Episode Transcript
[00:00:02] Speaker A: Hello, I'm Mike King, host of the Freight Buyers Club. This is an edited extended analysis of container shipping markets taken from episode 50 of the show produced with the support of Jamaico Express Group. In this clip I speak with Ken o', Brien, president of Gemini Shippers Association, a non profit which represents some of the biggest buyers of ocean freight in the US I began by asking Ken about the volumes Gemini move, the key trade lanes they're active on and how 2025 has been shaping up in terms of freight procurement strategy.
[00:00:40] Speaker B: So Gemini Shippers association has been a Shipper's association since 1984 when the, when the Shipping act started to allow them.
And we are primarily a Trans Pacific import based association, certainly global volumes, but the great majority of the freight is from Asia, the US and then like total volumes. We don't, we don't release our volume stats. But if our group of 300 plus companies were in kind of a table, it would be firmly in the middle of the top 10 importers in the United States.
[00:01:08] Speaker A: This year's container shipping market has been, to say the least, it's been a bit stop start, especially around tariff deadlines and all these short lived truces that we've had. This was all ongoing right through the Trans Pacific contracting season in late Q1 and into Q2 as well.
Now we covered those tariff twists in detail on the last podcast which focused on air freight. We also did quite a lot on de minimis rule changes.
So please check out that everyone if you, if you missed it now for Those watching on YouTube or Spotify, you can see a graph appearing now hopefully on the screen from Zanetta. Thank you Peter sand over at Zanetta for supplying this. This shows this year's Trans Pacific spots and average long term contract rate pair TEU from China into the US west coast where you can see the short term rates have been lurching up and down, but the long term rates have been in a more steady decline. Ken, can you walk us through your procurement strategy this year? Especially the challenge of agreeing contracts with so much uncertainty and of timing shipments as tariffs kicked in at different points.
[00:02:18] Speaker B: You know, I think if you look at the chart, I mean I think you could boil it all down to one piece of paper and say okay, the blue line is higher than the orange. I should stay away from that and focus on long term.
We tend to think and how we procure. We are a long term contract kind of organization.
But that's not to say one's better than the other.
I think it's more Important that people go in with a strategy, period.
And so when I think about that, you know, channel mix, you know, am I going to go short term, long term, use forwarders, direct contracting, use a shipper's association. It really has to tie back to ultimately the customer's freight flow. And so things that we think about when we kind of advise companies on, on what to do and how we, how we procure for ourselves, you know, certainly there is price sensitivity. How, how do I need to be the lowest benchmark day to day over a cycle? Am I competing against, you know, one specific competitor? Seasonality, a big piece of it. And so, you know, direct contracting is really about 52 week a year, you know, rates, but 52 a week year cargo flows. So if you don't have that, you're going to be forced into that spot rate channel. And so for us, you know, the hard part this year of course is we came off second half of 24, 10 million boxes imported, super strong half the year, a very strong Q1. But of course looming tariff news and unknown tariff news, certainly the Red Sea issues really putting an interesting twist on the supply side. Right. Sucking up more capacity than probably we would have needed. And so our big thing was the lesson learned in Covid was not to bet against the American consumer. And so that was our first, that was our first core lesson was as we polled our members to hear their stories and kind of their forecast for the year, we took a bias towards more space and that's what we needed in Covid. And so a definite lesson learned there and then really to think about what exogenous force, if it happened, what would be the outcome? Could spot rates spike up, would they crater down? And what we saw this year and our bias was we saw more upside rate risk than down. And so we over contracted, I'll say. And I think ultimately our members were rewarded for that because the spot rates ultimately in May and June shot right up. And our members, you know, ultimately weren't exposed to that this year.
[00:04:40] Speaker A: So you did stick mainly with the longer term or the annual deals as opposed to going near that spot market which is, which has been up and down as we can see.
[00:04:49] Speaker B: Yeah. So for us, you know, our members ultimately they rely on us for long term pricing. There's lots of ways they could get to short term rates. We're not generally their first choice. There's. And so you know, we do believe that that three legged stool of using forwarders and NBOs, using shippers, associations and direct contracts, those all have merit and so you know, what we tell our members is you have to decide how much weight you want to put on each leg of that. But, but for us, you know, we kind of know our space and kind of stick to it.
[00:05:16] Speaker A: Were people bringing a lot of cargo in in direct reaction to tariff news? Was that how it was working? I mean it is sometimes easy to forget that the Suez Canal is also closed, which is the big factor affecting global container shipping market. But on just on the tariffs where people are going, okay, right, we're going to stop now. Oh no, we're going to speed things up. Is that how it was happening?
[00:05:34] Speaker B: Yeah, we've had an incredibly strong our member base and some great companies but if I look at them in aggregate, a really strong first half of the year. And I think there was always going to be kind of some pressure year over year comps for second half mostly because 24 second half was so darn strong because people did pull stuff forward but it really did carry through. And so first quarter we saw total market, you know, up almost 10%.
Second quarter it comes down a little as we got in that weird period of the pause, but then a pretty strong May and June. And now as we kind of get into that pre traditional peak season, I think the tariff news plus that kind of traditional summer low, I think we're there now. And so I think ultimately we'll see where that goes here as, as we get into the more traditional peak spot.
[00:06:21] Speaker A: Rates are still sliding on the Trans Pacific. Some say peak season's been and gone already, at least on the Asia US Lane. That's not necessarily true on Asia Europe or the latest tariff truce between the US and China could see a late rally. What's your read?
[00:06:38] Speaker B: Yeah, sure. It's interesting. Jess talked about shippers want predictable and really what they don't have is predictable. And so they really need to just end up with flexible and resilient as a, as a second option I think for the tariff pause. And when you kind of think about what, what does another 90 days look like you're now firmly into, you know, the normal traditional peak season, right. That second half of August, September and October period. And so you could argue that, you know, most of the holiday goods will end up getting into the country, you know, before majority of them will get there before that deadline. And so that's probably makes it pretty important to catch it. Right. As we saw, you know, certainly as we saw with the first extension. I think the thing that we didn't know then and we don't know now is will something happen in between? Right. And we don't, we just don't know that. And so I think, you know, there it gets to, you know, when I make a strategy to hit a deadline, it assumes the deadline is written in pen and it's not, it's written in pencil right now. And so I think to the extent people can say I know what's going to happen, I'd be wary of those people. I don't know. I think none of us, you know, I think everyone, everyone talking today, you know, we all know that this could change on a dime, right? We're, you know, obviously, and, and there's this direct tension between geopolitical and economic right now. And so there's a lot going on in the world. We think that there is still holiday goods that need to be shipped. We think they do come in that traditional peak period and we think that potentially news on tariffs could push that out a little bit or extend, but you still end up with those deadlines of getting stuff in pre holiday. Right. That doesn't ever change and that kind of puts a bit of a line in the sand. But we don't think the, with all the, everything we see on the economy, although there are some headwinds, there's still lots of good news. And so we, we are moving along pretty well. The consumer is pretty darn resilient, thankfully, and so we don't see a collapse. We don't think that this run up looks like what we saw in the spring.
But that's not to say that rates can't creep back up.
[00:08:39] Speaker A: This uncertainty around transshipment is that coming up with your shipper partners, your carrier partners, your forwarders, are people talking about this or are you just hoping that someone can hand it down, some proper guidance?
[00:08:52] Speaker B: I think the worst part was the use of the word transshipment. For shipping people meant ships in ports like Singapore and Busan. But I think as it relates to, as CBP is talking about transshipment, you know, I think the thing that people aren't thinking about is, you know, if you look at from say 2017 till now, 23, 24, right. China's down from 21% to 16% of our imports. What's up though, of course, is China to Southeast Asia, China to India. And so elongated supply chains, more complex supply chains. You know, a lot of these raw materials and component parts are coming from China still. And so that transshipment piece is real and it does add complexity. And so I think, you know, for shippers thinking about lead times and you know, what do I plug in my ERP from, you know, purchase order date to NDC date. You have to really start thinking about as we elongate the supply chain and add those intermediate steps, you know, what does that mean for me? And that gets back to not only their goods but also global capacities. Is there going to be enough, are there geographic issues with that supply and demand side? And so I think it's a pretty complex question and I think a lot of people are struggling and we do a lot of work with companies on this, on the consulting side of our world to try and help them kind of map that out.
[00:10:10] Speaker A: How do you plan ahead? You mentioned flexibility.
You obviously have to plan for uncertainty. But what does that look like as you look maybe beyond Q4, maybe towards. We normally have a brief sort of rally in the container shipping market. Demand spikes ahead of Chinese New Year, but who knows what that looks like if there's no tariff truce on with China. How do you plan for that and how does that then feed into your Trans Pacific contracting strategy for next year?
[00:10:38] Speaker B: Yeah, I mean we, we, we, we start everything with modeling supply and demand around here. And so we really believe that liner shipping is incredibly sensitive on service and price to supply and demand changes. And so if you think about kind of order book to fleet, so things, you know, obviously we're tracking like, like many companies were tracking, you know, total order book, order book to fleet, which is now at like 29%. Which, you know, if you think about it, the last time that number hit was, you know, prior to the spike right there in the middle of COVID was you have to go all the way back to, you know, about 2011 when the order book to the fleet ratio was that high.
[00:11:11] Speaker A: Yeah, it's record order book.
[00:11:13] Speaker B: Yeah, but, but of course, you know, that doesn't tell the whole story because you end up getting to, you know, when is that order book going to show up? So this, you know, this year There were about 6% book to Fleet, you know, delivered. This year it drops down next year it's about 4% and then it goes back up to 6%. And so when those ships appear, we also, we all have to accept the fact that probably, you know, somewhere between 6 and 10% of the global fleet is tied up with ships running around Africa versus going through the Red Sea and the Suez. And so that could instantly put a supply increase in. We don't think that's a, it doesn't sound like that's going to be a near term thing that happens but it will happen invariably at some point. And so we really think about modeling out the supply demand side. Really tough to do because both variables have lots of unknowns in there. But for us as we think about 26, what we know is the fleet is increasing.
We don't necessarily see if you think about GDP to trade growth ratios, you've kind of been in this one to one and a half X kind of band for the last number of years.
There's not a lot that says there's a massive oversupply next year other than the Red Sea opening up but there's.
[00:12:24] Speaker A: Also nothing massive supply. Right.
[00:12:27] Speaker B: It's really going to get tight either. And so you know, with those 850 ships coming over the next four years it looks like there's a bit of a balance with maybe a bias towards oversupply until the Red Sea opens up and then it looks like it certainly tilts back to an oversupply for the most part.
