Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:07] Speaker B: And welcome to the Lodestar podcast News in brief. We are going to be rounding up all of last week's supply chain news and giving you insight on what you might see on the Lodestar this week. Now if you haven't been paying too much attention to the news because you've been celebrating Thanksgiving or you're preparing for Christmas, then that is exactly what we're here for. I am joined by the Lodestar publisher Alex. Hello Alex. And the Lodestar managing editor Gavin Van Mael.
[00:00:30] Speaker A: Hello Charlotte.
[00:00:31] Speaker B: Now I want to kick off the episode by asking you both for the stories or themes this week that caught your attention. Gav, I will come to you first. Anything interesting pop out at you?
[00:00:40] Speaker A: Well I suppose the most obvious thing is the conversations continuing around Suez Canal. To be honest it passed completely under our radar until one of the Maersk spokesman's got in touch with us and said there's been an erroneous report that we're returning to the Suez Canal next month. Next month being December. What transpired was that Maersk had had a meeting with the Suez can authority as shipping lines often do.
And in the aftermath of that the Suez Canal Authority released a press release which said that they that Maersk had agreed to resume Suez Canal transits in December. And Maersk were very quick to say actually we haven't decided that at all. I mean it looks like a classic case of wish fulfillment on the part of the Suez Canal Authority and the Egyptian government. Right. Because you know they want to get transits back. It's a really important part of the state revenues. So the position is really nothing's changed. You know Maersk reiterated the position that they would return to the Suez Canal transit once. Basically it's feasible which reading between the lines is once they're insured to do so. Hapag Lloyd MAS Gemini Corporation Partner released basically the same press release. We do know that CMA CGM is certainly ramping up backhaul transits a little bit but I mean it just doesn't look like anything's really going to happen in terms of returning to Suez before 2026.
[00:02:07] Speaker B: Yeah, it was quite cheeky of them to put out the statement saying that Maersk was coming back through. But I feel like every time we have this conversation it does always come back down to nothing's really changed, not until it's insured.
[00:02:18] Speaker A: It's just it's all about the insurance now and until the insurance is settled then no one's going to do it without being insured. It's a bit like the Dr. Down a road and your insurer says, you can't drive down that road. You're uninsured to do it and it's a shortcut to your home. You go, I really want to use that shortcut. Okay, but if something happens to your car, no one's going to pay for it. I mean, it's just exactly the same thing. And until they say, yeah, you can drive down that road, you're just not going to because the risks outweigh the returns.
[00:02:47] Speaker B: That seems like quite an obvious analogy.
What about you, Alex? Did any, any stories jump out at you last week?
[00:02:55] Speaker C: Well, I've spent probably the last month actually talking to airlines and forwarders about the negotiations for next year. And I happened to see on LinkedIn last week a very smiley picture of Michael Steen from Atlas Air and Jens Lund from dsv. Now, I'd have given all the money in the world to be a fly on the wall on that conversation. They're both known to be tough negotiators. It must have been fascinating. Anyway, they all look very happy and smiley with each other, so I'm sure it's all worked out beautifully. They haven't made any announcements yet, though, to be fair. But mostly what. What I'm hearing is the lack of clarity and transparency over next year and how that might affect volumes. People are saying they might wait until after Chinese New Year to. To seal the deal on a lot of their capacity.
So March, April, June are meant to be when people are looking to sign contracts.
People are waiting to find out if they have a particular vertical that's important, what the demand for that might be. There's so many factors going into it and following sort of 2023, when the E Commerce pretty much booked all the freighters and the forwarders got a bit scarred by that, really.
There's still some nervousness about getting it wrong. No one wants to get it wrong. But then as someone else said, well, if we do get it wrong, three months down the line, we'll just go, no, we're not honoring that contract. So the whole thing, there's a slight pointlessness to it perhaps, but it's fascinating. And like I say, I wish I was a fly on a wall in some of those conversations that are currently being had, I think. Very interesting.
[00:04:28] Speaker B: What about Premium? Were there any good stories over there?
[00:04:31] Speaker C: Well, as always, yeah, there were more exclusives on SIVA Logistics, so some very good sources on that. There's a look at ScanGlobal's results there's been a lot of chat on LinkedIn about what might be happening at Wise Tech and Cargo Wise and its new payment model.
So the premium has covered that. There was a look on DSV Road and as always, a lot more, to be honest. Always worth a read.
[00:04:58] Speaker B: Yeah. I think one of the main stories that popped out for me last week was that we, I mean, we reported on the container ship fire on the one Henry Hudson at the Port of Los Angeles and then I think it was five days later another ship fire on the Chiquita Voyager at the Port of Wilmington broke out. So, yeah, I mean, one after the other, it's quite. It's quite scary really. I think the one in Los Angeles was an electrical fire, but again, it's about misdeclarations and improper handling. There was also some strike action last week in Belgium against austerity measures by the government such as like budget cuts, reforms to pensions and adjustment to unemployment benefits. That was between the 24th and 26th of November. So just the two days GAV, was there much of an impact on sea freight?
[00:05:45] Speaker A: Well, I mean there was. There was already quite high congestion at Antwerp. There has been. And not just Antwerp, Rotterdam and most of the ports. And what we call the Hamburg Le Havre range, which also includes the UK as well. You know, we've talked about how strong container volumes have been coming into Europe, especially on the Far east trade. And the strikes that took place last week, I mean, they'd been notified. Right. We knew these were happening because they're a contin. There is second stage of industrial action.
I think the first took place at the beginning of November, if memory subscript. And it was over the same issues as before. And even a two day stoppage, well, you know, congestion happens very quickly and it takes a very long time to sort out. And I think, you know, we'll see this in effect once again in Antwerp over the coming weeks.
[00:06:32] Speaker B: And what about in air, Alex? What was the impact there?
[00:06:34] Speaker D: Actually, Charlotte, I think air freight got off pretty lightly, to be honest.
[00:06:38] Speaker C: There was no disruption reported at either Liege or Ostend Bruges. A spokesperson at Brussels airport told us that five out of 50 freighter flights had been cancelled, but that could have not been strike related. In fact, I mean, there were a lot of passenger flight cancellations, more than 400 on Thursday.
So there will have been some sort of impact on belly cargo, but I don't think it would have been particularly significant, although presumably we might find out later if it had been. But I think to be honest, it's all gonna be fine.
[00:07:12] Speaker B: Well, that's good to know. I mean there was also a strike in Italy that happened on Friday that was like across warehouses, distribution and port activities. Also, rail was suspended for 24 hours which obviously led to cancellations, route changes. But I think with any strikes it's always going to cause slight delays, perhaps some cancellations onto sea freight now. And container ship scrapping reached a three year low last week. Lionelitica reported that so far this year only 14 container ships with a total capacity of 9,857 TEU to be exact have been scrapped. And demolitions haven't been this low since 2022 when there were just three feeder vessels that were scrapped. This was during COVID and obviously at this time freight rates and charter rates went really high. So I'm curious why these scrappage rates aren't higher at the moment, seeing as the overcapacity has quite evident and is expected to get worse. Gav, do you have any thoughts on why scrapping is so low at the moment?
[00:08:08] Speaker A: It's interesting, isn't it? Because it's also completely tied in with the say, I mean it's the sec. It's the other side of the coin from the same question that says why are charter rates still so high when, when freight rates are falling.
Doing kind of tour of the various sort of psychological phenomena here, but I think, I think it's fomo, which either Gen Z or the millennials call it that anyway. People younger than me call it fomo. Fear of missing out.
And I think that there is a sort of psychological element to this because, you know, yeah, there is, there's, there's more tonnage than, than there is demand at the moment. But that does tend to vary trade lane by trade lane.
And I think the general position tends to be that the carrier would rather have capacity when they don't know what's coming up than, than reduce that capacity when they do don't know what's coming up, if you see what I mean. What they don't want to do is be missing out on any, any growth and revenue earning opportunities. So yeah, you know, it will correct itself. It has to, you know, the fundamentals as you mentioned there, demand it. The question is when, and with not only the return to Suez being one uncertainty, but a second one, which is a very real one, is that at some point there might need to be some serious restocking activity in the US given the very low levels of demand over the last few months.
So if that took place in like the early part of next year, like prior to Chinese New Year for example, you want to have all the tonnage you can deploy to cater for that. So I, I suspect that that's what's behind it and that as things clear, as the dust clears a little bit, if it does, then we should start seeing a correction.
[00:09:52] Speaker B: Well, I mean, not only is scrapping low though, but carriers are still doubling down on trying to build capacity.
MSC seems to have gone in pretty hard on the transatlantic. I think that's something that you looked at last week.
[00:10:03] Speaker A: Yeah, I did. It was, yeah, it was very interesting. It's been happening since sort of August, I think it was. Two weeks ago. You wrote a story about how it's on its Dragon service, was it not? Yeah, it was Dragon services, yeah. And the same thing basically has happened to its Albatross services. So these two services are basically, they're Asia to Europe to the US east coast and then back to Asia through the Panama Canal, their around the world services. And over the course of the summer, MSC began to redeploy much larger vessels to this trade.
So instead of what you would normally have on the transatlantic is, you know, four to six thousand TU size ships suddenly, because these services are also serving other trades, but within the same string, they're now up to sort of 13 and a half to 16,000 TUs. It's a massive increase in overall trade capacity.
The analyst from Zenitha, Emily has really interesting bits she wrote about the transatlantic just this week and I think it's worth me just, it's worth just quoting in full.
So where do we go demand on this trade, on the transatlantic trade is at almost exactly the same level as it was in 2020. Yet offered capacity is more than 50%.
Right. Which demonstrates that the level of capacity deployed by carriers on this trade is influenced by factors beyond the underlying demand. So this is sort of supporting what I've just been saying.
Now, to resume with what Emily said, the transatlantic often goes under the radar compared to other front haul trades, but it is central to carrier's global strategy. When ocean supply chains are under pressure, such as COVID 19 or the Red Sea crisis, capacity is removed from the transatlantic and deployed onto more lucrative trades. But conversely, when there is overcapacity, such as now, carriers move ships back to the transatlantic to protect freight rates on other trades.
So that I think gives quite an important insight into what's been happening specifically on the transatlantic in regards to its capacity.
[00:12:09] Speaker B: Yeah, that is interesting. I think the report that I did a few Weeks ago was saying that actually the introduction of these larger vessels on this trade was one of the factors that was overwhelming the ports and causing congestion there. So I wonder if that's a tactical move from the carriers. Just put in really big ships that the ports can't handle and then implement congest and surge.
[00:12:28] Speaker A: Oh, that's so cynical. That's so cynical. I suspect it's unintended consequences, but, you know, I'm clearly more charitable than you are, Charlotte.
[00:12:38] Speaker B: Well, obviously when supply is greater than demand, this has a weakening effect on the rates. So what did they show last week?
[00:12:45] Speaker A: Yeah, actually, if we're suggesting a strong relationship between supply and demand, what happened in the last week would support this. So we got Asia Europe rates coming down just a little bit. It was 1% on North Europe and 1% in the Med, as per jury's WCI. But there had been a small increase in capacity over the last week. So that might well explain.
So today, 1st of December, there's a whole series of new FAK levels just pipping $3,000 per 40 foot to North Europe or just under 4,000 for the MED.
I mean, it's quite interesting because over the course of November, there had been a number of blank sailings. There had also been a move to introduce smaller vessels to the trade and get out the larger ones.
Maybe they're on the transatlantic now.
And that certainly led to some rollovers, couple of space issues for forwarders bringing containers into Europe.
My gut feeling, and of course, the background to all of this is the annual contract negotiations now on this trade are now fully underway. So everyone's using the spot rate as a guide for what their annual rate will be next year. When you sort of take a step back, back and look at it, seems to me that the spot rates on Asia Europe are basically settled around the $2,000 mark per 40 foot. And I suspect then that, you know, your annual contracts are going to be sort of 75% of that. So like 1500 per 40 foot over the next year. And you've been talking to shippers as well about this, Charlotte, and that that seems to chime with with most of what I'm hearing in terms of the annual negotiations on the Trans Pacific, they're down again quite significantly. I think it was another 4% lost off the Trans Pacific into the US West coast and 6% off into the East Coast. Freight forwarder over on the US west coast, they're called freight, right. Says that they've reached rock bottom and they report carriers discounting to $1,350 per 40 foot. That's on the into the US West coast and they expect rates basically to remain at that level for the remainder of this year. Of course their contracting season is much later. It takes place, well, it starts taking place in sort of March, April with the contracts normally signed at the beginning of May.
So the expectation on the Trans Pacific at the moment is flat.
Stay where it is. Nothing exciting for now, but may well be a hike again in January as a sort of pre Chinese New Year rush, probably accompanied by all sorts of peak season surcharges and general rate increases as always.
Yes.
[00:15:35] Speaker B: Now on the flip side of the general overcapacity, the ocean is seeing what is the capacity situation like in air? Alex, I know previously we've spoken about like the delays with Boeing and Airbus and the fears of a capacity short shortage. So what's been happening there?
[00:15:51] Speaker D: So there is one caveat to that. One senior air freight player told me that it's always worth remembering who is issuing the warnings over the freighter shortage. And yes, if you look at it, it's Boeing and it's Airbus and it's freighter operators.
So it is worth sort of looking at who's saying what in terms of capacity. We've got Airbus last week said it got 82 orders from I think 13 companies for a 350s, but that's not until 2027. So there is stuff coming on stream. Current capacity. One nice little news story is that we've got a new Egyptian cargo charter airline called Airmaster which is giving some relief to perishable shippers.
But the main probably concerns over capacity right now are in the us.
There was one quite odd story last week about the Olympic fuel pipeline in Washington State which had a leak and that meant that there wasn't enough fuel getting to Seattle Tacoma Airport.
So United Cargo placed a temporary embargo on narrowbody cargo shipments. So that's one to keep an eye on. But I suspect it'll be fixed fairly soon, if not by the time this recording goes out.
Then of course there's the grounding of the MD11 fleet, which I think has probably caused slightly more problems for FedEx, UPS and Western Global.
I think interestingly, this might be most difficult for Western Global.
It has furloughed all its MD11 pilots now, which is nearly 70 pilots, I think, or more than half of its full roster, which suggests, I think there's going to be no quick return of the MD11s. Could it be the beginning of the end for the carrier? I Don't know. It's had a difficult time. It filed for and exited Chapter 11 bankruptcy in 2023.
It had very heavy debt. It's got an old fleet. It'll be interesting to see whether it survived. But without the MD11s, it's only got four 7.4 7s, one of which is parked. So it's maybe a tough future for Western Global.
[00:17:50] Speaker B: And what about demand? How is that looking as we go through Black Friday, Cyber Monday, Thanksgiving run up to Christmas? I think there's something called Singles Day in November.
[00:18:00] Speaker D: Yeah, well, everyone's been saying there wasn't a peak, but now people are starting to call it a mini peak, so.
[00:18:05] Speaker C: That'S where we are with that.
[00:18:07] Speaker D: It appears to have faded slightly, probably because of Thanksgiving. And if you look at Rotate's capacity database, there was a significant drop off in capacity in about the second week of November. So the theory is that global demand is easing slightly and the global air freight indices do seem to have dipped, although another caveat, World ACD is reporting that things have gone up slightly, but The TAC index BAI is down 1.5% from the end of last week. Freight off fax was down nearly 10%. Week on week.
Asia remains strong, but with another caveat. It's my favourite word this episode. There's been, of course, severe flooding. Vietnam, Thailand, Malaysia, Indonesia. I mean, there's a lot going on there which we're trying to dig into at the moment to find out exactly what's happening.
So that could have some sort of impact this week.
One forwarder told me that they're already rerouting via trucking through China to get out of Southeast Asia. But up until last week, rates from Southeast Asia to Europe had jumped more than 9%, but was down slightly to North America. And Asia Based Forward has told us that they had seen a significant pickup, which I think formed the mini peak during the negotiations between China and the US, which had a November 1 deadline and that looked a little bit like front loading. Could have been seasonal though, but forwarders are saying that the mini peak conditions largely remain at the tail end of November. So we'll just have to see what December brings.
[00:19:35] Speaker B: Well, looking to the week ahead now, I mean, I'm going to be looking a bit more at the port congestion thing and how European ports in particular are coping. I have heard some rumors that carriers are really concerned about this issue and might look to make some changes, perhaps. Do either of you have anything on your radar?
[00:19:52] Speaker D: Well, yeah, we had lunch with Oscar de Bock, CEO of DHL Global Forwarding last week.
So we will be bringing some insights from that. I've got to say, he's a very personable man. He doesn't have that kind of rock star CEO thing going on. He seems normal and nice and, you know, smart.
[00:20:10] Speaker C: It'd be really interesting to see how he develops at dhl.
[00:20:13] Speaker D: But, yes, we'll be bringing some stories from that.
And of course, on Tuesday night, there are the Seahorse Freight Association Journalism Awards. So if you haven't got your ticket to that, get one now. Hang out with a load of journalists and a lot of drinking for a pre Christmas special.
[00:20:29] Speaker B: Thank you both so much for joining me this week. It's been lovely to chat to you.
[00:20:34] Speaker D: Thanks, Charlotte.
[00:20:35] Speaker A: Thank you, Charlotte.
[00:20:36] Speaker B: And thank you all for listening. I hope everyone had a wonderful Thanksgiving and a good week ahead. We'll see you next time.
