Episode Transcript
[00:00:03] Speaker A: You are listening to the Freight Buyers Club, a home for those interested in international trade, shipping, procurement, logistics and air freight. In fact all things supply chain in the Americas, Asia and beyond. 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.
[00:00:30] Speaker B: I'm delighted to be joined once more by Lars Jensen, CEO of Espuchi Maritime, in the midst of breaking news. Lots of breaking news here at TPM in Long Beach.
Lars. The first bit of breaking news. We've just heard about a major deal for Hutchison ports outside China. There's a deal involving MSC's port operation Tilt Blackrock has skimming skinning the game here as well. Two questions is is this related to Hutchison's ownership of ports in Panama that have been on the in the firing line a little bit from the Trump administration?
Is this about something else? What and what does this mean for msc? I know it's early days to spend, we're sort of speculating at this stage, but it's a huge deal, isn't it?
[00:01:17] Speaker C: It seems to be a huge deal. I mean, yeah, I've only just seen the deal specifics as well it appears, at least that's my understanding for now, we are talking 45 ports around 23 different countries. Not it doesn't include the ports in China and Hong Kong, but it seems around the world. So this is way, way bigger than Panama and this is not just the two terminals down in Panama.
If this is true and if the link as it appears to be, that a lot of this is linked into TIL, which is MSC's terminal operating arm, this could potentially catapult MSC to de facto be one of the world's very, very largest terminal operators.
[00:01:53] Speaker B: Obviously they're already the biggest terminal container line. What does this mean in terms of what they can offer operationally to customers?
[00:02:02] Speaker C: Yeah, we need to look at the details on what specific ports is how does that match with the MSC network. But it does appear to then lead them down a path where they're going to have a lot more of especially the hub ports that are now also under MSC's own control. Now we just heard here earlier at TPM today how Gemini for them is absolutely critical in their hub and spoke setup that they control their key hubs. This deal potentially will increase dramatically how many of the key hubs that MSC is using is now under MSC's control and could therefore be used by MSC to also increase the performance of their own network.
[00:02:36] Speaker B: Obviously, Gemini cooperation between Maersk and Hapag Lloyd.
One of their big sales points of that is their ability or their hope that they can offer 90% schedule reliability. Does, does this catapult MSC into sort of the realms of being able to offer exactly the same? Is it maybe. Is this some sort of competitive pressure?
[00:02:55] Speaker C: No, I would not necessarily see it down that way. I would see this. This allows them to optimize the operations a lot more. That will likely help them also reduce some of the costs. I would not offhand think that that could catapult them to the same performance level. That is not to denigrate msc. That has actually improved their performance on reliability dramatically over the last decade. But more from the point that MSC services the way they're designed simply call a lot more ports than what the Geminis do. And every time you call a port, there's always a risk that something goes wrong and you get delayed.
[00:03:26] Speaker B: As I said earlier, the news is breaking all around us. It's the 4th of March. I should timestamp this because who knows what's going to happen on the 5th. This is day one of a whole bunch of new tariffs. 25% on Canada, 25% on Mexico, an extra 10% on top of the previous 10% on China. How's this changing your view of container shipping in 2025? This trading landscape's evolving really quickly.
[00:03:55] Speaker C: Yeah. Right now it doesn't change the view I've had for several weeks now. The problem is terrorists change almost by the day as it is right now. There's also my sentiment speaking to a lot of the supply chain participants here at the conference.
There is no point in trying to change the supply chain right now in reaction to the tariffs because they might change tomorrow and then there'll be new ones the day after. So it's a matter of fine. They'll live with whatever tariffs shoot up and come down over the coming weeks. Once the landscape starts to solidify, that is the point where we'll start to see supply chains be rearranged. But not right now.
[00:04:27] Speaker B: Is this landscape ever going to solidify? I think the other unknown we've got. We don't know what's happening in Suez at all. We don't know what's happening in the Black Sea either. Obviously, here in Long Beach, a lot of people are signing Trans Pacific contracts. Does this affect how people. How much volume they're willing to commit at this stage, what the length of the contract might be, how much they're willing to expose themselves to the spot market.
[00:04:50] Speaker C: Yeah, you can say quite a few of them are trying to build in some contingencies in the contracts. There's a lot of talk around town on also going deeper into index link contracts, because for a lot of the shippers, this is about making sure that you at least have access to space when there is unpredictability on the rate levels.
[00:05:08] Speaker B: Are you expecting contract levels this year? Where do you think they'll be compared to last year?
[00:05:15] Speaker C: Offhand, I don't really have a good view on that because my perspective, I know that is not very helpful to anyone, but my perspective is simply that the uncertainty we are looking at with different scenarios unfolding this year means that giving any one number is likely to be way off. We're going to see an extreme volatility in the rate levels. And when I say every single year, everybody always says, well, there's uncertainty about the rates. I mean, I've been in the game now for almost 25 years. I have not seen uncertainty at the level we are seeing it now. We will always have uncertainty. Sure. Is there a recession? Are the consumers buying? But the level of uncertainty injected by the current U.S. administration, that's a new level of uncertainty because we've never seen any governments change policy and tariffs as rapidly, and we have never seen any governments introduce rules based on essentially a false understanding of how the market works in the first place.
[00:06:08] Speaker B: So Trump is trumping Trump, I guess, you know. Is that how you would put it?
[00:06:14] Speaker C: Sorry.
[00:06:15] Speaker B: Is Trump trumping Covid in terms of uncertainty?
[00:06:19] Speaker C: In terms of uncertainty, yes, he is.
[00:06:23] Speaker B: Where do you see this playing out in terms of. In terms of trade policy? We're going to have all this retaliation. We don't know what's happening with the eu. I mean, I guess this could then play into transatlantic trade later in the year as well.
[00:06:35] Speaker C: No, it's going to play into the transatlantic likely in April. I mean, Trump has already said he's going to come with EU terrorists by April. And say what you will about the guy, he tends to follow through on whatever he says there. So the Atlantic is going to be impacted already in April. We just don't know exactly by what and by how much and where. And where is this going to end? For now, it seems we're going to go through a tit by tat escalation. I mean, Canada has already announced their retaliatory tariffs. Trump has also today now announced he's going to come with retaliation to the retaliatory tariffs. This is likely going to go on for a little while until we get to a point where this becomes so fantastically costly, especially in the US Economy, that people in the circle around Trump will find some way to not de escalate the situation, but at least stop it from spiraling further.
[00:07:22] Speaker B: I mean, it seems sort of almost, with so much going on at the moment, it seems sort of like the wrong question. But with, with the inventory levels where they are, are we going to return to some sort of normality in terms of the seasons of shipping? Are we going to have a Q3 peak rather than last year where it was more Q2? It was an early start.
[00:07:40] Speaker C: No, I would not hold out hopes for that. I mean, we already now have significant amounts of front loading which we shouldn't have had at this time. I would expect peak season to kick off early again. One reason is again, the Red Sea, it's a longer sailing distance, same as last year, so that effect is still there. If the tariffs continue to be that uncertain, there's still an incentive to keep front loading. What really concerns me is if we have all this front loading and then once we get to say Q3 or Q4, the US consumer finds out how expensive this is, they rein in spending, then suddenly you're going to see bloated inventories and no consumer spending. And that could spell a crash for container demand.
[00:08:16] Speaker B: Right. And that all could happen maybe when the Suez Canal opens up. So we'd have a drop in demand and an increase in supply.
[00:08:22] Speaker C: You could, but then when the Suez Canal opens up, that's a whole other kettle of fish. When it opens up, you're going to see port congestion in Europe worse than anything we've seen before. So when the Suez Canal opens up, the easy argument is we get overcapacity. But that's not true right off the bat. Right off the bat, we get port congestion. So things might get worse before they get better.
[00:08:41] Speaker B: I was trying to think of a non Trump question and I'm failing miserably. What do you think of these potential port fees that the Trump administration is talking about imposing on China linked vessels, calling it US Port calls? What would that mean operationally? What would that mean in terms of, I know, the viability or the economics of container shipping?
[00:08:59] Speaker C: I would say in a normal world, that bill would have hit exactly 0% chance of being passed the way it is because it is extremely destructive in the way it's obviously written by somebody that hasn't got the slightest clue how shipping supply chains work. That that is very evident. If it is implemented as is a rough ballpark. I'm not all done with my modeling but the rough ballpark I have so far indicates more than $20 billion a year in cost if nothing changes. But things will of course change because this is a fee per port call. And if you look at liner shipping networks into the US east coast for example, they tend to call three or four ports. If I'm going to pay a million dollars a port call, I'm not going to call three or four ports. So you're going to see all the carriers change their networks dramatically. They will cut off a lot of the smaller ports called the larger ports. That means a lot more volume flow through fewer ports. That's going to put the hinterland under pressure and it's quite simply unworkable.
[00:09:51] Speaker B: I mean maybe the end game for this is somebody somewhere thinks that you're going to rebuild the US shipbuilding industry and you need to have a US flagged fleet out there.
Can you maybe explain to someone who doesn't know the shipping industry as well as you how difficult that would be?
[00:10:06] Speaker C: Yeah. To start with, we have to separate between whether the ships are actually built in the US or whether they are U. S Flagged in. In theory, fine. You can take a ship and flag it into the US it's going to be extremely expensive because if you want to flag it into the US you're going to use US Crew which doesn't exist. So you're going to spend quite a lot of time training enough crew to to actually man these ships. You cannot do that from one day to the next. The next thing to keep in mind is if you then flag in over here, you might be subject to US corporate tax instead of tonnage tax which is also extremely costly. And there's a whole bunch of elements in theory that could be done given enough time. But the bill here also mandates that 7 years in 5% of all US exports needs to be moved on US built ships. There is not the yard capacity or the yard know how to build these big ships. To have them operational seven years from now, that is just not possible.
[00:10:57] Speaker B: Pie in the sky.
[00:10:59] Speaker C: It's more than a pie in the sky. It's somebody's hallucination. I mean as I said quite literally this is clearly written by someone that do not understand how liner shipping works.
[00:11:08] Speaker B: Lars Jensen, CEO of this beachy Maritime. Thanks for joining me today.
[00:11:11] Speaker C: My pleasure.
[00:11:14] Speaker A: We hope you enjoyed this episode of the Freight Buyers Club produced in partnership with the demurco Express Group. Please subscribe and follow on your platform of choice or sign up for delivery to your inbox@the freightbuyersclub.com this podcast wouldn't have been possible without the fantastic editing of Karen Ball and Tom Matthews. And finally, thank you all for listening. The next episode will be with you soon.
