Episode Transcript
[00:00:00] Speaker A: You're listening to the Lodestar, the supply chain and logistics industry's leading source of insight. This podcast was created and produced by.
[00:00:07] Speaker B: MK and Associates and your host, Mike King.
[00:00:16] Speaker C: What was TPM25 in Long beach like? I keep getting at? Well, the best description I've got for you is drawn from the weather girls. To them, it was raining men. For the Lodestar, it was raining news. Us poor journalists were flooded. In fact. Today we'll try and make some sense of a slightly mad world with input from the CEOs of Hapag Lloyd MSC and DP World Canada. We've also got the legend that is Vespucci Maritime's large Jensen Logic's new global head of forwarding, the VP for International Trade at the Consumer Technology association, zenitha's Neil Van der Wa, and Lars Michael Jensen, Head of Hubster at APM Terminals. But of course, looming over all of this was, you know who, the man whose policies are causing global chaos. No introduction needed, I suspect, for under.
[00:01:04] Speaker D: The Trump administration you will pay a tariff, and in some cases a rather large one. Other countries have used tariffs against us for decades and now it's our turn to start using them against those other countries. On average, the European Union, China, Brazil, India, Mexico and Canada, have you heard of them? But we're going to do it in April. I'm a very superstitious person. April 2, reciprocal tariffs kick in and whatever they tariff us other countries, we will tariff them. That's reciprocal, back and forth. Whatever they tax us, we will tax them.
[00:01:49] Speaker C: Hello everybody, I'm Mike King. Welcome to the Lodestar podcast and greetings one and all. As I'm sure you know by now, you can find this podcast on all platforms. Please do like subscribe, comment and review. Also check out all our news on the loadstar.com so TPM25 in Long beach last week. Well, Long beach was essentially a brilliant Blair and brilliant example of why any young people out there with an interest in business and the world of trade should absolutely want to get involved in logistics. And a quick aside before we get going big, thanks to UK based Howard Tenens Logistics, which is one of the largest independently owned and operated logistics companies in the uk. And to the brilliant James Miller, who's the director of Maritime Standard and Centralline and joint founder of industry networking body Hive Connect. They together arranged some work experiences for one young man, my son Evan, in fact, who has been trying to find a way of sampling our business for over a year. So well done guys. And a quick note to the rest of the industry. If you want to attract the best young people, find a way to give them a taste or they'll go to less interesting industries that make more of an effort. So anyway, TPM 25 ahead of the conference, I'd been doing a bit of planning. I'd eyed up some great session. I was looking to explore Trump tariffs, the Gemini cooperation. This is the new alliance of Hapag Lloyd and Maersk, which is pledging to offer 90% schedule reliability. What's that going to mean for shipping? Possible fees at US Ports for ships built in China from the Trump administration. And that's quite a lot of ships. And of course I was going to explore the Trans Pacific contracting season, which is one of the reasons why TPM has always been such a big success. All of those things were covered at TPM and I'll be covering them here today on this podcast via their brilliant cast of interviews coming up. But while tariffs were being announced and retracted as the week wore on, bang. In the middle of all this, we found out that a consortium comprising MSC's port operating arm, Terminal Investment Ltd. TIL, and hedge fund giant BlackRock, had agreed to purchase some 80% of Hong Kong terminal operator Hutchison's global operations for $19 billion, no less. Now, I'll come back to what this means for line of shipping and its customers later on, but for me it just illustrated that politics and trade now seem to be almost permanent bedfellows. Of course, President Trump immediately announced that the US via BlackRock, had now taken back control of the Panama Canal.
[00:04:28] Speaker D: My administration will be reclaiming the Panama Canal and we've already started doing it. Just today a large American company announced they are buying both ports around the Panama Canal and lots of other things having to do with the Panama Canal and a couple of other canals.
The Panama Canal was built by Americans for Americans, not for others, but others could use it. But it was built at tremendous cost of American blood and treasure. It was given away by the Carter administration for $1, but that agreement has been violated very severely. We didn't give it to China, we gave it to Panama and we're taking it back.
[00:05:14] Speaker C: Now, I should add that not all of those statements were actually factually correct, but I don't want to get lost in a conspiracy theory, so I will let you find the facts about the history of the Panama Canal elsewhere. But some parts of it are True. The MSC BlackRock Hutchison deal included Balboa and Cristobal terminals located at either end of the Panama Canal. Trump has of course, been adamant that China's influence around the crucial waterway had been made very, very clear and already forced Panama to pull out of China's Belt and Road initiative. Now, interestingly, MSC CEO Soren Toft, who was talking on Monday 3 March at TPM, he was asked about a possible deal for Hutchinson's ports in Panama and he said they would be interested in buying them if they were available. And a day later it was a done deal. Maybe Toph should take up poker because he hid his intentions very well. Okay, so Trump tariff uncertainties were also at the forefront of the minds, everyone at tpm, not least because nobody knows what countries will be tariffed, when, for how long and how many exemptions will be in place. As mentioned as the week was underway, 25% tariffs were imposed on Mexico and Canada. Since then, they've all been almost entirely postponed once more, as John Gold at the National Retail Federation has pointed out, nobody knows if products shipped between the implementation and postponement of those tariffs need to pay any fees or not. Are delays retroactive? Please send answers on a postcard to the White House. Now. We also had additional 10% tariffs on Chinese imports introduced last week. And I just want to say something here. Is this going to be some sort of prid pro quo in play? Because following the Hutchinson deal on Panama, I guess we'll see. It's just very hard to see to know what's going to happen next in the way things are at the moment. We've got a whole load more tariffs threatened for April 2nd. Will they happen? Who knows? Maybe they'll be delayed, maybe they'll be postponed, maybe they'll become another bargaining chip. Meanwhile, markets are tanking amid the the disruption. And of course, all of this happened in the wake of Ukraine's President Zelensky being ambushed in the White House and the future of NATO and ability of Ukraine to defend itself from Russia all thrown into doubt. As I say, it's been raining news. But the point for many people at tpm and bear in mind we still have total confusion over U.S. de minimis rules and whether U.S. suez Canal might reopen this year, is that making business decisions in a climate of uncertainty is. Is very difficult. Over to Ed Bristois, VP of International Trade at the Consumer Technology association, who just to timestamp this, I spoke to on March 6, the day after TPM25 closed.
[00:08:07] Speaker E: I represent all the companies in the consumer technology industry in North America, and these are companies that are innovators. They are hardware manufacturers and designers. They are innovation and solution providers. So this is a very expansive industry and we have over 1200 companies. 80% of them are small businesses and startups. Many of them, if not all, rely on international trade to compete and to succeed. So we have a new administration that is very focused on upsetting the international trading system and imposing trade barriers on imports into the United States to promote a variety of objectives. So there's an incredible amount of uncertainty that we're witnessing based on every action that the administration has proposed or suggested or implemented since January 20th. And today is just the ultimate example of that uncertainty. So go back a couple days. We didn't know this was going to happen. I mean, we thought it would, but. The Trump administration imposed a 25% tariff on all imports from Canada and Mexico on Tuesday morning, 1201am Eastern Time. Within that 25% for Canada, it's a 10% tariff on all imports of energy and energy products, including critical minerals. Today, because of how the markets reacted and because so many companies said to the administration, this is harmful to our interests, we might have to close down plants, we might have to let people go. We cannot access the imports that we need inputs or the finished goods, the administration decided to negotiate a slight exemption from those tariffs. And these are tariffs under the International Emergency Economic Powers Act. It's never been used before to impose tariffs. So these, this exemption was only USMCA qualifying goods would be exempt from the IPA tariffs. So not all the trade between Canada, the United States and Mexico happens under usmca. Some companies say, well, we're just going to pay the MFN tariff. Some of it's duty free anyway, because that's what the law is for a given country. So for the United States, we have a lot of tariff rates set at zero. So this is very confusing for a member of companies. On one day they say you have to pay the tariff two days later. Now it's USMCA only. What, what's the next day going to lead to? So the administration is saying on April 2nd we're going to move to reciprocal tariffs. Not I eat but tariffs. We don't know what that means. So it's impossible to plan for this and it's impossible to shift radically from duty free trade under MFN to a preferential tariff agreement like USMCA in a matter of weeks. It just doesn't work like that.
[00:11:00] Speaker C: What does this do to any of your members who would be interested in making long term investment decisions or maybe employment human decisions where there's with so many unknowns it must be very difficult for them.
[00:11:12] Speaker E: It's freezing. Most people say chilling. I'm going to say freezing mainly because you have to withhold any resources that you were going to use to hire or to invest in new product lines or to do business development or research and development because you think you're going to have to pay tariffs and big tariff bills at that. So I want to clarify. Tariffs are taxes that importers in the United States pay to the US Treasury. Other countries and other companies or governments do not pay those tariffs. It's US Companies and ultimately consumers that pay those tariffs. So there will be pain if the longer these tariffs persist. And supply chains in North America, you know, they're highly integrated, the reverberations through those supply chains will be significant in the pain will increase. None of this is good for the United States economy and the North American economy at that. I mean this is an integrated market.
[00:12:10] Speaker C: And this isn't just about shipping. This is a cross modes and it's not just about trade to and from the US the repercussions of this changing and transformative landscape for logistics and this concurrent reset of geopolitical relationships have far wider and long reaching implications. I asked Neil Van der Wa, chief Air Freight Officer at Zeneta, what this means for air cargo to start off with.
[00:12:34] Speaker F: I don't know where the tariffs will end up, but I do speak to a lot of shippers at the moment where they are looking to source differently or route differently or assemble differently. So it will affect trade flows I think, even in the short term. But that would not affect volumes directly more how they were routed. If it stays longer, if it has the inflationary impact that people expect and consumers combined, you know, higher prices, with uncertainty in the world and attention in the world, that I could see a profound negative impact of the tariffs over a longer term on airfreight demand.
[00:13:09] Speaker C: How do you think this might play out? We saw this big expansion of capacity out of China last year. I mean, how do you think operators will react to this uncertainty?
[00:13:21] Speaker F: Well, I think the big increase we saw in capacity was mainly e commerce driven and I'm now thinking more about the general freight market when it comes to tariffs. The impact de minimis rule or let's say being revoked, I think the impact of that could be limited because there are tens of millions of consumers willing to buy relative cheap goods from China. So even with the tariffs those goods will become more expensive, but they will still be in my view by much less expensive than if they would buy locally. So I could See the demand continue. The big question I have there is will it logistically become such a mess that that business model is not able to serve their customers in a timely manner and if that would happen and we would see a decline in E Commerce volumes, then I could see that capacity freed up and have a global impact on downward facing rates.
[00:14:19] Speaker C: So you don't just see this about the Trans Pacific trade line, you see this spreading around the world.
[00:14:23] Speaker F: Oh, this is a. Even though it started locally, this has a global impact. It's been pushing up rates globally. It will push down rates globally if that capacity would be freed up again. Yes.
[00:14:38] Speaker C: This new web of tariffs or threat of tariffs also puts anyone using Canadian hubs to save the US in something of a bind. Possibly at least. DP World operates five port terminals in Canada across both coasts. And I caught up with Doug Smith, CEO of DP World Canada just before 25% tariffs on Canada were confirmed but then mostly withdrawn. I asked him how strikes of Vancouver at the end of last year and this threat of tariffs and all his confusion had been playing out.
[00:15:11] Speaker A: Tail end of last year was a little challenging, but I think we came to a better place both with the union and in the market in general. It's all about getting back to one team. We got to bring the brand back for Canada and actually have the confidence in the market and I think we're heading in that right direction. We landed Gemini as far as a customer to come in across all three of our major ports in Canada. Actually just finishing up some meetings with them and really looking forward to where it can go in terms of the tariff. It's still anyone's guess. I think that one's we have to watch and be ready. We're about being resilient and being ready to pivot whatever the customer needs. Because what I want to see is I want to see the Canadian market grow and I want to make sure we take care of our end customers.
[00:15:52] Speaker C: What sort of proportion perhaps of your cargo is through cargo into the us?
[00:15:57] Speaker A: It really depends. Sometimes in the years in the past it's been a high majority at 60%. Sometimes it's as low as 30%. It's also per terminal and where the market makes sense it wants to go. We are seeing a heavy demand for more Canadian bound cargo and what we're doing right now is working with our partners to really get the entire chain efficient and resilient. We can do great jobs at the terminal, but if they can't receive them at the inland location, the customer still suffers. So I think there's an opportunity to really grow it and keep more Canadian cargo going. But for us, I think also important to mention is our trade flow is east to west. We really look at the Asia cargo coming into Canada, we look at European coming in the East Coast. That proportionality going to the US is customer driven based on where the US is operating.
[00:16:43] Speaker C: And have you got any investments either at the terminals or maybe in new terminals, maybe maybe a US terminal that you want to tell me about exclusively here on the Loadstar podcast?
[00:16:53] Speaker A: There's no US terminals that we have currently. I think there's a desire maybe one day, maybe Portland. Well, you know more than I then on that one.
But right now what we do have is we have a very heavy freight forwarding network and contract logistics network in the United States. We are helping out, supporting all the customers there where we can from all the US terminals as far as any new one, that's anyone's guess.
[00:17:17] Speaker C: And are there any plans that you can tell me about around the forwarding network to grow across the continent?
[00:17:23] Speaker A: We have really big growth plans on the freight forwarding. We're not going to be a large freight forwarder anytime soon, but we see a good value niche and where we can support the value proposition for our customers and really grow that business across both Canada, North America and into Mexico.
[00:17:39] Speaker C: Doug Smith, CEO of DP World Canada, thanks for joining me today on the Loadstyle podcast.
[00:17:43] Speaker A: My pleasure and thank you for having me again.
[00:17:48] Speaker C: Another big unknown is when operators of Chinese built built vessels that call at U.S. ports will pay a fee for each port call of a reported $1.5 million. This is another Trump administration proposal that affects shipping. While we don't know when this might happen, the idea behind it is to rejuvenate US shipping, somehow reduce reliance on Chinese built vessels. Sorentoff, the CEO of msc, which is the biggest container shipping line in the world, said he was assessing the situation. But if this was pushed through as explained so far, it would massively drive up the cost of providing container shipping services to the US at lse I.
[00:18:28] Speaker G: Think we like to be practical. So when I look at this and the proposed rules, I see a significant impact if this is pushed through as right now laid out. And to be very practical, if we look at a service going from these the US East Coast, I think most of the carriers are deploying 8 to 15,000 teaching tanks calling problem ports. So let's say with the new regulation where there's a cost of 500,000 to 1.5 million per port call, let's call it a million, it's $4 million. And you move an average probably 10,000 tu. So it's $400 per tuition, $800 or 40 foot. And I didn't check the CCFI this morning, but I think new east coast rates are probably around 35 with 100 ish 40 foot. So that's 20%. I mean 25%. So it's significant. If we go to the transatlantic, it gets even worse because we're not loing 10,000 tu in one go. We're loing maybe four or five thousand. We also hold four ports of the east coast where we come from North Europe. So it's $1,000. So I think if it comes out in the prestive form, it's going to have significant consequences. These costs, either we will have to revise our network and withdraw coverage, or we will have to, you know, add that that cost on top of and also ending the consumer will have to pay. The other thing that I think will happen immediately is that all the marginal ports will have to be relooked at. Here we had California, we had typically calling LA Long beach, of that proceeding to Oakland, but we can proceed to Oakland. And that cost another billion dollars. Doing another thousand when we do 12,000 Long Beach. So I think a lot of the large ports, the peripheral ports, will be at risk. We will have to, you know, adopt our service.
[00:20:23] Speaker C: He went on to say the total industry cost could be as high as US$20 billion. That's around 600 or 800 per container shipped to the US which is quite a lot. But will it revive the US merchant fleet or shipbuilding industry as intended? Over to Lars Jensen, CEO of Vespucci Maritime.
[00:20:42] Speaker H: To start with, we have to separate between whether the ships are actually built in the US or whether they are US flagged. In theory, fine. You can take a ship and flag it into the us it's going to be extremely expensive because if you want to flag it into the US you are going to use US crew, which doesn't exist. So you're going to spend quite a lot of time training enough crew to actually man these ships. You cannot do that from one day to the next. The next thing to keep in mind is if you then flag in over here, you might be subject to US corporate tax instead of tonnage tax, which is also extremely costly. And there's a whole bunch of elements in theory that could be done given enough time. But the bill here also mandates that 7 years in 5% of all US exports needs to be moved on US built ships. There is not the yard capacity or the yard know how to build these big ships to have them operational seven years from now, that is just not possible.
[00:21:33] Speaker C: Now, I did say this past week or so it's been raining news because just on. On the day that TPM ended, Rodolfe Sarda met President Trump at the White House and pledged to invest US$20 billion in US logistics over the next four years. The billionaire chief executive of CMA CGM, the massive French shipping and logistics conglomerate, said he would triple the size of the container line's U.S. flag fleet, upgrade its U.S. port facilities and create a Chicago air freight hub, amongst other moves. Will these ships be built? You know what? Nobody knows. As news broke all around at TPM in the meantime, forwarders and shippers were doing what they're there to do, which is sign deals with carriers for Trans Pacific capacity. Now this obviously was all complicated by tariff confusion. Throw in the possible reopening of the Suez Canal for container shipping, which could prompt massive excess capacity, maybe even a rate war. So for shippers, this creates these big questions about how much capacity to commit, how long to sign contracts for. Is it worth betting on the spot market? Are index link contracts a good way of hedging risk? But in the here and now, at least with SME shippers and smaller forwarders, the General view at TPM25 was that lines that were pretty much holding the whip hand, although, you know, set that aside, some larger shippers I managed to speak to were rather pleased with themselves. So it's a mixed market. On the sidelines of tpm, I asked Akil Neyr, the newly installed global head of freight forwarding at Logisteed. This is formerly Hitachi Transport System and employs around 47,000 people and has annual revenues north of $7 billion. I asked him how he views ocean freight market this year with all of these things going on.
[00:23:27] Speaker B: Yeah, I think it's an interesting question, Mike. And given where we are right now, this is still to be determined. Rough estimates at this point in time look like it's going to be slightly lower or on par with where we are currently. I think contract rates in the Trans Pacific ideally might be similar to last year, but definitely not looking at massive increases. If the Red Sea were to open up, I think that changes the entire gambit. So a lot of the shippers and a lot of customers that I've been talking to are actually more on the reserve side and not rushing to sign contracts yet because there's still so much in the air. One on sourcing as we just discussed with regards to tariff, but also in terms of capacity and deployment.
[00:24:02] Speaker C: So. So people are taking a wait and see approach on volume commitments maybe. Or maybe they're taking shorter term rather than annual contracts.
[00:24:08] Speaker B: I think that's the current vibe that I'm getting from most of these shippers is that they would prefer a wait and see because signing up too quickly right now may actually result in actual them not having enough volume either because of demand changes or because of they have to change their sourcing patterns due to the tariffs. So too many things up in the air to make a decision.
[00:24:27] Speaker C: And how does all of this play out later in the year? Do you think 2025 is the is a return to a normal sort of shipping flow, a peak season in the third quarter? Because last year everyone front loaded, didn't they?
[00:24:39] Speaker B: Yeah, I mean, you know, I don't know what normal is anymore quite frankly because ever since COVID we've had various degrees of normalcy that we thought were going to last, but haven't. With the current American administration, I think things are a little bit more up in the air than one would hope for. Front loading did occur so I would expect that inventory overhang would, would continue for longer. So perhaps the delay delayed peak season in my view maybe towards the later half of the quarter three and early quarter four, which might merge with the pre Chinese New Year rush. That's my current estimation. But you know, no crystal ball here.
[00:25:08] Speaker C: And when you're looking at risk through the rest of 2025, are there any other risks out there or is it all about changes in government policy, particularly.
[00:25:16] Speaker B: In the U.S. i think those are primary drivers of change and risk right now. But there is the entire alliance reshuffle which is happening and I think from a supply chain point of view it's still a to be determined as to impact. The new structure for Gemini is quite interesting, especially if they claimed reliability. But I think most people I've spoken to are going to wait and watch and see the actual result of that massive network change. So I think there's also that. So I think there's also that paid.
[00:25:43] Speaker C: And do you think people will pay more for a 90% reliability? And if, if they're willing to do so and people really take this service, what will that force? Will that force all the carriers to follow suit?
[00:25:53] Speaker B: That's actually very interesting and I've been around for over 20 years in the industry and I can promise you the hunt for a differentiated product has always been something that carriers have been after. Whether it was initially back in the day where companies like Norasia deployed the super fast boats that thrown at 40 knots and burnt all the fuel, the thought that customers would pay higher for a faster service, that didn't turn out to be true. Reliability since COVID has become extremely important and resilience in supply chain. So I think there is a space in the market for that. I don't know if it'll determine a higher revenue point because at the end of the day freight is still commoditized. But I do think it might play a role in terms of how customers plan their supply chain and they might want a certain percentage on a reliable service that they know is going to arrive for sure versus others where they think they're willing to flip the coin and take a little bit of a risk. That said, should it be successful, will this become the new normal for the market? I would like to say yes, but I do not believe that the network infrastructure exists, at least on the port side to handle that many hubs and smokes.
[00:26:54] Speaker C: Akhil Naya, Head of Global Forwarding at Logisteed, thanks for joining me today on the Lodestar podcast.
[00:26:59] Speaker B: Thank you very much Mike. Pleasure to be here. Thanks for having me.
[00:27:04] Speaker C: Now, as we heard there from Akhil Lyna, customers eyeing development at Gemini cooperation with great interest. On a side note, Lars Jensen told me in an interview that I don't have space to include on this podcast, but you can find it on the Freight buyers club that MSC's Hutchison deal gives them control over a whole bunch of key hub ports, so they might eventually be able to improve their operational performance in in the same sort of way as Hapag Lloyd and Maersk intend to. So possibly good news for shippers. Again, another interview. Not enough to include everything I'd like from Hapag Lloyd CEO Rolf Haben Janssen, but the Lodestar was lucky enough to have a press breakfast with him. Suffice to say, he was adamant that Gemini Online of Shipping had got off to a pretty good start in 2025 and he was upbeat over growth, over demand, and certainly over the prospects for Gemini and its ability to win over customers by offering better service. Over to Haben Janssen we have definitely.
[00:28:09] Speaker I: Been off to a good start. I think if you look at where we are today, roughly one third of the ships that needs to move into Gemini has meant phase into the into the new services. So that's a little bit over. Round about 150 ships. We've also completed roundabout the first five pound war cost for Gemini which I think has been at least those have been by and large on schedule. So we certainly see that micro load calls that the reliability is very much up. Of course that's still very early days but it's always better to be a duke boost on than to against that.
[00:28:47] Speaker C: Sorry about the poor audio there. Rolf went on to say that lines were still struggling with congestion hotspots, especially in north Europe. And he said that while it was difficult to predict what happens later in the year, everybody had expected growth of a couple of percentage points in container demand last year and instead it was around about 6%. So he was confident the global economy would grow this year, especially if we saw some positives geopolitically in Ukraine and in the Middle east, which would bolster global sentiment. So he was Talking about a 2 to 4% increase in demand was entirely feasible this year. But obviously with the rider that it was hard to make firm and fast predictions at this stage if Suez were to reopen, freeing up a lot of shipping capacity very quickly. Hapag Lloyd does have a clear strategy in place as far as Suez is concerned.
[00:29:39] Speaker I: I think at the moment everybody is still waiting how the next phases of the agreement between Israel and Hamas will unfold. When we get more certainty in that, we will certainly start looking at how to bring services back to Suez. The key thing will be to do that step by step by step, because if we would switch everything from one day to another, I think that will put immense pressure on the wars, especially in Europe and to a lesser extent also on the east coast of the United States. And that is something that you should try to avoid because that could otherwise easily result of again in chaos and congestion. So I think for us the base case will be to see once we feel that it is safe to gradually return to Suez, probably over a period of a couple of months.
[00:30:27] Speaker C: On Suez, a theoretical question, assuming it opens up at some point and you start drip feeding the ships through, but once things stabilize, on the one hand are you worried about structural excess capacity and on the other, does this help Gemini a little bit because your network must be relatively stretched, does that help you hit those 90% targets a little bit easier?
[00:30:48] Speaker I: And I think to say the last thing first, I think we at the time consciously decided to develop two networks, one through SOED and one around the K. I think both are able to deal on the same schedule. So I don't think that's going to make a big difference. And so coins, sewers will open up and then we will happily go through again. What that will mean for overall KWESI is very difficult to predict. I mean, lots of people would say then there's going to be a significant overcapacity. I would say then that in the beginning we will certainly then see a little bit of dip in demand because of course the amount of goods in transit is going to come down. Yeah. So people will have to order a little bit less for a period of time simply because they get more goods delivered.
[00:31:35] Speaker C: So.
[00:31:35] Speaker I: But I think that's something that's going to take a couple of months. I also think that the, you know, the. What we see today is that all the services are, as you rightly point out, pretty much stretched. Yeah, we're sailing faster than we should. You know, in many cases we omit boards because otherwise we lose too much time. I think what you will see once we go back to Suez is that people will start sailing slower again, also to bring cost down, but also to bring emissions down. We will also be able to put a little bit more buffer into the schedule, which wouldn't be good for schedule reliability on the whole. And I believe that things that over the last year and a half have not happened, like scrapping and doing regular maintenance. Quite a lot of that also has to be. And then what indents. Some of that is going to depend much more on demand, on anything else.
[00:32:25] Speaker C: Do you think this is like a new era of container shipping or a new era of container shipping executives that I've learned the lessons of COVID because.
[00:32:33] Speaker F: You look at the.
[00:32:34] Speaker C: Well, more than 20 years pre Covid, as soon as there's any sort of excess capacity, there was a rate war and everyone went. Everyone, maybe not everyone, but it only takes one or two carriers to go for market share. Do you think lines have learned those lessons now? And if you did end up in. That would be a more sensible approach that would maintain the market slightly. Maybe more scrapping. Obviously you mentioned slower ships, layups.
[00:32:56] Speaker I: Maybe, maybe I'm not. I don't belong to the newer generation for a long time. I would say though that in the end, you know, our market is very much driven by supply and demand. So if we run into a situation where or into a period where there is going to be significant excess supply, then rates will be under pressure. That's just how the market functions. I think that has nothing to do with how executives behave. Yes or no. This business has always been cyclical for the last 300 years. And I don't believe that that in and of itself has gone away. So of course there will be periods of future where we have a a down cycle. I do think though that because of the amount of money that has meantime being invested by larger shipping companies that you know, the, the pressure to then do something about that by either, you know, cutting capacity or laying up ships or saying slow or scrapping stuff is going to be high.
[00:33:57] Speaker C: Sorry again for the quality of the audio there but I thought it was important to hear raw wise what Rolf told me during that press conference. And you heard it here first. The line of shipping industry is as it always has been. Expect volatility in a bearish market. If Suez opens up, capacity will be withdrawn, scrapping will be stepped up and don't rule out a rate war or a battle for market share because line of shipping has not been changed by the highs of COVID onwards. That was my takeaway at least. Now let's close out this podcast by talking to a returning hero. I spoke to at the Westin Hotel outside TPM where Maersk seemed to have taken over the entire third floor. I think this interview reveals just how long Maersk have been planning something that looks like this new network now being implemented with Hapag Lloyd via Gemini. Lars Michael Jensen, head of Hubs APM Terminals has over 40 years experience in ocean container shipping, mostly on the network side. I started by asking him to explain a bit about his current role and how he draws on that vast experience on the shipping side, the operation side, to help the Gemini cooperation implement its service offering by the APN terminal hubs he now manages.
[00:35:14] Speaker J: That was quite a lot of questions. It was in one go, wasn't it?
[00:35:17] Speaker C: I like to mix it up.
[00:35:18] Speaker J: Yeah, no, let me start it this way. I mean when we spoke last I think it was during the Corona crisis. I was heading up the Maersk line ocean network structures and already at that time actually we were toying with the idea of making a modular network. So the prototype for this we kind of did maybe five years ago or something like that. So this has essentially Gemini, what became Gemini has been part of my life for the last five years. Then two and a half years ago, after 40 years with Maersk Ocean I was asked to join APMT and then head up our hub terminals, seven hub terminals that we have like the pearls on the string from Asia into Europe. And at that time I knew what was coming in terms of a modular network. So I said yes, thank you very much, I would love to do that. And there was a lot of people said what on Earth are you doing 40 years with Ocean and now you go to APMT. And I couldn't tell them why, but when they found out, they say, ah, okay, now we understand. So my role in this has been for APMT to continue to work on the hops, to make them ready for the modular network that we are now introducing together with Hapac onto Gemini. And there's many, many facets to that. That is both in terms of how do we get the terminals to become more efficient. Because when you want to do a modular network, you want the ships to flow through fast. So that we've managed to basically double our efficiency in the hub terminals over the last eight years. Not all my doing. I've probably just been setting things into perspective. And then you can say in the last two years, two and a half years, two years probably the whole structure around the Gemini network has become more, how can I say, more serious in the sense that, okay, so exactly how we're going to do it. When we started to talk with Hapa, so I got engaged in that as the APMT representative because the hubs was such a central part of that. So that's what we built for with processes, with systems, with capabilities. We spent $3 billion in expanding our hub capacities with 30% so that we are ready to actually execute what's coming at us now. So for me, when we started on the 1st of February, it was like a big excitement and, and the fact that we actually yesterday had. Today's Monday, right?
[00:37:29] Speaker C: Yeah.
[00:37:29] Speaker J: So yesterday Sunday we had the first Gemini ship that called into Pier 400 here in Los Angeles on schedule or actually 54 minutes ahead of schedule. So that was, that was a great, you know, it's a great feeling.
[00:37:42] Speaker C: And so the idea is 90% reliability up from, I think Maersk's currently around about over 60%, I think in the latest figures from Sea Intelligence. So the plan is to get up to those levels by when, say for.
[00:37:55] Speaker J: The US it is right that globally we are in that 60ish. I'd call it plus, minus, whatever the month is. But that's for all markets globally.
What we are solving for here with the Gemini Network is on the east west markets, which Pacific, Atlantic, Asia, Europe, India, Europe and so on is indeed to get to that 90% or ideally even more. And the whole concept around that is that we have decided that on the mainliners we have discovered that you can say the more calls you have, the more risks you have for delays. So we are reducing the number of port calls and then we are Converting those other ports that we call, not that we don't cover them anymore, but we cover them with shuttles. In many cases I would almost call a shuttle ferry because it just goes between that origin port or destination port and then into the hub in question. So with that we can, number one, we risk less delays when weather is bad, when there is something that is happening in a terminal and we can also isolate problems. That's the whole concept around the modular network. Because if you call 16 ports from Asia to Europe and you load up in the Bohai Sea, if there's bad weather in East China, you know, you get delayed. Now you actually just sail around that delay. So you can actually isolate the problems and you look at the system rather than the individual. That's the whole idea, the whole concept for me. Also the whole secrecy or not secrecy, the whole secret around the modular network.
[00:39:29] Speaker C: And the 90% reliability, that's not hub to hub, is it? It's spoke to spoke or port to port.
[00:39:33] Speaker J: It is mainliner to mainliner. So when we go to London gateway in the UK or we go to Hamburg and so on, on, these are also being measured as well. So it isn't. No, it isn't just hop to hub. The hubs are, you can say, the facilitator of that. And that is why that efficiency that we have worked so much on and the closeness with Maersk and now with hapac, that's where that's going to get us through the hub terminals, which are big calls, get them through there much faster than what we did in the past. And if there's one thing that I'd say in this area is that the one thing is that you have the concept, the network, you have the terminals. But what we actually do have is that we have the closeness between APMT and then the, and then the line. And now we're building the same also with hapa. Because it isn't done just by having capacity, it isn't done just by having, you can say the, the ships that are rotating and so on. It needs to be that very close collaboration between the line and the carrier. Sorry. And the terminal. When I was on the, on the ocean side, I thought that as long as the ship arrives at the terminal in time, the terminal takes care of the rest. That's not the case. So now we have visibility into each other's system, not what customers are inside, because that's none of our business. But when Aship leaves Tanjong Pelepez, half an hour later, the terminal, 10 years starts to plan how the yard stretch is going to be four weeks out. And with the reliability that we will get from the network in totality on Gemini, be that the shortage, be that the mainliners, we can make this planning much, much, how can I say, Much more correct. And that will give efficiencies.
[00:41:06] Speaker C: I mean, it's like back to the future a little bit. I've been covering this industry quite a while. We've had hub and spoke systems in the past. When you guys introduced this, a lot of shipping analysts were saying, well, how are they going to control the feeder network? Because that's where the risk is on a hub and spoke system. If you're trying to get high reliability.
[00:41:22] Speaker J: Levels, I don't necessarily agree. And I don't think this is more than a hub and spoke system, because a hub and spoke system is that you get into a hub. Yeah. And then you get your feeders that are going out. There's a couple of things here that are different, very different, because we have thought the terminals into the network structure. So now it isn't just a question of a big ship coming in and then you distribute from there. You have big mainliners coming in from different origins, going to different destinations, and then they swap the containers. You can say at the hops previously they came in and most of what you did was the Southeast Asia distribution and so on. That's a hub and spoke. But now it's basically an integrated network. That's one thing. The second thing is that for all the loops, all the port calls that we didn't cover, we have our own independent shuttles. And in many cases those are not. On most of the cases, those are not like three, four or five ports in a rotation on their own. It is really a shuttle in the sense of it. It's a ferry. You know, we have Gothenburg to Bremerhaven back to Gothenburg back. That's what they do. So they're dedicated for that. And then I'd say that the third thing in this year is also that let's say we control those ourselves.
[00:42:35] Speaker C: If, say, for example, which we're expecting this to happen at some point. No one knows when the Suez Canal reopens. How does that affect you in terms of how you plan around the different hubs? It will change volume flows, I guess, in different ports.
[00:42:48] Speaker J: It will. But if I look at it entirely from a hub perspective, it doesn't change anything. It's different ships, maybe, and I'm saying maybe at different times of the week, but that's what it Is but of course what we need to do together with Hapa, together with Maersk Ocean is that we need to sit down and say okay, how would you like to make that network? And then we go in very, very detailed, hop by hop and say, okay, this we can accommodate, this we cannot accommodate. So there's going to be some rework. But what we're doing in the hubs, getting the ships in, getting the ships out is not going to change. And we are already looking at in the current structure with pretty much a full utilization of the hub terminals that we have. And then one last thing if I can say in on this here is when I say we are at the full capacity, when we get the reliability, when we get the predictability on flows and on arrivals, we can also be more efficient as a terminal. So I have a clear expectation that with the terminals that I'm responsible for and I've given the guys that challenge, that when that predictability and reliability comes that they've been asking for, for the two and a half years I've been with them, now it's coming. So now it's up to you to be able to do 10% more than what we're doing today simply by being able to make a better planning. And that's the closeness between the two carriers and then us as a hop.
[00:44:10] Speaker C: Down just on your plans for the future in investments, we've just heard Soren Toff, CEO of msc, talk about a more fragmented shipping landscape. So maybe less focus on the east, west, maybe a bit more on the north, south, maybe more focused on regional shipping. How does that affect your planning?
[00:44:31] Speaker J: Well, it affects the planning in the sense that we think that with a modular network, that's actually essentially what a modular network network is about, that you can change it.
You know, you can change the size of the loops that are going in as the shuttles to Lamjabang, to Korea, wherever they go into Denmark and so on. But we have today actually as Maersk for many, many years done. I won't call it a modular network, but when we take West Africa as an example, we're taking it down to Westmead and then we're putting it on different shutters down to West Africa. And that gives us the ability to actually change the size of the ships whenever requirements are there. Something similar could happen in Latin America depending on what the trade requirements are and so on. So I'm sure that there will be opportunities for more modular network globally once we have proven what we are ourselves fairly convinced about is a good Way to solve that problem around the reliability. So maybe if you invite me back in five years, maybe I'll talk about the modular network for Latin America. I can't tell for now, but I would love to see it happening, that's for sure.
[00:45:36] Speaker C: Well, I'd like to invite you back a bit sooner than that. Just a final one. How fixed is this network? If we're talking in five years time, could we be looking at different hubs? It's slightly different. Is this going to evolve over, over time or, or do you see it as like a set in stone plan for your network? You're going to have more ships coming in down the road. I mean obviously you're probably going to give me an exclusive about APM terminals, plans for investments in a moment. What's going to change things?
[00:46:03] Speaker J: I mean one thing I have learned all these many years in this year that nothing ever stays the same. So yes, things will change. As I said, I am absolutely convinced that with that better efficiency that we get that we'll be able to have more throughput through those terminals. And then you can say, you can keep on adding, there will probably also be more investments at some point in time. But it all depends on what are the requirements from, from the two carriers. But we have the flexibility and maybe in two years it is different loops that are calling in the hubs but essentially what it's still doing is the same. So it is about thinking the terminals in because what we are also getting when you look at it in combination, we get a better acid turn from an ocean perspective. Because when you have a big ship that goes a long loop. I forget if this was one of the things we spoke about when we spoke about last but if you go from Shanghai with a big ship all the way up through Bohai all the way back, the ship is half utilized in that turn. That is not good use of assets and it's not good from the CO2 emission per box moved. So what we're doing now is we're using the bigger ships in the shorter distances between the bigger ports like Shanghai, Ningbo, Rotterdam and so on. And then the hubs in between and then you right size your shuttles to what comes and that will change. If the market changes and importers are shifting production from China to Lancheron. What do you think we do? Well, we probably increase the size of the shuttle that goes to LA and that's the flexibility that we have. So in that sense it is dynamic. I don't think one quarter will be like the other, but the fundamental underlying principle of a modular network that you look at the system, it's the box that floats. You can say on the system, I used to say, or normally I say, it's called the container ship, the containers before the ship, because it's the container that's the focus. That's what the end customer cares about, not about what ship it actually arrives on.
[00:48:02] Speaker C: Lars Michelle Jensen, head of hubs at APM Terminals. Thanks for joining me today on the Lodestar podcast.
[00:48:07] Speaker J: Glacier. As always, thank you.
[00:48:11] Speaker C: And that's me, Mike King, signing off after, well, a bloody exhausting week. TPM25, if I'm totally honest. At the same time, it was absolutely tremendous fun. Big thanks to all the organizers for putting on a fantastic show, all the JOC journalists who double up as the best conference host in the business. Well done to you all. You did a great job. It's hard for me to convey how difficult it was for them while as news was coming in, while they were actually on stage in some cases. Lodestar will be back at TPM next year and I'm already excited about going. I'll be back with you later this month alongside the Lodestars Alex Linnae for another deep dive on air cargo. Which leaves me only to thank my awesome editing team, Karen Ball and Tom Matthews, who've been working round the clock on a different time zone all week to help me get out as much content as I could from tpm. And it would be remiss of me, and possibly quite dangerous, if it didn't mention my wife, Kerry King, who many of you met at TPM and who is actually learning the ropes as a an assistant video editor and interview organizer and organizer of me. So thanks very much to her. She did a fantastic job. And last but not least, thanks to you all for listening. I'll be back soon. Take care.
