Episode Transcript
[00:00:03] Speaker A: Hello, Freight Buyers Club. Mike King here I am in Miami and you can hear a bit of a clink of the glass. It's because I'm getting.
Well, I'm getting advice on how to drink a Corona from my, from my guest, which as I'm sure you can see, is Glyn Hughes, Director General of tiaca. Glyn, welcome to the Freight Buyers Club.
[00:00:25] Speaker B: Thank you, Mike. It's always a pleasure to chat with you and particularly over a beer after hours, as they say. So it should be, should be nice. It'd be great.
[00:00:33] Speaker A: We're here at Transport Logistic, but you've flown in almost directly from Abu Dhabi where TIAC has been holding its first Air Cargo Forum in, in the Middle East, I believe. How was it? And, and give us some takeaways. What are you going to take from Abu Dhabi that was working and what you're going to try and improve next year in Miami when it, when it comes back?
[00:00:52] Speaker B: Well, that's a great place to start. And yes, we actually were very pleased with our first ever air cargo forum in the uae. It's always interesting when you hold something for the first time. It's the first time we've done the Air Cargo Forum on an annual basis. Up till now it's been every two years. And we were very pleased with the way, the reaction we got. We had a little over a thousand people, which we thought for a first event was actually very good. We had a really good lineup of speakers, very, very high class, very great, engaging discussion and we had a couple of really fun social evenings. Of course, the highlight for me was the last night in Ferrari World, where we had a couple of roller coasters open for some after hours.
We say this industry is a bit like a roller coaster, so why not actually celebrate on a roller coaster?
[00:01:35] Speaker A: A roller coaster. I think that was the, that was the title of our last podcast, which presumably you watched. I think our main argument was whether you have a hyphen in there. Apparently you can have it either way. So, yeah, it's been a roller coaster year. What was the main theme, themes that came out of Abu Dhabi in terms of what people were worried about, what they saw as challenges ahead.
And were any of these particular to the Middle East?
[00:01:58] Speaker B: What is really, really what, what struck me was the sheer sense of optimism. You know, I had a couple of leaders round table and, and I always want to ask these, I say, how's the year been with you and what do you expect for next year? And almost to a person, they said, this year has been Volatile, but surprisingly successful. They've all grown in different areas, different directions. So we've seen huge amounts of disruptive trade policies, for example, emanating from, from here, this, this location, usa. But the way that the industries reacted to that has actually been incredibly positive. And it's only something the air cargo industry can do. You know, one of the challenges the maritime sector has, and I, I feel for them sometimes, is when you've got US policy impacting inbound trade, people are having to take decisions 45, 50 days in advance of potential tariffs coming on board. If they've got maritime shipping, for example, shipping supply chains, air cargo can be left much later. So that's been a real benefit. And then when the tariffs have actually gone in place, we've seen that capacity move. We saw a huge decrease in E commerce inbound in the US from China when de minimis exemption effectively came in. But almost overnight we saw a doubling of E commerce volumes from China into Europe.
Now that's as a consequence because the major shopping channels, for example, shifted their marketing dollars, so now they were targeting much more the European consumer. But it shows this industry, if it's agile and responsive and flexible, it can actually respond to those evolutionary changes and those disruptive factors successfully.
[00:03:36] Speaker A: I'll come back to some of those trade points of view and there's an interesting comparison there between shipping and air freight on the capacity side, which we'll come back to that. But just while you were over there, there was a bit of an announcement. Tiaka, can you tell us about what House 61 is?
[00:03:52] Speaker B: Yes, well, House 61, first of all, let me wind ourselves back because Tiaka wants to kind of support every aspect of the industry. So we have our sustainability awards, which effectively is there to try and shine a spotlight on innovation and sustainability initiatives. But the one sector of the industry that we felt didn't have a strong enough spotlight on it was the startup. These are the entrepreneurs, these are the guys with fresh ideas, young men, young women who are actually challenging existing norms. And House61 has now been very successful over the last few years as a startup incubator based in Germany. It's got lots of very strong local support.
They want to expand their program and we wanted to support them with that. So we've signed an MoU. They are our first, as it were, startup and Innovation partner. So we'll be doing a lot of things together where we can actually take their existing startup members and others and try and put them on the global stage. We hope to do that at the Air Cargo forum right here in Miami next year. What we'd like to do is have a startup pavilion where we can give them an individual showcase in a relatively cost effective fashion.
But most importantly, what we would like to do then is have like a Dragon's Den or Shark Tank, whichever country people watch that. So we can actually invite those in this industry who support startups and put them face to face with the startups and maybe have like a 10 minute pitching session where they can pitch their ideas and then see if it resonates.
[00:05:17] Speaker A: Call a podcast. They could do.
[00:05:20] Speaker B: I'm sure you'll be coaching a lot of the guys because when you talk to some of these guys, it's fascinating as you, as you do probably quite regularly, the way they look at the industry. They don't look at it how we look at it. We look at the industry as well. The industry has been around 110 years. What can I tweak of how it works? These guys say, what can I break of what doesn't work? And it's a different in approach. So they kind of look at this and they're deconstructing things that don't work and say, well, let's do something completely different. And I think it's that innovative spirit which is so crucial for long term success.
[00:05:54] Speaker A: Can you give us any examples of what they're trying to break?
[00:05:56] Speaker B: Well, it's all, you know, when you talk about these guys quite a lot, quite often it's a lot about the digital interfaces, it's about how customers interact with the various vendors and suppliers. It's about how they select vendors and suppliers in the first place. We go through traditional procurement problems. I issue an rfp, first of all, you know, I want you to do this, want to do that, one to the other. And they say, well, that sometimes still establishing a master customer type relationship. They said it should be much more about mutualized benefits. So it's almost interviewing each other. Are we the right fit for each other? Do we have the right focus on, on the customer? Do we have the right focus on innovation? What does quality mean? And it's almost a much more mutualized way of relationships. As just one example, will we see.
[00:06:41] Speaker A: This type of Dragon's Den? Is that, that gonna, is that gonna come? As soon as Miami went, I was also thinking maybe we could do two bald men in a bar as well.
If you could tie the two things.
[00:06:54] Speaker B: In, we could do. Yeah.
[00:06:56] Speaker A: I mean, they're just ideas, Glenn.
[00:06:58] Speaker B: They're a great thing. And I think that's one of the other things, the startups, they're not bored. That's also was good because it's. And I say that, and I don't mean that in a derogatory sense, but it's probably one of the best ways to get the next generation of youth in this industry by saying, don't just come in an apprentice, an internal, and learn from somebody that's been around 40 years, like me. No, ignore the me. You know, come in and actually start asking the questions, start deconstructing without all that kind of noise from people saying it'll never work. We tried this in 1983, didn't work then, won't work now. That's the wrong approach. People need to come in saying this is the year 2025 or 2026, this is what the world wants now and I'm going to look at it and do things differently.
[00:07:45] Speaker A: So yeah, we all want new ideas.
Just going back to those takeaways. You mentioned that de minimis hasn't been as disastrous as many thought it might be, certainly on E commerce demand into the US and there's been different shipping strategies for the likes of Timo and Sheen, that it's less B2C, a bit more B2B. Are there concerns about maybe what Europe's going to do on de minimis policy?
[00:08:13] Speaker B: That's a great question. We see lots of different things. They're Talking about a €2 e commerce fee for example, which when you look at the low value items coming through, you think, oh, two euros could be quite a high percentage of something that only costs five or six. But then the other side is what's the differential? If we're still looking at the global marketplace right now, why is E commerce so successful? Well, it's, it's every, all the ingredients are there, it's efficient in time so you can actually shop from home. It's global in nature. So therefore I can actually compare things from all around the world and it's easily sourced. So those ingredients means that maybe a two euro fee. We of course would prefer to see less because we prefer to see open, fair and free trade. But if people can kind of rationalize it and say, okay, well at least I know it's going to be €2 more.
@ least I'm doing a fair, fair comparison.
What's really challenging right now is 100% tariffs. Okay, now it's down to 58%. Now it's back up to 158, down to 142, 16. It's this horse Trading of tariffs. And that's where I feel for the maritime sector because in some cases we've seen rates on some of the trade lanes, 80% drops in.
[00:09:25] Speaker A: That really has been a roller coaster. But as I was sort of hinting earlier, you've got massive excess supply. Even with the Suez Canal essentially closed for most shipping, air cargo is in a slightly different position. There's like the freighter side of things is relatively tight, even looking ahead for a few years and then we've got a lack of belly on certain trades. I think someone was talking today and it was about 15% down versus 2019 maybe on the Trans Pacific. So it's a different supply demand situation. It's a different supply situation, exactly.
[00:09:56] Speaker B: And I think that when people say well how is that capacitance situation become so strange that we've got excess belly and the lack of main deck and it says, well it's because passengers, you know, the maritime sector, it's all available for the maritime sector. And as you say, the scrapping in the maritime sector is actually quite low right now. New ships are still being ordered and still being delivered. So as you say, even with the Red Sea, there's still an excess of capacity.
We on the air cargo side, the delays to the new production freighter programs, the level of retirements that have taken place, there's still a huge demand for additional capacity.
[00:10:31] Speaker A: So do you think this will continue to support yields and continue to support freight rates as we're looking maybe into 2026? Is that the view?
[00:10:39] Speaker B: Well, right now, yes, because we've had, it's about 27, 28 months of consecutive growth right now for air cargo. And listening to the key industry analysts with people like rotate, etc. Last week in Abu Dhabi, they're saying the all time record is 31 months.
We're getting relatively close to that. And then you say, okay, well if we look at the signs now, we're not in that Covid situation of unrealistic and unsustainable peaks with both yields and demand because if they go up that dramatically, they drop that dramatically. We're in a much more kind of regularized growth pattern. Demand is there 2, 3, 4% increase in demand. Capacity is growing 1, 2, 3% at best.
So it bodes very well for the maintenance of yields. The interesting thing that we're seeing now, and it's a, it's kind of a scenario that's developed just during the course of this year, which is, and in fact I'll wind back a bit that post Covid we had China plus one because we had people wanted to de risk production, de risk supply chain. So they needed to find alternative production locations so that the manufacturing power base that China has become 26% of global production people were concerned that that was going to grow too far and too much. They're not talking about moving it away, they're just saying let's grow elsewhere.
And what we're actually seeing now is a US +1 when it comes to the consumption side.
So we're actually seeing that markets are actually say or countries or producers saying we need to find alternative consumer basis. And so what that's creating when you take a China plus one for production, US plus one for consumption is it's creating huge amounts of additional supply chains. Some of them are actually fledgling. So you're talking about growth starting point. Some of them are actually additional supply chains. So laptop production, final assembly has grown exponentially out of Vietnam, but all the raw materials are not coming into Vietnam, so they're being sub assembled elsewhere. And then they're actually finding the way to Vietnam for final assembly than final flight. So it's creating new supply chains. So things are looking really healthy.
[00:12:48] Speaker A: Glenn, you use the word. Well, the phrase horse trading around this constant disruption with tariffs, particularly not knowing where to source from and and what the tariff rate might be tomorrow, a year from now. Does this create a whole series of winners and losers? That is it. Imagine who's doing well out of this. I mean you said air cargo is very flexible on its people. Not everyone's as equally flexible.
[00:13:12] Speaker B: Yes, that's a great question. And that's really the test is those people. And this comes back to the belly versus main deck discussion. Bellies can't move, you know, belly cargo by virtue of the fact that the passengers are the ones deciding where the bellies are. So if you've got E Commerce shifts saved to go instead of from transpac now are actually going into Latin America for example, or into Europe, you can't say to the passengers, or we've decided to divert the aircraft that was flying into Los Angeles or Chicago, you're now going to go via Lima or you know, Sao Paulo and then we'll finally find your way home. So those who operate the freighters have been in a better position to move. It does bring in another question which is are the regulatory regimes in place to facilitate that? And this is where we as Tiarca in particular advocate at ICAO that there should be much greater, what they call fifth freedom or sixth freedom or seventh freedom, which allows aircraft to be deployed in those markets where the demand is truly liberalized. Air cargo services are something that's going to help support the growth of the global economy far more significantly than just relying on bilateral relationships.
[00:14:22] Speaker A: Do we now differentiate between regulatory and geopolitical risk? Because sometimes I feel like they've sort of, I don't know if they're cohabiting or they're divorcing or are they married? I don't know. Are they, are they two sides of the same coin?
[00:14:36] Speaker B: Take your pick. Right. Well, that question actually is going to lead perfectly.
[00:14:39] Speaker A: I'm not sure it was a question, it was some sort of rambling.
[00:14:42] Speaker B: But, but I'm going to summarize that and say that was a complex comment statement question because the situation is complex right now. Border compliance is probably more complex than it's ever been in the past. Geopolitical tensions more complex than they've ever been in the past.
Trading relationships between friends and neighbors is more complex than it's been in the past. If you look at the world's two largest trading relationships, which is the U.S. and Canada and U.S. and Mexico, they're barely speaking, you know, I mean, so you've got situations where friends are barely speaking and then you've now got relationships with, you know, Trump wants to reintroduce relationships with Russia. So his desire to see the end of the Russian Ukraine war, as he said, because he would like to engage in much greater trade relations with Russia, which hasn't really in the past traded much with the US They've got lots of rare earths and other minerals which the US Would love to have relationships with for both sourcing and processing.
So complex is probably the best way to describe everything that you just talked.
[00:15:46] Speaker A: About, which geopolitical risk came up in the Middle East? Because when I've been there, it's been very much a case of don't mention the war. I mean, I've sat through three day conferences when no one's mentioned that there's a war on the neighborhood. Quite happy to talk about China and U.S.
relations.
Did people go, oh, it's okay, we can talk about it now, there might be peace.
But I mean, that on a bigger sense is, are people talking about wars as this, you know, as a game changer for air cargo, whether that's in the Middle east, whether it's in the Black Sea, whether it's Chinese airspace, whether it's Xi and Trump having a meeting about rare earth metals, that changes their trading relationship. Again, we've got a one year tariff truce call it what you want?
[00:16:30] Speaker B: Yeah, that's a great question. I think the Middle east, you know, if you look about it as well, is if you think the number of hubs that we've got there, we've got Doha, we've got Abu Dhabi, we theoretically have Istanbul, we have Dubai, we've now also got Riyadh. You know, the growth of the Middle Eastern hubs and Baku, with what Silkwain is doing with the new airport there, I think they're kind of staying quite politically neutral because they're going to be huge beneficiaries. You know, it's the connecting point. So if China is going to actually now change its trading pattern to say, well, we're going to ship more stuff to Africa, say, great, we're the perfect place to do that. Oh, but we're also going to increase to Europe. Yep, great. We're the perfect place to do that. Oh, by the way, for overflow, we can also now, with our beautiful freighters, get to the US as well.
So I think the Middle east is saying, we're here for all those complexities. Wherever it is, we're here for that. There is a couple of topics which you kind of look at and say, well, with the Russia Ukraine war continuing, it is having another sad consequence, which is the carriers who, for example, are based in countries which have actually issued sanctions against Russia, still don't benefit from Russian overflow. So this is probably the one area where I would say you have a little bit of an inconsistency in the industry right now, where countries who have maintained relations with Russia are still able to access that airspace, which is still saving quite a bit of time. When it comes to Asian to Europe flights, for example, they can benefit up to two hours in some cases, which is better for the environment, it's better for cost, it's better for crew hours.
So that is an area which I think over the next whatever time frame, you know, the war is still sadly raging on. But we hope that once that concludes, we can get more normalized geopolitical relations in place.
[00:18:19] Speaker A: Okay, Glyn, just to finish up some quick fire questions for you about 2026 carry yields next year. Better than this year?
[00:18:29] Speaker B: I wouldn't say better than this year. I would say if we could maintain what we are this year, that would be success. I think going forward, we have to look at saying, well, is the capacity situation going to dramatically increase? No. Is demand going to dramatically drop? I would hope to say no from all the signs now. So I would say very similar to this year.
[00:18:46] Speaker A: Glenn, it's going to be a bad pun. I don't want to put you on the spot, but spot rates, what, where are they going to be next year?
[00:18:53] Speaker B: Well, first of all, I didn't spot that one coming.
[00:18:54] Speaker A: No, you're too quick. You're too quick.
[00:18:58] Speaker B: That's fascinating because I think spot rates are a combination of volatility and that flexible deployment of capacity because how can you have long term contracts if you don't know if demand is going to be there? Because a, a tariff policy is going to actually cut it short. So I would say spot rate percentage wise is probably going to maintain quite a high level. As we've seen this year. Again, the scenario in terms of capacity is we're not expecting to see a dramatic influx of capacity sadly because of the accident that happened just last week. Right now that means some of the MD, well, the MD11s are grounded. So that's about 556 aircraft. Now they're not heavily utilized or in terms of utilization hours, but that is 55 wide bodied aircraft which is coming out of the, of the fleets, which is sad as well, that situation. We always should send our thoughts and prayers to the families the most affected. But I would say spot rates themselves. Again, I don't want to sound sort of too touche, but if we can maintain this year, that's actually quite a good. I would like to see us in some sort of a balanced period of time. I think massive peaks and troughs don't help the industry because that makes it difficult for customers to use this. So as close as we can get to equilibrium and plateau will be good.
[00:20:13] Speaker A: I think everyone wants some sort of normal, don't they? Okay. One airport or air cargo community that will surprise everybody next year.
[00:20:22] Speaker B: Wow, that's, that's great. I mean there's so many things. We were in Budapest for an event earlier this year. Their growth in E commerce is just phenomenal. They're talking, you know, over the last few years they've grown 14, 50% year over year. Now by their own success, they can't continue to do that, is just not possible. But I think all those airports that have got an E commerce component, so you're talking about Liege, we're talking about East Midlands in the uk we're talking about Budapest, we're talking about others that are kind of building, I think we would expect to see those grow dramatically. Vietnam, Hanoi there. We would expect to see continued growth in Vietnam as well.
[00:21:00] Speaker A: One policy change that would be transformative for air cargo next year, it can be from any government you want or it can be from the government of Tiaka.
[00:21:11] Speaker B: That's a dangerous government one policy. Wow, what a great question. So that's like a magic wand.
[00:21:17] Speaker A: You've got a magic wand now, first.
[00:21:20] Speaker B: Of all, I'd give us back hair growth. That would be super cool.
[00:21:22] Speaker A: That would be nice.
[00:21:23] Speaker B: Not too waldman. We could say. I don't even know what the opposite of balls is. It's been so long.
[00:21:28] Speaker A: Yeah, I don't know, I can't, I can't remember the 80s.
[00:21:33] Speaker B: Wow. Magic wand.
Do you know, I would actually say that the, the notion open, free and fair trade with a magic wand would be completely implemented to the degree reason being not just because I'm selfish for air cargo, it's because of global society. There was a really great World bank report that basically identified that since the early 90s and the expansion of the global economy, over 1 billion citizens of this planet have been raised out of extreme poverty into the middle classes. That's purely because of the ability for manufacturers to find the best place to source and the wonderful logistics industry, whether or not that's ocean, road, rail or air, has been able to move those products to the consumer markets elsewhere on the planet.
[00:22:21] Speaker A: So.
[00:22:22] Speaker B: So if we can actually accelerate the global economy, we can help more citizens, Help more citizens. Helps better access to healthcare, helps everybody live better, live longer. Helps increase or decrease poverty around the world and all of the things that come with that. So infant mortality. So many benefits can arise from increasing the prosperity across the planet.
[00:22:42] Speaker A: Glenn, just on the government of Tiaka, there's been a few changes at the top. Have you got a scoop? Are you going to stay around after 2026 and who else is coming and going?
[00:22:52] Speaker B: Well, as you know, and I think as you're alluding to there, we actually had our change of, of chair last week.
Stephen Polmans, who's done a great job for the last six years and really helped transform the association. In fact, it was the new transformed Tiaka which really attracted me to join.
So he handed over the baton to Rose Barker, who is now going to take on the chair for the next two years. The board is, it's an amazing board. You know, we often, we as me, as Glenn in particular, get the pleasure of being visible, but it's really the great work that the board does behind the scenes and the rest of the Teatra Association.
So, you know, my first five years comes up next year. I'll talk to the board about what, what we do next. But I'm certainly there to support Rose and the new leadership.
[00:23:36] Speaker A: So we'll watch this pace.
And finally, Miami next year. So clearly, you know, two bald men in a bar, we've done indoors. Are we doing the beach bar next year?
[00:23:48] Speaker B: I love it. So much alliteration in that, but let's do it.
[00:23:52] Speaker A: Okay. Glenn Hughes, thanks very much for joining me once more on the Freight Buyers Club.
[00:23:56] Speaker B: Thank you, Mike. It's always a pleasure chatting.
[00:23:57] Speaker A: Thanks, Blynn.
