Episode Transcript
[00:00:00] Speaker A: You're listening to the Lodestar, the supply chain and logistics industry's leading source of insight. This podcast was created and produced by.
[00:00:07] Speaker B: MK and associates and your host Mike King.
Last call to place your bets, ladies and gentlemen. And the betting question is, what exactly is going on with freight demand? Is this an early peak season or are we in the foothills before a mountainous q three? Because if it's the latter, hold onto your hats and indeed your wallets if you're a shipper, because that is very much ticking time bomb territory. Ocean supply chain distress signals are flashing red everywhere already and we have more disruption in the pipeline. Think pandemic.
Joining me to identify and price these symptoms and unpack the demand outlook are container exchanges Christian Roloffs, senator, chief analyst Peter Sen, and the returning ocean freight head honcho at VC Global Logistics, it's Peterson, Dara Suama canning many of the.
[00:01:00] Speaker A: Customers out there or in the market, they are slowly coming to the realisation that it's all about securing the container and the space to move the cargo, at least to meet various seasons that's happening in Europe and also in the US. If you're going to boil down and say my rates are very high, I'm telling you you're going to find difficulty in getting a space.
[00:01:20] Speaker B: Hello everybody, I'm Mike King. Welcome to the Lodestar podcast.
Greetings one and all. As Im sure you know by now, you can find this podcast on theloadstar.com along with the worlds best supply chain news. Its also available on all podcast platforms and you can contact me direct about stories you think we should be covering at myking one two one mail.com. dont be shy as trailed. A little later ill be joined by Peter sand, chief analyst at Zenita, and Christian Roloffs, co founder and co CEO of Container Exchange. But let's put some foundations for these conversations in place first, shall we? And where else could we stop a conflict in the Middle east? Because in 2024, pretty much everything else points back to the de facto closure of the sewers canal, which has sucked so much container shipping capacity out of the market, it's ramped up transit times and driven market uncertainty. This, along with a bunch of factors, take your pick from improving demand, the threat of new tariffs on some products, possible strikes by unions, even the fear of missing out on space later in the year. All of this has encouraged some shippers to import from Asia early this year. Already we've seen multiple supply chain choke points emerge. Spot freight rates are threatening to hit pandemic highs. If this is the peak season, then many of these snarl ups will no doubt melt away over time. But the economic indicators are decidedly mixed as we'll explore more pertinently. If this isnt the peak season and Q three is going to get even more chaotic, then 2024 is going to start hemorrhaging Covid supply chain comparisons very, very soon. But lets start this analysis by turning to Asia and getting a take on what the situation is like right now, on the ground and at sea, of course. Peter Sundaraswamakani, head of global ocean freight product at Vici Global Logistics. Welcome back to the lodestar.
[00:03:11] Speaker A: Oh, it's a pleasure, Mike. Thank you very much for having me.
[00:03:14] Speaker B: You're always welcome, Peter, you're in Singapore. The port there is the world's second largest for containers and it is now getting called the epicenter of global port congestion. Lionel calculated in late May there was up to 450,000 tu in the queue for shipping ships waiting up to seven days for a berth. Singapore also recorded the highest amount of port emissions in the week, third to the 10 June, with 64 port emissions according to Centuries blank sailings report. How bad are things there?
[00:03:46] Speaker A: Yeah, thanks Mike. That's a very interesting question, Mike. So my views, the views I'm going to articulate are based on my own, not reflecting the company I represent from. Okay, as you can see, Mike, way back end of May report, land etiquette indicated that continuous ships have to wait up to seven days to birth in Singapore, and they see about 450,000 fuel vessels in the queue. The latest report or the online data they have dated 7 June. You can see that the data now shows in Singapore, 315,000 tubes lying at Anchorage and 328,000 tubes at the port. And the average dwell time in Singapore have been reduced from six to seven days to now three to four days. The reason why you see a reduction in the port congestion measured by the waiting time, mainly because PSA, the Port of Singapore Authority, has now reactivated the older birth and yacht and Keppel Terminal, which was previously decanted, and therefore now you can see overall they're increasing their container handle weekly from 770 tus to 820 tus. What they have also done is that they also have a new terminal that's operating. That's about eight births operating now at the moment. By end of this year, another three new births will be started to operate. So all in all, you can see that PSA, the Port of Singapore Authority, and together with the maritime port Authority, they are working towards to try to mitigate the large number of vessels coming at the same time. So we must be very cognizant of the fact that this large increase in container volume in Singapore is the direct result of the vessels arriving off schedule due to the supply chain disruption at the upstream location, mainly due to vessel de routing via Kpoguro. So some liners, some carriers chose to discharge more continents in Singapore so they can subsequently catch up on the next schedules. So as a result of this vessel bunching effect, the average time for birthing before was at least five to six days. Now, because all these measures that PAS and MP have taken, the birthing container vessels is now taking about two to three days maximum. Right. At the moment, we also need to remember this fact, right, that Singapore port now handle for the first four months of this year, they handle 13.36 million queues, which is an 8.8% increase on the same period compared to 2023. So therefore it is logical why the congestion happened. They are reducing at the moment. And also we understand there's a very close working relationship between the Maritime Port Authority of Singapore and PSA, together with the mainland operators, regional feeders, to update everyone in terms of the birth availability and advising them on the arrival times to minimize any delays in both the. This is the current situation in Singapore at the moment. They are much more better than what happens during June because of the various measures PAC and MPA have taken together the shipping lines.
[00:06:31] Speaker B: So it sounds like there's quite good visibility in Singapore and the situation is improving quite quickly, which doesn't surprise me because this is Singapore.
[00:06:38] Speaker A: Exactly.
[00:06:39] Speaker B: Yeah. But that century blank sailings report, I mean, it really highlighted that we're seeing a lot of congestion elsewhere. The emissions at Shanghai and Ningbo in the first full week of June were over 50 port calls omitted. And Lionelitica estimates that Southeast Asia is the worst region in terms of global port congestion, with just over a quarter of total congestion that has been tracked. But Northeast Asia is not far behind, with 23% of that global congestion total. Can you give me some insight into conditions at ports outside of Singapore?
[00:07:12] Speaker A: Sure. Outside of Singapore, three major ports has caught our attention. Hokklang in Malaysia, Tanya Palapas in Malaysia and Manila in the Philippines. So if you look at these reports, they vary in terms of the port congestion in that location. For example, in Pok plank, you can see based on Lanitika data, again, there's about 110,000 ques of containers lying at the port, 28 vessels at the port and 18 anchorage. The vessel delay is about three to four days. Tanjan Palapas closed about 98,000 tubes at the port. Twelve vessels at the port and six at the anchorage. The waiting times about four days. Manila is quite severe. There's 20,000 tus at the port, 14 vessels at the port, 37 at Anchorage. Three to seven days waiting time. So all these three ports are also facing condition, but they vary in terms of the number of vessels and containers waiting for them to be birthed. However, even though we see in the part of southeastern, there are major ports having the kind of congestion that Singapore is facing. But the worst, in my view, is the northeastern locations, such as Shanghai, Ningpo and Busan. Especially Shanghai. If you look at the latest analytical data dated back 7 June, there's Shanghai and Ningpo combined together, there are about 448,000 containers at the port and 414 containers lying at the anchorage in Qingdao. Further north, 124,000 containers have port. 22 vessels at the port, 70 at the anchorage and Pusan, even more 136,000 continents at the port. So to me, compared between Southeast Asia and northeastern Asia and Busan, the latter is having much more difficulty in terms of the waiting time compared to Southeast Asia. So you can see that if the carriers continue to say, Miss blank stealing or Miss Singapore, they are bringing the problem to other parts, primarily to the far east and also primarily to some other ports in South Asia. The other part we also must consider that is not in the radar for many of us is Colombo. Colombo is also facing severe port congestion. At the moment, there are 57 vessels at the port. Waiting time is about five to six days, and there's about 960,000 containers lying in the pot. So these are the major flashpoints that is happening outside of Singapore.
[00:09:19] Speaker B: Peter, how do you explain all this to your customers?
[00:09:22] Speaker A: Okay, the key thing to understand is that we need to provide constant update to customers through our reporting and also visibility on where the containers are and also give them a heads up. The vessel delay. Thankfully, we learn from what happened to Covid. There are more visibility tools out there which we share with the customers and help them understand there will be delay in the vessels calling and vessel departing a particular port. And we all drum down and driven and support all these based on what happened in Sweats canal and their derouting. So we know the reasons are what we are doing is that we need to provide more visibility to our customers. Customers know, many of the customers know that there will always be disruption in the container supply chain. But what is more important is that how are we informing them to the customers and what are we doing about it? That's the only way we can do at the moment. The more information give the customers and the more updates you give them and the more assets you give them on the online portal, whatever portal you're using, whether it's something they buy offline or something you develop internally, that will help the customer to understand where exactly their containers are, when the containers are going to be loaded. So information sharing visibility are critical at this stage. And it's no different from what happened during the COVID It's all about communicating to the customer.
[00:10:35] Speaker B: I'm going to be speaking to Peter sand from Zenita a little bit later about freight rates, but just in terms of your customers, you're giving them all of this extra visibility. I guess they're not any happier about paying higher prices.
[00:10:46] Speaker A: Okay, at the end of the day, obviously yes, no customer on earth will want to pay something higher. But then you have to look at what is your priority. At the moment, it's your priority to go for low rates and don't get a container and equipment or you want to make sure that you have a reliability supply chain that you want to move your shipment as quickly as possible. Secure the standing container. In my view, in many cases, many of the customers out there or in the market, they are slowly coming to realization that it's all about securing the container and the space to move the cargo and needs to meet various seasons that's happening in Europe and also in the US. If you're going to boil down and say my rates are very high, I'm telling you, you're going to find difficulty in getting a space right now for the east west trade both to Europe and to the US. The June vessels are totally oversubscribed. Customers are now booking for July. They know in July there's going to be additional rate restoration and TSS, but they're willing to take that amount because they want to make sure their cargo get available and loaded on the first available vessel in July.
[00:11:43] Speaker B: Are you seeing any cargo get enrolled for people who've got contracts already as lines are looking at those spot rate returns?
[00:11:50] Speaker A: Yeah. Generally in the market at the moment, the rolling is a common thing, right. You can see customers have many contracts with the carriers and because of the long term contract, they are much more lower than the high FAQ contracts. There seems to be some kind of agreement between the customer and the carrier. So in some cases the carrier may increase one to one. For example, every container you load under the name account contract, you must also support them with FAQ or you go on a basis of percentage. So you need to agree with the carrier, a combination that both parties are amicably acceptable. Rather than going and say and the carriers or the straightforward telling the shipper look, the long term contract you have no longer exist. You must move everything on FAQ. If that happens, that means the relationship between the carrier, the freight forwarder or the carrier and the direct shipper is not so strong. So at the end of the day, we need to come with an agreement how we want to manage the situation. You cannot expect all your containers which are under the contact race to move under, giving you control, space and equipment. There will be a possibility where your cargo, some of your shipments which are meant to move under the long term contract are moving on FAQ. Because of the current situation, the gap between the long term contract and the spot ramp contract is wide apart. It doesn't make sense from the carrier point of view to move many of the cargoes under the contractor rates. Carriers are carriers, Mike. Right. They will make use of this disruption to make money and shippers must understand the reality of the situation they're facing because certain things are beyond their control. The availability of the space, the availability of containers, and when the vessel is going to berth and unburthed.
[00:13:20] Speaker B: I'll be talking to Christian Roloffs from container exchange about that container availability in a moment. Peter, we are seeing carriers putting in a bit more extra capacity into that Asia Europe trade. Will it help at all?
[00:13:32] Speaker A: Very good question mark. There's a lot of news on this new capacity that's coming in. If you look at the main issue of alpha liner, it mentioned that the Asia Europe trade, for example, shot about 10% of its standard capacity. So the carriers will have to bridge this gap. Alpha liner analyzed that you need around 36 additional vessels to guarantee your weekly sailings on this particular trade. So therefore you can see carriers have responded way back. If you know, April or May, Costco phasing three bigger mega Max vessel, 20,000 Q vessels. And then they also put in another mega vessels on the Asia mandatory service. And then haploid again relaunched its standalone China German Express starting from 16 June this month. However, this is a kind of service not only purely serving Europe, but also going through Myanmar and Ghana. So the vessel size again different. It is about twelve ships, ranging between 2800 to 9000 to starting from Yan Tian on the 16 June. So again, vessel configuration is different then. Lately you also can see MSC launching a new service called Britannia to enhance its connection from China to Vietnam, but they're calling Liverpool in UK.
[00:14:40] Speaker B: All right, big shout out to Liverpool. I'll just throw that in there, Peter.
[00:14:43] Speaker A: Exactly. Exactly, my friend.
[00:14:45] Speaker B: Yeah, that's 25 years in the making.
[00:14:47] Speaker A: That says exactly, mate. Good. And of course, they are first sailing. So they depart on the 1 July and then CMA came up with, I would say, a timely and innovative service called french fixed service, which they're going to call from China to north Europe. They're going to have seven additional sailings with 7002 vessels from June 30 to early September, covering both North Europe and met. And what they say that this extraordinary measure will add 25% additional capacity. And they're catering more for their french clients. So you can see there are capacity coming in. And also some ad hoc service providers, such as element. Element resumed their Asia Europe sailings on the 21 March. And it's a smaller service, smaller vessel, about 1380 tubes. But they already launched that. So you can see now and then people are putting in their services both in Europe and also in USA. But the question is this, Mike, we all understand there is lack of vessels in the market if you are going to put in new vessels. It comes to a concept where Peter has to rob Paul to pay somebody else. So all these vessels, except for the mega, mega, mega vessels, the 7000, 9000 Q vessels, must come from some other trade to deploy into the Europe trade. So probably it's coming from Asia India subcontinent or Asian Middle east to put into Asia Europe trade. So therefore, you see that it is not entirely a net injection of vessels into the global trade, but is taking from some other trade and putting into the Asia Europe trade. Will it reduce the capacity constraint we have? In a way, yes, it does in a slight way. It might reduce some relief. But my concern is, besides the space availability is also do we have enough containers to support the space availability? That's number one. Number two, they chronic pot congestion in all these locations, as we discussed earlier in the call, South Asia, Northeast Asia, Colombo, even including Jabba Ali. All these port congestion, even though you bring in more vessels coming in, it's going to aggravate the port congestion because now the ports have become even more productive and worked even more harder to turn around these vessels quick enough to absorb the additional capacity that is going to come in. I am still concerned about the port and terminal infrastructure and the Landsat operation. Are they geared up to take in these new additional services that are going to incorporate into Asia Europe? That is my major concern at this stage.
[00:17:14] Speaker B: Finally, Peter, what's the view from your customers or the view from Asia on whether this Q two demand, is it an early peak season or are we building to something bigger in Q three.
[00:17:27] Speaker A: This is a very interesting question mark, and personally, in my view, I cannot put a pulse into the sentiment that this search in cargo is going to carry on. In Q three, the reasons are following. Number one, we all know that there has been a forward loading or planning of containers in Q two, nobody expected this. It's like your peak season you're bringing forward mainly because of many reasons why people are afraid that because of long transit by the Cape or good hope, you may not have the cargo rich on time for your back to school days, your pre Christmas, or even for your thanksgiving. That is one of the reasons why it went forward. Number two, due to the tariff 301, where the US is going to propose imposed on tariff on China commodities such as solar panels, semiconductors and EV, that has also prompted a search of cargoes out from China so that the shippers want to avoid this tariff that's going to be implosed between China and the US. So there are some factors that have prompted sudden increase of volume at this stage. The question is, does this carry on in Q three, where many of the cargoes, even though they needed for the pre Christmas rides, are coming in now, will we be able to still see an increase of volume coming in Q three is anybody's guess. Of course, you look at, if you want to talk to the carriers or look at some of the statistics, they will of course put in a very, very positive view. The positive view is that what we had is only a prefix season surge of cargo, but you still have the traditional peak season coming in. But my question is, if the cargoes have all been moved forward before the traditional season coming, what else is left there for the Q three to beaver? The only thing I can think of is that if the shipper failed to get any space in Q two, they can only get space in Q three. And then you see there's a spillover effect of cargoes moving in Q three. But right now you can see that some of the shippers are willing to pay a higher premium just to get the cargo out because they are more interested in space and container. So therefore, looking at all these factors, we are not entirely sure whether Q three is going to be as strong or even stronger than Q two, because many factors are still unknown to us. The other thing is also you can see some of the reports in the US saying that the inflation in the US is increasing. Therefore the consumer demand might go down, so there are many, many factors to consider at this moment, it's very difficult to indicate whether Q three is going to be as super strong as Q two from my point of view. Mike.
[00:19:47] Speaker B: I'll come back to some of those economic indicators in a moment, but for now, Peterson Daraswa McCann, head of global ocean freight product at VC Global Logistics thanks for joining me today on the Lodestar podcast.
[00:19:59] Speaker A: My pleasure, Mike. Hope to see you again soon.
[00:20:03] Speaker B: As Peter said, the us market is particularly difficult to read right now. On the 12 June, the Federal Reserve again postponed plans for monetary loosening due to stubbornly high inflation, even as most other countries have started cutting interest rates. However, ans predictions that inflation would inevitably squeeze us spending have been blown out of the water. There's been little let up in consumer outlay since COVID in fact, and this has helped power GDP growth in the US to levels that have outstripped pretty much every other major economy. But at the same time, one survey found that 55% of Americans believe the US is in a recession and blame the Biden administration. Go figure. In fact, everywhere there are mixed signs. On the one hand, us monthly consumer spending growth fell from 0.7% in March to just 0.2% in April, says the economist. On the other hand, total retail sales were up over 3% unadjusted in May, according to the retail monitor. Looking for hints about where demand goes from here? Well, try these out. The JPMorgan global manufacturing PMI found that us growth output accelerated in May. But then on the flip side, the institution for supply chain management may PMI indicated manufacturing contraction. Lots of mixed signals. As I say, looking at the economy more generally, french bank society general is still forecasting a us recession. But then, as this podcast has consistently noted, economists have been calling a us recession for the best part of two years already. But we'll come back to these demand side mysteries a bit later. First, let's turn our gaze on another of those supply chain bottlenecks that is emerging that Peter mentioned, and that is container availability and pricing. I spoke to Christian Roloffs, co founder and co CEO of container Exchange. I started by asking him what all this supply chain distress in ocean shipping has done to average container prices available for loading in China this year.
[00:21:56] Speaker C: Well, it's been a crazy time, to be honest. Since the beginning of the year, container prices in China have really decoupled from the rest of the world. If we look at our exchange insight data that shows this quite clearly in China, the beginning of the year you had container prices for 40 foot high cube cargo with the between eighteen hundred to two thousand us dollars, and now that is between 3000 $303,500. Contrary to that, in the EU and US main ports, you had at the beginning of the year 1100 to 1300, and now you're looking at 1250 to 1500. So almost no change. And that means price in China are up 75% to 80% since the beginning of the year, and in the US it's only up 15%. And that, of course also has a downstream effect on leaving rates because they are sort of just the delta between the two prices. And the gap used to be $700 and now it's about $2,000.
[00:22:57] Speaker B: So quite a big differential there. Obviously, we've got this vessel bunching, poor congestion, we've had bad weather, we've got some shippers moving cargo early due to red sea diversions or fear of further disruption, such as strikes in North America. There's quite a few of those on the cards at the moment. How is all of this affecting the ability of stakeholders to get boxers to the right places at the right times? And where are we seeing shortages most apparent?
[00:23:25] Speaker C: Yeah, so as I mentioned before, container prices in China really decoupled from the rest of the world. And this price development is a result of local supply demand imbalance. So in China you have limited supply, high demand, high uncertainty, also on the demand side, so that a lot of customers, shipping lines, freight forwarders and vocs are trying to really secure equipment as fast as possible, and that's really driving the demand. And on the flip side, you have some of the supply actually being artificially held back by traders hoping for further price increase. So that's China, limited supply, high demand. On the other sort of main parts of the world, the US, Europe, you really don't see any supply restrictions. On the trading side, you have some supply restriction on leasing, as owners are rather moving boxes back empty as fast as possible to shore up available in China as fast as possible, but on trading, not really any supply restrictions. And that's also why trading prices in US and Europe have barely moved since the beginning of the year.
[00:24:25] Speaker B: We've seen a few orders for new containers from various parties this year. How widespread is this?
[00:24:31] Speaker C: It's very widespread. So end of last year, the order or production outlook was rather muted, but this has changed 180 degrees. Now factories are booked out until September, October. So even if you order new boxes now, you will not receive them before the end of Q three. We just come back from intermodal, Shanghai which is essentially the container owner industry gathering. And when talking to leasing companies, they're being overrun really by unexpected demand from shipping lines that are trying to shore up their inventory balances, and hence that has an immediate effect on production slots at factories.
[00:25:08] Speaker B: Presumably the container availability market is just as precarious in terms of the supply and demand balance as container shipping itself. Does this mean that we could see a major excess of supply then, if the sewers canal reopens at some point?
[00:25:22] Speaker C: Yes, you're 100% right. A lot of capacity, and it's not just vessels, but also containers is hooked up by current disruptions. You mentioned the Suez Canal, but also downstream effects like boat congestion, vessel bunching, et cetera. And this is really a learning from COVID Once disruptions ease up, we will be facing oversupply and hence falling prices again. And that's also the reason why now with Hamas just today or yesterday sort of signaling openness to accepting a ceasefire since shipping line stocks tumbling because the industry really immediately expects higher availability, easing up of supply chains and hence lower rates.
[00:26:06] Speaker B: Christian Roloffs, co founder and co CEO of Container Exchange thanks for joining me today on the Lodestar podcast.
[00:26:12] Speaker C: Thanks for having me, Mike.
[00:26:15] Speaker B: As we heard from Christian, Red Sea diversions really do hold the key to the supply and demand balance of ocean freight. Right now this is a zero sum game for buyers and sellers of ocean freight. From a shipper's point of view. Houthi attacks to disrupt international trade are of course an expensive nightmare. Higher shipping costs also, of course have a more general inflationary impact across economies from a container line perspective. And also, I should add, from a forwarding point of view, this all might be hard to manage from an operational perspective, but financially, if we're being honest, it manner from heaven how much the cost of shipping will increase is the big question though. And who better to ask the Zeness chief analyst Peter sand. How are you, Peter?
[00:26:59] Speaker D: I'm doing very well, thank you, Mike.
[00:27:01] Speaker B: Peter, I was going to start by trying to unravel some of the intricacies of demand and the supply on the major trade lanes, but let's come back to that. I think I want to go bold. The Lodestar has reported that some forwarders are expecting asian North Europe rates to hit 10,000 per 40 foot container quite soon. Sea intelligence has not ruled out as high as $20,000 per 40 foot container. If you extrapolate a demand scenario that looks a lot like the pandemic, but with diversions of vessels around southern Africa sort of the cream on the top, I've seen even higher rates than that band leaderbout in some quarters. How high could rates go before we break down, how we've got here?
[00:27:42] Speaker D: I think we are still somewhat shy of the COVID levels. But in terms of disruption, I think also the terrible, say, delayed knock on effect from carriers actions to avoid Red Sea is now really bringing us back. I think someone called this like the bullwhip effect, and you might want to look that up, but it basically gives you the idea that, okay, we try to solve something here and then it just comes back with a vengeance later. And I think that's basically what goes on right now. And in the end, I think what I take away from that, the intelligence prediction, or should I say forward looking statement, they just basically add up the metrics of the former crisis, right, and translate that into what may come about next. But in essence, it's really who's ready to pay the top dollar for this, right? I think if I'm to make a bold prediction right here, right now, we will not exceed the peaks seen during COVID And there's a number of reasons for that. Firstly, we have already seen lots of boxes being moved a little bit against the underlying market. But I mean, then again, someone may still be in the need of shipping goods. And if you measure this only by, okay, we have one fixture at 25,000. Well, there you go. But it's not the market average. When I talk about market average, it's compared to the COVID years and on forest to Europe, I think we got around $14,800 per feu at that point in time. So. Well, I might be proven wrong at some point in time, but it's really a matter of the marginal shipper ready to pay up for whatever is offered by the carriers.
[00:29:22] Speaker B: What's your take on the title of this podcast then, Peter? I say there's a lot going on at the moment, but if you're placing a bet, are we calling this an early peak season, or is this a ticking time bomb that's going to explode in q three?
[00:29:35] Speaker D: Well, I don't bet, Mike, but if I try to assess the current market, I mean, we are just speaking on the day of the beginning of euro 2024 and making predictions for the outcome of that tournament seems like a child's play compared to predicting what comes about in the next few weeks for container shipping. But our data surely points to a still upward looking short contract market. But I think also we have seen the largest increases around since it all got, say, caught fire again by end April. There are indicators that some of this is a bit, but I must say also that when it's easing in some place, we might just get another fire starting. And US east coast, I know we will get back to that, but there are already a lot of things happening on the US east coast. So if it isn't the hub and spoke issues around Asia to Europe all met that's causing problems, then the next one is readily showing its Ockley face. Infrastructure in Charleston and Ila and USMX breaking down.
Yeah, the trend is definitely not your friend from a shipper's perspective right now.
[00:30:48] Speaker B: Just on the betting front, I mean, I'm far, far too modest to bring this up. I thought we had a gentleman's bet on the last podcast about who was going to win between Real Madrid and Bayern Munich. Anyway, moving swiftly on, let's wind back a bit before we look at some of these demand indicators. Where are spot rates now on Asia, Europe and the trans Pac compared to say a month or two ago? And how do they compare to contract rates?
[00:31:13] Speaker D: Let me start by saying that they dont compare to contract rates, at least the long term contract rates. That actually does seem to point a little bit downwards in the most recent weeks and months, let alone of course, we really need to be careful on this one because sometimes you also have even NAC rates, in particular long term contract rates that are subject to fuel surcharges changing. Right. And they're also often subject to other surcharges, primarily peak season surcharges. And I think that's probably the core of it right now, where carriers tend to call this peak season right now, regardless of the fact that we're looking at this in the middle of June, it doesn't normally be defined as a traditional peak season. But then again, if you define peak season as shippers dramatically trying to grab whatever is available in terms of empty boxes and shipping capacity, then youre probably right. Peak season is around right now. But if we look across the border, where do rates sit right now? I mean, we have the Asia Europe trade at $6,000 already in the short term market, right, set against a long term contract market right now, where we have the average of contract signed within the most recent three months sitting at $2,200 right now. But I think especially when looking a little bit forward, we also surveyed our customers. Was that last week? Something like that. What they are experiencing is that theyre getting cargo rolled even on long contract rates where volumes do not match their minimum quantity commitments. Its really a really tight market where some contracts may not even be worth the paper they are written on. But still, the legal implications of this you will find difficult to find because no one, especially in a market like this, is ready to go into a courtroom unless you're facing an outright default yourself. So the Ferris wheel will keep turning, but many shippers are facing cargo being rolled right now or they are being pushed into the spot market on freight of all kinds levels. But it's definitely a grim outlook right now. Just touching briefly also on the transpac, now that we added to my transpac, again not directly impacted by the Red Sea. And if you compare also demand literally into North America to that of last year. Yeah, the year and year numbers are staggering high, but they are still way short of the volumes coming in in 2022. Some people may fail to see that. So if they are lacking the perspective on that, look twice and look a little bit more into the perspective. Whats driving rates up here? Demand growth, yes, but not necessarily from a strong underlying economic development in those importing nations. And that may just be the brace to catch when we look at the coming months, that underlying demand from customers may be served from cargo already available in inventories. So again, getting back to will we exceed the peak levels of say, the freight market on the spot rates? Well, we're not halfway there, but I wouldn't bet on it right now with.
[00:34:47] Speaker B: Those big differentials between contract and spot pricing. If that keeps increasing, will we see more rolled cargo, do you think?
[00:34:54] Speaker D: I think what is very interesting in the long contract market right now is that when you have a tight market like you do right now, carriers are making the freight forwarders pay more, right. And they put even more emphasis on serving those top 200 global customers that they all want to serve really, really well. So if you look beneath some of the surface of those 2200 that I forked out before on far east to Europe, right, you may actually see 2000 being forked out to some of the, the big shippers and perhaps 3000 forked out to some of the smaller forwarders. So that's also an underlying dynamic in who gets these contract levels. Right. But a massive spread between the long term contract market and the short term market is, I mean the market was without, right. Betting on this to find some sort of new normal, but apparently, or let me say new abnormal probably. Right. So one that had a fairly sustainable level of capacity and rates going around the cape of good hope. But now we really see the ocuphase of those decisions made earlier and now we have a new squeeze. So apparently I think we will see not a massive pickup on the long term contracts, because once you made the bet of not signing them at elevated levels, you've got to stick with them, at least to some extent if you.
[00:36:15] Speaker B: Can manage just looking at some of those demand indicators. Peter, we heard earlier on this podcast about mixed messages around the us economy that you alluded to there as well. But it's not just in the US. Following a slight dip in Maine and more as updated Asia Exports leading index, also known as Nelly, rebounded to 100 in June and I quote, reinforcing the view that double digit asian export growth is within reach by the end of q two as positives for Asia's export growth. Nomura cited, and I quote again, a sustained tech led goods cycle upturn Europe's ongoing economic recovery and fledgling optimism around China.
Just some other data for you. JP Morgan's global manufacturing PMI was also positive on Europe, where economic growth and consumer confidence are improving. We're all on holiday soon, and we've got the euros and the Olympics, so surely the only way is up. But what does all this mean when you're looking at container shipping demand?
[00:37:13] Speaker D: I think what we're seeing right now is the manufacturing behemoth of the world. China is now really also benefiting from the deflationary environment that we have seen in consumer prices and also labor costs in China for at least a year, perhaps even more now. So even though a lot of shippers and manufacturers are talking about, say, supply chain resilience, they may be even more depending on China now than ever before. I mean, we have been talking about Vietnam to a large extent over recent years. Right now the talk is very much about Mexico, and there's definitely merit to that. But in the end, when we see far eastern exports, primarily chinese exports, I mean, you could build a case around some of those manufactured goods, filling strategic inventories around the globe, serving a different market than perhaps where they are finding a home, or at least temporary home. Right now, if you look at the imports into Middle east, it's up by 50% from China over. If you compare the first four months of 2024 to that of 2022, right, 50%. I mean, they may get rich with higher oil prices, but not that rich. We see also east coast Africa taking a lot of boxes. We see South America also taking a lot of boxes.
I would say geopolitics more and more shows what it can do to changing the global network of the flow in goods. Now they may just find an interim home, only later to find a new real home because of how geopolitics and tariff walls are set up these days. It would be a special market if we were talking about the 2024 as a whole right now and still saw chinese exports up by 10% and Middle east exports up by 30% on last year. That would be a little bit mind blowing and definitely also required some investigation into what is actually going on, because this is not just red Sea disruption, this is way beyond. So I think that's probably also what's boiling in. The challenges that carriers are facing right now, where they constantly seek to update their global networks. It's tricky for them to find out where's the best trade lake right now for me to dive into? And do I need to offer particularly low spot rates to any of my customers to fill my ships? I think no is the response to the final question. But I think we will see more, say, reshuffling of capacity before we get to central settlement.
[00:39:48] Speaker B: Yeah, just a side point on that, Peter. We've just had european elections now. The big headlines were that right wing populism is would across the board, but maybe sort of slightly neglected in that was the green parties across Europe performed really poorly. And I think it may be it indicates how that green transition plays in terms of supply chains. We've got these new tariffs on EV's, but this green technology, it's produced a lot cheaper in China. So do you want a cheap green transition using those products from China, or do you want a more expensive green transition which protects green technologies produced in Europe or in the US? They're really interesting problems. It's like how much are people willing to bear out of their own pocket for the green transition? I think it really illustrates how important some of these issues are around international trade and geopolitics and tariffs, because they really do. They're affecting politics right now in quite a big way. On which note, we'll be covering some of this in the next Lodestar podcast, which is going to come out just before the UK elections, which we have a little look at that.
[00:40:53] Speaker D: Good timing.
[00:40:54] Speaker B: Yes, good timing indeed. But let's look at a few other factors that we haven't covered already that will further muddy the waters as we look at the second half of the year. We've got rising congestion at ports in the west Mediterranean. We've got the threat of strikes in Canada, which are already causing ship diversions. The ILA union, representing dock workers in the Gulf and east coast, is now demanding a share of COVID carrier era profits and threatening strikes when its current contract ends at the end of October. The list goes on. We've got election season in the US threatening more tariffs. As I just mentioned, we've got more tariffs coming in irrespective of that election in both the EU and US targeting chinese exports. We've even got warnings that the hurricane season in the Atlantic this year is going to be harsh. I'll throw in surging water levels in Europe's rivers, which is also causing some pain for shippers around about now. Please decipher if you can, what all this means. Peter, as we're looking ahead, it means.
[00:41:51] Speaker D: That shippers need to draw up contingency plan ABCDemf and really think out of the box on how can I make my supply chains more resilient. Its not enough to have two contingency plans because something new will be thrown at you. I mean the flooding in the southern part of Germany was definitely also disruptive, perhaps more locally, right? But of course Red Sea is a really global disruption. Looking at the US east coast, that's really troublesome also perhaps even more so for north european exporters, right? Because we tend to talk about the goods coming from Afro Asia into North America and where they might find a new home or at least a new temporary home on US west coast. But check out the north european exporters. Will they go to Montreal? Will they go to Halifax? Will they go to St. John? You just mentioned there's a railway strike potentially going on also border I think border police is rumored to potentially be on strike very soon. So it's like okay, how do I get around this? I mean you cannot just fly in and dump the ship. Will you go via Mexico with some of this? Will we see trade lane like north Europe to us west coast actually start to flourish? It could be right now we have 1000 boxes on a daily basis going like that. So it's not really a beaten path. But it may just come in handy that at least the restrictions in Panama Canal are no longer that tight, at least when it comes to numbers of ships. Obviously we still need to bring the draft restrictions back up to 50. We've only seen recently going from 44ft to 45, but there's still amber rule for easing on that. So where do shippers go? Well, in some quiet room at first, right? And then start thinking about what do the data show me, right? What kind of say supply chain requirements do I have for myself? Are my inventories pretty full? Should I be fighting for the stars capacity out of Asia? Should I pay diamond tier rates? Should I pay premium surcharges required to get my cargo moving? Hopefully the reply to those questions will be nah, I basically done my deeds already. I got my cargo moving and if I trust the underlying purchasing power from consumers I would probably be doing fine. But I must say that its a totally different 2024 that were now in the middle of as compared to where we were back in October last year when I went out. With our 2024 outlook. I give you a little bit of sneak peek here.
Approximately two weeks from now, we will update that and bring everyone up to speed on, on those factors that we at that point in time pinpointed to were relevant to watch out for in 2024. And I think many of the factors that we pointed to back then tick the boxes right now, but they have definitely shown their negative side of it rather than the positive developments that would bring smoother logistics around.
[00:44:52] Speaker B: I like the way you found a positive note there amidst all my negatives. Panama Canal of course, the drought seems to have ended there. We've gotten a bit more capacity coming in and hopefully that will ease some of the pressure points that we're seeing in terms of shipping options in and out of the Americas. With all these potential disruptions coming down the pipeline later this year. Just to finish, there's an all mighty scramble at the moment for any sort of tonnage in charter market where we've seen rates flying. We've also got record container ship deliveries. Will more ships being added to services, improve flows when we've got vessel queues and port congestion building? Or will all this just make it worse if it can?
[00:45:33] Speaker D: Well, regardless of what happens in the second hand market or the charter market, it doesn't change a dime, right, because it's still the same ships just being operated or owned by any other carrier or the bold shipper themselves. Right? So basically the one thing it does is to lend us a little bit of insights from the outside into how do carriers think about the market? Right? So if CMA is now paying $100,000 per day for a medium sized ship they can operate for the coming 90 days. That should probably give you an idea of how full their waterbooks are in terms of cargo to ship out of Far east in the coming quarter, right? So in essence, it lifts the cost levels of the carriers. But from a shipper perspective, it's no brace at all. It doesn't change anything, but it gives you an idea of how they think about the current market, right? And if something is around which is up for grabs in the charter market, they will go get it. We have seen charter rates across the board going up by 100% since the Red Sea disruption started in mid December. Right. So thats one indication. And it didnt, at that point in time, it didnt get all the way down to pre pandemic levels. It was still elevated from pre pandemic levels. So were lifting it by 100% from an already elevated level. So I think if anything, well prepare for more hardship ahead and for those snarling supply chains around the megahubs in Asia, in the Mediterranean and Europe as well, to unwind only too slowly. Right. And I think what we are seeing right now is that it can go either way. And you just need to hedge your options and make sure that you do not get caught out regardless of where it goes in this link contracts. I know were not about to talk about that right now, but that could probably be a way where you can talk about service levels, where you could talk about volumes with your service provider rather than just looking at the next renegotiating of freight rates, because its bound to be a tricky one for either party.
[00:47:38] Speaker B: Peter sand, chief analyst at Zenita, thanks for joining me today on the Lodestar podcast.
[00:47:42] Speaker D: Always a pleasure. Mike King.
[00:47:47] Speaker B: Big thanks to my editing team, Karen Ball and Tom Matthews. And most of all, gratitude to you all for listening. We'll be back soon.
