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: There's a new sheriff in town promising to rearrange the global trading order. But what does a Trump administration mean for freight markets? Will massive new tariffs help or hinder the US Economy? And who stands to gain from all little people? That's all coming right up. We also have the latest insights from Tiaka's Air Cargo Forum in Miami, more on Amazon's third party air cargo strategy. Zenita is sharing the latest air freight trends and we're discussing the many potential disruptions heading down a supply chain near you at the start of 2025. Joining me today is the Lodestar's Alex Lenain, Zenith's Neil Van Der wau, and it's the global Chief Commercial Officer at SECO Logistics, it's Brian Bork.
[00:00:57] Speaker A: Especially with these other flashpoints you mentioned, the contract deadline for the port workers union and the negotiations with the eastern Gulf coast ports. You have the inauguration and new administration, possibility of tariffs. All of these things happening at once are certainly giving a lot of incentives for companies to move now, to act now, to. But you know, some companies, if they do new purchase orders now, their lead times are so long, they're already kind of in risky territory. But you might as well do it now because, well, the best time to plant a tree is 20 years ago. The second best time to plant a tree is today.
[00:01:35] Speaker B: Hello everybody. I'm Mike King. Welcome to the Lodestar podcast.
As I'm sure you know by now, we available on all podcast platforms and you can also find all our episodes and the latest supply chain news at the Lodestar.
Later on we'll be getting an update on air cargo markets and some insight into what lies ahead in 2025 for air cargo users when I speak to Neil Van Der Waal, head of air freight at Zenita. But joining me now, I'm presuming from the US is Brian Bork, Global Chief Commercial Officer at SECO Logistics. Hello, Brian.
[00:02:12] Speaker A: Hello, Mike. Thanks again for having me. And you're absolutely right, doing this right from Chicago where our headquarters is.
[00:02:18] Speaker B: Okay, well, thanks for coming back on Brian. And just back from the States herself, in fact, where she was attending Tiaka's Air Cargo Forum in Miami is Lodestar publisher Alex Linnane. How's the jet lag, Alex?
[00:02:32] Speaker C: Oh, it's pretty good actually. Yeah, I'm back to form, looking bright and Perky.
[00:02:37] Speaker B: It's become rather a fascinating market before we look at that, you've been rather vocal about let's call it the man focused extracurricular activities at many trade events. At ACF I noticed that they had sunrise yoga and I know you like a bit of yoga. Did you go along? Was it popular? Did it attract a more mixed crowd than the likes of golf often do?
[00:02:59] Speaker C: To be fair Mike, I didn't go for two reasons. One, it was at 7:00 in the morning and I'm not at my most chatty then I know yoga's not about chatting and the other is the source of hanging out with a load of businessmen. Stretching in Lycra just put me right off. So apparently it wasn't, it was oversubscribed but actually not very well attended when it happened. So there you go. But well done them for doing it.
[00:03:22] Speaker B: Well done. Yeah, the hangovers kicked in. When I go, I'm the only man there and I'm also the worst person at yoga. That's even the beginner's yoga classes. So I find it impossibly embarrassing.
I'm way too inflexible. Brian, are you flexible? Are you a yoga man?
[00:03:37] Speaker A: I wish I was more flexible than I am. I think a good bit of yoga or Pilates could do anyone some good.
[00:03:44] Speaker B: Please check out the bodyweight warrior. He's a middle class nerdy fellow, he does these great courses but English people with a Surrey accent really shouldn't say what's up my body weight warriors in some sort of faux American accent. Please check it out everybody. Anyway, I'm sorry, I'm getting totally distracted. Forget yoga, Brian. We saw stock markets get a big boost from Donald Trump winning the presidential elections earlier this month. What's the feeling or expectation across freight markets in terms of how this impacts the US economy and the whole freight demand side? Is this the end or maybe the start of the end of what people are calling a US domestic freight recession?
[00:04:24] Speaker A: Yeah, no, I think there's certainly some reason for muted optimism but I do think listeners should be careful because to any activity that will happen might be very well short lived because until we see in the United States at least interest rates start to go down for a longer period of time when we have more new housing starts, more people moving, buying houses, more companies doing capex investments and building new factories until this kind of more systemic shift happens with the interest rate level going down, I don't see this as being a long term systemic boost which I think is ultimately what would be needed to truly get us out of a so called freight recession. But certainly with the election, we know who the president will be with the inauguration in January, and there's certainly all indications are that there will be more tariffs. The only question is from which country and by how much and what is the timing. But now that companies kind of know or have some certainty into next year, certainly there's still a load of uncertainty for different reasons, but there's at least certainty that the likelihood of tariffs for their goods, especially if they're importing from China, but even from other countries, will go up. So we're, we're going to see companies pull forward their inventory and we're going to see that happening now, in fact, because we have the combination of the early lunar New year and of course in the United States, the contract deadline for the US east coast port workers and negotiating with the eastern Gulf coast ports is now January 15th, a few days before inauguration. And there certainly still is a chance for some kind of disruptive labor action. Maybe those chances have gone up slightly over the past week. So there's no shortage of things that companies are looking out for. And if they want to beat the clock and get ahead of some of this, we're going to certainly see a surge of imports into the United States that is naturally going to generate activity and freight flows. But let's be careful that pulling inventory forward isn't necessarily a sign of sustained economic recovery in the freight recession because you're going to be cannibalizing from, you know, your Q3 and Q4 volumes in that way. So I think muted optimism is the best way to describe it.
[00:07:00] Speaker B: Brian, as you say, I'm going to come back to some of those upcoming disruptors in a moment. But how are you advising your customers to plan ahead for Q1, especially around January, the end, this early Chinese New Year? We've got end of January.
[00:07:14] Speaker A: Yeah, no, I think the old adage remains the same and it probably is truer when there are times of change and uncertainty and that is that companies don't compete, supply chains compete. And so despite the fact that some of these expected changes may not be ideal scenarios for a lot of companies, what they can also focus on is the opportunity, which is, you know, they're, if they're in a competitive landscape, all of their competitors are dealing with and, or are going to be dealing with the same changes. And so this is an opportunity for companies to make bold moves now to be kind of early adopters or fast movers that can help them weather the storm. You know, I can, I can certainly say that you look back at how did companies react to the original kind of quote, unquote, Trump tariffs back in 2018, and you look at the early part of the pandemic when we had the beginning of both demand and then supply shocks, companies that made bold moves, that did larger purchase orders at the beginning, that were able to have an inventory strategy, that made sure that they weren't out of stock, that they brought goods in before tariffs went into effect, had a competitive advantage over other companies. So, you know, companies, I think should be moving quicker than they typically do. They should be making bold decisions now and setting themselves up to whether any and all changes that, you know, are likely to happen next year. The good news is a lot of companies have built more resilient supply chains during the pandemic. They aren't sourcing from just one country anymore. They've implemented a China plus one strategy that they've looked at reshoring and nearshoring. And a lot of companies have diversified the number of distribution centers they're in. For example. You know, there's been a lot of diversification happening across all kinds of supply chains. And so I think companies are better prepared and they know from the first Trump presidency likely how this will go. It's just that the numbers that we're talking about are so much higher now. So the more companies can respond and react now, the better they'll be in a position to react and plan next year. And then planning for next year is going to be different than long term planning because long term planning will. That also needs to start happening now. But you can't have the urgent take away from the important and vice versa.
[00:09:41] Speaker B: I'll bring you in a second, Alex, just to, just to flesh out a couple of points that Brian made there. So, and to give this a bit of a timeline. Donald Trump gets inaugurated as President on 20th of January and everyone is pointing. Well, from what we can tell, Robert Lighthizer is looking like he'll take control of trade policy in the incoming administration. Lighthizer is Trump's former trade chief from his first administration. He could end up at the treasury or he could end up somewhere else, but he seems to be the leading voice on trade. He's an Ohio born lawyer and his views on tariffs, though, they're a little bit different from the orthodox line on tariffs, which is that they drive up inflation and will effectively be paid for by US Consumers. He believes they'll instead create jobs in the US and energize the economy. Now, the size of the tariffs we're talking about is not entirely clear, but the numbers being thrown around are 5 to 20% on all imports and at least 60% on all imports from China. I heard from someone close to the US Government last week, and he said that those universal tariffs are likely to come in in the first hundred days of the new administration. So this is all happening quite soon. What we do know also is that Trump is very transactional, so those numbers could change at any moment. But, Alex, in Miami, what was the general view from people there about tariffs? I mean, how they'll impact the US Economy, how they'll impact our industry?
[00:11:04] Speaker C: Well, to be honest, the general feeling was uncertainty, mostly because no one actually knows what and when precisely. No one's expecting to see much front loading in air, and we will come onto it later. But 20% of goods carried by air into the US come in under de minimis, so they're not paying duties anyway. So tariffs to some extent won't affect some air cargo. I actually asked Brandon Fried of the US Air Forwarders association what he thought about it, and he works in Washington, so it's quite well connected and opinionated. He said, in the long term, if these tariffs take hold, the reality is it's going to have an adverse impact on cargo flows. There won't be as much cargo coming into the United States. Now, if Trump imposes tariffs on China, manufacturing is going to start shifting Southeast Asia and, of course, over to Mexico. Other people on the sidelines of the event said that Trump won't be able to do much about Mexico. They have described it essentially as one massive warehouse. Now it's just all blocked up with cargo where you can change the labels. Anything can be from wherever you'd like it to be from, and no one's really checking it, whether that's true or not. Brian might know more than me, but that was the thought that there's not much he can do about Mexican trade or Chinese trade coming in via Mexico anyway. I also asked Brandon if he thought his life would be harder under Trump, and he said, I think if we put those tariffs in, life's going to be harder for Mr. Trump, not me, because I'm going to be knocking on the White House door constantly to make sure he changes his mind. And I'm going to have company. I'm going to have the likes of the National Retail Federation, other associations that are going to be there with me. There'll be a mob outside the White House for that. He also made the point that Republican administrations generally relax regulations and that is likely to be true of environmental targets. So in some ways it'll be easier for business, perhaps. But other people cited concerns about immigration deportations and the impact on labor and labor costs and of course inflation and the impact on consumer spending. Those were the other things people worried about.
[00:13:05] Speaker B: Very interesting, Brian. When you have complexity in supply chains, though, some people make money, don't they? They're normally the intermediaries. Isn't SECO Logistics one of them?
[00:13:15] Speaker A: Well, I certainly think that the consultants and the lawyers will be the ones making hay out of all of this more than any of us. But I do think that ultimately when you do have and actually we had a conference and a client event and a closed door session and you know, we talked about disruption earlier this year and we talked about the Red Sea, we talked about the Panama Canal, which was a bigger issue at the time, and even the potential for a strike on the US east coast ports. But to a t, all of them were most worried about what are 60% tariffs going to do and what is the likelihood of that happening? 25% back seven years ago, that was manageable. 60% is disruptive. And so it's certainly going to create change. It certainly will increase costs for the importers because we do customs brokerage services for our clients. And in all cases the importer pays the duties, not, you know, not anyone else. So that these are costs that do go up that will likely be passed on to whoever the customer or consumer is. And these cost pressures are going to create changes in behavior, whether that's pulling inventory forward so you don't have to pay the tariffs or you look at massively speeding up any diversification strategies you had in place and then doing that very quickly. And so we're, we're certainly going to see a lot of change. We're certainly going to see a lot of disruption there. I think Mexico is certainly an area people are looking at. Also Vietnam, these are ones that are probably mentioned the most with our clients, but also Malaysia, India and a few other countries too, and not to mention Thailand. So we're certainly seeing a lot of shift, a lot of movement. And so I wouldn't necessarily say intermediaries are necessarily cheering this on because we've had four years of uncertainty. It would be nice to have a normal year for once. But certainly I think we know that our value where we can help the opportunities do go up for us to support our clients and navigate these changes during kind of uncertain times. So from that perspective. I'm excited that we'll be there and we'll continue to be there for our clients, but there's certainly enough unknowns that it's hard to plan for three or four potential scenarios all at the same time. But like I said earlier, companies are more resilient right now and this is certainly going to be another test for them, but I think most of them are going to be able to respond and react accordingly.
[00:15:46] Speaker B: Me and Alex are obviously in the UK recording this, which I like to think of as the home of increased transactional trade costs thanks to Brexit. Well done, us. Just looking at this Trump win from a UK perspective, Alex, it felt to me there was quite a lot of positivity from some quarters in the UK about the Trump win, and it felt a bit like Turkey's cheering for Christmas, to an extent, if you base your views on what's being said by the Trump camp rather than on what you hope will transpire. Now, we've had two independent reports looking at the cost the UK economy of tariffs on exports to the US over the course of the Trump administration. This could cost the UK around 20 billion pounds if tariffs are 20%, which is about a 0.9% hit to GDP. Another analysis looking at tariffs of 10%, reason that this could hit economic growth by 0.7 percentage points. Other allies will be facing similar sorts of implications. Other allies of the us, that is. So it's not great for the uk, would you say?
[00:16:49] Speaker C: I would say that, Mike, yeah. Especially after Brexit. In fact, it's a walk in the park compared with Brexit, but we'll come on to that. So, just to put some context to this for non UK listeners, the new Labour government has put growth at the heart of its economic plan, which means, sort of, politically speaking, that the latest iteration of the Labour Party is quite central on the political spectrum, I would say. Although I think Trump described it as far left, I'm not sure anyone else would. So their basic plan is to appeal to voters not by sort of promising the earth, but by actually trying to boost the economy through growth and thus to make people feel better about their living standards and thus to get more votes. It seems a simple plan. It hasn't gone so well, though. There was a huge hole in government finances left by the previous government and the first three months, data shows that the UK economy grew by just 0.1%. So it's not a great start, but it is early days, but we have to look at Brexit as well. So this all comes on top of Brexit. There are various figures out about what the impact of Brexit has been, but a Cambridge Econometrics report in January said that it cost the economy about 140 billion pounds so far. So Trump said tariffs of what did you say?
[00:18:11] Speaker B: Nothing to worry about, only 20 billion.
[00:18:13] Speaker C: 20 billion is nothing. And the economic output of the UK is 6% less than it would have been if it stayed in the eu. So to get some growth, this isn't helpful for the uk, definitely. I mean, as you say, some Trump supporters in the UK think they might be able to win him round, but I'm not sure that's a certainty. It could of course mean that the UK is forced to get a bit closer to the eu. They could decide to negotiate together or perhaps rebuild free trade ties at tariff free trade. So that, that would be a novel idea. So hopefully the government will come up with something. But no, it's not good news.
[00:18:50] Speaker B: Okay, Alex, and just briefly back to Miami. There's a lot going on at the moment, but when you were there right in the midst of peak season, what was the feeling around how strong it had been this year? Before we go over to Neil van der WAU at Zenita.
[00:19:02] Speaker C: Actually on the peak, everyone said that they weren't really feeling one. I'd be interested to know what Brian thinks of this, but I think it was because the shipping peak happened so strongly and so early. Everyone was expecting air to have a sort of similar trajectory. But actually it's been really strong since October. But without that peaky bit, I don't think it's been soaring as it were. I saw some rates today that weren't showing any signs of about to go up massively. So it looks to me like the market is less volatile than it used to be. The reason being, I suspect that E commerce is underlying all of those volumes and the waxing and waning of the other verticals isn't quite so pronounced as it used to be. I mean automotive logistics down. But one thing I did hear was that servers for AI are going great guns. I think DB Schenker said it was going bonkers or the number of servers that being flown around the world at the moment. The greatest worry I think in air freight is the lack of capacity. You know, well known problems at Boeing Aerospace, supply chains in general. And if E commerce continues to grow, then there could be a capacity issue, but it could be that platforms start to diversify and start to go into sea and warehousing instead. Well, will Just have to see what happens.
[00:20:19] Speaker B: Okay, let's pause there and bring in Neil van der Waal, head of airframe at Zenit. Neil, how are you?
[00:20:25] Speaker D: I'm doing well, thank you. Mike, how are you?
[00:20:27] Speaker B: I'm very good, thanks. Thanks for coming on. Neil, what's the current situation in air cargo markets in terms of rates year on year? And how would you describe this year's peak season, I guess versus those that have gone before would be the best way of sort of time checking it. But I mean, on a general level, is retailer demand for this holiday season being pretty brisk?
[00:20:49] Speaker D: Yes, but retail demand is just one part of the equation. There's much more going on. But if you allow me to take a step back on how do we see rates currently developing on most lanes? Mike, we see rates currently about 20% plus higher than we saw last year. And last year we saw a remarkable strong Q4. And we warned, I would say our shippers in Q3, that if they didn't prepare well together with their freight forwarders, we could see, you know, quite a. We call it a storm approaching the market. And we could see Quite a messy Q4 again for the shippers. But that's not what we're seeing. We think, and we hear that shippers, freight forwarders and airlines have been much better prepared for Q4 this year than they were for last year. And although it's very busy, it's not crazy. We don't see rates going through the roof. It seems to be solidly busy. So It's a busy Q4, but not, let's say, the peak of all peaks that some parties, including ourselves, were expecting. When we look at the data in Q3 of this year, can you give.
[00:22:00] Speaker B: Us an idea with some numbers perhaps on where those rates are compared to last year?
[00:22:04] Speaker D: Yeah, they're between 20 and 25% higher on most lanes than we saw last year. So strong. And that will continue. So we'll enter Q1 of 25 on most lanes at a higher level than we entered Q1 in 2024.
[00:22:22] Speaker B: We did speak in Q3 and you did warn that there was people should be preparing early because there was this a bit of a demand capacity crunch. People were booking a lot of capacity up earlier, including some of these e commerce companies. We'll talk about a bit more later. Did people take that advice and did they get hold of their capacity to avoid some of the chaos we sort of could see building?
[00:22:43] Speaker D: Well, I'm not sure if they listened to our advice, Mike. Let's.
[00:22:46] Speaker B: If it wasn't mine, that's for sure.
[00:22:48] Speaker D: Let's, let's keep our feet on the ground. But yes, we've seen airlines redeploying their aircraft more into Asia at the expense of certain African and South American markets. We've seen shippers agreeing much more specific, I would say terms and conditions with their freight forwarders. So just better prepared from a supply, but I think also from a relationship slash terms and conditions perspective.
[00:23:17] Speaker B: Let's have a little look forward. We have three big moving parts to consider at the start of 2025. It seems to be the word of the moment. So I'm going to call it a disruptor trifecta.
First, we have a possible dock worker port strike on 15 January at US East coast ports if they don't find some sort of agreement on automation between USMX and the ILA union. We then have Trump's inauguration on 20 January, which could mean very quickly some new tariff regimes being introduced. We don't know any timeline on this. And all this happens as we're building to an early Chinese New Year with factories in China due to close from around about the end of the month for the official holidays. But sometimes that happens a little bit earlier. What does this mean in terms of how people prepare for January?
[00:24:05] Speaker D: Yeah, I think asking the question is slightly easier than answering it.
[00:24:10] Speaker B: It certainly is, yeah.
[00:24:13] Speaker D: It's up in the air. The easy answer would be yeah, who knows. But all of these developments you would say play into their hands if that's a right English expression of I said the air freight industry. Uncertainty is typically beneficial to air freight. And I do get the impression when I speak to our shipper community that they're not starting to front load air freight shipments, anticipating what might happen when Trump becomes president again. So I don't think that's an issue. The Chinese New Year, yeah, typically a bit of a boost for air freight, but it's very short, I think after the new year, which is typically a lull season. So I'm not sure how much of a peak that will give.
[00:24:58] Speaker A: Yeah.
[00:24:59] Speaker D: And the port strike, and we saw already that even though it was just three days, you know, it had already an impact on airframe because there people will anticipate they cannot wait until the day that the strike would occur or not with planning. So even if the tensions are still there second week of January, we'll see a shift, I would say, from ocean to air. But everyone could argue January is typically a slow season. The impact of that, if it's just one or Two days on rates might be relatively minor. Unless you have instance, what we heard during the last strike where we heard that one company was trying to move was it 400 tons of raw materials for the automotive industry, which typically goes by ocean by air.
[00:25:56] Speaker A: Yeah.
[00:25:56] Speaker D: If you have those kind of shipments, that can create a lot of havoc in a short amount of time.
[00:26:01] Speaker B: Mike, I guess if you have those sort of shipments going by air freight, you've got something badly wrong on your planning, haven't you?
[00:26:08] Speaker D: Well, yeah, unless you had a plan to go on ocean and then the strike happens and you couldn't get it out in time or you're concerned. I don't think it materialized. But that is stuff that can happen. You cannot plan everything upfront. So uncertainty typically helps air freight because then the shippers will, well, you know, see there's a kind of insurance. They'll pay the premium for air freight and at least they know their goods will make it. How much? That's very difficult to assess. I would say at this moment.
[00:26:39] Speaker B: I think the air freight industry might be looking on with possible glee at some big market boosts in January. But as you say, there's so many things that we don't know at the moment very much. Watch this space and Lodestar will be covering this all the way, all the way through December into January and keeping you up to date on exactly what's happening. Neil, just some takeaways from 2024 which may be irrelevance for 2025. Would you call this year the year of TEMU and Chino, the takeoff of E tailing and does this all continue into 2025 or are we going to see this stamped out by regulators?
[00:27:17] Speaker D: I think the boost of B2C E commerce and for airframe, we saw it in 23. Mike. I think Q4, 23 is when we really saw it affecting the market. So that which continued in 24 and which will continue in 25. And it's not just Sheen and Timo. I think it's the broader B2C E commerce business model that requires air freight. Question mark. Will the regulators clamp down on that? Yeah, I struggle to see if there's so much demand at a consumer level, how a regulator could stop that or maybe even why a regulator would stop that if so many individuals are interested in those platforms. Might be more difficult. They might.
I've even. I'm not sure to what extent that is representative, but I've seen on LinkedIn pictures where people on behalf or team or machine were storing parcels in their living room so they could be delivered faster. I think this was in the US Maybe to avoid upcoming tariffs or upcoming scrutiny in the process.
If there is interest, then I think the consumer and the providers will find a way to deal with it, regardless of what the regulators will say. So I don't think that's. The clampdown will not help. It might slow the growth, but I don't see how that would stop such a business model.
[00:28:46] Speaker B: I think that's the interesting thing in the US if we're going to have a new tariff regime and it's aimed at China in particular, clearly some of that particular market is under threat. No doubt. But then on the, on the flip side of that, if we're going to get rid of all government regulators anyway, Mr. Mosque, who's going to monitor all of this or enforce anything?
[00:29:04] Speaker D: Yeah, but if we take a look at the whole idea of the tariffs is to promote, if I understand it correctly, you know, U.S. jobs. If you look at what people are buying on the platforms that cannot be manufactured at those rates in the US So that I don't. I get it. That you would clamp down on, hey, maybe we want to get our duties because we're, we need the money to fund, let's say, other government initiatives. And from a public safety perspective, I get all of that. But it's an illusion. I would say to think that by clamping down on Timo, you'll be protecting U.S. jobs. Considering what they are typically the lower value goods that they're moving. I think it's difficult to justify such actions with that rationale.
[00:29:51] Speaker B: I do take your point. Neil Van der Waal, head of air freight at Zenita. Thanks for joining me today on the Lodestar podcast.
[00:29:57] Speaker D: You're welcome, Mike. Bye bye.
[00:30:01] Speaker B: Alex. We touched on de minimis rules there. De minimis exemptions allow imports of relatively cheap products to be shipped minus duties and taxes. This has been the method used by a lot of B2C retailers selling Chinese goods direct to US buyers. The cutoff at the moment is US$800. The Biden White House has already pledged to tighten this up. Was there anything coming out of Miami about what the Trump policy is on this and when any reforms might happen?
[00:30:31] Speaker C: Well, there are various schools of thought on this and E Commerce and the US in general. The Chinese retailers say that they're ready for the de minimis to come, so lots of people don't expect a dramatically different environment. Currently, the value of the average de minimis shipment is only about $54 which in theory would mean that any reduction would make no difference. But it's not just about de minimis. It's that there's a lot of examples of misuse of de minimis. So, for example, Apple iPhones have been found to be devalued on labors so that they sneak in at under $800.
I can't see people reducing that much further. The US Customs and Border Protection said at the weekend that it found a helicopter shipped in under de minimis rules having been broken down into parts. So I think there is some certainty that cargo will be under a stricter regime because it's stuff like that is just stupid. But the problem is there's so much cargo coming in, more than a billion parcels a year, so it's impossible to sort of look through it all. And then there's also concerns about products such as fentanyl, but apparently that was coming in via e commerce by air. But the Mexicans have up their game and now make it better than anyone else and putting it over land, over the border that way. So I really feel the key to what people said was the key to this will be about data and information on shipments and knowing your cargo much better. I don't think even Mr. Trump can stop the flow of E Commerce into the U.S. very interesting.
[00:32:02] Speaker B: Brian, I can bring you in on this because I'm sure you'd rather be shipping that helicopter, wouldn't you, rather than it be coming in under the radar and de minimis. Have you got any thoughts on where those regulations should go or will go?
[00:32:12] Speaker A: Well, there's no shortage of creativity in our industry, that's for sure. One certainty that we can all rest our heads on is there will be changes here. The laws the way they are today, the regulations related to de minimis and international e commerce in the United States will change. That is one of the only 100% certainties that we have. There are two work streams happening at the same time. One is more executive action, whether that's the current administration or the new administration. And the other one is through legislation. And both work streams will continue beyond January of next year. And both work streams could have different impacts on how these changes in regulations and laws will impact the de minimis. But to your point, Mike, the demand for goods overseas is not going to go away. There's only two reasons people buy goods from outside of their home country. Number one, what you're looking for you can't find in your home country. So you find it and it's being sold in Another country. Number two, you do find what you're looking for in your home country. But oh wow, look, you can get a better deal by buying it from a different country. Those two things and the rise and advent of the smartphone giving every consumer in the world access to every SKU available in the world to sell is still a revolution that is in the process of continuing to expand removal of de minimis, lowering of de minimis, changes in regulations that could increase transactionary costs to every de minimis shipment to help fund more border protection and technology to look for these bad actors. None of these things will suppress demand for what I just mentioned earlier.
[00:34:07] Speaker B: Isn't the idea though that you try and encourage people to make things in the US instead and drive. That's what Lighthouse is all about, isn't he?
[00:34:14] Speaker A: Well, there certainly are ways to reinvest in reshoring manufacturing. I don't think this is one of them. There are certainly other ways that we've seen, such as with the CHIPS act, which is very bipartisan, we're seeing the building of factories in the United States to make chips at a scale we haven't seen in a long time. I think that de minimis is probably the lever that's going to have the least impact.
I do think that when it comes to long term planning, I think companies are in the United States already looking at investing in manufacturing in the US that maybe they would not have had there been no possibility of tariffs even including, by the way, the tariffs we're currently seeing under this current administration. So it's already having some impacts on reshoring. It's not a fad. Things are happening both near shoring in Mexico and reshoring into the United States. But the scale of job creation as a result of these actions, you know, that remains to be seen. I can't really comment on that. But I can say that our customers are looking at trade flows from Southeast Asia, from Central and South America, even from parts of Europe and the Middle east as alternatives to, let's say, sourcing anything from China, knowing that those tariffs may be the highest and that is changing some behavior, whether it's pulling inventory forward or looking at sites within North America to not replace all manufacturing, but at least have some manufacturing in the United States.
[00:35:55] Speaker B: I want to come back to some of the points you made earlier, Brian, in a moment and how this is going to affect shipping markets. We haven't really done much on shipping, but just before we tie this up, Alex, two points really. One, any change to those de minimis rules that's going to hit air cargo, presumably. And then secondly to that, Amazon sort of getting in on the act here, isn't it? It's launched its own low cost detail operation shipping products that cost less than US$20 direct from factories in China to US customers. Amazon Air Cargo was also pretty prominent at ACF as a sponsor and promoting that it's now selling capacity to their parties. What's their strategy and how do all these things tie in?
[00:36:34] Speaker C: Well, first of all, you know, airline heads have definitely been turned by E Commerce. That was very clear. Miami people have, people love it. Even those that don't carry it love it because it's meant that yields have gone up through the industry. I don't think anyone really believes though in their hearts that it's sustainable in its current form either economically or environmentally. So I think the expectation is that Chinese retailers will set up, will be more present in the US and try to sell more US made products. And then of course you've got Amazon which has done the opposite as you said, and set up Amazon Hall. It's reacting to the other E commerce platforms, although Amazon hall somehow seems like a bit of a backwards step. But who am I to judge? Yeah, they were a heavy sponsor of the ACS in Miami. They declined media interviews so I couldn't ask them anything, but they were very much in attendance. Now they said that they'd been selling capacity to third parties for years but only now want to talk about it. And they're definitely sort of capacity selling mode which most people warmly welcome because they want more capacity. When they finally do talk to me though, I'd like to know what their expertise is. Are they good enough to set up for complex cargo like pharmaceuticals? Will they have to stick to general cargo? If so, will the yields be sufficient? There are a few questions for them. The director of Amazon Air Cargo, Tom Bradley, said that they've got such a strong and flexible network that they'd almost never have to leave third party cargo behind because they'd prioritize Amazon Cargo. But we do know that things change in logistics so that may be something he lives to regret, I don't know. And there's loads of like industry toadying going on. Frankly, heads are being turned by Amazon. Last month Koon and Nagel gave Amazon a huge advert when they said that Apex is using it for E commerce and general cargo and that they were absolutely satisfied with the service. It was a win win. So it was quite a nice result for Amazon. But yeah, I think they're going to be very present in the air cargo market in the future.
[00:38:31] Speaker B: Brian, ocean shipping, let's look at the container market rate of tumble quite quickly from those July highs and I've been pretty stagnant in the last two weeks. As you mentioned earlier, we've got this possible crunch coming up on the supply side. We're not talking just tariffs, we're not just talking the Red Sea crisis at the moment. We've got these ongoing labor disputes of ports in Canada. And as I mentioned there with Neil, this temporary truce between the U.S. east and Gulf Coast DOT workers union and port and shipping interest represented by USMX look set to be short lived. They're arguing about automation. It's not hard to imagine another strike on when that deadline runs out on the 15th of January just ahead of Trump's inauguration. Again, as you mentioned earlier, this is all playing out ahead of Chinese New Year in late January. This combination of factors. It's not moving air cargo markets right now, but is it going to start moving shipping markets, do you think, Brian? I mean if you're moving stuff out of Asia now, you need to be on this, don't you?
[00:39:30] Speaker A: Absolutely, it certainly is. Whenever you have a surge in demand where supply remains relatively constant, at least over a short period of time, the market's going to react and it's going to react accordingly. And again, you just have to look back at 2018 to see how did the market react to a surge in demand when supply in a short period of time remains constant, rates change. Right. So we certainly do expect that, especially with these other flash points you mentioned, the contract deadline for the port workers union and the negotiations with the eastern Gulf coast ports. You have the inauguration and new administration possibility of tariffs, all of these things happening at once are certainly giving a lot of incentives for companies to move now, to act now, to. But you know, some companies that they do new purchase orders now, their lead times are so long they're already kind of in risky territory. But you might as well do it now because, well, the best time to plant a tree is 20 years ago. The second best time to plant a tree is today. Right. So that's, that's where companies I think are coming down on making bold decisions now, doing their purchase orders, making their bookings and pulling inventory ahead as much as possible. When you have a lot of companies doing that at the same time, you have a recipe for a wholesale change in dynamics between supply and demand, at least Trans Pacific eastbound to the United States. And then of course, if there is labor action that extends Beyond a few days that's going to have an even more pronounced impact. And we already have kind of one supply shock that is still ongoing with the Red Sea crisis where you have a lot of this excess capacity kind of being taken up on these longer trade routes. So it's not like the global supply chain can withstand multiple supply shocks at the same time and demand shocks, by the way, that we're going to see, but we'll see where, where it ends up. I think Europe is. It's already kind of baked in, I think. Alex, to your point earlier, there is no like surge or urgent air freight peak like kind of what we saw this time last year when they had a couple more events happening at the same time. And the E Commerce surge wasn't necessarily priced in well. Well, that's priced in now. So there's more certainty and that's why we're not seeing a huge rush. We're certainly seeing a peak, but it's just not a huge peak on the air side. So that is. It's all about what's priced in, how, how has capacity been allocated. And this could be a demand shock on top of a supply shock that will create some elevated rate levels in Q1 and maybe Q2. But beyond that, that's what we'll see how and when the timing of the tariffs come into place.
[00:42:19] Speaker B: We've got another unknown out there as well. We've got a bunch of changes coming for the the Ocean shipping Alliance system. We're going to see a lot of service networks reconfigured at the start of or for the start of of next year. Has that been priced in? Brian, are you worried about maybe a disruption to service reliability as they bed in?
[00:42:38] Speaker A: Not worried, more so curious I guess. Right. Like cur. Honestly, and I mean this in all sincerity, there's certainly curiosity with how these changes will impact the market. How does a hub and spoke network work compared to direct service? Right.
[00:42:58] Speaker B: You're referencing Gemini cooperation here, which is between Maersk and Hapag Lloyd. That starts at the start of next year. Well, at the end of January I think it is. And they're talking about using a hub and spoke System to offer 90% schedule reliability. Now the average across lines is between 50 and 60% roundabout. Now it has been most of this year. That's what you're referencing, I think. Brian, is it?
[00:43:19] Speaker A: Yeah, absolutely. So there's honest curiosity to kind of see how this works. And we're always also looking at too that the balance of NVO market share versus Going direct and how that balance works out because ultimately we as a non vessel operating common carrier, we work with selective carriers that do tend to work more with NBOs. And seeing how these alliances shift from that perspective is yeah, honest curiosity. I think it's going to create more opportunity and for different collaboration, different partnerships and we'll see. It's certainly a move that you would make when you're well beyond reacting to a global pandemic. Anyone can cheer on some kind of return to normalcy, whatever that new normal might look like, but certainly curiosity and interest into how these changes will impact service that's definitely going to be on the top of everyone's mind.
[00:44:17] Speaker B: Say they achieve 90% schedule reliability. What's your view from customers about that? Is that something they're willing to pay more for, do you think?
[00:44:25] Speaker A: Well, I think willingness to pay will be dictated by probably other factors I'd say in the first half of next year. But yeah, I mean we certainly saw that the fast boat service premium is a robust enough market that carriers are entering it because there are companies that will pay for faster service. It helps with working capital, it helps with the cash conversion cycle. And so I think as more and more supply chain leaders have that seat at the table in the boardroom like they did not have at the beginning or before the pandemic, I think these type of smart supply chain decisions are going to be made where you do you do factor in a premium for good service and for speed. Because I think the days are gone of just companies looking at the rate per teu and instead they're looking more holistically at cash conversion cycles and inventory carrying costs. And how can I deploy working capital more efficiently? Because again, companies don't compete, supply chains compete. And these changes in the alliances and the networks could create opportunities for companies to revisit how they do and manage their supply chains. And especially in a time of more uncertainty and more complexity, that can certainly be an advantage for shippers. So certainly would. If they aren't doing it now, I would then they start looking at these other options that are going to be coming up and to stop focusing as much in the rate per TEU and more on these other factors I mentioned.
[00:46:04] Speaker B: Thanks for that, Brian. Just to finish up what, what SECO Logistics got planned for next year. Yeah. Are you looking, you looking at it as a good year? Have you got any expansion plans? Maybe you want to give the Lodestar podcast a scoop about some M and A action, you know, feel free.
[00:46:22] Speaker A: Oh wow. Well, that's a great Question. I can say that it's called fishing.
Yeah. No, and, and I love fishing. Everyone loves fishing. No, I, I have to say that I, I think probably like a lot of freight forwarders, we're, we're going to be so focused on some of these potential disruptions and changes to support our clients. And I'd say in going into Q1 of next year, that's going to be more of the urgent focus right now is really supporting our clients. But beyond that, I think, as I shared earlier, one of the areas that I think when companies have become more diversified in their supply chains, they've implemented China plus one strategies, so too have we expanded. And so our, I'm excited about our ability to help our companies, our customers on these journeys because we expanded in Malaysia, we expanded in Singapore, we expanded in Thailand, in Vietnam, in India, and even in Portugal. The reason why I'm excited going into next year is not only our ability to support our clients in these shifts, but also beyond, let's say, Q1, these expansions for us have been some of them through acquisition, but most of them have been greenfield expansions. And so we certainly see a path for greenfield expansions going into, let's say, the second half of next year already. And not that I'm discounting any acquisition, but I would certainly see us revisiting greenfield expansions first to support where we might have a white space on the map today. But I'd say more Q1. Q2, the first half of next year is going to be all about focusing on servicing our clients during these changes. I don't think that was enough of a scoop for you to meet your fishing.
[00:48:17] Speaker B: I'm just going to be looking at where those white spots are. I know exactly what the next story is.
You heard it here first, folks.
[00:48:25] Speaker A: Yeah, yeah, the winds of change are shifting and yeah, we're certainly looking outwards already on where we might want to place that first flag. So that's certainly already in discussions. So hopefully that's your buoys kind of moving around enough that you'll know that there's some, some fish there in the future.
[00:48:45] Speaker B: Alex will get the news desk chasing you, no doubt. Brian Borg, Global Chief Commercial Officer at Teco Logistics and Lodestar publisher, Alex Linnane. Thanks for joining me today on the Lodestar podcast.
[00:48:57] Speaker C: Thanks, Mike.
[00:48:58] Speaker A: Thank you.
[00:49:02] Speaker B: And big thanks to my edited team, Karen Ball and Tom Matthews, and huge gratitude to you all for listening. Charlotte will be back with you next week for a news roundup.
