[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 D'Merco Express Group, a global 3 PL that specializes in managing logistics to from and within the Asia Pacific region.
[00:00:30] Speaker B: Hello everybody. Welcome to the Freight Buyers Club, which as you've just heard, is produced with the support of Demaco Express Group. I'm Mike King and I can promise you I have two fantastic guests coming right up. But first, some housework. You can find this episode and many more on all podcast platforms and on YouTube, along with a bunch of shorter video interviews. You can also find all this content on the FreightBuyersClub.com where you can subscribe to get each episode direct to your inbox. Please do like and review. It really does help us keep bringing you the biggest names in shipping, supply chain and media. And as promised, we have two of them here today. My first guest, many regard as the foremost container shipping and supply chain analyst out there. But I will give you a clue that's not enough. We're speaking on what he in his fantastic regular news commentaries on LinkedIn would no doubt call day 387 of the Red Sea crisis. He's a director and partner of Line and Game, which provides education and training services the line and shipping industry. And with his consultancy and analyst hat on, he's CEO of Vespucci Maritime. Lars Jensen, welcome back to the Freight Buyers Club.
[00:01:39] Speaker C: Thank you for having me on again.
[00:01:41] Speaker B: Yeah, you're always welcome. And Lars is joined today by the Vice President of S P Global. But he's probably better known for being fundamental to the success of Journal of Commerce for over 30 years and of the TPM conference that I'm hopefully, well, I will be attending in Long beach next March and I'm really looking forward to it. Hello, Peter Teshwell. How are you?
[00:02:00] Speaker D: Good, very well, thank you, Mike. Pleasure to be with you.
[00:02:03] Speaker B: Peter, after so long covering our industry out of the States, how are you finding life in Singapore and what does the new role involve there?
[00:02:11] Speaker D: So thank you for asking. I've been in Singapore now about 18 months. The reason why I relocated there was that we were finding fundamentally that people were starting to come to TPM from APAC and from the Middle east and from Europe. Not that we did any marketing or anything like that. They just started to show up. So we thought to ourselves, well, maybe, you know, there's there's a larger audience out there who we should maybe proactively try to introduce ourselves to and maybe we should try to build our network on a more global basis rather than from New York City, which is where I normally live when it comes to container shipping. I mean, in New York City, right, it's this, you know, this global financial capital with, you know, five hedge funds per block. But when it comes to ocean container shipping and supply chains, I mean, there's a decent sized port, there are a few regional carrier and forwarder headquarters, there's sort of a smattering of bcos out in the suburbs, and that's pretty much it. Whereas in Singapore, you're literally walking down the street and you're running into the global head of ocean freight for, you know, a major freight forwarder who happens to be based there, one of several carriers, forwarders, massive seaports. So you're very much right in the middle of the action.
[00:03:30] Speaker B: I know it's going to be hard to generalize around this, but from that Singapore pitch that you now have, how is Donald's Trump victory and some of his policies we can see coming in around tariffs, particularly how has that been received over there? I'm trying to really get to whether there's a difference between reactions in, say, China and maybe places in Southeast Asia who might see opportunity in a US China trade war, for example, in terms of tracked investments and or avoiding tariffs.
[00:03:59] Speaker D: The one thing that I would say in general about Singapore and about Southeast Asia is that they are.
They're very worried about the US China rivalry. And as that rivalry heats up, they don't typically see it as an opportunity to be taken advantage of, but rather a scenario that becomes more complex and more fraught with danger because Southeast Asia is positioning itself in a very neutral way. They know that they're going to be the beneficiary of relocated sourcing. They know they're very close to China, but they also know how important the US Market is. And so it's a increasingly difficult balancing act to maintain neutrality in the face of a sort of escalating geopolitical rivalry.
[00:04:50] Speaker B: I think, yeah, this tariff issue, just for our listeners, we're not probably going to know exactly the size and scope of tariffs until January, but it's starting to become pretty clear that China's going to be on the end of higher tariffs. What I find quite interesting is it looks pretty clear already that China is going to hit back hard, including by cutting edge purchases of US Exports, which obviously will hit farmers, but also bulk shippers, container lines the balance of payments deficit. But there's another element of retaliation which we didn't really see in the first version of a Trump presidency. And that looks like it's going to be the tightening up of controls on US Companies, possibly limiting the export of key minerals to the US I'll just throw out a couple of examples here. Gallium is a rare metal used in semiconductors and electronics. Around 80% of it is produced in China. Germanium is used in defense and space applications. Again, China biggest producer by some distance. US Companies won't find these sorts of inputs easy to replace. So. So Peter, I guess my question is, now you're back in the States, are you getting a sense that there's an understanding that this trade war might have higher stakes for the US than Trump 1.0, or are you still feeling that there's a lot of post election positivity around international relations and trade policy?
[00:06:08] Speaker D: So I think that what there is, Mike, more than anything else is uncertainty because Trump has said a lot of things. He says a lot of things.
A lot of it is sort of unscripted. It kind of feels some of it spontaneous. He issues threats. He will basically say anything at any time. And so he's not the president yet. And some of it may be bluster or some of it might be a negotiating tactic because he's a business guy. Fundamentally, that's where he comes from. He's a wheeler dealer. He's, you know, negotiated with unions and contractors when building his real estate and his hotels. And so he's fundamentally a deal maker, wrote a book called the Art of the Deal. So exactly what tariffs will get implemented, what the level of it will be. He's definitely will follow through on threats because he did it in his first administration.
But I think that we got to wait and see what actually happens. And then I think people are going to have a clearer idea. But at the same time, you know, just to be clear about it, I mean, it's one thing to front load your inventory, to make it in before a tariff is implemented. It's an entirely different story to relocate manufacturing. I mean, one of the things in Singapore that I've had the opportunity to do is connect with a lot of, a lot of manufacturing companies. And I've learned a lot about manufacturing and it's not easy to relocate manufacturing at all. And even if it's your Chinese contractor who is setting up shop in Vietnam or is setting up shop in Malaysia or Indonesia or elsewhere, nevertheless the quality, the consistency that was achieved in China might Not necessarily be achieved. So it's a much slower process than, you know, certainly just speeding up production so as to get it into the country under a tariff deadline.
[00:08:04] Speaker B: Yeah, I'm going to be exploring that a bit because sometimes it feels when people are talking about diversification, of sourcing, it feels like we're talking about the outbound logistics element and we don't take enough account of all of the different inputs and how more trade barriers affect those. Lars, if I can bring you in here, let's have a look at this from a European perspective. In the uk, I've been chatting to people and they seem to think some special relationship will save the UK from, you know, make America great again policies on whether that's on NATO or tariffs. Denmark, famous trading nation, you've got maers, you've got dsv, you've got all these shipping companies. What's the reaction there from media, from some of those companies? Maybe. Are people concerned?
[00:08:44] Speaker C: Yes and no. If we take it first from the perspective of especially, I mean, yes, we have a lot of shipping and logistics companies and not seeing a great deal of concern to maybe be slightly cynical there. If Trump follows through on a lot of his terrorists, what this is going to do is just going to make logistics change more complex, the way we also saw during his first time when the trade war was started and then continued under Biden. So stuff just gets moved around more, which actually creates more work for logistics companies. I don't see the specter of a trade war weigh that heavily, at least not over here in Denmark. And I would broaden it out to quite a bit of Europe as well. What I see the concern here is that is more around NATO and the security situation. But that would be a completely different podcast. So if we look at it from a shipping perspective, I don't see a high level of concern as such, at.
[00:09:35] Speaker B: Least not presently, just on those tariffs. I don't want to get too stuck on the political and economic elements of them. It's although it's slightly hard to avoid, but just to set it out. So for listeners, most economists see tariffs as a tax on US consumers, probably will drive inflation. The incoming Trump administration tends to see them as a means of making trade fairer, driving growth and get the best deal out of bilateral negotiations. But for our industry, if you're in the business of international trade, new tariffs create these big question marks. Lars, how can shippers and forwarders strategize around this uncertainty in terms of contracting or sourcing or planning ahead for next year when We've also got on the horizon this possible port shutdown on the US And Gulf coast terminals in January when the extended ILA USMX deal comes to an end.
[00:10:27] Speaker C: Multiple layers to this. I mean, the first one is if you look just at the port strike, because that's going to come before tariffs. If that's going to happen. The only solution to that is really front loading. And to the degree you go from Asia to US east coast, that ship has sailed a long time ago. It's too late to do anything about it now. You might still then be able to, at least for some, shift it and import it through the west coast, move over land. That's still going to take time, cost you more money. If you are sourcing from Europe, you still have a tiny time window ahead of you where you can still get some cargo moved and get it clear through the US east coast before the strike. If you then go to the tariffs. Yes, I would tend to agree with Peter. Part of not just what they should do, but part of what we have already been seeing actually for several months is front loading and anticipation of tariffs. There are importers who already began front loading on the expectation that Trump would win the presidency. So this is very much happening already. Longer term, it is going to distribute sourcing. I would maybe look at this slightly differently. There was a lot of talk during Trump's first presidency that now sourcing should be more spread out in order to limit this risk. Then Trump disappeared, the markets kind of normalized, and lo and behold, a lot of companies then didn't follow through on that strategy of diversifying their sourcing. That's coming back to bite them now. Whether they will learn the lesson the second time around remains to be seen. It does take time to shift your.
[00:11:53] Speaker B: Sourcing pattern around just on that interesting week in January. I can't think of a week in shipping history, really. Or maybe you two can. This port strike comes to a head on the 15th of January. Trump's coming in on the 20th of January. But we've already been here before. We knew when the presidential elections were and we had. The port strike came to a head at the end of September. So there was already front load loading. So how much front loading rotlars do you think happened? How much happened before the first two incidences? And are we going to see a spike in the market coming into January? Of course, we've got Chinese New Year at the end of January as well.
[00:12:28] Speaker C: Yeah, you can say there was quite a bit in preparation for the first one. That's one of the reasons why peak season happened earlier than what we usually see. And we are also now seeing a ramp up slightly earlier than what we would usually see coming up towards Chinese New Year. So that part is definitely happening.
And if you look at especially the messaging being put out there by the ILA union in, I would say over the last week, it is a carbon copy of what we saw in the lead up in September that also led to a strike. It's clear that neither the union nor the employers have changed their positions, especially when it comes to automation compared to what we saw back in September.
[00:13:05] Speaker B: I'm sure Peter's got some views on this, but just sticking on that shipping market laws, the Asia US spot market's not been moving. Firstly is that capacity and then on the flip side of that, we've got the Asia Europe spot markets, what, 19, 20% into Europe from Asia in one week alone, according to Drury. What is that? The contracting season? What's going on in those two markets? They're very disparate at the moment.
[00:13:29] Speaker C: I would say it's actually the same thing. It is down to capacity. We have seen more capacity injection on the Trans Pacific than we see on Asia Europe. Both of them are fairly strong in terms of demand, but the dynamic's slightly different because if you have a relatively strong Pacific market, it is fairly easy for small new coming entrants to say charter three, four, five vessels, relatively small, put them into the Trans Pacific. However, if you are that small newcomer and you want to get an entry into the Asia Europe trade, you're not talking three, four, five vessels, you're talking a dozen vessels is a much larger commitment. So there is a larger operational barrier to entry on the Asia Europe, which means that all these newcomers tend to favor going into the Pacific. And that's why you're seeing the Pacific from a capacity perspective being slightly more under pressure than what we see on the Asia Europe trade right now.
[00:14:21] Speaker B: But are inventories hanging over on that US market as well? What do you think of the view of inventories? I'm hearing different things from different people.
[00:14:28] Speaker D: Yeah.
[00:14:29] Speaker C: I mean if you follow for example the sales and inventory stats from the U.S. census Bureau, it's not that inventories are particularly large. They have been growing, they've been stabilizing, but in a historical context they're actually not super large.
[00:14:43] Speaker B: Peter, just coming back to this union issue, JOC is reporting that the breakdown, they've agreed on wages, the breakdown is now over the use of rail mounted gantry cranes which have been in use for almost two decades in the U.S. even I think longer elsewhere. But please correct me if I've missed that one. If they don't reach agreement, we're looking at this big shock on January 15th. How do you view this impasse?
[00:15:07] Speaker D: Well, there's been an impasse ever since June and the impasse has not lifted. And so there has been no real meaningful resumption of negotiations that has taken place even after the so called settlement of the wage issue during the, during the strike at the beginning of October.
So there's different ways of looking at it. There are now we are talking to the principals involved, people who are very close to the negotiating scenario, you know, who are very familiar with it. And even within that group there are different views. So there is one school of thought that says that the ocean carriers do not want another confrontation with a President of the United States. So they did not want the last confrontation. And in the face of direct presidential power, the white hot glare of presidential power, the carriers capitulated immediately and gave the union a staggeringly large wage increase, which of course the costs will be compounded because the west coast dock workers are going to expect that same level of increase the next time that they negotiate a contract. So they don't want to get into that situation again. And so there is one school of thought that says that the ocean carriers are not going to push this and that they're actually going to give the union whatever they want. There is going to be as a result of that, a settlement prior to January 15th and that there will not be a strike. That's one school of thought. Another school of thought says that the carriers are actually furious with what happened because they were all but coerced. They were coerced into the 62% settlement. If you recall the reporting, we reported this, others reported it. The group CEOs were invited into a meeting with the White House Chief of Staff. It was only the group CEOs. Those were the only people who could come onto the call. And they were told that an announcement is going to be made in two hours time or whatever it is, and that this is going to be the announcement and end of story. So now it's up to you ocean carriers. Are you going to openly defy the President of the United States and also by prolonging the strike, if that's what they had chosen to do, possibly essentially injected themselves in directly into presidential politics, meaning that the outcome of the election could have gone in a way that the ocean carriers could have been blamed for having the election go this way or that way, they don't want any part of that. But now there is no election. The election is over. The ocean carriers have already expressed their disappointment in the USMX staff position, which was lay low ever since June. So of course, ever since June, even earlier than that, there was, you know, all sorts of bombast from the union disparaging the ocean carriers as, you know, price gougers, foreign, foreign owned, all those sort of boogeyman descriptions and yet silence from US emex. And yet the ocean carriers, they look at the US Market, it is the highest cost port market in the world. They do not collect terminal handling charge in the US and so therefore the costs come to them and the market is going to determine their ability to pass that along. And they also have a view that because there's not a lot of new terminal capacity being built in the US that the only way to basically create a pathway to handle growing trade volumes in the coming years is to get more throughput per acre of land or through per hectare of land. And the only way you do that is through automation. And so therefore that school of thought says that the ocean carriers are not going to get in so easily that they will look to the fact that you have people like Elon Musk in Trump's inner circle who are no friend of unions.
And also Elon Musk has been out retweeting negative reports about the union. So they know that they actually have potential allies within Trump's orbit and that might make them be a little bit more aggressive this time versus last time.
[00:19:26] Speaker B: They are certainly in a really difficult position. I mean, turning back automation when the US Ports on really great performance globally, as you well know in Singapore, from those productivity levels, there is a really tricky thing for them to agree to. But politically it's a tough position. That is, how do you think Trump sees this then? I mean, I can see him going either way, or maybe it will come down to a toss of a coin. He could implement Taft Hartley, he could back Daggett and say, you know, he's the sort of strong leader he seems to admire. I could see that going either way. If he backs Daggett, he can say, oh well, I'm taking on these evil foreign container lines. It could go either way. Right.
[00:20:04] Speaker D: So from a political point of view, if Trump's political instincts are what guide his behavior, he will side with the union 100%. His announced nominee for labor secretary is a pro union person. His political base is blue collar workers like dock workers. He has already been openly expressing support for the dockworker's position. And so therefore the and the union is going to visit Mar a Lago again on the 12th of December. So in two days there's going to be another meeting with Trump and with the ILA leadership at Mar a Lago, where they are going to presumably receive or seek assurances from Trump that he has their back so that they will go on strike. Because look at the timing of it. The strike is five days before the inauguration. So they go on strike. They're in, they're on strike for five days. Trump comes into office, knight in shining armor, tells the ocean carriers, guess what? There's going to be hell to pay unless you agree to what the union is asking. And then he saves the day. There is no strike and the ocean carriers have to go and lick their wounds and live to fight another day.
[00:21:24] Speaker B: That seems like the most likely scenario. And I think I called a three day strike last time. I'm calling it a five or six day strike this time because the PR of the strike starts on the 15th. Trump's inauguration on the 20th, strike ends is just too attractive to someone who so brilliantly communicates politically. Lars, what's your take on it? Do you want to have a we betting?
[00:21:44] Speaker C: Yeah, I mean, I would say say a week. Plus it's going to take a couple of days into the Trump, because here's what I mean. I agree basically with everything Peter has outlined here. But I see another play that's important to keep in mind here. End game, as I see it, is that the carriers, usmx, they're going to lose this battle. I think that is more or less a foregone conclusion. So the only question then is how do they want to lose it? And at the end of the day, they're going to have to lose it in a way that makes it the easiest to pass on these costs to the customers. That means it is in their interest that the strike is as long as possible, as painful as possible. So when this is all said and done, it is easier for them to then go to all of the U.S. importers and exporters and say basically either the base rate has gone up by X dollars or let's introduce a new surcharge. Why don't we call it the ILA surcharge or they love the three letter acronyms. But at the end of the day, if they're going to lose this fight, the more visible it is that they have been browbeaten by a combination of the US administration and the ila, the easier it's going to be for them to then force through rate increases to compensate them for this.
[00:22:54] Speaker B: But the ILA surcharge then was that how many years of non automation does that continue? I mean, I like the idea of these surcharges. They're very inventive.
[00:23:03] Speaker C: Exactly.
[00:23:04] Speaker D: The other thing to keep in mind here is that the ocean carrier's view of longshore labor negotiations has completely changed. So for many years I covered West Coast US Doc worker negotiations. I was the, for a short time in the 1990s, I was the bureau chief of the Daily Journal of Commerce newspaper in San Francisco. And that's where the ILWU is based. So I covered those, you know, several negotiating rounds. And the one thing that was consistent about all of them was that the pma, the Pacific Maritime association, which is the counterpart, the west coast counterpart of the usmx, always had marching orders from the carriers to essentially give the union what they want and keep the ports open and do not create trouble. And that's one of the reasons why the ILWU on the west coast, you know, they're among the highest paid blue collar workers in the world, not just America, because that was the orientation of the ocean carriers. So I talked to Joe Miniacchi, he was the PMA president in 2002 during the 10 day lockout, which kind of opened many people's eyes to the risk of port disruption to supply chains. He told me he was absolutely under orders from his board members who were dominated by the ocean carriers to keep the ports open in general. But then the ocean carriers learned that it's actually when the ports are not open, when the cargo is not flowing, when the ships are not docking, when they are sitting idle outside the ports, that's when they make money. So there was a distinct difference in tone from ocean carriers related to the ila. Whereas in the past they would have said, oh you know what, we don't want trouble, we want to keep the ports open, we want to keep cargo flowing. You know, we have a role to play. You know, all this now their attitude is more like, well, we tried our best, we did what we could. What will be, will be. What happens, happens. And that is a fundamental change because it is a recognition by carriers that disruption is ultimately financially in their favor, whereas they didn't really have that framework of understanding in the past.
[00:25:18] Speaker B: Yes, supply chain chaos is profitable. Which goes back to Lars point on how long might a strike last? Well, the longer the better if you're going to cave eventually, maybe that makes, does make sense and probably As a theme that links us to the Middle east, which we'll come to in a bit. Let's turn to liner alliances over the next few weeks we've got a lot of reconfigure well we've got a reconfiguration of the alliance system. Probably going to be some disruption. Just a quick summary for our listeners. MSC is basically going going it alone. Maersk, the other part of the 2M is forming the Gemini cooperation with Hapag Lloyd and probably seen shippers far better performance levels than anyone is managing now. The alliance which was never easy to say Hapag has now left that and this is now going to be called the much more grammatically friendly the Premier alliance and features Yangning Ocean Network Express and hmm. The Premier alliance was meant to start marketing this week ahead of its launch on February 1st. At least it was going to until the Federal Maritime Commission last week asked for more details to analyze the competitive impact of this. So that looks like it's on hold. And then the start date for their Trans Pacific services now being pushed back to May. So I'm throwing quite a lot of information but and I've got a few questions for you Lars. Is that the gist of this configuration? Firstly, secondly, how big a blow is this FMC intervention for in terms of how the Premier alliance is able to plan for next year? And just in general, what sort of disruption are you expecting?
[00:26:48] Speaker C: Yeah, I mean first of all, your rundown of the changes. Yeah, that's basically what's going to happen. Let's just add in the Ocean alliance as basically the only alliance. That doesn't change anything. If I were them competitively, I really wouldn't change a comma at all in my networks because I'd be able to be the only alliance out there saying we got stability. Right. And let's revert back to the approval in the Premier alliance at the end here. But no matter how good these carriers are, no matter how much they planned this out, there is going to be disruption to the services in February and May following Chinese New Year. When they phase this in, think about the undertaking. You're talking what, five, six, seven hundred vessels that need to change their rotations. This will not necessarily go smoothly but the carriers will plan it out, they'll come through and when you then get to April, May, you will have the new services stabilized.
That's all well and good in terms of the blow to the Premier Alliance. As far as I recall there was a similar request for information when it came to the Gemini Corporation. I see that as it might be a bit callous to just call it a formality. It's probably not a formality, but I would not see that as anything that is really threatening to the Premier Alliance. Yeah, it might postpone some of their marketing a little bit, but in practical terms I don't see this as having any major impact.
[00:28:06] Speaker B: We'll just take a short break. We'll be back with you in a second.
[00:28:13] Speaker A: This podcast is proudly produced in partnership with D'Merco Express Group, a trusted provider of global shipping and contract logistics services in Asia, Europe and North America. D'Merco'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, D'Merco connects Asia with the world like no other. Global3PL. You are listening to the Freight Buyers Club.
[00:28:47] Speaker B: Peter, you've been covered in line of shipping for many years. What's your take on this alliance reconfiguration and have you been looking at all about what might happen to the Federal Maritime Commission that Biden massively beefed up? But I mean Elon Musk is saying he's going to cut government jobs. I mean maybe that there could be some changes there. Have you got any thoughts on those things?
[00:29:08] Speaker D: I think too early to tell. There'll be a new lineup in terms of commissioners when as terms expire. You know, the FMC has been tasked with being a more shipper friendly agency. The chairman, Dan Maffay, is a former member of Congress, a politician who saw the tea leaves very clearly and saw where the political winds were blowing and said that the FMC is going to be much more shipper friendly than it had been in the past. And the FMC was always much more friendly to carriers, especially when there were large US Flag carriers, Sealand APL Company companies like this. And so I agree with Lars that the inquiry regarding the Premier alliance is going to be a, it's going to be a hiccup. There have been those inquiries in the past when new alliances were being set up. So that's, I think you remember that correctly, Lars, and it'll get approved if the real questions on regulation have not really been answered yet. The question ups and downs of the market, the unenforceability of contracts, the lack of contract adherence, those go on and those are sort of fundamental issues that exist in the industry where when rates go a certain way not all shippers, but some shippers have a way of walking away from their commitments to carriers. When rates go the other way, carriers all of a sudden realize that they don't have enough space and they don't fulfill contracts at their end. And that goes on. There's no, you know, Gordon Downs at NYSH is trying, you know, heroically in different ways in order to improve a contract adherence. But that's going on and that's going to continue to go on irrespective of what happens at the fmc.
[00:31:11] Speaker C: One thing we should also remember here is when the new version of OSRA was approved, the main issue there was not related to alliances. It was not mainly related to the enforceability of contracts. It seemed the main pain point was related to detention and demurrage practices, which to some degree is not even in the hands of the carriers as such. And right now we are in the process of the FMC pursuing a number of cases under the new rules of Austra and I don't think we're going to see many more changes going forward. It's about implementing this new set of rules. My own personal view on that is I don't see how the new OSRA has actually solved the problem. It has just changed the nature of the problem.
[00:31:53] Speaker B: So a downgraded FMC though, that that would be good news for carriers in theory.
[00:31:58] Speaker C: In theory it would because the upgrade of the FMC was, as Peter correctly put it, to try to be more friendly to the shippers as such.
[00:32:05] Speaker B: So I'll just go back to that alliance reconfiguration. The big interesting thing there from a shipper point of view is probably Gemini cooperation. This is the new alliance between Maersk and Hapag Lloyd. I was talking about this on the Lodestar podcast last week and there was a bit of confusion which I've clarified with Hapag Lloyd. Thanks Nils and Hanya. So what they're saying about Gemini is this promises 90% schedule reliability port to port across the network by mid 2025 so not immediately from 1st of February. This is not a hub and hub promise has been reported and it's not door to door, it's port to port across all port calls. There's some of the confusion was around Hapag Lloyd have got another target which is 80% door to door delivery reliability across its entire network. But that's not for next year. It's a long term and Gemini services are only part of that. So I just wanted to clarify that. But loz on this 90% promise. If you're a freight buyer, that's great, isn't it?
[00:33:01] Speaker D: It is.
[00:33:02] Speaker C: And I mean, mind you, I'm not being paid by either the two carriers in terms of having a view on their reliability promise. But the way I see it is it is certainly possible that they can actually fulfill it. The way I see it is I think too many people have become extremely jaded over the last four and a half years. I mean, let's face it, reliability has been absolutely awful for four and a half years, ever since we got hit by the pandemic. And we tend to forget that that's actually not the normality. If you go back before the pandemic, reliability was certainly not perfect, but a lot better. And if you look especially the last year before the pandemic, obviously none of the new alliances were. Well, Ocean alliance was, but Moscow and Hapak did not collaborate. So I think the best comparison there is to look at the 2M alliance because they were the ones that at least performed the best on these major east west trades prior to the pandemic and on Asia Europe they performed at 90%. So if 2M could perform at 90% on Asia Europe, I don't see it's a major stretch of the imagination that Musk and Havoc could repeat that. Once again the neural networks are phased in and the caveat here is in a stable world, I mean it might be they phase in and then let's assume, let's be optimistic, the Red Sea situation is resolved now, all networks have to be changed. Rest assured in that transition nothing will run on time either. But in a stable world I can certainly see that the two carriers, if they really put their mind to it, could make this work.
[00:34:34] Speaker B: That's certainly a big if. If there's no disruption in the Middle east, which I'll come back to just, just for listeners, the latest figures from Sea Intelligence. Maersk was actually the best performer in terms of schedule reliability in October, but was still below 60%. Hapag Lloyd was less than 50%. But even that relatively low performance got it up to fifth place. So 90% is, is a big jump in six months or so.
[00:35:00] Speaker C: If I can just add another one. If you look at the carriers performance right now, could the carriers potentially improve their performance now? Could they have done in the last couple of months and also here probably they could. Why should they? They all know schedules are going to change dramatically in February and March. Why would any carrier right now spend any time, resources or money in maybe beginning to improve schedule reliability on a Network they know is going to disappear just a few scant weeks into the future. So again, the performance as we're seeing it right now, I don't think that is indicative of what the carriers can actually do.
[00:35:38] Speaker B: Well, why would they ever then improve performance? Why not have delayed vessels? Why, if disruption is profitable, why would you try and improve performance?
[00:35:47] Speaker C: But that's not my point. Right now they are selling a product that they know is going to go out of stock from February 1st. Why would you spend a lot of money improving a product you know you're not going to be selling from February?
[00:36:00] Speaker B: Peter, do you know any shippers that might pay a bit extra for this better performance?
[00:36:04] Speaker D: So potentially so, but not immediately because as Lars says, schedule reliability has been atrocious now for, you know, going back nearly five years. And so their shippers have completely lost faith in carriers on time performance outside of some very specific services. So at tpm it looks like we're going to have a case study involving the Uwl Sun Chief fast service from Vietnam to the Pacific Northwest that has been consistently operating north of 90% of schedule reliability. It is relied upon by companies integrated into their supply chain and they count on the schedule reliability to enable them to keep their inventories lean. If the Gemini services are able to win the confidence of shippers due to consistently exceeding 90% schedule reliability and then you have shippers who now are going to sit back and say, okay, actually we believe them that they can do this, then they can start making inventory decisions on the basis of the expectation of schedule reliability.
But if you can take inventory cost out now, certainly if you're Maersk, you have a stronger case to make that I'm creating value for you. I have a right to be able to share in some of that value creation. We are absolutely not there yet. But if you look at Maersk's integrator strategy where they have done completely changing their relationship with nvos and very much being a BCO focused carrier, then what they're doing is very consistent with that. But they have a lot of trust. A lot of trust has been lost and it's going to take more than a couple months of a new network in place to win it back.
[00:37:57] Speaker C: Yeah, I mean, absolutely. It's going to be about. The proof is in the pudding. The shippers need to see it performed before they believe it. Once that might be done, I am not so convinced. There's a huge market for massive rate increases to sell a superior product. Where I think the value is going to come is that this might result in, in this case, Mosk and Habak Lloyd being able to have a higher degree of retention amongst their customers, get a higher share of wallet amongst their customers, potentially also an improved degree of contract adherence. But I'm not a firm believer that this is sufficient to create a significant difference in pricing.
[00:38:35] Speaker B: Lars, just following up on what Peter mentioned there about the different strategies of the carriers and how they're spending some of these profits. Peter mentioned Maersk is obviously going down this integrator model, but just over the past year there's been a lot of investments by other carriers in this sort of logistics setup. MSC has been building up a trucking and railway network across Europe. CMA CGM has bought a belorator to bolt onto seva, its logistics subsidiary. They've all got airlines which, you know, I guess Evergreen was there earlier, but this is a relatively new development. What do you make of these strategies and do you think it'll continue or they start going back more for even more vessels?
[00:39:16] Speaker C: No, I think they're going to do both. I mean, first of all, if we take the logistics parts first, I mean, they're going to continue to do this. The only caveat, and I haven't made any secret of that for years, that I'm not really a believer in Maersk's integrator strategy. I still believe at some point they're going to take one or two steps slightly backwards and do what we see CMA and MSC is doing. Still have substantial logistics parts, but more on a standalone entity rather than completely integrated.
In terms of new vessels, I definitely think they will all order more new vessels and I think it's worthwhile taking a cue from, for example, the latest order from Hapark Lloyd. It's not just a matter of looking at how many ships do they order, how big are they, but it's the timing of it. I mean, they're ordering vessels now all the way out into 2029, which is quite a long time into the future compared to what they usually do.
And I think one thing to maybe think into this is container shipping is not the only shipping division in the world. There are tankers and bulkers out there that are far more numerous than container ships. Right now. Tankers and bulkers as an industry is doing basically nothing when it comes to decarbonization. If at some point in time bulkers and tankers truly wake up and start a fleet renewal program, that could lead to massive pressure on the shipyards. And I think some of the carriers are seeing this and ordering vessels Much further into the future than we're used to is a way of safeguarding not just physical access to the yards, but also access to new buildings before prices might skyrocket. I think that's a very prudent strategy on their part since they got the money.
[00:40:51] Speaker B: That's a very good point. I mean, the bulk shipping community really haven't been investing. We're talking about 2% fleet growth, which is pretty. I think the order book for the container shipping fleet is just under 30% or the in service fleet at the moment.
[00:41:04] Speaker C: But here I think all of us also have to readjust our mindset slightly. We are so used to hearing that number thrown out. The order book is X percent of the current fleet. And we're so used to if that suddenly reached 25 or 30%, we think, oh, that is a massive amount, because deep down we all feel that, well, this is going to be delivered in the next two or three years. But increasingly this stretches further into the future, which means we can end up with an order book that looks prohibitively large, but in reality isn't because it's spread much further out. And just as a side note, we should all also remember that there has been almost no container vessels scrapped since 2020. We got five years of overhang, of scrapping due, which means something like 7 to 10% of the fleet should actually have been scrapped. And that's going to come at some point.
[00:41:51] Speaker B: That brings me perfectly onto the Red Sea as well, because a lot of this capacity has been swallowed up in these networks because there's been the diversions of vessels that are avoiding the Suez Canal in the Red Sea around Southern Africa. And I'll just update with what's been going on in the last week because I think it could end up being quite significant. We've had the fall of Assad in Syria. Plenty of geopolitical implications and no one really knows what's going to happen. But basically Assad was in power largely thanks to support from Russia in Iran. Hezbollah provided a lot of its fighters, Hezbollah being an Iranian proxy based in Lebanon. Iran's proxies, Hamas and Hezbollah, have been massively weakened by Israel. So Iran's in a sort of diminished state. And then we have a new incoming US President who really has not been a fan of Iran in the past. Same goes for most of his team. My view is a weaker Iran has probably got two options. It needs to do a deal with the west in some way or it needs to double down on its security, whether that's nuclear program. Or something else. Now, if there was a deal with the US the way I would look at this, but I'm probably being optimistic, is that puts a lot of pressure on the Houthis. So we're probably as close now as we have been at any point over the next year to some resolution in the Red Sea, or at least a higher likelihood of it happening. Lars or Peter, come in as you see fit. I mean, this would be possibly great for shippers, awful for lions in terms of their profits if the Red Sea open. But would they even use it? Would they find a reason not to go through it? Because there'd be an awful lot of excess capacity.
[00:43:23] Speaker C: You can say, if we just play with the hypothesis, let's say, fine, everything is fine and dandy, and we can guarantee the Houthis are no longer going to shoot at ships. I think you're going to find the container lines, then to revert back to using the short trick because it's a competitive game. So the moment that passage is actually safe, rest assured, somebody will use it. And the moment just one carrier uses it, everyone else is forced to follow suit. However, I would also expect that even though you would have the Red Sea reopened, you would see a lot of carriers still go around Africa on the back haul. Some of them were already doing it prior to the Red Sea crisis because they had to contend with overcapacity. That situation has not changed.
[00:44:08] Speaker D: And I would mention about this, Mike, that at tpm, we will have a really sharp geopolitical analyst named Jack Kennedy will be on a panel specifically on this subject of the Red Sea. What he has said consistently is, and others have said this as well, is that there is no viable military solution to the Red Sea shipping crisis. In other words, the Houthis are too dug in, too agile to be bombed out of existence such that the threat to shipping is removed. Therefore, what will change the status quo in regard to the Red Sea and the Suez Canal will be a diplomatic solution. And a diplomatic solution means that the stars have to be aligned for that to happen. So everything that you mentioned, Mike, is relevant because that represents a shifting of the stars. Assad going down in Syria, what's happened to Hezbollah, what's happened to Hamas, the situation of Iran, Trump coming into office. And so, to the extent that you are right, Mike, and that there is the possibility of a realigned Middle east that could give way to some kind of deal, for sure, the situation of the Red Sea would be part of, or at least very likely to be part of, a grand deal of some kind. And when that happens, yes, you're going to see, you know, the ocean carriers are like, okay, there's been a solution, it's all clear. And then they will resume transits through the Red Sea and the Suez Canal.
[00:45:39] Speaker B: But as that process happens, I guess we see a few things. We'll see an awful lot of congestion. We'll see disrupted networks. We'll probably see a bunch of scrapping.
[00:45:48] Speaker C: Lars, over time, yes, initially when the Red Sea opens, we're going to see significant port congestion up in Europe, especially if this process happens relatively quickly, which means, sure, freight rates might come down, but you're going to be compensated. Then you're going to have to pay for massive terminal handling charges or congestion charges. Only when we're through all of that process and once, then some of these vessels come off charter, that's when you're going to see scrapping come up. So. So there is indeed quite a bit of a time delayed effect.
[00:46:16] Speaker B: Well, fingers crossed there is a diplomatic solution to the Middle east because some, a bit of peace in our time would be rather nice. Just to finish up a couple more questions. I think we've established that shippers, freight buyers have got a lot of macro and geopolitical factors to consider in the immediate and long term as they approach negotiations with ocean carriers and plan sourcing strategies and supply chains next year. Peter Lars, any advice?
[00:46:42] Speaker C: I would say plan for resilience, plan to be flexible. This is going to be a roller coaster ride in 2025. You're going to see that. That's at least my baseline. You're going to see spot rates nosedive as carriers face in networks and can't quite control how many sailings to blank. Then you're going to see rates skyrocket again. Once we get into peak season, though not as much as last year, this is going to be all over the place. The Red Sea after the fall of Syria, I would say is now even more unpredictable than what we had in the past 12 months. And that was unpredictable enough.
[00:47:13] Speaker D: I think that there is denial or wishful thinking on the part of many shippers that they had it so good for so long prior to Covid and there is a desire to go back. But fundamental things have changed in the market over the past five years and the industry is fundamentally different. The carriers are fundamentally different. They control capacity to a much greater degree than they had in the past. They are going to be assertive in seeking to put themselves in a favorable position relative to the market in ways that they had not done in the past. And so it's a totally new environment that shippers are confronting right now and it's unlikely to revert to pre Covid times where you had high reliability and low rates over multiple years and you could just go along, get along and not worry about things. Those days are most likely over.
[00:48:09] Speaker B: Thanks, Peter. Just to finish where we started. So tariffs. Do either of you expect tariffs to result in positives for the US economy, either in the shape of economic growth, more domestic production that creates jobs, or improves that balance of payments ledger with other countries? Or do you think instead maybe we'll see more complex and diverse supply chains, perhaps with final processing just shifting around to places like Mexico or Southeast Asia to avoid tariffs, but maybe driving up prices for US consumers? Or could it be a mix of both?
[00:48:42] Speaker C: The way I see it is at least as long as we are talking about blanket tariffs on everything from a particular country or a particular set of countries, I don't see any happy outcome on that. If you are in the US not only as a US consumer, also if you are a US exporter. Because there'll be retaliatory tariffs for the importers. No, they will not move manufacturing back to the US As Peter so eloquently stated earlier. I mean, it's just not a matter of moving it from day to day. You need to build new facilities. That takes years. What the importers are going to look for is step number one, can we still import Chinese goods but via a third country where it magically then become that goods of that country? Or if that's not the case, what is the best, second best option for sourcing somewhere else outside of the US So blanket tariffs across everything, it's going to cost the US consumers more. It's going to cost market shares for the US exporters, and supply chains are just going to be more complex, which is better business for logistics companies.
[00:49:42] Speaker D: Tariffs can be a good negotiating tool for other things, but tariffs by themselves are bad. They are bad in many ways. They add cost to consumers. They drive countries apart, whereas trade holds countries together. Why was the EU created after World War II? Because if you combine the European countries economically, you're going to have a greater chance for peace on the continent.
It's no different. What did the Smoot Hawley tariffs in the 1930s do that led to disaster? So I don't think there's any positive that comes out of tariffs, unless potentially you're Trump and you're using the threat of tariffs to achieve some other goal that you're trying to, you know, maybe there's some usefulness there, but that's in the threat rather than the. Rather than the tariffs themselves.
[00:50:33] Speaker B: Peter Terschwell, vice president of S and P Global, and Lars Jensen, CEO of Vespucci Maritime, thanks very much for joining me today on the Freight Buyers Club.
[00:50:42] Speaker D: Thank you, Mike. Appreciate you having me.
[00:50:43] Speaker C: Thank you, Mike.
[00:50:46] Speaker A: We hope you enjoyed this episode of the Freight Buyers Club produce in partnership with the D'Merco Express Group. Please subscribe and follow on your platform of choice or sign up for delivery to your
[email protected] 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.
