Episode Transcript
[00:00:00] Speaker A: You're listening to the Lodestar, the supply chain and logistics industry's leading source of insight.
[00:00:05] Speaker B: This podcast was created and produced by.
[00:00:07] Speaker A: MK and Associates and your host, Mike King.
[00:00:16] Speaker B: Well, today it's shipper time and they are feeling dazed, confused and apprehensive. Is the industry stuck in a perma crisis? What happens when container shipping tips into structural oversupply and customers regain the upper hand in contract negotiations? And how are the world's leading manufacturers looking at the supply chain implications of tariff wars? I'm joined today by James Hookham, director of the Global Shippers Forum and he's alongside the Ex Cummins and Electrolux freight buyer who's now moved into the forwarding game. It's Bjorn van Gensen.
[00:00:49] Speaker A: Building a new plant is a massive capital investment. First when we're adding money to. And you've got to have a solid business case for it. These things, 10 years, nobody builds a new battery plant in the US that will be open in July. Yeah, it'll be open in a July, but not this July.
The notion that this can all change in the blink of my eyes is just silly.
[00:01:13] Speaker B: Hello everybody, I'm Mike King. Welcome to the Lodestar podcast.
Greetings one and all, and I'm sure you know by now you can find this podcast on theloadstar.com and all podcast platforms. Please do like subscribe, comment and review. In January, we did an episode with views from Containerlands. Most notable was Hapag Lloyd explaining how it will improve service schedules and shipper transparency as part of the Gemini cooperation with Maersk. We also talked about a bunch of other things to do with line of shipping and plans for 2025 plans and concerns. So this time around we're going to bring some balance to that discussion with a view from liner customers and those who know the shipper side of this equation in intimate detail. First up, we have James Hookham, Director of the Global Shippers Forum. Welcome back, James.
[00:02:08] Speaker C: Hi Mike. Good to be with you again, James.
[00:02:11] Speaker B: Before we bring in my next guest, can you give me a maximum three word summary of how shippers have been feeling at the start of 2025 with all this uncertainty around global trade and shipping?
[00:02:25] Speaker C: Oh, we've, we've got a committee meeting, our policy committee meetings next week and I think we're seriously considering changing our name to the World Trade Forum because then we'd be the wtf, which just about sums up the sentiment in the, in the market at the moment. No, but seriously, I would think that there's some good there's some bad and there's some ugly news out there at the moment. And despite everything, trade seems to be holding up. So trade demand, I think is going to be a key factor that we're watching at the moment because that ultimately gives, you know, what we do. That's what, that's what we're about. Contract uncertainty. That was there before all the tariff talk.
But exactly what's going to happen to the spot rate later in the year? We can come back to that. And then of course, the ugly ones are the real game changers with the tariff announcements and the macro economic implications of these sort of very sudden shifts of policy and emphasis.
[00:03:22] Speaker B: Thanks, James. Well, we'll come back to all of those points. Joining James today is a man who has been on every side of the shipping and freight equation, sometimes simultaneously. He was head of logistics at Lectrolux for 16 years. More recently he ran supply chain buying at US multinational Cummins. He has been a top shipping analyst at Sea Intelligence, a vessel manager, and he worked for A3PL. And his career has now taken another notable turn as he's the new executive VP for Ocean at Easy Speed International Logistics. And he was giving me funny looks which made me laugh because when I said simultaneously. Bjorn van Gensen, welcome back to the Lodestar podcast.
[00:04:00] Speaker A: Thank you Mike. Give me some multitasker who said men couldn't multitask.
Thank you. It's wonderful to be back here. Happy at least two different kinds of New Year and a few more coming up soon.
[00:04:11] Speaker B: Happy New Year to you too. Bjorn, a three word summary of 2025 from you, please.
[00:04:16] Speaker A: But we need limited to two. I could paraphrase Led Zeppelin and say Dazed and Confused.
I am going to go with Dazed Confused and very apprehensive Dazed because the news just keep on coming and, and if you're working in any supply chain or logistics function, in any shipper or for that matter any forwarding or carrier entity, you'll be trying to make heads or tails of the news, such as it stands every single morning in a way you've never had to before. At least not in my 38 years in this line of business. Apprehensive? Well, I mean we never know what happens from one day to the next, right? I mean we've grown very used to in shaping to labeling things as Black Swan events. Right? There are true Black Swan events that occur from time to time. But these days anything that we didn't sort of expect is a Black Swan event. Right? Which is not true. There's a Very strict definition of Black Swan events these days. Every day seems to bring another Black Swan event in the shape of a new policy announcement or a new development in the Middle east or a new development in the trade war.
It's going to be a very apprehensive year for everybody. Maybe we can talk a little bit later about whether there are ways to deal with that. Obviously I think there are to some degree. But it's going to be a wild ride as usual.
[00:05:43] Speaker B: Yeah, all these Black Swan events, I finally found a good term for it. I'll have to attribute this to Scan Global Logistics Mads Dreyer, who told me on the Freight Buyers Club he said his new favorite word, Perma Crisis. I've been using Black Swan events. I'm sticking with Perma crisis from now on.
[00:05:59] Speaker A: I don't think you should. I mean, the only Black Swan event in shipping these days is a vessel actually arriving on time or a contract that actually fits the definition of Black Swan events such as Matt Tidy defined it back when he wrote his book.
[00:06:16] Speaker B: Excellent. Okay, before we get started on on some of those things that we've just raised there, Bjorn, do tell me more about Easy Speed. Looking in from the outside, it seems like they've taken the old western movie approach like the Magnificent Seven. Let's recruit all the top guns in town and start shooting. So. So what's the plan? Are you mainly looking at the US or the Trans Pacific business? Who's involved? Tell us a bit more.
[00:06:39] Speaker A: At least you picked the Magnificent Seven and not the Dirty Dozen, so I'll take that compliment. Run with it. ESPN is interesting. I started consulting with the people who were starting EasySpeed. E speed is not a new company. It's perhaps one of the largest airfreight forwarders that you've never heard of and neither has anyone else.
A Chinese company that predominantly has made its business through servicing e commerce platforms out of China. Not just the big well known ones. I said not just the big well known ones because they are some of our biggest customers. But also the small amount of pop sort of entities to the point where EasySpeed supply chain is actually the fifth largest I have to freight forwarder in the world with an astonishing amount of block space, own aircraft, own offices and warehouses in the U.S. in Europe, in Latin America, obviously around Asia. Warehousing activities, pick and pack, even home delivery through a subsidiary. And what the leadership of that company decided was that they wanted to take that one step further. Add a third leg, if you will, to the warehousing and the Air freight business by launching an international, you know, stock standard. Not stock standard, because nothing is stock standard about us, but a regular freight forwarding to compete with all the other freight forwarders of the world. So it's ocean freight, is air freight, it's consolidation, it's a certain amount of warehousing, it's ground transportation, customs brokerage, etc. But starting from scratch, but not. Which is kind of what attracted me to it because we're not really a startup.
I prefer to see it as easy speed launching a new division which does freight forwarding. And to that end, a bunch of us sat down with me initially in the consulting role, but a whole lot of other people saying, what can we change?
Another freight forwarder, really, it's like the world doesn't have enough of those. What is it that we can do that sets us apart? We come up with this back to basics concept. Back to shipping, as you and I and James remember it, where a word was a word, where a contract was a contract, where not everything is necessarily about rates. I think we'll be at some point ads and walk away from business rather than try to compete, even though we could. But we found when we talk to prospective customers and some of them already current customers, and we're responding to bids and we see a lot of excitement from people saying, instead of having these beauty contests followed by boxing matches, let's have adult conversations, adult conversations about how this is going to work between us in a world that both sides know is up in the air, if you're, pardon the pun all the time. How are we going to come up with a different way of contracting, a different way of reviewing our business, a different way of actually being partners? And when I use that word, your listeners will know that I mean business because I'm notorious in the shipping world by having pooh pooh the use of the word partner for decades for all kinds of reasons that I think are excellent. But this is what we want to get to because we believe that's actually the only way. Now the beauty contest and the boxing matches, those days are over. The pandemic taught us that. The last year and a half with the Red Sea taught us that if you accept the premise that a contract is no longer a contract is no longer a rate, but you still have a global supply chain to run, then how are you going to run it in that environment? As a. I also hate the phrase win win, but I guess I'm forced to use it as a win win and not as a serum game. We find a lot of resonance both with our prospects and our current customers around that notion. And there are some other super exciting developments, especially on the ocean freight side for us in particular, that we can get into maybe a little bit later. I've certainly prepared myself for that. So the time is right. But not for just another folder. A folder that actually. So go take a back to the future approach.
Air and Ocean.
[00:10:55] Speaker B: So a win win in a time of zero sum politics. It's. You're pushing against the history, I think. Are you mainly looking at the Trans Pacific or Asia, Europe or anywhere?
[00:11:05] Speaker A: The initial focus is absolutely going to be on Asia Pacific and North America, but Europe will follow swiftly there. We've grown quickly. We've now opened our three US main hubs which is Columbus, Ohio, New York and Los Angeles. Those offices are open. We've opened EasySpeed already has 13 offices across China. We're populating on my side of the business, we're populating those offices with ocean operators. I brought in a few more to complete the dirty dozen from my shady past who were either already on board or coming on board very shortly, like in a week. We've opened offices that are beginning to staff them in. In. Hang tight. This has all happened in two months. We opened offices from the ground up in Singapore, Jakarta, Bangkok, Ho Chi Minh City, Phnom Penh and Kuala Lumpur. Those are, we believe, the hubs that we need. We have to have those hubs in order to service North America. That will be the initial scope both for Air and Ocean. I would say I'd be very disappointed if we hadn't entered Europe by the end of this year. Easy Speed International, Easy Speed Logistics or supply chain actually already has representation, big representation in Holland, in France, in the UK and in Germany. So we're benefiting and this is why. You see, I don't. It's not. We're not really a startup, right. We're a new division. We're benefiting from an existing infrastructure that we can populate with a different kind of people and a different business area. So it's exciting times, but we work hard for our money, let me tell you that.
[00:12:44] Speaker B: Best of luck with it. To everyone at Easy Speed. I'm glad that you're going to be sailing through the skies up in the air rather than getting down and dirty at tpm. It sounds like that's the plan. We'll see how that works out when. When there's a bloodbath on the rates.
[00:12:57] Speaker A: Listen, I'm glad you mentioned CPM because it gives Me an opportunity to say that we've also invested a very serious amount of money in being a platinum sponsor at cpm. So we'll be present at CPM both visually and physically in a very big way. And I really look forward to that.
[00:13:14] Speaker B: I'll be there covering it as well. Just quickly before I bring James in on some of this. I know you've been over in, in Asia, in China a fair bit. What was the view there in the lead up to New Year? How were the factories all churning out things as you would expect? Everything was busy, as you would expect, because I've been hearing things were pretty quiet, factories were closing down early and maybe people will be going back a bit later than they might usually for those holidays.
[00:13:39] Speaker A: I think it's. Yes, I've spent an awful lot of time in China lately, as you might imagine. I spent more time in China in the last three months or two months that I have cumulatively in 20 years. And it's, it's a very mixed bag. I mean, domestically, I think China has surprised me a lot. I haven't been back in some years. They've moved light years ahead of certainly Western Europe and in certain cases the us in terms of the quality of the things they build, in terms of the way they adapt them locally, they are becoming not inward looking, but, but China serves China and China serves China well and they adapt new technologies very, very quick. Very, very impressed with the way they run their businesses internally. Having said that, they are of course quite wary of what happens in the world. I should say not, not just in the us, but also the way Europe views them and China in general and its place in the world occupies them a lot. Are the factory opening? Yes, the factories are opening, but again, they are as dazed and confused as a lot of other people in other parts of the world. And there are factories that will not reopen. There are foreign companies. I know the names of some of them. I'm quite sure I'm not allowed to mention who they are, but I know them and I've heard this from don't.
[00:14:57] Speaker B: Mind us, don't mind us.
[00:14:58] Speaker A: We'll keep it just between ourselves, very, very significant parts. And I'm talking about way more than 50%, in some cases more than 75% of their manufacturing out of China now, like, not considering it. It's happening and it's happening for a bunch of reasons, terrorist being one of them. I'm sure we'll get to terms at great lengths. Right. Another one is some companies, particularly American companies, have it hasn't escaped their attention that China from time to time picks quite publicly on individual American companies, not just my tariffs, and they don't want to be one of them and they don't know what's going to happen now. So they are reshoring China plus one, I think is going to for many be either one plus China or it's going to be China plus two or three, because it's the only way people can maintain an agile and nimble supply chain.
[00:15:54] Speaker B: Thanks, Bjorn. We'll come back to some of those points. James, how would you describe the start of the year for shippers?
What are your members saying about how they've been handling all this political, geopolitical and labour uncertainty? Because let's not forget it was only just a few weeks ago we'd all been expecting a major strike at US Eastern Gulf coast ports. Almost feels like a lifetime away.
[00:16:16] Speaker C: Absolutely. And since then, of course, there was that brief period where we were all hoping that there might be some sort of return to Red Sea and Suez transits and a reduction in rates and a pickup of speed as well, of course. But, well, the thing that most shippers will be focusing on at the moment, those that do it this time of year, is what the heck do you contract for in 25? So what's your peak season demand going to be? I think there's some optimism there that there will be some growth in economies and that there's slots to book, there's cargo to move. But quite how you do that with all the uncertainty around capacity, what the new alliance structure is going to offer? Is there any real depth in the promises of punctuality, better service? And I particularly like some of the points that Bjorn was mentioning there because I think there is an opportunity for shipping lines to lean into this and not sort of move away from this very transactional approach that we've seen over the years and try and sort of take the we're all in this together line, you know, where there's a lot the shipping lines can do to help their customers through a lot of this uncertainty, other than just to surcharge them, which seems to be the response that you normally get. So I think that the TPM discussions and through this contract season is going to be very fluid because the factors that you take into account when you're deciding what volume you're going to commit to contracts are shifting all the time at the moment. So we've not been in this sort of situation before and I think you're going to get a different answer to this, Mike, if you ask me again in a week and probably the week after that, it's that fluid, it's that uncertainty.
[00:17:57] Speaker B: Yeah. I mean, that committing to contracts at the moment is very difficult with so much uncertainty how much you want to commit when the spot rate could go wherever with so many unknowns there. Just on the tariffs points, James, I'm sort of terrified events might overtake us because we're recording this and it's going to come out a couple of days later. So wherever the regime is now, it might be different when it's listened to. But let's just talk about the use of tariffs as a threat by the new Trump administration. How does that threat and the reality of tariffs as they're implemented in different countries, how does that affect shippers and their ability to plan investments and their supply chains in the short and long term?
[00:18:35] Speaker C: Well, the big question is, what's the point of the tariffs? What's the objective that President Trump and the administration are trying to achieve other than just the airtime and the headlines? And one's got to assume that the end game must be making a better case to actually invest and produce in the United States because that's what gives the jobs, that's what gives the win for the American economy, despite all the short term losses that the tariffs are probably going to imply. So if there is an end game in this, it must be to try to create a better environment for shifting production, not just closer to the U.S. but actually back into the U.S. now, whether that is going to be realized certainly in the time scales available. I mean, you just don't do that overnight. It takes a lot of planning. It takes a lot of investment.
[00:19:23] Speaker B: You need policy stability as well.
[00:19:26] Speaker C: Absolutely, because that's the point I was going to make. You just don't know. You're going to be sort of shooting from the hip on this. And of course, the uncertainty persists because you can't even rely on just locating in very supposedly friendly countries next door, as we saw has happened in Mexico and Canada. They're no longer considered to be safe countries now. So I think that a lot of big investment decisions, and this is nothing really to do with shippers, but I think a lot of big investment decisions are what is in the longer term crosswise of the Trump administration. I think they want to get a lot more inward investment into the States. In the meantime, shippers are picking up the pieces from the sort of tactical actions that are designed to bring that about. And you're right, there's various Responses by businesses and I guess there'll be a mix of both. Do you pass the cost on and just inflate prices for the American consumer? Do you push back? And this I suspect is what is worrying a lot of shippers, never mind what retaliatory tariffs there might be. But do the US importers come back and say, well, come on, we want you to take some or all of the pain here. You know, we want a better price that reflects and counteracts the tariffs. So I suspect that's in the minds of a lot of exporters at the moment to the U.S. yeah, it's quite.
[00:20:37] Speaker B: Hard to work out what tariffs, what ends tariffs are saving. It seems to be saving more than one. On the one hand it's a weapon by which you can get concessions out of people like countries that you want concessions out. On the other, the US administration has talked about tariffs as a means to raise money so you can reduce taxes. Not economics that I particularly understand, but I'm just a journalist. And then the other one is, as you say, is this about reassuring? Bjorn was talking before about China plus 1, plus 2 plus 3. Didn't mention reshoring too much. Bjorn, in your shipper experience, can you explain the difficulty of making plans to reshore if you don't know when policy might change again? Because these are long term investments, as James says, and these are very complex inbound and outbound supply chains from some industries more than others, but complex all the same.
[00:21:27] Speaker A: I have the shipper background but always in the manufacturing environment. And so I've been quite heavily involved in those decisions, both the ones to close sites and the ones to open sites and ones to relocate sites over the last 20 some odd years. The short answer is it's a super complex decision to make in a stable environment.
It's a pure and simple gamble. In an environment like the one we have today, you might as well take your money and go to the casino and put it all on red. Because this tariff unstable environment caused by these terror threats, if anybody thinks they're going away anytime soon, they've got another thing coming, right? So everyone already seems to have forgotten. Apparently all is well with Mexico. Again, it's a little bit like the strikes. Remember the strikes in Canada and the, and, and the US east coast and US West Coast. As soon as there's breathing space, which essentially just means someone has kicked the can down the road, we all forget about it. It slides into the background. Oh good, then you know, cool aids will prevail and things will resolve themselves. But they don't. Right. I think we're going to see at least four years of terror being bandied about all the time on different countries. They're now being used as a blunt instrument to bend other countries to the U.S. administration's will. And it doesn't matter what the subject is. Once they've seen or they've seen the tariff, the threat of tariffs works, it will come up again and again and it will force manufacturers and shippers, importers, exporters to constantly try and balance their network to make sure that some of it is safe and hope that some of it is almost safe. I think James is right. I think it would be a combination of raising prices on the consumer, purely important, but also pressing back on your suppliers to absorb some of this. And speaking as a manufacturer who's been through this I don't know how many times, I can promise you that there would be plenty of double dipping that says we'll do both. And so you might see some, quite, some quite handsome financial results come up from a lot of retailers and manufacturers next year. Some of that will be a result of having their clinical needing it too.
Work for some deep digging journalists there at some point.
[00:23:54] Speaker B: That's for the lodestar.com news team there. I'll just pass that one on.
[00:24:00] Speaker A: But there'll be plenty of that. So it's only a question of picking someone to start looking at. I don't know that there is a way to do this in a foolproof way if we talk about reshoring. So let's pick at that one. Right? Because it's a fairly easy one to pick apart, as it were. Listen, several administrations, not just the current one, several administrations have largely initiative met to bring manufacturing back to the shores of the US and several have been partially successful. Partially in the sense that many companies, including one that I recently worked for, have invested many billions in upgrading either existing plants or building whole new ones in the US and that's great, that's wonderful. And it creates American jobs and that's all fantastic. The problem is that most of those plants operate with components that are imported from China, partially assembled in Mexico and then shipped to the United States to be put into something that's finally manufactured in that plant. So if people think that the impending breaking news of lots of companies opening factories in the US is a sign that everything is moving back to the US well then they're solely mistaken. I think you could and hope maybe there will be a deal three months from now that allows that to happen. To say to certain countries or certain companies. If you promise to open Hex or Invest X in the United States, we will exempt you from certain import tariffs or certain other punitive measures. Even if you choose to use both China and Mexico as components in your supply chain, that might work. And I think that maybe the way things will eventually go. I know big companies are pushing that angle.
Why shouldn't they? They've got nothing to lose. But building a new plant, as James says, is a massive capital investment. First of all, you have the money it's doing. You've got to have a solid business case for it. You've got to then stand being up these things 10 years. Nobody builds a new battery plant in the US that will be open in July, right? Yeah, it'll be open in a July, but not this July.
The notion that this can alter change in the blink of my eyes is just silly.
[00:26:15] Speaker B: Just a quick one, Bjorn, on China, before I bring James back in on tariffs again. Do you think there was a sigh of relief in China that the increased tariffs on a lot of their exports into the US are just 10%? Because before the election we'd heard a lot about 65% add ons.
[00:26:32] Speaker A: It may yet be 65%. Well, yes, I think that's the issue.
[00:26:39] Speaker B: It's a fair point this year.
[00:26:41] Speaker A: There's nothing to say that it could be 65% by the end of next year. Right?
[00:26:46] Speaker B: It'd be 65% by the end of this podcast. Okay. James.
James, we've spoken before on this podcast about how much more difficult it was for shippers. Well, how much more difficult shippers have found it managing supply chains with longer transit times due to these Suez Canal diversions. It now seems unlikely that we're going to see ships going through sewers regularly, at least anytime soon. We have a ceasefire, but it's slightly overturned, overshadowed by talk of turning Gaza into the U.S. riviera, which I should suspect might delay the use of the Red Sea short term if this prevents a quick shift back to normal shipping. Is this a blow to shippers? I'm presuming it is. Just when things were looking a little bit more positive on transit times and speeds and, and reliability.
[00:27:35] Speaker C: Yeah, I think anything that gets stuff quicker to where it's going is a good thing. But I think most shippers in Europe, probably the US have sort of accepted and baked in these longer transit times. What's important is predictability. It may take a week longer than theoretically it would through Suez, but as long as it turns up a week later, and not two weeks later. That's the key thing that shippers want. So predictability is probably a bigger factor, especially at times of uncertainty, than absolute transit times. Although insofar as that would lead to reductions in spot rates, that would obviously be welcome. But look, there are two things to watch on the Red Sea. And despite the political backdrop, which no one's able to predict, but two things need to happen. First of all, the shipping lines need to be assured in the right way and through means which no doubt they have got bridged access to, that their crews and their vessels are safe. The Houthis are non state actors, so the normal diplomatic channels don't apply. But somehow shipping lines and ultimately ships masters have got to be satisfied that they're going to be able to transit in safety. And the second and really important thing that needs to happen is that the insurers need to get that email as well. And the war risks need to come off for the hull insurers, because that was another big decisive factor in prompting the diversions in the first place. So they're the two things that I'm looking out for to see if any progress can be made on this. That's hope. But you're right, the announcements about Costa Gaza, or whatever you want to call it, is not helping there because again, the Houthis will be as uncertain about all that's about as the rest of us are. I think also there's going to be an interesting dynamic in the port sector because just as we saw that week long gap in arrivals when the diversion started and all the ports in Europe went quiet for a bit, then the first vessels through the Red Sea are going to catch up, the ones still coming around, the last ones coming round the Cape. And there is at least talk of a fair bit of pressure on European pulse if and when that point is arrived at. I would hope that with notice that that can be managed. But that could be another point of congestion and an issue should it come to pass. But we're probably moving away from that situation the more we go on.
[00:29:54] Speaker B: Yeah, it feels like it's getting pushed later and later into 2025, if it happens at all. And as you say, I mean, the carriers I've spoken to saying they probably take three months to resolve it all and we would see a lot of port congestion.
[00:30:06] Speaker C: But on the other hand, Mike, what we've got to make sure is that this isn't used as a justification for maintaining routes to shore up capacity or manage the capacity. So I think we're tolerant of that there are important safety and humanitarian issues at stake here, but we can't see this being dragged on endlessly. So I think the raw risks premiums are probably the big factor that I'll be looking for on that.
[00:30:33] Speaker B: Bjorn, that brings me beautifully onto my next question which was do the carriers actually want to stop diverting around Southern Africa?
[00:30:40] Speaker A: Well, if I may go back first, the premise of your question was is it a blow to ship us that this seems to be potentially kicked even further down the road. And I'm completely with James. It's a, it is a blow. If you remember Majorship and you really based your budget for 2025 on the red Sea reopening and everything going back to normal, then you should probably look for another job, honestly, maybe in fairy tale writing or creative writing or something. But as James said, this is already in bake in, right. That's not to say that it's been except though it's a design state of affairs simply as it works because it's costing shippers, I'm not going to be afraid to say, hundreds of billions of dollars just in inventory carrying costs that in one fell swoop being knocked off people's balance sheets when sewers reopens. So everybody wants this to happen. Do carriers want it to happen? Probably not really, right. I mean we've got a situation now where there's something like only was it lioneliticus, that's like 80 undeployed ships in the entire right, which is terrific for rates and terrific for employment, et cetera. And we haven't got as many new ships coming up this year as we did last year. But we haven't got new ships coming out this year. We still have many, just not as many new ships coming out this year as we did last year. Right. To get the number. But it's not small. So ultimately there will be even with sewers, a structural overcapacity. Even with a closed sewage, there will ultimately be structural overcasting. Especially if world trade is not disrupted by these tariff wars and it'll be a nightmare for carriers when Suez reopens, some of them will try to solve it. I'm completely with James and this is now conventional wisdom that when those ships that do get the 10x in time to turn right and make it through sewers, they will overtake, not even catch up with. They will actually overtake the ones that are currently somewhere south of Africa. And that will create all kinds of havoc not just in ports but in also in the sequencing of the plants that are importing whatever they need. The warehouses are importing your Christmas goods might arrive in advance of your Thanksgiving product. I don't even know if that's true, but it's a pretty, pretty good metaphor for what might happen. Right. I think the carriers are going to that three months chaos. Carriers are going to try and solve some of that structural overcapacity by doing the return voyage to Europe, sorry, Asia, south of Africa. Still, I don't think you'll see an assumption of just everything goes back and forth through sewers. I think you run it through sewers and go back south of Africa. That will potentially precipitate massive equipment shortages in Asia.
[00:33:35] Speaker B: Good point. But that back hall presumably will take place as slowly as possible, two or.
[00:33:39] Speaker A: Three weeks longer than, than the head hole. Right.
So there's, there's another headache on the horizon. These are real, real issues. Right. So no. The short answer, no. The carriers don't want this to happen, but they know it will. They're watching each other right now. They're very wary. I promise you, as Larson even said to Noar, I think our shipping work yesterday, I promise you there's a game plan in every carrier war room across the world for how they're going to do it. And now sort of, you know, to stay in your Magnificent Seven analogy, it's a high noon, you know, everybody's waiting to see. CMA has made a few overtures, right. They've got one and a half service actually doing it going through sewers. Although they say it's on a case by case basis. I think it's on a more or less every case basis. I think they don't do it on a case by case basis. But when one big carrier drops in with both feet, they're all going to have to follow whether they like it or not. And then their only option will be to at least do the backhaul south of Africa. I want to also, just as a last comment, when that chaos in Europe happens, that's not going to be a chaos that affects Asia, Europe. That's going to be a chaos that will whiplash its way through every service. It will have massive impacts on the transatlantic. It will have impacts on the Latin America services.
It will be a little bit, a little bit covety for a while.
[00:35:06] Speaker B: Those bigger ships will get cascaded down into those smaller trades.
[00:35:09] Speaker A: Yes, sir. And equipment may be in all kinds of places where it shouldn't be and ports may have their yard space completely clogged up. So as the hamper operations, that's why I'm using the COVID analogy. Won't last as long, inshallah, as we say here in Dubai, but, but it will be a thing.
[00:35:28] Speaker B: So this, this war gaming that the lines are doing, they're also doing this as the alliance structure changes. James, you mentioned there the lack of service quality shippers get from carriers. Can something like the better service reliability Maersk and Hapag Lloyd are promising via the Gemini cooperation be the game change that you've been calling for when we've spoken previously?
[00:35:50] Speaker C: Well, yes, and when that was announced, that was the. They were the two words that leapt out of the press statement, wasn't it? Customer service press release from a shipping line. Wow. GSF got really excited. So. And seriously, I mean, this is where the shipping lines need to go because Jon was absolutely right in saying it's so transactional at the moment. It's got to be scope for added value opportunities for all suppliers of logistics services, freight forwarders and intermediaries as well as the lines themselves to sort of, as I say, lean in and support their customers through this. So I mean, we've got to see it delivered, but it's certainly the right language, it's certainly the right direction and I would encourage shipping lines to go a stage further and you know, let's see a little bit more ownership of some of this disruption. As I said, we want solutions, not surcharges, which is just about what we get at the moment. And you know, there's plenty of scope to go at this if shipping lines are serious about finding other opportunities to grow their business in this disruptive world and become a supplier of choice because of the superior services that they're offering. Not just a good rate, as Bjorn was saying, and we could stand back and watch the bloodbath, but I think those that are sharp enough and quick enough will spot the opportunity, will jump in and try and be proactive rather than just take what they're given. So, yes, again, another unknown in the next six months, but it's all there for the taking and let's see what they do.
[00:37:22] Speaker B: James, will shippers pay more if, say Gemini cooperation does hit these 90 plus percent schedule reliability, will shippers pay a bit more for that certainty?
[00:37:30] Speaker C: Almost certainly they will put a value on that certainty. So yes, it's a conversation worth having. It's got to be a move away from this very transactional situation where we got at the moment where no one's really happy. So if you look at other conventional 3 PL logistics contracting and so on, of Course, part of the discussion is around the reliability and the levels of service quality. So as shipping lines move more towards that end to end service, then they're going to have to be taking on these levels of service expectations. And of course there will be a discussion around the price that's attached to that. So it's certainly worth having. And obviously it will depend on not just what the offer is, but also what the record is in actually delivering that, despite all the other headwinds that they're fighting against.
[00:38:20] Speaker B: Bjorn, would you be recommending to your customers that they should pay a bit more for these more reliable services? Yes, and I'll add a second question on that as well, on the align structure. Which carriers do you think have come up smelling of roses from this restructure? And. Well, who hasn't?
[00:38:36] Speaker A: Well, if they pull it off, it's going to be happening in Maersk. They're going to be donating the headlines. I think that will pull it off. Why do I think that? Well, you mentioned in the intro that I once was a vessel scheduling manager. I was with Maersk in Asia back in the early 90s. We had a near 100% schedule reliability on the big end also.
[00:38:55] Speaker B: That is possible.
[00:38:56] Speaker A: The reason we had that was because we used the hub and spoke model, as indeed everybody did back in the early 90s. Right. The fact is, if you're assistant engineer, network engineer, and you sit and design a system and you solve for punctuality, you will always end up with a hub and spoke model. It is the answer. Right? The question is, that was the 90s, all right, that's 30 years ago and the world is very different. Cargo flows are very different, the cargo origins are very different.
So will it still work? I believe it will, but only because they arrived at the second correct answer, other than it has to be oven spoke, which is. And those hubs and as many of the spokes as possible have to be controlled, owned and or managed by us and us alone. Now we have the ingredients of a success. Can they do it in three months? Look, they've had a year and a half to think about how they're going to do it in three months. They have the ships, they have the terminals. They didn't have the sewers problem when they first planned the network, but they have come up with a model with sewers and a model without sewers. It still looks like it makes sense. You're seeing it being implemented right now. There's some chaos in that implementation. I see.
Currently there's massive congestion In Agassir and Tangier, I hear anecdotes of my friends on the European coast, especially in Antwerp and Narwha, saying containers are just being dropped all over the place as vessels have to shift into new positions. Okay, these are short term problems that the carriers will cover the cost of. I think they will pull it off and I think when they do pull it off, Mike, they will be able to charge a significant premium. I'll tell you why we're back to that tide of inventory and I'm even in the happy position of speaking with authority here because especially when I was with Cummins, we on many occasions already then chose to pay rates that were 50% higher than its nearest competitor to a carrier who had a slightly shorter transient time and a near 100% digital accuracy. Small regional player. On the transatlantic. The savings from that little caper loan on what, what was maybe a thousand boxes, $10 million saved in mutual every year. Sorry, but paying double the rate for that was, it was the biggest no brainer decision I've ever taken. And when customers really sit down, what they're planning to do is shippers, not just the purchasing people who are in charge of buying freights, but when they sit down with their planners and understand the effect on inventory carrying costs of a near 100% or 90% reliability. I think Maersk and Abrac, I'm not going to say they can name their own price, but they're going to be making very good money and the rest will have no choice but to follow.
[00:41:51] Speaker B: I've got a question for you Bjorn, on the, on the contracting season. Well, it's a two pronged question. I like throwing them all at you. When we've spoken before when you were representing a shipper, I remember you saying you would split your spend between carriers and forwarders. In your new position, I'm guessing you'll be telling your customers to mainly look to easy speed to meet their needs.
[00:42:14] Speaker A: Not even the forwarders plural anymore, just a forwarder. I think that, I think, okay, we split it in commons, we split it between carriers and folders. In Metro we had carriers only but used folders. And in a management or booking agent and contract management capacity, forwarders will always be there somewhat one way or the other. As will we hopefully. It's all about risk management. It's not really about whether you.
Look, there are some people who are religious about only using carriers or religious but only using forwarders. But when you strip all the religion away, what you're down to is pure and simple Risk management, you got to diversify that risk. If you're big enough to do that across a range of carriers and only use foreigners as booking agents, then by all means do so. But a lot of customers are not big enough to do that. Because when you split your business among many providers, you gotta be careful, take care that every provider gets a meaningful slice of that business such that you are still top of mind with them. Right? You'll get a lot better service from someone where you give them 30,000 CEU than the one you give 500. So I don't know that. I think it's relative to your size and relative also to your own capabilities as an importer or a shipper, whether you use a combination or one or the other. But what you must use for a while is as many alliances as you can. I think that's an imperative split.
[00:43:43] Speaker B: You split, you split your spend between the alliances in terms of the long term contract market on those shipping routes and the spot market in terms of managing risk. Is this a good time to look at index link contracts as well? I know you're a fan, appreciate the the tee up.
[00:43:59] Speaker A: It's a terrific time. It's always been a terrific time to look at index contracts if you're the sort of company ready for it. If you accept that everything we've talked about for the last half hour or so has one common denominator, which is chaos and uncertainty, then surely somehow making sure that you can ride those waves, the ups and downs, makes all the sense in the world. We're not going to get into the anatomy of an index contract and truth be told, there are many and they have evolved and there are many ways to skin that can. But to consider at least parking some of your volume in an index so as to secure not just that you ride the market without losing or winning, but also that you carve out time for your purchasing people and your planners to focus inward on your own supply chain and not spend enormous amounts of time externally negotiating, renegotiating, Re. Re. Re. Renegotiating a contract that was renegotiated three months ago is. It just makes sense. Size matters. Again, if you're only shipping 2 or 3,000 cu, probably that's. Actually you could argue that you pick one carrier and put it on the concept. If you're a mid level shipper, you find a meaningful volume to carve out. But I am not a fan of putting all your entire global volume onto the index contract. But yes, I think you should look at it.
[00:45:28] Speaker B: James, just to broaden this out slightly, so I sent Chicago some numbers from them. Container shipping demand is due to grow a compound aggregate growth rate of 3.3% over 2025, 2028. The order book over that period is at record levels. As Bjorn was saying earlier, we've essentially got almost structural overcapacity, even with sewers not accessible at the moment and those diversifications in place, however way you skin it, it looks like at some point we're going to see a massive oversupply. Is this the boot on the other foot for shippers these next few years? Is that what you're expecting? And how are you expecting shippers to react? You're going to say, win, wins, aren't you? Not revenge.
[00:46:12] Speaker C: It's the pain and the highs and lows of managing a cyclical market, isn't it? Yes, it will switch. It's got to the Red Sea diversions came along just at the right time. I think you and I, Mike, had a conversation in the autumn of 23 about what the prospects were. It was not a good time to be a shipping line chief exec given all the downward pressures. And then Red Sea happens and suddenly the rates are going up. Something else could come along to change that dynamic. Who knows? Just on paper, there's going to be a lot of ships on the water looking for boxes to fill those slots. And if the Red Sea starts to be reused, then another half a million Teus suddenly become available. Those are 70 to 80 ships that we were talking about earlier, looking for something to do. Now, how you manage that, how you cope with that as a shipping line and therefore your deployment decisions, I think it's just a whole new space. I just. Whatever war game they might have for this, it's very difficult not to see rates coming down, spot rates coming down, and therefore back to points been made several times in the podcast. You're looking for other ways of adding value, you're looking for other ways of making your money.
And we can all just stand back and watch the economics play out. But as we've been talking about with Gemini, and I'm sure is in the suite of the other shipping lines as well, here's your chance, here's your chance to step in and add to that offer and see if you can either offset some of the losses it looks like you're going to make at this time and more importantly, secure those customers. Because the refrain still is we don't want spot business, we want contract business. So my, my response to that is, well, make it interesting. And what can you do to look after your customers over that contract period, other than just surcharge them, which has seemed to be the experience of too.
[00:48:11] Speaker A: Many to date, which is badly carried, saying we don't want spot business? I always have a hard time controlling my facial expression because by adding all these non negotiable surcharges, they've essentially turned their contract into smart contracts. You know, when people say, oh, we don't know about this index contract thing, it's not really for us. I'm like, dude, you've been living in index contracts since 2019. Anything you might call the contract has been nothing but an uncontrolled index contract since 2019. So tell me again how you don't think you can handle it. That's a ship.
[00:48:47] Speaker B: That's a very good point. Just to wrap up guys. James, apart from better service and lower rates, what else do shippers wanting 2025 from their supply chain partners or from policy regulators?
[00:49:00] Speaker C: Oh, goodness. Well, we haven't talked much about the policy backdrop as well in the sense of sort of regulatory aspect. I think the one thing that is going to come along and add another new twist to this story is the decarbonization, the greenhouse gas emission reductions. And we're just a few weeks away now from the IMO making a decision probably to put in a mandatory fuel levy. We still don't know how big that will be, how big an impact that will have on the end costs. But the one thing again we're fairly confident about is those costs will be passed on to shippers. They're not due to come in until 2027. But all the regulatory and the legal work's got to be wrapped up by the end of April. And, you know, we'll know what we're dealing with before the end of the year. But I mean, what. Leave aside the environmental aspects of that, the hit on shipping rates and therefore on trading conditions is another big unknown that's coming up in the medium term. So, well, anything could happen. Still, given the rate at which President Trump has pulled the US out of various global conventions in his early days in power, who knows? But that for me is the next big one to watch in terms of putting another big cost factor into the equation over the next few years. But we still don't know. We still don't know what the number is. You know, there's a bit of text on the IMO table and it's got three percentages in it. It's got three numbers in it and the huge spread of Values. So it's very difficult to assess the real impact of this until we get to a conclusion in April.
[00:50:40] Speaker B: Thanks for that, James. Bjorn, just to finish, take your pick here. Do you want to give the view from a forwarder's perspective about what forwarders want this year or would you rather have a bet with me on how low spot rates would go?
[00:50:53] Speaker A: I've long since given up betting on where freight rates will go as I sometimes when people call me and ask me where will freight rates be in three months, I normally answer something like, if I knew that I'd be taking this call from my yacht in the Bahamas and it is actually not in the Bahamas nor on my yacht, I'm not going to take that bet. I think what forward is what is the same as shippers. What? Because in a sense we are shippers, customers of the carriers. Right. It's some sort of stability, some sort of. Not necessarily. I don't think it's healthy for anyone that the rates would now drop 75% as they might if everything, you know, if every. All the plan is aligned. Right. I'll take that back with that number.
I said it. I should. Anyway you could. Right. Stability.
And that means also a reversion from this never ending stream of surcharges. Forward has very little recourse. Right. If you're large enough shipper, and I've been one and I know many, you have the ability to actually just decline a lot of these surcharges. You reach a certain annual volume, you can put it into commercial terms. I'm not paying gri, I'm not paying pss, I'm not paying anything. I'm paying the bunker and I'm paying the ordinance from my ending charge. The end. Right. Most smaller shippers, and a lot of those are served by forwarders, don't have that volume. Nor do forwarders. We have them on in some way, shape or form. Maybe we can mitigate them, maybe we negotiate them. But stability and reversion from all this surcharge madness, to me that would be a big step forward.
[00:52:40] Speaker B: Bjorn Van Gensen, Executive Vice President for Ocean at Easy Speed International Logistics and James Hookham, Director of the Global Shippers Forum, thanks for joining me today on the Lodestar podcast. It was a real pleasure.
[00:52:52] Speaker A: Pleasure as always, Mike.
[00:52:53] Speaker C: Thank you, Mike. Thanks a lot.
[00:52:58] 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.
