Episode Transcript
[00:00:06] Speaker A: Hello, good morning and welcome to the Lodestar podcast. News in Brief. I'm joined by Alex Linane and Gavin Van Mahle and as usual we are going to be recapping all the main events from last week's supply chain news. Last week was a bit of a strange one really for news. I was a bit scared to report anything in case it had changed by the time we hit publish. But at the start of the month on the first of February, Trump, as promised, hit Mexico and Canada with 25% tariffs on imports into the US and then the next day he announced that these had been postponed for 30 days after Mexico promised to supply 10,000 soldiers to the US border to stop the flow of fentanyl and immigrants and Canada proposed to implement a 900 million US dollar border plan. That was according to Trump. China did still get hit with the 10% tariffs as promised though. Alex this yo yoing also happened with the United States Postal Service who stopped taking packages from China and Hong Kong, then a few hours later said that they were going to be accepting them again. And there have been talks about de minimis reduction but no one really knows what's happening. So this has surely got to have some impact on air freight.
[00:01:16] Speaker B: Yeah, it's been a, it's been a week of whiplash, frankly. As you said, stories have changed so fast. It's been quite headachy for us but it's also making markets very uncertain and it's making planning really difficult. I think there is a major, major threat on the horizon for air cargo now. Lots of analysts don't believe that the ending of the de minimis exemption for small parcels from China is going to make much of a difference. Goods from cheap Chinese e tailors, even with tariffs and entry and processing fees, which are looking quite high by the way, they're still cheaper than US Made products. What most analysts seem to be worried about is the delays in processing which could make E commerce much less attractive. I think it will make a difference to air freight. I'm going to stick my neck out here. Taemu and Shane have been building up warehouse space in the US for a year already, presumably in anticipation of something like this. And if you're warehousing goods, I don't know why you'd need to air freight them to a warehouse. You're going to want to keep costs down. And there is talk that the e tailers are going to take eat up some of the costs rather than passing them on to consumers initially.
So I do think that there's Going to be a greater use of ocean freight instead of air freight. And then you've got the Gemini ocean network pledging reliability if not speed, which means that there'll be easier to plan with ocean than there has been in the past. Now Gav and I did a few quick sums and the impact on ocean of the E commerce thing would be completely negligible. Really, it's such a vast index industry and E commerce is tiny. The impact on air cargo will be huge.
[00:02:51] Speaker C: So yeah, I mean just, but just on those sums was basically about 30,000 tons that could transfer to ocean freight. But I mean that's one sale of three 10,000 TU ships.
[00:03:01] Speaker B: Yeah, yeah, yeah. Rotate says that E Commerce from China to the US accounts for about 1.2 million tons a year, which is the equivalent of 32747 flights each day, which is a fair bit of capacity on the line perishables. Exporters have been cheering as they've struggled to get space in the past and now they're hoping to have more availability. But for the airlines I think it could be bad.
[00:03:26] Speaker C: Although I would just make also the point that on the tariffs thing, one of the things that Vincent Clerk mentioned, I know we're going to come back to Maersk in a bit, but one of the things he said last week about the first round of tariffs is even though it hiked up cost of Chinese goods, the introduction of tariffs actually had a big effect on the foreign exchange levels between the dollar and the yuan and the declining value of the yuan against the dollar actually soaked up most of the tariff increase. So by the time those, those goods got to the shops, they were basically still the same price for the US consumer.
[00:04:03] Speaker B: Oh, that's interesting.
[00:04:04] Speaker C: So we, you still don't know how much of an effect tariffs will have for the end consumers.
[00:04:12] Speaker B: That's true, but if we're talking about de minimis, you've got an extra brokerage free processing fee and a slowdown in the way that it's delivered. I mean I'd be interested in finding out the impact on Atlas there, which by all accounts carries a huge amount of E commerce. I have asked them, haven't had a reply. But at least on the upside it means that the worries over the death could of capacity coming on stream will be alleviated. But if I was an airline, I'd be bracing for a challenging year or at least pivoting swiftly to an unimpacted market.
[00:04:44] Speaker A: Yeah, we've been reporting for so long that air freight capacity was the thing that everyone wanted and now it seems like warehouse space in the US will be the top of everyone's wish list. Last week we saw SECO Logistics warn cargo owners to secure sufficient capacity asap. And it said don't wait until the space is gone or disruptions escalate even further to secure what is necessary for your business needs.
[00:05:07] Speaker B: Yeah, I mean, I think we're going to see the demand shifting from speedy air freight to, well, warehousing. We're already seeing that TEMU has changed its US website to promote US stored or made goods. One of the difficulties in reading the market at the moment though, is the Chinese New Year, which always distorts the Q1 data. Our Chinese sources are only just starting to trickle back to work, so hopefully this week we'll have a bit more comment directly out of China to see what the feeling is there.
[00:05:36] Speaker A: While we're on the topic of the Trump administration causing ripples across the supply chain, Panama has elected not to renew its Belt and Road deal with China. The US Department of State claimed that Panama would also allow toll free transits to American warships, but this was denied by the Panamanian president, who said that he had told the US Secretary of Defense last Wednesday that he could neither set up the fees to transit the canal nor exempt anyone from them. And he said that he was surprised by the US Senate Department's statement suggesting otherwise. So that was a bit bizarre. And we also reported that Indian policymakers seemed to be resigned to a potential rise in the cost of exporting to the US in the wake of Trump's tariff threat. And in a pre emptive strategy, New Delhi substantially slashed Indian import duties on luxury cars and motorcycles in its latest federal budget announcement. Industry sources said that this would probably help manufacturers like Harley Davidson and Tesla in particular.
[00:06:35] Speaker B: I wonder why they didn't decide to do it after the tariff threat had come up. Because then they've got leverage now. They've already given stuff away. But anyway, interesting.
[00:06:44] Speaker A: Yeah, I mean, to be honest, everything is changing so rapidly it might have changed by the time that this podcast is out. So let's move on to something else. How about annual results? Maersk and dsv. Alex, would you like to start with dsv?
[00:06:57] Speaker B: Yeah. DSV had a very poor December and something of a lackluster year. CEO Jens Lund said that retailers had been destocking and warehouse utilisation was down and demand was lighter. We actually started running with a head disappointing 2024 for DSV until a colleague pointed out there was also the year in which DSV secured the deal to buy Dibushenko. So not that disappointing. Overall, DSP kept pace with the market in general, but it warned that costs had gone up in particular because of new EU reporting requirements, which apparently are very, very costly. It also said that it would likely lose revenues as it integrates DB Schenker, which is what's happened in its previous integrations of companies. What I hadn't realized what was quite interesting was that Schenker's road freight arm accounts for a larger percentage of its revenues than it does at dsv. So when they're together that's going to be quite a force in road freight. And I'll leave Maersk to gav.
[00:07:56] Speaker C: Yeah, okay, thanks.
Yeah. Boom. Hey. This has been the third best results in Maersk's history after 21 and 22. The EBIT was $6.5 billion on revenues of 55 billion. So you've had strong freight rates, high vessel utilization. Maersk's actual shipping volumes only grew by 3.6%, which is about half that of the market rate. So that just goes to show you how strong the general freight rate environment was during the year. Ocean shipping and terminals did really well. The logistics and services, you know, the whole Maersk integrator of logistics not going that well. And actually it's very interesting everyone's talking about the lack of warehousing and all this because actually during the earnings call Vincent Clerk repeatedly mentioned that basically their warehouses, especially in North America are underutilized and that's one of the big problems for its logistics and services. So there's a lot of empty space in the warehouses. I don't know if Mercer's seeing this or, or the E commerce traders, but.
[00:08:57] Speaker B: I mean, yeah, I understand that they're really not very exposed to the E commerce market at all. It's a very tiny share of their business so maybe this is their opportunity to get stuck in.
[00:09:06] Speaker C: Precisely, precisely. Especially with Gemini reliability. Hey, hey. Modal shift. Hey, hey.
[00:09:11] Speaker B: If it works.
[00:09:11] Speaker C: But anyway, you know, the thing is it's built up a massive war chest for the last few years really. Losar Premium calculated that Merce could quite happily lose $250 million a month if it was dragged into a freight rate war on the. On the sweat. What?
[00:09:26] Speaker B: And not break into a financial sweat?
[00:09:28] Speaker C: Not break into any sort of sweat whatsoever. Wow. Yeah, they should be all right for.
[00:09:31] Speaker A: A while Then there was also a lionalytica report last week that apparently Maersk was being forced to pay a premium to secure chartered tonnage for the Gemini Corporation. Apparently it was paying $100,000 a day to charter an 8,000 TEU ship for two to three months. I mean obviously they can afford it.
[00:09:49] Speaker C: They can. And the thing is, you know, the general consensus is that they need these bits of extra tonnage. There's two points. One that they need it to plug in any Gemini gaps that may sort of appear while this switchover process is going on. And that's why you see them being chartered for such short periods like two to three months. Another theory is that you also by snapping up these vessels and there aren't many of them available in the market, you deny that your competitors the opportunity to use those assets. And in particular that pertains to the Premier alliance where with the departure of Hapag Lloyd, it's looking quite light in terms of capacity until the Japanese partner starts taking delivery of a whole load of new buildings later this year. In general, capacity management is top of carriers minds, especially if freight rate slide continues. But we'll come to freight rates in a little bit.
[00:10:43] Speaker A: I also wanted to ask you about some news from the end of last week that AD Ports and CMA CGM will embark on a joint venture for a terminal in the Democratic Republic of Congo. Could you give us some more insight on that please?
[00:10:55] Speaker C: So the background to this is Abu Dhabi Port Company very fast growing aggressive port operator from Abu Dhabi that in many ways is emulating the sort of growth that we saw deeper world undertake over the last 20 years. They're looking at every opportunity going. So back in 2021, French line CMA CGM and AD port signed a JV terminal to be built in Abu Dhabi which I recall was opened, I think officially opened in December. Just December, just gone right now. That followed an earlier joint venture between AD Ports and CMA's Ocean alliance partner Cosco which is running the Costco Shipping Ports Abu Dhabi Container Terminal. And since that Costco facility opened, Abu Dhabi has increasingly become the main hub for the Ocean alliance partners over Dubai. So this suggests that CMA and AD Ports were developing a closer relationship. And that seems to have been borne out by this deal in Congo which is a massive untapped market at Congo and a well structured deal because partnering up with CMA CGM means that the, the new terminal will have an important base cargo when it, when it launches operations.
[00:12:11] Speaker A: I think I read that CMA CGM handle around 35% of the TEU volume from the Democratic Republic of Congo.
[00:12:19] Speaker C: CMA does.
[00:12:20] Speaker A: Yeah.
[00:12:20] Speaker C: Okay. Yeah, right. So basically you're looking at supplying a third of the country's Container traffic in one go. Good deal.
[00:12:29] Speaker A: Finally we're going to do a bit of a rate roundup. I'm going to be doing land. Gav, you're on sea and Alex, you're on air. Who wants to go first?
[00:12:36] Speaker B: Go for it, Gav.
[00:12:36] Speaker C: Oh, okay. I mean spot rates, it was another week of declines. Asian North Europe was down 5%. Asian Med was down 4%. Trans Pacific down 1% to both east and West Coast. This is all according to Drury as well. Container index. There are also reports that we've had anecdotally of some significant discounting taking place on spots. And Sophie Freeborg, who's the VP of Ocean Freight at digital forwarder Zencargo, told me that on average the Gemini partners are around about 20% cheaper on spot rates of China at the moment.
[00:13:16] Speaker B: Jens Lund from DSP said that in the earnings call this week that he thought it's very competitive market. They're really trying to get people in. So it's going to look quite nice for shippers A little bit, yeah.
[00:13:28] Speaker C: I mean, Vincent Clerk said he thought that eventually the capacity and demand situation would level out, but there were likely to be two or three bumpy quarters he called them.
[00:13:39] Speaker A: And how are the numbers looking for air freight, Alex?
[00:13:41] Speaker B: Well, it's pretty hard to read the tea leaves at the moment because of Chinese New Year and as ever they're patchy depending on where you are. Obviously there's a lot of flower action in the week running up to Valentine's Day. Some capacity has shifted from Asia because of the Lunar New Year, so it's gone to South America and Africa. There has been a tonnage drop from Asia Pacific but rates have more or less maintained their level, which is quite interesting. But again, as I said, Chinese New Year, really hard to make any sense of it. I think the more interesting numbers are going to be in a week or two when we'll start to see whether the ending of the de minimis for Chinese companies will have any impact on rates.
[00:14:18] Speaker A: And I'm going to round things off now with road. So hauliers, as has been the case for a while, are still caught between rising overhead costs and weak demand. But there is indication that it could be up from here because according to the latest European road freight rate benchmark provided by Applied Transport Intelligence and IRU, over 2024's final three months, spot rates remained relatively stable following a three year period of collapse from their Covid induced high. So the Q4 spot rate saw a rise of 0.5 index points quarter on quarter but they were down 1 point year on year. So looking at the overall trend of the spot market, transport Intelligence said that it might just be bottoming out and perhaps signalling more positive trends for the overland sector. After two years of decline, rail freight volumes to Europe grew 130% year on year. And Apply said that the driving force of this was that the maritime freight rates between Asia to Europe were rising because obviously the disruption in the Red Sea and that had enabled rail freight to regain its competitiveness. So perhaps this is providing some relief for overland carriers. Gav, Alex, thank you both so much.
[00:15:31] Speaker C: Thank you.
[00:15:31] Speaker B: Thanks, Janet.
[00:15:39] Speaker A: So now that is last week out of the way, here comes the segment where I usually tell you what is going to be on the Lodestar this week. I think that is very hard to do at the moment. I mean, likely there will be a lot more on de minimis and what potential new rules could mean on Monday. So today there is a Flexport scenario planning webinar on the three key developments shaping the freight market and I'm sure their experts will be able to give you some better predictions than I would be able to on Friday. It is Valentine's Day, so there'll probably be lots of stories about flower shipments out there. And I do also have to give a shout out to the second ever Hive Connect networking event that will take place on Thursday. The Lodestar's own Alex Dinane and Gavin Van Maar will be speaking at the event alongside the Road Haulage Association. So do go and say hello to them if you are at the event. Thank you so much for joining me and I'll see you next week.
