Episode Transcript
[00:00:03] Speaker A: Hello, welcome to the Freight Buyers Club. I'm Mike King and I'm delighted to say I'm here in Demerco Express Group's Shanghai offices. We're here for air cargo China later this week and I'm joined by Cathy Liu who's VP for Global sales and marketing. Cathy, how are you? Welcome back to the Freight Buyers Club.
[00:00:23] Speaker B: Hi, how are you? Mike, welcome you to here.
[00:00:26] Speaker A: Yes, it's been a while and much change has been afoot. Yeah, can you give us before we get into some of the key things that have been going on in the ocean freight markets and and some of the big supply chain issues that are out there at the moment, can you just give us a little bit of a breakdown about what you do here in the Shanghai office and maybe a wider viewpoint of sort of this region's footprint and the China footprint?
[00:00:51] Speaker B: Yeah, I think the Merkel is a Asian based logistics service provider and we actually get into China market quite early. So start from 1991.
The first office we have actually is here in Shanghai. So it's already 35 years and after we established the representative office in Shanghai then we have expand our service network and up to now we have more than 70 offices all over China. So all those key hub gateway industry area, you can find our representative there. And in this area we are not only do air and ocean but also we do like custom brokerage and also we have our facility in bonded area in the free trade zone and we also have those other value added service in this area. So it's quite comprehensive service products we can offer here.
[00:01:45] Speaker A: Yeah, comprehensive indeed. If we look at the oceanside for a while, I'm very interested to get this China perspective on some of these global events.
We've seen rates soaring on most of the key lanes since March.
What exactly is going on there? Is this real demand? Is this carriers playing with capacity?
How are you viewing this and how are your customers coping with these increases?
[00:02:11] Speaker B: Yeah, I think that's a lot of like mixed factors and I think one of the key factor for sure is because of those crisis in the Middle east and we saw some vessels actually stuck there. So that also took a little bit the overall capacity from the global supply area side. And on the other hand we see the front loading as well because you know I believe the tariff this will getting expired by the end of June, something like that. The 180 days.
[00:02:45] Speaker A: Yes. So this is the replacement for the IPA tariffs?
[00:02:48] Speaker B: Yeah, yeah, exactly, yes.
[00:02:49] Speaker A: I mean there's a whole bunch of sectoral tariffs due to come in at different parts. Yeah, we need a tariff tracker, don't we?
[00:02:56] Speaker B: Yeah. Right. So that's too much. So I cannot really remember exactly. But because of that. So we see the front loading as well, especially for the Trans Pacific eastbound.
[00:03:07] Speaker A: So this is front load in peak season basically because of new regulations and changes in the rules, right?
[00:03:12] Speaker B: Yeah, yeah, right. And for sure there's a shortage on supply as well. And we see some area that they are lack of the empty containers. That's also because of the Middle east crisis. Some vessels stuck there or some vessels cannot unloading the containers at the port. So we see a certain percentage of the lack of empty container in couple of origins in Asia. So that also make the supply a little bit tight compared with before.
[00:03:42] Speaker A: And how's the Middle east war? Obviously this is effective fuel prices across modes. But how are your customers coping with fuel surcharges?
You know there's not just fuel surcharges, we've seen other disruptions as well. Transit times, reliability. There's quite a few things going on in ocean at the moment.
[00:03:59] Speaker B: Yeah, I think the for the like a fuel surcharge. So actually it's the market situations like that it's not for single shipping liners so the customer can accept this kind of pass through cost for the fuel surcharge adjustment but for others actually I think there's certain challenges especially for the overall the transit time lead time and we see some of those customers switch to like air, ocean or sea air, this kind of different transportation mode to recover the lead time. And some of them for Intra Asia they are using like a cross border truck instead of ocean freight to shorten the overall lead time. Yeah, for sure the cost will be a little bit higher but for the supply chain perspective it's still worth to make the change.
[00:04:52] Speaker A: And how about peak season surcharges? It sounds like there is this early front loading. So we're looking at an early traditional peak season on the Transpac and the Asia Europe trade. Are people pushing back on peak season surcharges because they are unusually early?
[00:05:07] Speaker B: Yeah, I think this year it's really getting early but what we see is that maybe it will be closed early because of the overall the demand in the market is not really increasing.
So just you move the cargo. Maybe before was going to third quarter but now it's getting front loading to second quarter. So this is something happening. I think the peak season surcharge a lot of those shipping line or most of the shipping line are already imposed and I think it's reflect to the market situation. So the customer have to accept that. Yeah.
[00:05:42] Speaker A: And how about port congestion? We're here in Shanghai that that has struggled with with congestion over the last year or two. What's the situation like at the moment here and is congestion elsewhere a problem as well?
[00:05:54] Speaker B: I think overall in Shanghai, Ningbo, those area although there's a little bit poor congestion but because of those automation for the loading unloading process.
So it's not really affect that much on the Litan but for like India, like in Navashiva and in like Kuala in Singapore, Malaysia, those really the serious poor congestion and the vessel need to wait for maybe not about seven days until they can get the area to unloading the Shermans. Yeah.
[00:06:27] Speaker A: Is there any sign that congestion's improving in some of those areas? Certainly in Colombo and Navishiva some of that was a knock on domino effect from closure of Hormuz. Lots of containers were dumped in those areas.
Is that probably played into that?
[00:06:42] Speaker B: Yeah. Riding because of those vessels stuck in the homes they have to return back and then most of those vessels they are trying to unloading their container in like Kuala, Singapore, Namashiva, those areas. Yeah.
[00:06:55] Speaker A: Cathy, if we just cast your mind forward a little bit because I'm very interested in shipper choice. Container shipping consolidation has been a factor for 20 odd years but it seems to be accelerating at the moment. There's a lot of chatter about who's going to buy who. Rumors about some sort of MSC Hapag Lloyd deal. Hapag Lloyd and the Zim deal that's due to go through before the end of the year. Are you worried about customer choice moving forward if the container shipping consolidation continues?
[00:07:24] Speaker B: I think that's for shipping line actually. There's I mean not that much choice in the market and the number of vessels, I mean through those like different those alliance they already sharing the capacity on those different vessels. So I don't think it will impact on the shipper's choice and the recent years. I think when shipper make decision for which liner to use most of time they are concerned is about the transit time, the schedule, reliability. Yeah.
[00:07:58] Speaker A: Okay, thanks Kathy. Let's switch to air cargo.
So we spoke about this. Last year the end of US de minimis exemptions led to a big uplift in air cargo imports ahead of those deadlines. In Europe we've got a similar situation now we're Talking just before July 1, the EU It's a slightly different change compared to the US essentially it's also getting rid of De minimis exemptions.
Have you seen any extra front loading on that front and have you spoken to any of your customers maybe E tailers these E commerce giants about how they're going to approach this?
[00:08:35] Speaker B: I think the cargo is continuously shipped into those countries just like when US canceled the diminish people thinking maybe there will be some decrease on the volume. But actually now what we see is that it's still on a certain level or let's say it didn't really decrease that much because of I think the customer's behavior already changed. They are not really shopping from those those retailers and most of the time they already get used to buy via E commerce stores marketplace. So this is something that demand wise it didn't change. What we see is that the potential change is that there will be no longer those parcel shipments be consolidated moving to the country like under like a general cargo this kind of way or the method will be decreased. And most of time I think they will move under general cargo. But still they request some the shorter lead time for the E commerce. So we see the air cargo demand will be still at certain level even they cancel those diminished.
[00:09:45] Speaker A: What other trades have been catching your eye on air cargo unpacked? We heard in the June episode about some trades that are really flying at the moment and we've talked about this as well. Hyperscalers anything to do with AI particularly Taiwan markets being very strong which I know you're very plugged into some of the markets out of China. Some big imports into the US as I think it laptops and PCs. But other tech as well is up sixfold or threefold depending on which category into the US this year which surprised a lot of people. What type of air cargo trends are capturing your eye.
[00:10:20] Speaker B: Yeah, I think for us we still see the very high demand and it's still growing demand for the AI for the data center. So I think a lot of data center be built up in US and majority actually is export from Taiwan. And that's why the Taiwan to US the air freight market is still on very high demand and the rates also much more higher compared with in the past and even shortage of the capacity. That's I think the hotel we are looking to and for sure for China to US Although we see because of those tariff and the manufacturing move out. But there's still certain demand on high tech and the semiconductor this kind of vertical and the recent months we also see some trend as certain products they're coming back to China and then export into US. This is something I Think because of. Also because of some the urgency about the shipments. And you know, because in China we still supply most of the freight capacity doesn't like for example in Southeast Asia like Thailand, Vietnam, they don't have that much direct freighter service.
So during the peak season especially start from last year, we already see some challenges on the capacity especially now because Taiwan to us actually is very tight and you cannot use the transit hub in Taipei to move out those chairman out of Southeast Asia. So this is some trend we have seen and in the coming third quarter we believe the airfreight market will start to pick up.
[00:12:09] Speaker A: So that's at the traditional peak of the air cargo. Well pushing into the Q4 actually. But is this demand, is this like a temporary surge or are we thinking of this as more of a structural change in the market? Is this long term business?
[00:12:23] Speaker B: I think for the AI data center it will be at least next three to five years. I think that's a trend because now the AI is developing so fast and you need a lot of this kind of data center to digest the needs, the request.
And also we see that even not the data center itself, it's like those AI cabinet and also some of those collecting lines, those very small components now getting very, very, very, very hot. The demand is so strong out of like China, Southeast Asia and Taiwan. So everything related with AI actually is very at a very high demand. But there's another thing that our customer just share with us is that because of the component for AI data center actually. Exactly. The components we will use for laptop or computers. But because of AI data center they can pay very high price for those components. So those factory is supplied to AI data center as the first priority. So we will see the lack of components to supply for those laptops computers in the, in the coming, coming months. So this is something that is the not related maybe with the freight market, but it will be the supply challenge for the high tech industry.
[00:13:47] Speaker A: Presumably if they're pushing people out in terms of the price or the availability of components.
[00:13:53] Speaker B: Yeah, right.
[00:13:54] Speaker A: I guess at certain times they're also pushing people out of the. The air freight market. Is that.
[00:13:58] Speaker B: Oh yeah, right. Yeah, that's the same. Yeah. Because they are shipping on the same routes as well.
[00:14:03] Speaker A: Yes, yes. Okay. So people are. I mean if you're in the business of selling freight in the air cargo market does all of is what you're saying is we're going to see a strong market through the rest of 2026 and maybe into 2027 as well.
[00:14:15] Speaker B: Right, right.
[00:14:16] Speaker A: Right, right. Okay. Strong market for air cargo into 2027.
Just on the routings of some of this trade changes that we've seen over the last year or so. Whether you're talking about air cargo or container shipping, it seems like particularly out of China. And a lot of this probably relates to US trade policy. We've seen massive growth on routes into Latin America, into West Africa.
Do you see that continuing?
[00:14:46] Speaker B: Yeah, I think that will continue because especially like for Mexico in past years, I think a lot of factories manufacturers already invested in Mexico. So once the production line already there for sure the supply need to be followed up. So I think for this is some. Some trend actually related with the U.S.
china. The trade tension in the in the past that's the result leads to this. But for the Africa I think it's more. It's not that much maybe related with us it's just because of that. You know doesn't matter E Commerce or those ev.
They need to find some new market to boost their res.
[00:15:27] Speaker A: The diversion intake away from the US Market where it's been a bit softer.
[00:15:31] Speaker B: Yeah as well. So that's. That's how we see. They put target to focus on those emerging markets as well.
[00:15:38] Speaker A: So Chinese companies are being very adaptable. When we see this diversion. I mean how much of this is okay, this is like Vietnam's winning business, Mexico's winning business or how much of this is Chinese companies are front and center and right behind all these changes in the supply chains is the control still held in China.
[00:15:56] Speaker B: Quite often what we see is although the trade now is out of like Vienna, Mexico, whatever. But the manufacturers, those companies still Chinese company.
So most of those let's say the trade decisions still made by the headquarter in China. That's also how we see this kind of market trend actually is good for those Chinese companies because in the past maybe they just stay in China and they never think about to go international. But under this kind of pressure they have to move into other countries for the production line. So yeah, you're right. Although we see a lot of trade is moving out of China but certain percentage I believe it's more than 50% those freight still managed by Chinese company.
[00:16:47] Speaker A: So Chinese companies aren't retreating for any of these markets as things stand.
But you still see this growth of China plus plus plus yeah I think
[00:16:59] Speaker B: that's the trade trend even there's no no US China. Both tariff tensions. I think there will be still the trend to go because the labor cost in China is getting higher for sure compared to other Southeast Asian market. So what we see is those in China, maybe it will still remain those like high tech, high value, those production lines and for those labor intensive products will be moved out of China to other countries.
[00:17:31] Speaker A: And just to finish off, Cathy, have you got any advice for shippers in the air and ocean markets as we move through the rest of 26 and into 27, what would your advice be?
[00:17:41] Speaker B: I think it need to be to be agile and to always look into the market situation because nowadays the market is already not like when we just get into this industry, right? The peak season always have their traditional trend. But now all those peak season slow season actually followed by some accident or like a black swan like this year nobody knows that the homes will get in that serious situation and then to impact the global supply chain. So I think now because it's always changing so just need to close, follow up the market situation and then to make the decision to decide the most suitable routes for the supply chain and for the most suitable countries to manage shipment.
[00:18:33] Speaker A: Cathy Liu, thanks for joining me once more on the Freight Buyers Club. Thank you Michael and thank you all for listening. I'm Mike King, this is the Freight Buyers Club. You can find us on YouTube and on all podcast platform. Please do subscribe like and follow. We'll see you all again soon.
