to go back to pandemic times when you, when you.
[00:04:25] Speaker B: Maersk also announced record utilization, but it was 96%.
[00:04:28] Speaker C: Well, I mean, one was 97% on its Asia, Europe sailings. This is, this is the financial results of the market that we witnessed over the last three months that we've been reporting on and all the anecdotes around people finding it's difficult to get space and being price gouged by their suppliers and all this sort of stuff, you know, you're now seeing it turn up in their results.
[00:04:51] Speaker A: And now going back to what you mentioned about gxo, there was some updates about the Wincanton takeover. So what's happened there?
[00:04:58] Speaker C: Yeah, that came in first thing Friday morning. So the Competition and Markets Authority, which confusingly its abbreviation is CMA and if you recall correctly that the GXO was involved in a bidding war for the UK contract list logistics provider Wincanton against CMA CGM. So let's just, just there's going to be two CMAs going on here. Basically, the CMA, the competition markets Authority, has completed its first phase of investigation and has basically delayed the takeover. It's given GXO five working days to address what it calls its concerns. And its concern principally is around the presence of both GXO and Wincanton in servicing retail customers, particularly supermarkets and the grocery business. And we've looked at this before. The combined market share of GXO and Wincanton shouldn't be enough on its own to raise competition concerns. It's nowhere near a sort of market dominance threshold. The fact is, what the CMA says is that its presence in the retail sector and Wincanton's presence in the UK reaches retail sector believes that this could lead to price increases for UK retailers. Effectively, it's very interesting because the deal closed at the end of March. The Wincanton board recommended the GXO offer to shareholders which valued the company about £960 million. And that was way above the CMA CGM offer, which was about £800 million when Canton was subsequently delisted from the London Stock Exchange. So to all intents and purposes, this was a done deal. This coming week is going to be very interesting to see what response GXO makes. I mean, they've told us on Friday, they told us that they still believe that it's a great fit and customers will benefit and all this sort of thing, and they're sure that they can overcome this obstacle. If they don't respond or their response isn't considered sufficient by the cma, the Competition Markets Authority, then it will open what it calls an in depth phase two investigation into the deal.
[00:07:10] Speaker A: So that's sounds serious. And something I noticed from reading the lodestar headlines last week was that there were quite a few updates regarding ports. So CMA CGM finally closed their deal, the 25 year concession agreement to take a joint venture stake in the Nardor west container terminal.
[00:07:28] Speaker C: It's not really a closing. They haven't closed it. They've announced that they've agreed to. Yes, sorry, the 49% stake in Nard or Western Morocco as an aside, that was really eagerly anticipated port concession. It's interesting that it's gone to CMA given that they're also present in Casablanca and in Tangier. So big growing portfolio in Morocco for the Marseille headquartered carrier.
[00:07:53] Speaker A: Also, Bangladesh is set to launch an open tender for the chance to operate its largest box for facility, the new mooring container terminal at Chittagong port. So do you think there is going to be much interest there?
[00:08:04] Speaker B: There's quite a lot going on Chittagong. I think one of the interesting things about this is that the current contract expires in January. So to open the tender in, well, end of October was quite late in the day to start asking for offers. There's been quite a lot of skullduggery, let's call it that in Bangladesh. I think there often is perhaps and I'd love to be able to tell you about it, but I wouldn't be allowed, I'd have to be shot. But I think the interesting thing is the DP world was very interested in buying it. There is now a movement against foreign operators from taking over the port and the change of government in Bangladesh has altered an awful lot of things. I suspect that a foreign operator will end up going in there, but there are apparently some good local operators that could do it. But there are some issues with their ability to bid for it. I'll leave it there.
[00:08:55] Speaker C: I mean the bid process typically on a concession of a container tender like this, which would normally be a 25 year agreement, this is a process that would take between 12 and 18 months. You'd open the tender up, you give people three months to submit their, you know, their RFQs. You'd give them another three to six months to submit their bids. You then draw up a short list of to do all of that in the space of three months. It puts a lot of responsibility on the people in Bangladesh. You know, whoever's judging the things. I know Maersk have also been.
[00:09:27] Speaker B: They were sniffing around as well.
[00:09:28] Speaker C: They have been for a couple of years.
[00:09:30] Speaker B: As of last week, the Bangladeshi government hadn't even approved the decision to go to tender. So there's some way to go.
[00:09:36] Speaker A: I would Say and also there has been further strike escalation at the Port of Montreal. Alex, what's the latest here?
[00:09:43] Speaker B: The latest is the last thing that the Maritime Employers association said at the end of last week was that it deplores the strike and that it said it's going to have to take difficult but necessary decisions, which basically means it's going to cut staff because of the volume drop. Whether this is true or whether it's just using it as a lever against the union, I don't know. But the Employers association is getting crosser. The ILA is saying not very much at all. Apparently they want to change working hours, but there's been very little detail.
[00:10:12] Speaker C: Are they saying that the dropping cargoes due to the labour conflict? Because if they are, that's just manifestly false. I mean the argument is that this is due to the ila. It's actually this, this strike action is right at the arse end of when the drop in cargo actually happened.
[00:10:28] Speaker B: Well, worse still for Canada, it now looks like the west coast is having a big problem. The ILW Local 514 section of the union announced a strike for the west coast port starting today, Monday morning. But the employers association, the bcmea, has had quite an aggressive sort of pushback to that and announced a lockout for all ILW Local 514 members on all its ports starting from this morning. So we'll have to see what happens there. But really both sides of Canada are looking a bit ropey.
[00:10:59] Speaker A: And finally, everyone's favourite segment, always the most interesting, a little update on the ocean freight rates. So what was the movement there last week, Gavin?
[00:11:07] Speaker C: Well, I mean, crash, bang, wallop. So Friday was the first time after 15 consecutive weeks of freight spot rates declining on the main east west trades, suddenly we had a jump last week. So on the jury's WCI, the Shanghai Rotterdam leg was up 8% to $3,396 per 40 foot and to Genoa was up 11% to 3,006 and at the same time the Trans Pacific routes remained flat. The reason for this is heralded in shipping circles as a general rate increase. Basically the carriers set new rate levels that were due to be applied on the 1st of November. And what happens in that situation is that anyone who's booking a cargo for 1st November onwards would have been applied the new rate. So you actually see the price rises taking place before the actual implementation date of the price rises, if you see what I mean. It was quite an eye opener for me when I saw this. I thought oh crikey. What's gone on? Because there's been no real upturn in demand. We've had the peak season. You know, rates largely went down during the peak season. So what's going on? Basically it was this grr. The word on the street is that rates were already starting to fall. I mean for example, you know MSC, the 1st of November freight, all kinds, FA K rate was $5,000 per 40 foot and obviously the spot rate on the WCI is some $1600 below that. So you can already see that they're not actually getting the levels that they want to. No surprise there. Weak demand, etc. What is likely to happen now is that we will probably see a fortnight of declining rates. Don't know what percentage, but certainly the demand isn't there.
And then there's another new rate level scheduled to be introduced on the 15th of November. So MSC, it's like $5,500 for a 40 foot into Northwest Europe. Hapag Lloyd are quoting $3,500 on the same route. So there's quite a variation between the carriers as to what they think they can achieve. Why are they doing this? Because we have just entered the annual contract negotiating season on the Asia Europe trades typically runs from January to December, November, December. The carriers and shippers get together and hash out the new rates. Contract rate levels are very much dependent on where a spot rate is at the given time. So carriers are doing everything they can to get the spot rate levels up. Peter sand from Zenita wrote a really good blog on it actually, which I.
[00:13:48] Speaker A: Would recommend, thank you very much. And how's this comparing with air freight rates?
[00:13:53] Speaker B: Well yeah, it's just time to give air freight a little look in because it's peak season. Just in a nutshell, rates are going up now properly out of Asia into Europe in particular. A forwarder I spoke to in Shanghai last week said that he reckons they'll hit about $7 a kilo into Europe but volumes to the US is slightly down. So who knows what will happen. But I think we'll just see rates continuing to go up until about sort of start of December and then everyone's saying it's not going to be crazy, crazy. So that's good.
[00:14:27] Speaker D: So now you are all caught up with the main events from last week's supply chain news. Here's what you might see on the nodestar this week. DHL and ExpediTERS Q3 results will be coming out this week so you can expect some content to come from that The Lodestar Premium will be, as always, doing a more in depth analysis of these and we might even see one of Gavin's conference call Redux where he summarizes what they said in the company's earnings calls. And they are always very funny, so you don't want to miss that. Alex Lenane has an interview with Schiphol Airport this week, so she might have a story on what updates are going on there and any plans they might have for the airport's future. And I think it's safe to say that there will be more stories about GXO's takeover bid for Win Canton on Friday. As we spoke about, GXO were given five working days to submit proposals in response to the CMA's concerns from its phase one investigation into the deal and that concluded that it could reduce competition in the supply of mainstream contract logistics services in the uk. So that deadline will come this week and like we said, if suitable proposals are not submitted, the CMA will progress to an in depth Phase two investigation, according to a statement from the regulator. And on top of that, there have also been rumors swirling around about how GXO itself may be a potential takeover target. So be sure to keep up to date with the Lodestar for the latest information on this ongoing saga. And finally this week Alex and I, plus our Managing director Nick Marsh, will be gearing up for the International Air Cargo Association's Air Cargo Forum in Miami and that's going to be taking place between the 11th and 14th of November. The lodestar will be there in full force, writing, interviewing, podcasting, vox popping, and we're even going to be vlogging and making content for social media while at the event. So please do get in touch with one of us if you'd like to connect in Miami. I am really looking forward to it, looking forward to getting out of the UK and having some nice warm weather. Thank you so much for joining me and I'll see you next week.
