Episode Transcript
[00:00:00] Speaker A: Foreign and welcome to the Lodestar podcast. News in brief. We're going to be recapping the main events from last week's supply chain news and letting you know what you might see on the Lodestar this week. I was slightly out of the loop last week because I was off gallivanting around Bruges for the World Cargo Summit. But to help me with last week, I am joined by Gavin Van Mahle. So we'll get straight into it. Gav, I saw last week that Maersk had responded to your article that Tanjung Pelippus was perhaps going to be a weak link in their Gemini Network. You asked them about this?
[00:00:37] Speaker B: Yeah, I did, I did. Charlotte Maersk held a media briefing in anticipation of the launch of the Gemini Network. And during that I put to them the question about the role of Tangerine Pelopius, which, as we previously discussed, is sort of the central hub of their network.
And the reason why I asked this was because if you look at the utilization, basically Tangerine Pelipus is almost full. I mean, in 2024 it was operating at 98% utilization. Right? So that's a hell of a lot. That's pretty constrained in terminal terms. So the question was simply, if you're going to start using what is already a highly utilized hub as your main central thing, what happens if something goes wrong there? Are you certain you've got the capacity? The response was quite interesting because, okay, getting some new handling equipment sort of increase capacity. But the chief reason is that they appear to confirm that Evergreen is going to be leaving PTP and moving its volumes over to Singapore for the sort of quote was that our big partner in PTP has got a new lease on a terminal in Singapore and we expect it to move over there. And the departure of Evergreen under their thinking or create a capacity vacuum that will be filled by the Gemini partners. So that's the interesting thing. I mean, you know, Gemini started on Saturday. It did, right. First of February. That's it. No more 2M. It was during the same briefing, actually. The head of commercial for Ocean product, Johan Sisgard, I think I pronounced that correctly. Explain how the actual switch from one network to another takes place.
[00:02:08] Speaker A: Yeah, I was wondering. Can you explain this? I was wondering how they were going to do this big reshuffle because there's.
[00:02:13] Speaker B: A lot of ships involved and there's all these trades. And so basically it works like this. Any ship that is currently employed on a 2M service will continue to fulfill that deployment until it reaches the end of the rotation. So the last vessels leaving on 2m services departed on 31st January. And so those vessels will continue to be deployed on 2M services until they've gone back to the base port. Typically in Asia. I did a sort of little thing, and I might be wrong, but I think that the final sailing of a 2M service was the departure of the MSC Gulsung, so 23,000 behemoth, which is employed on what Maersk calls the AE11, what MSC calls the Jade service between Asia and Europe. And that departed Busan on the 31st of Jan. I think that was the final sailing.
[00:03:13] Speaker A: Do we know when that's due to get back?
[00:03:15] Speaker B: Well, that of course is an MSC ship, so it will just continue. The MSC network is basically what was the 2M network.
[00:03:23] Speaker A: Right.
[00:03:24] Speaker B: MSC are just going to carry on effectively. It's the same thing as they were operating under the 2M. So basically it will take until probably May for the last of the Maersk vessels to phase out of 2m and then be fully deployed on Gemini.
[00:03:41] Speaker A: You also did a piece at the start of last week, I saw for Lodestar Premium about where things stand regarding the Panama Canal, obviously in light of the US President Trump's claims that it should be owned by the us. So where are we currently stood with this?
Quite complicated.
[00:03:56] Speaker B: It's complicated, yeah. I mean, as with everything that revolves around Donald Trump, we never really know where we stand. Anything. As far as I can work out. Trump's claims to the Panama Canal seem to rest when you read between the lines and reduce it down to its bare sort of logic rests on three claims. First, the US built the canal, therefore it's theirs. Secondly, the US is the biggest user of the canal, therefore they should pay less for it. And thirdly, a Chinese related company, Hutchison Port holdings, operates terminals at either end of the canal. Therefore, China has undue influence on the operation of the canal. That's basically what it boils down to a couple of points just on those claims. Yes, the US did build the original canal, but actually in recent container shipping, the vast majority of traffic. The reason why it's become so important to US shippers in the last eight years, and you can see this by the gradual market share gain of U.S. east coast ports versus West coast ports, is because there were these new locks that were built in 2016 which allowed much bigger ships to go through that was entirely funded by the Panamanians. Yes, the U.S. built the original canal, but it's not just a U.S. project. Right. It's been added to and it's, it's very much controlled by the Panama Canal Authority.
Yes. The second claim, yes, US shippers do represent a massive customer base for the canal, but it's a bit like saying Manchester United fans pay more money than any other fans to watch football at Old Trafford. Like, yeah, obviously, yeah, you are. Thirdly, the Chinese control. This is really opening up a great big Pandora's box because Hutchison's present in a lot of other places as well. And if it's being unduly influenced by the Chinese government in relation to Panama, then the suspicion would be that that would be the same elsewhere, including just down the road from us and Felixstowes. So I don't know enough about it to know how much control they do have, but there was a really interesting U.S. senate hearing for the Commission for Transportation in Washington last week and they invited Louis Solar, the recently named head of the Federal Maritime Commission, to give evidence. Mr. Sola clearly knows Panama very well. I mean, he was stationed there with the US Navy when it was still under US control. He spent a long time there. So he knows Panama. I mean, the hearing itself was inconclusive and I imagine there's a lot more rumination that's going to be done on it. But one of the interesting points that Mr. Sola raised was that if the US feels that China does have an unfair influence on the Panama Canal, then that is an issue that the US can really only take up with the Panamanian government because it's the Panamanian government that's the ultimate shareholder of the Panama Canal Authority. What he said was that one of the things that the US government could do if it finds that it's being unfairly treated by Panama or its shippers are that it could bar entry of any vessel flying the Panamanian flag to U.S. ports. And that would be a massive move because Panama is one of the biggest flags in the world. Yeah, that sounds quite true. And there are a lot of container ships that fly the Panama flag. So there could be some really serious stuff on the way about this. Depending what the political wind in Washington.
[00:07:23] Speaker A: Is, expect to see a few more headlines on that.
[00:07:25] Speaker B: Oh, undoubtedly. Yeah, definitely.
[00:07:28] Speaker A: Well, as well as Panama, India was also in a few lodestar headlines last week. From what I saw, we reported that the Shipping Corporation of India, which is India's only long haul liner operator, wants to acquire up to six secondhand container ships, from mid sized to ultra large, to beef up its operations as the country's export potential picks up due to the Trade diversification in Asia. One of the drivers of this trade diversification is the regular disruption that we see in Bangladesh. So last week there was yet again more chaos as strikes on rail networks were announced Tuesday morning which exacerbated the already existing congestion at both Chittagong and Dhaka's rail inland container depots and obviously as well as China plus one. This is creating further opportunities for Indian companies. And a few Indian apparel industry stakeholders have reported seeing strong demand signals from big global brands. I think I read that JCPenney was one of them as a result of this becoming a common occurrence. So definitely a very fast paced market to keep an eye on if you weren't already, although I'm sure probably most of you already were. Finally on the ocean freight side, Gav, was there anything to report on ocean freight rates last week?
[00:08:39] Speaker B: Well, of course we've now ended the first week of the Chinese New Year holiday. So that always makes activity very muted to say the least. We saw single digit declines on the Asia, Europe and the Trans Pacific trades. Although these rates at the moment are still higher than they were post Chinese New Year in 2024, they are expected to decline. I mean, there's a lot of capacity. Demand is always weak after Chinese New Year. There's always a sluggish period as the Chinese get back to work and the people get back into the rhythm of doing business. And the demand outlook in some of the exporting markets like Europe, doesn't look particularly conducive at the moment.
[00:09:20] Speaker A: Well, as well as this impact on rates, we did also report that the Chinese New Year factory rush to get goods out before the holiday meant that the global container port congestion hit a three month high according to a Lionelitica report. So it said that apparently about 3.3 million TEU, or about 11% of the container shipping fleet was held up at ports in Asia, Europe and North America. So that sounds quite impactful. Hopefully that clears out soon.
[00:09:46] Speaker B: It comes these things, they suddenly veer up without anyone noticing them. That's really strange. Suddenly someone's come out of the port and it's like, oh, did you realize that 10% of the fleet's now waiting outside ports? You're like, no, I didn't. Because it bubbles under the surface. It's under the surface and every now and then it'll bubble above the surface.
[00:10:05] Speaker A: I did also see that there were some worries about bad weather in Northern Europe. Did that have any impact congestion?
[00:10:10] Speaker B: Did you see the effects of Storm Irhun?
[00:10:14] Speaker A: I didn't really.
[00:10:16] Speaker B: I think I'm pronouncing. Well, it was named after a character in Lord of the Rings.
[00:10:20] Speaker A: Right?
[00:10:20] Speaker B: Yeah.
[00:10:21] Speaker A: Haven't watched it.
[00:10:22] Speaker B: Okay, that's left me speechless. Back to the. The storm named after a character in Lord of the Rings. She was the niece of Thayuden of Rohan. By the way. Anyone who is interested. 100 mile an hour winds hit the Western British Isles. I mean, we had some really strong winds here and we're on the east coast. We're sheltered from the worst of it. When you get 100 mile an hour winds, I mean, you don't even want to go out outside. Right. Anything above a 40 mile an hour wind or so, you basically can't operate a port. You can't be lifting 40 plus ton containers, you know?
[00:10:57] Speaker A: Yeah, I saw CMACG 50 meters into.
[00:10:59] Speaker B: The air and try. You just can't do it. It's just too dangerous. So the weather will have a. Will have a big impact on port operations and it will worsen congestion. But anyway, enough about ocean and all that stuff. Let's take to the air. Charlotte, shall we? Tell us about Bruges.
[00:11:15] Speaker A: Oh, I had a great time.
[00:11:16] Speaker B: So what we. Let's, let's set the scene.
[00:11:18] Speaker A: I arrived.
[00:11:19] Speaker B: You arrived.
I was just gonna say you arrived by train. Yeah, in Bruges.
[00:11:24] Speaker A: Yeah, it was a great time. We were very well looked after by the organisers. I had oysters. We went on a tour of the Bruges old town.
[00:11:31] Speaker B: Oh, it's stupendous.
[00:11:32] Speaker A: Yeah, it's gorgeous. Had some ceviche. They had some live music. Yeah, it was wonderful. Anyway, I actually did do some work also while I was there, I should say. It was very clear from the panels that I went to that the main worry at the moment is capacity. This has been a thing that's been.
[00:11:47] Speaker B: Going on for ages and lack thereof.
[00:11:50] Speaker A: Lack thereof, yes. So at the moment, demand is already outweighing supply massively. But what they were talking about is that the freighter fleet is aging at a way faster pace than new builds are coming in. There was a McKinsey analyst there and he said that around 31% of freighters available now are in the region of nearing retirement. Which is 30 years and older. Yeah, about 31%. And by 2030 there's going to be another 17% of freighters aged between 26 and so that means that around half the fleet are going to be in the range of retirement.
[00:12:24] Speaker B: And what's the, what's the feed in?
[00:12:26] Speaker A: Well, he said that best case scenario is there's going to be an added 12% from new builds. One of the presentations there by Avian, which is a data company, explained that the narrow body passenger aircraft orders are being prioritized currently over freighter orders by the manufacturers because that's where the money is. And they kept saying that this shortage has meant that people are booking capacity a lot further in advance and a lot more keen for longer term. I asked an airline executive about this on the sidelines because I was like, what if there's way more demand than there is supply? What does this do? Because shippers aren't going to suddenly say, right, look, I can't sell you this because there's no room. And he said it's simple economics that when there's more demand than supply that.
[00:13:08] Speaker B: The prices are going to go up.
[00:13:10] Speaker A: And another thing, as well as rates getting higher, is that capacity is being pulled from other markets into the Asia Pacific region to serve the E Commerce customers, which I also read that I think in 2024, China's air cargo volumes have reached an all time high of 20.6 million tons in 2024, which is up nearly 20% from 2023. And quite a sad thing that we heard about at the conference was that this is really squeezing other markets. In particular, flower shippers that were there were saying that growers in Africa are just having to dump a load of their product.
[00:13:43] Speaker B: They can't get it on the thing.
[00:13:45] Speaker A: Yeah. And they're having to prioritize what's going to make them more money because obviously you can't plan with flowers how much capacity you're going to have. You've got to grow it way far in advance. So there's a lot of money being lost there and a lot of products.
[00:13:55] Speaker B: There must be some ramifications for sort of modal shift here because I mean, I reported, I don't know, like five, 10 years ago that the shipping part of Maersk had developed a whole reefer logistics solution for Kenyan flower growers. Proved that you could take cut roses from Kenya, put them in a reefer container and although they're at sea for sort of 20 plus days, they could still arrive in, in Holland in as good condition as the.
[00:14:25] Speaker A: I did speak to a supply chain expert about this from Royal Flora Holland, Ian Vanderburg, and she was saying that it's a great alternative and they're making great advancements. But then the Red Sea crisis and all of a sudden it adds double the amount of time and the worse. Yeah, the technology's kind of not at that level yet, so they really do rely on air freight. I have got more coming out on that this week. I've got my newspaper coming, but following the days of being immersed by air freight, a lovely round off to my week was having the inaugural episode of the Lonestar's brand new air cargo podcast to listen to on the Eurostar home. It was a great episode. The guests were Jan Krems, President of United Cargo, and Tom Bradley, director and General Manager of Amazon Air Cargo. So definitely go and listen to that if you haven't already. Speaking of Amazon, I mean they did a great job on our podcast, but they were in a bit of hot water with the FMC recently.
[00:15:16] Speaker B: Well, I'm not sure you describe it as hot water yet. It's water flame has been put under and we're not quite sure of the temperature. China United Lines from they're sort of euphemistically called startup container carriers, has filed a court case before the FMC claiming $96 million in damages from now that is actually exactly three times the previous largest claim that the FMC has heard. The previous one was Bed Bath and Beyond which was claiming 32 million from double OCL. The China United claim against Amazon. This is Amazon as a shipper. The root cause of it is that it claims that Amazon failed to meet its minimum quantity commitment claim.
[00:16:02] Speaker A: Right.
[00:16:03] Speaker B: And there's various other sort of sub clause claims going on as well, but yeah, it totals 96 million. So that's.
[00:16:08] Speaker A: Well it be interesting to see what happens with this case.
[00:16:10] Speaker B: Big one. It's a big one.
[00:16:12] Speaker A: Thank you very much Gab.
So now you've been reminded of all the main events from last week's supply chain news. Here is what you might see on the load start this week. So today, Monday 3rd February is a TI insight with the IRU and apply and that's the road freight benchmark that they do every quarter. And this is going to explore the latest trends and developments in the road freight rates, the evolution in spot and contract markets, the economic impacts of rising fuel costs, inflation and driver shortages. Focusing on the European market dynamics in Q4 2024. It's also going to tell you strategic lanes to focus on in the upcoming months and a 2025 outlook for the road freight industry. Also this week Trump said he would impose 25% tariffs on Canada and Mexico with effect from February 1st. So that's Saturday in a press interview on Thursday last week. So if he actually did make good on his promise, then we might start to see how exporters from those countries respond. And how significant these extra costs prove to be. I've still got lots of insight also to write up from the World Cargo Summit, not least my interview with flower supply chain expert from Royal Flora Holland, Eileen Vanderburg, and she spoke about the difficulties of shipping perishables in a very capacity type market like I previously mentioned, and what is now being done to curb that. And finally, we are well into earnings season with the likes of Maersk and DSV set to reveal their full year earnings this week. I'm hoping that GAV or Alex will be doing the write up of that because financial reporting is not my favorite thing to do, but either way it will definitely be covered and there will also be a more depth analysis of those over on the Lodestar Premium, so do keep an eye out for that. Thank you so much for joining me and I'll see you next week.
