Episode Transcript
[00:00:00] Speaker A: Foreign and welcome to the first 2025 episode of the Lodestar Podcast. News in Brief Happy New Year everyone. I hope you all had a wonderful holiday. If you did manage to take some time off, and if you did take some time off and you were avoiding anything supply chain related to fully switch off your brain, then don't worry because that is what this podcast is for. We're going to be recapping the main events from supply chain news from just before Christmas to the start of year. So you can listen to this podcast and then just dive straight back into work feeling fully rejuvenated and fully prepared. We're going to start this episode with some good news. The Sea Intelligence Schedule reliability data for November 2024 showed global improvement to almost 55% and that doesn't sound like very much, but that is the second highest level since the outbreak of the Red Sea crisis. So it just shows that everyone is getting used to the reroutings. Now that might be slightly short lived because in some slightly more worrying news, there have been no updates to negotiations between the US and the ILA. US media reported that negotiations are set to continue on 7 January. That will leave just eight days for the parties to agree on a new master contract. Maersk said it was developing contingency plans for a strike and it urged customers to pick up and return containers at US east and Gulf coast ports before 15 January. Hapag Lloyd announced it would introduce an $850 per TEU surcharge for imports to affected ports in the event of a strike. And Zim said it would charge $1,000 per TEU. So we can likely expect some more carriers to start coming out with surcharges like this. And this deadline for the strike comes just five days before Donald Trump's inauguration and he's made it very clear that he will side with the union, so he might look to end the strike by forcing the employer's hand. Now, over the holidays, Trump was also quite vocal on his thoughts about the Panama Canal, and I'm joined now by the Lodestar Managing editor Gavin Van Mul. So Gavin, what did Trump say about this and what, if anything, is this going to mean?
[00:02:02] Speaker B: I mean, interpreting Donald Trump's thoughts, always a difficult thing. What he said was that it's costing the US too much. We built the canal and we want it back. I mean, the US administered the Panama Canal for the best part of the 20th century. It returned control of the waterway to Panama in 1998.
And periodically, you will have politicians in the US, you know, saying that they should reassert control of the waterway, given its importance to the, to the US economy. Obviously depends month on month, but, you know, probably about a third of US containers go through the Panama Canal. I mean, it just seems to be nonsense, frankly, what he's talking about. But, you know, there is the fact that the Pacific end of the canal, the port of Balboa, is managed and run and operated by Hutchison Ports, and the port of Cristobal on the Atlantic side is also run by Hutchinson Ports. And there have been increasing concerns amongst US politicians that the Chinese government is the de facto controller of Hutchison, which now trades under the name the CK Group. What it'll do, in a nutshell, is that there'll be a whole load of people talking about Panama. It will inevitably lead to more talks about alternative canals. And the President of Nicaragua, Daniel Ortega, has refloated his plan to build a canal in Nicaragua. I don't think there's any realistic prospect of the US taking control of the Panama Canal.
[00:03:33] Speaker A: Yeah, I mean, it should also be noted that the President of Panama actually did rule out discussing control of the canal with Donald Trump and rejected the possibility of reducing the canal tolls, as well as rejecting the notion that China was interfering in the operation of the canals.
[00:03:47] Speaker B: Yeah, yeah, yeah. And as you would, I mean, there's no suggestion outside of Donald Trump and other US Senators that the Chinese control the canal operations. Also worth noting that there are several other port operators who control significant ports in Panama. You've got ssa, an American company. You have psa, Singapore's PSA at the Rodman facility, and MSC itself is building a facility there which it took from Chinese interest. But the thing is, you know, that the canal is absolutely of critical importance to the country of Panama. It's its single largest revenue. So it's of big importance there, as is Suez, of course. I know you wanted to have a quick look at Suez.
[00:04:27] Speaker A: Yeah, I was going to say, while we're discussing canals, we might as well have a look at the Suez. It dropped a significant amount of revenue over the last few months, I guess the year really, since people have stopped transiting. But what was the actual figure there?
[00:04:40] Speaker B: So, according to Reuters, it's lost 7 billion in revenues due to the Red Sea crisis. That is equal to about 2% of Egypt's national GDP, which was put around 400 billion in 2023. So Suez doesn't represent the same national importance that Panama does to Panama, if.
[00:05:01] Speaker A: You see what I mean. I mean, obviously they've lost a significant amount of money, but they are testing a new expansion of the canal which obviously won't matter too much in the short term. But once vessels are allowed to start transiting again, hopefully it will make a bit of a and this is a 10 kilometer extension on part of the canal that's going to allow two way traffic and will allow it to handle an additional six to eight ships per day.
[00:05:25] Speaker B: I mean, as we're probably shouting out to Alex Whiteman's story from last Friday following an interview with Lars Jensen, where the prediction now is that transits at Suez aren't really likely to resume until August. That's partly due to the alliance network changes which we'll, we'll come on to later in this edition.
[00:05:43] Speaker A: And there was also a new bill introduced in the US Congress called Ships for America act. And if it passes, it's going to mean that over time a minimum of 10% of US import cargo from China would have to move on US built flagged and crude vessels. And this is at the level of the individual shipper with the threat of fines. How to do this is to be determined within two years of passing the bill with the minimum US Cargo share being gradually increased from year five and Chinese owned or operated vessels will be penalized. And this is going to impact not just the Chinese carriers, but also carriers who are in alliance with Chinese carriers such as cma, CGM and Evergreen on the ocean alliance. It also means that US Flagged vessels will be given priority in US Ports over foreign vessels if there is a queue. There are a few more nuances to this and a few more details, but it hasn't yet been passed. So it's definitely one to keep an eye on. Well, we have to finish this section by looking at the ocean freight rates. So what was the movement over the last two weeks?
[00:06:44] Speaker B: Completely flat on Asia to Europe and decent gains on the Trans Pacific and Asia to US east coast. So strong demand there, partial implementation of 1st of January GRIS, which came into effect last week and are starting to have their toll on pricing. And also of course the front loading in preparation of possible tariffs possible the 15th of Jan port strike. You know, those are, those are still underway. And also possibly that people are front loading in advance of the alliance network changes which could cause a bit of disruption to services.
[00:07:22] Speaker A: And speaking of rates, I'm also now joined by Lodestar publisher Alex Linane. Alex, what happened with the air freight rates over the last two weeks or so?
[00:07:31] Speaker C: Well, actually Charlotte, there isn't much data out, to be honest, it looks as if air freight rates are easing off, which is what was expected. But as I say, we're not getting the full picture of data at the moment for last week, so we should know more about that this week. I think sort of in air. One of the main issues that could be a cause for concern. Well, obviously is was the two tragic air crashes over the holiday period. The Jeju one in South Korea just looks like a terrible, terrible accident. Worse for aviation perhaps was the downing of the Azerbaijan Airlines aircraft, reportedly by Russia in what was a horrific mistake. But I think that that's going to cause some tension, at least for anyone overflowing that region. So I think that's probably the biggest impact of what's happened in the holidays over air.
[00:08:21] Speaker A: Thanks, Alex.
As this is the first week back, we're going to be doing a slightly different episode and rather than looking at what is to come this week on the Lodestar, we're going to be looking at what you might see this year. Obviously the main thing on everyone's radar is the Immin ILA US east and Gulf coast port strike come 15th of January. Obviously a strike, if it does happen, it's going to cause major supply chain disruption for many weeks depending on the duration of the strike. But the strike's conclusion will also be very interesting because the final contract is going to be really important for the future of US port automation and ultimately productivity. I know that was something that you were looking at Gav with the port automation series, but also the alliance reshuffle that we've spoken about extensively on this podcast. When does this start gather and what's it going to mean for supply chains?
[00:09:17] Speaker B: I mean the formal breakup of the two Emma lines, which is the real catalyst for the industry wide changes, is from the 1st of Feb. MSE goes it alone with its sort of basket of vessel sharing agreements and the Gemini alliance formally starts and what we understand, and this has been talked about amongst other observers as well, is that that is likely to lead to a sort of two to three month period from the beginning of February onwards where carriers are just really focused on their networks and they're going to be inward looking and it's all about operational stability, it's all about how the new networks are working, whether the birthing windows are right, how the port calls working, all that sort of thing, whether they've got the right ships on the right strings and so on and so forth. So that's going to be the chief thing, is that basically the attention of carriers is going to be entirely focused on their operations rather than their relationships, relationships with customers, for example, which will make it interesting in terms of the Trans Pacific negotiations, the annual rate negotiation on the Trans Pacific, which will sort of start around the beginning of March. So they're going to be interesting.
[00:10:27] Speaker A: Well, something else that might have a bearing on vessel deployment is the ramp up of emissions regulations. So on the 1st of January, the introduction of fuel, EU maritime sets targets for greenhouse gas intensity of energy used on a ship. And on top of this, due to the gradual phase in of the EU ets, the percentage of vessel emissions carriers paid for went up from 40% to 70% on the 1st of January.
So as costs ramp up for shippers using fossil fuels to and from the eu, we might see carriers reconfigure where they deploy their more fuel efficient vessels. And also we might see different methods for compliance, such as pooling, switching to new fuels or just paying for the penalties. Speaking of that kind of sustainability push, Alex, do you think there's going to be more efforts and pressure to be cleaner in airfield?
[00:11:17] Speaker C: The short answer, sadly, is probably no.
I think what we've learned in recent years is that although there appears to be some desire to make aviation cleaner, there is no obvious solution and no one wants to pay for it. I suspect this year will just be more of the same, albeit with perhaps more SAF deals between airlines and forwarders, but I don't think there'll be any massive difference. And then of course, it's been expected that Trump may well push back on some environmental targets. I don't know whether that would impact global air freight particularly, but I don't think there's going to be any huge changes. I think if you're looking for changes in air freight this year, it's going to be down to E commerce. Well, aside from sort of geopolitical tensions creating that sort of unlevel playing field on overflight rights, I think the other thing will be restrictions on E commerce. And we've already had one slight shock over the holidays. Mexico has imposed tariffs and restrictions on imports coming into Mexico for assembly and then taking advantage of free trade with the US to get goods over the border duty free. Mexico has now put a bit of a clamp down on that. And according to Flexport, US brands are now scrambling to get new fulfillment centres after the presidential decree was put in place. So I think that is going to be more impactful, or rather restrictions on E commerce will be more impactful than anything environmentally.
[00:12:43] Speaker A: Well, of course, if everyone wants to keep on top of what happens this year, then keep checking the Lodestar and listening to our podcast. U.S. alex Gav, thank you both so much for joining me.
[00:12:53] Speaker C: Thanks Charlotte.
[00:12:53] Speaker B: Thank you very much. Charlotte.
