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: Hello and welcome to the Freight Buyers Club, which as you've just heard, is produced with the support of Demerco Express Group. I'm Mike King and what a crazy few weeks we've had. I was pondering songs that might give some context and I came up with what a Difference a Day Makes, that beautiful song by Dina Washington, because, well, certainly a day did make a difference for Trump's tariff policy and for Mexico and Canada, who one second were in the midst of a trade war and the next had a reprieve and the nightmare well subsided shall we say. But will it subside indefinitely? Was this a shot across the bows from the Trump administration or did the market's crashing prompt a back down? The majority of you think the latter, according to my latest LinkedIn poll. Wishful thinking perhaps. Time will tell, but uncertainty is undoubtedly in the air as we all get ready for TPM in Long beach at the start of next month. That's where the Trans Pacific contracting season negotiations will hit their straps. The Freight Buyers Club will of course be reporting from TPM as close to live as we can manage, discussing all these topics and the latest from freight market and the long term ramifications of US Policy. Today is a star studded lineup. A bit later I'll be joined by Lauren Began, maritime lawyer and host of By Land and By Sea podcast, to hear her take on the new administration, the Federal Maritime Commission and what we should be looking out for legally about this. Well, from the new cast of regulators, we'll be looking at the Ships Act, Detention and demurrage, the FMC's ability to project US power over the Panama Canal. And we'll be talking about the new chair of the fmc. But coming up now, I have two fantastic guests. First up we have John Munro, founder of John Munro Consulting, a man who has been a regular speaker at TPM for over two decades and has probably forgotten more than most of us ever knew about shipping and supply chains. How are you doing John, back from Asia from stint in the US and you, please tell me you will be speaking at tpm. I haven't just messed that intro up, have I?
[00:02:43] Speaker C: Of course I'll be at TPM and thank you for inviting me, Mike.
[00:02:47] Speaker B: I don't think the invites are on me, but maybe they're. The invites come from our second guest. Also returning to the Freight Buyers Club at Marc Zacconi, executive editor at the Journal of Commerce and a director of S P Global, and of course, one of the guiding hands behind the TPM agenda. I'm sure he'll be front and center chairing many a session. Welcome back to the Freight Buyers Club, Mark. Are you all set? Are you all stressed? Any new speakers you want to tell us about?
[00:03:13] Speaker D: No, I mean, we're still, we're very excited about Ambassador Bolton. Obviously, comments that have been made by the president on Greenland and Panama Canal have really kind of raised the profile of geopolitics and shipping. So, yeah, we think he's definitely the right keynote for this year and he.
[00:03:31] Speaker B: Comes security service free as well. Are you, Are you providing his security?
[00:03:36] Speaker D: That's still getting worked out, so, yeah, well noted. And you know, to John's point on tpm, like, yeah, we really couldn't be doing TPM without John, so it's good that he's, he's part of it as well. Again.
[00:03:49] Speaker B: Well, I'm very excited to attend this year for the first time ever. All right, let's get going. Where else could we start than with the massive jolt of uncertainty supply chain planning that we've had this year? I'm not even talking about whether we'll be shipping via Suez. Suez soon or not. Let's start on the US President and his administration. I'm not American, guy, so you're going to have to fill me in. What is policy on tariffs on bringing manufacturing home? If all this manufacturing comes home, who is doing the labor? I'm not trying to be political, but I am confused about where this is going and what it means for people in our industry trying to plan for the future. It seems all quite confusing. Mark, do you want to go first?
[00:04:34] Speaker C: Yeah.
[00:04:34] Speaker D: I mean, I don't know if I can express our trade policy as of now. I will say though, you know, as we're covering it, we look at it more in terms of how the tariff or tariff threats impact cargo flow and then the impact on reliability, price, service and all of that. And you know, as we've reported and many others have reported, there's been so much front loading over the last couple months, inventory to sales ratios were pretty elevated. So in terms of there being a huge rush as these tariffs come, I mean, we're not hearing it nor seeing it in terms of actually Bringing back manufacturing? I. Yeah, I don't understand. I mean, we don't make everything here. So those, a lot of those inputs are going to come elsewhere and those inputs are going to be higher cost unless you're able to get an exemption.
[00:05:23] Speaker B: But it's not just me that's been used. John, shed some light on this for us, please.
[00:05:27] Speaker C: Well, you know, to me it's rather simple. You know, now that Trump is president. If you haven't read Art of the Deal, go read it. You know, he's first and foremost a businessman. You can see what happened with Colombia when you look at the potential of what would have happened with Colombia had there not been a compromise. There are roughly 11,000 port calls, 1,300 vessels that call a Colombian port before calling the U.S. so, you know, I wouldn't get my Starbucks without paying a, a premium. But the fact is he's a hammer and he's using tariffs as a way to get his way. And that doesn't necessarily mean that will stick. I think we've seen that with Colombia. I think a little bit he's backed off on Canada. Mexico. I think you're back off in Mexico more than Canada just because the president of Mexico has sort of come to the party. I think his point of view is to get, you know, he wants, his direction that he wants to take. He wants the support for that and he'll do whatever it takes to get that support. So I think certainly it creates some uncertainty, but let's face it, the only thing that is certain about the Trans Pacific and global trade is uncertainty. So you hope that everybody's already prepared for it.
[00:06:43] Speaker B: Yeah, it's this balance between is it, is it a diplomatic weapon or is it an economic policy? That's where my confusion comes from. In your excellent newsletter, John, you mentioned that there's always unintended consequences for shipping. When there's changes in policy like these tariff changes, some of them aren't always clear straight away. Did you have something in mind when you wrote that?
[00:07:05] Speaker C: Well, I mean, I think when we look at this, you know, right now, what we're seeing is we're seeing, we just, there was just announced that there were 7,000 freight layoffs. I think we're seeing some of the NFOCC, a number of them that are, you know, right on the edge. We don't know how the year is going to play out. And I think everybody's a little bit nervous. And as to Mark's point, a lot of the bcos are better prepared, I think, than they might have been. We knew this was going to happen. Trump pretty much announced everything he was going to do in advance. So there's really no surprises. And I'm sure there's some companies not prepared. And for the most part, I think people are going to pass those costs along.
[00:07:46] Speaker D: I mean, I think what's really interesting, Mike, you talked about that kind of uncertainty.
I see that rippling through because that follows. That uncertainty follows the next question of China plus one, like where would one invest and know with certainty that tariffs are, you know, it's impervious to U.S. tariffs. I mean, we know he's upset about the, the trade imbalance with Vietnam, but that doesn't make Thailand or any of those other places that much necessarily safer. So it feels like the industry is just kind of waiting in sync.
[00:08:22] Speaker C: I think you're right, Mark. I think, you know, people don't realize how hard it is to leave China. First of all, you know, they're very competitive. I was on the phone recently with a friend of mine who's responsible for procurement out of both China, Vietnam. And one of the things that she was saying was, you know, the costs in China are still less than they are in Vietnam. So, you know, you add 10% on it, it's really not that much.
The other part of that is, is the ability of the Chinese factories to deliver on time as opposed to say Mexico or India or Vietnam. Although you do see a lot of Chinese investment in all three of those countries.
And so I see, I think this transition's going to take a little bit of time. Although I do have clients bcos that are saying it's got to happen this year. I mean, I see it happening. So it's too soon to tell, but I don't think it's as easy. You know, you see Foxconn, they've got a big project in Mexico now. They're going to develop a big facility. Yet companies like Samsung and Lucky Gold Star now thinking of manufacturing in the US So, and, and that's what Trump is trying to accomplish is, is to get more companies manufacturing in the US but it's, it's easier said than done.
[00:09:44] Speaker B: As Mark says though, if those, these tariffs could pop up anywhere. If you've got to take a long term decision to invest, say in Vietnam, five years down the road, your factory opens up and then there's a tariff. You've wasted your time, you've wasted a lot of money. If, if that was the driver of it.
[00:10:01] Speaker D: Yeah, I was going to say, you know, another dynamic here is we hear a lot about the Chinese investment in, say, Vietnam and Thailand. But there's also been signs that when the, when China goes in there, it's not like they're giving the intellectual property and the know how to those countries. So if they're not having the actual understanding and they're simply a factory floor, I think it's, you know, it's reasonable to think that there's going to be more resistance and pushback in the sense of, like, yes, you're bringing jobs here, but how much are you actually adding?
[00:10:34] Speaker C: I think you're, you're spot on, Mark. I mean, if we look at the way that it operates in China, you know, they'll set up these bonded logistics parks for, say, a Foxconn, and they'll bring all their tier one suppliers there, and it'll all be Chinese labor. And they're already starting to do that in Mexico. I think there's one large bonded logistics park already set up. And what it really is is it's China coming to Mexico or China going to India, China going to Vietnam. But I can say, I think, you know, particularly in some of these places, there's a lot of pushback. It's not exactly like this is happening readily with everybody, you know, open arms for China coming in with their investments. It's a tough transition.
[00:11:17] Speaker B: I was over in Kenya and Uganda, actually, and Chinese investment there in the railways and the roads has been huge. But it was the same picture there. Lots of investment, but the government had been left with lots of debt. And there was a lot of resentment there because it hadn't created a lot of jobs because it was. China had been transplanted in with all their managers. Not a lot of local benefits. That's how the local people were explaining it to me. The most interesting thing is that tariffs on China have only gone up 10% percent, whereas Mexico and Canada have got this 25% tariff hanging over them for the next month. Suspended in that first Trump administration, like, okay, well, this is a US China trade war. And people were talking about concepts like near shoring and friend. Shoring Friends aren't safe anymore, are they?
[00:12:03] Speaker C: Yeah, nobody's safe.
[00:12:05] Speaker D: Yeah, but that shouldn't be. I mean, I don't think that's a huge surprise. I mean, the first term showed that Trump had a skepticism of allies and looked at them, particularly in terms of whether they were giving back their fair share in that partnership. So the idea that he would expand that beyond China to other countries. And, you know, I think, as John succinctly Noted. I mean, tariffs. Tariffs are the solution to, or the battering hammer of whatever issue he has. I mean, that's, that's the first instinct.
[00:12:39] Speaker B: Do you think there's an understanding about the complexity of some of these inbound supply chains? So even if you're an automotive manufacturer and you build an new plant in the U.S. these parts are going to be coming from all over the world, no doubt, including Mexico, including Canada. And there's the number of border crossing for before that car is produced is huge. Do you think there's an understanding about. Okay, if this might discourage people from investing in the US as well? Because getting the inputs is going to be difficult.
[00:13:05] Speaker D: Yeah, I mean, there may be, but there also may be the calculation, as John noted, that they realize that they're not going to really have to hammer it completely. Like folks are going to fold or in some cases, folks are going to fold and perhaps reiterate a deal that was made already, but rebrand it and it's accepted and we move on.
[00:13:25] Speaker C: I think the point that he's trying to drive home is with his America first, is if you want into this market, you better manufacture it here. I mean, that's, I think, Trump's point. So everything really revolves around that point.
So everybody thought friend shoring, near shoring. I mean, then you have to determine who are our friends under Trump's. You know, his idea is we don't have any friends. So that's where it gets a little bit dangerous is because, you know, everybody thought we could move to Mexico or Vietnam or India. And I don't think that's going to go away. The transition out of China to other countries. I mean, we're only talking about the U.S. you, you have to think about Europe as well. And there's no Trump in Europe or cross trade with Latin America or Mexico because there's a big market in Mexico. So I, I think that our market is going to change a bit, but everybody else will still be sourcing out of Vietnam or India or, you know, wherever. Mexico. Now, Mexico is a bit unique because we've already had the automotive manufacturers and some of the aircraft manufacturers set up big facilities in the maquilladoras along the border. And I believe automotive and automotive parts, that's the biggest thing that we import now, I think biggest commodity from Mexico. So what does that mean for car manufacturers, for the parts movements? I think that's up in the air, and I think they're going to get hit the hardest because you're not only dealing with the parts Coming from China, you're dealing with the tariffs in Mexico. So as we can see on, you know, how quickly he moved to shut down the border, all of this is happening faster than anybody expected.
[00:15:11] Speaker B: John, I know you travel a lot in Asia. What was the view when you were over in China recently of. Of how things might go under this presidency? And I think you also said you were in India. There's a bit of a bromance going on there with, with Modi. Are people in India pretty optimistic about how this all plays out for them?
[00:15:27] Speaker C: I think people in India and Vietnam are very optimistic. I think China, now, it's got its own domestic problems. You know, the economy is not as strong as they would like us to believe. You've got a lot of young people that can't find jobs. Young, I'm talking about 18 to probably 30. And so you've got a lot of despondency among youth that have just gotten out of college or what have you. And you have an employment rate, unemployment rate that's somewhere between 20 and 24% for that age group. So it's still uncertain, you know, what's going to happen there. They haven't solved the real estate problem, which is basically 25% of the GDP and another 25% is exports. And so, you know, it's too early to tell what's going to happen, but there's a lot of pressure on China right now.
[00:16:17] Speaker B: Let's have a look at some of the other things that have been going on in container shipping this year and how they might play out for the rest of the year. I've done quite a few podcasts where we've been talking about the Suez Canal. Pretty much everyone seems to be in agreement that nothing much is going to happen there. We're not going to see ships going through there. There's too many insurance implications. There's the intervention by President Trump. Talking about the American Riviera seems to have set things aflame slightly there also. Are either of you digressing from that viewpoint that don't expect that any sort of massive change in container shipping routes, Southern Africa diversions are likely to remain in place for quite some time short.
[00:16:54] Speaker C: Of a concrete agreement. I would agree with that.
[00:16:57] Speaker D: I thought it was notable that Merth's CEO said that profitability hinged on whether the capacity would be unleashed or not from the Red Sea diversions, as in.
[00:17:08] Speaker B: Profitability collapses if the Red Sea opens.
[00:17:12] Speaker C: You know, rates are already going down as we speak. They went down this past week. You know, race to Europe dropped to about 1800, I understand. I was on the phone with a colleague in Europe. So in spite of the fact that they've got the Red Sea diversions, you know, rates have come down, so we don't have to worry about that as much because the Panama Canal has opened back up. So it's. Even if it's an issue, it's only a partial issue.
[00:17:39] Speaker B: I want to come back to those spot rate declines and what they mean for the Trans Pacific contracting season, which obviously is going to be in full action once we're over at TPM in Long beach at the start of March. Just quickly, obviously, we didn't have a strike on the Eastern Gulf coast, but there was a few things that came out of there. You just mentioned there that disruption works quite well for container lines. So why didn't they just let the strike go on? Was that political? Why did they sign that deal? They could have been making profits on a strike, couldn't they? And my second point is, how could they be happy with the automation element of this deal that's due to be ratified by ILA members later this month?
[00:18:19] Speaker D: So, I mean, on the first point, if I was a. And I'm not, if I was an ocean carrier and the. The incoming president had already tweeted that he was in opposition of automation, putting kind of his thumb on the scale for the ila, and knowing that, you know, the Biden administration was very forceful with the carriers and them saying, hey, you need to resolve this because it has political implications before the presidential election. I wouldn't want to be starting my first term on, on Trump's list.
[00:18:55] Speaker B: So fear Trump's profitability. Can I, can I use that headline?
[00:18:59] Speaker D: Yeah, I mean, it's also that. And, you know, they're also weighing other costs. There's operational costs. I mean, yes, yes, it would artificially take functional capacity on the market. And you saw the investors wipe out all of that expectation in minutes after the result was or the tentative agreement was announced. You know, Merce, Hapag, Lloyd, both of those. So, John, I'm here. You take a shot at that one.
[00:19:26] Speaker C: Well, I agree with you. Maybe a little bit different reason. I think if you're the CEO of a carrier, they're a foreign entity coming into the US and that's been a big issue. A lot of people have mentioned that. The ILA has mentioned that Trump comes in. I don't think anybody wants to go up against Trump. They don't know what to expect. And so they're better off to compromise I think than go head to head with a president who they don't know what he's thinking, what he's going to do. And they literally could either put penalties on the carriers or just isolate them to where they can't call it a port. You know, we've seen what's happened with Panama, so they could, they could do that with the carriers. I think they were smart to compromise, but when you look deeper into it, I don't think they've lost that much. I mean, other than wages.
[00:20:12] Speaker B: Just another point, John. We've got this container lines restructure, we've got the Gemini lines. Carriers like MSC are now going solo. What's your takeaways on this for shippers?
[00:20:24] Speaker C: Nothing. I mean when you, when you look at this, you've got a reliability factor that's already down to 53, 54% according to Lars Jensen. So how can it get much worse? I mean, the reality is it's a bit of a mess now. It was a mess yesterday and it's going to be a mess tomorrow. So, you know, you're sitting at the origin, wherever that origin is and you just, you want to get a booking on a vessel as long as you can get that booking and you can get that space. And that's what this contract season is going to be really. It's going to be a big deal about allocation. You know, you got a contract, you have an allocation. I think we're seeing the carriers walk away from smaller MQC commitments and go to bigger and bigger. And so you're going to have a lot of people left out of the loop that had contracts before, you know, particularly among the NFOCC. And I think that the, the dynamics has already changed with carriers in terms of the fact that they're no longer willing to follow each other over a cliff in terms of this herd mentality for market share. They've got a taste of profits and they like it. And so whatever they have to do to, even if it's a mild disruption, contract rates will be higher than last year. But once that's done, it's game on for spot rates. So know it's too early to tell.
[00:21:44] Speaker B: Are you saying that there's no way that there's going to be a race to the bottom if markets start collapsing? If we start seeing those spot rates going, we're not going to see a race to the bottom because that's what we've seen for the last 25 years. Be the first time ever, won't it?
[00:21:56] Speaker C: What I'm Saying is you can't look back at the past. You have to look at the way the carriers have accepted or the way the, the carriers have, have learned to look, work in a, in a very different way. They all want to make money now, quite frankly. You know, with the money they made in 2024, they could get through 2025 in a breeze. But I don't think they want to go in into the red. I, I think they're going to do everything they can to be above break even. And we haven't seen what that is yet.
[00:22:27] Speaker D: I, I agree with that. I mean they were showing signs of, of not complete care, discipline. But even before COVID they reap the rewards of COVID And you know, we know and as we've reported that looking back at the last service contract cycle, many carriers felt like they could have gotten more at the table. So they're coming in harder this time around.
[00:22:49] Speaker C: Well, if you remember, I think it was back in 2009 or 2010 they held. I mean, what I tell people is, God, assume the carriers have to drop the rates. Even if it's no longer a supply and demand equation, I think it's heading more towards a cost plus and carrier costs are growing, so they're going to be more resistant to any kind of lower rates.
[00:23:16] Speaker B: John, just looking at the 2025 contract season and TPM, so where are you saying these rates are going to, these contract rates are likely to come in, say, versus last year. Where are you pitching that? And on the alliance point, will any of these contracts include things like schedule reliability? Because obviously Gemini is promising a lot. Would any of that come into the contracts?
[00:23:38] Speaker C: Well, Gemini is promising a lot. They've also come out and stated that they're in the middle of a transition period.
[00:23:43] Speaker B: Yeah, midsummer they said. I spoke to Hapag Lloyd. Midsummer, it's all going to be ready. That's the promise.
[00:23:48] Speaker C: Exactly. So I think that they've already come out with some rates at 2,500 and 3,500. And so you know it's going to be lower than that. So it's the first pass. I don't know exactly where rates are going to be, but I think it's going to be somewhere between 1800 and 2000. The bcos will get a bit less. And I tell people that's not a bad deal. You can't expect the thousand to thirteen hundred.
I tracked the spot rate, so when I tracked 2023 and 2024, the low in 2023 was I think $1,113 to the West Coast. And I think it was 2020, 200 or something to the east coast. And those rates are crazy. They're absolutely crazy. Whereas 2024 is a bit volatile. But your west coast rate was as high as 8,890, 98, 9900 to the east coast. But they never came back down to that 2023 level. So then the question is, are we going to look at, is 2025 going to be more like 2023 or 2024? And I think it's going to be somewhere in the middle.
[00:24:56] Speaker B: I was talking to people over in Asia. Obviously you've been over there more recently. I'm hoping to catch a few people while I'm here now. But they were saying that fact, some of the factories closed a bit earlier than they normally would for the Lunar New Year holidays. I might open a bit later. And one, what was it? Did he say it was going to be a rate bloodbath this year or did he. Was it murder on the dance floor at TPM or something like that? But irrespective of Suez, his view was that we're looking at a really bearish rates environment and that's going to drag down these contracts. I have to say this person was from the ship side of this equation. So.
[00:25:31] Speaker C: Right. That's what they expect. I don't necessarily think. I mean, I've seen rates, some bullet rates down to in the twos and spot rates just above three. I mean, in, in the last couple days. So rates have come down. The question is how much? And the game isn't over. So keep in mind that they're still above what the contract rates are. And right now they're not thinking about the spot rates, they're thinking about what they're going to get in their contracts and that's going to play out in the next two to three months. So by May 1, everybody's going to have their contracts done. Then it's game on for spot rates. So I don't think it's necessarily, you can say it's bearish. It's, it's going to be supply and demand. Shippers are going to think back, you know, years and years and years and think it's all the same. But I don't see it as being that way.
[00:26:21] Speaker D: John, you mentioned, you know, obviously every year it's important for shippers to get that, that commitment or that sense that they're going to be able to load when they want. But it does feel like increasingly as there's more things thrown at them that need only increases. Do you expect to see any changes in service contracting that kind of try to build in those, those commitments? You know I think in past cycles we saw like two tier of rates as another way to access capacity at a slightly higher or at a higher rate. Anything coming down I, I do, I.
[00:26:56] Speaker C: I, I, I think you might have a, this is your rate but if you want to, if you want to guarantee this is the rate and I think that the, you know, right now that's, that's the focus I think of anybody that's contracting. It's not just about rate. It's okay, I've got a rate but one am I going to get space for that rate and two is a PSS going to apply? So those are the two things I think that are really important and I think the carriers are starting to move now towards allocation by string of vessels. I mean they've been doing that but you're going to have to be if you're coming into say Chicago, you might have a different rate going from through LA than you do through Tacoma than you do through Prince Rupert. So I think they might have split things out that way and then you know you've got a choice but that rate is going to be dependent upon what discharge port you use.
[00:27:53] Speaker D: That's interesting and that's a very interesting development. If they're kind of differentiating more in terms of point to point there before.
[00:28:02] Speaker B: We have a look at a little, little view on the domestic freight market in the U.S.
mark, one of the other big plays by, by the President has, I don't know what, what the right phrase of it. There's been, I guess I'm going to use the word threats over to Denmark over Greenland but the big one for shipping is Panama. Lots of talk about Chinese influence around in all the development zones around Panama there's been a lot of direct investment from Chinese companies into Panama but particularly port ownership. This is mainly Hutchison which is Hong Kong based. What's your take on that? How's J O C being covering it?
[00:28:37] Speaker D: Well, you know, it's been around for a while. There's always been a pushback and concern particularly in Republican camps about that concession there. But I think this is, you know, with the, with Trump weighing in and talking about regaining control, there's much bigger spotlight in terms of the relation between the port authority and the government. So the port authority is as we heard from Federal Maritime Commissioner Chairman Luis Sola. They operated in his view independently and well the question then becomes, how did some of these other concessions for ports get handed out over the last couple years from the Panamanian government? So in that way, this thing that has been kind of festering for a long time is, Is going to probably kind of really come out in the open, particularly as some of these audits that the Panamanian government has launched show the results in terms of just how much was paid in concessions and exactly how per moop, container, rent, and all of that was paid.
[00:29:41] Speaker B: And just for listeners. Yeah, there was. So there was. Former Chair Daniel Maffey gave a statement to. I think it was the Commerce Department. I'll be coming back to this later when I'm talking to Lauren. Began. He mainly focused on low rainfall last year and potential implications for US Importers and exports. New Chair Solar is a Trump appointee. He was mainly focusing on corruption in Panama. He mentioned the rainfall, but it was also this influx of Chinese investment. So there's certainly plenty to watch there. John, have you got any views on that?
[00:30:14] Speaker C: Yeah, I mean, a lot of people don't realize what's, what's going on and. But what's in Trump's mind is what Cheyenne is, what she is doing on the One Road, One Belt program, which is basically setting up a perimeter around the world to where they actually have access to assets through their indebtedness program by offering loans for the development of ports, dams, roads. And, you know, Panama is a bit close if you look deeper into it. Hutchinson. I don't really view them as Chinese. Li Ka Shing is not exactly high on Xi's list of favorite people. And really, it's a very legitimate, I think, terminal operator that's global, and this just happens to be in Panama. However, I do understand Trump's concern that it could be influenced, have Chinese influence, and it's too close for comfort. So, you know, given the. The treaty that we have that allows us, basically allows us to go in and take control, should there be something wrong with the way that canal is operated? I mean, we built it. You know, we, our money, our team. It was initiated by France and they couldn't complete it. We went in and completed it and been operating it until Jimmy Carter gave it away.
[00:31:36] Speaker D: Yeah, you're absolutely right. What John's talking about is there's a clause that's basically a tripwire that basically says once the independence of Panama is under question, then it has this clawback that would then allow the US to make the case that it should regain control of the canal.
[00:31:57] Speaker C: So I think the Panamanian government has to reread that contract because they're acting like they can do whatever they want and they can't just back on the.
[00:32:06] Speaker B: On the Belt and Road. So China's investment and the trade links that it's established through the Belt and Road, it's given it a huge influence around the world. It strikes me that the US has gone in the other direction. Right. So if you look since the Second World War, bilateral trade relations has been a massive diplomatic carrot that the US has been able to wave around and build relationships and influence. And it now seems to me that trade has become a weapon and bilateral trade relations have been withdrawn as a possibility. Doesn't this just diminish US power and influence and reach?
[00:32:40] Speaker C: I think it does. I think also if you think back when China was open, We've experienced about 30 years of prosperity with global trade. As everybody retrenches, you default more towards conflict and wars. And it's sad from my way of looking at it. I mean, you know, to a certain extent as an American, you know, we, we pioneered containerization. Malcolm McQueen invented it and we were the biggest at one point. But you know what you're really dealing with if you look at what's really happening in long term. And what's scary is China plays the long game. If you look at their planning mechanism, their five year plans, they're amazing because each five year plan builds upon the previous five year plan and it allocates funds and it builds massive projects. We don't do anything like that. We go from one administration, we change the administration. Money gets spent or money doesn't get spent based upon whoever's in office. So things that are approved, maybe the funds are never released. And so we don't have a plan that really takes into account a long term look at our infrastructure the way China does.
[00:33:50] Speaker D: Well, I was just going to say there's also limitations of what one can be done. I mean, I think the view on the Belt and Road has dramatically changed over 10 years. I mean, 15 years ago it was kind of knock your socks off investment. Now there's a lot of questions of whether you meet recipient countries, can pay back it, whether the money was actually needed, where a lot of that money went during the construction process. So there's been a natural pushback to a lot of these projects. So I mean it's, it is an extension of power, but in the same way that, you know, folks are pushing back in the sense of do you really, are you really adding jobs? If a Chinese factory opens up here, you're seeing a lot of, you know, recalculation from some of those recipients of belt and road investment. Yeah, you're absolutely right.
[00:34:42] Speaker C: Yeah.
[00:34:42] Speaker B: I sometimes think that some of these countries are being pushed towards China by some of these policies or the invective. I mean, I guess it's an interested in thesis who's going to be the biggest winner and loser from, from deglobalization and yeah, this, this shifting in the logistics trading landscape. I mean I think short term maybe the US wins but are they long term wins?
[00:35:02] Speaker D: Well, I mean, I guess, I guess the argument comes are you stronger with or without trade? And I would say that the rest of the world will respond in kind and continue to increase trade. We saw that last year. I mean you do an analysis of all the different free trade agreements. We created more barriers, but other folks are breaking down barriers. I mean, you got Latin America and the EU signing a deal that seems to have been a walking dead for years. So things are happening on that front.
[00:35:31] Speaker B: The UK might even reverse some of the Brexit stipulations as well. We'll see.
[00:35:36] Speaker D: I get crazy. Mike.
[00:35:39] Speaker B: Mark, how's the US domestic market going? As a. I think I did read somewhere, I think it was Jason Miller, Eli Broda College of Business saying that if we did introduce a bunch of tariffs around North America, this would actually kill domestic freight demand, maybe even bring back a recession and I don't know. Has JOC called whether the great US domestic freight recession was in place and has now ended or not?
[00:36:05] Speaker D: No, we're going to leave that to economists rather than taking a whack at it. But I will say, yeah, I would say any tariffs would be downward pressure on the best domestic market. Importantly, it's been very sluggish. It seems like every quarter or two the carriers, whether on the rail or on the trucking side, make the case that we're through the worst and the green shoots are popping, but we're not seeing it yet. So it's been a very, very slow recovery.
[00:36:35] Speaker B: Yeah, there's been a few reports from financials from railroads and some trucking analysts saying that 2025 is going to be better than 2024 at least. John, what else in freight or shipping markets has been catching your eye or should we all be looking at in 2025?
[00:36:53] Speaker C: Well, first of all, let me, let me address that domestic market because I, for the last couple of years I keep thinking the other shoe is going to drop, you know, because I don't think our economy is as strong as everybody thinks. It is. Yet if you look at consumption, consumer spending, it has gone since 2002 until 2023, with the exception of 2009 and 2020, it's gone up. I mean, it continues to go up. And I think that is going to determine what's going to happen in freight this coming year. And I think S and P Global or Bimco, depending upon who you get your information from, estimate that we're going to have a demand that's 3 to 5% growth, but capacity is going to be up 9 to 16%.
[00:37:46] Speaker B: And this is containership in demand, right?
[00:37:49] Speaker C: Yes. Yeah. So, I mean, it's. It's hard to assess because it could go down, but maybe not. So that's. It's a tough one. The stock market still is rallying, so everybody thinks everything's okay. But I. But I think it might be that we've hollowed out the Midwest, which is Trump's base, the middle class shrinking, and I think those are the people that are going to struggle in 2025.
[00:38:15] Speaker B: Mark, any big stories you're following that we haven't discussed already?
[00:38:18] Speaker D: I'm just always glad not to hear blockchain. I think we're going to hear a lot more about AI. Um, you know, the nice thing about AI is that there's actually stuff you can point to. Like, it's interesting, you know, whether it's either it's less sexy stuff, like it's vessel efficiency, but it is interesting.
[00:38:36] Speaker B: Well, I was working on a conference program for someone. I won't name who it was. They started with using AI to actually generate the conference program. And the topic that came up because it's skimming old stuff was, know, the lead session, blockchain. I was like, no, guys, it's. You're 10 years out.
[00:38:55] Speaker D: Give some time. I think blockchain's ready for revival. Like 10 years from now.
[00:38:59] Speaker B: I can't sit through another session. Please don't bring it back.
[00:39:02] Speaker C: You know, if. If you. If everything's in a single. A central database, you don't really need blockchain because it's distributed from a central database. And I think that's where everybody's going. I think the problem is now is, is as an industry, you know, we're still hanging onto Excel spreadsheets. So we're, on the one hand we're talking about AI. On the other hand, I would say probably 60 to 70% of the bcos are still hanging onto those Excel spreadsheets. And so there's been a slight movement to digitalization. But the carriers themselves haven't really embraced digitalization. You go to a carrier's website and a lot of people still do today for their schedules. And if you go to one carrier, the way it's set up is different from another carrier. They use it different.
Some of them you have to put in the prefix for the master bill weighting, others you don't. And the data fields are all different so you, you don't get the same kind of data that you need to become digital. And we're, we're very backwards and we're at a time when, if you look at the future, what would have the biggest impact would be digitalization. I mean with all the uncertainty, at least you would know where your stuff is. So that's what I think the future's got to embrace. I mean we already know the carriers have changed, we already know they want to make money. So I think when we look at the future it's okay, long term partnerships and digitalization, that's where I think the future is.
[00:40:32] Speaker B: In 2025 we're talking digitalization. Just a little story.
25 years ago exactly. I was, I was an editor at Lloyd and I was asked to create a sort of digital, I think it was digital shipping or digital supply chain magazine. And it was just before the dot com bubble burst. So it didn't last very long, but I created it. I can't believe 25 years, we're still saying sometime down the road we're going to digitalize our industry.
[00:41:00] Speaker C: It hasn't happened.
[00:41:01] Speaker B: Why has it not happened?
[00:41:03] Speaker C: You know, there are some good things out there. I mean I've got my own SaaS platform and I've got companies on it and it's one source of truth. So I don't need to worry about a VC or something like that. I go forward and I implement various companies. But most people, most companies, they just hang on to those Excel spreadsheets. And you have, for example, you go into most bcos and you've got somebody who procures product and somebody who procures freight and they never talk to one another. And everybody is stuck with these large ERPs, whether it be SAP, JDA, Oracle.
And they have not left the starting gate for digitalization in a way that would make an impact. So you have this creation of a number of different types of systems that are what I call middleware. So you can get data from the factory, you can get data from the carrier and you can pre populate it. And whether it be project 44 or open track or Any one of a number of third party data aggregators. And so we've moved a little bit, but we're not there.
[00:42:12] Speaker D: You said aggregators, not visibility providers.
[00:42:14] Speaker C: Well, you say visibility. What they really do is they aggregate data and then they'll tell you they provide visibility and.
[00:42:22] Speaker D: But yeah, even that pitch has changed.
[00:42:24] Speaker C: Yes. So what I do is I have everybody in the system, so everything pre populates down mine, nobody has to touch it, but I still need to have Project 44 come in and pre populate the predictive ETAs. But it, I think the problem with digitalization is you have so many companies that have started as tech companies, they don't have the expertise in our industry. And so they go invent something or create something that doesn't really have a process flow to it. You can't see it. They don't have a flowchart. They just, they, they aggregate data or they take it and then they display it in such a way that can't necessarily be used. But your biggest forwarders today are stuck in the past. I don't care who it is and I won't name names because I don't, I don't want to be doing that. But anybody that's been around for a while, that's in the top 10, they can't manage the data. They can't, it won't flow all the way through. And so that's it.
[00:43:22] Speaker B: Just to finish up. Mark, have you got some digitalization sessions going on at tpm?
[00:43:28] Speaker C: Oh yeah, yeah.
[00:43:29] Speaker D: I mean, Eric, Eric's got neck track, so they'll be getting in the weeds on that for sure.
[00:43:34] Speaker B: Right, so. So check out what Eric Johnson's up to then. And apart from Bolton, who are you most looking forward to listening to or interviewing?
[00:43:42] Speaker D: I think it's gonna, I'll be watching the interview with Soren Toff pretty closely, trying to think. Obviously my, my session on the container shipping outlook kind of sets the tone for a lot of the discussions. And you know, it's addressing, you know, the, the issues that we seem to always touch on, which is volume and capacity. But I think as we kind of hinted to earlier, the old way of looking at capacity is changing. It's far more fluid and dynamic. So just because we see that order book increasing and as John noted, you know, Whether it's a 4 to 5% clip expansion, the equation isn't the same like it was 15 years ago, where you would just say that's going to definitely kill prices.
[00:44:28] Speaker B: In what sense, Mark? Because of the type of ships that are coming in because of the type of ships that might get scrapped.
[00:44:34] Speaker D: Yeah, I mean, you've got the recycling, you've got a, you've got a shift to a greener fleet. You've got just greater capacity control in terms of how they understand their fleets and how they deploy them and where they understand their stowage and also how their customers have delivered or not delivered for them.
[00:44:52] Speaker C: And you know, something that people don't take into account is the fact that in yesterday's environment, and we don't know what'll happen this year, the carriers put out about 15 to 20 billion dollars in repositioning costs. And as reliability is low and, you know, more equipment, more ships come in, that, that's going to increase. And so your bunker costs are going to increase, particularly for green fuel. You've got so many costs that are increasing that I can't imagine. And who's to say that the carriers have to just drop their pants for volume? I think that's in the past. I think they're starting to learn. Yeah, they're going to be a bit sensitive to, you know, volume shifts, but I don't think they're necessarily going to drop to their knees the way they have in the past.
[00:45:35] Speaker B: Past. Well, I'll be interested to see if you're right, John. I think they probably will. I think one, one will break break for the hills and everyone else might follow. We will see. That's an awful lot of discipline that we're talking about. We've never seen it before, have we?
[00:45:49] Speaker D: Yeah, but we've been, we've been seeing increasing signs of discipline for the last four or five years. So it's. This wouldn't be a huge change of behavior. They've been kind of moving and working their way up here for a while.
[00:46:01] Speaker B: I don't know. I don't know. I think the last four or five years has not been a typical demand scenario where there's been so many disruptions. It's been pretty unique. Maybe it just continues like that. Anyway, well, thank you both guys. I really appreciate your time. I'll be speaking to Lauren began, U.S. regulation and legal expert and the host of the By Land and By Sea podcast shortly. But for now, Mark Zaccone, executive editor of the Journal of Commerce, and John Munro, editor, founder of John Munro Consulting. Thanks for joining me today on the Freight Buyers Club.
[00:46:32] Speaker C: Thank you. Good to see you again, Mark. Thank you, Mike.
[00:46:34] Speaker D: Yep, same. See you soon, John. Bye.
[00:46:41] 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. DeMurco'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.
[00:47:16] Speaker B: As promised, I'm now joined by the maritime professor herself, no less Lauren Began, maritime lawyer, former FMC insider, and host of the excellent By Land and By Sea podcast. Welcome to the Freight Buyers Club. It's great to have you on.
[00:47:33] Speaker E: Thanks so much, Mike. It's so great to be here. I'm really looking forward to our conversation today.
[00:47:38] Speaker B: Me too. Me too. Okay, so you're the expert in all things shipping and legal in the U.S. now, listeners, before Lauren came on, I asked her to give me a top five things to watch in 2025 from the point of view of what this new administration is up to and how it affects freight buyers. And I said, order them in terms of priority. Now, Lauren, at number one, you had the Federal Maritime Commission's powers and its new chairman. And just for context, under the Biden administration, the FMC under Daniel Maffei, who has been on this podcast and I've apologies, Daniel, I've kept calling you Maffey more than once. So Mafe, I've got it now. Please come back on. Don't be offended. Anyway, so the FMC under, under Mafe saw its powers and budget hugely scaled up in response to the higher shipping costs that impacted US Shippers during the pandemic. Mafe remains a commissioner, but the new chairman is Louis E. Solar. So please tell us about Solar, Lauren. What are you expecting from him and what's going on at the fmc?
[00:48:43] Speaker E: So under the leadership of then chairman Dan Maffei, we really saw the FMC step into a more active role. We saw them really drawing some of those guardrails for the fmc. So in general, the fmc, I like to say, doesn't want to get into the business of very specific, detailed regulations, but they really want to kind of provide guardrails for the industry. Right. We went from a time where there was no guidance on a detention, demurrage, billing. Basically you could have a bar Napkin that said $2,000 on it, slide it across the table and to five different people, and whoever paid it, paid it. Right. That's kind of the, it was this wild west of Detention to merge under Chairman, then Chairman Dan Mafe. We saw a little bit of the guardrails coming into that from there. We also saw, and through Ocean Shipping Reform act of 2022, we saw the Congress start to get involved and really kind of hone in on the different authorities that the FMC should be entering into to help clean up or at least like I said again, those guardrails for the industry. The Interesting thing about OSRA 22 though was that when Congress told FMC to dive into detention demurrage, they were actually already looking at it. That was something that Chairman Dan Maffei had really identified was an important area for the FMC to provide those guardrails. So now we're switching over. We've gone from a Democrat president, so a Democrat administration, which also led to a Democrat leader of the FMC to now a Republican administration, which now will have a Republican leader at the fmc, a Republican chairman. So that's Chairman Sola. So Sola is a. Or he's from Florida. He also lived in Panama for a bit, but I kind of see him as a. He's been focused on cruise, which is great. I think during. He led fact finding 30, which was during COVID 19, and he was reviewing Covid 19's impact on the cruise industry, which for your listeners you might be thinking cruise. What does the FMC have to do with cruising? They actually provide. They have a requirement for kind of bond and financial requirements associated with operating in the commercial space for cruising. But the other thing that I think Chairman Sola will be looking at through some of his messaging related to Investigations is the FMC's authority for Section 19 and Section 19 of the Merchant Marine act of 1920 and Foreign Shipping Practices act, which essentially gives the FMC the ability to take corrective action on unfavorable shipping conditions. This is a lesser known authority of the fmc, but it really gives them some important power. He weighed in on an investigation concerning Spanish ports. We saw that actually just this fall, he said he fully supported the investigation into the matter and what was happening. The allegations were that the Spanish ports were turning away or prohibiting entirely vessels carrying military materials bound for Israel from docking in Spanish ports. And so the allegation was that US flagged vessels were part of that turn away from the Spanish port. So we might see a rise of focus on taking those corrective actions for unfair shipping conditions.
[00:51:47] Speaker B: You mentioned OSRA 2022. That's the ocean Shipping Reform Act. This scaled up the size of the fmc. I'm not saying it's a big federal body by any means. From anyone on the outside looking into US Policy, we see all this about how you're going to scale back federal spending. Doesn't that mean that the FMC might be defunded or weakened in some way or. You don't seem to be looking at it that way.
[00:52:12] Speaker E: You know, potentially, we certainly have seen a lot of agencies finding themselves in a new predicament where they have to figure out kind of thing for their supper almost, so to speak. You know, the FMC, I think serves a very purposeful and important role, but they've always operated on a very lean operation. Right. They only have about less than $40 million for their overall budget, which is a line item for most agencies. And they really operate with 120 to 130 employees. I mean, that's, that's a project, right? That's an entire agency regulating all of global ocean shipping that relates to the U.S. ports. And yet it's 130 people and $40 million. So, you know, I think that as an agency, it operates lean. But then also, like I said, they have this section 19 authority, this foreign Shipping Practices act, so they're reviewing things and they can take corrective action. But they also are the competition authority for global ocean shipping. They're keeping check to make sure that no interest. And you know, it's an ecosystem, right? The supply chain is an entire ecosystem. So they're making sure that it remains a fair ecosystem from both sides.
[00:53:20] Speaker B: So in terms of a lot of Trump's policies, it's playing a very important role. And as you say, it's relatively lean, so it's not an obvious target. There's not, there's not a lot of flesh you can cut away there financially. You're not going to save a lot of money on the federal side, are you?
[00:53:34] Speaker E: That's right. And you know, the other interesting thing that's come out recently, an executive order out of the Trump administration is for every one new regulation, 10 have to be repealed and they might be advisories or some sort of guidance document out of the agency. Under Trump 1, his first administration, it was a two for one. So for every one new regulation, two had to get pulled back. Now it's for every one new regulation, three can have to get pulled back. We're actually waiting for the FMC to create a full regulation on the charge complaints, which was something that Congress told them to do.
It's been enacted as an interim charge complaints process, but now they have to actually turn that into a full rulemaking. So what we might see is the FMC getting even leaner. So it's, you know, I could probably come up with two or three regulations that might be easy targets to pull back from. The fmc, not saying that they're unnecessary, but perhaps if you need to cut, but 10, I mean, they already tend to prefer a hands off approach to the touchpoints of the industry. And yet here, if they were to move forward with what they, what they've been told under ASRA to do with charge complaints, formal rule making, they're going to have to, they're going to have to find 10 things to remove.
[00:54:44] Speaker B: Presumably that would take up a lot of labor and create a certain degree of new bureaucracy trying to find those 10 that you need to cut, perhaps.
[00:54:52] Speaker E: Right. So then it would be the opposite effect.
[00:54:55] Speaker B: Okay, your second issue, you just mentioned it that you read one to watch for freight buyers was detention and demurrage policy. The FMC is currently still wading through some huge claims around detention and demoral charges from carriers and forwarders during the pandemic. Are we expecting any major changes in policy here or do you want to elaborate a little bit more on what you talked about briefly then?
[00:55:20] Speaker E: Yeah. So the Detention Divergence Rule is a final rule. It came out last May, so we've had about three quarters of a year with it so far. It has really found its way into the industry. Right. We went from no real guidance on what invoices needed to look like to now we have 20 very specific points that all invoices must have. And it all circles around a real clarity toward, you know, the date of the invoice, who it got sent to, the actual time periods that are being assessed under what rule, under what rate, so that you can actually kind of check the work that goes along with the detention or demurrage invoice that you might be receiving. Part of that was also a direct contractual relationship. So the FMC was trying to clean up who these invoices could actually go to and not sending it around to three or four or five people, not necessarily implying that they were willy nilly sending them around, but perhaps to clean it up so that they would be going to a build party. A very specific, either the consignee or the direct contractual relationship, but not both and nobody else. Right. And so that was kind of what the rule ended up saying. So through that direct contractual relationship, we have found that now the FMC's D&D final rule has found itself with a petition against it and so it's not necessarily only that issue, but the petition against it is ongoing in court. And so I bring that up to explain that we might see the D and D rule modified. As of right now. The D and D rule as we all know it, the billing practices defining billing practices of detention merge, is standing. But it's worth noting that there is a continued petition that's over in the D.C. court of Appeals, federal court of appeals for the D.C. circuit that is reviewing the authority that the FMC had to make this final rule, which, you know, we at least know that it came from Congress. But did they extend exceed that authority that Congress told them to make this rule? Is it arbitrary and capricious, meaning, like, is it just random that they did this direct contractual relationship? Was that actually what Congress was telling them? All of these rules are things that are kind of going to be determined and fleshed out in this petition against the rule. So that's one to watch right now. It remains. But that might be one that might change depending on what the court decides.
[00:57:36] Speaker B: And obviously that affects a lot of people. Thanks for that, Lauren. Your third most important thing to watch was Panama. You did mention this earlier as well. Chairman Solar's got links to Panama. In fact, he made a great play of his Panama background to the Senate Committee on Commerce at the end of January. He worked there. His kids were born there. President Trump has been railing against Chinese influence around, around Panama. We touched on this earlier with, with John and Mark. I also made Solar also made the point that Panama struggles with corruption. China has been heavily investing around the canal. There are also issues with water levels last year that directly influence US Shippers made this point earlier in the podcast too. What sort of authority, if any, does the FMC have in relation to the canal or in terms of influence in US Policy on it?
[00:58:25] Speaker E: Yeah. So I didn't realize that now Chairman Sola had such deep roots in Panama. I knew that he had lived in Florida. I knew that he had been into yacht sales. I knew that he was interested in and closely monitored the cruise industry. But I didn't know that he had such deep roots in Panama. And so it all started to click to me on what a valuable resource he is from his understanding of the Panama Canal and, and the Panama region generally. And it started.
[00:58:54] Speaker B: Does this explain his appointment into a degree?
[00:58:57] Speaker E: You know, I, I didn't know who. Nobody knew who the chairmanship was going to go to. Right. But it started to. It, you know, after the decision has been made, then everything makes sense. Right. So. But I, they put that out in his announcement. He's, he's very humble about his, his really impressive resume that he has. I mean, he's done counterintelligence, he's done all sorts of things. But Panama was one thing that I didn't realize he had such a depth there. And so, like I said, the Section 19 of the Merchant Marine act of 1920 and this Foreign Shipping Practices act are very important authorities that I see might come into play in the Panama discussion. And that all of a sudden makes the FMC relevant in the Panama conversation. So we have a lot of conversation internationally, right, talking about this Panama Neutrality treaty. But another hook, should they need one, might be this FMC authority given from Congress, right? So we have the Foreign Shipping practices Act of 1988, which has investigative authority so that the FMC can examine foreign laws, regulations and practices that unfairly impact US Shipping, and they can counteract those measures with restricting foreign carrier access to US Ports, suspending tariffs, service contracts or agreements filed with the FMC, or imposing up to $1 million per voyage on any Panamanian flagged vessel. So that's just under the Foreign Shipping Practices act. The Section 19 authority gives an ability to also correct unfavorable shipping, but it's regulating intermodal movements, terminal operations, cargo solicitation. They can take action against discriminatory pract practices on specific trade routes or just generally in trade, unfavorable shipping conditions generally. And so why does this matter for Panama? I mean, as you, as you probably know, almost 20% of the world's fleet are Panamanian flagged vessels. And so it'll be interesting to see, does it apply to just strictly Panamanian flagged vessel? Like could the US Then say any vessel that has a Panama flag, you're no longer welcome here? I mean, maybe there's an argument that if, if the answer is at least a maybe, if not a full yes, that's very troubling for the entire world's fleet. And so that's part of it, right? If, if the US or if the FMC determines that there might be unfavorable shipping conditions because of whatever it is, maybe there's preference being given. Maybe there's, you know, the potential of a blocking of the canal, any sort of thing that is unfavorable conditions, if the FMC finds it through this investigative authority, the FMC could turn away Panamanian vessels, could assess a million dollars per, per voyage. These are major things that now it all kind of pieces together a little bit more.
[01:01:43] Speaker B: Yeah, I think you'd be having ship registries in the Marshall Islands and Liberia rubbing their hands with glee if that some of that did transpire. Thanks for that. Yeah, one of the, one of the things I was, I was going to mention solar, actually, as a captain has transited the Panama Canal over 100 times, so he definitely knows the area. Your fourth thing to watch was container shipping alliance changes. We touched on the operational implications around these changes earlier in this podcast. The FMC has been scrutinizing these new alliances, the premier alliance, the Gemini, cooperation between Maersk and Hapag Lloyd. When I've talked to people, the FMC's role in clearing this on a competition level, it's generally being seen as rubber stamping. But there's a bit more scrutiny than that, isn't there?
[01:02:31] Speaker E: That's right. And the thing that really gets misunderstood here is the FMC doesn't actually approve these. They just simply don't stop them. It's a fine definitional thing, a fine line between what's the difference? But they don't approve them. In order for them, for the FMC to stop agreements filed with them, they would have to file a lawsuit against it. So, and that would have to be a worthy lawsuit because like I said, they only have 120, 130 employees. They're certainly not all attorneys. They probably only have about 10, maybe 15 attorneys that they have access to that could weigh in and be part of filing an injunction to stop this agreement. So it's gotta be really worth the manpower to do it. But the other thing is they actually have to have a really good argument for why they would be stopping it. So it kind of creates this presumption of business, private businesses allowed to do private business activity, unless it will be a significant monopolistic effect that would then be detrimental to overall global ocean shipping, at least as it relates to the US ports. So that's one thing that I think is really important to note is that the FMC also then continues to monitor it and at any point can file that lawsuit against the agreement. But that first initial review is a 45 day review. Then they can ask. It's only 45 days. I mean, you know, we've already talked about this is a very lean agency. It's probably almost half economists. So they really are a competition authority. They're reviewing very thoroughly the market impact that these agreements might have. But they only have 45 days to do that. They do have an opportunity to extend that time if they have additional questions. So they have a RFAI which is request for additional information. They then have, you know, a few weeks to, or expeditiously, whoever they're asking, whoever filed the agreement, responds to those questions. And then the FMC has an additional 45 days. But Max, we're looking at really 90 days for them to review these major vessel sharing agreements, which is what the alliances really are. They're vessel sharing, they're not rate sharing. They're not like mergers. They really are kind of an operational intention of like two or three vessels are going the same direction on the same route. We might as well share the space. They're still competing for your, your cargo, but they really are just trying to streamline so that now they can perhaps through these alliances, move some of these other vessels into smaller markets so that instead of three large market trade lanes, they're then scooting maybe one or two vessels over into smaller ports or smaller markets. So it ultimately gives you a little bit more flexibility. The fmc, I think, understands that. But they want to make sure that no alliance, none of these vessel sharing agreements create too much of a market imbalance, too much of a monopolistic behavior. The other thing to note, it's not the entire fleet that's part of these agreements. Right. These vessel sharing agreements, these alliances are not the entire fleet. So when you start to hear about people say, well, this company has 30 or 40% market share anyways, and now they're pairing with another 15%. That's not entirely true. Right. They have vessels that are dedicated to that agreement. It's not the entire fleet. Yeah.
[01:05:44] Speaker B: They still operate independently or with all the carriers in other markets. How does any of this tie in with FMC oversight of minimum quantity commitments, MQCs in service contracts? Can you explain that a little bit more?
[01:05:58] Speaker E: Yeah. So this is an area of the FMC that I think we're going to be seeing finally getting some answers on a lot of the beneficial cargo owners and shippers generally have been watching because this is what service contracts are at least in part based on. Right. You get a minimum quantity commitment, and then you get a more favorable rate. And so those service contracts are confidentially filed with the fmc. But there's a little bit of a question over the enforceability of that minimum quantity commitment. If you have 8,000 TEUs that have, you're committing over the course of an entire year. And so that's it. You have a year. Are they all for December? Are they for March and December? Are they. Do you get to the end of the year and you now want all 8000 TEUs move the last week of December. There's not that definite term associated with it. And so we've had some instances from, from the cases that have been filed about this asking, well, we got pushed to the spot rate market, but we already have this minimum quantity commitment. What's the enforceability here? Is this reasonable or unreasonable? Is this something that the Shipping act allows or doesn't allow? We really haven't had a lot of clarity through case law through the years on this. And so this will be a new line of authority or specific case law that comes out of the FMC on what is the enforceability of a minimum quantity commitment. Pure contract law. The FMC doesn't weigh in on because the FMC's authority is under the Shipping Act. But if we have minimum quantity commitments in these service contracts, that's something that the FMC probably could weigh in on. And I think that we're going to see that come through some of the case law, hopefully even this year. Right.
[01:07:40] Speaker B: As early as that. Okay, one to watch. Fifth on your watch list is the Ships Act. The full title is the Shipbuilding and Harbor Infrastructure for Prosperity and Security for America Act. I got through it. I didn't know if I would manage that with one breath for container shipping. The way I was looking at it, at least the key provider seemed to be that there had to be more capacity on US Flagship service in the US Mainly from China. We were discussing before we started this conversation, though, that you think its importance lies more in the fact that it makes a firm link between maritime and national security.
[01:08:17] Speaker E: That's right. So when this bill was initially being communicated to the kind of maritime community, it was the Kelly Waltz bill. So it was Mark Kelly, Senator Mark Kelly of Arizona, and Congressman Waltz from Florida. Congressman Waltz has now been tapped to be the National Security advisor. So we go from an already maritime focused congressman to now he's moving over into national security advisor role under the Trump administration. We also see in this bill that's now the Ships act officially, that it has a focus on the importance of shipbuilding, the importance of beefing up our maritime presence for the purpose of national security. Because the theme, and it seems like there's themes running through different administrations, certainly, but certainly this one there seems to be a theme of maritime security is national security. And so I think that we're going to see the focus of this next administration in the maritime world. One, I already love that maritime has been brought up in conversation so much because how often does maritime get this, this much play we saw, you know, Covid congestion years. There was a lot of conversation about supply chain generally, but we kind of fell and we've never had it so good.
[01:09:31] Speaker B: Lauren.
[01:09:32] Speaker E: I know. Like it was even to the point where it was well, even bad presses is pressed. So like we can talk about supply chain.
[01:09:40] Speaker B: Exactly, exactly.
[01:09:41] Speaker E: Yeah, but, but, yeah, but with the, with the maritime security, I think that that's something that we'll see. I think that we're going to see a return to. We still have some shipbuilders in the US Right. We've been supplying our military vessels, have been filling those, those shipbuilding facilities. I think that we're going to see a more of a focus toward beefing that up, which also means perhaps increasing our US flag commercial fleet. I wouldn't be surprised if we actually grew our fleet so that we became the US became a true competitor in the global ocean shipping market. I mean, wouldn't that be wild to go from, you know, years ago we actually were. And then we've dropped off. I think we have less than 100 vessels, maybe even closer to 50 or 60 vessels US flagged. And then to then return to be an actual competing US flag commercial industry or player would. Would be wild. But perhaps we can't. I don't think we can do it in four years.
[01:10:38] Speaker B: Is it about having US Flagships or is it about having US Shipbuilding capacity?
[01:10:42] Speaker E: I think the vote one in the same. Right. Because I think that the US shipbuilding capacity has to be heavily restarted or heavily supported and built up. And then from there I think we gain control of the, potentially the military vessels. And I think that's kind of been the focus, right. Is make sure that we have control over our military vessels, but then also our maritime infrastructure. There's been a lot of talk about cranes and them coming from a specific provider in China, which.
That's right. Yep. ZPMC. That was the intention behind some of those Section 301 tariffs and some of the conversations about, well, maybe we need to make sure that the infrastructure that we are purchasing, we have control over that. And so I think that we're there actually there was almost a 25% tariff put on cranes coming in from China with about 30 or 60 days notice, which as you know, you can't build a crane in that amount of time. So certainly all the ports that were that had those on orders were like those are tens of twenties of billions of dollars. And then now you slap 25% tariff on that. That would have been a big deal. Luckily that was delayed. But the intention still remains. That was under the Biden administration. And I don't think we're going to see a change there now under the Trump administration, where I think we're going to see this emphasis on us built for the purpose of military or security purposes to kind of gain that control.
[01:12:07] Speaker B: I actually went and visited Zen PMC and tried to write an article. What they were allowed to say to me was, I don't know if you would say censored. I thought there was a language barrier. I got no information. It wasn't. It was an abortive trip, an abortive interview. Carly, did I even write it up? Anyway, yeah, my claim to fame, I interviewed ZPMC finally. Lauren, we've had Commissioner Bensel, former Commissioner Bensel, on this podcast previously, who was the driving force in the FMC's efforts to promote global container shipping, digital standardization efforts. Is someone going to pick that ball up and run with it?
[01:12:46] Speaker E: I think so. It was the Maritime Transportation Data Initiative, the mtdi, that former Commissioner Bentzel was really working on. And I really applaud his ability to facilitate the conversation. And I think that that was the best thing that could have been done. You know, I think that the fmc, if you go back, you can actually look at the YouTube page of the FMC, the Federal Maritime Commission, and he has all of these. I think it was 18 different interviews of 18 different sectors of the supply chain asking them, what data do you have? What data do you need, what data? How do you share your data? Just kind of conversations around data, data dissemination and the standards of data. And through there, he created a report that really kind of looked at all these different areas of the supply chain ecosystem and where it needs to move forward. He certainly didn't. He didn't go after any platforms or any of that, but he said the importance of just all speaking the same language and having that baseline understanding. So similar to how credit cards can be used all around the world or email can be used all around without having everybody on Gmail or everybody on Yahoo, he actually pointed out that the Digital Container Shipping association was already doing that. And that's something that I think is important to watch. We've had a lot of different digitalization efforts through the years, but they all seem to have been kind of platform related. This is an effort that really is just kind of a general neutral starting point so that everybody can build on top of it, but at least we're all speaking the same language to begin with.
[01:14:22] Speaker B: Well, I had a lot of respect for Commissioner Benzel for trying to do that because people have been trying to do that for a few decades now and no one ever wants to share the data. Thank you so much for your time today, Lauren Began, the maritime lawyer and host of the very excellent By Land and By Sea podcast which you all should check out out. Thanks so much for joining me today on the Freight Buyers Club.
[01:14:42] Speaker E: Thank you very much for having me. This was fun.
[01:14:46] Speaker B: Thanks to Demerco Express Group for making today's episode possible. I'll be back next week looking at everything to do with Trans Pacific fording with Demerco's Cathy Lou and we'll be joined by the legend of container shipping that is former Yang Ming and Evergreen Leader in Chief Bronson Sea. All of this ahead of TPM in Long Beach. Hopefully we'll see you there. As ever, big thanks to my editors Karen Ball and Tom Matthews. Until next time, thank you for listening to the Freight Buyers Club podcast.
