Episode Transcript
[00:00:00] Speaker A: In February, this footage that those of you watching can see from marine traffic showed some of the busiest shipping lanes on the planet. Hundreds of vessels moving in and out of the Arabian Gulf every day, without fail.
Then the war started. And it stopped. The Strait of Hormu is 21 miles wide at its narrowest point. Around 20% of the world's traded oil passes through it until the end of February. Container ships did too.
[00:00:26] Speaker B: 2.
[00:00:26] Speaker A: We are one month on from the start of the conflict. Rates are up, fuel is running short. Thousands of containers are stuck and stranded. And the industry is asking questions about resilience. It has asked before, but never really answered. I have two of the best people in the world to help make sense of it today. Lars Jensen is the CEO of Vesuchi Maritime, one of the most respected analysts in container shipping. And Greg Nola is your rep editor at the Journal of Commerce. Welcome to the Freight Buyers Club, guys. And before we dive in, a quick message from dimerco Express Group who make this content possible.
If your supply chain runs through Asia, why not work with a company that has been connecting Asia with the world since 1971? DiMerco Express Group.
Right. Let's try and unpack this war, this huge crisis that's been building. Lars, we're a month on from the start of war. The Strait of Hormuz is still closed. The tankers, container ships, bulk carriers carrying fertilizer, they're all still trapped in the Gulf. And Houthis are threatening the Red Sea approach to the Suez Canal once more from a global ocean supply chain point of view and also from a macroeconomic perspective. If you will please give us your take on where we are now. How are you viewing all of this?
[00:01:51] Speaker B: It is an interesting question because I think what we should look at is a couple of things separately. If we look specifically at container shipping, this is not a global problem. Let me provoke a little bit by calling it that, because let me then clarify why it's not a global problem.
It's a very tiny proportion of the world's container fleet that's trapped inside the Persian Gulf. Under normal circumstances, it's maybe 2% of a global container trade that actually moves to and from the Gulf itself. So this is not a major impact globally.
Even if we have to take some of that far east to Gulf cargo and sail it all the way around Africa into the mid and down into the Red Sea, which is what some of the lines are doing, this would add at most about 1% to global demand, measured in TE miles.
So despite all of the Headlines specifically operationally on container shipping is not a global problem directly. However, first of all, it is a massive problem regionally because there is no way there is enough intermodal capacity to move all the cargo to and from the Gulf countries. That is usually shit. That is simply not feasible with what we have. And then of course, we have the indirect effect that's going to hit also global container shipping, increasing energy prices take money away from the consumers. That will have a negative impact on global demand. So that definitely subsequent effects coming out of it. But from a container shipping perspective specifically is a huge regional problem, but it's actually not a global problem.
[00:03:26] Speaker A: Lars, just put some numbers on that. How much of the global container shipping fleet is tied up by the closure, either inside the Gulf or affected on the outskirts?
[00:03:34] Speaker B: Yeah, you can say inside the Gulf, it's one, maybe one and a half percent of the fleet that's in there. But that doesn't mean we have removed one to one and a half percent, because about half of these ships, they are ships that only move feeder stuff within the Gulf anyhow. So they're usually not out and about. So it's less than 1%.
And we've just seen two of the 19,000 behemoths from Costco now actually be allowed to exit. So they're not trapped there anymore. Early in the crisis, we had a lot of ships that were waiting, trying to get into the Gulf. So for a while they were tied up. Not the case anymore. They basically all diverted to secondary ports to dock their cargo.
So from a global perspective, it's actually minute now how much is de facto tied up.
[00:04:20] Speaker A: So the impact here then, obviously you mentioned it's regional, but looking slightly further afield, more about the Houthis and what happens on the Red Sea. Will shippers go to the Suez Canal? That's what a lot of shippers will be looking at, purely on those container rates. Yeah.
[00:04:35] Speaker B: And you can say this is where it is worthwhile to contrast the Houthis with what we're seeing now in Hormuz, because the Houthis were denying access up to the Suez Canal. This was a massive impact on some of the largest trade lanes in the world. The Persian Gulf is an appendix. There is no transit cargo going through there. So this is a massive thing for tankers and bulkers, but not really for container ships.
[00:04:59] Speaker A: So the domino effect, we'll explore that a little bit more because some of those things will ricochet into container shipping and global supply chains anyway, whether it's food or whether it's energy crises if they develop any further.
Greg, Gulf states are massively dependent on imports and we've seen these intermodal supply chains springing up from Saudi Arabian ports on the Red Sea such as Jeddah, and also from ports outside the strait such as Khorfakan and in Oman at the port of Salalah. But Salalah was hit by drones at the weekend. So these intra Middle east overland routes, they're vitally important, but they're pretty vulnerable as things stand. What's at stake here in your view?
[00:05:39] Speaker C: Well, you know, not much grows in the desert, so around 85 to 90% of the region's food is imported and most of that comes by ocean through the Strait of Hormuz. I mean, I think it's not in a global container shipping context.
It's not a big deal. But like Lars says, regionally, I think before the war started, there were more than a million containers a week going in and out of the Persian Gulf, mostly through Jebel Ali. If you look at the ports of Jeddah on the Red Sea, Corfukan, Sohar, Solana, they are basically the Persian Gulf's emergency entrances. And with Houmas now out of bounds, containers are being discharged outside the strait, trucked inland or land in the Red Sea and then move across Saudi. So it works, but it's slower, it's more expensive and it's much, much more complex.
And one of the alternative ports like Solana does get hit. It shuts down operations for a while and just adds to all the bottlenecks.
[00:06:32] Speaker A: And we're talking long distances on some of these as well.
[00:06:35] Speaker C: It's very long distance. I mean, to get from the UAE to Jeddah is what, 1,900km?
[00:06:42] Speaker A: Of course, there's another element to this on the Gulf supply chain outlook and the constraints that are affecting the region, which I'll look at in more detail in Air Cargo and Pat with Neil, Joe and Shah later this month because we've seen this significant drop in air cargo capacity to and from the Gulf, which it limits things regionally but also has these massive global implications, not least in rising costs on many air freight lanes, which for those of you watching, you can now see on the Baltic Air Freight Index powered by TAC index, which is now closing in on freight levels last seen during the Q4 peak season end of last year. So Greg, this is a real complication for anyone in global supply chains. It limits options.
[00:07:25] Speaker C: Absolutely it does. Before the war started, around 30% of Asia, Europe air cargo normally gets routed through The Middle Eastern hubs in Dubai, Abu Dhabi, Doha and Riyadh, both in the bellies of passenger planes and in freighters. But the closure of the region's airspace, so it cuts 18% of the capacity overnight and, you know, half of that has been clawed back.
But the priority is on getting stranded passengers and cargo back to where they should be. Agent carriers like Cathay and Singapore Airlines have redirected capacity from the Middle east from those routes to serve the European direct European services. But, I mean, there's fierce competition for that space and it's very tight and lucky the rates are increasing.
[00:08:12] Speaker A: Lars? Just coming back to the threat against some of these ports in the wider region. Gulf of Oman, Bab Al Mandeb, which is the entrance to the Red Sea, and then the Suez. We've even had attacks in the Eastern Mediterranean. Now we're all sitting here hoping things resolve sometime soon, although it's hard to see how that happens at the moment geopolitically. Are you worried that things could instead deteriorate further? We've discussed the threat of these intermodal overland links. This could spiral further afield, though. We've got a threat to the food supply chain, a looming energy crisis.
If carriers decide they don't want to put crew and ships in dangerous places, and who would blame them? How does this play out? What's your worst case scenario?
[00:08:56] Speaker B: No, the worst case scenario is indeed that the risk area is expanded substantially beyond where we are now. If you look at the bottom line here, we can almost look at the Red Sea crisis the last two years as a dress rehearsal for what is coming right now. I mean, that was a very tiny actor, the Houthis, meaning geopolitically, they are tiny, yet they were able to wreak substantial havoc just by virtue of having an asymmetric warfare. Now, we've seen the Iranians do that writ large. It's very clear that the Iranian strategy is they cannot hope to win a war straight on with us. And that's not what they're trying to do. They want to inflict as much pain on the surrounding area. So the surrounding area puts pressure on the US and so far they have been successful in continuing to expand that. The next obvious steps, the one I would be really keeping an eye on the next few weeks, is actually back in the Red Sea, because for the first month, the Houthis were only involved in terms of words. Now, for a few days ago, we saw them now launch the first missiles again against Israel.
But what I'm concerned about here, if you want to, if we're concerned about escalation, is that the Houthis will expand the target rank.
For the last year, year and a half, there's been very, very limited vessel attacks from the Houthis. Not because they couldn't, but there weren't really any targets for them to shoot at because their no sale list, I mean, those ships were already going around. But what we saw here in the Hormuz crisis was Iranians being willing to shoot also at regional container lines. I think the worst example was the Safine Prestige from global feeder shipping that got hit and then the salvage talk subsequently was attacked as well.
And if that is the case, this could actually worsen the situation for the Gulf states significantly, because right now we do have a relatively solid pipeline of cargo from Asia into the Red Sea on a lot of these regional carriers. These regional carriers right now cannot go through Hormuz. And if the Houthis step it up and suddenly align with Iran and say, you cannot go through the Red Sea either, that will further choke the supply chain coming into the region compared to where we even are today. And as you correctly mentioned, a risk is an expansion to the eastern med.
[00:11:14] Speaker A: Yes, we've already seen more risk premiums going up after that attack on Cyprus. Just looking at some of the ports that are taking the load after so much cargo had to be done with the closure of the Strait of Hormuz, ships were diverted, cargo left stranded. We've got Mundra, Colombo, Karachi, Solalo, Narvishiva, all congested. We're a month in, Lars. This domino effect we're seeing in the Indian Ocean, when do we see the impact of this hit Asia in terms of line, our networks disrupted, equipment out of place? Are we going to see a downturn in reliability? Are we going to see shortages? Are these all concerns for you? Or maybe not.
[00:11:51] Speaker B: You know, you could say right now I am at least positively surprised at how limited some of this disruption has been.
Very much like in the Red Sea, we are at maximum level of disruption now.
And the name of the game going forward is, okay, how do we then redirect all the displaced cargo?
And the carriers this time around were very, very quick at seizing acceptance to the Gulf. So they were not feeding more into a pipeline that led nowhere. So if we look at the level of disruption and port congestion, we are basically at peak levels of congestion now because of it. And then it becomes hopefully slightly better onwards from here. And again, to be quite honest, this is less of a disruptive effect that one could have feared.
[00:12:38] Speaker A: So Quite beneficial for liner bottom lines.
[00:12:40] Speaker B: Then you'd say not as much as we might necessarily have thought. I mean, hoping, not jumping the gun too much here, but when we look at all the different spot rate indices out there, of course rates have gone up, but it's not that they have spiked. Obviously, if you look at the SCFI from Shanghai into Dubai, that has gotten completely crazy. But if you look at all the other trades that would have been hit indirectly, sure, rates are up, but not massively so. Remember, we are coming off the usual slack season out of Chinese New Year anyhow. Rates are now going up a few weeks earlier than they otherwise would have. And the increases in many places seem more commensurate with what you would expect from the increase in oil prices and not necessarily a massive impact from a global strengthening of supply and demand.
[00:13:27] Speaker A: So just to put a bit of context on that, since the war started, Asia, North Europe spot rates are up around 40% or so.
I'm seeming like they might climb. That sounds dramatic. You seem to be saying that's not that dramatic. You mean in comparison to previous disruptions?
[00:13:43] Speaker B: Yeah, he says comparison to previous disruptions. I mean, 40% sounds dramatic, but you're talking typically maybe four, five hundred dollars or so. Because again, as I mentioned, we are also coming from the post Chinese New Year slack season. We need to remember rates are always low at this point of the year because of the slack season after Chinese New Year, we always see dramatic increases in percentage at this time of year. So I don't see the rate increases right now as being massive at all. And they are nowhere near what we saw during, for example, the Red Sea crisis when that first erupted, let alone what we saw during the pandemic affair.
[00:14:22] Speaker A: So you're not, if this is peak congestion for you and maybe peak disruption, you're not expecting these rates to continue climbing in the coming weeks. Lars, I'm trying to get a forecast out of you.
[00:14:33] Speaker B: Yeah, no, the forecast you're going to get out of me, sure, rates are going to continue slowly to creep upwards because we're then also slowly beginning to approach the early peak season. But you are not going to see these fantastic spikes that we saw, for example, early in the Red Sea crisis. If that was the case, we would have seen them. Now, the caveat here, and this is where we venture slightly out of where I'm usually the expert on it, but I might be concerned if I'm shipping reefer cargo because we've got a lot of empty reefers that have been left stranded in The Gulf that can't quite get out. So you might have some niche trades where you will have these effects. But overall, if you look at Asia, Europe, if we look at Trans Pacific, if we were going to get a Red Sea style massive price spike, we would have seen it already.
[00:15:17] Speaker A: From a shipper point of view, then what advice would you give them on freight procurement, whether on Asia Europe or the Trans Pacific? Maybe don't be too concerned about where spot rates are going for now, but keep an eye on surcharges, insurance costs and other fees.
[00:15:31] Speaker B: Yeah, exactly. No need to panic. Yes, plan for you're going to see a gradual increase going forward, but we should not expect suddenly rates are going to skyrocket by $3,000 or whatever we saw in the Red Sea, because that would have happened already.
[00:15:47] Speaker A: So really keep a firm eye on those terms and conditions with whoever you've signed with, whoever your carrier is. It is.
[00:15:54] Speaker B: And one thing I would also keep an eye out for, especially if I'm a shipper with a contract subject to a variable bunker fuel surcharge because all these new emergency bunker fuel surcharges that the carriers have come out with, if you also have a variable fuel surcharge, you're going to end up paying for the same fuel twice because the increases we see now by the formulas that are being used, they will come in in your Q3 bunker fuel surcharges. So if you're also paying the emergency bunker now, that's what I would watch out for.
[00:16:25] Speaker A: Greg, Mark Zacconi did a great story in the Journal of Commerce on why the Federal Maritime Commission knocked back emergency surcharge applications from four carriers. Can you tell us a bit more about that and what it means for shippers?
[00:16:40] Speaker C: Well, in the US the FMC, the Federal Maritime Commission requires carriers to give a 30 day notice period for imposing surcharges. So the carriers did that in early March. But then they also asked the FMC if they could waive the 30 day waiting period and oppose emergency fuel surcharges immediately. That was rejected by the FMC and they said the carriers have not shown what the additional costs were, how long the surcharges would last and what steps they take to mitigate those extra costs. Those surcharges are still coming and they'll be hitting shippers in April sometime probably early April. But there are other ways that carriers are recovering fuel costs like Lars mentioned. You know, the cargo contracted on a the long term contract, you know, rather than fak rates are subject to the bunker adjustment. Factors and they are reset quarterly or there's that floating fuel surcharge that can be reset in every month.
[00:17:35] Speaker A: Thanks, Greg. Just to pivot slightly, you did a great piece on bunker fuel last week. All quite alarming. What's going on in bunker markets right now and what does this mean for fuel supply?
[00:17:47] Speaker C: Well, I mean, like we mentioned earlier, 20% of the world's crude and refined oil comes through the Strait of Hormuz and much of that goes to Asia. So when the war started, those shipments dropped to to virtually nothing. And the bunker stocks already in the supply chain and en route to refueling hubs have now been delivered or are busy almost being delivered. And those refueling terminals are starting to run down the inventories and there's no replenishment on the way.
I spoke to the Maritime Port Authority of Singapore last week. They reckon they still have stock, but they're monitoring everything very closely. But as one of the world's busiest bunkering hubs, I would imagine they're getting pretty worried right about now. Some ports have more supplies than others. Of course, it's not like there's shortages everywhere. But with Asia being the starting point for most long haul voyages, the industry does need that straight to reopen.
[00:18:42] Speaker A: So in Singapore, VLSFO is up over 70% since late February. Is the problem availability rather than prices we look forward, is that what we're saying?
[00:18:51] Speaker C: Yeah, I mean, at some point if there's no fuel, there's no fuel. It doesn't matter how much it costs and we're not at that point yet. But it's hard to see how the bunkering industry can avoid running out if they can't get fuel replenished.
[00:19:07] Speaker A: Lars, are you concerned that. Well, we've never really been here before. The concerns over bunker supply might constrain operations rather than just inflate costs. Have we got any reference point for this?
What are the implications if this did happen?
[00:19:21] Speaker B: I don't think we have any reference points to come anywhere near.
We all hear the numbers. That is 20% of the global oil supply that moves through the Strait of Hornbus. As far as I've been able to dig up, if we go way back to the tanker wars in the 80s and the fuel crisis back in the 70s, back then you were talking 7 to 10% of the world's oil supply that was impacted. So the sheer magnitude of what we're witnessing now is completely without precedence.
And yes, I would be more concerned about the physical availability of the fuel rather than the price. I mean, sure, in headline form Bunker fuel prices have increased dramatically over the last four weeks.
But we have been here before. I mean 2013, 2014 bunker fuel prices were as high as what we're also seeing now. And it's not that the global supply chains were broken back then. Furthermore, vessels were actually less fuel efficient back then as they are now. So yes, it's a high oil price, but that in itself is not going to wreck the supply chains at all. The concerning part is suddenly there are locations where there'll be physical shortages of the fuel.
[00:20:25] Speaker A: We're already seeing jet fuel shortage in Asia. Actually I was talking to someone just before we started recording. I'm hearing about charters being turned away for fuel when they're trying to refuel in part of Southeast Asia and also some warnings coming out of European airports. So that situation is certainly spiraling. As I said earlier, we'll cover this in more detail later this month in Air Cargo unpacked. So please do subscribe on the website if you want it delivered direct to your inbox or follow and subscribe on YouTube or wherever you get your podcasts. But let's just take a short break here and we're back in a moment with a look at what this means for US shippers and what might happen next.
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Demerco Express Group Connecting Asia with The world since 1971 Greg, the US is not at the center of this geographically as we've been discussing, but it might feel a little bit more impacted as things develop, certainly politically. When we were over at TPM it was really felt like shippers were in the crossfire from a number of different directions, including tariffs as well as this war. Impinion was quite divided there. What's the situation looking like for US importers at the moment?
[00:21:40] Speaker C: Well, I mean remember tpm?
The carriers were they paused signing service contracts and shippers were pretty keen to sign because the rates were very weak. But then with the war continuing, the PCOs now they really wanted to sign and lock in their allotments. But carriers have been pretty they've been slow walking in and then rates rose in Asia, they rose sharply in the second half of March.
But it's worth noting as well that Lars, you mentioned this earlier as well that we're not in a down market on the Trans Pacific and in January and February US imports were our data shows they were the third highest recorded, not as high as last year's front Loading, but right up there. While the Trans Pacific is not directly affected, the ripple effects are being felt in things like fuel prices, bunker shortages in Asia and rates that have started to rise. You know, equipment shortages that may follow down the line if the war continues. If the bunker shortages do become extreme, I mean, I guess it could lead to capacity reductions and service cuts, but, I mean, that's all up in the air.
[00:22:46] Speaker A: Lars, what's your take on this? You seem to be implying that at the moment, at least, we're not looking at anything structural, that this is a temporary inflationary rate increase, but we might have some surcharges to keep an eye on. So you're not really worried from a US shipper point of view, at least. They haven't got major concerns at this stage.
[00:23:05] Speaker B: Not again from the direct operational disruption. No. Again, some cost inflation that's going to be carried on through.
What I would be more concerned about from the US importer perspective is twofold.
One is how much oxygen will be sucked out of the American consumers from the rising energy prices. Because that's one thing that at least has helped the American market over the last 12 months. That despite the trade war, despite everything, the US consumer has proven fantastically resilient. How resilient will that consumer continue to be when prices are now escalating at the gas pump? That's one thing to be concerned about. The other thing is the element that we all stopped talking about when this war broke out, the tariff uncertainty, because that has not disappeared at all. There's a lot of shippers are now trying to go through the process of getting their EIPA tariffs money back. That's likely going to take them years, and eventually they're likely going to get their money minus a sizable portion for all sorts of lawyers out there to make this happen.
But we have a new tariff regime that's only in effect for 150 days. We have a large number of new section 301 investigations ongoing. So we all know there will be yet new tariffs to come in the coming months as well. And no one has the slightest clue what that tariff landscape is going to be. So this whole trade war uncertainty continues at full force in effect. It's just now flying below the radar because everybody's looking at the Strait of Walmart.
[00:24:36] Speaker A: Okay, interesting. Well, I mean, the original trade war was US versus China, wasn't it? There were supposed to be trade talks at the end of March between G and Trump.
[00:24:44] Speaker C: They.
[00:24:44] Speaker A: They were postponed from the American side, I believe, possibly because the lack of leverage While all wars raging in the Middle East. I don't think any of this looks great from a US perspective if you're going into negotiations at what is increasingly looking like a bit of a debacle in the Middle East, Xi is, well, he's in a quite a good position negotiating tariffs with rare earths up his sleeve.
[00:25:06] Speaker B: Yeah, you could say with my perspective on that is US did indeed start a trade war on every conceivable nation on earth back on the so called Liberation Day, even to the point of tariffing an all in house inhabited island only with banquets.
And that has basically continued ever since. We have then seen the announcement from the US side on various parts that now we got a trade deal with country X or country Y by any normal use of the word trade deal. None of these are trade deals. They are headline letters of intent. And that is about the extent of it.
Some of these deals are now even up in the air in terms of they have going to be adhered to with the AIPA terrorist out.
So it is a trade war on the entire world. We can see the ripple effects though. We have seen an increase in the number of actual trade deals between other actors. We've seen the EU now begin to make deals with Mercosur, with India, with Australia. We're seeing China remove all terrorism in Africa. Canada made deals with China. So an effect of the global trade war started by us has actually been to increase the number of trade deals between other countries, which is boosting trades everywhere else.
[00:26:13] Speaker A: So the US is writing itself out as part of that global trade picture, essentially. Lars.
[00:26:19] Speaker B: Essentially. But I mean, if you look at the state of policy of the current US government, that's also what they want.
[00:26:24] Speaker A: Lars, we've discussed this in the past. You wrote a great article in the Journal of Commerce about resilience or the lack of it in supply chains.
Just walk me back through this. Walk me back through resilience versus efficiency when you're talking about a supply chain.
[00:26:39] Speaker B: Yeah, because every time we've got disruptions right now it's a strait of Hormuz. But we could also take whenever given got stuck in the Suez Canal or the pandemic or whichever example we want to bring up, there's always this call for why are we not more resilient. But at the end of the day, that's because we don't want to pay for it. When the market is normal, everybody seeks efficiency. We want the ships to be full, we want the terminals to be operating at maximum capacity. We don't Want to have hundreds of trucks standing idle. We want all of them to be used. We don't want to see mountains of empty containers, they need to move cargo. We don't want to see goods sitting on shelves in the supermarket for months. They got to churn quickly. Everybody pursues efficiency and as long as there are no disruptions, efficiency drives us to reduce all of these resilience barriers. When the proverbial shit then hits the fan, then we complain that we are not resilient. But if we are really honest, nobody wants to pay for it time and time again. One of my typically hypothetical go to examples and I sincerely hope it will stay hypothetical, is look at the port complex of Los Angeles Long Beach. It's located in a major earthquake zone. So what happens if we got a huge devastating earthquake that completely shuts down Los Angeles Long Beach? There is not enough capacity in North America to service the U.S.
so if we really want to be resilient, we should build a copy of Los Angeles Long beach somewhere else and have it sit idle just in case. Because then we are resilient. Obviously that's never going to happen because we're not going to build a second Los Angeles Long beach just in case. But it is to illustrate the point that resilience in good times equals overcapacity. And in a world seeking efficiency, nobody wants to pay for that overcapacity.
[00:28:28] Speaker A: So resilience versus cost to a degree, how much are you willing to pay for redundant capacity is what we're talking about. I think this also ties in a bit with tariffs and reshoring. Can you explain why wouldn't someone buy American?
Because that does give them resilience versus importing from China, which can be a lot cheaper. So why wouldn't you want to be the first mover on that?
[00:28:50] Speaker B: Because at the end of the day, it boils down to something as simple as short term versus long term. And this all starts when the consumer stands down in the supermarket. So I want to buy a shirt and here's a foreign made shirt that might cost me $10. Here's a US made shirt that cost me $20. What am I going to buy?
For most people, price drives it. It's the same over and over again.
We can make all the arguments we want about resilience, but many people make transactional decisions based on the here and now and not on expected payoff.
[00:29:23] Speaker A: And it'd be the same if I needed an import for a factory. Say I wanted a steel ball bearing. I'm not going to buy the really expensive American ball bearing rather than import something cheaper. Because while I might have a more resilient supply chain and be doing what the politicians want me to, I, I'll be essentially be pricing myself out of
[00:29:42] Speaker B: my own industry precisely because if you are the only one doing it, you will have competitors who are not. That makes your product uncompetitive and you will drive yourself out of business.
Once you're then driven out of business, then there might be this event where your resilience would be needed. But you've gone bankrupt long before you ever get to that point.
[00:30:01] Speaker A: The difficulties of policy making. Greg, from a journalism point of view, you cover these crises as they happen every day. Do you see any evidence the industry actually learns and changes? Or is it always the same story?
[00:30:15] Speaker C: Yeah, I mean, I've been covering this industry over the last five years. It's really just been a lurch from one crisis to another.
Remember the days when we used to, when a new sort of 8000 TEU monster ship would have been the big story? You know, how big is too big?
But, yeah, but there have been so many severe supply chain disruptions over the past few years that, you know, companies have, they've learned how to be more resilient. The supply chains are pretty efficient these days. And, you know, obviously there's no way to insulate yourself from these black swan events. But shippers have responded with things like extra suppliers, more stock for critical parts, better visibility, technology, faster decision making.
But the global system is still built around efficiency and a handful of choke points. And when one of those gets hit, it just has a wider impact and that simply needs to be managed somehow.
[00:31:07] Speaker B: Maybe as an added comment here, I mean, we make it sound like the system is incredibly fragile. I mean, I still think the pandemic is the best case in point.
Despite a global pandemic we hadn't seen in 100 years, despite all of the disruptions, more freight than ever before in human history was actually moved. It was more delayed, it was more expensive, but it was moved.
[00:31:28] Speaker A: Very good point, Lars. Our last question for both of you, if I may. If Hormuz reopens in the next two or three months, what is the lasting impact of this crisis on how the industry operates?
[00:31:40] Speaker B: Lars, the truly lasting impact. There will be no change. I mean, if the Strait of Hormuz opens, and if it's on the premise that we will have a at least semi permanent peace for the foreseeable future, then there will not be any lasting changes.
If you look at some of the calls for resilience. There's a lot of people rhetorically asking why don't we have more capacity to move intermodally? Because nobody wants to pay for it. It's a lot more inefficient and expensive to move a truck. We're not going to preposition 5,000 trucks in the desert just in case.
There has been more fanciful calls for building a canal through the Musandam Peninsula.
First of all, again, it will be hugely expensive. Who would pay for that when the Strait of Hormuz is open? That's not going to happen. And even if you had it today, the Iranians could just bomb the ships in the canal just like they do in the Strait of Hormuz. So the bottom line is nothing will be changed.
[00:32:33] Speaker A: I'm not sure about that, maybe in specific industries, but when I look at energy supply and food supply, I think there could be a big rethink.
Greg.
[00:32:42] Speaker C: I mean, if the straight, if it does open, it's still going to take a couple of months before you can get the supplies up to where they need it. Supplies of fuel, food, fertilizer, chemicals, gas. So even if it open tomorrow, I think there's still, there's a lot of pain between now and and whenever the situation normalizes.
[00:33:01] Speaker B: Maybe if I can add another comment in terms of why should we think things change?
We had the oil crisis, the energy crisis in the 1970s around this region, and when that was resolved, nothing changed. Then we had the tanker wars in the 1980s with 500 oil tankers being shot at in that region, and when that was resolved, nothing changed. So I don't see there's any basis for thinking in the long term if and when this situation gets resolved, that we're going to see any change.
[00:33:28] Speaker A: Well, I guess that depends on whatever geopolitical segment is reached and hopefully reach soon and how that all ends up resolving itself. I think from my point of view, if you end up at a geopolitical standoff where Iran can always open and close that tap or the Red Sea, that changes that whole dynamic, especially on energy, but on global shipping and trade, too. But anyway, I digress. Again, guys, this has genuinely been one of the more important conversations we've had on this program in these quite harrowing times. And given what's happened in shipping over the last few years, that's probably saying something. Both of you, thanks for joining me today on the Freight Buyers Club.
[00:34:05] Speaker C: Thanks, Mike.
[00:34:06] Speaker B: Thanks, Mike.
[00:34:07] Speaker A: A big thank you again to Demerco Express Group for making this episode possible. Demerco is the leading Asia Pacific freight forwarder and logistics provider and if you want to know more about what they do, the link is in the show notes of course. Big thanks to Karen Ball and Tom Matthews for their never ending patience and production skill. The Freight Buyers Club is independent journalism about container shipping, air cargo and global supply chains. If this episode was useful to you, please share it with someone who needs to understand what is happening right now because I think this probably matters well beyond the freight industry.
We will have more on the crisis as it unfolds. Thanks for watching.
