Episode Transcript
[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 Demurco Express Group, a global 3 PL that specializes in managing logistics to, from and within the Asia Pacific region.
[00:00:30] Speaker B: This week on the Freight Buyers Club, a global trade storm is brewing and we're diving straight into the eye of it. First up, tariffs, container shipping and the brutal new rules reshaping US Imports with two of the sharpest minds in global logistics, Cindy Allen, tariff enforcer turned compliance fixer and Peter sand, the container whisperer from Zanetta. We then in Part two, what's really behind America's new obsession with shipbuilding, a bigger US Fleet and new fees for port access. We go deep with John McCown, container shipping legend and the voice behind what's Going on with shipping historian Sal McCogliano. Trade power policy it's all on the Line. I'm Mike King. Welcome to the Freight Buyers Club.
As you've just heard, this episode is produced with the kind support of the Merco Express Group. We are available on all podcast platforms and on YouTube. Please do like Follow, subscribe, review and comment. We're also on LinkedIn, BlueSky X and the FreightBuyersClub.com website where you can subscribe to get every episode direct to your inbox. Today we have a two parter for you later on. We're looking at all things US shipping policy with John McCown, non resident senior Fellow at the center for Maritime Security, which is the Navy League's think tank. He was actually mentored by the great founder of containerization himself, Malcolm McLean, and he's joined today by one of the breakout stars of shipping media and the creator of the excellent what's Going on with shipping YouTube phenomena. But he's also a renowned maritime academic at Campbell University. It's Al Macogliano, but right now we have one of the world's leading trade experts. Previously she served as Vice President of Regulatory affairs and compliance of FedEx logistics. She was also the executive director of the ACE Business Office at US Customs and Border Protection, the CPP. So very much the expert on how US tariffs are implemented and in her current role as CEO and managing director of Tradeforce Multiplier, she helps major bcos with compliance, amongst other things. Cindy Allen welcome back to the Freight Buyers Club. It's only been a short break between appearance, but hasn't the world changed?
[00:02:41] Speaker C: We've had liberation over in the US Here we've had liberation. Yeah, it's only been a few weeks, but it seems like years.
[00:02:50] Speaker B: I My wallet feels liberated.
Thanks for coming on. And joining Cindy today to talk about the demise of our pensions is an old friend and someone who's a TV regular in his role as one of the world's foremost container shipping experts, it's Peter San, Chief analyst at Zenith. How are you doing Peter? Looking chipper.
[00:03:12] Speaker D: I think it's it's nice for for a moment not to have flip flopping politics coming out of the White House so so enjoying a little bit of calm before the next storm is coming about. I think it's probably where I find myself today, but awesome to be back in your studio, Mike, as always.
[00:03:28] Speaker B: Before we start, we will be talking about tariff policy today, but rather than go into the multilayered tiers of deadlines, fees and sectoral breakouts again, Please reference the first 12 minutes of the previous episode of this podcast, episode 39, in that the National Retail Federation's John Gold runs through all the various schedules in great detail. You can also find a clip of this on YouTube. John does a far better job than I ever could. Please see the link in the notes below. Peter, if I can come to you first, and if we can just now park the latest bit of news on US Port call fees until the end of our discussion, I'll come back to that. But can you explain how you've been trying to keep your analysis up to date on container markets amid this endless bombardment of policy from the us? How are you going about reading these tea leaves on rates, for example, when we have so many unknowns on supply and demand?
[00:04:27] Speaker D: Always go top down, always look at what kind of variables are actually changing, what kind of variables are not changing, and then more than anything as the advice that we give out to our customers as well. It's another keep cool, calm and collected approach to a hailstorm like the current one where every decision that you probably made in your whole career may be questioned. Did I do the right thing at the right point in time? Am I now being punished for setting up supply chains out of Vietnam because of another administration coming about? So I would say be very true to your approach. Know your fundamentals. I think that's probably something that I have stated a number of times. Also, there are also a world outside the US. The US may account for something like 16% of the entirety of global container shipping market. So there's a world beyond the US but of course a Lot of things are surrounding that right now and a lot of that nervousness is changing the entirety of the networks as they may have looked up until recently a few weeks, month, years from now. So I think it's pretty tricky to assess it all. But above everything at the top level, when economics go sour, when consumers have to pay more for less variety and probably poor quality, it eats into their purchasing power and demand falls.
[00:05:54] Speaker B: And we've seen some big economic downgrades from the IMF this week as well. We'll come back to some of those other container trades, but we can just stick to the Trans Pacific. Peter, we're in the midst of contracting season. These are the long term or the annual contracts. They're normally wrapped up around about now. This is where I am. We've got all these US China's tariffs in place, but we're hearing about mass blank sailing, canceled orders. I'm hearing about people saying they won't pick up goods from port. And then today, well, yesterday we've heard that Trump is talking about slashing tariffs on China or at least he's put out an olive branch to try and bring China to the trade talks table. So what strategies are available to shippers and lines in the midst of this and how have they been approaching these contract negotiations? From my side, I've heard some people have signed some contracts, but lower volumes, if that helps.
[00:06:48] Speaker D: I mean, the problem with the current situation is that you can only generalize to a very limited extent because many of the problems that have been thrown at shippers and importers in the most recent weeks and months basically impact everyone pretty individually. So it's different from one sector to another and from one company to another how they actually assess their options and how they go about this. But Mike, I can only concur to what you just said before. I mean, it's a matter of, of nailing a contract if possible, on those supply chains where you are absolutely certain that you will be able to move cargo in the near term and long term future at least up to 12 months. Right. And with everything else in terms of uncertainty, I mean if you cannot commit to a minimum quantity on any trade lane, you cannot of course enter a binding agreement with any provider, whether that's a forwarder or a carrier directly. Right. So it's really tricky to nail that. And then we have seen a lot of contracting negotiations basically just coming to a health because of the lack of clarity and uncertainty from what will actually be shipping and from where will those goods come from in the most recent Months and quarters. So we've really seen a lot and overly exposing themselves to the spot market, of course, and that's why we also see rates being sensitive to uncertainty like this.
[00:08:11] Speaker B: We've seen a lot of those canceled sailings announced. Are we expecting that to carry on for a few more months or does that again depend on policy?
[00:08:19] Speaker D: I think what we're seeing right now is super interesting if we take at least at face value what the carriers are announcing right here, right now. Because if we look at what they're up to on the Trans Pac, it's basically about to be peak blanking season once again. If we are just looking a little bit ahead into the early days of May and into half May, we're actually going to see more blank sailings than we see during the Chinese Lunar New Year.
So that's definitely one indication of no shipments leaving China to any meaningful extent. Right. But at the other end of the world, carriers are super busy deploying capacity on Far east to Mediterranean, Far east to Europe, where we basically now are looking forward to a number of weeks where no blank sailings are announced at all. So we're actually expecting record high capacity being deployed out of Asia, in particular China into Europe. So. So it's a, it's a little bit fun mix that we're facing here. Will a lot of Chinese goods actually flush or flurry into the space of Europe? We will know in a few weeks.
[00:09:29] Speaker B: Yeah. So there's the possibility of dumping. We're not quite sure if lines are following the demand or, or following the supply at the moment, or are they just trying to work out what's going on. Have you spoken to any about that?
[00:09:41] Speaker D: Yeah, I mean we heard that definitely some shippers have basically abandoned their warehouses in China because they could see that the goods produced for the American markets would be completely off margin once they landed in the US right. With a tariff barrier of at least 145%, then low margin products would face complete difficulties ending up within the North American market, regardless of the way it would be traveling or, or whether it would go via say Canada, Mexico, something like that. So we have definitely seen some troubling on that. But we have also seen more larger shippers that constantly need, of course due to their setup with just in time supply chains that they cannot just help all shipments out of China, even though tariff barriers would incur them to do so. From an economic perspective, they simply need to keep the wheels turning. And if their profit margins into the American market are large enough, obviously they will eat into those profits and they will also seek still to pass on some of those higher prices to their customers. But, but in the end they have no at least short term alternative to not shipping. So again, getting back to my point, this is very individual from one company to the next and from one sector.
[00:11:02] Speaker B: To the next, very much a mixed bag. Cindy, you did warn on your last appearance ahead of Liberation Day that people should keep calm and carry on, expect chaos for a year, but then reassess. Is this more chaos than you were expecting? Especially now we have this, another potential change with a China trade deal now seemingly on the the US Most wanted list as of today. Could be different tomorrow.
[00:11:28] Speaker C: Yeah, we, we have an executive order session this afternoon at the White House and, and no one knows what's going to be signed. So we could be surprised. Most of us tune in and refresh the White House page for new executive orders every afternoon. But setting that aside, I think one of the things we knew is this administration is about chaos. It's one of their negotiating tactics. It is the way they operate. And so I was not surprised by the amount of chaos that was rolled out on Liberation Day. We had been hearing that trade deficits would be used as a basis for reciprocal calculations for duties. And that came to pass. I think that like the other actions, and it's only been what, you know, a little over two months, a lot of the actions don't make sense when you look at it from the normal perspective and we all know that this is not a normal environment. This is uncontrolled, unprecedented, all the unwords that you could think of.
This is really a chaotic time for businesses, not just the logistics providers, but the importers and exporters in the United States and then globally because this is a global market, people don't understand that when they're sitting in the United States where I am and thinking, oh, I want to buy American, they don't really understand it's a global economy and the US trying to pull out of a global economy is very problematic. And so I think that the chaos I've seen is not unexpected. I don't think that the American public understands the impacts yet. So I think that's still to come. I think that everyone in the importing and exporting industry has seen, like Peter said, shifting, shifting of the product flows. People are looking at if the US is not a viable market, where do we sell our goods? US Companies are looking and trying to understand what their future looks like with 145% tariffs, if they have a future and what their options are. So it is pretty chaotic. But those of us in international trade, this was not unexpected.
[00:13:45] Speaker B: As Peter said, there are people of abandoned warehouses in China and we've heard on this podcast previously that some SME shippers in the US are talking about going out business or they're turning up at ports and they just simply can't. They don't have the cash flow to pay for the extra duty on their products. Some are getting sent back, some are getting abandoned. And this isn't just about imports from China because obviously we have tariffs in place on other countries as well, most of the countries in fact, all of them. So maybe you can speak to that. But could you also explain to our listeners how the practicalities of this work when say, parts of products are judged under different tariffs either because of origin or, or because it's aluminum or because it's electronics from China, for example, rather than falling under a different category and therefore isn't exempt. There's a lot to keep on top of. Can you just give us a bit of a flavor of that?
[00:14:39] Speaker C: Yeah, it's extremely difficult. You know, I'm a customs broker by trade. I've been, you know, a customs broker for 35 years. I have never seen it this chaotic. In trying to understand how to properly assess a duty, Automation took over 25 years ago. And most customs brokers when I started, we had to know how to calculate duty. You know, we were doing it manually in some cases and automation has slowly taken over that, that role. So there's very few of us left who can actually manually calculate duty and deduct certain things and have it come out right. Unfortunately, one of the challenges we've seen at U.S. customs and Border Protection is their a system that I had responsibility for is having a hard time calculating the duty that stacked. And I know John Gold in your last podcast did a fantastic job of outlining each of the tariffs. But if we look at, I like to use a polyester dress from China. Polyester dress from China has 16% regular duty.
[00:15:45] Speaker B: 16.
[00:15:46] Speaker C: You have to pay that. You have the original 301 duty that Trump put in in his first administration, that's 7.5. You have the first IIPA, which is the Emergency Powers act of that was put on, we call them the fentanyl tariffs, that's 20%. Then you have the IIPA reciprocal tariffs, that's 125%. So all in, it's 168.5% that someone has to pay as of Liberation Day that they didn't before one of the other issues is May 2, you know, and I know we're going to get into this in a little bit More detail later. May 2. Anything under $800 from China is not allowed to clear under the de minimis threshold. So that dresses that are, you know, 25 bucks today are coming free after May 3rd and on, they're going to have to pay 168.5% duty. And is that viable for US businesses? Is it viable for US consumers? And for the most part, a lot of these companies are doing the math and they're saying no. I have a company that I buy vanilla bean pods from. It's a mail order business. And of course I buy it because it's high quality. It's high quality because it comes from Madagascar. So Madagascar has something like 45% duty on it now. And this small company who started as a aluminum container source company, you know, those containers, spice containers that are magnetic and you put it on the board. Well, she started importing those. And so she imported the magnetic aluminum containers and then she started importing all the spices to go in it because people were like, hey, we'd love to, you know, buy spices from you. Great business opportunity. She started sourcing spices from all around the world. And I love the vanilla bean pods, highest quality. She is pausing her business one because she can't afford the aluminum. With the aluminum tariffs, she sources those from China. So if you look at, you know, aluminum containers, you're up to the 160 some percent as well on the aluminum containers. And then she'll have the Madagascar vanilla beans will be somewhere in the neighborhood of 60%.
So she has sent out an email to all of her customers and said, I can't afford this. I have one to three months of product in stock and if I ordered today, my order is going to hit after all of these changes happen. And I can't afford that. So I'm going to pause and wait to see what happens in 90 days. And then I might source. So people are pausing. They have one to three months of stock in place. They're fulfilling orders. Whether they're a small business or a large company. They're fulfilling orders from their warehouses. We saw some large companies that were actually bringing in goods in advance. You know, we saw that high peak in air freight shipping as Brandon Frieda talked about. You know, there's an announcement, you have a high volume of air freight shipping coming in in advance of that, and then it settles back down.
We saw, you know, shipping increase So I think that people have brought in their goods and now it's like hunker down and see what's going to happen. They are carrying on and staying calm. But I've seen a lot of companies, especially in the small to medium size environment, just pausing on, sourcing real people.
[00:19:40] Speaker B: And real businesses and they're struggling because of this. And of course that's the sort of product that can't be reassured in any way, shape or form. Just back on Customs and Border Protection, can you give me any idea of what they're trying to do to keep on top of this in terms of that ACE system? And I guess there's just a lot of man hours going into this, isn't there? Or people hours?
[00:20:00] Speaker C: Yeah, there are, there's a lot of people hours, especially in the automation and ace. You know, my friends, my former colleagues and in the ACE system, they are furiously doing changes to the systems. And as we talked before, you know, Mike, the process, the normal process for development is you put it, you get the requirements, you do the coding, you do testing, you do integration testing, you do external testing, you do cert testing and then you put it into production. That cycle usually takes weeks, if not months depending on the type of changes that you're making. ACE has had to make these in a matter of days sometimes and at the most a matter of weeks. And they are struggling to make these changes as well. That stacking duty rate that I talked about for the polyester dress, ACE can't calculate more than two rates of duty at a time together. So what's happening today is the customs brokers are now manually calculating this and the systems that they use are manually calculating the duty rates and sending it to customs. And customs has to manually calculate if they want to check it. So they're accepting it as true. But down the road they'll have to check that in a manual way because their systems, it's, you know, it's a 30 year old system now and it cannot calculate the duty rates that effectively. So you have a couple of different impacts. One, you know, the poor folks at ACE that are trying to make these changes sometimes in days without a lot of cert testing, without a lot of upfront ability to ensure that it works properly. And then you have things that can't do, simply just cannot do that will fall on the import specialist to manually calculate at a time when the administration is pushing for massive enforcement to make sure that there's no fraud, to make sure there is no transshipment, to make sure that there is no ability to not pay the right amount of tariffs. So there are going to be some impacts. I don't see shipments stacking up at the border because the customs brokers are transmitting the information. Customs has an automated way to look at the information to determine that. Do I want to release this into the commerce of the United States?
That's really not been impacted and I don't think it will be. I think what's going to happen is after the fact when people are trying to ascertain if that information was correct. That's going to be the huge impact on customs. Plus this massive pressure to enforce, enforce, enforce, enforce when they are understaffed. Already were understaffed when this administration came in. And a lot of folks in DHS just got a letter from the Doge effort encouraging folks to take early retirement. So it's a juxtaposition that just doesn't make sense.
Do more work, do it better with less tools and less people. So we'll see. My hearts go out to my former colleagues because this is really hard for them. They are the enforcer. They don't have a say in what policy decisions are being made but it's their job to enforce it. So I have sympathy for them.
[00:23:30] Speaker B: Well, it must be tough at the moment. I'll bring Peter back in a second. But I'll just do de minimis exemptions on goods imported of less than $800 from China. 2nd of May. You mentioned it. There's because there's a few other things going on that I sort of see as linked. FedEx and UPS have implemented surcharges for US bound parcels already. But DHL Express has now halted business of consumer shipments for customers. Value of products over $800 due to all the extra documentation. It did say it would try to help customers understand and adapt to these changes from the 2nd of May. Now we've also got Hong Kong posters stopped handling US post packages. Can you give us any insights into how all of this comes together and what sort of extra documentation all of this is involved and what happens post 2nd of May in your view? Just briefly.
[00:24:18] Speaker C: Yeah, so I like to use for example aluminum toy trucks from China. So you have an aluminum toy truck today. It's valued at $50. It comes in on de minimis. Somebody orders it, you know, it comes in onto minimus. It's just delivered. You have to have an invoice that says this is a toy truck, it's made of aluminum. Country of origin China. It's valued at $50. Who's shipping it. And here's where it's going to. That's the information that you need for a de Minimis shipment. On May 3, this same aluminum truck is going to have to have the information on where the aluminum was cast and smelt, how much that aluminum value is, because it's not. The tariffs on aluminum which would apply after May 3rd don't apply to any non aluminum or non steel parts. So if it's $50 and 25% of that is aluminum, you know the value. You only pay the aluminum tariffs on that value. But you have to know that. You have to know how much of that toy is aluminum, then you have to know the value. Then you have to know the cast and smelt of that aluminum, which I can guarantee you. Most toy companies in China don't understand that. Then you have to understand who's the manufacturer of that, which before you just needed to know the shipper. If there's a different buyer than the continuity, who it's actually going to. So if there's a middleman in there, you have to know that. So all of this information is required on May 3rd. And that is why we see some of these actions that are required. Because the amount of information that is needed on May 3rd going forward is much more detailed on the product level than it was under the de minimis exemption. So that is some of the challenges that the FedEx is, the DHL, the UPS is, the Postal Service is something a little bit different. The postal service for de minimis went to a flat rate. It's a flat rate per package or it is a flat rate based on the value. Most mail moves into the United States on commercial aircraft. There is no China Post airline, there is no Australia Post airline. It is contracted to commercial carriers. And the executive order said that on May 3 that the commercial carriers would have to collect the duty and pay it to the US Government.
So we talked about the last time about the pause. You know, there was this China de minimis is withdrawn. Then there was a pause on that until the systems could be put in place. Well, the system was really the ability to collect and pay duty in the postal service.
So China Post likely does not have an ability to either collect the duty upfront to pay the carrier or the carriers have said, you know, we are not collecting the duty, we'll pay it to customs because we have to, but we don't have the ability to pay the duty. So I don't know what the strategy for other countries are right now. Those commercial carriers are looking at that with each individual lane that they handle specifically for China and Hong Kong Post, but they have to be able to collect that duty somehow and pay it to U.S. customs. So I think that Hong Kong, we're going to see a lot more of that. We're going to see carriers saying, I'm not in a position to collect duty unless the postal service can collect the duty. And we'll see if they are in that position. I don't know if China Post is in a position to be able to collect duty.
[00:28:14] Speaker B: This will be having a big impact on the air cargo market, which of course Zenitha also covers. And I'm sure they'll be covering that as it breaks out and see what happens next month. Peter, just on the container trades, are we looking outside the U.S. what are we seeing in terms of rate movements in all the markets you mentioned, Asia, Europe and Asia into the Med. Are we seeing a bit more focus on loading out of Southeast Asia or are you expecting that to be one of the opportunities that people are looking at if they're either in the US or wherever they're trying to feed?
[00:28:44] Speaker D: It's definitely one of the many options that shippers have assessed. That's something that they must do in terms of front loading since the Porsche started. Right. The 46% that was announced on Vietnamese exports into the US is currently at 10%. So that opportunity have been grabbed. We have seen more volumes move out of Vietnam and we can also see that the short market, the container shipping freight rates that we have available on our platform, right. We had a discount out of Vietnam compared to Shanghai at $150ish going into April. Right now we have Vietnamese exports higher than Shanghai exports. Right. So it clearly tells the story that demand is not very strong out of China. It's very strong out of other Southeast Asian nations, including Vietnam. And so it should be right, because this makes economic sense and it kicks the can just a little bit down the road and allow for shippers to consider many of their other options. They have also suggested in conversations that, that we had with them.
[00:29:50] Speaker B: Right.
[00:29:50] Speaker D: And, and it includes everything from, yeah, renegotiating contracts, of course, exploring new trade routes, making sure that they can get as much good moves right now under the given set of, say at least temporary certainty and then leave whatever comes next to it to that kind of uncertainty. So I think that kind of short term movements have been seen in our platform in particular. But also, yeah, as alluded to before, interesting times for freight going in the the other direction. Right. So into North Europe And Mediterranean.
[00:30:24] Speaker B: And I guess we'll see as these deadlines get closer, will we seeing spikes for air cargo as well as people try and get last minute shipments in ahead of these different deadlines?
[00:30:33] Speaker D: Yeah, as you rightly pointed out before, Micah, it's also an area of expertise of ours at Seneta, so we cover that really, really narrowly. But it's also a massive change to the market. The de minimis rules no longer be in place from 2nd of May. Right. It's an enormous lift of the entire Transpac air freight market for a number of years now. So the fact that it may just cease to exist if you put it a little bit bluntly. Right. If you have to pay like 25 or $50, something like that on every shipment, you have to go somewhere else. So it's not only a matter of not having the systems to collect such duties, but certainly also does it make sense for those E Commerce buyers to dive into the market in the first place? Right.
It may not make sense at all.
[00:31:22] Speaker B: I guess we had some good news on the container shipping side, Peter. I'll just throw in for listeners that this is all happening as the alliance structure, all of these new alliances, it's all being restructured. So these networks were all in the middle of playing out at the start of this year as we then had this grenade thrown in or there's multiple grenades thrown into that. So it's been very difficult for the container lines. But they did have. Well, I'm saying it's good news but we'll hear what Peter says. This is something I'm going to be talking to in a bit more Depth with John McCown and Anselma Cogliano in a moment. And this is the new port feeds on China built and operated ships calling it US ports. It was announced on the 17th of April and it's due to be introduced in October. What this structure will be and I say I'll explain it in a bit more detail in a moment, but Zanetta instantly more or less put out a paper saying that this new set of rules was softer than anticipated and would help reduce the risk of severe congestion and upward pressure on rates. So am I right? Good news for shippers, freight buyers, relatively.
[00:32:25] Speaker D: Good news because obviously they do not really like this port fee proposal in the first case, as was alluded to by the 600 odd number of papers handed in to the public hearing by the end of March. Right. So. So even though we get 180 days before implementation and a watered down version of the original proposal it is still a tax on international trade and definitely something that is likely to get passed along to, to those that in the end buy the goods. Right. But we are seeing something that from a geopolitical risk assessment perspective makes sense. Right. We're back to China bashing in a fairly classic version. Right. But I would say, I mean we read that text a number of times earlier today and the jury is still a little bit out whether the Chinese carriers get a double whammy or a single whammy only. But I think what remains is that that they will pay the higher fees in 180 days as well as in 2018 or depending on how long this will carry out. But it could amount to say 10 million at that point in time. So a tariff or a fee like this basically will be disrupted, but fortunately not as disruptive as we saw it in the first case. Right. So Chinese bashing Ocean alliance most likely also being impacted to the largest extent of course due to Cosco Group being a part of that. But there are ways around that, of course. But it all comes with the cost inefficiency being re injected into super efficient supply chains. So a bad day still, I would claim.
[00:34:03] Speaker B: Thank you, Peter. Please stay with me because coming up after a message from our sponsors, we're focusing in detail on what is driving this renewed US Focus on shipping and shipbuilding and what it means for freight markets in the long term. But for now, Cindy Allen, CEO of Tradeforce Multiplier and Peter Sand, Chief Analyst at zenitha, thanks for joining me today on the Freight Buyers Club.
[00:34:24] Speaker C: Thank you.
[00:34:25] Speaker D: Always a pleasure.
[00:34:30] Speaker A: This podcast is proudly produced in partnership with Demerco Express Group, a trusted provider of global shipping and contract logistics services in Asia, Europe and North America. Demerco'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, Demurco connects Asia with the world like no other. Global3PL you are listening to the Freight Buyers Club.
[00:35:05] Speaker B: Welcome back. As promised, we're now going deep on US Shipping policy and what it's trying to achieve and do. And to do this, I'd like to introduce my first guest who's a non resident senior fellow at the center for Maritime Security, which is the Navy's think tank. He's an author, former shipping line operator, and he was mentored by the great founder of Containerization himself, Malcolm Klein. John McCown, welcome back. To the Freight Buyers Club.
[00:35:33] Speaker E: Very pleased to be here, Mike.
[00:35:35] Speaker B: Great to have you on. And he's joined by, I was thinking, how am I going to describe him? I think he's going to have to be one of the breakout stars of shipping media as the creator of, of the rather addictive and very charismatic what's going on with shipping YouTube phenomena. He's also almost gets forgotten, I think, occasionally. A renowned maritime academic and a historian at Campbell University, no less, It's Salma Cogliano. Welcome, Sal.
[00:36:01] Speaker F: Mike, thank you for having me. I'm excited to be on.
[00:36:04] Speaker B: Me, too. Me too.
I know from speaking to you both previously that at heart, you guys want what's best for U.S. shipping, for U.S. mariners, for U.S. industry in the U.S. economy. So I wonder, just to kick off, could you perhaps briefly first explain what you think this Trump administration is doing right where there's room for improvement? And I just want to throw some context in for watchers and listeners. On April 9, the White House issued an executive order called Restoring America's Maritime Dominance, aims to rebuild the US Commercial shipbuilding sector and maritime workforce. And following that, a number, number of action plans are in progress. All this designed to strengthen the US Maritime industrial base. So, Sal, do you want to kick us off?
[00:36:53] Speaker F: Yeah. You know, I think it's hard to understand from outside the United States. I think one of the things that's been going on for 40 something years has been just a batch of sea blindness in the United States, particularly in the commercial side. The US has become enamored with the naval side. And, you know, having a big navy and a large kind of capabilities to support a navy has been really the focus. And what we have basically done in the United States was outsource our commercial shipping. Overseas ships were built overseas. We allowed foreign companies to basically take up the onus. And I think now there's kind of a little bit of a realization that not that the US Wants to take a dominant role by any means, but it really wants to take back some position within US Shipping and world shipping. And so one of the things we're seeing here is a variety of issues. You have obviously the tariffs that you've talked about extensively, but we also have a proposal by the Trump administration to get shipbuilding back going, commercial shipbuilding through an executive order and a shop opened up in the National Security Council. We also have the introduction of the Ships Act. This is by Senator Mark Kelly, the only member of the US Senate who's a merchant mariner himself, along with Senator Young. So it's Republican and Democrat together doing this. So very bipartisan. And I think what we're seeing is an attempt by the United States to really start shifting back and start rebuilding that commercial infrastructure, because in a way, it also helps the Navy side. One of the problems is being so dependent on Navy contracts in US Shipyards. It's really diminished our ability to be very efficient. And so, yeah, there's the overarching issue of China and the dominance that China shows throughout the entire maritime sector. But still, I think the US Wants to get back into a position where it can once again be a player in world shipping.
[00:38:39] Speaker B: John, I presume you agree that it's great having US Shipping front and center with this administration. I mean, how do you think they're going about it?
[00:38:49] Speaker E: I certainly do. And Sal is completely right. You know, we need a renewed focus on what we need to do to kind of build our merchant marine. And I'm all for that. You know, I think the focus should be on getting additional US Ships, you know, and billets, places for our graduates of our Kings Point and state maritime academies and the important role of Sealift and all of that is kind of coming to the fore. And it's great to see the focus on our industry and it's been building for the last few years. Frankly, a lot of it's related to China. And it's just a realization that we've got a real Achilles heel from a national defense standpoint in terms of not having enough sea lift capacity. So it's great to see the focus, you know, on growing our merchant marine at the top.
[00:39:39] Speaker B: And John, the executive order, the Restoring America's Maritime Dominance, it does cover quite a few areas. I mean, do you think it's covered all the areas it should cover, or is there bits missing or bits that aren't complete?
[00:39:52] Speaker E: Well, it certainly, as you read the order, the ambition is quite bold and you know, and in particular seems to have a shipbuilding focus. And I would love to see US built ships operating in international commerce. That's kind of a tall order, though, you know, and I guess my observation is China has certainly subsidized their maritime industry, and they see that duality between the naval use and the commercial use and massive government subsidy. There's a famous naval thought leader, Alfred Mahan, who really kind of defined the way things should be done. And America kind of paid attention to him up until about the 1980s. And that was around the same time we stopped paying attention to what he said and the Chinese were starting to embrace him. But even though China is moving ahead. China isn't the only thing that has kind of changed our involvement in shipbuilding. You know, before China, it was Japan and, and it was Korea. So I understand the focus on the area. Again, as I said earlier, my focus or my highest priority is how we can get ships operating under US Flag wherever they're built. You know, our merchant marine has really declined to where it's mostly the Jones act and the vessels that are subsidized under the maritime security program or the tanker security program. And I think programs like that are great, but I think there's more that we can do to have really a consistent and durable source of funding so that we have more US Flagged vessels, again, wherever they're built, operating internationally. That's what I think the focus should be.
[00:41:35] Speaker B: I'll come back to that US Flag fleet because it is quite important where this is all going, and so is the Jones act, in fact. But just on one of those points, and Sal, feel free to come in here. We're talking about this as part of this impossible existential struggle for power with China. One element of the executive order talks about getting allies to invest in maritime prosperity zones and helping rebuild US Shipbuilding capacity. I mean, really, certainly in container shipping, we're talking about Japan and Korea. Do you think the rest of the diplomacy from this administration is really helpful in terms of getting allies on board to help with things like shipbuilding or getting a bit political?
[00:42:17] Speaker F: Well, I think, you know, it's all. No, no, no. I mean, it's obvious you're dealing with the Trump administration, and that's a polarizing administration. There's no doubt about it. And when you look at what has happened, not just in the Trump administration, but even prior administrations, Biden administration before it, you can see that there is a lot of polarity when it comes to US Politics. You can argue Trump all day long, and believe me, I could do it with the best of people. But one of the things he's trying to do is really bring attention to shipping in a way that it hasn't been in the United States. I can argue, you know, whether or not it's politically right to do it. But there is no denying the fact that he has gotten attention to shipping in a way no one has done it. And I think that's part of the appeal here, bringing in Japan, Korea, and potentially some of the European yards, too. Let's talk about the fins and icebreakers. Let's talk about the, the Dutch and dredging, for example. I think, you know, there's more openness here to bring in outside help than anything else. I think, you know, we've seen that with Hanwei buying into the Philly shipyard. We see it with Hyundai going into hii. We already had Austal from Australia down in Mobile, Fincantieri up in Wisconsin. So I do think that there is an element here to really embrace and bring in that kind of technology. And again, you know, I'm seeing more arguments toward reform of laws that have been on the books for a long time than in the past. And so, you know, you can argue with how he does it and the mechanism he does. He's not the, he's not the subtlest person in the world. And maybe that's an issue. But behind the scenes, it's hard to argue that it's not being done. I mean, we're seeing a lot of action take place. You had the president of CMA CGM in the White House. I mean, Rudolph Sade is standing right there. He got to get his press conference with the President of the United States and he's sitting there going, I'm going to invest $20 billion out of $50 billion I made last year. I'm going to reflag 20 vessels from CMA CGM into APL, his US subsidiary. And he's doing that. I mean, that's.
[00:44:19] Speaker B: That process is President Macron did sort of reference, almost reference that particular dealer saying something that could be withdrawn.
[00:44:26] Speaker F: It could be. But again, you know, the question is, does Macron have the, the oversight over Saudi or Saudi an entity onto his own? And you know, I was joking at the time during the ILA strike that Sade was always looking for that press conference. And he got his press.
[00:44:41] Speaker B: He certainly got it. Yeah.
[00:44:43] Speaker F: Yeah, he certainly did. So I mean, I mean there is, there is that foreign element. I mean, there's a realization, let's be clear, we're not going back to the pre World War II days where the US had its fleet, the Germans, everyone had, you know, they were national fleets that those are gone. And what's very clear now is it's got to be more international. But there has to be an element here where the US Wants to have at least part of it back here in the United States. And I think that's what Trump is aiming for.
[00:45:08] Speaker B: Okay, thanks, Sal. Yeah. Come back to the fleet in a minute. As I said, just the big news for freight buyers. Ocean container shipping. Freight buyers is our core audience and we've just had some big news on this. It's the proposal to find ships built in China Every time they call at a US port, I was down at TPM 25 in Long Beach. It's a massive, massive issue. People are really worried about what it means for US shippers and for the container shipping industry.
And part of the reason for that is a large chunk of the global container fleet is actually Chinese built. So this is just for a bit of background. This links to a Section 301 investigation into China's targeting of the maritime logistics and shipbuilding sectors. And down at tpm, the likes of Sorentoft, the World Shipping Council were saying this is going to cost the industry $20 billion. Right. Wasn't very clear exactly how that was broken down, but that was the ballpark figure. Now, we've now had a US Trade Representative revision of this plan, which, as far as I can tell, this is my best guess. Sal, you might have looked at this in more detail or you, John, you can break it down into three elements. Starting October, Chinese built vessels will be charged based on their net tonnage when they enter US ports at $18 per net vessel tonnage or $120 per container, whatever's highest. And then this rises to $33 per net tonnage of the vessel, or $250 per container discharged. And then also from October 2nd part of this is Chinese carriers themselves must pay an additional $50 per net tonnage regardless of where their vessels were built. And then this increases through to April 2028 to $140.
And then the third part of this is box. Ships under 4000 TEU or ships doing less voyages of less than 2000 nautical miles will be exempt. So, Sal, was that more or less right? And is this version softer than the original? Because certainly a few Chinese carriers are saying maybe not. They're not very happy.
[00:47:10] Speaker F: So, you know, I did a video on this where I kind of took the USTR to task. I think they desperately need somebody on their staff who understands shipping a little bit better. You know, we.
[00:47:21] Speaker B: Are you putting your name forward there or John's?
[00:47:23] Speaker F: No, no, no, it's all right. I'm good. But you know, the initial, you know, I was with you. Sarn Toff gave that talk at TPM is like, it's the end of the world. This is going to be horrible because the initial look, it looked like we were talking about several million dollars every time a ship touched the US Port. The USTR had two days of hearings which we didn't get to see for some reason because I guess we don't have the technology to broadcast this. You know, at the time. So all we got was transcripts eventually of it. But what we came very clear was, listen, there was a lot of opposition. They heard a lot of opposition. And what was interesting to me is USTR Incorporated that opposition. They sat there and said we're going to alter it. Here's our alteration. The problem is I don't think they figured everything out because while you get that tonnage fee on net tonnage, whatever they mean by net tonnage, because again, net tonnage is not a clear answer to me what they mean by net tonnage. But there doesn't seem to be a maximum cap on this, which means that, that if you have ships of certain tonnage, you're talking about fines well above one to one and a half million dollars. So I think we were waiting for another revision to come out here about it. I do think this, there's going to be a fee charged to Chinese built ships and Chinese operated ships. There's no clear. It's very clear that's going to happen. However, behind the scenes, what you know as well as I do is that through their vessel share agreements, a lot of these shipping firms are going to do a lot to mitigate those costs. If I'm Costco and I have service coming to the United States, I'm going to try to get my cargo on Evergreen and CMA CGM ships that are not Chinese owned or at least not mainland Chinese owned. And more importantly, we're going to try to route our non Chinese built ships into this trade in the service. I think it was really important that they noted that the fees aren't cumulative. You're not going to get it every time you come to a port. Toft was talking about the idea that we're going to cut port visits, but.
[00:49:09] Speaker B: That would hit the smaller secondary ports. Right. That was the problem.
[00:49:12] Speaker F: Right. It was a big fear for those smaller ports. We've got the revision now on the size of vessels under 4000 TEUs, under so many deadway tunnels, the short voyage provision in there. So I think we're going to go another round here. Remember, they had to come out with a recommendation on April 17th because that was a year after they started it. They had to come out with a recommendation. But that does not mean that this recommendation is the final recommendation. I would argue and I think what we'll see is a revision to it. But I envision we will see port fees on Chinese owned and Chinese built ships.
[00:49:44] Speaker B: John, you submitted detailed feedback to the US Trade Representative. Couple of key points that you made. Fees should be clearly defined so the industry can prepare and that the money raised should be ring fenced to support US maritime development. Have you hit those two aims there and are you happy with this revised version?
[00:50:01] Speaker E: Well, the recent revised proposal is a significant improvement. That being said, it was a very low bar. I mean almost anything that came out would be an improvement. I did submit a 14 page recommendation and whether a lot of people had some of the same points, they took away some of the worst things. One of the worst things that I pointed out was that this fee would apply to empty ships that are coming in to load US exports. So that's been exempted. You know, they don't have the stacking of multiple fees and the per port thing. That being said, it looks like the fees are a little bit worse for the Chinese carriers and it's really ships wherever they build. The use of net tonnage is kind of particularly puzzling in container shipping because net tonnage is a measure of the interior space of a vessel. You know, half the containers on the typical container ship are on the deck. So that's not even included in net tonnage. My speculation is they didn't want to call it per TEU because that made it automatically transparent. And you know what the carrier would pass on. Make no mistake about it, the carriers will be passing on all of these costs. And the fact that it's kind of not as clear what the cost is, that lends itself to more than all of the cost being passed along. The simple math that I've done, even though in the case of the nine Chinese carriers that it's the higher of it will always be the net tonnage because the figures that I'm familiar with show that that net tonnage will always be more than that per container amount. The rough math tells me that a big vessel coming in based on net tonnage I'm talking about the Chinese carriers will be paying 8 million each voyage. And you know, they're going to do a fair number of voyages, you know, call it easily do 10 voyages if you're in a Asia to west coast service. So that's 80 million. Obviously that ship will not be competitive. And so what is going to happen, it's good that they didn't have the per port thing which would have just jumbled up all of the US ports. But there's nothing that I see that is going to stop somebody from now diverting immediately to Canada or Mexico. And that's what I would expect all of the Chinese carriers to do. So you're going to be taking away rather significant volume from the dock workers. You're going to be adding cost. So that's not a good thing. Some of the terms are because it's not as complicated, it's not as fuzzy. But even the term of operator, I mean, I found myself thinking the Ocean alliance is Costco good, OCL Evergreen and CMA cgm. Well, you know, if Costco's moving their boxes on those other carriers is under one interpretation, somebody could say, well that's kind of a Chinese carrier, so you know, that needs to be tightened up. So it's certainly an improvement, but it's a major additional barrier. I quite frankly view it as nothing more than a blunter form of tariff. And all of those costs will be passed on to shippers and shippers will pass on all of those costs to American consumers.
[00:53:14] Speaker B: We can't avoid that T word, can we? There's no escape. I'm going to throw another one at you. There's also transshipment options certainly on the east coast anyway, which could help avoid some of these. And yeah, the alliance's partners can move around it, but you're both seem to be in agreement this is going to mean higher cost for US shippers, significantly higher cost.
[00:53:33] Speaker E: And the big unknown really in terms of the metric of is it going to be massive inflation between this and the tariffs, which are bigger, or is it just going to put a real dent in volume? And quite frankly, I don't think anybody knows for sure. I do think I feel comfortable we'll see a dent in volume. We're not going to really see that initially probably until May on the west coast and probably not even until June on the east coast because well, this is more the impact of the tariffs. The ship fee program isn't going to do anything until October, so who knows what may or may not change. But the tariffs have already gone into place and as I understand them, the tariffs, the effective date, you know, was when it was loaded at the last port prior to coming to the US So we'll probably even see maybe a little bit, I'm sure there was a little bit of a bump in terms of. Right. Whenever it was April 9th in terms of loading as much as you can to vessels in China. But that, that 145% tariff, I can assure you is going to kind of stop crate and immediately, you know, until people figure out what's going on. And China is the source of 40% of our inbound boxes. So, you know, it's, it's going to be a Pretty big effect, I think, both in terms of volume and in terms of inflation.
[00:54:55] Speaker B: I've been covering the container shipping industry for many, many years. I can't every so often we talk about oh well, maybe we'll front load ahead of this, you know, US west coast dock worker strikes or something. I was just as you were talking then, in the 12 months to October coming up, we might have had ILA strikes then ILA strikes again, then we've had tariffs, then we're going to have 90 day pause on tariffs which could have all of those things could have led to front loading. And then we're also almost talking about could we have another bump before these port fees come in. That's a lot of front load. Get your head round. Well, that'll be interesting to see how that plays out. Okay guys, what do you think of the various initiatives to build up U.S. shipbuilding expertise and capacity and this seafarer pool, John, do you think they're well thought out? And in particular I'm thinking of the various policies that are supposed to, and I'll quote section 13 of the Executive order here, it says the idea is to increase the fleet of commercial vessels trading internationally under the US Flag. Are we going to see some of these services maybe on the Transpac operating purely as eventually down the road as US Flagged vessels?
[00:56:03] Speaker E: Well, I think that again, I think the focus should be on US Flag. You know, ideally we'd like to see some building. But you're not, you know, in terms of saying that we're going to build a lot of ships in the US that will create internationally. That's again, before China was a factor, Korea and before that Japan had kind of taken over shipbuilding because our comparative advantages building a ship is labor cost and steel and neither of those are our comparative advantage. So I fully support what we can do for shipbuilding and certainly the Jones act is in place. But I think in terms of getting ships internationally, I'm a big believer in supporting that and supporting it with further programs like the tanker security program focused on the specific ones we need. I propose that, you know, there'd be kind of a return of the subsidy without any constraints and kind of focused on the container space and the LNG space because those are the two where that delta, in terms of our higher crew cost are the smallest percentage of the overall cost. So I think there's a lot to be said for programs that incentivize, you know, kind of kickstart somebody to operate US Flag and then once they're operating, maybe that doesn't need to be a permanent subsidy, particularly in the container space. I think there are clearly some sales advantages to having US flag and so I think that's what should be pushed, you know, in terms of the shipbuilding gets a little outside of my area. But quite frankly we don't have a lot of capacity that some, you know, certainly we can build it, but that's going to be kind of a long term project. That's not something we're going to see new ships, you know, within anytime soon from this policy. And but I guess we're still waiting to see the framework of what's behind the executive order. And I embrace anything in terms of additional government funding because I think what you really need to have is that consistent and durable source of both subsidy, which is right now about 5 million per vessel per year will kind of equate the operating cost. And that's, you go through the numbers, that's a very small price to pay for the additional utility. Again, the tanker security program was an excellent example of that.
[00:58:28] Speaker B: Sal, is there anything in the Jones act that might, maybe the reform of it might help provide incentives or carrots for people to start building up the US Flag fleet?
[00:58:40] Speaker F: Well, I think you have to look at everything right now and you know, one of the things that's, that's remarkable to me and I think John would, would agree is never in our, that we've seen more attention on shipping in the United States and in reform. I mean we had the Ocean Shipping Reform act in 2022, we now have the ships act being introduced, we've got the executive order. So you know, I almost think there's nothing that's, that's not on the table right now. You know, the problem with the Jones act has always been it's a very polarizing event. You're either, you know, pro or anti, and you can't be in between. And that's basically where you sit on that spectrum. And you know, I run the ire of both sides because I sit there and go, listen, we got to have a discussion about it. The original Jones act when written in 1920 by Wesley Jones, this is actually before even John and I's time was an idea of a national maritime strategy. It included international shipping, it included shipbuilding, it included everything. And now we're just down to this coastal trade. And I think, you know, you've got to open up the doors. You know, for example, an LNG trade. I am all for bringing foreign built LNG carriers in, in a temporary basis into the US Trade to Move liquefied natural gas. It's gonna take five to seven years to build a domestic LNG carrier in the United States. Bring them in. One of the provisions you see in the executive order and in the Ships act in particularly is the idea that you can bring a ship into the registry while you're building a ship in the United States. There's those provisions to do that. I think that's a key one. We saw it in the trade rep. Also, at the same time, I also think you're starting to see a change in how seafarers are looked at. You know, back in the day when you hired a US Flagged ship, you may have to deal with four or five shipping unions on a single ship. I mean, it's bad enough to deal with one union, let alone deal with four or five of them. But you just saw a union in the United States, the ILA, get for its workers a 62% pay raise. And everyone's like, well, wait a minute, maybe unions aren't that bad. And I've been really amazed talking with unions in the United States, how different they are than the way they have been. I think you're actually going to see more of a concurrent kind of working together relationship which could improve for American seafarers. One of the things that they're proposing is, hey, if you work in international shipping, on a US Ship, don't pay federal income tax, you're working internationally, that will all of a sudden raise the rates for you. There are things that are being done that's, that's, I would say everything is open right now. I think the Jones act is open. There's obviously sacrosanct in some areas, but I think if you can come in with reasonable ideas, that's key. One of the big things I always talk about is this idea. Repeal the Jones act and you fix all the problems. That's not going to happen. It's not the, that's not the solution. You need to come up with substantial reforms to fix it. And so what we really need is reform. We need reform of it. We need a national maritime strategy. What you're seeing right now in the US and which is confusing to everybody outside the United States, including some of us in the United States, is you see all the pieces of a maritime strategy, but they haven't really congealed together into one coherent strategy. We got all the different pieces, but what we're waiting for is for someone within the administration or somebody to really take, take the handle of this, take the reins of this wild Horse show and get it a little bit under control.
[01:01:43] Speaker B: Yeah, just. I didn't clarify that for listeners. The Jones act requires ships moving goods between U.S. ports to be U.S. built, U.S. owned and U.S. operated. And it's, it's polarizing because some people say it's a bit of a closed shop and it put. Makes shipping too expensive and it doesn't create any incentives for getting them back involved in international operations. Just on a point that you made there, Sal, you mentioned the ILA union deal. I was talking to someone who was very senior in US Shipping not so long ago. I won't give it away. But he was making the point that without the, you know, why would you go into shipping? If you're a US Citizen, why would you go in shipping? You'd be. Could you get more as a union dock worker than you would if you were captain in an LNG tanker, almost, let alone a small feeder ship. So is there incentives to get US Mariners back on the high seas?
[01:02:33] Speaker F: I think we need to do a better job of that. I mean, you know, your ILA dock worker doesn't need a college degree. I mean, it's a, it's a union job. It's a good paying union job. And you know, it's one of those kind of very blue collar jobs that pay extremely, extremely well. Whereas shipping, you know, again, those multiple unions have been competing against each other. So we haven't seen really the wages for US Mariners increase as much as some would like. We do a terrible job in talking about what this industry even is to people. And you know, one of the things I do is really kind of unravel it, kind of talk about it. But there's people out there who are actively sailing to talk about this. I think for the first time talking to shipping unions, they have to go out and recruit people, something that a lot of unions have never done in the past. So they have to change their mindset in how they go get people. In the United States, We've got the U.S. merchant Marine Academy, the federal academy, we've got six state maritime academies. We're producing plenty of officers and crew personnel to crew the vessels. We just got to make it incentive enough for them to want to go to sea. And I also think we got to change our mindset. You know, the 20 year, 30 year career at sea isn't for everyone. Not everyone's going to want to do that. But you can go to sea for three, four years, kind of like I did, and make a mark and then come ashore and be successful. And I think we need to kind of change that, the mindset of how it is. Plus there's new technology out there. We're putting, you know, a satellite on every things so you can get Internet connections. You're not disconnected the way you were in the past. There's better leave, there's better health benefits, there's better everything for it. So I do think you can promote mariners better. We just, it tends to be such a disjointed, out of sight industry that most people don't even know it's a choice.
[01:04:14] Speaker B: Quick final round then, guys. Thanks for that, Sal. And I would urge anyone out there to check out his channel because it does really make shipping very accessible for people. So two things just to finish off. What do you both think about the US rejecting recent IMO emissions rules and not even showing up at the vote in the imo? And if anyone's listening, they want a full explainer on those rules. I've done1 on YouTube. And then a second point. The Federal Maritime Commission is investigating whether to ban vessels from US ports if they're linked to unfair practices of major global choke points. Commented due by May 13. So what are your thoughts, Sal? Do you want to go first?
[01:04:53] Speaker F: Yeah. Well, number one, I think we need to be on the imo. I mean, we need representation there. I think one of the big problems is we don't have a very good permanent presence on the imo. And I think that's a detractor for the United States. We need that permanent presence. I do think that, you know, in part of the IMO issues has been the IMO has been pushing emissions on shipping for quite a while now. And I don't think everybody realizes the impact that's having on shipping in many ways. And you know, some of the provisions could potentially make ships being built today obsolete within 10, 15 years, meaning you're going to have to pay more for new ships. And so, you know, I'm all for making everything cleaner and greener. I understand that. I understand that ships emit a lot of pollution based on their size, but per pound they are the most efficient means we have to move cargo on the planet. And so I think we need a more realistic. But the way to be more realistic is not to not participate. It is to participate. But we need a better job of being able to talk about that. I think the IMO's reductions have been escalating, going from a 50% reduction by 2050 to almost 100% by 2050. I think that's, you know, we're talking about the largest objects ever made by human beings becoming carbon neutral. And I have the solution to that, Mike. It's called a sailboat. But the problem is you can't make a 24,000 TEU sailboat. It just doesn't work really well. And then, you know, I'll let John talk about the Federal Maritime Commission because I think the Federal Maritime Commission is playing a bigger role in the United States than ever before. I think you really see them stepping up in a way. And this new hearing on choke points is a really interesting one.
[01:06:26] Speaker B: Yeah. So the, for anyone listening, Federal Maritime Commission, its powers were massively expanded under the Biden administration. This is the Ocean Shipping Reform act that Sal mentioned earlier. John, your thoughts on the FMC's role? I was actually wondering if it might have some of its powers stripped as part of doge, but that doesn't seem to be the case.
[01:06:43] Speaker E: Yeah, well, first on the imo, I agree totally with Sal. I think we need to be at the table. You know, this is going to happen whether we're involved or not. But it's important, I think on that and almost everything for us to be at the table and play a leading role on the FMC investigation. I think it's worth, I mean, we're keenly aware of the impact the Red Sea had on container shipping rates. And we're doing perhaps more could have been done to stop that. I'm just not sure where it, you know, and I think some of the places they've mentioned were well aware that those are choke points. I'm not sure by defining that this is a problem. I'm just, I'm a little puzzled in terms of what the endpoint is. And I guess an overriding concern I have, and this is with the tariffs and the ustr. And I guess even with this, there are a lot of things we're doing that seem to have a, you know, in the end, just kind of a anti trade view. You know, there's almost kind of a view that the trade isn't good. And I certainly disagree with that. I think that the US has benefited immensely by trade. The world has benefited by trade. But I will be following with interest what the FMC does. I would hope that the Panama Canal, for instance, I've been puzzled by the action of the US government related to that. And that clearly is a choke point. I mean, I guess somebody could say, well, somebody could do something within the Panama Canal. But does that translate into we're telling Panama they have to give us the Canal. I don't, I don't know.
[01:08:18] Speaker B: It's very unclear, isn't it? Can I just, I'll just throw something out there. I mean, there was major global choke point when there was docking issues. The strikes on the US West Coast. It wasn't even strikes, it was a slowdown. I mean, would that be. Could you invest a self investigation? I mean, maybe there's going to be all sorts of congestion issues at European ports because so much capacity is being diverted to Europe and not to the US As a result of tariffs. I mean, that's going to be a choke point.
[01:08:44] Speaker E: Well, not only that, but if you go back to Covid, you know, the biggest choke point in my view, that really was kind of a key catalyst for what happened was the, you know, 110 ships off the coast of Southern California. And however that happened, that spread throughout the world. And if you look at the rates, ironically, the, the rates that I think are the most important, the CTS container crate statistics, Asia to Europe went up twice as much as Asia to North America. So it's kind of, you almost kind of say, wow, America got a cold and Europe got pneumonia.
[01:09:21] Speaker B: I mean, people are really unhappy with detention and demurrage fees. And during that Covid period as well. Sal. Sorry, you come on in.
[01:09:28] Speaker F: No, no, I just want to add, you know, the choke point one is really interesting again, because I was just sitting in a meeting where I'm listening to a government official tell me that, you know, we didn't experience a real big inflation hit because of the diversion around the Red Sea. And I'm like, well, wait a minute, what do you mean? You know, it's like, like rates are up and we're having a definite impact. It's like, it may not be in your face like you think it is, but it's having an impact. And, you know, I go to this idea of the FMC report on choke points and Trump on tariffs. And even in the Panama example, for example, if you listen to how Trump is talking about Panama now, now you listen to Senator Rubio, excuse me, Secretary Rubio and everything. It's US and Panama together trying to fight against Chinese influence. And it's interesting how he changes that. That song, you know, it goes, it's, it's Panama and China versus the U.S. now it's the U.S. and Panama versus China. And I think that's part of his thing. It's like not going to the imo. If the US went to the IMO and debated about climate change, that's no story but when the US doesn't go to the imo, that's a story. And then all of a sudden now you can go and I don't agree with this strategy at all. But this seems to be what's happening. And maybe with the fmc, raising this issue with choke points is a really interesting one because, you know, as you well know, Mike, we've seen this repeatedly, as John just said, from ever given in the Suez to the diversion around the Houthis to a potential South China Sea issue. What we're seeing in the Baltic and the Black Sea, the Panama Canal with the low water levels, I mean, it's just really cognizant of the impact that choke points are having. And so maybe this is an effort to level that kind of attention on these issues and really make people more aware. I mean, we had a very visible example of that with the Dolly taking out the Francis Scott Key Bridge in Baltimore and shutting down 2 to 3% of U.S. import exports in a U.S. port, which isn't a major U.S. port. It's like a second tier port, Baltimore, sorry, Baltimore, but it's just, it's not one of the big ones. But again, I think that's where we're at right now in seeing how this plays out.
[01:11:25] Speaker B: Yeah, I mean, that's interesting. Baltimore and the ever given being very good examples of where shipping actually caused the choke point, whereas all the rest were pretty much caused by factors beyond the control of shipping. Anyway, thanks so much today, guys. John McCau, non resident senior fellow at the center for Maritime Security, and Sam Macaugliano, host and creator of what's Going on with Shipping. Thanks for joining me today on the Freight Buyers Club.
[01:11:47] Speaker E: Thank you.
[01:11:48] Speaker F: Thank you.
[01:11:52] Speaker A: We hope you enjoyed this episode of the Freight Buyers Club, produced in partnership with the demurco Express Group. Please subscribe and follow on your platform of choice or sign up for delivery to your inbox at thefreightfiresclub. Com. 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.
