Episode Transcript
[00:00:00] Speaker A: Foreign and welcome to the Lodestar podcast. News in Brief. We are going to be recapping the main events of last week's supply chain news and it was yet another week of yo yoing. So to help me make sense of it, I am joined as usual by Alex Linane and Gavin Van Mael. At the start of last week, we reported that the Trump administration revoked its brief pause of the de minimis exemption, which most assumed was due to the sheer number of formal entries that would now be coming into the US to which the customs systems are not yet equipped to handle. There has been the date given of the 1st of April for the review of this. So the $800 de minimis exemption in the US could again be removed in the coming months, likely after the CBP bolsters its systems. But some other countries are also looking to alter their de minimis rules. Alex, there was some news from the European Commission, wasn't there?
[00:00:57] Speaker B: Yeah, it looks like European regulators are also looking at ways to tackle the rise in goods entering under the de minimis rule. I mean, partly because of taxes, but also because of counterfeits and poor quality items and so on. So legislators in Brussels have announced the intention to remove the Euro150 de minimis exemption and replace it with the handling fee. We don't know what this means as yet. Details haven't been announced. The de minimis was going to be revoked and I think it was 2028, but I think that's all going to be moved forward now and they're keen to get a harmonized response across the 27 member states. So maybe that will take until 28. I don't know.
[00:01:37] Speaker A: Trump also revealed a reciprocal trade and tariffs plan where the administration would examine trading arrangements with U.S. trading partners and determine the equivalent reciprocal tariff for each foreign trading partner. The fiscal impacts of this plan are currently being examined and will be reported to Trump in 180 days. But as founder of Clearit Customs Brokers Adam Lewis said last week, these orders are a bit of a moving target at the moment and so you don't want to make any drastic changes to your supply chain right away because it's all changing so quickly. Trump also announced that there would be a 25% tariff on steel and aluminium imports to the US and a few other interesting ideas. Alex, what did you spot?
[00:02:19] Speaker B: Well, I'm quite feverishly going over the White House's executive order section at the moment because you never know what you're going to find in there. What was less reported was his decision to pause the Foreign Corrupt Practices Act. Apparently, and I'm quoting Trump here, it's very unfair that American companies aren't allowed to pay bribes to get business overseas. Make of that what you will. But the US has decided to pause current investigations under the Foreign Corrupt Practices act and review its corruption laws. But before anyone complains about some sort of unlevel playing field, it's not actually going to be very easy for American businesses to start paying bribes. Most businesses in that kind of world arena are subject to other countries laws. So if you have an office in the EU or the uk, you'll have to comply with those laws as well to some degree. Facilitation payments are actually already possible under the US FCPA if they can expedite government actions but do not influence the outcome of a decision. So basically, if they want to get permits or something, you can already pay more for that bribery, facilitation, whatever you want to call it. And there's also the chance that the next president of the US might put the law back in place and anyone who's broken it could find themselves penalised retrospectively. So it's not necessarily a great idea to launch into corruption right now just because Trump thinks it might be all right. The other point to make on the, on the tariffs is that India has been getting much closer to the us. Modi and Trump had a meeting last week which appeared to result in a deal for India to import more US oil and gas. And Modi also said he was open to reducing tariffs on U.S. goods. So that's, that's going to be an interesting one to watch too, as well.
[00:04:11] Speaker A: As many executive orders. Last week another thing that kept cropping up were reports of congestion at port. Maersk warned that Mombasa was struggling with vessel backlogs and we reported that Chittagong Port was still struggling in the wake of a strike and would take around two weeks to completely clear the backlogs there. There were also reports of congestion at Rotterdam after a port worker strike at one of the terminals. Maersk told customers it would be omitting a call at the Hutchison Port Delta 2 terminal on Monday because of unplanned strike action at the facility. Workers represented by the FNV Havens and the CNV Union have been locked in a dispute with a Chinese terminal operator since the second half of last year over port automation concerns. This is still not resolved and the port told the Lodestar that this terminal would likely see more labour related disruption as they work things out. And speaking of Strikes. But moving over to air, last week, strikes in Belgium meant that all flights were cancelled at Liege and Brussels on Thursday. Alex, this was quite brief, but did it have much of an impact?
[00:05:17] Speaker B: Actually, yeah, it seemed there was some impact. Rotate showed a chart from February 13, which was the day of the strike, and it showed it against a week earlier at major European airports. Liege was down 1500 tons, Brussels was down 600 tons, Amsterdam was down 100 tons. In fact, they weren't on strike, but that could have been because of Valentine's Day flower movements the previous week. The big winner from the Belgian strikes was Maastricht, which also put out a cheeky ad the day that Belgium airspace closed, or just before actually, to say it was open for business for anyone struggling to get into Belgium. And it saw volumes rise 300 tons on that day. So good work.
[00:05:59] Speaker A: Now, last week there was a lot of noise that a Suez Canal return could be on the horizon after the Suez Canal president said that he was eyeing a return for vessels late March. But with so much uncertainty about the ceasefire stability, I'm assuming this is very unlikely. I mean, last week the Houthi spokesperson said in a televised speech that their hands are on the trigger and they are ready to immediately escalate. What do you make of this? Do you think it's likely that we're going to see a return to the Suez Canal?
[00:06:23] Speaker C: Well, I mean, it's hardly a welcome then with open arms gesture, is it? No, I mean, there seems no chance of a return soon. I'll just reiterate what Maersk CEO Vincent Clerk outlined in the earnings call. You know, if they go back to Suez, has to be a permanent switch because it's just too costly to flip flop back and forth. So they're not going to go back if someone has explicitly said that their fingers are still on the trigger. You know, we know shippers are desperate to return to Suz because they think freight rates will collapse. And I mean, I do as well. Which is another reason why carriers are reluctant to resume Suez transits, because turkeys don't vote for Christmas. But there is also a be careful what you wish for element to this. As one of our forwarding contacts noted last week, you know, a sudden rush back through Suez could see results in all sorts of port congestion, particularly in Europe, as ships rush in. And then you have ships queuing outside ports and that whole port congestion thing kicks off again. And the normal effect of port congestion is rates go up again. So remains to be seen, it does.
[00:07:36] Speaker A: I also noticed that MSC announced changes to part of its network. Can you explain the details?
[00:07:42] Speaker C: Yeah. So the context of this, I assume, is that MSC is sort of refining its sort of overall network offers to shippers. So this story in particular referred to the transatlantic Mediterranean US Trade lane, where MSC announced that it was revising its MEDUSAC service into what is essentially an express Italy east coast string by removing wayport calls in Barcelona and Sines and thus being able to offer the fastest sailing time between Genoa and New York at nine days, which by the way implies that those ships would be sailing at around 21 knots, which is quite fast for ships at the moment. 21 knots, that's pretty, pretty high speed. The dropped Barcelona call has been inserted into its EMUSA service.
[00:08:37] Speaker B: Really?
[00:08:38] Speaker C: It stands for East Mediterranean usa. It's which now looks like what shipping analysts call a milk run. So you've got three Turkish ports followed by a Greek port, Israeli port, French Spain, Portugal. You know, really you need to ask yourself, where doesn't this service stop at? In the Med. So beyond looking at just the Med sort of US trade, what I think is the interesting takeaway from this move by MSC is that it's reacting to the Gemini threat by offering one service with loads of poor pairs alongside another service which strips out as many ports as it can and goes as fast as it can. And that is the sort of response to the Gemini thing. You have both services which call at tons of ports and go rather slowly and then express services complementing that for the shippers who they think need it.
[00:09:26] Speaker A: So I have left the numbery section right to the end on purpose, postponing it as long as possible. We had a few annual results reports last week. Were there any that piqued your interest?
[00:09:37] Speaker C: I mean, we had figures out from HM M, the South Korean carrier, which made a stack of cash just like every other shipping line last year. So not a great deal of news there. The weird one really was gxo, which is the very big contract logistics operator, which last week, on the face of it, there are really good results. You know, it's earnings per share for the fourth quarter beat analysts expectations by 5%. So, you know, it was a dollar per share full year. Revenues grew by 20% in Q4, they grew by 25% year on year. Adjusted EBITDA was up 9% full year and up 30% in Q4, and then its share price declined by 15% in the course of just a day, which was just bizarre.
[00:10:19] Speaker B: Yeah. Why?
[00:10:21] Speaker C: Well, if you listen to the earnings call, basically they were spooked by some rather soft Q1 weaknesses and rather modest guidance for 2025. A lot of the growth in 2024 actually was generated by its takeover of Clipper Logistics which took place in 22.
So there's a couple of things here. One is that when you do M and A in the contract logistics sector it takes a really long time for the benefits of that M and A to sort of feed through. So when you stripped out for this year you go well full year revenues were up 25% in Q4 but actually they said that they were organic growth Stripping out the Clipper effect was like 3 to 4% or something. It was anywhere small single digit organic growth and I think the Brinkanton takeover is still held up at the UK competition regulator so the longer that gets delayed the longer it takes to see the synergies coming through that. So I think people are just kind of spooked by what they see as a rather soft 2025 which would be in keeping with the general economy. Right.
[00:11:26] Speaker A: I mean and what about the ocean freight rates from last week? Have they been doing any better?
[00:11:32] Speaker C: No, it was all. It's all rubbish. Demand Post the Chinese New Year on the Asia Europe trades there's still a bit of undercutting going on by the Gemini carriers. One one forwarder described it to me as a, as a two tier market last week. Couple of sort of bits of context is that the the Asia Europe contracting season is really underway now. Been told of quite a few shippers have launched their tenders and they were waiting for the end of Chinese New Year to do that. There's also this is this is tends to happen in these periods of prolonged sliding rates is that a few weeks in advance carriers will announce new freight all kinds fak rates that they're targeting which have been announced at the beginning of March on the Asia Europe trades in the region of sort of $4,000 per 40 foot up to sort of 4,500 per 40 foot. The Shanghai Rotterdam component of Jury's World Container Index went below the 3,000 per 40 foot mark for the first time since April 2024. It now rests at 2,877.
So you know the carriers are hoping for anything up to $1,500 per 40 foot increase and I don't think that's going to stick. What happens is people announce the GRIS and then everyone spends the next fortnight debating whether it's going to stick or not. I think the general consensus is though is that with demand looking as weak as it is, there's going to need to be a lot more work done on the capacity that carriers are offering trade, and a major component of that is a probable increase in the number of blank sailings over the next four to eight weeks.
[00:13:14] Speaker A: It'll be interesting to see how that plays out for sure. And how about air freight rates, Alex? Has anything significant happened there?
[00:13:21] Speaker B: Well, it's interesting because we've been waiting for China to get back to work to fully find out what impact the de minimis changes have meant to Chinese e commerce shippers, and it is fairly significant.
One Chinese air freight forwarder said last week that the market is a mess. Rates haven't rebounded after Chinese New Year. And he said that the big Chinese e commerce platforms, the big guys, as he called it, have cut demand by 57% year on year. And there have been a lot of flight cancellations, rates sustained broadly similar out of China. He said some Chinese carriers are trying to put rates up, but European ones are taking them down. So no one quite knows what's going on there. But because the market thought that rates would rise now and they haven't, contract shippers or shippers who have contracts with airlines are now asking to break those contracts and to get on the spot rates instead because it's better. And although it's been difficult to tell what impact the de minimis changes have meant because of Chinese New Year, we can see now that tonnages to the US from China last week were down 41% year on year. But other markets which also celebrate Lunar New Year, such as Vietnam and South Korea and Taiwan, those markets have actually recovered either fully or partially, which implies that, yes, it is the de minimis issue which is putting China exports down. The one sector that Chinese forwarders think might go up is oversized cargo due to a lack of relevant capacity.
And overall worldwide this is a mixture of contract and spot rates, last week dropped 5%, according to World ACD.
[00:15:02] Speaker A: Thank you both so much for your help this week.
[00:15:04] Speaker B: Thanks, Alex.
[00:15:05] Speaker C: Cheers.
[00:15:12] Speaker A: So now we have reminded you on all the main events from last week's supply chain news. Here are some predictions on what you might see on the Lodestar this week. Well, at the end of last week there was a meeting on fees at Schiphol Airport, so Alex Lane will be giving you the details on that. We might be looking at what peace in Ukraine would mean for logistics with insight from Transport Intelligence CEO John Manners Bell. And it is Air Cargo Africa this week from the 19th to the 21st. So we will see some reports come from that. Our correspondent Keith Moanalushi is there. So do go over and say hi if you see him. And finally, Freitas is hosting a webinar today on Monday on Index linked ocean contracts and how they create stability in a volatile market. So I will be tuning into that and giving you the highlights on the loadstart.com thank you so much for joining me. I'll see you next time.
