[00:00:04] Speaker A: From the IMO's climate standoff to chaos on the Trans Pacific, 2025 has been a year when freight buyers have needed both nerve and noise canceling headphones. In this episode we get straight answers from two people who've seen it all inside the carriers and across the contracts.
[00:00:22] Speaker B: I'm skeptical about a bounce back.
[00:00:24] Speaker C: I don't even know what a GRI is, put it that way.
[00:00:27] Speaker B: There is this element of chasing market share that's happening, so I think, you know, the bcos can leverage that.
[00:00:34] Speaker A: What's your strategy on Asia, Europe? I mean, are you hoping for a rate swap?
[00:00:40] Speaker C: I think we're going to be looking to lock in again at least 80% of the volume that we have into contract.
[00:00:46] Speaker B: What I think they might do is start to look at secondary trade.
[00:00:50] Speaker A: No way.
[00:00:51] Speaker C: No way I'm answering that question.
[00:00:55] Speaker B: You are listening to the Freight Buyers Club. This podcast is brought to you by your host Mike King and produced in partnership with Demurco Express Group, a global 3 PL that specializes in managing logistics to, from and within the Asia Pacific region.
[00:01:10] Speaker A: Hello one and all. I'm Mike King. Welcome to the Freight Buyers Club. And as you just heard, this episode is produced with the kind support of demerco Express Group. A bit of quick housekeeping before we dive in. You can find us on all major podcast
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And just a heads up, we'll be referencing a few charts in today's episode, so if you want to see what we're talking about, check out the video versions.
And with no further ado to my two distinguished guests. First up is Mark Chadwick, President of the Global Shippers Association. He represents some of the world's biggest cargo owners. From appliance makers to energy companies. Mark is one of the industry's heavyweight buyers, negotiating long term contracts, both ocean and air freight on behalf of major global brands. And despite his rather English tones, he's been based stateside for quite some time. Welcome back Mark.
[00:02:24] Speaker C: Thanks Mike. Great to be with you again.
[00:02:26] Speaker A: You are very welcome. And joining Mark today is Chantal McRoberts, director of Drury Supply Chain Advisors, where she helps global shippers make sense of the ever changing container market.
Before joining Drury, Chantal spent years inside major carriers. So we'll be interested to hear today if she thinks of herself as more of a poacher or a gamekeeper. Welcome Chantelle.
[00:02:48] Speaker B: Great to be here. Thank you.
[00:02:50] Speaker A: Okay, before we dive deep into container markets and freight buying strategy and look for some lessons out of the chaos of 2025 that might help people next year, I've got to, and there's a bit of me that's probably reluctant here because I know it's not everyone's favorite subject, but we've got to start in London and it's got to be at the International Maritime Organization.
Earlier this month we had a major non decision on ship emissions rules. The Marine Environmental Protection Committee, or mepc, wrapped up its latest session without agreeing on a global greenhouse gas pricing mechanism or a mandatory marine fuel standard. The framework that was meant to drive shipping towards net zero by 2050.
Basically the US and a number of other countries, many, it has to be said, align with bulka tanker or fossil fuel interests, basically balked at the agreement at the last second. Talks will now drag on into 2026 which means uncertainty for everyone. Carriers that have invested heavily in new ships and alternative fuels have just lost the regulatory tailwind they were counting on. And for shippers this could mean more regional rules, more patchwork regulation and no clear sense of what carbon compliance is going to cost over the next few years. So mark to you first. You represent some of the biggest buyers out there. Manufacturers, energy companies, healthcare. How does this delay in global emissions regulation affect your members forward strategies? Is this a sigh of relief or are they more worried about yet another layer of ambiguity and cost risk?
[00:04:25] Speaker C: Yeah, I don't think it's going to change any of the strategies of the actual shippers in our group in terms of they have their own plans that they work towards the things that they can directly control.
So continue to work on those. We continue driving improvements on emissions and sustainability in general. That's not going to change. I think what's terrifying is you mentioned about the patchwork. You know, chaos like that's not good for anyone. It just feeds into another opportunity for different price impacts with different carriers, different providers and you know, we need some commonality so hopefully we get to one day, but it seems very unlikely. I don't think it's going to be a big impact for us in the short term and it's from a cost perspective it's just going to be another chaotic point, something else to add into the mix, but probably lesser of an impact than the demand and capacity fluctuations.
[00:05:19] Speaker A: We're seeing another unknown in a year of unknowns. How does this play out in terms of leveraging contract negotiations, Mark, does it push carriers for fairness, sustainability commitments on your own terms or does it actually reduce more leverage? Because, well, the regulator, it's just ease, I guess.
[00:05:37] Speaker C: Yeah, I never really felt like we had a lot of leverage in this respect in the first place. Partly because if the carriers came back with something that came with a price tag, the shippers had to be prepared to pay extra.
So I don't know that we had too much leverage in the past. They're going to, you know, they'll still offer okay capacity pricing. Oh, and we've got lower emission ships. It's another thing for us to look at, but I don't think it's changing our negotiation position much.
[00:06:04] Speaker A: Chantal, what does this mean for shippers and how should global cargo owners now think about procurement, contracting and freight budget risk? Does this change anything?
[00:06:14] Speaker B: Mark has summed up really nicely. I think it's really an area where people are thinking about it, they're not doing anything about it. And it's really fallen to the wayside over the last couple years purely because of the volatility in the market.
So everybody knows the move to zero emissions is the right thing to do. Everybody talks about, you know, the fact that they have an ESG team, but nobody's really basing any procurement decisions on this. And it's more for the carriers. I think a while ago at TPM there was a conversation with one of the CEOs by the best fuel types. You're going to have to pay for it. I think the sentiment's very different now and the carriers have a lot more to worry about in terms of actually filling those ships.
[00:06:59] Speaker A: Well, I mean, how does this play out for carriers? Because they have made big investments in new ships and in new fuels. I mean, this wasn't, wasn't just because their customers demanded it. Let's be honest. There was definitely a competitive advantage move here for some of the bigger ones. So what, how do you think they'll react to this?
[00:07:15] Speaker B: Not like ordering an electric car at a three year lease. They've ordered them for long term usage.
So I think you have to look for, you know, look at the long term plan with this. And the long term plan is that we move to zero emissions, which is the right thing to do. And to do that you need the infrastructure in place. So that's what they're doing is playing the long game.
[00:07:36] Speaker A: And are you expecting more regional rulemaking? Eu, us, Asia?
[00:07:40] Speaker B: Well, I think that's a very good question.
Obviously we don't really want a fragmented world. It creates more volatility, it creates more issues with pricing.
I think again, in the short term we really have to ask our how likely is it the US or Asia will implement something similar to an eps, for example?
In my view, I think there's a lot of other things on the to do list of both of those areas where this is again, not at the top. So I think it's not ideal if we go down a fragmented route, but I think it's unlikely it will happen next year just because we've still got quite a lot of volatility and as you mentioned, the unknowns coming.
[00:08:21] Speaker A: Okay, well, plenty to keep an eye on there. Let's pivot to the Trans Pacific trade tariffs front loading, lots of unknowns. We're, we're hearing about one carrier. Okay, this is transatlantic, but you know what I mean, they might pull out of the US altogether. That's acl. Its specialist ships are getting hammered by US port fees. Now, over the weekend we had a framework agreement between China and the US as we record this on Monday, the final Monday of October. This isn't fully confirmed, but initial reports suggest China will resume buying US agricultural products once more. It will also free up its rare earth minerals controls and the US will likely not impose 100% tariff on Chinese goods as threatened. Now, we might get a bit more clarity on exactly what that tariff level will be in the coming days. But Mark, from what we know at the moment, how does all this look from your side of the table? You've got carriers moving everything from appliances to turbines. I mean, how are you coping? It's a bit of a roller coaster. And what do you make of this deal?
[00:09:27] Speaker C: Yeah, absolutely. I mean, most shippers, I think, are looking beyond this deal, whether this deal happens or not. I mean, look at what happened with Mexico, US and Canada.
There was a deal that was set up by this administration the last time they were in and as soon as they came in, that got blown up.
You know, a deal with China today might not be a deal with China tomorrow for any number of reasons. So I think most of the shippers are looking at diversification, near shoring, French shoring, getting stuff out of China, not being so reliant on China. If there is a deal now, if, if we go back to 40% or whatever, even if it was lower than that, which is very unlikely, I don't think anyone's counting on that sticking long term. We'll keep buying from China, but we're going to be buying from A lot of other places too, all around the world and manufacturing stuff closer to home where possible. That's going to keep going just the same.
[00:10:24] Speaker A: Okay. So yeah, it's very hard to bet the House on U.S. white House tariff policy.
Can I just rewind a little bit to earlier this year because it's been quite tumultuous. I think when we spoke you, you were pretty happy. You'd arranged about 80% of your freight spend on long term contracts. You had a decent amount of capacity all set up. One spot rate started to rise in that first tariff window or tariff truce window. And people watching now on YouTube and Spotify should be able to see. They should be able to see a screen now. We had this big drop in spot rates from January to April, then a huge spike and then another decline, pretty much all tariff induced.
So the market's been moving the other way since then or at least partly. How are you feeling about those long term contract rates compared to the spot market now?
[00:11:13] Speaker C: Yeah, pretty good still. I think we locked in at a low rate and it was already kind of lower than the spot market at the time we locked in it was anticipating that rates would get lower later in the year. So we look pretty good still.
I think as we get it depends what happens in the next weeks. But there will be moments when spot rates dip below the contract rates. But I think when you look over the 12 months of the year, it's going to be a small fraction of the year. And overall locking in for the full year has been great move. Guaranteed capacity has helped us be better partners with the big carriers that we're working with. And yeah, we've saved a lot of money by locking in earlier in the year.
[00:11:56] Speaker A: Chantal, I use the phrase on spot market there for the most part as people watching can see, rates are still way down year on year and versus the turn of year and against those May highs. But there is a slight upward movement on both Shanghai, Louisiana and in New York. Is this the impact of Golden Week at the start of October when factories shut down or is something else going on?
[00:12:20] Speaker B: A couple of things have happened. The Shanghai to LA rate went up by 4% last week and I think to New York it went up by 6% percent.
And the reason behind that is Golden Week. But it's also because the carriers announced general rate increases gris and we're starting to see those come through on the spot rate and they've actually I think announced some at the beginning of November as well.
It's not unusual for them to do that. But the normal cycle is they announce a gri. You see it come through a couple of weeks later on the wci, for example, and then a couple of weeks later you'll see it drop away again.
And that's what we are expecting to see.
But I think, you know, a couple of things have happened over the weekend which may impact that as well. So it's not unusual and it's certainly not unusual to see it around this time of year. So I think just watch this base and keep on tracking the spot rate indexes and that will really give you a good indication of where the rates are going for the contracting season.
[00:13:20] Speaker A: And I'll just explain there for anyone who's not so familiar with container shipping market. So we, we've in China there's two big holidays through year which causes these strange bumps and slumps in demand. And we see some block aliens. We have Chinese new year in Q1 and then we have Golden Week which ran, which was earlier in October. So the factories closed down, everyone goes on holiday. So there tends to be a demand peak just before and then it's all a bit chaotic thereafter. And Chantelle was talking about GRIs, their general rate increases. They generally come in at the start of each month and as she pointed out quite quite clearly, they're not always pushed through onto everyone. I'm sure Mark will confirm that he doesn't always have to pay them.
And the Drury wci, that's Drury World Container Index, fantastic place to find out what's going on with prices. So just thought I'd clarify that there. So Chantal, looking further out, we're hearing market talk about diminishing US inventories and a possible bounce back in Q1 product front loaded earlier this year has been sold. It's a theory anyway and it needs to be replenished. But what's your what your take?
Some analysts are a bit skeptical about this.
And how does this new US China muted deal affect planning for buyers or Drewy's forecast? Quite a few questions in there for you.
[00:14:39] Speaker B: A few questions?
[00:14:41] Speaker A: I like loading them up.
[00:14:42] Speaker B: Okay, well I'll try and answer them but some of them we've probably not even considered considering it's only Monday and I'm skeptical about a bounce back. I think, you know, aside of the tariffs, I think demand is muted. And when I look at our latest container forecaster, our outlook for North American demand in Q1 of 26 is minus 4.2%.
So clearly we're not seeing bounce back in our forecast. Our full year outlook for 2026 is minus 1.7%.
So we're not predicting positive growth for North America on the demand side, returning to about 2027. So it's really not looking good.
Now the underlying driver of a lot of our demand, of all of our demand forecasts actually is, you know, the economic outlook, gdp, you know, it's the expected measure, the correlate container volumes with. So, you know, when we know that demand is going to be muted, it's hard to say a bounce back's going to happen during the first quarter of 2026.
[00:15:46] Speaker A: Mark, I've got a slightly longer question. I wanted to give you a nice loaded one as well, but I just need to ask you how much attention do you pay to gris?
[00:15:56] Speaker C: Yeah, I have very little. Very little. It's a dirty word. It's. Yes. I don't even know what a GRI is, put it that way.
Yeah, we definitely don't go there most of the time. And I think when you're a bigger shipper, you're able to avoid a lot of those.
It's tricky. If you're shipping through forwarders, I think you're a bit more exposed or if you're a smaller shipper, but yeah, it's alien to us.
[00:16:23] Speaker A: Okay, how are your bigger shippers, your customers doing on sales versus inventories? Have you been surprised or have they been surprised by the appetite of US consumers? Are they thinking, I wish I'd moved a bit more earlier this year, or are they planning to ramp up some imports a bit later, as we discussed there, maybe in Q1?
[00:16:44] Speaker C: I think they're surprised. I think they are surprised. It really varies greatly across different sectors. Of course, some sectors are doing a lot better than others.
Yeah, there's been some surprise there, I think. I don't see inventories ramping up. So to what Chantal was saying about demand, I think even where sales have been good shippers, unfortunately, again, reliant on this stable stability. Stability, I mean it's not really no stability, but that there is capacity. You can get stuff shipped, it does arrive. And I think we've been kind of falling to a false sense of security. Maybe you don't need such a big inventory because things are calmer now. I think we, I think some folks, none of my members of course, but some shippers might get burnt by that because any we, we know very well this could change tomorrow and there could be major disruption. And if you're not sitting on a month's worth of inventory, you might have some major Issues.
[00:17:39] Speaker A: Let's look at the contracting season then, Mark, that's rolling up around the corner very soon for you. And just for anyone listening, the Trans Pacific contracting season tends to be negotiated around Q1. Mark might correct me here. And then a lot of people on that trade, they're shipping under long term contracts, normally annual contracts, but it's not set in concrete. Exactly. But Mark, what's your strategy given how you just described the market at the moment on those inventories?
[00:18:05] Speaker C: Yeah, you're right. I mean most shippers, big shippers, are negotiated in Q1, typically May 1 start date for Trans Pacific, which is different to most other trades. I think we're going to be looking to lock in again at least 80% of the volume that we have into contract.
I do expect those volume forecasts to be slightly down, though. I think demand in some sectors, some of the bigger shipper sectors will be down and that's going to mean probably slightly smaller contracts than we set up this year. But still we'll be targeting the partners that we've been working with, the big carriers that we've been trying to improve post pandemic. We've been trying to improve relationships with the big carriers. That's going to be our focus and again, locking in the majority through contracts.
[00:18:53] Speaker A: Chantelle, this is your specialist area, isn't it? Now, for those watching, you should be able to see the Drury east west contract rate index which has been falling in line with spot rates.
So is this a buyer's market? Chantel, on the Trans Pacific, I mean, I'm assuming that you're going to say yes. So can you maybe give us some historical perspective via the previous years?
[00:19:13] Speaker B: So to answer the question, is it a buyer's market? I think it is if you have the cargo to ship.
And remember, you know, the whole industry is dependent on demand. So as long as we have the demand there and people have goods to ship, it will become a buyer's market at Drury. When we're discussing the subject with shippers, we often refer to our Supply and Demand index because it's a fairly accurate barometer of what's going to happen with global freight rates in our world, 100 is the utopia. It's the perfect balance between supply and demand.
Carriers are making a reasonable profit and shippers are paying a reasonable ocean freight rate. And in that world, if you've ever seen it, everyone's happy.
However, we only either fluctuate way above a hundred or way below.
So if I look back to 2019, the index was down to 84. So again, that was a buyer's market.
During COVID it shot back up to over 100. And we all know what happened then.
20, 23, it then dropped down to 77. So you can see what's happening here, the swings, the ups and downs. And then we had the Suez crisis, which really was the gift that the carriers needed to then get that sort of tightening of the gap between supply and demand to push the spot and the contract rates up. This year we're in a slightly different position. Our index is probably about 84.85 and then we see it dropping 26, 27 and 28. So, you know, we're far, far away from that utopia where everybody is relatively happy with how the industry is moving forward. And at the moment, you know, with the index this low, it's heading towards record lows. It really will still be a buyer's market probably for the next three years.
[00:21:00] Speaker A: Okay, I'm going to, we're going to come back to the impact of peace in the Middle east, if that's what we now have a bit later, because that is critical for the overall global container shipping supply and demand balance. But we'll come back to that in a moment. Chantel, just in terms of how you would advise shippers to negotiate the market as it is now, obviously get those rates lower, but what else should they be thinking when they're committing volumes? Is this about reducing risk, improving resilience, better service? Please feel free explain.
[00:21:31] Speaker B: It's definitely not on about rates this year. I think negotiating rates is the easy part.
We work on bids with shippers and it's the first time I've seen carriers ask to get the rates in before the deadline. Everybody's rushing to get their homework in early, hoping for the best marks. It seems it's quite bizarre. And you know, if I'm advising a shipper, I'm now saying, go through your contracts with a fine tooth comb, start to focus on the other cost item and try and de risk those. They were talking fees like detention and demurrage. We all know that once the ocean crate goes down, those costs become much more visible. And people are always asked about get ahead of the curve. You know, you can start to talk about things like payment terms as well. You can start to de risk the application of any additional surcharges during the course of the year. So I would be focusing on all of those and I would be having the conversations with my providers, whether it be carriers or forwarders, to make sure they understand that my contract has to be mutually beneficial because actually we need to work together to make this work. Service, on the other hand, is a tough one because that's ultimately delivered by the carriers and it's up to them really to treat their customers like customers, not just containers in a slot. So, you know, I think as a shipper, I'm going to be focusing on building mindset with my providers. I'm your customer. You deliver me a service, I will pay a reasonable rate for the service. And I want, you know, reasonable terms and conditions around that. That's how I'd be approaching it this year.
[00:23:05] Speaker A: Mark, are the value add ons to price the type of thing that you look in this buyer's market that you're looking at for your customers when you're negotiating with carriers?
[00:23:18] Speaker C: Absolutely.
Everything that Chantal said, I think we see the same on our side over the last couple of years. Well, last few years since COVID where as there's been this swing that was a little bit more favorable to the carriers, we've seen our contracts, some of the terms that we had have been lost. There have been some more punitive terms and conditions against shippers finding their way into contracts. I think it's time to take another look at that and say, okay, do these still make sense in this market? And it's not like clipping it or reverse and being punitive against the carers. It's just finding a fair balance between the two. So we are looking at those especially for the Trans Pacific. I think there'll be peak time to kind of reset the balance there. Get decent rates, but get some capacity locked in and get rid of some of these terms that are a little bit more punitive like detention, demoral agent and some of the free time that we've lost over the last few years.
[00:24:14] Speaker A: Have we seen any improvement in reliability? Well, we have for some of the carriers. Has there been a refocus? Because we had the Gemini cooperation launch this year. That's Maersk and Hapag Lloyd with this commitment to service reliability. Is this refocusing minds amongst carriers on service at all? Mark? I don't know. Or Chantal, if you want to go.
[00:24:36] Speaker C: I mean, reliability I think is a big word in ocean freight.
If you move up from 60% reliable to 80%, still pretty terrible for most manufacturers who are relying on tighter supply chains.
There's definitely been some improvement. How much of that is due to a dip in demand, an increase in capacity?
I think probably that's mostly what's improved. And what's changed? There's not really been too much else that we've seen.
[00:25:05] Speaker B: It's a really fine balancing act. I think the carriers are in quite a difficult position because you have to deliver reliability to become a preferred carrier to your shippers. But at the same time you have to manage your capacity. And one way they do that is with blank sailings, which then of course impacts the schedule reliability.
And certain carriers have made big promises on hitting high levels of reliability.
So I really think that shippers can now sort of have those more structured conversations about listen, I'm not necessarily going to pay the lowest rate but I do want the highest level of reliability. How do you make sure that I'm on the ship and I want to be on the ship and if I'm left behind that I'm first on the next one or she has a cancelled daily. And I think, you know, vessel utilization is another thing that probably people need to start to look at because, you know, if I look at the Transpac trade, its utilization is down to about 80 to 85%. Last year it was 99%.
So you know, when utilization drops, profitability drops on these headhall trades and at that point they really need to start to bridge the capacity management which then meets schedule reliability drop. But then we come in this cycle of it and it's quite hard to break.
And we know that carriers haven't come up with a new idea as to do that. It's kind of be going on a while now.
So you know, it begs the question who has the grand plan to break that?
[00:26:40] Speaker A: So I, well, I was going to ask you what's carrier strategy on the trans pack, but I think the answer is probably loads of blank sailings if we're hitting 80% utilization, is that right?
[00:26:49] Speaker B: 80% utilization. If you haven't with blank sailings, if you've not made guarantees on schedule reliability, maybe that's, that's, that is the tricky part. If you are selling your service based on that and people are procuring based on that, then you kind of have to deliver. And actually Gemini has been doing it. Not that it hasn't, but instead of what do you know its competitors do to try and also keep their foot in the market as well.
[00:27:18] Speaker A: Okay, interesting. We've done services. Let's, let's have a look at surcharges then. It's like, I don't, I quite like talking about surcharges. Don't ask me why.
Every shipper I've ever spoken to has moaned about them, Mark. So why are they so frustrating? Or maybe they're not for you. Are you too?
[00:27:36] Speaker C: No surcharges for us ever, of course not now.
[00:27:39] Speaker B: But.
[00:27:41] Speaker C: Being realistic, I think it's frustrating because there are so many, they come out of the blue. And I think the biggest thing though is the disconnect between what the actual cost of an event that's triggered the need for surcharge and what you're actually going to get charged. Massive variance across cross carriers and zero correlation between cost and what the charge is actually going to be. When Suez happened, you know, okay, we get it, yeah, you're going to have to sail around Africa now that's going to be an increase in cost. But when you try and reverse the math and work out how much is it actually going to cost to carry it to what they're actually trying to build, massive disconnect and huge variance across carriers. And then you start hearing about, oh also on the Trans Pacific, you know, it's about Suez Canal. But you know, some of these charges, if they were tighter connected cost to actual charge, most reasonable shippers would be more open to talking about them. But there's just a massive disconnect almost every time.
[00:28:43] Speaker A: One of the reasons I was thinking about this actually chantelle posted on LinkedIn and I happened to see it that she was basically, she admitted that now she's reincarnated as this advisor to beneficial cargo owners, we like to call them that.
She previously loved an opaque baf, which is bunker baf, a bunker adjustment factor.
So this is back in your carrier days. You quite like these now presumably you don't. Chantelle, why do carriers like them?
[00:29:13] Speaker B: I think the short answer is they're often easier to implement than a general rate increase.
It's much easier to pass through your surcharge and make it stick because it's often tied either to a specific event or to a specific cost item.
However, the whole point of them is that they're meant to be cost recovery. But what we have always found, certainly in days gone past, is that they were so opaque nobody could really explain blame them. So nobody really knew if it was cost recovery. So by default it almost became a revenue generating item. And it's almost like I suppose a historic thing that you know something's gone wrong, I'm going to whack a surcharge on. It could be war risk. I think I saw an emergency revenue charge at one point from one carrier. You know, as long as it can be titled with three letters it's fine that people will pay it. And when you're Advising shippers, you know, we often say you really need to get into understanding what it is, how they're calculating and then do your due diligence to compare it to say, an independent policy or an independent viewpoint to really make sure that it's fair. And if you think it's a fair surcharge, then absolutely, you know, if you want to accept it, accept it. The other thing I would always recommend, and some people don't necessarily agree with me, is itemize it in your bid sheet, don't let them roll it into your ocean freight, know what it is, know what you're paying and then you can still look at it as an all in rate because that way at least you have transparency. And I think shifters are, you know, getting really good at it. They know now the tricks, they know what to ask for, they know how to get, you know, the details on it. And I think it does make a salesperson, a carrier's job quite difficult actually, because I think a lot of the time they don't really understand how it's calculated.
[00:30:57] Speaker A: So I don't think we're really talking about, say, charges as, as well, maybe not this next year, we won't anyway, surcharges as, I don't know, profit centers. But maybe, maybe as rates trend downwards, maybe they can, there's a possibility they might be used to fill revenue gaps, let's put it like that. What would you say is best practice for buyers to protect themselves from any surprising new surcharges? Chantelle. And you know, do you consider yourself a poacher or a gamekeeper these days.
[00:31:24] Speaker B: By the way, as a, I see myself as a reformer. So it's less about switching sides, it's more about transformation.
Such a consultant thing to say. Yeah, look, best practice, there's two things.
If it's a standard surcharge, like bunker adjustment, factor bath for fuel, set your own policy and then manage your own policy because then basically you're managing your own cost. Then if it's an ad hoc surcharge that's coming in because of the event, then you need to make sure that your contract, which goes back to what we were talking about earlier, have been reviewed to, shall we say, de risk the implementation of those. Some people will say he will accept no new surcharges throughout the period of the contract. Some people will be a little bit more flexible and say we will not accept surcharges relating to xyz. They're the two ways you can do it. You can do it with Bash, you can do it with an ETF's now you can have an independent policy. I think most carriers would quite like you to explain to them how to calculate ETF actually, and then using your contract as the tool to control that. And obviously, you know, bar world events impacting it. I think most shippers are really reasonable if they know how it's calculated and they know it's fair.
[00:32:42] Speaker A: I think everyone wants to know what ETS is really. It's another net zero thing. Guys. We're not going there on this podcast. Maybe another one. On that note, we'll take a short break and then we'll be back with some forward looking container shipping market analysis.
[00:32:54] Speaker B: This podcast is proudly produced in partnership with Demerco Express Group, a trusted provider of global shipping and contract logistics services in Asia, Europe and North America. Demerco's particular strength is in Asia where it gives shippers the freight capacity and local market expertise to streamline freight movements to and from the region, particularly for Trans Pacific lanes. With 130 forwarding and logistics locations across China, India and Southeast Asia, Demurco connects Asia with the world like no other global 3PO. You are listening to the Freight Buyers Club.
[00:33:29] Speaker A: Welcome back. Okay, outside the Trans Pacific, we've seen some big swings elsewhere as Drewy's World Container Index shows. Chantelle rates on Shanghai to North Europe and the Med have. Well, they've been moving in sort of tandem with the Trans pack when you look at a graph, but the dynamics are very different. Can you explain what's going on on the supply demand side there? Why does it look the same but why is it different?
[00:33:55] Speaker B: It probably fundamentally isn't much different because you have the largest vessels in the fleet moving on those trades and demand has dropped. So our outlook for 2026 is for Europe to grow by 1.9%. It's better than North America, but it's still not great. So we have this disconnect between supply and demand and it's certainly nothing to shout about. So I think that trade, it's notorious when we see the Supply and Demand Index up to drop. The Asia Europe rates always drop and they always drop fast because, you know, it's really, really competitive not just with carriers, not just with global forwarders. You also have the local forwarders out in Asia touting business and you know, out there offering lower rates. So you get this, the waterfall effect quite quickly on that trade, which I think, you know, that's why the rates will say so quickly.
There is an elephant in the room with that as well. Whether it be Asia, Europe or Asia, and that potential wide use of the Suez Canal as well, which will create that gulf to widen even further.
[00:35:02] Speaker A: I'm going to get your forecasts with the Suez Canal closed and with the Suez Canal open a bit, a bit later. But on that contract season in Europe, right, that comes up at the turn of the year, this. It runs at a different time of the year to the Trans Pacific. So those negotiations are underway now between carriers and shippers. What's your advice on that lane, then, Chantelle?
[00:35:24] Speaker B: This is where we're seeing carriers being really keen to participate in bids and there is this element of chasing market share that's happening. So I think, you know, the bcos can leverage that. However, what I would say is take your time and make your selections based on best match. So I think shippers can be a bit more selective. They can also deselect certain carriers where they have had, say, operational difficulties. And we know some are having those conversations and they are actually reducing their provider lineup just because they know there is more than enough.
Some shippers are thinking about mixing the contract in the spot, so moving a proportion on the contract rate and then keeping some back to move on the spot market just to get the cost efficiencies. And I think again, you know, just revisiting all the terms and conditions and then really looking at how you're going to manage your allocations throughout the year is probably one of the things that you get. Well, a couple of the things you're going to be looking at.
[00:36:22] Speaker A: So blanks on the Trans pac. Did you just predict a battle for market share? When I hear battle for market share, I'm thinking some sort of massive rates war. Can I get that headline in there?
Rates war? No Rage war. Battle for market? Yeah. Do you think about market share on Asia, Europe?
[00:36:41] Speaker B: I think that if I were sitting in a carrier trade management right now and I was doing my budget, I've got to think about how I'm filling my ships. And often when you're doing that, you're thinking about what's my baseload cargo, what are, you know, what's my contract cargo? Because that's, you know, if we think about a ship, that's the bottom of it, it's secure. I know I'm going to be moving it through the year and people will want to win that. But how do you win it is another matter, because it's price is one thing, but then you have to start to offer the schedule reliability as well. So I think certain carriers with very large Order books who are known to chase market share.
[00:37:19] Speaker A: Will do MSC then. Okay, Mark, Mark, can I move to you? What's your, what's your strategy on Asia, Europe? I mean are you hoping for a rates war?
[00:37:31] Speaker C: I think I have to be careful. I would say we'd like to see competitive rates and rates to be as, as, yeah, to be as competitive as possible. I think rate war itself, there are no clear winners. If we get to that point again, rates will hit rock bottom and then as soon as something changes in the market, the carriers are going to have to, you know, they'll start throwing out new surcharges or they'll stop picking up contract shippers and they'll be switching to spot market. So you end up losing either way.
Obviously we're negotiating right now Asia, Europe, Europe, asia for a January 1 start date to those contracts and we are seeing some pretty radical reductions in pricing for a 12 month period locked in. And to Chantal's point, I think there are definitely carriers really looking to keep the ships as full as possible for next year. So it's going to be, that's where we're going to see some big savings and I think it'll lead into Trans Pacific.
To your point, those two things are kind of, one's going to follow very quickly after the other and probably a very similar trend.
[00:38:38] Speaker A: This next one's for both of you. It's sort of, it ties into a bit with Asia, Europe and Transpac really. We've been covering it a fair bit on the Freight Buyers Club. What we've seen this year on contained shipping is relatively, as I was mentioning earlier, stagnant volumes on the trend well into and out of the US Whatever the trade. Well, we've seen exports from Asia into other markets, sort of South America into West Africa, into Europe as well. They've been growing. And Mark, maybe you can go first on this one. Have your customers been shipping more product to these other markets? Has that been something that's happened as, as maybe the US has become less attractive or. I don't know what the, the fundamentals behind it are. It's what we're clearly seeing on, on the container side as we can show you on screen shortly.
[00:39:26] Speaker C: Yes, absolutely. I mean we, we talked before about friends shoring or diversifying away from China. So that's, that's been part of it. Right. We'll, we'll be manufacturing the new location somewhere else in the world. We'll still have to shift past the materials to that new location.
So definitely when you look At Asia to Latam, that's been a big change.
Asia to Mexico, we've seen a big increase from our shippers.
And then in China to Europe, obviously we'll see what happens long term there. And I know the numbers indicate that trade down as well, but some of that supply that was going to the US from Chinese vendors are now looking to sell that into Europe and so we're seeing some increases there for sure. So in the end, carriers are going to have to look at how they deploy capacity where it makes most sense.
Once we've come out of this contract season, we'll probably see some routings change, some alterations that will make things unstable again for certain shippers but will be beneficial to others.
[00:40:29] Speaker A: Chantal, these high growth rates of volumes out of China particularly, but out of Asia in general into these alternative destinations, the U.S.
i mean, what do you make of it? Is this long term, is this people selling where they can because of uncertainty.
[00:40:44] Speaker B: In the U.S.
i think we have had the impact of tariffs. We can see that China in particular has tried to diversify with its partners on its certain trade lanes and it has been chasing those. I think on the other side of the coin, we do know that shippers are looking at other locations because they need to de risk their manufacturing as well.
So I think this will continue to happen. I think, you know, growth with countries such as West Africa, you know, it's a big growth number, like 35%, I think 24 versus 25 for the first eight months of the year. You have to look at the absolute TU number. It's much, much smaller. So when we talk about carrier strategy, they also have to look at that. So they can't chase the big 35% when, you know, 10 million TU are still being moved from Asia to west coast coast, North America, they still need to serve that trade.
So I think we will see shifts, but I'm not sure we will see massive TU volume shifts over the course of 20 states. You'll see growth, but you will, you won't see the big sort of manufacturing shift because if I'm honest, I just don't think the infrastructure is there in some of those other countries anyway. If you're talking about imports into the US and then I think for China, it's, you know, who've got the demand for their goods. And I think it's a very different profile to their traditional partners.
[00:42:04] Speaker A: Mark, on that idea of de risking sourcing, are you finding that a lot of your clients are your members are really, they've changed their strategy this year or is there just been too much uncertainty to make long term plans?
[00:42:19] Speaker C: It's definitely, but it's, it started before this year. I think that the rat has been on the wall for a while. It's maybe accelerated this year, but we'll go into next year as well. We'll continue to build on this. There will be some diversification away from China, regardless of whether there's a deal now or not that's going to happen.
[00:42:37] Speaker A: Okay, Chantal, I'll just come back to you. So just looking into 2026, we've sort of covered this a little bit. Can you give me two different scenarios please? What does the container shipping supply, demand balance look like if Suez Canal stays short and what happens if it's the other way around and it's open and we don't have these vessels diversifying and it takes what, 10% out of the, that's been wrapped up of the global container shipping fleet being wrapped up traversing Africa. What happens when that goes through Suez? Apart from absolute chaos on Asia, Europe trade briefly, what happened to that supply, demand balance?
[00:43:13] Speaker B: Suez open scenario is for the supply and demand gap to widen even further.
You have the release of the latent capacity coming back into the market. It's a bit like, you know, the COVID effect when congestion eased and we had all of that capacity rush back into the market. And you could see very clearly on the rate curves how quickly and steeply the rates dropped. So in the event that the sewers becomes widely used again, we would expect a similar pattern. We would expect the rates to, to drop. We know that the supply and demand is going to be at a record low at that point because not only do you have the latent capacity coming, you have the order book. There's still a big order book to hit. We know people are even ordering this year.
So it's not a problem that's going to go away.
I think the question that I don't have the answer to is at that point, what is the floor of the rates? Because we just don't quite know how bad it be. Could, could be and you know, a record low on supply and demand then means there has to be potentially a record low on ocean freight rates. Nobody's willing to say what that is and nobody really wants to talk about it. Particularly on the Asia, Europe trade because probably at that point, you know, you're into a negative freight rate. By the time you take out your terminal handling costs and all your other surcharges, you know, for shippers, they May see this as a good thing. You know, they're going to, you know, save a lot of money.
For carriers, it could potentially be a bit of a bloodbath at the end of, on their profitability. I think even with the Suez remaining as it is, our forecast for 2026 is, you know, for an EBIT of minus $10 billion. So imagine that with the Suez open, minus.
[00:44:52] Speaker A: Okay, 10 billion without Suez. Okay, interesting Mark, no one ever wants to pay more for anything, but at what point how much excess capacity and how far would those rates need to fall before you went, hold on, I want to pay a little bit more than that. I want service and price stability.
[00:45:09] Speaker C: Yeah, I mean this a tough one, this pendulum swinging. When it swings so far to our direction, it's not good for us long term because it just means this pendulum is going to swing back even harder the other way. I will say that there were times where, when in the last total dip of the market where we never actually said it, but it did feel like really, you want to give us that rate, that's how low you want to go. And it happened.
As long as it's a partner carrier that's offering us those prices.
As long as it's clearly not a bait and switch. I'll give you this, you move your freight over to us, well then a month later we're going to double the rates again. As long as that's clear, we're going to have to take the best rates out there so we can stay competitive.
But yeah, I'd really encourage the, the carriers to give us a great deal, give us some deflation. But don't do it so well. So much so that you end up coming back with an even bigger bite when it swings the other way.
[00:46:10] Speaker A: Chantal, just for someone like, who's not really like maybe follows the container shipping demand we talked about, what, what, you know, how far could rates go?
Do carriers have an out? Maybe you could just give us a bit of insight because we've got record order book.
So someone might just be thinking, well why don't they just get rid of a load of ships? Why don't they park them, lay them all, scrap them? What can carriers do? Is there an out for them?
[00:46:38] Speaker B: I just don't think that there's a definitive out. I think they have to look at their capacity management tools. I think they have to really look at their operational planning. What I think they might do is stick start to look at secondary trades. We all get really hyper focused on Asia, Europe and Transpac. But Actually, some of these secondary trades have a much tighter supply and demand curve, primarily because they haven't got the large ships operating on them.
So we hear things like Maersk going into the Inter Asia market quite aggressively and that's because they know that there probably is some revenue to be generated there. So I think what we might start to see is a greater focus on things like intra Asia, maybe intra Europe. You know, some of these hidden trades that, you know, don't make the headlines but actually do prop up some of their business. So I think they might start to look at their networks a little bit more closely and really try and figure out where their best efforts should be.
That's not to say, you know, profitability is driven off a head whole trade. They will have to sort of chip away at it. But I think, you know, to Mark's point, we know shippers want reliability and if they feel they will get that consistently, then that might help keep the floor up a little bit. But that again is down to the carriers to deliver. So again we get back into this cycle between the two.
[00:47:59] Speaker A: Thank you very much for that. Okay, let's just finish. Let's do a few quick fire forecasts. One line each, please.
So which trade lane will support prizes most in 2026, upside or downside?
[00:48:13] Speaker B: For me, North Africa to Europe or.
[00:48:15] Speaker C: To the U.S. and for me, India, outbound from India because there's so much unpredictability there because of the tariffs from.
[00:48:21] Speaker A: The U.S.
okay, which carrier is most likely to blink first in any price war?
[00:48:25] Speaker B: Msc, msc.
[00:48:27] Speaker A: Ones who are buying. No way.
[00:48:29] Speaker C: No way I'm answering that question.
[00:48:31] Speaker A: Mark's taking. Mark's taking the fifth. He's so aggressive now. He's so American.
What's the wild card regulation, Geopolitics or demand? What keeps you awake at night?
[00:48:42] Speaker B: Probably geopolitics every time. And maybe the new East Wing nurse.
[00:48:47] Speaker A: The new East Wing. I think that's a question for the White House, Mark, are you worried about the White House?
[00:48:52] Speaker C: Geopolitics? Geopolitics all the way at the moment, yeah. For the next three and a bit years at least.
[00:49:00] Speaker A: Okay, another one for freight buyers. What's single metric? Should they watch closest in 2026 to spot trouble early?
[00:49:06] Speaker B: I'm going to say schedule reliability.
[00:49:08] Speaker C: Actually, I'd say the Drury they've plugged for Chantal the supply demand index. It's really good.
[00:49:16] Speaker A: Mark's after another discount. Like he doesn't get anything.
And finally, one way to describe the 2026 freight market.
[00:49:25] Speaker C: Vincent, roller coaster.
If that's one word, I think.
[00:49:30] Speaker A: Well, I don't know. We could put a hyphen in there. We can pretend.
[00:49:33] Speaker B: An Intense Roller coaster.
[00:49:35] Speaker A: Yeah, right. We've nailed it. That's got to be the title of the podcast, doesn't it?
Intense Roller Coaster with Mark and Chappelle. Mark and Chad Bell, thank you so much for your time today. It's been a real laugh.
You've cut through so many of the key things for freight buyers, so I really appreciate you both coming on.
[00:49:54] Speaker C: Thank you.
[00:49:54] Speaker B: Thank you.
[00:49:56] Speaker A: The takeaway this time, uncertainty's back, but opportunities in there, too, especially for shippers who plan early and stay close to their carriers and forwarders. Big thanks to the Merko Express group for supporting the show. If this conversation helped you sanity check your 2026 planning, share it with a colleague and don't forget to subscribe. Thanks also to Karen Ball and Tom Matthews for the their production skills and endless patience. Most of all with me. We'll be back soon. I'm Mike King and this is the Freight Buyers.
