Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:07] Speaker B: And welcome to the Lodestar podcast. News in brief. We're going to be recapping last week's supply chain news and giving you insight on what you might see on the Lodestar this week. Hello to my guests for this episode, Alex and Gav. Hello. How are you?
[00:00:18] Speaker C: Michelle? It's good, thanks.
[00:00:19] Speaker A: Very good. Thank you.
[00:00:20] Speaker B: Charlotte, let's just jump straight into the news. Gav, I will start with you because you have been looking at the TEU data from container trade statistics. What is this telling us about the current state of supply chains?
[00:00:32] Speaker A: Well, it doesn't tell us a great deal about the current state of supply chains because it's actually data from September. So just to put that into context because obviously the CTS thing has this two months lag, but I don't think anyone would be surprised that it's further confirmation of the story that we've been seeing over the last few months since the tariffs were introduced, so to speak. You know, Global growth good.
US declines bad. I mean, US volumes in September were down 5%. That's both imports and exports from the year before.
I think all really can be said here is that if the aim of the US Administration's trade policy was to reduce US Trade with the rest of the world, then it's been a resounding success.
If you want to compare and contrast just two trade lanes, Trans Pacific eastbound versus the Asia Europe westbound in September, year on year, the Trans Pacific eastbound was down nearly 8% compared to September 2024.
The westbound trade to Europe from Asia was up 13.7% compared to the year before.
So the differences are really very, very stark. You know, the latest spot rate readings from late last week, we're looking at the Shanghai Containerized Freight Index. The west coast rates are now thousand dollars below rates from Shanghai into Northern Europe on the spot rate things there are still gris to come. So it's almost like the carriers just trying to nudge up the rates or at least hold them at a level. And this is obviously clearly in the context of the annual negotiations being carried out for next year's annual contracts. Where rates head from here is frankly anyone's guess.
[00:02:14] Speaker B: Yeah, I mean, I think this data makes it quite evident that tariffs are really one of the main things influencing supply chains. The fact that there's been growth everywhere but North America. I mean, at the same time as this decline in the US we have been reporting on some astounding growth in other markets. I think one of the main beneficiaries of the China plus One strategy has been India. We've reported a lot on India this week. DHL made a pretty big bet on this market with a sizable 1 billion euro investment. So, Alex, I think you covered this. Where is this investment going?
[00:02:44] Speaker C: Well, to be honest, Charlotte, DHL was a bit naughty about this because it's already announced the vast majority of this 1 billion euros. So it's not a new investment. It's stuff that's pretty much already happened. Actually.
It said that it would be a billion euros by 2030. But yeah, a lot of it's already done. I asked DHL what the actual new news was, and it's that they're building a DHL health logistics hub for DHL supply chain. But I mean, it's not that new because it was inaugurated this month and will be operational next year. And it's setting up an electric vehicle and battery logistics center of excellence, which is currently in the planning stage, it said. But it follows quite a lot of other companies, major companies investing in India. We've got Amazon. APM Terminals also announced that $2 billion worth of investment there.
And India has the largest GDP growth of a major economy at the moment. So it's forecast to be 6.6% by the end of this year, which is pretty strong given the general lackluster economies elsewhere.
[00:03:41] Speaker B: Well, maybe we should put out a statement saying we're launching a new podcast. But it's just this week's episode.
Obviously, while a lot of companies do see India as this promising hub and a good alternative to China, it's not been immune from tariffs on the US Side, as we all know. This became pretty clear last week, too. What happened there, Alex?
[00:03:58] Speaker C: Yeah, it's been hit pretty hard with tariffs. This is an air cargo anyway. Delhi's air cargo total tonnage in October was down 7%. Year on year, exports plunged 12%.
And again in September, air cargo out of Delhi to the US was down 19%, which was actually the first months that captured the full impact of the 50% tariff on Indian exports, which became effective at the end of August. So textiles and apparel are particularly at risk. But Trump has said that tariffs may come down if and when India stops buying Russian oil. So there is some optimism among Indian exporters, apparently.
[00:04:36] Speaker B: I mean, Trump said a lot of things, hasn't he?
But I mean, of course India isn't the only country part of the plus one strategies. There's been some other trade lanes that have been booming, especially with air freight. What have you seen there?
[00:04:49] Speaker C: Yeah, well, actually, this was one of the main themes at tiaca, which mostly was about celebrating what was actually a really good year for air cargo, or pretty good year, let's put it like that. But one of the things was that how air cargo has adapted so quickly. So carriers are now seeing huge growth in Cambodia, Thailand, Vietnam, and it's really beginning to take effect.
So RINUS this week, the German forwarder announced new air cargo gateways throughout Southeast Asia, which just shows how important a market it is becoming now. And actually E commerce to the US is back on stream. It's not quite at the same levels we saw before De Minimis ended, but it is on the rise. And we heard from Atlas Air at Tiaka that it had shifted about 30% of its network practically overnight to new markets. So, yeah, there is a feeling that there's, there's markets popping up all over the place.
So Atlas is doing three times a week freighter from China to Lima, for example. That's completely new.
[00:05:47] Speaker B: And Gav, what are these new trade lanes looking like in ocean freight? You, I think, identified a few other markets last week that have been benefiting from all this tariff stuff.
[00:05:56] Speaker A: So we wanted to just add a sort of bit of granularity into our reporting of the effects of the tariffs. You know, we're actually seeing things change on the ground. One of these, it was a really small customer advisory from MSC that just said were inserting a Cape Town call on the Morocco service between Asia and West Africa. And it was just a Cape Town call on the back hall leg. And so I just sort of did a bit of looking into it. South Africa and China in mid October signed a trade protocol agreement, the effect of which was that China's market has now opened to five new varieties of African fruits. It's stone fruit, so it's apricots, plums, not cherries.
Apricots, plums. You know, the other stone fruit, peaches. That's the nectarines. Anyway, so there's one more.
[00:06:47] Speaker B: Come on, name the other one.
[00:06:48] Speaker A: There is one more.
[00:06:49] Speaker C: Prunes.
[00:06:50] Speaker A: That was it. All those prunes which are actually plums. Anyway, look. So basically the South African Minister for Agriculture, he was over there in Beijing, I'm just going to quote this from him. So basically explicitly said that the agreement between South Africa and China on opening up this market was specifically to help offset President Trump's 30% tariffs on fruit exports to the US. Now, the reason why Cape Town is important in this context is because it's the export port for all the growers in the Western Cape region of South Africa. And as A result, because of its geographic location, those growers have traditionally been focused on either the US Market or North European market.
With the US Market basically making those exports completely uncompetitive, the countries decided to pivot entirely to China. And the introduction of this new call from msc, I think is a direct response to that new export opportunity. This year alone, that's going to be worth sort of $25 million to the south Africans. So it's just an example of where if you put people into a bind and you think you can bully them for whatever reason the Americans thought they do to the South Africans, there are other opportunities waiting.
[00:08:14] Speaker B: I mean, it's pretty clear that all of these tariffs, obviously, they've been a massive headache to keep up with for everyone, but it has given us some quite good stuff to write about. But could our fun be coming to an end, do you think? I mean, the Supreme Court case centered on Trump's tariff was kicking off last week, and it seems like the vast majority, which is all but two of nine of the Court's justices, are opposed to the reciprocal tariff policy under the Emergency Economic Powers Act.
So does anyone have any thoughts on the outcome?
[00:08:42] Speaker C: To be honest, even if the judges decide that the tariffs under the IEPA are illegal, there are other ways of putting in tariffs, but they'd be more short term and probably not as significant.
But I think we'll still have things to write about because if the court does rule against them, then there's going to be a lot of stuff about refunds. And I think it could get very, very messy when we don't know when the Supreme Court's going to rule. It might be by the end of the year, it might not be. And then, as I said, the refund issue. So trade law firms Sandler, Travis and Rosenberg said that even if the Court overturns the tariffs, it could remand the case to a lower court for further proceedings on refunds, which would obviously cause delays. So I think this story, even if tariffs are ruled out, it's going to run for a while. I think we're going to be safe in terms of stuff to write about.
[00:09:36] Speaker B: Well, of course, another major supply chain issue that we've been reporting on is the Red Sea crisis. But this, too could be coming to an end. It's still very uncertain. But on Twitter, the Houthis expressed their joy for the ceasefire and said that they are closely monitoring developments, but that obviously it is still uncertain. Gav, do you think that Suez transits are going to return anytime soon?
[00:09:56] Speaker A: I mean, It's a process, right? I mean, if the Houthis stop the attacks for long enough, you've got this thing called the Joint War Risk Committee, I think it's called, which is the composition of naval forces in the region.
They're the ones who make sort of risk assessment and then the insurance companies base their assurance policies on the risk assessment contained therein. And I think probably best summed up by this quote from the International association of Marine Underwriters, what they noted was that there's no immediate prospect of that area being delisted by the jwc. What may change is the perception of risk from week to week, and that will feed through into the individual pricing of voyages, whether or not underwriters charge an additional premium, what level reflect how they assess their exposures.
Very simply, the Houthis don't have a great form book on this. Right? I mean, they said a similar thing in March, and yet we had a resumption of the attack. So I think it's still way too early to suggest that there will be a full scale resumption of Red Sea transit. I mean, clearly some carriers are champing at the bit, right? The CMA example is increasingly well known. Must be remembered that CMA vessels that transit Suez are escorted by a French naval warship. So there is a difference from CMA CGM to the rest of the main container liner industry because other carriers don't have that luxury. And certainly last week there was a press briefing held by Hapag Lloyd in the wake of its third quarter earnings. And chief Executive Rolf Hapan Janssen was pretty unequivocal, but he didn't expect to see it soon. If it does happen, given that there needs to be a period of nothing happening, and we're in mid November now and you've got Chinese New Year in mid February, I think it's reasonable to assume that if nothing happens between now and and Chinese New Year, then people will certainly be seriously considering it post Chinese New Year. Because in that normal lull that you get after Chinese New Year is normally the time that carriers take to reorganize their networks. Timing wise, probably nothing now.
And if peace truly has broken out in the Middle east, then we'll start seeing the moves towards a resumption of Suez Canal transit in March next year.
[00:12:24] Speaker B: Hmm, that's a good estimate. But yeah, I mean, the timeline is still uncertain. One thing that obviously is for sure is that once the sewers does reopen, there's going to be a lot of capacity freed up and this kind of Structural overcapacity that we've been speaking about for a while is going to be much more apparent. But, I mean, carriers don't seem overly concerned about this. Last week, MSC acquired three secondhand ships and Alpha Liner data found that vessel idling had been pretty stagnant for the last two weeks. So perhaps this will ramp up soon. Alex, do you think there's going to be much impact on air freight if the Red Sea opens?
[00:12:54] Speaker C: Well, when it closed, there was a good impact for air freight, obviously, and some volumes have gone to air, especially at the beginning. Now, if the Red Sea does open, as I sit, shipping rates will get lower and transit times will decrease. So that makes air less competitive, I would say. But only parts of the air cargo industry overlap with sea. There's only some things that are suitable for both.
Gav, you might need to help me with this, but I seem to remember that we didn't ask on the changeover period. And if the shipping lines get it wrong, then there could be some port congestion in Europe. And if that's the case, then I imagine air freight will get a little fillip at will. People try and try and overcome that. Is that correct?
[00:13:33] Speaker A: Gav, the decision to return to the Suez Canal will be weighed up over months, but once the decision's actually taken, it takes place from one instance to the next. Yeah, are we going to go? Are we going to not? And then it's like, yeah, we do. So it changes from one instant to the next. One minute you're going around the Cape of Good Hope, the next you're going through Suez. You've got to imagine that you're going to have a certain number of ships, they're going to change direction, they're going to be halfway through the Indian Ocean, they're going to turn right to go up through the Red Sea, but that still leaves several ships ahead of them in the string, which are currently sort of steaming up the west coast of Africa.
So several of these ships are now going to be arriving in Europe at the same time because of the shorter transit from the Indian Ocean compared to the South Atlantic Ocean. And it's unavoidable that there will be some bunching unless the carriers can work out some kind of orderly resumption of transit. But, I mean, the industry doesn't coordinate. I mean, orderly fashion and container shipping are not natural. What we have seen is that in periods of sustained port congestion in Europe, air freight becomes a really valuable option for a lot of shippers. So I would not, being an air freight person, I would naturally suspect that there'll be an air freight peak that will happen within a couple of weeks of any resumption of Suez Canal Transit because it will be necessitated by some shippers supply chains.
[00:15:02] Speaker B: Well, I mean, whatever transpires, we will have the Latest news on theloadstar.com so you can keep up to date with that. Finally, Alex, what's been on premium this week?
[00:15:11] Speaker C: Well, it's analyzed a return to Suez, so there's hats for anyone that wants more information.
There's a piece on the chaos that is trucking in California at the moment and vast numbers of legal issues surrounding it.
And there's quite a funny piece on Wonder Jim, which is Jim Vayner, head of Union Pacific, who clearly wanted to have fun in a recent call that he made.
And there's the usual analysis on, among others, C.H. robinson, FedEx and DHL. And DHL, which hosted, as we all know, rather an unfortunate webinar which didn't go quite according to plan. So yeah, lots and premium.
[00:15:48] Speaker B: Thank you. I know I said finally, but you said trucking, which has just reminded me, I actually did attend a TI apply and IRU webinar that looked at the European road freight rates and it is semi good news. Both spot and contract rates were continuing on their steady growth. I mean, when I say steady, it's very slow. But they said that there could be growth projected, but it's very fragile. I mean there's lots of moving parts. It kind of depends on the consumer demand staying fairly steady and no major inflationary shocks.
[00:16:19] Speaker A: I mean, we talked earlier in this episode about the enormous growth of like container volumes into Europe. Now ultimately at some point that those boxes are being put on a truck.
So have they seen any sort of feed through of this enormous the shipping volumes?
[00:16:36] Speaker B: Yeah, they did say that it was having a slight impact, but there was no major growth like you would expect with what we've seen from the ocean imports. So I don't know, perhaps this will transpire, but I think this is something that we're going to look at more about where these volumes in Europe are going. I mean, the outlook for road freight they did say was steady, but that this growth trajectory was quite fragile. And one thing that could derail it is that the EU has voted to end de minimis and this isn't official until 2028. And they said they'll find a temporary solution next year. So that could lead to new trade flows as well as perhaps having a bit of an impact on road freight. To wrap up the episode Is anyone looking at anything interesting next week?
[00:17:17] Speaker C: Actually, yes, there will be a big announcement in air cargo. It ticks a lot of boxes this particular story. It's sustainability, E commerce, technology. I can't say any more than that now. I think it's a very interesting new thing coming out.
And also I will finally write up my full Etihad interview from tiaca, which has got some really interesting points on it, including the relationships between forwarders and airlines, which is a subject I love covering.
[00:17:43] Speaker B: Well, we can look forward to that. Thank you both so much for joining me today.
[00:17:46] Speaker C: Thanks, Charlotte.
[00:17:47] Speaker A: Thank you, Charlotte.
[00:17:48] Speaker B: And thank you everyone listening. We will be back at the same time next week.
