Episode Transcript
[00:00:00] Speaker A: Boost your EBIT by 10% in just a few months. Sounds like another empty promise, doesn't it? Maybe. We'll tell you it's magic. A sprinkle of fairy dust and poof. Your profits soar. But here's the deal. No fairy dust, just proven results. We've slashed late billing by 80%, recovered millions in missed revenues, and cut cash cycles by five days for some of the world's biggest forwarders. Real numbers, real impact, real fast. If you are ready to find out how we do it, visit www.entagos.cloud.
[00:00:35] Speaker B: 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.
[00:00:44] Speaker A: The Americas, Asia and beyond.
[00:00:50] Speaker C: Global shipping is under fire. Tight tariffs, port fees, green mandates, geopolitical shocks, and the decisions being made right now could ripple across supply chains for years to come. With us today to break it all down, Joe Kramer, President and CEO of the World Shipping Council and the man at the heart of the fight over the future of maritime trade. Hello, I'm Mike King and welcome to this episode of Freight Buyers Club Insight, produced with the support of Ontigos Cloud. If you're new to this podcast, please do follow us and subscribe. We're on all podcast platforms and on YouTube. President Trump's tariffs are back. Washington is taxing not just Chinese goods, but also the ships that carry them. New rules are hitting manufacturers, retailers, carriers and supply chains at a dizzying pace. If you depend on shipping or international trade, your costs, your reliability and your resilience are all on the line. And of course, that goes for container lines as much as any other supply chain sector. To help us make sense of all of this from a carrier perspective, we're joined by Joe Kramech, President and CEO of the World Shipping Council, the voice of the world's container lines at a time when global trade stability is anything but guaranteed. Joe, welcome to the Freight Buyers Club.
[00:02:10] Speaker B: Thanks for having me today, Mike.
[00:02:12] Speaker C: So, Joe, after decades of the U.S. coast Guard, including representing the U.S. at the IMO, you stepped in as CEO and president of the World Shipping Council last year just for our listeners. Previously, you're the WSE's Director of Government Relations. It's been quite the baptism of fire, not least because what was a slow burning trend of increased protection and barriers to trade as it sort of accelerated in ways that nobody really imagined? Now people are talking about the end of globalization with regional supply chains, or more regionalization, even neo mercantilism or a new cold War and all this coming as hot wars are more prevalent than we've seen for decades, not least, as everyone in container shipping knows in the Middle east, because we've seen the de facto closure of the Suez Canal for most of those container lines. So from where you sit, is the world that's emerging one of opportunity or is it one of concern for your members?
[00:03:11] Speaker B: We're optimists, Mike. And yeah, there is a lot of geopolitical tension, strife and unexpected events that you have to deal with as you navigate the world and carry global trade. But generally speaking, over the past several years the trade has gone up about 3 to 4%. It's predicted now to be less so this year. But you know, we can't just focus on the United States. It is global. And there's a lot of new emerging nations and markets that present both opportunities. And the most important thing, you know, is that the liner shipping by carrying global trade at very low cost delivers the first world to the third World and the second World to both. And it's really done more than almost any other industry to raise the standard of living for folks living in the least and lesser developed nations by giving them access to these first World products at cheap rates.
[00:04:09] Speaker C: It does sometimes feel like the benefits of free trade and globalization sometimes get lost in the political mix just on these more immediate disruptions. We heard on the last episode of the Freight Buyers Club about huge numbers of blank sailings into the US factories in China being abandoned, cargo not being collected at U.S. ports. We're also seeing this mad cap dash to get cargo out of southeast Asia during 90 day tariff window pause for many of those countries before we might see more higher tariffs coming in later in the year. Can you explain to listeners a little bit about how carriers are responding to all this chaos and these new barriers to trade and these deadline cliff edges that we're seeing?
[00:04:50] Speaker B: Yeah, so I think first what you highlighted, sometimes it gets lost when you talk about ocean carriers. But we serve the trade. Shippers are our customers. And our customers who are shippers have basically looked at 145% tariffs coming into the US and 125% going back to China and put a lot of that trade in suspense until some other resolution comes out because it's just too expensive. So there's been a lot of adjustments on that network. You know, I'd invite your listeners to look closely at the excellent statistics at the Port of Los Angeles and Port of Long beach put up. But it is a drop off. And so you do have to respond to that. Now you also mentioned some of the other areas in Asia, like Vietnam, where those tariffs are in suspense, at least the larger ones. Obviously shippers are trying to rush in cargo before the other shoe drops and those tariffs go back into effect at very high rates. And that's just, they're just responding to the behavior signals that the US Administration is, is putting out there.
[00:05:57] Speaker C: Frankly, during the pandemic, Joe, we saw how easily global container shipping could break when, when the system gets continually disrupted. You know, we get ships stuck in the wrong port, containers pile up where they're not needed. If you throw in what we've got at the moment, which is unpredictable new tariff rules, port fees, possibly regulatory changes, is there a real risk that we could be setting ourselves up for another reliability crisis or even even some sort of whiplash effect that we saw during the pandemic? If things change really quite dramatically, again, maybe reverting back to no tariffs just as one scenario. Because in the pandemic the container carriers got hammered for things like detention and demoria fees. But it wasn't always their fault. They were at the whims of supply and demand.
[00:06:46] Speaker B: No, I'm glad you recognize that. It's important to remind listeners that know when we think back to that terrible time In November of 2021, in the midst of pandemic, when there were over 100 large container liners stranded off the ports of Southern California, there was plenty of container liner capacity. It's just the ports couldn't process all the cargo that was being ordered and that's where the bottleneck occurred. So hopefully we've gotten a little better at that. So I don't see a reliability crisis as much. And in fact, unfortunately, if the volumes on the ports have dropped off as much as the ports are reporting, there is plenty of capacity. I do, on the other hand, see a risk of a whiplash effect because the zigging and the zagging and the ever changing policies, like I said, shippers are trying to respond to those to serve their customers. We're trying to respond to those to serve shippers. And when you surge supply and demand like that based on inputs that aren't market driven, you definitely risk a whiplash effect.
[00:07:49] Speaker C: And I should add, I mean, a lot of our listeners will know this, but some carriers particularly, I'm thinking Lloyd and Maersk of Gemini Cooperation are real taking real steps to improve reliability. So if that scenario did bear fruit, and well, fruit's probably the wrong word, but if we did end up with a whiplash effect that some of their plans would be thrown into disarray, I would imagine. In your view, is there a tipping point in terms of the scope of these disruptions?
[00:08:14] Speaker B: If we're talking specifically about the US.
[00:08:17] Speaker C: I'm thinking more that Trans Pacific trade. Yeah, yeah.
[00:08:20] Speaker B: The tipping point I think is the US consumer. You know, everyone has always consistently said don't bet against the US consumer. But there is a tipping point when you put tariffs at the levels that they're at with China, which was your largest trading partner. And it runs in the other direction too for, for U.S. businesses and manufacturers and especially U.S. farmers. U.S. farmers grow 20% more than we domestically consume in the United States. And China is the biggest exporter and buyer of those cargoes. And right now, I mean they're not saying a crisis is coming, they're saying it's already here because China has for the first time put tariffs on specific agricultural commodities like soybeans. And if those markets are lost for those farmers, they're very hard to get back. And so I think that that is where the tipping point stands is how much pain the US consumer can take as these tariffs are, are they going to be level set, are they going to be ever changing and until maybe there's the hope of some negotiations to reach some type of better circumstance. But that's the tipping point.
[00:09:26] Speaker C: That soybean export market is huge in US and it's not a very big proportion of that goes in containers, but it's sizable enough to give the some of the carriers a nice backhaul trade into Asia as well, which makes it cheaper on the front hall. It balances that trade slightly.
[00:09:40] Speaker B: Yeah, absolutely. I would say, you know, for, for container ag exports we like to say we punch above our weight because that's all, you know, by volume. Of course big dry bulkers carrying grains and things like that carry a lot more by volume but by value. With all your refrigerated meats, all your high end commodities like tree nuts are all going by container.
[00:10:01] Speaker C: Yeah. There was some latest S and P global figures that showed container shipping underpins. I think it was 1.1 trillion in US GDP and over 6 million American jobs. So is that what you see as at stake with some of this loss of trade is that whereas the risk you mentioned agricultural exporters, but it's also, it's a big multinationals, it's small businesses, I guess it's American consumers.
[00:10:23] Speaker B: Yeah, I mean it's all of those things. Obviously small businesses are probably on the front lines. But when you look at inputs to US Manufacturing that is exported. A lot of these inputs come by container from overseas. And so when those input prices go up, you make it a more challenging background or an operation scenario for these businesses to operate in because their goods become more expensive against similar goods produced elsewhere.
[00:10:50] Speaker C: I'll come into a couple of the policies or the shipping policies coming out of the US in a moment, but can I put something to you sort of with, with your US Maritime man hat on? You're the former chief of maritime international Environmental law, among other roles at the U.S. coast Guard. Amid all the tariffs and the rhetoric, these are real world policies that are hurting global trade and the businesses that depend on it. But there is also this real feeling, and I've spoken to quite a few people on this podcast in US shipping circles, that this US Administration is maybe finally looking at shipping or the US Maritime industrial base, whether that's the US flagged fleet or the number of US merchant seafarers, and it's taking it seriously. Is that in some way a source of pride for you? Maybe even as maybe some of these policies are hurting your members? I mean, do you agree or understand some of the underlying aims of US Maritime policy? Maybe if you don't really agree with the actual policies, if I can put it like that. Finally.
[00:11:53] Speaker B: Well, the World Shipping Council fully agrees with a well thought out constructive program to revitalize the U.S. maritime industry. We haven't seen that yet. What we've seen is proposals that I guess we're going to talk about here in a minute from the US Trade Representative or some other proposals that are based on subsidies or tariffs. And instead I think what we really would like to see from the administration, and maybe the US Maritime Administration, is a comprehensive plan that with looking out 10, 15, 25 years, because I think you mentioned there's sort of three components, but there's more than that. But just to keep it real simple, you have the cost of shipbuilding in the US because it's done very little now. The capacity of US ship build yards is very low, especially for commercial shipping. And you also have a corresponding shortage of mariners. Should you turn this all on at once. And to get that back going, you have to send people a 10 year signal to say, oh, the government is sending a signal here that I can depend on to start a new shipyard, which is a tremendously capital intensive business. You have to get a book of business with many ships in your book. You have to train a workforce and you probably, you know, we call it the learning curve, but when you get a book of business to say 10 or 15. Shipyards typically don't make any money until the fourth or fifth ship. And so they just have to have those guarantees. And right now we haven't seen a comprehensive policy that takes a look at something along those lines with that kind of vision, but especially not just the vision, but the business certainty to execute on that.
[00:13:35] Speaker C: Yeah, business certainty. A very good point. We did touch on this, actually, and I've been through these documents and one of the policies suggests is working with allies such as South Korea and Japan to help build up that expertise and know how and rebuild, you know, as part of that path towards a US Shipbuilding industry that's competitive. And obviously, if you've got policies that don't exactly help forge your, your friendships with those countries, like huge tariffs on their exports, that probably doesn't help. But you mentioned the section 301 action. So this is the US port fees on container shipping. Obviously we've already got all these huge tariffs, but this is a series of fees on Chinese build ships calling at US ports starting in October this year. That translates into $18 per net ton, $120 per container, and then it rises to $250 per container by 2028. This is part of the US Trade Representative's investigation of, and I'll quote this here. This is the sort of the policy, if someone wants to look it up and you can see all of these breakouts, there's a lot in it. It's China's targeting of the maritime logistics and shipbuilding sectors for dominance. And the aim is to rebuild US Shipbuilding, as we said. So the World Shipping Council says these measures are counterproductive for US Exporters, farmers and manufacturers. Can you explain why, Joe?
[00:14:56] Speaker B: Yeah, sure. So the World Shipping Council came in only on the remedies, not on the finding of actionability of, you know, whether China had manipulated the market. But we, you know, first and foremost what you're doing is a tariff is just a tax. And the alligator closest to the boat, like we like to say in the States, is what we were earlier talking about, which is just these tariffs on specific countries. This would just be another tax on top of the existing tariffs. And so it's going to bite hard if you got tariffs, stock on top of tariffs. And second, as a matter of policy, what the US Trade Representative is supposed to do is when they reach a finding of actionability that there's been market manipulation, their authority is to tailor a remedy that curbs that behavior. And so at our testimony before the US Trade Representative, we presented a very simple point, which is that a tariff on already built ships does nothing to curb China's behavior. You know, you should be looking for something more prospective, not retrospective. In many cases, you know, these ships have been trading on the water for, for over a decade or more. And so now all of a sudden, it just put fees on them. You know, it also punishes ocean carriers who had no idea when they purchased those ships that, you know, that down the road five or ten years that they were going to be punished. And it's really not punishing them. You know, the fees are going to go up and be paid by US Consumers at the end of the day, just like the tariffs.
[00:16:29] Speaker C: You flagged how the fees are structured using net tonnage rather than cargo value. Why is that such a. I don't know if dangerous is the right word, but however you would describe it, why, how does that impact US Importers and exporters?
[00:16:44] Speaker B: Yeah, so, and I'm not saying that cargo value is the better way. I'm saying that we need to have some more thought here. So net tonnage, there's a lot of confusion on that. It's a measure of cargo carrying capacity, all right? And so it's a volume measurement essentially, not a weight measurement. And so you could have a ship that carries 5,000 containers, two ships that carry 5,000 containers with very different net tonnages because of the way they're measured for cargo capacity under a net tonnage regime. And there's also several internationally recognized ways to measure net tonnage. And you can come out with different numbers. And the third point is you're basing it on net tonnage, not say, like on the number of containers on the vessel. So the vessel is going to get hit for its net tonnage. And almost, at least for the case of liner ships, in almost every case, whether the vessel's full or not. And that presents a problem because it, in, in most cases it results in higher taxes and tariffs that are going to have to be paid for those goods.
[00:17:47] Speaker C: So how would that work if you, if a ship wanted to stop and pick up a load of empties to take them back to Asia, for example?
[00:17:53] Speaker B: Well, one good thing that the US Trade Representative did is they modified their proposal. So it's just at the first port of call for liner ships that trade at several, many ports. So that was probably the best thing that they did. But on your first call in the US you're going to be hit with these fees. So if you're picking up a load of empties, you're going to be hit with the fees and you're not obviously making any money carrying those empties back.
[00:18:17] Speaker C: So yeah, in extreme circumstances you might miss the pickup which could cause problems further down the line, I would guess. It's not just about the container lines. I mean, as this has also hit vehicle carriers, the car equivalent unit cu. It's called tax on railroad ships. It felt like a last minute add on to this policy. It basically targets every vehicle carrier in the world. Is this just bad policy design or is this, maybe this will help push people to buy US made cars. But I'd add here, you know, to my knowledge, I don't think any cars at all in the US are actually 100% US made. They all have inputs from somewhere else. But anyway, the question stands.
[00:18:58] Speaker B: No, Mike, I think you nailed it. I mean it's definitely a last minute add on this proposal. A specific proposal for vehicle carriers was never proposed by the USTR. Therefore the over 400 people that came in and testified and gave them written comments on their proposals never saw this idea and they weren't ever able to comment on it. It's definitely poorly designed, probably arbitrary and capricious as a matter of law. Because again, going back to the beginning, USTR is supposed to use its authority to fashion or tailor remedy to curb Chinese behavior. They came out with a proposal on vehicle carriers for all farm built vehicle carriers. How in the wide world of sports does that curb Chinese behavior? Second, just kind of like the net tonnage when you use the CEU car equivalent unit, you're hitting, you know, those ships for whether they're full or not every single time. So it's quite an odd thing. And third, unlike some of the other proposals in Annex 1 for Chinese operators or Annex 2 for Chinese built vessels coming into the U.S. they're capped at five voyages. There's no cap on this at all. It's unlimited every time you come in. And so the vehicle carriers were hit blindsided by this. It's tremendously impactful. They're evaluating what to do. But it certainly came out of left field and has almost nothing to do with the Chinese behavior. The USTR found actionable.
[00:20:32] Speaker C: No, no cost benefit analysis as far as I could find either. Joe, this is all about, as I mentioned at the start, when we started looking at these policies, it's about strengthening shipbuilding, that maritime industrial base, this Chinese rivalry, strengthening national security.
Is there a smarter way to do this without destabilizing trade and driving up the cost of trade in Your view? I mean, what would be the Joe Cramer US Shipping Manifesto if you were put in charge of all of this?
[00:21:01] Speaker B: Yeah, well, just me, not the World Shipping Council.
[00:21:04] Speaker C: Yeah.
[00:21:05] Speaker B: We do have this great institution called the United States Congress. And one of their jobs is to appropriate the revenue of the United States. Like I was discussing earlier, instead of crafting a legislative scheme based on subsidies or a scheme from the administration based on tariffs, the US Congress could write a comprehensive piece of legislation, perhaps put the government right into the market and say, hey, we're going to build 200 ships, we're going to open 10 new shipyards. We're going to give each of those shipyards, you know, a book of business of 20 ships. And then once they get up and running, we're going to look to sell those ships, you know, and on par with what a competitive price is in the market, and also sell off those shipyards once they're up and running. But again, you have to have a long term and you got to work with the US Maritime Academies to produce the mariners to crew those ships. And so that is a lot of work. That is a 10, at least a 10 year plan. But it has to be in order to give it certainty for businesses to go and get capital from banks and stand up these capital intensive shipyards, you have to send the signals, and subsidies and tariffs don't send those kinds of signals at all. And you have to have a goal and you have to say, like, hey, in 10 years, I want the US to be building 5% of commercial ships of a certain size or 10%. And again, we just haven't seen this sketched out in a comprehensive document. And, and that's why the businesses unfortunately will stay on the sideline, or perhaps it'll be the biggest boon for Korean shipbuilding, but not US Shipbuilding. So you really gotta get focused and get serious. And our members in the World Shipping Council are very serious about this and we're very willing to work with the administration. We build hundreds and hundreds of ships each year and lend our expertise. And we're big players in the US Maritime industry as well. And so we want to lend that expertise and we're ready to roll up our sleeves and get to work on a serious plan.
[00:23:10] Speaker C: Yeah, well, not just the, it's not just the maritime side as well as also the logistics side. And we saw Mr. Sade was over there for CMA CGM pledging a $20 billion investment, but there's some question marks about how far that will go with all of this confusion just switching Topics Joe April's IMO agreement at MEPC 83 that set the first ever greenhouse gas emissions fuel standards. It starts in 2028. Dear listeners, if you want a full breakdown of this policy change and what it means for freight buyers, I've did an explainer on this on YouTube and you'll find that in the notes below if you want to go and have a look at that. But Joe, you said these new rules could be a turning point, but given the cost gap between conventional fuels and green alternatives, how realistic is it that shipping can stay competitive and meet green targets? And a second question, if I might chuck one in there. What does all this mean for freight buyers in terms of how these costs might be passed on to them from your members?
[00:24:11] Speaker B: Thanks for those questions. Well, the liner shipping industry is definitely on the forefront of leadership in this space. We realize we're responsible for some 3% of global emissions and that's why we put our money where our mouth is. And We've already have 200 new dual fuel ships on the water and over 700 in the order books. And so, so the capacity to burn these future fuels is going to be there. But as you say, Mike, they're more expensive. And so what we were looking for at IMO and what, and what we really got in this wonderful breakthrough is a means to basically level set the cost of using the new cleaner fuels and against folks that want to, you know, burn traditional fossil fuels. And that's a legitimate business model. And they're, they're welcome to do that too until some point when maybe from a regulatory perspective they can no longer do that. But you have to get these producers to produce the fuels and they have to be produced well to weight green. So they have to get on the water. So we're, we're ready to go in that space and we're looking forward to doing it. As to your second question, in terms of cost, obviously cost is always a factor. This framework looks to offset that cost. I mean, the future fuels are more expensive, there's no doubt about it. But right now what I think the shippers are more at risk of is if we don't get this global IMO regulation in place right now in the European Union, you have EU ETS that's already imposing fees and you also, you know, when you get regional programs like that, you encourage other regions, maybe Africa, maybe China, and all of a sudden you have a patchwork quilt of a global quilt of all these fee schemes and those monies are going into those Treasuries in those countries, but they're not resulting in any production of new green fuels. So this global regulation shipper should be more encouraged by that because the regional schemes I think are the ones that are really going to bite them harder.
[00:26:15] Speaker C: Thanks, Joe. I know we're running out of time here as we're looking forward to the second half of 2025. Just quickly, what's your best hopes for the rest of the year and your worst case scenario?
Yeah, a small question to tie things up.
[00:26:30] Speaker B: Yeah, right. I mean our best hopes are that we can get some geopolitical stability in the Middle east with Russia and Ukraine, in the South China Sea with China and Taiwan, and some stability with the US Administration and some tariff negotiations that just create a better climate of, you know, first safety for our seafarers and our, our mariners and our shippers, cargo and ships safety for the citizens of those nations and then the business certainty so that we can carry global trade in a cost efficient manner. And like I said, we want to deliver the first world to the third world and it's, and this is what we have the capability to do now. But as you navigate the globe through all these different regions and areas, it's very challenging.
[00:27:20] Speaker C: Give peace a chance. So is that the next thing on the agenda of the World Shipping Council or the ongoing thing on your agenda banging on the door of the White House and pressing for a softening of policy?
[00:27:31] Speaker B: It absolutely is. So we talk with the White House Shipbuilding Office, the new office there, the US Trade Representative. We didn't talk about this, but they've opened a new docket for tariffs on containers and other Chinese port equipment. And so we'll continue to be in the space there trying to in these next six months before these policies take effect to hopefully get the USTR to reconsider some of them and soften them. And so we'll be doing a lot of work in that space and we'll also be doing a lot of work at imo. We still have to get this great breakthrough that we had in April across the line for a vote here in October. And it's very important again to get those global regulations in place for the reasons we discussed.
[00:28:13] Speaker C: Well, I'd love to have you on later in the year and we can go through the outcomes from some of those policies. Joe Crammack, President CEO of the World Shipping Council. Thanks for joining us today on the Freight Buyers Club.
[00:28:24] Speaker B: Thanks for having me, Mike.
[00:28:27] Speaker C: And big thanks also to our tigo's Cloud for supporting this episode. Karen Ball and Tom Matthews for making this production happen and you all for listening. Please follow and like wherever you found us because we have got loads more content coming your way. Goodbye.
