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 MK and associates and your host, Mike King.
[00:00:16] Speaker B: Hurricane Helene battered the southeast coast of the US last week, but this week staying a test await us supply chains. We're recording on 30 September, and in a few hours, midnight on the 1 October, all hell could break loose at us container ports if ILA dock workers strike as promised, to close down over half of us box terminal capacity across 36 ports on the Atlantic and Gulf coasts. Today we're looking at what's at stake for shippers, for the us economy, and for global trade. And we're game playing possible outcomes, the good, the bad and the ugly. I'm doing all this with guests that have every conceivable angle on this covered in the shape of Zenith's Petersandeh, Stephanie Loomis, head of ocean freight for North America at Renas, the Soy Transportation Coalition's Mike Steenhook and John Gold, VP of supply chain and customs policy at the National Retail Federation.
[00:01:05] Speaker C: There's a lot of concern about the impact on cost for transportation and cost for warehousing, just supply chain costs overall, including lost sales. And again, this is broader than just retailers. You know, manufacturers who can't get inputs to production that have to shut down factory lines, ag exporters who can't get the product to market. You can potentially lose sales and lose their market. So there are far ranging economic impacts from a strike like this.
[00:01:32] Speaker B: Hello everybody, I'm Mike King. Welcome to the Loadstyle podcast.
Blimey, we haven't been short of things to talk about this year, have we? Housework first, if you don't know already, you can find all episodes of this podcast on the usual platforms and on theloadstar.com, where you can follow breaking supply chain stories from around the world every day and for free as trailed. It's all kicking off in the US, where trade seems almost certain to grind to a halt on Tuesday the 1 October. And I say almost certain with some trepidation, because when the worlds of supply chain and politics collide, pretty much anything can happen. But as we talk a matter of hours before the international Longshoremen's unions master contract with the us maritime alliance, the USMX expires. This is the last chance saloon for more than half of us containerized trade. It seems that little or no negotiations happened over the weekend, and on Sunday the ILA doubled down on its promise to strike tomorrow. That's Tuesday the 1 October at midnight, which is around 15 hours from now. As we record this at 02:00 p.m. london time. 09:00 a.m. eastern time. And what does a strike look like? Well, military and cruise traffic will continue, but unless there's a last minute reprieve, container operations across 36 ports stretching from Maine to Texas seem set to be shut for business from tomorrow. The decision to strike is largely in the hands of the rather tough talking head of the dock workers union, Harold Daggett, a native of new York who's been accused of having mob ties. He's not a fan of the Biden administration. He seems pretty set on bringing the economy to his knees if he doesn't get close to a reported 80% pay rise for his members. He also wants to row back on pretty much any type of automation. According to most sources, the Biden administration seems increasingly set on not interfering. But even if it did, as we'll hear today, the mere threat of action has already caused serious disruption to supply chains. With those clouds hovering overhead, let me introduce my first guest today, Peter Satan, chief analyst at Zenita. Welcome back.
[00:03:40] Speaker D: Thanks a lot, Mike. Happy to be here as always.
[00:03:43] Speaker B: And returning once more to add her ever excellent market knowledge and insight is Stephanie Loomis, head of ocean freight for North America at Renas. How goes it, Steph? Congratulations, you're a grandmother.
[00:03:56] Speaker E: Thanks, Mike. Happy to be here and happy to talk about what we're about to face.
[00:04:03] Speaker B: Okay, welcome both, I think, to you first, steph. This strike, which would be the first by the ILA since 1977, has been brewing for some time. We chatted about this on the low star throughout the year. We were expecting a resolution, but it's now only a few hours to midnight when the ILa's current master contract with USMX expires, and it seems we're pretty much out of time before we look at the consequences. I'm assuming things have been really chaotic these past few weeks as this port lockdown has loomed. What's it been like tracking and collecting cargo and have ports of railroads and drainage operators on the ILA, dock workers themselves and the carriers as well. Are they all being on the same page? Making sure as much cargo gets out of the ports as possible today? Was it a case of no box left behind or was everyone for themselves? Survival of the fittest?
[00:04:55] Speaker E: I think it was a little bit of both. I think we know over the years that this is not an industry that does well when we all have to be on the same page. So, I mean, last week we saw, obviously, many of the terminals and port operations extend their hours. Communications have been flying like mad from the carriers and the forwarders and the, and the ports to collect your cargo as early as possible. We've already seen some carriers make some diversions to different ports. You know, they're certainly trying to do everything they can to offload as many containers as they can before the clock ticks down to midnight. But, yeah, lines have been long, truckers have been stressed. It's certainly been a challenge. And I would say as much as we've seen this coming, it really came to a head just last week where, like I said, the extended hours and the carriers making changes.
[00:05:49] Speaker B: Yeah, that wall's just been approaching by the hour, hasn't it? On top of this, we're in hurricane season with big storms tragically hitting the southeast last week, and we've now got a 72 hours strike at the port of Montreal in Canada, affecting two terminals, almost 50% of capacity. That started today. And again, we're talking 30 September. I don't want to put words in your mouth, steph, but if this was a type of show, what sort of show would it be?
[00:06:14] Speaker E: Well, if I can use a term that some people would bleep, it's certainly looking like a shit show or a perfect storm or whatever stereotypical comment you want to use.
Yeah, all the bad issues that could possibly come to a head seem to be coming to a head.
[00:06:34] Speaker B: And that strike in Montreal, that just reduces options, presumably, yes.
[00:06:38] Speaker E: Contingency plans to Canada are now sort of off the table in some regard.
[00:06:44] Speaker B: Peter, what has been happening to rates and what have carriers been doing in terms of preparing for all of this over the past month?
[00:06:50] Speaker D: If you believe that they have done whatever they can in order to make things smoother and perfectly from an operational perspective and in the eyes of the shippers, I think you're barking up the wrong tree. If I look at the number of ships heading towards the ports that will be on strike from the 1 October, it's like, well, everybody is just waiting outside at some point in time or planning to wait outside. Right. And of course, it also comes for a reason. If you were facing a situation which would be super duper easy to get around, you would probably do so. But if we are looking at the North Atlantic, for instance, there are next to no real alternatives. You cannot fly stuff in. Right. You just talked about Montreal also as one of the perhaps few options, but they are on strike too. So can you go from north Europe or met into the US west coast well, it's not really a very well tread path, but if the strike goes on for a long time, that may just be it. Right? But as always, shippers are asked to pay up, and I think we're just seeing on our platform at least the next level on top of the disruption also impacting the North Atlantic from the Red Sea. So right now we have rates from Met in north Europe higher than where they were in early. Well, by mid first quarter, when they also got their fair share of uptick following the houthi rebels starting shooting. So we are expecting rates to continue its rising pace as we also enter October.
[00:08:27] Speaker B: We did see some rates dropping off in September, though, into the US east coast. What was that about on the spot front at least?
[00:08:33] Speaker D: Yeah, I think if you look at asian exports and where alternatives are probably easier to find, at least relatively easier. If you go directly into US west coast, of course, there's no problem. But if you ship into the US east coast from Asia, well, if you have the opportunity and the logistical muscles, you could probably easier go via US west coast ports that definitely also see some increased business right now. So I think you need to split the market. Where do the goods come from? Right. Do they come from Europe or do they come from Asia? Because in Asia, it's a different sliding ballgame on the spot market at least.
[00:09:10] Speaker B: Okay, let's look at various scenarios in terms of how they might play out in just a moment. But first, let's hear how this is impacting people who rely on that frontal container shipping business into the us, the retailers. I spoke to John Gold, vice president of supply chain and customs policy at the National Retail Federation, and I asked him what's at stake for retailers.
[00:09:30] Speaker C: So for the retail industry, we are in the height of the peak shipping season, which is the most important time of the year, as retailers are bringing in all their holiday merchandise for that all important fourth quarter holiday sale. So many retailers have taken steps to try and mitigate the impact of a potential strike by bringing product in earlier in the season or shifting product to the west coast. Obviously, that comes with their own challenges, with additional congestion, additional costs for additional warehousing. But even having taken those steps, there are significant concerns that a strike of any length could have an impact on getting product to the consumer.
[00:10:08] Speaker B: We're not talking about people running short of things at Christmas, but then again, I guess it depends where you're bringing in product from. So if you're bringing things into the US east coast, say, from Asia, you're talking about multiple weeks. So that cargo would be in already more or less, if we're going to hit the holiday season. But Europe is a five, seven day, ten round. What happens to those cargoes? That's where you get your retail product from.
[00:10:29] Speaker C: Again, the challenge is whether or not the product is going to make it here on time and again. Many retailers have taken steps in advance, but those that weren't able to could see an impact and again, was product late getting to the stores. There are certain products, like food products that come in through our east coast and Gulf coast ports, canned goods, fresh fruits and vegetables that only come in through those east coast and Gulf coast ports. So there's certain challenges there.
[00:10:50] Speaker B: And are you worried about the wider business costs for retailers? I mean, how serious could this get if these supply chain costs go up? And I'll say that we're talking to this stage where we don't know. There's a whole range of different scenarios that could play out of from the 1 October. But say there's even just a short strike that presumably that has quite long lasting business costs.
[00:11:11] Speaker C: Absolutely. Anytime you have a shutdown, there are cost implications. Obviously, a port strike is a very different situation where cartridge does not move. You're going to see, unfortunately, increased transportation costs, increased warehousing costs. We've already seen several ocean carriers who talked about port strike, port congestion surcharges they're going to be putting in place in mid October. So there's a lot of concern about the impact on cost for transportation and cost for warehousing and just supply chain costs overall, including lost sales. And again, this is broader than just retailers. Manufacturers who can't get inputs to production, that have to shut down factory lines, ag exporters who can't get the product to market and could potentially lose sales and lose their market. So they're far ranging economic impacts from a strike like this.
[00:11:59] Speaker B: Are you concerned about higher shipping costs? Even if there's no strike? I guess there's going to be some sort of knock on effect on spot rates, possibly on contract rates, even into next year. We've also got these other surcharges from carriers that have been implemented from the start of October, various names, and then you've got detention and demoralidge if your cargo gets stuck. I mean, all this building management time and increases the cost of freight procurement, increases freight procurement risk as well, I suppose.
[00:12:26] Speaker C: Absolutely. Those cost impacts are something that retailers are paying very close attention to. We were happy to see the Federal Maritime Commission put out their industry advisory on some of those costs, especially detention demurrage, saying that all the rules are going to apply and if the incentive principle isnt there and you cant pick up your cargo, then those charges should not apply. So I think the Federal Maritime Commission is going to be very busy as some of these charges come down the pike, and we certainly look to working with them on these issues. But cost is certainly going to be a real consideration for folks and a concern, especially the longer a strike goes.
[00:12:59] Speaker B: John, just finally, would you be placing any bets on a last minute resolution of the differences between the ILA and the USMX? Maybe some Biden administration intervention?
[00:13:09] Speaker C: I mean, at this point we certainly hope the administration is talking to the parties. We know they've had conversations. At this point they need to pull the parties into the table and continue those conversations.
I think best bet for everybody is for the parties just to get back to the table, get a deal done or continue the conversations, agree not to strike and just stay at the table and negotiate and not cause severe economic harm because of this.
[00:13:33] Speaker B: Let's hope that's what happens. John Gold, VP of supply chain and customers policy at the National Retail Federation, thanks for joining me today on the Lodestar podcast.
[00:13:42] Speaker C: Great, thank you.
[00:13:45] Speaker B: As you heard there from John Gold, the ILA and USMX are played poker for high stakes here. You've said even a short strike could prove toxic to global supply chains on a general level. And because of course, all this depends on how long the strike lasts. But generally, please explain the domino effect of this type of container shipping supply chain shock in terms of its impact on us distribution systems, but also on global supply chains online and networks. What sort of level of disruption are we talking about? Is this Red Sea crisis level in terms of equipment and services being displaced, or is there a better comparison you can think of?
[00:14:25] Speaker D: Even better comparison is probably to the line of ships waiting outside the Los Angeles ports back in 2022, because we could easily see the same happening on the US eastern Gulf coast right now with ships just piling up, waiting for this to be solved by government intervention as soon as possible. But I mean, you can also bring in ever given, because that was basically the same case. Nobody really anticipating this to last for a long time. So they just keep coming. The ships that are heading for New York, heading for Houston, heading for Miami, whatever. So you should expect that line to just pile up, right? So the dominoes will eventually fall also as the ships wait in line and then following that, well, eventually they will get a chance to discharge their cargo, but they will be really, really late on their return voyage. So you should expect that to be the dominoes falling in North Europe met or Asia with a certain delay on the transit times back. So you will basically have one, the first set of dominoes fall in, say end October, early December when they miss their scheduled departures out of Europe. Right. And met and approximately three weeks later when they missed their scheduled departure out of Asia. Right. Depending on where you ship out of Asia, of course. So that's the knock on effect that you should expect to see at first hit us coasts and then Europe and far east. And just the prep work also just shining a little bit light on the troubles that we have seen already in the ports is that clearing out the cargo, of course, time sensitive goods, but also perishable goods. I mean, you wouldn't have an on matended shoe reefer container in one of the ports right now just having say, a cargo load of rotten bananas or not frozen chops of meat. Right. Sitting in the port right now. So just the immense amount of work preparing for what comes about has been widely disruptive, I would say.
[00:16:27] Speaker B: Yeah. Now, the US east coast does handle a lot of incoming bananas as well. It's the main seaboard for imports from South America, I think mostly. Steph Peter linked this to the west coast and those Covid delays. It strikes me that when that happened, we had all these ships queued up, we had all those problems with drays, we had problems at the railhead, but the west coast tap remained open. But the east coast tap could be entirely closed off and shut, correct?
[00:16:50] Speaker E: Yeah. I mean, I think theres at least some glimmer of good news in the fact that so many importers front loaded their orders and brought things in early. But that knock on effect is also already being discussed as far as spring goods moving early, chinese new year is early. So although a lot of the big retailers I think are pretty solid on what they needed for the holidays, theres, depending on how long this goes on, the knockout effects could butt right up against chinese new year, which obviously will be another peak cargo moving season.
Yeah, this is quite devastating.
[00:17:28] Speaker B: Yeah. Of course we've got an early chinese new year. It falls in January. Let's throw out some different scenarios. I'm going to call this section the good, the bad and the ugly because obviously I quite like Clint Eastwood. Steph the good. What happens if by some miracle there's a last minute reprieve from government or Mister Daggett and a strike doesn't happen? This is seriously unlikely, but presumably this still comes with its own hangover and lots of clearing up to do.
[00:17:57] Speaker E: Oh, correct. Sea intelligence has done their own estimates on a port shutdown taking four to six days of clearing for every day that the ports are shut down. We've already seen, like I said earlier, some diversions even last week of the carriers dropping cargo in different ports than originally booked. So it'll be easier to clean up. It'll take less time, but there's still pain. Carriers have announced some pretty sizable work diversion surcharges that could still come into effect. They're not going to just drop those if a port is on the shorter side, so it certainly won't be as bad, but it's still going to be messy.
[00:18:42] Speaker B: Yeah, we've seen a lot of those surcharges introduced for October, Peter, in this very unlikely good scenario, if for some reason there's a pullback from this particular brink, have some of these disruptions already be priced in in terms of shippers having cargo in the wrong place, lines having reorganized networks? I mean, does this just build in costs through this Q four and into the start of next year, even if there's a pullback from this strike at the last minute?
[00:19:08] Speaker D: Yeah. I mean, the strike may start on midnight going into the 1 October, but all the prep work have already been immensely troublesome. Right. And even though we haven't seen a large scale rejockling of liner networks calling the ports on east coast and Gulf coast, this is probably where you will still see some of those surcharges that various carriers have already announced now with the due 30 days of announcement time. So they are adhering to FMC rules and regulations, and they wouldn't like to play around with the FMC during times like this. And I think FMC is already going out also, saying that, hey, you better follow this rulebook this time around. No foul play, because we have the manpower to fight you all for if that's the case. But if you look at the finite details of many of the surcharges, I mean, it's down to the measurement of the individual carriers. How much of disruption are we still facing on various trade lanes from this strike? Right. So obviously it will be a part of the negotiations throughout October with shippers that they should pay whatever work disruption surcharge or you name it. It's got different name depending on which carrier is enforcing it. Right. So it will be a battleground for negotiations going into the fourth quarter month from any kind of aspects, regardless of how it will play out, whether it'll be five days, whether it'll be 15 days. I think it will be closer to five than 15 days. But let's see, of course, as Steph also alluded to, the longer a strike goes on to, of course, the most significant impact it will be the longer lines of ship. And potentially also we will get to a point where we really see a significant rerouting of those ships heading towards the US west coast ports at some point in time if they really cannot solve this problem. Right.
[00:20:57] Speaker B: Okay, that brings me on nicely, Peter, the bad scenario. I'm defining this for the purposes of our discussion as a one to three day strike followed by government intervention, probably using the Taft Hartley act as Democrats realize that more people are losing from this than winning ahead of presidential elections in November. The elections are on the fifth. This is the scenario I would bet on as most likely, even though President Biden has said he won't resort to the Taft Hartley act. Peter, how does this play out in terms of disruption and pricing?
[00:21:30] Speaker D: It always plays out with shippers paying more for an appallingly poor service. That's just how the game is whenever there is a disruption. So I think that's my short plan.
[00:21:41] Speaker B: For you today, Steph, how the forwarders manage this scenario. Presumably you guys are planning for it already, aren't you?
[00:21:47] Speaker E: Well, lots of communicating, lots of alerting customers to what's going on. But, yeah, many of us have lined up trans shipping options, stopgaps for, obviously the diversions that might happen, so being able to collect the containers at a different port. But, yeah, I mean, I think trans shipping is going to explode again, depending on how long this potentially lasts.
[00:22:10] Speaker B: What sort of transshipping solutions would that be?
[00:22:12] Speaker E: Well, we've already had several customers wanting to reroute new orders to the west coast and either railing them all the way across the country or transloading them into 53 foot trailers and bringing them that way. The rail network is somewhat limited. You can't get everywhere along the east coast by rail. So trucking costs are certainly going to escalate. And again, the impact to any importer and shippers, just that the costs are going to go up dramatically the longer this goes on.
[00:22:45] Speaker B: Ok, again, brings me nicely into the final scenario, the ugly scenario. Steph, are you gaming a strike that lasts for more than maybe, say, two weeks? This would be huge, not just for trade, but also for the us economy. Oh, God.
[00:23:00] Speaker E: I mean, two weeks is pretty hard to fathom. I was in the industry in 2002 when the west coast strike went on for ten days. I think the Democrats are in a very precarious position right now with the election right around the corner. But I think worst case scenario, we're probably looking at a week before the administration steps in, in which cases the queuing of vessels off the east coast are going to start to look. They'll be all over the news and everyone will talk about it and the terminals are going to get overloaded. And I think the west coast has seen record volumes in the last couple months, although they have openly stated they're ready to take more, they're ready to handle it. We're already seeing dwell time swell to 810. I've even heard containers waiting as long as 20 days to make their rail connection. So the ramifications could be enormous.
Again, we've been really advising our customers for months to bring their cargo in early. I think the big retailers are in good position, but the smaller fish are going to start to see some real problems.
[00:24:07] Speaker B: Peter, in this, say, two week strike scenario, the ugly who pays for all this and how long does a recovery take in terms of service realignment and that supply demand balance for container ships?
[00:24:20] Speaker D: Well, if we get something like two days, we could probably start talking about demon days.
You got me thinking around gorillas when you mentioned Clint Eastwood. Right. So that would really, that would really be demon days left, right and center, I must say. And again, I think let's focus on the american consumers for a moment. Right. Because if we have a two week strike here, I could see some empty shelves around, not only in the refrigerated parts of the stores, but you probably recall also we only had six days going for the ever given. And then, of course, you needed to get the cargo flowing at that point in time. If we're looking at a two week strike here, you should probably also get busy fetching some toilet paper or maybe some dog food. Right. Those are recognizable items that was in extreme high demand following that brief disruption. So expect demon days to be around in your local grocery store if you live anywhere near those coastlines.
[00:25:16] Speaker B: And this just all transfers into short, long term rates, I guess, Peter, whether it's on the trans pack or the transatlantic elsewhere or even.
[00:25:23] Speaker D: Absolutely. I mean, we've seen a narrowing of the short term market and the long term market on a general scope. Well, since the mid of this year. Right. So for a good two and a half months now, the global spot markets have narrowed and gotten closer to the long term rates. We've seen the spot average out of China, as we measure it, down 29% since the peak by mid July. Right. So we will definitely see a rising trend, and perhaps also a rising trend from those far eastern exports into North America if this goes on for a long time, because that's still the, the odd one out in the equation. We talk about the short term market rising pretty sharply from Europe and met while it has still gradually been sliding from far east into it, to us east coast and Gulf coast. That will definitely get reversed. Right? And we will yet again see an opening where the spot market will grow faster than the rising long term market at the time.
[00:26:20] Speaker B: Peter, just sticking on that liner strategy. There have been some analyses suggesting that if all of these ships just keep arriving at the US east and Gulf coast, this will suck in something like 16% of the global fleet, which is double what Suez Canal diversions have sucked in. From my point of view, I was like, 16% is quite a lot. This presumes that carriers just keep sending ships to these closed ports and leaving them at anchor. Would carriers do this? Or maybe this is good for carriers because it takes out all our capacity. There's another analysis from HSBC that quoted almost 2% of global capacity getting tied up, but I don't know what the timeline on that was. What's the carrier take on this? I mean, 2% and 16% are very different.
[00:27:05] Speaker D: I'm not going to comment on any of those wide ranging numbers, but I can only conclude that there's probably a reason for carriers not to readjusting a huge amount to their nano networks because of this. Not only do they anticipate a fairly short lived strike to take place. Right. But of course also because this really benefits them. I mean, if you can have ships lying around taking out of active service, if only temporary. Right. It would basically relive the rest of the market, which has been sliding a bit. I mean, it's still super duper high in a year. That would, without the Red Sea crisis, be loss making for the carriers. So they see another troop they're ready to pick from the tree right now. And it's not like I say that they are the only, say, bad guys in the business. Not at all. I mean, they're definitely also struggling to make all ends meet here, but they are definitely also the ones really being in a lucrative market. Once you see the short term market as well as the long term market rising due to a disruption like this.
[00:28:06] Speaker B: I'll just make two points on that. The carriers are also part of the USMX alliance, so they're party to these negotiations. There's also a political element here. If there isn't a deal. And we're going into the presidential elections. I can very easily see carriers, foreign owned carriers, becoming a target for both parties if they're seen to be profiteering. Now this happened during COVID and the FMC's powers were ramped up. That's not great for carriers, even though they might profit. I mean, you can see both ways.
[00:28:39] Speaker D: I mean, Steph mentioned the s show a while back. Right. And I must say those informed will know how it really plays out. Right. But of course, if you are losing an election, you might just bring in, well, casualties and whatever you can throw under the bus. International carriers, they will be out of mind and out of sight very soon. But if that can bring you into the White House, you will probably start shouting at them and they can easily be the ones to blame because we got a common enemy here. Right. So you're absolutely right. In political tactics, there are a no, say no nice guys around. So expect something like that if it becomes those demon days that we discussed.
[00:29:19] Speaker B: Just before Steph, do you want to come in on that?
[00:29:22] Speaker E: Well, you walk a fine line in this business because obviously, especially as a forwarder, the carriers are an integral part of our network, for our customers. But you have to sort of feel for the carriers right now in these negotiations because the ILA is being so strong armed and refusing to even sit down at the table unless these very, very high salary increases are agreed to. So the upside for the carriers and the port operators are just not there for them. We've all seen since COVID that destruction is a money making situation for the carriers. So my hope is that the administration realizes that waiting for these two parties to come together is very unlikely. And as politically difficult as a decision to invoke Taft Hartley might be, that may be the only way to get these two to sit down and talk. So we'll see what happens.
[00:30:20] Speaker B: We will see. I'd love to be a fly on the wall in a boardroom meeting at our carrier at the moment because there must be a lot of hand wringing going on about, oh, we could make a lot of money here, but at the same time, at what long term cost?
[00:30:34] Speaker E: Right.
[00:30:34] Speaker B: Okay. We tend to, when we're chatting about rates or anything, we tend to focus on the frontal side of the container trades, obviously, those big us import volumes that drive the market. But of course, exporters are equally caught up in all this, and many on the agricultural side are particularly concerned at the timing of this, fearful that post election we might see a ramp up of tariffs on trade with China, which is a key export market. Obviously, most grain exports go by bull carrier, and this strike won't affect that trade. But exports by container are also a major business. I caught up with Mike Steenhoek, executive director of the Soy Transportation Coalition, and I started by asking him exactly how many tonnes or how many containers are currently exported out of Atlantic and Gulf terminals. And if volumes have been falling as the prospect of a strike has drawn closer.
[00:31:23] Speaker D: Yeah.
[00:31:24] Speaker A: In total, less than 10% of total us soybean exports are transported via container. The vast majority are still transported in a bulk format. But containerized shipping is an important part of our industry and an increasing part of our industry, because customers are more and more demanding for soybeans to have greater traceability, to have greater quality control, to have greater tracking with the point of origin, sometimes in smaller shipments and smaller increments, versus bulk. And containerized shipping is able to accommodate that. And there are a number of ports along the east coast in particular that do accommodate a sizable amount of those soybean or soybean meal exports via container. Norfolk, Virginia is the preeminent one, but still a lot goes out of New York, New Jersey, Charleston, South Carolina and Baltimore, and then there's a handful of others. So while it's still less than 10% of our total us soybean exports, and it's an important part of our export portfolio, but I think what's also important to note is that us meat exports, whether it's beef, whether it's pork, whether it's poultry, are overwhelmingly transported via refrigerated containers. And the us livestock industry is our most important customer. If you're a soybean farmer, if you're a corn farmer, the main avenue for those products is the us livestock industry. And so all of a sudden, you're going to have a detrimental impact on meat exports from the United states. And you can't, it's a package deal. You cannot have a detrimental impact on meat exports without also a detrimental impact on soybean farmers. So it is something that is a real concern for us moving forward. And so obviously, it certainly merits our attention.
[00:33:19] Speaker B: So there's a domestic blow because of the impact on the meat export industry and there's also that niche containerized export trade out of those ports. Have you got any idea of what sort of container volumes we're talking about on an annualized basis, in total, for soybean exports?
[00:33:34] Speaker D: Yeah.
[00:33:34] Speaker A: So for Norfolk, among the east coast ports, that is the largest launching point for soybean exports. And we're about 1.2 million metric tons that go out of Norfolk on a yearly basis. If you look at places like New York, New Jersey, Charleston, Baltimore, you're in more of the 400,000, 300,000 metric tons of figure. And obviously, that pales in comparison to the places where we export bulk, like the lower Mississippi river near New Orleans. But again, containerized shipping is one of those opportunities for us to meet up with customer demands in the way that they want soybeans delivered in the kind of increments they want delivered. And so it's increasingly as a part of our export portfolio. And one of the things that you learn about the export business is that it all depends on reputation, right? And having that good reputation. And the thing about good reputations is they take years to accumulate, moments to evaporate. So you do all of this hard work to try to establish these kind of customer relationships, and a lot of these are wanting to access soybeans via containers. And now, all of a sudden, if were no longer regarded as a reliable supplier for soybeans on the international marketplace for a variety of reasons, in this case disruption on the east coast, then all of a sudden, theyre going to look elsewhere, theyre going to access their needs elsewhere.
All of a sudden, youre going to have to recover those customers. So its something that we take very seriously, because weve worked very hard for many, many years to establish these customers.
[00:35:15] Speaker B: Trey and, of course, us soy exporters are already competing against a very tough competitor in the shape of Brazil in a lot of these markets, right?
[00:35:23] Speaker A: Yeah, they are.
The moral of the story for years when it comes to the international marketing of soybeans is that we, as the United States, dont have the ability to compete with Brazil in terms of cost of production. They have lower labor costs, they have lower land costs. And so theyre able to produce a ton of soybeans at a lower price point than we can in the United States. But historically, were able to overcome that disparity by having a lower cost of transportation. And so as a result, we still are either the most competitive on the international marketplace or we remain competitive, but it's because of transportation. So we take that very seriously because we know that that's the real ingredient, key ingredient to our success. And so all of a sudden, if you're going to start seeing a supply chain that is less economical, less reliable, that's going to translate into less competitive position on the international marketplace for us soybeans.
[00:36:28] Speaker B: How would you like to see this resolve?
[00:36:30] Speaker A: Mike well, we would like to see the issue resolved where both parties are able to benefit. We're not taking sides between labor and management. We understand that the cost, that inflation is making things more expensive. We're not going to begrudge anyone from seeking a cost of living adjustment. And we also understand that these doc workers did work throughout the pandemic, and those were less than ideal circumstances. So we certainly tip our hats to the longshoremen who have been working over these last number of years. So we're not taking a side between labor and management, but we are on the side of the american farmer. And whats clearly in the best interest of the american farmer is having our port system and the supply chain that that port system is an integral part of to be reliable and predictable. And when all of a sudden you have less predictability, less reliability. I make the point that its like kryptonite when it comes to supply chains, and so we cannot have that. And so obviously, we would like to see a resolution between the two parties that does not involve intervention from the federal government. But if the two parties fail to come to an agreement and they've had more than adequate time to come to an agreement, then we think that it is very proper for the federal government to intervene on behalf of the american people and the american farmer. What's in the best interest of both is having an east coast port, a Gulf coast port, and Great Lakes ports that are operating as they're intended.
[00:38:09] Speaker B: Mike Steenhook, executive director of the Soy Transportation Coalition, thanks for speaking to the Lodestar podcast today.
[00:38:15] Speaker A: Thanks for having me.
[00:38:18] Speaker B: Peter. We hear there from Mike. Are we seeing much movement on those backhaul trades out the US as a result of this, in terms of pricing, in terms of demand, in terms of rerouting?
[00:38:27] Speaker D: The short reply to that is no, and that is because it's a backhaul. We definitely have a clear focus also in the exports out of us, but it remains a backhaul, and it remains an even more biased trade than nowadays than was just the case during COVID and prior. Covid. Right. So it remains a market where shippers are awash with capacity, and there's no real fighting to get it on board. But of course, there's a fight if you cannot bring it into the ports and terminals to ship it in the end. Right. But on our platform, we can see mostly rates being flat, moving sideways, not much volatility to look out for, at least on some of the main trades that we have followed over the past couple of months here. But then again, if you go from say dollar 500 to dollar 700? Peru, that's still a sizable chunk. Of course, we're not talking about from 6000 to 8000, but obviously it still remains an important cost element and a risk to manage all the time. And that's of course why you constantly need to have your finger on the pulse and know where those markets are heading, the short as well as the long ones.
[00:39:34] Speaker B: Right, thanks for that, Peter. If I may pivot, steph. Air cargo, there isn't a lot of space, is there? We're coming into the holiday season. If you're looking for options. If shipping's not working for you and you're an importer, what do you do?
[00:39:48] Speaker E: Oh, you pay a lot.
Yeah. The airspace has been constrained for some time thanks to the e commerce boom continuing. So I'm sure Peter knows the actual air rates better than I do, but they are going up and will probably continue to do so through the end of the year.
[00:40:07] Speaker B: Peter, obviously zenith does air cargo rates as well and we've had your colleague Neil on here previously talking about how we had unseasonably high rates coming through the summer. This is a lot of that was to do with e commerce demand. Some of it was due to the Suez Canal. But this ILA strike, that's just going to push things further as we hit the traditional peak season for air cargo rates is October, November. How high can things go?
[00:40:32] Speaker D: Well, if carriers say jump, you say how high, right? But I think the most important factor to point to here is that the air cargo market is more complex probably than ever before due to not only disruptions operationally, but very much so, also various sanctions that goes on and looming tariff changes on the minimus rules, etcetera. But if we focus on the air cargo transatlantic market as a substitute for those shippers that used to go by ocean, it's no real substitute, right. The amounts of volume, say the sheer weight of those goods also, right, you can probably in ideally fit ten boxes of weight into one freighter, right? And there you go, 400 tons. So there is no alternative. But if you look at the carriers now, soon implementing the window schedule, right, so we know that forwarders and shippers are in discussion now with the air carriers on how capacity may look like. Once we get into the window schedule, that is probably what could bring around a squeeze to rates. It may not be fully driven by a massive, say, hike in demand, but just the fact that you cut supply, that can give you higher rates.
[00:41:46] Speaker B: Pete san, chief analyst at Zenita, and Steph Loomis, head of ocean freight for North America at Renas, thanks for joining me today on the Lodestar podcast.
[00:41:55] Speaker D: Massive pleasure.
[00:41:56] Speaker E: Thank you, Mike.
[00:42:00] Speaker B: Big thanks to my editing team, Karen Ballen, Tom Matthews, and most of all, gratitude to you all for listening. We'll be back soon.
