Episode Transcript
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[00:00:35] Speaker B: 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.
[00:00:50] Speaker C: Hello, I'm Mike King and welcome to this episode of the Freight Buyers Club Insight, which is sponsored by Ontegos Cloud. This podcast is available on all platforms, YouTube and www.the freightbuyersclub.com. please review, follow and subscribe wherever you are listening. It only takes a second. And also please do follow me and the Freight Buyers club page on LinkedIn. You'll also find all our latest content there. Now, I'm delighted to report that today I have a heavy hitter from the world of freight forwarding who comes at this industry from the air freight side of things. He's a former senior executive with 20 years plus experience at Flexport, Delta and United Cargo and he's one of the most informed people in supply chain and air cargo. Neil Jones Shaw, welcome to the Freight Buyers Club.
[00:01:39] Speaker D: Thank you, Mike. It's a real pleasure to be speaking with you again this morning. Lots going on in the world, so.
[00:01:45] Speaker C: No doubt there's a lot going on and we're going to come back because obviously there's a lot of tariff announcements. I'll timestamp this now. We're speaking the 3rd of February. There's a bunch of tariffs coming in on the 4th of February. I'm going to come to that a little bit later, but let's have a little talk about your career first. It's been quite a fantastic career. Can you pick out a few highlights and maybe explain what you're up to now and what your plans are for the future?
[00:02:10] Speaker D: Yeah, absolutely, Mike. And thanks again for having me. And thanks for that generous introduction. Like you mentioned, I've been in this aviation, air cargo logistics, freight forwarding business for 24 years. And so, you know, before I got into it, I was a consultant.
[00:02:25] Speaker E: I had a little bit few years.
[00:02:26] Speaker D: Of consulting in the middle there as I Transitioned out of Delta and into into Flexport. But for the most part, I have dedicated my career to logistics, air cargo, air freight, it's in my bloodstream. It's just, it's part of who I am. And I love this industry and I'm not dissimilar to a lot of folks, you know, who once they get into.
[00:02:45] Speaker E: This business, you never leave.
[00:02:46] Speaker F: Right.
[00:02:47] Speaker D: It, it gets its claws into you because it really is infectious in terms of how it sort of drives your and motivates you. Overall, I've had number of highlights in my career, you know, from my days at United and running the commercial side of that business to moving over to Delta and the Delta Northwest merger, that was a big highlight and how we did that so professionally.
[00:03:09] Speaker E: Moving on then to Flexport, getting on the freight forwarding side, being part of.
[00:03:14] Speaker D: Something new, building something new and being.
[00:03:17] Speaker E: On the early stage of that and.
[00:03:19] Speaker D: Going from a few million dollar size.
[00:03:21] Speaker E: Company to a few billion dollar size.
[00:03:23] Speaker D: Company, navigating Covid through those years, it was never, never a dull moment in.
[00:03:29] Speaker E: This industry, as we all know.
[00:03:31] Speaker D: And I've sort of been privileged to be around for all of that.
[00:03:35] Speaker E: I know some of us don't like.
[00:03:36] Speaker D: A lot of volatility.
[00:03:37] Speaker E: I think this industry sort of thrives on volatility.
[00:03:39] Speaker D: But man, oh man, it's been a wild ride and it's set to continue, I think with everything that's going on in the world today.
[00:03:48] Speaker C: Absolutely. May I ask how you feel your understanding of supply chains has evolved over that career? Particularly from the perspective of the name of this podcast, which is Freight Buyers. And I mean this in terms of how you understand what they want in terms of service delivery. Has that changed over your career? I mean, we all want more, don't we? Do they want more?
[00:04:10] Speaker D: Yeah, yeah. No, I think, you know, shippers always want more, right.
[00:04:15] Speaker E: They're always looking for better quality, they're.
[00:04:17] Speaker D: Looking for faster transit, they're looking for cheaper pricing, they're looking for more value.
[00:04:22] Speaker F: Right.
[00:04:22] Speaker D: And so value comes in a variety of different ways.
[00:04:26] Speaker E: It's not just in cheap pricing.
[00:04:28] Speaker F: Right.
[00:04:28] Speaker D: That doesn't necessarily connotate value because cheap pricing with terrible transit times might not.
[00:04:34] Speaker E: Work for many, many shippers, right.
[00:04:36] Speaker D: Who are working on just in time.
[00:04:38] Speaker E: Inventory or manufacturing sort of processes.
[00:04:40] Speaker D: So I have seen that change over the years. And I think moving from the airline.
[00:04:44] Speaker E: To the freight forwarding business, it really.
[00:04:46] Speaker D: Gave me a lot of perspective now on the shipper being, you know, the.
[00:04:50] Speaker E: Freight forwarder because the customer is the.
[00:04:51] Speaker D: Shipper and really Understanding what they want out of their supply chain, vendors and providers.
[00:04:57] Speaker F: Right.
[00:04:58] Speaker D: And I'll tell you right now, you know, they want information.
They want information on where their cargo is. They want information and analytics on, you know, the cost of moving a SKU.
[00:05:11] Speaker E: From point A to point B.
[00:05:12] Speaker D: They want a lot of details. They want their data to be structured and usable.
[00:05:17] Speaker E: That is the way of the 21st century.
[00:05:19] Speaker F: Right.
[00:05:20] Speaker E: And that's something that we were able.
[00:05:21] Speaker D: To accomplish really, really well at Flexport is to provide them this different user experience that tried to value how they were changing as shippers and how they needed their supply chain to evolve.
[00:05:34] Speaker C: Flexport obviously promised more efficient operations, better service and it promises investors higher profits. Now, not all of those things were achieved, particularly the last one. What's your take on that part of your career? And do you think Flexport really did move the dial in terms of digitizing forwarding in a way that other forwarders haven't been able to? Because when I think of how I know Flexport, which is where we know each other from as well. As time went on, I was getting more press releases, say about liveries on a plane or infrastructure or the footprint, and less and less on the platform and the technology side of it, which is where things started. How do you reflect on that?
[00:06:14] Speaker D: Yeah, that's a, that's a. There are a lot of questions there, Mike. You know, sorry. Okay, I'm going to, I'm going to do my best to give you a very, very honest answer.
I think that, you know, Flexport had.
[00:06:26] Speaker E: A very big vision when it launched.
[00:06:28] Speaker D: In terms of it wanted to be.
[00:06:29] Speaker E: The operating system for global trade.
[00:06:32] Speaker F: Right.
[00:06:32] Speaker D: I mean, think about Microsoft Office for global trade.
[00:06:35] Speaker F: Right.
[00:06:35] Speaker D: That's what Flexport hoped to achieve. And you know what, for all accounts, you know, it obviously didn't get all the way there. That was a grand vision.
[00:06:43] Speaker E: It was a noble vision.
[00:06:45] Speaker D: But getting there was going to require a lot of things to fall in.
[00:06:49] Speaker E: Place in the industry to just haven't done that.
[00:06:51] Speaker D: Here's what I will tell you is that Flexport has really revolutionized sort of the shipper freight forwarding experience.
They have created a front end to the platform that shippers really appreciate, particularly smaller and mid sized shippers who use.
[00:07:09] Speaker E: Flexport as their tms. These are shippers that can't afford big.
[00:07:13] Speaker D: Enterprise solutions like SAP or Oracle or things like that.
[00:07:17] Speaker E: And Flexport truly is their logistics. TMS and Flexport has achieved that vision. Now clearly it has come at enormous costs. The development costs have been much more.
[00:07:27] Speaker D: Than Maybe we had envisioned at the outset, profitability has been somewhat elusive over the long term.
[00:07:35] Speaker E: Even though profitability was really strong during.
[00:07:37] Speaker D: The COVID years, obviously it's been elusive. What I'll tell you is that over.
[00:07:41] Speaker E: The past 18 months Flexport has done.
[00:07:43] Speaker D: A lot of work to get this company back on track. The freight forwarding business is now solidly on track.
[00:07:51] Speaker F: Right.
[00:07:51] Speaker D: It's doing extremely well. They're focused on customers that really value what Flexport is bringing to the table. And that's not every shipper. Yeah, that's what you have to learn too. It's not for everybody.
[00:08:02] Speaker E: And there are some shippers that just.
[00:08:03] Speaker D: Will never take advantage of the sort of information that Flexport is providing back to them. So I think probably get a BB plus right for achieving that full vision. But I think that, you know, they continue to move very, very hard in the right direction and we'll see what.
[00:08:23] Speaker E: The end of the story looks like.
[00:08:24] Speaker D: You know, I'm not part of that anymore. So I'm. I sort of watch with, with a lot of interest as well, you know, on a weekly basis now when it comes to those liveries. Mike, I love being you for playing. That was mine, I designed that. So I take a lot of pride in that.
[00:08:41] Speaker C: Fair play, Fair play. I don't know about BB plus. I depend to you ask, I think to certainly a Marmite of our industry, maybe that would be the best way. Do you have Marmite in the us by the way? Do you know what that means? Marmite?
[00:08:53] Speaker D: I Marmalade.
[00:08:54] Speaker C: No, Marmite. It's like it looks like oil. Okay, so lots of people. It's a phrase in Britain. I'm diverting slightly. It's a phrase in Britain. So you either like Marmite or you don't like Marmite.
[00:09:07] Speaker D: I think most of America like Vegemite or something.
[00:09:10] Speaker C: Flexport's doing much better in the States. In that case, you haven't even got Marmite. Anyway, forget that Flexport, you know, you're proud of that part of your career. But do you think when you look at the air cargo supply chain or maybe freight forwarding more generally is the areas of digitization or digitalization, is there still low hanging fruit out there that the industry is not adopting? Maybe it's on payments, maybe it's to do with way bills, transparency, data standardization, generative AI. Chuck, anything at you? What could our industry do better on? Tech?
[00:09:41] Speaker D: Yeah, no, I think, you know, honestly.
[00:09:44] Speaker E: Mike, all of the above, right?
[00:09:45] Speaker D: This is an industry that, you know, it's 2025. Now, we, we just entered a new year.
[00:09:50] Speaker E: There are big parts of this industry that still operated like it was a 20th century. I mean, we are a quarter of the way through the 21st century.
[00:09:58] Speaker D: Right.
[00:09:58] Speaker E: And so this industry still continues to.
[00:10:02] Speaker D: Or needs to continue to adopt new technology. It needs to take advantage of these new breakthroughs like artificial intelligence. I mean, I think artificial intelligence can.
[00:10:13] Speaker E: Play an amazing role in this business.
[00:10:15] Speaker D: In finding solutions for shipping, automating, booking.
[00:10:20] Speaker E: Processes, in handling customer service issues for airlines and forwarders alike.
[00:10:25] Speaker F: Right.
[00:10:25] Speaker E: I mean, AI is an amazing tool.
[00:10:27] Speaker D: I think we've just scratched the surface.
[00:10:29] Speaker E: Of how it can be implemented in this industry. And one of the things, you know, you had asked me early on, sort.
[00:10:33] Speaker D: Of, what am I doing?
[00:10:34] Speaker E: I am working very heavily.
[00:10:36] Speaker D: I'm on a couple of boards and I'm working a lot with my board companies right now. And one in particular is Airblocks. And you know, they're really trying to leverage AI to streamline the booking process to connect airlines with mid size and.
[00:10:51] Speaker E: Smaller forwarders who may not have access to medium term or long term capacity.
[00:10:56] Speaker F: Right.
[00:10:56] Speaker D: That's typically reserved for bigger forwarders or.
[00:11:00] Speaker E: Shippers who are willing to place big bets and sign these massive contracts.
[00:11:04] Speaker D: So there's a sweet spot there of.
[00:11:06] Speaker E: Companies that aren't capable of doing that but still need that capacity.
[00:11:10] Speaker D: So, you know, really you have to.
[00:11:11] Speaker E: Leverage technology to be able to do.
[00:11:13] Speaker D: That where you can bring buyers and sellers together on a platform where they can exchange information in real time and.
[00:11:20] Speaker E: Try and come to a deal.
[00:11:21] Speaker D: So those are sort of things that are happening.
[00:11:24] Speaker E: I don't think this adoption is industry wide yet, but I think there are.
[00:11:28] Speaker D: A lot of very smart people focused.
[00:11:30] Speaker E: On solving these problems.
[00:11:31] Speaker D: And you see the likes of a cargo AI or cargo one and all.
[00:11:36] Speaker E: Of these things, right. There's a lot of money and vision behind them. They won't all be successful.
[00:11:41] Speaker D: This industry is sort of resistant to some of this stuff, but I think we still have a long way to go. I am proud to see that we're adopting some of this stuff, but not nearly at fast enough rate to maybe change things as quickly as we would like.
[00:11:56] Speaker C: Is there a reason for that? I mean, is our industry a bit old fashioned? Is it as simple as something like that? Is it cost?
[00:12:03] Speaker D: I think it's old fashioned, Mike. But I also think at the end this is an industry that hasn't had the capital available to invest in, in.
[00:12:15] Speaker E: Technology in the way other industries have been able to do.
[00:12:18] Speaker F: Right.
[00:12:19] Speaker E: When you operate in a boom and bust cycle. This business has been boom and bust for as long as we can remember.
[00:12:25] Speaker D: Four crappy years, followed by two good years, followed by two crappy years. And you know, when you operate in that, right, spending tens of millions of.
[00:12:34] Speaker E: Dollars to upgrade your IT infrastructure, do.
[00:12:37] Speaker D: Things like that, it becomes a really difficult sort of task because how do you navigate that? How do you get that in place.
[00:12:44] Speaker E: Before the next downturn? And you should have soft away that.
[00:12:47] Speaker D: Cash, right, for a rainy day, just to keep the lights on. And that's sort of where this industry has been. I think that we have now entered post Covid.
[00:12:57] Speaker E: I think this industry is in a better place financially. Yields have, have come up quite significantly.
[00:13:03] Speaker D: Since COVID That's important.
[00:13:05] Speaker E: Every stakeholder in this business needs to.
[00:13:07] Speaker D: Make a reasonable return or they'll never.
[00:13:09] Speaker E: Invest back in their own businesses.
[00:13:12] Speaker D: And over time, people won't want to.
[00:13:14] Speaker E: Be in this business because it's not.
[00:13:16] Speaker D: A place where boards will want to put capital.
[00:13:18] Speaker E: And we need that. We need innovation.
[00:13:20] Speaker D: We need innovation capital in order to.
[00:13:23] Speaker E: Drive the industry forward.
[00:13:24] Speaker D: And I think that if we get stability on the bottom line, you are.
[00:13:28] Speaker E: Going to get rapid acceleration in terms.
[00:13:30] Speaker D: Of productivity, technology, things like that.
[00:13:34] Speaker C: Is the technology out there right now that, you know, if you're a forwarder, an SME forwarder or shipper, you want to cut costs or maybe freight rates or anything, maybe transaction costs of borders, we're going to come on to tariffs any second. Is there anything out there that you would say, go and get this, guys. You know, there's a simple solution, it's not going to cost you.
[00:13:51] Speaker D: I wish there was. I mean, you know, we'd all be.
[00:13:54] Speaker E: Doing it if there was a simple.
[00:13:56] Speaker D: Solution out there like that.
[00:13:57] Speaker F: Right.
[00:13:58] Speaker D: I think that, you know, nothing worthwhile comes easy, Mike. I mean, I think we all know that, right? Is that it's going to take some.
[00:14:04] Speaker E: Hard work to get there.
[00:14:05] Speaker D: But, you know, there is a lot.
[00:14:07] Speaker E: Of momentum in this area. And I do think that there are solutions.
[00:14:10] Speaker D: I think that everybody involved in the.
[00:14:12] Speaker E: Supply chain, right, every stakeholder from origin to destination, and there are multiple of them.
[00:14:17] Speaker D: You know, there are a lot of handoffs in air freight, need to make a concerted effort to invest. And I think that we are seeing pockets of that, of course, but we just need to see that continue to accelerate in every sort of vertical. There are tools and opportunities to get.
[00:14:33] Speaker E: More and more efficient. I see it in the ground handling side. I work a lot with ground handlers.
[00:14:37] Speaker D: You know, I see them implementing new technology, going Exclusively to handhelds, all scanning, pushing invoices out very quickly, working with electronic tools as opposed to pad and paper like they used to.
[00:14:50] Speaker E: So I think they are becoming more efficient.
[00:14:52] Speaker D: But you know, it's coming in baby steps and not big leaps.
[00:14:56] Speaker C: Patchy.
[00:14:57] Speaker D: It's patchy.
[00:14:57] Speaker E: That's a great word. It is patchy for sure.
[00:15:00] Speaker C: Okay, the current market, we've got a new president in town. Most people would be listening to this probably on the 4th of February when, when a whole bunch of new tariffs are due to come in. We've seen around the world, stock markets have tumbled, currencies are all over the shop. Growth forecasts are being updated by analysts. We're also expecting, well, I think the quote was definite new tariffs on the EU and possible new tariffs on the UK everyone's terrified over here.
The papers don't know what to write. Everyone's promising retaliation to these US Tariffs. What does all of this mean, Neil? What does this mean for your, the business that, you know, in air freight?
[00:15:39] Speaker D: Yeah, I mean, look, Mike, all our.
[00:15:41] Speaker E: Heads are swimming right over the weekend.
[00:15:43] Speaker D: I mean, I think everybody was hoping that this wouldn't happen. I, I, I'm going to stay out.
[00:15:47] Speaker E: Of the political punditry here.
[00:15:49] Speaker D: I'm not going to get dragged down that rabbit hole because I'll leave that.
[00:15:51] Speaker E: To people who consider themselves professionals in punditry.
[00:15:55] Speaker D: But I think, you know, one thing.
[00:15:57] Speaker E: When Trump was taking office, I think the one thing that his administration promised.
[00:16:01] Speaker D: Everybody was shock and awe. They're like the first weeks are going to be all about shock and awe. And I think, I guess he's delivered on that promise because they've been hundreds.
[00:16:10] Speaker E: Of executive orders targeting lots of different things.
[00:16:14] Speaker D: And the latest, obviously, over this weekend.
[00:16:17] Speaker E: Was the formalization of these tariffs, particularly with two of our closest allies, right. And part of the North American Free Trade Zone with Canada and Mexico and.
[00:16:26] Speaker D: To a smaller extent, you know, China. Look, I mean, any way you cut it, right? I mean, you talk to any economist, you know, tariffs eventually are a tax on the consumer, right? They are a tax on the consumer because the manufacturer, let's say in China, is not going to pay for the tariff. It's when that good is imported into the US it's the freight broker, right?
[00:16:47] Speaker E: As that good is brought into the US that pays the tariff, whatever it might be.
[00:16:52] Speaker D: So that clearly then is borne by.
[00:16:55] Speaker E: Whoever might be buying those goods, should the shipper choose to pass that along. So the shipper can choose to take much lower profit margins or they can.
[00:17:03] Speaker D: Try and pass the bulk of these.
[00:17:04] Speaker E: Additional tariffs on to the consumer.
[00:17:07] Speaker D: And I think in some cases, tariffs make sense if you're trying to protect a local industry. If somebody is dumping steel or other.
[00:17:14] Speaker E: Commodities in your market, trying to run your own homegrown industries out of business.
[00:17:19] Speaker D: Well, then, you know, it's an obligation to probably protect them because we all know that dumping is illegal with no.
[00:17:26] Speaker E: Intent of making a profit.
[00:17:28] Speaker D: And Trump levied, I think, tariffs on.
[00:17:30] Speaker E: $380 billion of Chinese products that were.
[00:17:33] Speaker D: In his first term. Surprisingly, Biden kept all of those tariffs.
[00:17:37] Speaker E: Right.
[00:17:37] Speaker D: When he increased some of them.
[00:17:39] Speaker E: And he increased them on many products, including EVs, where there was 100% tariff on Chinese EV imports.
[00:17:46] Speaker F: Right.
[00:17:46] Speaker D: With the express purpose of propping up.
[00:17:49] Speaker E: The domestic auto industry because they felt.
[00:17:52] Speaker D: That the Chinese EVs were being sold well below cost with the only purpose.
[00:17:56] Speaker E: Of gaining market share and hurting their US Competitors.
[00:18:00] Speaker D: And so tariffs can play a role in many countries. You know, utilize them when they're done arbitrarily, and they're done, you know, like.
[00:18:09] Speaker E: This, they can have a massive detrimental impact.
[00:18:12] Speaker D: I think, though, that one of the biggest impacts to air freight, right, trade between Canada and Mexico isn't going to impact air freight. And so if we're going to go back to the, to this podcast and we're talking about Air freight Buyers Club, Right.
[00:18:24] Speaker E: I think, you know, the bigger issue.
[00:18:26] Speaker D: Is, let's talk about what's going on with China. I like the 10%. It's a very manageable number. I don't think that's going to result in a whole lot of shifting or.
[00:18:36] Speaker E: Turmoil, at least initially. Now, he's promised a lot higher tariffs over time.
[00:18:40] Speaker C: Just to clarify for listeners, yes, there was promises of 65% tariffs on some products, and we're up. The 10% is on top of existing tariffs, right?
[00:18:48] Speaker D: Exactly, Exactly. It's on top of existing.
[00:18:50] Speaker E: But again, that 10% number I think is overall manageable.
[00:18:54] Speaker D: And we do see that shippers can't move their supply chains overnight.
[00:18:57] Speaker E: But we saw during the first Trump term, a lot of manufacturing exited China. It moved to Vietnam, it moved to.
[00:19:03] Speaker D: India, it moved to other countries in.
[00:19:05] Speaker E: Southeast Asia and even Mexico.
[00:19:06] Speaker F: Right.
[00:19:07] Speaker E: So shippers have started to diversify their supply chain. Some can do it easier than others.
[00:19:12] Speaker F: Right.
[00:19:13] Speaker E: Some who've invested billions in property, plant.
[00:19:15] Speaker D: And equipment can't do that as quickly as folks who can pick up a.
[00:19:19] Speaker E: Piece of machinery and move it to another country.
[00:19:21] Speaker D: The skill level of labor, the, the.
[00:19:24] Speaker E: Access to logistics and all are very important. Right. As you Move a supply chain.
[00:19:28] Speaker D: But we've seen that global trade since.
[00:19:30] Speaker E: The first Trump term continues to go up.
[00:19:32] Speaker D: We've increased quite dramatically.
[00:19:34] Speaker F: Right.
[00:19:34] Speaker E: Over the years. Right.
[00:19:35] Speaker D: Global trade continues to increase. So freight always finds a way, supply chains find a way. I think what's really going to be.
[00:19:44] Speaker E: Impactful for air freight with this new.
[00:19:46] Speaker D: Tariff order is the removal of the de minimis level.
[00:19:51] Speaker E: So we all know, and it's no.
[00:19:53] Speaker D: Secret that E commerce has driven the.
[00:19:56] Speaker E: Majority of the growth in air cargo over the past several years. Right. It's growing at 20 to 25% per annum. Temu and Sheen are now two of.
[00:20:04] Speaker D: The largest buyers of air freight in.
[00:20:06] Speaker E: The world along with China and a few others.
[00:20:08] Speaker F: Right.
[00:20:09] Speaker D: So, so these guys absorb a massive amount of capacity. Right.
[00:20:13] Speaker E: And their businesses now are directly impacted.
[00:20:16] Speaker D: Because de minimis goes from 800 to zero in the U.S. that means that every shipment coming in is going to.
[00:20:24] Speaker E: Require some sort of processing, some sort of customs entry, some sort of tax being paid.
[00:20:30] Speaker D: Well, that all takes time. Systems have to be in place to do this. Now I suspect some of these systems are in place already because these threats.
[00:20:38] Speaker E: Have been levied for a while.
[00:20:39] Speaker D: But I think that you could see.
[00:20:42] Speaker E: A massive slowdown in E commerce and.
[00:20:45] Speaker D: There'S still no telling exactly how this.
[00:20:47] Speaker E: Will impact demand because they're going to have to pass this along 100% to the consumer.
[00:20:52] Speaker D: Now for a very low end product, who knows the impact for a mid tier product the impact will be different. I think that over the next few.
[00:21:00] Speaker E: Weeks we're going to get a really.
[00:21:01] Speaker D: Quick read on how the consumer is reacting.
[00:21:05] Speaker E: And at the end of the day it's really the low income consumer that.
[00:21:08] Speaker D: Gets impacted the most because their access to cheap goods, really cheap goods gets cut off. And so we're just going to see, but we're going to know really fast.
[00:21:18] Speaker E: Mike, if we talk again in two.
[00:21:20] Speaker D: Weeks, I guarantee you we're going to have a really good read of on what's going on in volumes because the reaction will be very real time.
[00:21:28] Speaker C: So I mean I was going to ask you, you know, how do you see that supply and demand balance? And just as an example, according to Rotate, there was capacity out of mainline China went up 25% last year. And most of this was driven, as you mentioned, TEMU and Sheen and other E tailers in China selling direct into Europe and in the US particularly. This throws all of that up in the air. And this is when we've had, we didn't really have a mini peek into the Lunar New Year. If you look at the air freight rates.
[00:21:54] Speaker E: No, no, we did.
[00:21:55] Speaker D: I mean rates, you know, definitely were.
[00:21:58] Speaker E: Elevated over last year. So rates in January of 25 were much higher than 24. So demand was, was strong.
[00:22:05] Speaker D: I would say. Traditional shippers, right, Their demand has actually picked up.
[00:22:10] Speaker E: You see a lot of these, you.
[00:22:11] Speaker D: Know, consumer electronics, they're all doing quite well. AI right is the new revolution.
[00:22:16] Speaker F: Right.
[00:22:17] Speaker D: And so there's a lot of equipment to support that. So overall, traditional shippers have been their demand increasing E Commerce.
[00:22:23] Speaker E: But you're right, there wasn't this very peak heading into, into cny and what we've seen in this cny and it's.
[00:22:29] Speaker D: Interesting because I talked to a lot of ground handlers here in the US Because I'm involved in, heavily involved in, in some charter business and they have told me that they're massive cuts to schedules, this cny. And so whereas in prior years with.
[00:22:45] Speaker E: E Commerce, you sort of flown through.
[00:22:46] Speaker D: CNY a little bit because consumers keep ordering.
[00:22:49] Speaker F: Right.
[00:22:49] Speaker D: And those warehouses in South China are still open this year.
[00:22:53] Speaker E: You do see quite drastic reductions in.
[00:22:55] Speaker D: Schedules because I think people are anticipating that we might return to a bit.
[00:22:59] Speaker E: Of the normal sort of thing where.
[00:23:01] Speaker D: Air freight takes a couple of weeks off. The thing is, after we take a couple of weeks off, these tariffs are going to be well implemented.
[00:23:10] Speaker E: Are consumers going to come back?
[00:23:11] Speaker D: Are people going to be hitting click.
[00:23:14] Speaker E: And ship on these websites? Was a consumer in, in Mexico or Hawaii or Puerto Rico for that matter.
[00:23:21] Speaker D: Going to be buying the $20 item.
[00:23:23] Speaker E: Off of Shein or Temu?
[00:23:25] Speaker D: I don't know.
[00:23:26] Speaker E: I don't know the answer to that.
[00:23:27] Speaker D: But I think we will know pretty quickly.
[00:23:30] Speaker C: Yeah, a lot of risk out there. You mentioned before the ability for some manufacturers to move. Obviously it's a slow process. You want to move away from where these tariffs are. So people moved away from China to Vietnam to India. There's no guarantees that those countries won't be hit with tariffs at some point down the road though, is there?
[00:23:47] Speaker D: No, there isn't. Obviously there's no guarantee.
[00:23:50] Speaker E: I don't think any corner of the.
[00:23:51] Speaker D: World is safe from the potential of tariffs. I think that some countries and some leaders are probably courting this administration differently than others. And I would say that I think they're all learning how to work with President Trump.
[00:24:08] Speaker F: Right.
[00:24:08] Speaker D: I mean, you probably seen the news that Modi is going to be the second leader to visit Trump in Washington probably next week, you know, after Netanyahu.
[00:24:18] Speaker E: Who comes this week.
[00:24:19] Speaker D: So it goes to show how.
[00:24:21] Speaker E: How much maybe Trump values that relationship.
[00:24:23] Speaker D: And how much India values that relationship with the us. So maybe they'll play the game, maybe they'll avoid tariffs.
[00:24:29] Speaker F: Right.
[00:24:29] Speaker D: You know, going forward. And there's a give and take there.
[00:24:31] Speaker E: In terms of policy, who knows?
[00:24:34] Speaker D: But I think that these tariffs will.
[00:24:36] Speaker E: Not be applied equally.
[00:24:38] Speaker D: I think there will be some winners and losers through this process. And I just don't think you want.
[00:24:44] Speaker E: To be on the wrong side of this.
[00:24:45] Speaker D: And you've heard that tariffs are definitely coming for the eu, potentially for the uk, as you mentioned. What does that look like?
[00:24:53] Speaker E: What does that mean?
[00:24:54] Speaker D: I think everybody's scratching their heads right now.
[00:24:57] Speaker C: Lower growth, just on the risk side of things. I mean, it seems almost cherlish to say, where else is the risk? No one knows what's going to happen in the next two weeks, full stop. But it's not all just Trump's policy. There's positives. Hopefully there's some peace in the Black Sea at Ukraine. We've got a ceasefire in the Middle east that's good for air cargo. Both would be good for air cargo if airspace opens up. If you're looking from an air cargo point of view, though, the Suez Canal opens up. That, that's helped drive a bit of demand because the shipping transit times were so much longer, certainly into Europe from Asia. So that helped on the air freight side last year. How do you view those things?
[00:25:35] Speaker D: Well, I mean, I think, look, peace, peace is always a great thing for humanity. So I think that we're all very.
[00:25:41] Speaker E: Pleased that the ceasefire is holding in.
[00:25:43] Speaker D: Gaza and things like that. You know, I hope that the Russia, Ukraine comes to a resolution. Obviously, there's tremendous loss of life there, which is incredibly sad and has actually impacted air cargo and airlines quite dramatically because of all the increased flying costs. Right.
[00:25:59] Speaker E: To get from A to B, particularly Europe to Asia.
[00:26:01] Speaker F: Right.
[00:26:02] Speaker D: There's a lot of increased use of jet fuel and things like that, so.
[00:26:05] Speaker E: Very harmful for the environment.
[00:26:07] Speaker D: But I think, Mike, you're exactly right, is that, you know, if the Red.
[00:26:09] Speaker E: Sea becomes safe again, and I think.
[00:26:11] Speaker D: Carriers, look, I don't know if the ocean liners want to, you know, hold.
[00:26:15] Speaker E: The Red Sea to be fully open.
[00:26:16] Speaker D: Because they want to keep a lid.
[00:26:18] Speaker E: On capacity and nobody wants rates to fall too much.
[00:26:20] Speaker D: But I think the Red Sea is going to open up more and more. You know, shipping is going to go through there. Obviously that's going to shorten transit times and some of that ocean to air conversion will obviously probably go back to ocean.
[00:26:33] Speaker E: I don't think it'll happen overnight because I think if all these ships start.
[00:26:36] Speaker D: Showing up at European ports, you know, you're going to have a lot of port congestion. But over months this will sort of filter its way through all of the different modes and that may take a little bit of pressure off of the Asia, Europe air freight.
[00:26:52] Speaker E: It could free up some capacity. Maybe there's some freighters operating in that.
[00:26:56] Speaker D: Trade lane that are no longer needed, you know.
[00:26:58] Speaker F: Right.
[00:26:59] Speaker E: You can see how this could have a ripple effect.
[00:27:01] Speaker D: Where then, where do you deploy those freighters? You deploy them in the Pacific? Well, with the de minimis rule and.
[00:27:08] Speaker E: Potentially less E commerce in across the.
[00:27:10] Speaker D: Pacific, maybe you don't need additional capacity in the Pacific.
[00:27:14] Speaker E: Maybe this will be lead to some.
[00:27:16] Speaker D: Rationalization with an acceleration of retirement of very old freighters of which we have a lot of.
[00:27:22] Speaker E: I think 40% of the global freighter fleet is going to be over 30.
[00:27:26] Speaker D: Years of age this year. I think it's a big number.
[00:27:28] Speaker F: Right.
[00:27:29] Speaker E: We didn't retire a lot of aircraft over Covid years and we're starting to catch up now.
[00:27:33] Speaker D: But there are a lot of aircraft.
[00:27:34] Speaker E: That are well past their useful life.
[00:27:36] Speaker D: So as people and companies and senior executives get a handle on all of the follow on impacts of all of these things.
[00:27:44] Speaker F: Right.
[00:27:45] Speaker E: It's not just one thing.
[00:27:46] Speaker D: It's not just tariffs, it's peace in Gaza, it's the opening of the Red.
[00:27:50] Speaker E: Sea, it's all of these things.
[00:27:52] Speaker D: I think that boards will be forced to make quite a few decisions about current capacity, future order books, things like that. How do we rationalize and get more productive and and smarter about how we run the business. So I think a lot of those discussions are coming, but again, we're super early days. I think it's going to be a really, really busy first half of the year for people.
[00:28:15] Speaker C: I'll be coming back to some of those issues relating to what happens to ocean freight markets and on the Freight Buyers Club and on the Lodestar podcast in the next week or so. But just on that one of those points that you made there, when I was talking to people about where they think shipping rates might go, one was suggesting that if all of these things come together, we could be looking at a bloodbath at TPM in Long Beach. Is there a potential that we could have a perfect storm for people who would prefer there to be higher freight rates for air cargo? Because there's a lot of bearish factors there that we've just talked through?
[00:28:48] Speaker D: Yeah, there are some bearish Factors, I mean I who know, I mean TPM is going to be really interesting this year. You know, I'm not going to be there this year, but I think it's going to be an interesting conference.
[00:28:57] Speaker E: Just given everything you said, right.
[00:28:59] Speaker D: All of these things going on at the same time, clearly going to have.
[00:29:02] Speaker E: Pretty big impact on, on the ocean industry.
[00:29:05] Speaker D: And by no means an ocean expert, but whatever happens in ocean, particularly as ocean tightens up, as we've known, you know, it does directly impact airfreight very quickly. Now a lot of air freight doesn't really convert to ocean freight, so that reverse conversion isn't really a risk. But if you lose some of the.
[00:29:26] Speaker E: Ocean to air conversions, you know, and.
[00:29:28] Speaker D: They go back to traditional ocean, that could clearly take, take that little, you know, that added push on demand. It's that last 5% that pushes rates up 20%.
[00:29:38] Speaker F: Right.
[00:29:39] Speaker D: It's just that little bit that puts you over the top that then drives.
[00:29:42] Speaker E: Air freight rates quite high.
[00:29:44] Speaker D: You know, we are at risk of losing some of that.
[00:29:46] Speaker E: And then you add the E Commerce piece on top of it.
[00:29:49] Speaker F: Right.
[00:29:50] Speaker D: Where E Commerce may go through more traditional fulfillment models where they start shipping by ocean to big distribution centers in.
[00:29:57] Speaker E: The US and Europe and then distribute regionally.
[00:30:00] Speaker F: Right.
[00:30:01] Speaker D: I think TEMU and Shein are already preparing for that. I think they have massive warehousing capacity.
[00:30:06] Speaker E: In the US already.
[00:30:07] Speaker D: It's probably going to put even further.
[00:30:09] Speaker E: Strain on warehousing capacity in the US.
[00:30:11] Speaker D: But that would increase the need for ocean freight not exponentially by any stretch. So they'll be able to absorb it.
[00:30:18] Speaker E: But the impact on air freight would be severe. Right.
[00:30:21] Speaker D: So I think there are a lot of follow on effects here that are going to be happening over the coming weeks and months and it's going to.
[00:30:29] Speaker E: Play a big role. And just to go on a little.
[00:30:31] Speaker D: Bit of tangent right now, I. For the past four months in conjunction with Airblocks, we've been running charters between.
[00:30:38] Speaker E: Chicago and san Juan on a 321 freighters three times a week.
[00:30:42] Speaker D: Extremely good dedicated service connecting a lot of Chinese E Commerce, Vietnamese E Commerce to a very, very strong market in.
[00:30:50] Speaker E: Puerto Rico and providing really, really quick.
[00:30:52] Speaker D: Transit times and service in addition to pharma and other medical equipment. Well, these sorts of flights, you know.
[00:31:00] Speaker E: A lot of flights in and around the US are very reliant on E commerce.
[00:31:03] Speaker D: Right. And should that dry up, then a lot of this sort of, a lot of this capacity comes in, you know, comes into jeopardy in terms of your.
[00:31:12] Speaker E: Ability to keep it Up.
[00:31:13] Speaker D: So a lot of follow on effects of all of this.
[00:31:16] Speaker C: Who given all of these variables that we're discussing, which companies do you think are well placed to perform well this year? Flexport, maybe DSV is going to be the biggest forwarder in the world soon as it incorporates Schenker. How about the carriers? Anyone out there? You're going, oh, they're doing all right.
[00:31:32] Speaker D: They're well set I think overall.
[00:31:35] Speaker F: Right.
[00:31:35] Speaker D: I'd say a couple of things.
[00:31:36] Speaker E: I think from the carrier standpoint, I.
[00:31:38] Speaker D: Would say airlines that didn't go hook, line and sinker into E Commerce. If you have a really diversified portfolio, I think about a lot of the belly carriers. You know, a lot of the belly carriers. If you think about United, Delta in the US in particular, they probably are not nearly as E Commerce heavy as.
[00:31:58] Speaker E: Some of the big freighter operators.
[00:32:00] Speaker F: Right.
[00:32:00] Speaker E: Who are, who are renting full airplanes to TEMU and Shein. E Commerce isn't particularly the best product for a belly.
[00:32:06] Speaker D: And you know, you want a little bit more dense, you know, cargo typically.
[00:32:10] Speaker E: To maximize your, your onboard revenue.
[00:32:13] Speaker D: And so if you've kept E Commerce.
[00:32:15] Speaker E: As a small percentage of your overall.
[00:32:17] Speaker D: Portfolio, I think you're going to weather this storm just, just great. And you're going to have, you know.
[00:32:22] Speaker E: Because you have a lot of traditional.
[00:32:24] Speaker D: Shippers on board and they're going to be loyal to you because you were loyal to them.
[00:32:28] Speaker E: I think if you're heavily reliant on.
[00:32:29] Speaker D: E Commerce, you may have a reckoning coming up and you may also have.
[00:32:34] Speaker E: Some big decisions in terms of fleet.
[00:32:36] Speaker D: Rationalization and things that you may have to do, particularly if you see large customers starting to break contracts. Now. I don't think we're there yet.
I'm projecting maybe six months ahead if.
[00:32:51] Speaker E: This continues and some of these negative.
[00:32:53] Speaker D: Impacts play out the way we do now. Some of these contracts can't be broken or they can be broken with massive penalties.
[00:33:00] Speaker E: Okay, so maybe you have then cash to weather the storm.
[00:33:03] Speaker D: But I do think there's going to be an impact here and I think we'd be naive to think that there won't should these rules sort of continue in place into perpetuity.
[00:33:11] Speaker C: Yeah, I mean a good point there. I did did speak to Jan Krems at United Cargo last week on the, on the Lodestar Air Cargo podcast if anyone wants to check that out. And he wasn't overly concerned but said E Commerce wasn't a big component of their overall cargo business. So yeah, I see what you're saying there.
[00:33:29] Speaker D: I mean I happen to know United quite well and yeah, you know, it's not a big percentage of their overall business, particularly out of Asia.
[00:33:36] Speaker F: Right.
[00:33:36] Speaker D: So I'm not surprised that he's not like overly concerned that 25% of their volume could potentially evaporate.
[00:33:44] Speaker E: I don't think that's anywhere close to the case. Right.
[00:33:47] Speaker D: So. So that they feel reasonably okay about the current situation.
[00:33:51] Speaker C: Thanks, Neil. If I can pivot slightly as we're, as we're tying things up, this old question always comes up at every single conference. I think I've been for air Cargo for about 20 odd years. Why is it so slow? Why is the flight quick end to end, but the product doesn't get from door to door as quickly? How do you improve that? If passengers were delayed for a number of days, you'd have a problem with it. But if air cargo takes six days or something, it's not that unusual.
[00:34:18] Speaker D: Yeah, it's a great question, Mike. And I do think over time transit.
[00:34:22] Speaker E: Times have definitely improved.
[00:34:24] Speaker D: But look, I mean, the reason for this, you know, Mike, I think in my humble opinion is that, you know.
[00:34:29] Speaker E: There'S still a lot of handoffs in air cargo.
[00:34:31] Speaker F: Right.
[00:34:32] Speaker D: There's just so many handoffs from origin, trucker to freight forwarding, warehouse to airline, warehouse to airline, you know, and then.
[00:34:40] Speaker E: The reverse right at the destination.
[00:34:42] Speaker D: And these handoffs require paperwork and everything to be.
[00:34:46] Speaker E: And that does not work perfectly.
[00:34:48] Speaker F: Right.
[00:34:49] Speaker E: We've tried to digitize that entire chain.
[00:34:52] Speaker D: We have not been successful yet.
[00:34:53] Speaker F: Right.
[00:34:54] Speaker D: We're still relying on emails and, and, and courier pouches and things like that in order to, to allow the facilitation of freight.
[00:35:03] Speaker E: And then, you know, in many countries, customs and all aren't fully automated, so.
[00:35:07] Speaker D: They'Re not necessarily cooperating as well as they should.
[00:35:11] Speaker F: Right.
[00:35:11] Speaker D: In terms of allowing goods to, to flow more freely and easily. So I think the multiple handoffs still, I would say, you know, the nascent stages of technology implementation, all of these.
[00:35:24] Speaker E: Things are definitely playing a role. And then you have the classic issue.
[00:35:28] Speaker D: Of have we invested enough in our air freight infrastructure? A lot of these airports haven't built.
[00:35:34] Speaker E: New cargo handling facilities in years and years and years.
[00:35:37] Speaker F: Right.
[00:35:38] Speaker E: And when the next crisis hits and.
[00:35:40] Speaker D: We need them, I think we're going.
[00:35:41] Speaker E: To be back in the same boat because they're not. A lot of new facilities have been.
[00:35:45] Speaker D: Built since COVID There are a lot of talk, but not a lot of action. And so I think that that infrastructure is also going to. The lack of infrastructure has been an issue, but Things continue to get better and better marginally, but again, we haven't seen a big leap and I, I think it's going to continue to be a thorn in the side for, for shippers.
[00:36:05] Speaker F: Right.
[00:36:06] Speaker D: I don't think you're ever going to see a two to three day sort of end to end transit that's durable.
[00:36:11] Speaker F: Right.
[00:36:11] Speaker D: Unless you pay some ridiculous rates for very dedicated sort of people to look after it.
[00:36:17] Speaker C: Well, shippers will just have to hope to finish up. Neil, please give me two or three things. Investment regulations, anything else that air forwarding or the airfreight industry in a perfect world should adopt. Invest in just anything that would make it more successful and better for customers.
[00:36:36] Speaker D: Yeah, I think investment is critical. I mean have a long, a medium and long term investment plan for your business. You know, invest heavily in it. I think that's what's going to keep the industry moving forward and ultimately allow.
[00:36:50] Speaker E: For a lower cost to serve.
[00:36:52] Speaker D: I mean if you want to create margin, you got to lower your cost to serve.
[00:36:55] Speaker E: And so I see that as a.
[00:36:57] Speaker D: Big issue in that. And I think the other thing is continue to be vigilant from a security standpoint. It's something that we haven't really talked about but you know, threats to the.
[00:37:08] Speaker E: Supply chain are constantly there.
[00:37:10] Speaker D: I think it's something where you need to continue to invest in mitigation efforts to make sure that the supply chain continues to be protected because they're bad people out there and they're, they're all trying to disrupt our lives in whatever way possible. And this is one way that they.
[00:37:26] Speaker E: Can have massive, massive impact very, very quickly.
[00:37:29] Speaker D: And so that's just something that we should never lose, lose sight of and never sort of drop our vigilance time.
[00:37:36] Speaker C: Neil Jones Shaw, it's been an absolute pleasure as ever. Thanks for joining me today on the Freight Buyers Club.
[00:37:42] Speaker D: Thank you, Mike. It's always a pleasure to speak with you.
[00:37:46] Speaker C: Big thanks to Antigua's Cloud for supporting this episode, Karen Ball and Tom Matthews for making this production happen and you all for listening. Please follow and like wherever you found us because we have loads of great content coming your way in 2025 and we appreciate all the support. See you soon.
