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. We are available on all podcast platforms, on YouTube and on the Freightbuyers club.com Please do like follow review and comment. You'll also find the Freight Buyers Club and me, Mike King on LinkedIn. Please do say hello. Okay in our final episode before TPM in Long beach at the turn of the month, we're looking at some of the issues that will be examined the event and there's plenty to cover because the new US President has been true to Steve Bannon's PR strategy on trade as well as much else. Because the news end zone has been well and truly flooded. We've got de minimis chaos at airport suspension followed by an information black hole. We're next for tariffs on Mexico and Canada. We may or may not have a carve up of Ukraine's mineral wealth. A return to the source of colonialism and might is right reminiscent of Europe's global race for riches some centuries ago. What looked like a breakthrough for peace in the Middle east now looks like it might end up being an escalation. What is the new normal will be front and center at tpm, where delegates will be trying to negotiate rates and plan supply chains while the tectonic trade plates wobble beneath them? Is this all about fairness in trade? Is all this just the end of globalization? The end of the Post World War II trading and economic system that the US itself helped set up? Is this the emergence in fact of a new mercantilism, a world in which win wins are a thing of the past? And on that Note, on Monday 3rd of March at 4:50pm at 2pm you can catch Jeffrey Shee, Chief Executive Officer at Jamerico Express Group, talking about a lot of this in a session titled An Asia Perspective on Trump Tariffs, Outsourcing and Global Industry Development. So anyway, in this podcast and the following ones, we will be exploring the supply chain and some shipping implications of all this. And today we will be looking at this from the origin end of the Trans Pacific supply chain. And we'll also be examining what we can expect from container Shipping lines in terms of their strategy in the coming weeks and months. And I'm delighted to be joined today by two people who know a lot about both. First up we have Shanghai based Cathy Liu, Vice president of global sales and marketing at Domenico Express Group. Hello Cathy, welcome back. Where are you at the moment and when are you flying into Long beach for some TPM meetings?
[00:03:00] Speaker C: Hello Mike, nice to talk with you again. Yeah, I will be there next weekend and we will have some like welcome dinner, some event over there for the TPM guests. And also during the TPM event, our CEO, Mr. Jeffrey Shi will be one of the panelists to share about Asia Pacific market information.
[00:03:19] Speaker B: Yeah, so I will see you there at the end of February, start of March. Excellent.
[00:03:24] Speaker C: Yeah.
[00:03:25] Speaker B: And joining Kathy today, I'm delighted to say he's a true giant of container shipping, giving the Freight Buyers Club yet another exclusive. Over a 45 year career he has been chairman of not one but two of the world's biggest shipping lines, Evergreen and Yang Ming. In fact, he was vice president of Evergreen Group and chairman of Evergreen Shipping and CEO of, of Yang Ming. Bronson C, welcome back. Pleasure to have you.
[00:03:49] Speaker D: Hello everybody. Nice talking to you. Mike again.
[00:03:53] Speaker B: Okay, thanks Bronson. Right, Cathy, we'll start with you. How do I put this? We've had a rather crazy start to the year. We've got tariffs, we had this early Lunar New Year break that sort of threw things slightly when we were trying to have all this confusion going on. There's been this creeping feeling of uncertainty around freight markets and geopolitics and maybe feeling of uncertainty is not really quite doing that justice. Everything's changing in ways that makes me think things will be very different tomorrow compared to today. How has this felt in China where you're based or how is this feeling in, in Vietnam where, where you are now?
[00:04:30] Speaker C: Yeah, exactly. I mean in China we get a big gift for the Chinese New Year from Trump. Right. For the, for the 10% tariff and the, plus those kind of all those new regulation to the E commerce. So actually now the market is very quiet and also you know that all those regulation can be changed from one day to another. So it's like a roller coaster, you know, up and down and every day it can be something new. So I think a lot of customer, they are holding back the shipping schedules and then we see it's actually very quiet after Chinese New Year in the market especially there's a certain quantity of the inventory already moved over, especially to us before 20th of January, which the award day for Trump. So let's say the customer in US already have enough stock in place so it's not urgently need anything by air freight. That's why I think the current market start from before Chinese New Year up to now. It's really, really quiet. Yeah, let's say this.
[00:05:37] Speaker B: So we had front loading ahead of tariffs. We also had that threat of strikes at US east coast and Gulf coast ports. And then we had Chinese Lunar New Year. Plenty of reasons to front load just on those changes in regulations as we speak right now. And it could be different as I say tomorrow. We've had 10% increase in tariffs on China. There was this US ban on de minimis parcels from China into the US of less than $800, although this came with the rider that this would only be introduced when systems are in place to collect those tariff revenues. And parcels started piling up at US airports. So that sort of suspended creating more of this uncertainty. Assuming all this does happen, it's a massive blow for E tailors for anyone in E Commerce when when this comes into full force, the tariffs, the ending of de minimis regulations, right?
[00:06:27] Speaker C: Yeah, exactly. That's what we see that at the beginning of February. I believe that the announcements say there's no more diminished for all those parcels. And then all of a sudden the USPS also announced that stop to accept any hassle out of China, mainland and Hong Kong. So those actually a big, very big impact to all the E commerce out of China. But although they recovered somehow just from within one or two days I believe. But still the E Commerce, those vendors, they are actually very hesitant to move big quantity into us anymore because you never know what will happen tomorrow. And also I believe that currently the US government is talking about that because of the CBP not really ready to make this kind of change. That's why they suspended. Once they are ready, it will be implemented immediately. And the usps it's another thing, it's very important for E commerce measurement from China because most of the parcels actually they are moving as general cargo air freight into US and then connect directly with USPS service to the let's say the final consumer end consumers. If this kind of service will be suspended, it will be terrible. It will be a disaster for all the E commerce companies in China. So under all those kind of consideration because you never know what will happen next tomorrow maybe the regulation will be changed immediately. So we see a lot of cancellation of the freighter charters by E Commerce and also a lot of BSA be canceled. That's another I think Reason that it leads the very slow and very, how to say very down the market.
[00:08:13] Speaker B: Now China has responded with its own tariffs and restrictions on key export of energy transition technologies and defense applications. For example, Indian products used in optical communications and tellurium used in the manufacture of solar panels. President Trump might increase tariffs on China in response and has already raised tariffs on all steel and aluminium imports into the US which which could trigger various responses around the world. We've also got the threat of more tariffs on EU and the sword of Damocles is hanging over Mexico and Canada and 25% tariffs on them as well. It's a pretty bleak picture if you're in the business of trade or you favor free trade. Kathy.
[00:08:57] Speaker C: Yeah, that's what we are worried about because you know that when you use tariff as a weapon then it's really nobody will be benefit for that. And we already see that that looks like the Trump administration like to add on tariff to everybody. So there's no difference anymore. So before let's say some of those manufacturers because of China plus one the high tariff put by US Government to China, then they move to other countries. But now if for everybody will get the same like let's say penalty then why they move? Right. So this somehow also make the companies customers. They are actually hesitant to move out. So somehow it's benefit to China. But for all those manufacturers they already moving to another country like Southeast Asia and Mexico then maybe the cost will be different compared with at the beginning stage why they moved it. So it's actually not benefit for anybody and especially who will be the one absorb all those tariff by the end. It's actually the end consumer. So which is the people in United States. So why we do that? Right. So there's a lot of this kind of discussion in place. But anyway the trade war it will be not benefit for anybody.
[00:10:17] Speaker B: Yeah, just a quick one before we bring Bronson in. You're in Vietnam at the moment. Are people concerned there that even though Vietnam is not subject to tariffs at the moment and there's no, there's no suggestion that it might be subject to tariffs. It's done very well out of China plus one with so much uncertainty around. I mean would people gamble on moving there?
[00:10:35] Speaker C: Yeah, I think there's still quite a popular hot destinations for for those manufacturing normally in China now moving to Vienna. And one side is also Vietnam is very close to China. We are just neighbors. And especially for north part of Vietnam it's linked together with China territory. So for them it's very Easy to move those equipment or production line into that country. And on the other hand and Vietnam actually among all Asian countries, they have the most of the economic partnership with a lot of different organizations. So I think this also put Vietnam as very beneficial for that. So overall we see in Vietnam, we see the market is quite good and a lot of business activities here. Yeah, there's a lot of opportunity here.
[00:11:26] Speaker B: Bronson, may I cast you back slightly and draw on your extensive container shipping executive knowledge. What would your strategy have been as a renowned shipping executive heading into 2025 given all of the variables, port strikes, tariffs, unknowns around the use of Suez and when I say strategy, I was thinking from an aligner executive position. But feel free to look at this from a freight buyer's perspective. What would your strategy have been?
[00:11:53] Speaker D: Luckily the possible strike in US West coast has been down in 2024.
The UAC is called Golf Poll has been signed in 2025. In other words, for the coming six years you will not meet or encounter such kind of freedom from those post strike. I heard you talk a lot of tariff. Well, I think most of the outbound cargoes will be reduced temporarily. When you are going to impose the tariff, I don't think the big country will keep warm. So just like example Canada American government tried to impose 25% to Canada. But Canada understand the next day they try to take a retaliatory action against Americans actions. But luckily this problem has been solved because Canada government they promise we send 10,000 troops standing on a boat between United States and Canada. So right now the American government already gave 30 days extension periods. Right now just only 10% carry charge to the Chinese export government. But the other country we don't know bilateral carry war. No doubt that will create a so called inflation ratio to American consumer. But that's only I think that's for capital for the long run because the importer in the United States they would take some kind of measure. They are trying to do something so called in dispersion of the supply source. They are going to diversify the country they are going to buy to replace the product they buy from China. That's happened during the past 20 years mainly in China. Those those government gradually been replaced by those kind of government made by Bangladesh or China.
Because those not pay to pay the chariot. Besides maybe the price more reasonable than the price they pay to Chinese productions. So in other words the consumer in United States will find a way to balance okay the amount they pay to the Chinese product or to the in country. Then Chinese cargoes. So I think that this cargo volume.
[00:14:24] Speaker B: Will resume later cargo will find its way. The idea of tariffs as reducing income taxes is something that the Trump administration has talked about. Okay, well we'll see how that goes. But you're positive on cargo demand Just on another point for this year, Bronson, what do you make of the alliance restructure we're seeing in terms of what freight buyers should expect?
[00:14:49] Speaker D: You see a lot of high issue because this revolution starting from the 1st of February. Again that's my perspective. Basically no difference for those four alliance means three alliance Mac. Okay, no big difference for those scheduled by reliability in those so called stable coop operation Iraq. But there's some difference the Gemini they can provide another choice for shippers to choose especially when everybody facing the so called catalog operation.
[00:15:30] Speaker B: Bronson, I'll just explain the listeners. So the Gemini cooperation is between Maersk and Hapag Lloyd Maersk was previously in the 2M alliance with MSC which is now going alone. The Gemini cooperation is promising 90% schedule reliability port to port across its network by mid summer.
[00:15:47] Speaker D: You see Gerry and I they provide a so called 90% of schedule reliability. We don't know what is the result will be will be helpful for the customer doesn't matter shipper or consignee. But in my experience I would say it's another one choice. Jeremy Leather use a deep sea level service they try to shorten the loop. Also they provide a few calling home. That means they try to eliminate or minimize the risk when the race encounter those kind of destruction of service. Besides that they use the feeder service. Those feeders no need to cause so many port. They shall just call only one or two ports that really we avoid some kind of destruction in case some poor they may have some kind of chaotic operation problem. So when you see. I'm not sure but experience during the past. Let me give you an example. 2022 January 9th. You know how many vessels were stuck outside of a Port of Lia Long beach?
[00:16:59] Speaker B: Quite a lot.
[00:17:00] Speaker D: 109 vessel was stuck over there. If you provide Gemini's service it probably came in other vessel watch. I take example because Louisiana Long beach everybody will choose this good hall but I'm talking about the Southeast Asia. Okay. As long as you call less pole you will avoid some kind of disruptions. Plus the shuttle service we give some kind of assistance. Okay. So I would not say they are 100% good. But anyway everybody wins. See whether they will bring you some benefit for those kind of shoulder loop or fewer calling poles. That's my opinion.
[00:17:43] Speaker B: We'll just take a short break. We'll be back with you in a second.
[00:17:50] Speaker A: This podcast is proudly produced in partnership with Demerco Express Group, a trusted provider of global shipping and contract logistics services in Asia, Europe and North America. Demerco's particular strength is in Asia, where it gives shippers the freight capacity and local market expertise to streamline freight movements to and from the region, particularly for Trans Pacific lanes. With 130 forwarding and logistics locations across China, India and Southeast Asia, Demurco connects Asia with the world like no other global3PL. You are listening to the Freight Buyers Club.
[00:18:24] Speaker B: In the last episode of the Freight Buyers Club, I was with John Munro and joc's Marc Zaccone. We were talking about whether container lines have learned the lessons of the last few years and whether they would chase market share if container markets did slump, as some are predicting they might this year. And we heard earlier from Kathy about slow demand post the Lunar New Year. I said on that podcast I was less certain because I've been covering this market a lot and I don't remember people not chasing market share. But what's your take, Bronson? Obviously you've been there and you know, got every single T shirt that could possibly be available in the shop. What's your take? Say, for example, if we game this the Suez Canal will open tomorrow, we saw freight rates started dipping. Would there be some congestion initially but the market started turning bearish? What would liner strategy be in in that scenario? Do you think? Do you think we would have a rate collapse and do you think we would have people going for market share?
[00:19:21] Speaker D: Well, you're talking about the Swiss Canal. Once I'm in the racing crisis. Okay, if it's going to be over tomorrow, I don't think they will come back at once. They were very cautious. When those carriers remaining in the good haul, the revenue the generator cannot cover the cost cannot cover the expenses they spend. They will come back once most of the shipping company back to the reseat, definitely they will create a lot of the destruction of the supply chain. At least two or three months there's.
[00:20:02] Speaker B: Going to be port congestion. There'll be equipment in the wrong places.
When that normalizes, Bronson, my question is if that happens and when that normalizes, do you think container lines will have learned lessons from the past or will they go for market share to fill their ships?
[00:20:19] Speaker D: Okay, so after those first two or three months period, everybody knows very well right now they have 10% additional capacity stuck in the good hall those additional capacity will be moved back to raci, no doubt. Plus this year there are about 2 million TEUs new delivery when joined into this battlefield. So you can imagine the ocean freight will come down.
[00:20:47] Speaker B: Historically, when we've had a bearish market, at least one carrier has gone I want my ships full. And it's brought more pressure on rates downwards and container lines have stopped making profits. Do you think there's anything different now than there has been in the past? After Covid and all of these lessons, do you think people would lay up ships or scrap more ships to get rid of that extra 10% capacity? Or will it be the same as it always was and there'll be a race for market share and to fill.
[00:21:17] Speaker D: The ships The a geopolitical problem easy to make forecasts doesn't matter. You are small player or big player. Just like the biggest shipping company there they try to buy or charge a lot of ship. One of the major purpose is they are going to build up their own fleet. So they buy a lot of resources, charge a lot of resources. Their market should become the number one. Okay, the small player doesn't mean they are not lazy or they are not a good player. But point is when you encounter those kind of unpredictable the market, the big player they always take advantage to make money. Maybe some people say the biggest, always the best. In my personal point of view I don't share those kind of comments. I think most most important is you've got to. You got to check yourself operating profit those your size is small but if we consider operating profit probably you are making more money than the biggest one that's happened during the past 10 years. Let me give you example. Just like Taiwanese carrier the Guanghai the size compared to the other biggest size giant in Europe Size may be only 10% but operating probably they are number one in the world. Number two maybe overshare in terms of size they are now compared. So when you encounter those kind of unpredictable futures especially these years two major issues. One is a Taiwan war one is racing crisis. Okay, that's really nobody know what's going on. So I always talk to the customers before yesterday I participated in one freeport association in Taiwan. I tell them this year really you got to protect yourself. When you are going to commit a service contract with a carriers everybody should stand on very reasonable position to negotiate your long term service contract. Otherwise you will be in trouble.
[00:23:17] Speaker B: Nobody unfortunately tell us no unfortunately. How do you view the types of ships the container lines have been buying? Because we've got this very uncertain trading landscape have they been buying the right ships?
[00:23:30] Speaker D: Okay, we're talking about the right ship There are some the history during the past few years Nowadays the market for the vessel chartering, sailing buying those kind of secondhand vessels still quite hard I'm talking about spatials medium and the small size of the vessels My own personal view There are two reasons the first one reason is the allies needed to make pre deployment adjustment they need some kind of a small and medium sized vessels okay. Also because of the so called tariff war large will make those consumers for instance, in United States and Europe they are trying to divert they are buying supply not from China only Also they will divert to the Southeast Asia country Of course, debates on April 2 what the Trump administration is going to announce based on the so called reciprocal tariff Otherwise, as I mentioned earlier, for instance American consumers imported they were divert nearby supply volume elsewhere for those areas especially in Southeast Asia area medium small size vessel will be enlarged to certain degree in other words, those kind of medium size is suitable for those in Triasia so that's UAC whether they buy the right ship at this moment, I think those two are major reasons why right now very difficult to chart the suitable vessel especially for medium and small size vessels but the bilateral tarry war caused the tarrying wall Definitely that will impact the cargo for the east waste main service but this east waste main service still need megachi but the gross ratio 3 will not be bigger than the previous 5, 10 years instead carrying they are supposed to seek more million or small size vessels who is to replace the biggest vessels.
[00:25:50] Speaker B: Smaller vessels needed in a very fast changing world. Cathy, how is the Merco viewing the rest of 2025? Are you optimistic about trade levels or is it. Are there too many unknowns to call it now?
[00:26:03] Speaker C: I think we still see a lot of opportunity in the market because you know, as an Asian based logistics service provider we are not only focused China but also the rest of Asia countries especially that we have invest heavily in Southeast Asia already over three to four decades so we have enough resources there. So somehow we see the uncertainty because of the different tariff might be applied to different countries or different service products but at least you cannot ban for all the countries in Asia, right? There must be some point we can have the growing point and we can have the growing opportunities. So for sure the challenge is there but in between that we also see there's a lot of favorable opportunity for us and we believe that the Southeast Asia countries can be the next China Regarding the manufacturing and those Productions. So we think we can be benefit for that as well.
[00:27:07] Speaker B: And how are you expecting air freight markets to hold up? We saw this big increase in capacity out of China over the last 12 months or so. We mentioned there before about de minimis and the slow post lunar New year period. Do you think some of this air freight capacity will be withdrawn or is it again is it a wait and see on tariffs?
[00:27:26] Speaker C: I think for the airfreight market especially like last three years after pandemic most of not most but especially out of China that over 50% of the air freight demand actually is from E Commerce. So for the the cancellation of those minutes and also the might be some new tariff put on. We believe that the E Commerce especially for air freight will be reduced gradually but the E Commerce will be still in place. This will be not not be replaced by any others at current stage. But what we see is because currently why they need more effort because because all the E Commerce business most of time they are using B2C module. So from China go to US and then connect with the USPS and then go to end consumer directly. That's the current module. But under the new regulation we see that most probably they will go back to the B2 B2C so means they will have export from China into US and then maybe store in DC and then when they have the final order then they move out the small parcel from that DC So this is what we see and also after three or almost three years the running like a temu she they already have enough let's say the user database they can easily identify what kind of products is most frequently ordered by the users so they can put those in the inventory to the inventory into US. That's we see it will be changed. So E Commerce will be still there but maybe less air freight. They will use more ocean freight to transport those inventories. That we see that it will be a big impact especially for the China air freight market because in past years there's a lot of freighters, a lot of this kind of capacities doesn't matter Valley capacity or freight capacities injected into China and the Hong Kong market because of the rising of the E commerce demand. But now if all of a sudden it's changed just like recently there's dozens of the cargo freighters be canceled because of those charter agreements be terminated and also the BSA be terminated. So we see there's a lot of capacity actually in the market. That's too much compared with what the demand from the market. So we see that the Average out of China will be not that good this year will be keep very flat. But Southeast Asia will be another growing point for the air freight, especially into US and Europe.
[00:30:02] Speaker B: So what? Keep an eye on Vietnam, keep an eye on Indonesia, keep an eye on India.
[00:30:06] Speaker C: Right, Exactly. So those countries I think will still have the most opportunity to grow. Doesn't matter for the market or for T. Merkel for ourselves. Because we already see that kind of like most of automotive manufacturers, they moved to Thailand, electronic go to Vietnam and the semiconductor move to Malaysia. Yeah, and also some other automotive related to Indonesia. So it's quite clear about different industry. They have moved to their destination countries and we see that start from this year they will start the production and then the finished goods will move out from those countries to US and Europe.
[00:30:48] Speaker B: Cathy, is there any initiatives or innovations Demerco is offering customers this year? You want to tell us about any new products out there?
[00:30:55] Speaker C: Yeah, sure. I think we have offer like firstly as like for Southeast Asia we are also offer customs brokerage service. Because you know in Southeast Asia countries there are different countries, they have different local regulation and compliance. That's somehow it's very complex especially for foreign companies. But we have the resource in local and we have very familiar with the procedure with the people. So we offer the custom brokerage service to help those foreign invested manufacturers to move in their equipment and also for export their finished goods. This is not new products. But now it's getting more and more popular and more and more frequently needed. And then another is that we know that the infrastructure in Southeast Asia Asia is not that good especially for airport and ocean port. So there's very less capacity in like Thailand, Vietnam compared with in China. So we are actually using the multimodal transportation to give solutions and alternative options to our customers that we can move. For example Vietnam, especially in north part of Vietnam, in Hanoi there's very less air cargo capacity. So we are actually leveraging our hub in Guangzhou because southern China is next to Vietnam. And then we use the cross border truck to put the shipment on the truck from Vietnam truck down to Guangzhou and then connect our freighters in Guangzhou to the final destination in the US or Europe. This is somehow can saving the transit time and also can saving the cost for our customer because you know, because limited capacity in Vietnam. So that's why the rates always higher than out of China. So we make some combination to offer the similar lead time but lower cost. This is quite popular service. And also we are leveraging other gateway in China, Hong Kong, Taiwan, Korea to digest those cargoes out of Southeast Asia because again the less capacity over there but they have more demand and we are leveraging our existing resources in those hubs for the consolidation and move to the final destination. So those are the multimodal transportation now we are offering to our customers to offer the similar lead time but much more economic on price.
[00:33:15] Speaker B: Well, best of luck with that and I'll see you in TPM for a meal in just over a week. Cathy Liu, vice president of Global Sales and Marketing at D Merco Express Group, and Bronson Tse, former chairman of Evergreen Shipping and Yang Ming Shipping. Thanks for joining me today on the Freight Buyers Club.
[00:33:31] Speaker D: Thank you so much for your interview. Thank you.
[00:33:34] Speaker C: Thank you.
[00:33:36] Speaker A: We hope you enjoyed this episode of the Freight Buyers Club, produced in partnership with the Demerco Express Group. Please subscribe and follow on your platform of choice or sign up for delivery to your inbox@the freightbuyersclub.com this podcast wouldn't have been possible without the fantastic editing of Karen Ball and Tom Matthews. And finally, thank you all for listening. The next episode will be with you soon.
