Episode Transcript
[00:00:00] Speaker A: Hello and welcome to the Lodestar News in Brief podcast where we are going to be rounding up all the main points of last week's supply chain news in both ocean freight and air freight. And I've got a few different guests for this episode, so thank you very much for tuning in. We are going to be speaking about the recent TIAKA executive summit in Warsaw. We're also going to be talking about port congestion, latest rate developments and some bad behavior from some of the ocean carriers. So do stay tuned for that foreign.
My first guest for this episode to help me unpack the latest in the ocean freight news is managing editor of the Lodestar, Gavin Van Maar. Hello, Gav. Thanks for coming back on the podcast.
[00:00:46] Speaker B: Hello, Charlotte, or should I call you Gladstone?
I hear that you were renamed in the, in the air cargo event that you, that you chaired in Warsaw.
[00:00:56] Speaker A: I was, I was, they spelled, they spelled my name slightly wrong, but they did fix it live. They had this big graphic behind me and they fixed it on stage. So that was good.
[00:01:04] Speaker B: What I've been wondering is whether they confused you with the venerable British prime minister of the 19th century or Dr. Watson's fictional dog.
[00:01:14] Speaker A: Slightly off topic. Slightly off topic. Let's get back. This is News in Brief after all. So perhaps we should, we should kick off with the news. Let's start with the first order of business, and that is a situation update in the Middle East. And I read this week that MSC confirmed one of its vessels was attacked this week. So, so what is the latest and what does this mean for the wider situation?
[00:01:37] Speaker B: Okay, let's start with what actually happened. So it was the, it's a vessel called the MSC Sariska 5, 4800 TEU ship deployed on MSC's Gulf Shuttle Service. I mean, the vessel itself has been trapped, but since the conflict began, it was already operating in a sort of Persian Middle East Gulf service.
And on Monday it was so last Monday it was hit by two projectiles as it departed the Iraqi port of Umm Kazar, to which, for which rather the the Iran claimed responsibility, saying that it was firing, I think in retaliation to Israel's attack on Lebanon, made sort of cast aspersions on the ownership of the ship, which we haven't been able to to stand up. And the crew are all safe. There was a fire on board, but they extinguished the fire. The vessel is, as far as we understand, back in port, it's a very old vessel, by the way. I mean, it was built in 1990, so it's 36 years old. So that would, that would put it quite far beyond its, its operating age. So it's probably up for retirement anyway.
I mean as far as the wider situation goes and the, and the impact that this has, it's just, you know, there's further proof if any was needed, that no container lines are going to be trying to transit Hormuz. I mean, you know, where it was hit is just about as far away from the straits as it's possibly to get and yet remain within the Middle East Gulf. So, so firstly, no ship in the Gulf is safe, but that was already pretty much established. We already knew that ships outside the Gulf were also at risk. I mean it just heightens the risk profile. Yeah, I mean there's just no end to this. Until, until.
[00:03:23] Speaker A: Yeah, yeah, still, still a very unstable situation.
Now moving to a different subject that I read quite a lot about on the Lodestar this week is some bad behavior from the ocean carriers. And this isn't really anything new. I mean they've been getting away with bad behavior for quite a while. But what's the latest? What have they been up to and what are people saying?
[00:03:44] Speaker B: Well, I mean the market and by which I mean the freight buyer's market and, and on, on various trades, particularly on the main east west trades has completely turned in the last two weeks actually. Indeed, since, since, since pretty much since your last podcast. So remind me not to authorize any holidays for you in the future because it all seems to go absolutely bomb when you're away.
So yeah, we're, I'm going to focus for the moment on the Asia because that's where my particular expertise in. But suffice to say that a lot of what we're about to say is broadly applicable to the Trans Pacific as well and to some other trades which are experienced at peak.
So we're in an early peak. There's no question about the summer peak season has started as with last year, it started a good month or so before we would normally expect it to start. So this is understandable. And for much of us the chief reason is of course the transits around the Cape of Good Hope.
However, there are a couple of other factors which have led to bookings in June becoming really much more elevated than we would normally expect.
The first of this is that on the 1st of July there'll be a new set of bunker adjustment factors calculated by the carriers. They do this on a quarterly basis. So first July is the beginning of the third quarter and for shippers on long term contracts who have been who've been basically insulated from emergency fuel surcharges by their contracts. They've been trying to get as much cargo out of Asia while that protection remains, because come 1st of July, their bunker adjustment factors, which are, you know, the mechanism is within their contracts that it is recalculated every three months. It's going to flyer on the first of July. So that's going to be a significantly extra cost for big shippers, particularly those, you know, shipping many hundreds of TEUs.
And, you know, if you look at, say, and I'm picking numbers out the air at the moment, but say the bunker adjustment factor is $500 a box at the moment and that is expected to more than double within a few weeks. So that's one thing. And another layer that we learned about in the last few days is that apparently many of the Chinese factories have been urging their Western buyers to pull forward their shipments, take stuff out of factories early as they can because they're worried about escalating fuel costs as a result of the Hormuz closure going into the summer months. So that's two of the sort of cost pressures which are prompting people to book more. And that's basically led to a very big cargo rush. And when I spoke to a forwarder a couple of days ago, I mean, he basically said that second half of June is sold out, all right, there's, there's no, there's pretty much no space. So what all this has led is virtually full bookings. And that has allowed carriers to the opportunity, it's given carriers the opportunity to impose peak season surcharges on contract volumes and to be constantly revising the FAK rates for the spot market. And at the same time as this has gone on, they've also been very tightly controlling the allocations that they agree with shippers on under contract. So if you need any spare space, you need a couple more slots from your normal shipped thing per week, you're going to be looking at being moved on to the FAQ market. So this is where people are sort of having a lot of problems with.
That's sort of, that's it in a nutshell. And, and the net result of all of that is, is soaring spot rates. And we're seeing. We saw that again last week.
[00:07:45] Speaker A: Yeah, no, well, I mean, I spoke quite a lot with the Global Shippers Association's Mark Chadwick while I was in Warsaw this week for the Tiaka event. And he was talking quite a lot about bad behavior from carriers and surcharging and different things. And he also spoke about some surcharging from forwarders to shippers that were being contested. So yeah, some more on the Lodestar from that on that next week. But speaking of spot rates cav, what are they doing currently on the Drury World Container Index? What do we see this week?
[00:08:13] Speaker B: They're soaring. I mean, if you look at percentage increases, this is the sort of increases that we saw during the pandemic. It's really interesting, Charlotte, I would just as an aside, I listened to the, just before I came on here, I just wanted to sort of listen to the last News in Brief podcast you did with Stephanie Loomis from no Art or Logistics. It's so interesting because actually I would really urge listeners to go back and just check that one out because she says all this in that, in that, in that podcast, but she said it at a time just before the rates suddenly shot up. But one of the key things here is, and she noted this is the complete change in carrier behaviors basically since the pandemic. And, and what you were alluding to earlier about some of the articles that I wrote in the last week where, where they, they're accused of price gouging and another shipper saying I just despise the carriers. I can't bear their behavior and all this. And that actually those sentiments are a reflection of what Stephanie was telling you two weeks ago. Because, because these procurement managers of these large shippers, they feel that their trust has been completely broken. They have been working in an environment where they form relationships with carrier, their local carrier representatives. And then as soon as prices go up, they see these relationships basically being torn up. And they know that sooner or later, you know, it's the, you know, the internal recurrence of the shipping industry. They know that sooner or later, say, for example, there's a peace deal. And actually if there's a peace deal in Iran, that's probably going to pave the way towards reopening the Red Sea and Suez Canal. So what they're thinking is as soon as prices start dropping and, and carriers come with their begging bowls, as it were, they're going to really do
[00:10:06] Speaker C: well.
[00:10:06] Speaker A: This is something that you just mentioned there about, about the contracting. This is something that I, when I said about my conversation with Mark, he was saying this is one of the reasons that index linked contracts aren't working because carriers love them when they're in their favor and then as soon as index link contracts aren't in their favor, they just don't honor them. So he was saying that, that was, that was one of the reasons why they, they aren't being taken up as much as you would think. Anyway, back to the wci.
[00:10:30] Speaker B: What did we see this week? Yeah, sorry. So sorry.
[00:10:34] Speaker C: Yeah.
[00:10:34] Speaker B: Okay, what we're saying. So here we go. Here's some the all double digit increases we've got into the US West coast that was up 31% on the previous week. That's now around four and a half thousand dollars per 40 foot. The US East coast is now five and a half thousand dollars per 40 Foot. That's up 20%.
Into North Europe the WCI spot rate is around $3.5K for a 40 Foot that's up 25%. And into the Med it's $5,000 40 Foot and that's also up 20%. The the next date that we're really going to see some further movement on this. I mean I suspect next week we talk or whoever you're talking to next week you'll find that there's been an increase. But I would say 15th of June is going to be another landmark date. CMA CGM have announced a $600 per tu shipment per tu, sorry pay season surcharge for shipments under contract. On the 15th of June.
MSC has announced FAK rates of $6,000 per 40 foot to North Europe and 6 and a half thousand to the Med, that is almost certainly to North Europe would almost represent almost doubling on today's rate.
And, and if space is constrained as, as forwarders and customers tell me it is then most people expect that those FAK rates to stick in mid June and they're fearful that further increases are going to be announced at the end of the month.
[00:12:07] Speaker A: Right, that's, that's really interesting. I think this rate increase is definitely the biggest ocean freight story of last week. But I do just want to touch on something else that I noticed come up quite a bit and that is port congestion. There were two separate stories, one on port congestion in Europe and one on port congestion in China. So are you able to just briefly explain what's been going on in each of these places?
[00:12:27] Speaker B: Yeah, I mean very simply it's weather. They're weather related. The latest instances in China it's heavy, very dense fog all along. I mean all the way from Qingdao, from say northern China down to central China, Shanghai, Ningbo, dense fog. So that's, that's led to quite a lot of loading delays out of Asia and in Europe it's a heat wave that we had.
Yeah, I know it doesn't seem like it. The last three days have been biblically biblical rain.
[00:12:55] Speaker A: Yeah, it's very rainy.
[00:12:57] Speaker B: Look out the window just to see another battleship grade cloud going across us. But, but actually the, so the hot weather in, in Europe normally leads to declining water levels on the Rhine. I was speaking to my colleague or our colleague, Alex Whiteman was, was interviewing some barge operators in Europe and, and so, and what happens when, when the, when the water, Rhine water levels go down is. I mean you can't load the barges as much because they need a greater draft, the more heavy, more laden they are. So I think at the moment they're only able to load about 60 to 70% of their capacity. So like, you know, if you think that those big barges carry, say, I don't know, let's say 400, I think it's three or 400 TEU. You could be losing 100 TEU from that. Well, that means another hundred trucks or it needs 100 slots on the train. So that's, that's what's going on in Europe. There's also been strikes. They're using some parts of Europe using the weather to, or rather, you know, the good weather, the longer days to do repairs to rail tracks. There's conference.
[00:14:03] Speaker A: When it rains, it pours. Right, thanks. Thanks. Well, that seems like a good place to, to leave this section. Gav. I really appreciate your time and I'll speak to you next episode or we can.
My next guest for this episode. To help me unpack the week's air freight news, I am joined by Director General at Tiaka, Glyn Hughes.
[00:14:24] Speaker C: Hi GL Hi, Charlotte. It's a pleasure to talk to you.
[00:14:26] Speaker A: Yeah, a pleasure to talk to you too. I mean we have just spent the week together in Warsaw. Obviously now we're speaking over video call. But yeah, we were in Warsaw for Tiaka's executive summit. So I really do appreciate you joining me on the podcast today after a very busy week and just before your flight home. Firstly, how was the event? Did you have fun?
[00:14:44] Speaker C: Yeah, I don't know if fun is the right word when you put on these type of events. I think what we hope is to achieve is everybody else has fun. But I also say thank you because you moderated a fantastic panel on E commerce and had some great feedback. So well done to you.
[00:14:56] Speaker A: Oh, thank you very much. Appreciate that.
[00:14:58] Speaker C: But no, I think the event was really, it exceeded my expectations. We had about 330 people registered and I think we had about 320 or 325 that actually showed up, which is phenomenal, you know, very high percentage of success. We had great support from both the Polish government. We had the minister came and opened it up and it shows that when you have an engaged minister with the logistics industry and supported of development in that sector, it's some of the most magic ingredients you can get for future success. And lot polish was amazing and the whole lot cargo team. So from that side of things it was great. Then when you look into the content, I thought it was just again probably one of the most informative events that I've been to. And I'm not just saying that because it was a Tiaka event. I'm saying that because of the quality of the speakers and the subjects that they covered.
A lot of the stuff was not easy. I mean we talked talk some of the positive side of course where you look at the value of air cargo. Great presentation from Pharma Aero about a project that we're doing jointly which looks at the sub Saharan Africa region and the fact that their access to healthcare is contingent upon the fruits and vegetables that they're exporting. And if anything happens to those fruits and vegetables, people's lives get lost. I mean it's a simple fact. There is no oh what if etc.
You're exaggerating the scenario. No, there's a direct correlation between the medical health care that they need and the fact that it's sensitive pharma and sensitive vaccines that are actually coming in and the capability to move that is very much contingent on the flower and flora and fauna export market. So that was very positive from that side. We also continually be amazed that despite the global geopolitical tensions and everything else that's going on and the wars in numerous regions, the industry's still growing. And it's growing for two reasons, you know, strong consumerism and strong economic growth across the globe. And a lot of that is AI infrastructure that's moving, a lot of that is E commerce, which you touched upon. But it's very positive for the industry. But then of course there's the one side of the coin and the other side of the coin is well, what are the challenges? Challenges are even more numerous than I think we've tackled before. We still have capacity challenges. Jet fuel is, is 100% higher than it was pre war or pre 28th of February with regards to availability is also a challenge in different parts of the world. We also are still suffering from lack of overfly in certain parts of the world. Restricted airspace which then puts implications with regards to complexity of Flight, extra hours, extra fuel burn.
So all of those sides are still continuing to provide obstacles that the industry has to overcome. Regulatory changes. I think you tackled the de minimis changes last year in the US and the fact that the EU are going to be implementing some equivalent measures this year.
But I think as you quite rightly pointed out, these are not long term, these are for now, whilst they decide what they really want to do.
And the EU strategy of, well, they're not really sure if they just want to discourage people from buying individual shipments of low value, but still not necessarily impacting higher volumes of goods that are coming in from those same markets. So it's really interesting to see how that's going to actually develop Some other positives, which was. I was very pleased to see the number of young people that we had in the audience, the balance of young men, young women, for example.
We had quite a few, probably a higher representation of young people on our panels than we've had in the past. Which is great to hear those perspectives because as we've always said, it's your generation which is creating the world that our industry is to serve. So, you know, we need to hear from the young people, the future leaders and current leaders as to what challenges and what they want to see from an industry and then we allegedly help us shape it much better. So I think that was very great to listen to.
Sorry, there was so much going on. I'm sure you intended this to be a short question, but no, no. Had our awards as our award program, so we were celebrating inspirational leaders. We had two phenomenal new awards while they were new. Last year, this was the second edition for our Inspirational leader award. It was Janet Wallace from Air Canada.
Again, amazing reception from the, from the audience, which just goes to show that the jury, which is comprised of young people and, and I believe you're on the jury.
[00:19:26] Speaker A: I am on the jury, yes.
[00:19:28] Speaker C: You know, so you guys did a great job there of, of selecting somebody that really lives the values that the award hopefully encapsulates. And then of course, from the other side of the coin is we always have a rising star recipient. And this year it was Allah Annabellen from Avery Systems.
So, you know, again, and that one was selected by the Tiaka board. So, you know, from that side we also had our sustainability awards. We had a great corporate winner in Hail. We had a great small business startup winner in Bayernetta. But all of the finalists really demonstrated that the innovation culture is thriving.
[00:20:05] Speaker A: I mean, it's so hard to believe that all of this was Fit into like two days worth of conference, plus
[00:20:11] Speaker C: a whole load of bad jokes from me.
And a quiz. And we had a great quiz as well. So we crowned the first Air Cargo mastermind.
[00:20:20] Speaker A: And he was the youngest person in the room, wasn't he?
[00:20:21] Speaker C: The youngest person in the room.
Part of the prize was some shot glasses from Warsaw as well as a phenomenal model. And I said, I don't think I can give them to him because he's 17. He said, I turned 18 last week.
[00:20:32] Speaker A: So that's good.
That's good. Yeah. I mean, there was, there was so much content and 320 attendees is incredible. I was quite overwhelmed when I was supposed to be moderating. I mean, I do this podcast in my room, so it's just me speaking to a laptop. And when I walked out in front of 320 people, it was quite overwhelming. But yeah, a lot of fun as well. I think a few things that stuck out to me. What I really enjoy about your events, Glyn, is that you have a good mix of data presentations and then also anecdotal presentations. There was some really good data from World ACD and they were just talking about the rate environment and that at the moment is just kind of baseline a bit higher.
Not as high as the peak in 2021, but yeah, still quite high at the moment. Also on the E Commerce panel that I moderated and what I thought was really interesting about the EU regulations and something that Alex wrote in her coverage of the event was that Atlas Air's Martin Drew was saying that they're not actually expecting a big change in demand in Europe because of these regulations. Obviously the change in the US demand was quite drastic. So it's interesting to see that they're not anticipating that in the eu, but obviously it's quite soon that it's being implemented first of July, so we will have to wait and see. Obviously we covered a lot of short term challenges for the air cargo industry. You mentioned the ongoing geopolitical situations. There's tariffs, changes to AI and technology. But one long term challenge for the industry is sustainability. This is something that we have been dealing with for many, many years and we will be dealing with for many years to come.
T jaka monitors the sentiment towards sustainability in its sustainability survey every year. And I find it really interesting to see how people's attitude towards sustainability changes in comparison to external volatility.
So what did you see in your most recent report and what does it tell us about where the industry is at with sustainability?
[00:22:26] Speaker C: Yeah, I mean, that's A great question. First of all, I have to state that the survey was undertaken towards the end of last year and the beginning of this year. So it was pretty 28th of February. So it was pre war in the Middle East. So any of the results were not impacted by what's happened there. But then when you do look at the results, they were impacted by, as quite rightly you said, as other geopolitical aspects, which is the notion that sustainability, I don't want to say has dropped in importance, but in certain regions in the world, and we have to focus on North America, for example, we know that political climate there frowns upon people who talk about global warming. It frowns upon people who talk about DEI programs, and it frowns upon people who say we need to change the way that we operate and the way that we live, the way that we move, the way that we manufacture. And when you have a political climate that effectively sort of really frowns upon those type of what we would call social programs and social changes, it makes it very difficult for companies. So we saw a lot, as probably you've written about and a lot of other people have written about that when this current administration took office at the beginning of last year does seem a lot longer ago than that, but it was really just the beginning of last year. We saw an almost dramatic turnaround, you know, just on the notion of drill baby drill. That headline when all the rest of the world was saying we need to invest in green clean energies, world's largest economy is saying, no, you've got it wrong. It's actually all about fossil fuels. It's about leveraging the assets that you have. And when that translates through into the industry, that's what we're seeing in this year's survey. You know, we saw that it's still important. And reputational wise, the industry, about 80% of the respondents says that sustainability is important for them because of their reputation. But what has really dropped off are the reasons behind it. So even for the customers and the employees, which are the highest two reasons behind it, it's still about 60%, but we were looking at mid-70s last year. And then when you look at the regions itself and you say, okay, is this situation global that it's kind of dropping off in importance? Absolutely not. You know, Asia, it's picked up, about 20% of companies are actually now having sustainability strategies embedded within their organizational operations.
The U.S. it's dropped significantly. I believe it was down to about 44%. Some of these numbers I may recall differently. We will publish the full report next week. So what I would say is the outcome of that is a diverging or it's a reflection that our industry, there is a divergence in how we're tackling the topic of sustainability, which is reflective of the political environment. Tackling sustainability. The EU fit for 55. There's got a lot of programs that are coming in. They're still committed to saf, but it's very difficult when you look at things like saf, for example, that's going to need a global approach, a global focus to get to the level of sustainable aviation fuel that we need. When you've got one economy saying, oh, we're just going to continue, we're actually going to upgrade the amount of oil that we're drilling. So, you know, there are some challenges that we have going forward. So I was concerned and disappointed with some aspects of the report, but I was actually even more buoyed and heartened by the fact that those areas that are focusing on it are actually continuing to drive it through. So we see a continued focus on waste management, water management, single use, plastic reduction, focus on training, focus on retention of employees and creating a better environment. But there was another drop here in dei and I think that's again, a direct correlation to what's happening in North America is now. I think we saw that drop about 8 to 10% in terms of the focus on DEI programmes.
[00:26:06] Speaker A: Well, I mean, it's so disheartening to see, as you said, certain aspects of it becoming less important, but I think it's really important that we do keep the conversation around sustainability going. And so very well done to Tiaka for putting that report on.
When's the full report being released?
[00:26:22] Speaker C: So we'll probably publish it next week. I think I have to give my. My team a little bit of time off after, you know, working for 20 hours a day for the last two.
[00:26:30] Speaker A: That's very nice of you. Well, I look forward to the release of the full report and I look forward to catching up with you at Tiaka's. Is it, what is it? Air Cargo Forum in Miami in October,
[00:26:39] Speaker C: exactly 26 to 29th of October. This is the big trade show. We will also have a conference program where we'll kind of bring to fruition what happens from this event forward because there's a number of challenges we were given and we hope to actually move those forward.
[00:26:54] Speaker A: Well, I'm really looking forward to seeing you in Miami later this year. Glyn, thank you so much for joining me and thank you for a wonderful event in Warsaw this week.
[00:27:00] Speaker C: Thank you for your support, Charlotte.
[00:27:02] Speaker A: See you later.
[00:27:02] Speaker C: Bye bye.
[00:27:03] Speaker A: That is all we have time for on today's episode of News in Brief. A huge thank you to Glyn and Gav for joining me on today's podcast and a huge thank you to you for tuning in. Whether you are listening on Spotify or Apple music, something like that, or whether you are watching on YouTube and if you are not watching on YouTube then please do head head over to our YouTube channel like subscribe, share, comment and please do get in touch Charlotte at theloadstart. Com if you would like to feature on a future episode of News in Brief. Thank you very much and we will see you next time.
