Episode Transcript
[00:00:00] Speaker A: Foreign and welcome to the Lodestar podcast. News in brief. We are done with February and we are now into March. It is just Alex Linnane and me this week because Gavin Van Marle is already in America gearing up for tpm. I will shortly be joining him across the pond, but for now. Hi, Alex, thanks for joining me.
[00:00:25] Speaker B: Hi, Charlotte.
[00:00:27] Speaker A: So last week we had reports from container hauliers serving terminals at India's Navashiva port that lengthy vehicle turn times and low productivity were still an issue at the port. There were also backlogs from rail containers from China to Europe being held up in Russia for some months. But we heard last week that they were now being returned to their point of origin. This is obviously to do with the ongoing conflict between Russia and Ukraine and stemmed from an October directive from the Putin administration brought broadening restrictions on goods with a potentially dual use, I. E. Civil and military. This had immediate and significant repercussions for containers on trains from China to Europe via Russia. And so due to increased checks, we heard that a key transit hub near Russia's border with Belarus is said to be congested with a backlog of containers. Alex, while we're on kind of the sanctions thing, there was another arrest regarding sanctions for aircraft parts.
[00:01:28] Speaker B: Yeah. Another day, another company sanctioned. To be honest, this time it's an Israeli forwarder who was handed a two year jail stretch for breaching US sanctions on Russia by sending, I think it was, 160 shipments of aircraft parts and avionics worth $2 million. The DOJ said that he and others had submitted false information and export documents and that although the forwarder had been routinely instructed by end customers in Russia to deceive US Based manufacturers on the destination of the shipments, court documents suggested he had been more than cooperative.
So there is a risk out there for forwarders. So let's be careful out there. Which is a quote from Hill Street Blues, which you won't know, but older people will.
[00:02:11] Speaker A: $2 million. I mean, if you're going to. If you're going to do it, you might as well do a play. Yes. We also reported that the EU ordered its 16th package of sanctions against Russia, including carriers operating domestic services in Russia now being prohibited from flying from or to the European Union or over it extending a ban already active against Russian carriers. There were also a few other measures, but 16. I mean, that is a lot.
[00:02:39] Speaker B: Yeah. We had reports from forwarders that they're finding it increasingly difficult to keep up with all the changes in European and US Sanctions policy.
Several have now Told Loud that it has become a full time position monitoring all the updates to the sanctions and on. On doing business in various countries.
[00:02:58] Speaker A: Well, yeah, no, I mean another thing that's becoming a bit of a full time position to monitor are updates to executive orders coming from the White House. One of these was the fee for Chinese built ships. So following its investigation into what it concluded was unfair Chinese state support of maritime supply chains, the US Trade Representative has proposed fees for China built ships calling at U.S. ports. And at their most extreme, the new fees could amount to $1.5 million per ship call for any container ships built in Chinese shipyards, irrespective of the flag the vessel is sailing under or the nationality of its operator. Lionelitika last week reported that Taiwanese and South Korean line operators are likely to be the biggest beneficiary of this. But China state shipping line Costco will be hit pretty hard. We also reported that this would bring increased inflation and port congestion from zenitha data. But this uncertainty around the US isn't exclusive to sea, is it? Alex, how is it impacting air freight?
[00:04:05] Speaker B: Yeah, I mean the whole thing's just, just so hard to navigate at the moment. But we've had updated guidance from the US CBP on Chinese imports so they will be rejected if the filing entry summaries don't include the additional duties imposed on Chinese goods. If an entry is rejected, businesses will have two days to resubmit the entry with payment or face liquidated damages. So that's one thing. But what analysts are now looking at is the potential knock on effect of a difference in demand between China and the US in essence, Zonesa noted that capacity has moved to Asia from the transatlantic. But if there's shrinking demand for whatever reason on the Trans Pacific, capacity will likely shift back. So that means that shippers might well be better off waiting till the second quarter before signing any contracts as spot rates could change, frankly anywhere. The alternative, perhaps something that freightos has started pushing quite hard is index linking agreements so shippers won't be out of step with the market.
Freightos is pushing it in sea freight and air freight I think actually. But the TAC Index has also been promoting this for some time and I've wondered for years why there hasn't been more take up of it. So maybe this is the year it takes off.
[00:05:22] Speaker A: Alex, Another major part of last week's news was the end of Polar Air Cargo. Can you give some details here please?
[00:05:29] Speaker B: Oh yeah, well this rather came out of the blue now as everyone knows, Polar has been up to its eyes, in this terrible corruption issue with about 10 executives now pleading guilty to defrauding the carrier over a more than 10 year period. And that was uncovered in 2022. And it raised quite a lot of questions about the oversight of a carrier which is owned by two listed companies who quite frankly should have noticed. Polar has always been a bit of an odd one. Atlasair legally had to own the majority shareholding because it's a US carrier and legally is also meant to be the controlling party. But there was always a bit of a revolving door with dhl. Exceptives came and went and it was never entirely clear, to be honest, that Atlas was in charge as such. I think along with these issues, if you look at the aircraft Polar was operating, they tended to be older 747s, not all of them, but some. So one would imagine that this was actually quite an expensive operation and one that DHL might well have been able to do a bit more cheaply by itself and possibly with better reliability.
So I suspect it's a number of factors leading to this sort of quite sudden end. I do have one question for people out there. Atlas said that ending Polo was all part of its one Atlas strategy. And try as I might, I can't really find out exactly what this strategy means. So if anyone knows, please talk to me about it because I'd love to understand it fully.
[00:06:53] Speaker A: Yeah, I definitely can't, so someone else is going to have to write in. Alex. We're now going to look at rates. So what are the numbers looking like.
[00:07:00] Speaker B: In Air demurco, the Asia forwarder said that the market out of China's relatively soft and rates are quite stable. The only upturn has been Hong Kong to Europe, but it's said expected some post Chinese New Year recovery fully, you know, as March begins with factories and airlines returning to normal. And so it thinks air freight rates are going to rise slightly in March as market demand recovers, especially on US and European lanes. It also suggested that the withdrawal of Polar Air could lead to increased rates in and out of Los Angeles. But the aircraft is still operating, albeit under a different name. We'll have to see whether there's actually any significant route changes or not there.
According to World acd, tonnages from Asia Pacific have now rebounded and rates are edging upwards. Tonnages are up 6% in week eight, but exports from South Korea, Vietnam and Thailand have all seen much larger volume increases at 7%, 8% and 18% respectively. I'm not going to go into too much detail on rates. But one thing I will add is that concerns over the delays in production freighters might actually be a good thing for air cargo. If there is a dwindling of demand and E Commerce opts for a bit more for ocean freight, then less capacity in the market could prevent what the ever excellent Ram Menem, former head of Emirates Sky Cargo called a potential bloodbath with a lot of operators of older generation freighters potentially going out of business. So these delays might not be the worst thing ever.
[00:08:34] Speaker A: And dialed in from the USA to give us the latest ocean freight rates is Gavin Van Maal. So Gav, where are you right now and what are the latest rates?
[00:08:42] Speaker C: Hi Charlotte, calling in from a very sunny Seattle before I make my way down the coast to Long beach for this week's TPM conference. It was a bad week for Trans Pacific carriers. Last Week rates dropped 11% and 10% week on week on the Asia North America west coast and Asia US east coast trades respectively, according to Jury's wci. Last week there were also double digit declines on these two routes. So the descent there really seems to be speeding up and it will make for some interesting discussions to say the least. At TPM on the Asia Europe trades it was relatively flat, down 1% to North Europe and down 2% to the Med. This week we'll see the implementation of new GRIs. That's general rate increases which are designed to get rates back up to around about the $4,000 per 40 foot mark and we shall see how successful they are. I should say in my experience of previous freight rate wars, I reckon these GRI's may halt the slide which by the way has been ongoing since the beginning of December on Asia North Europe for a couple of weeks at best and then it resumes the downward trajectory. Certainly the consensus amongst most analysts is that rates on all trades will continue to soften.
[00:09:54] Speaker A: Thank you Gav. Yeah, very interesting and I am looking forward to chatting more about that this week at tpm. Like you said, just while we're talking about rates, we reported that MSC had shifted most of its Megamax ships, that's between 19,000 and 24,000 TEU to Africa and the Med. Alpha Liner said that MSC is simply deploying capacity where the rates are high and as it isn't part of an alliance it is more agile to do so. So I'm sure that is going to be discussed at TPM too. Alex, thank you so much for your help this week.
[00:10:26] Speaker B: You're very welcome and I hope you have a blast at TPM it sounds like an amazing event and one which one day I'd like to go to.
[00:10:32] Speaker A: Thanks Alex. You'll be missed, I'm sure.
So now we have recapped all the main events from last week's supply chain news. Here is what you might see on the Lodestar this week. Well, of course it is TPM25 in Los Angeles. Gavin Van Mael and I both have jam packed schedules full of panel discussions, interviews and of course, happy hours. I'm also going to be recording a vox pop podcast from the trade show floor, so do keep your eyes peeled for that. And this week we'll also see the implementation of 25% tariffs on US imports coming from Canada and Mexico, which President Donald Trump said is to curb illegal immigration and fentanyl smuggling. This was initially planned for early February, but after Trump claimed to have agreed concessions from Mexico and Canada, the date of implementation was postponed to 4 March while deals were finalised. Then last week he said that this deadline would again be pushed back a further 30 days to April 2. But then he reinstated his promise to implement the tariffs on the 4th of March. Lots to keep up with. Hope you're still with me. On his social media site, Truth Social, President Trump said drugs are still pouring into our country from Mexico and Canada at a very high and unacceptable level. A large percentage of these drugs are made in and supplied by China and therefore, until it stops or is seriously limited, the proposed tariffs scheduled to go into effect on the 4th of March will indeed go into effect as scheduled. He also revealed that China will be hit with an additional 10% tariffs on that same date. The US currently has a 10% tariff on all Chinese imports, meaning that if Trump does follow through with his word, which to be honest is 5050 at this point, that could now go up to 20%. Who can say for sure? Keep checking the Lodestar and we will make sure you are up to date with the latest supply chain news. Thank you so much for joining me and I will see you next time.
