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: Thanks to our sponsor, the Merco Express Group, for supporting this episode of the Freight Buyers Club. And hello everyone, if you're tuning in for the first time, don't forget to like, comment or subscribe. I'm Mike King and today we're looking at the supply chain challenges facing some of the world's biggest retailers and technology companies. And we're joined by a major ocean freight buyer. He'll give us an insider's view of container shipping markets in 2025 and his take on where things might be heading next.
So to my panel today, first up, it's the retaining Jess Dankert, Vice President of Supply chain at the Retail Industry Leaders association, or reala. Welcome back, Jess. How are you?
[00:01:15] Speaker C: Great to be back on the show. Mike, thanks for the invite.
[00:01:18] Speaker B: You're very welcome. And joining us as well is Ed Bristow, our Vice president of International trade at the Consumer Technology Associ association, and he's fresh back to the U.S. i believe, from a trip in Asia. How's it going, Ed?
[00:01:30] Speaker D: Good. I had a good night of sleep last night, Mike.
[00:01:34] Speaker B: So for me, bright and breezy today. Excellent.
And rounding out the panel is Ken o', Brien, who's the president of Gemini Shippers association and not for Profit, which represents some of the biggest buyers of ocean freight. Welcome, Ken.
[00:01:49] Speaker E: Thanks, Mike. Good to see you, Jesse. Ed, good to be with you today.
[00:01:53] Speaker B: Ken, let's start with you. Gemini is a major transpacific buyer of freight. What has 2025 been like for you in terms of freight procurement? Can you start by giving us a sense of the volumes you move and on which trade lanes, please?
[00:02:11] Speaker E: So Gemini Shippers association has been a shipper's association since 1984 when the shipping act started to allow them.
And we are primarily a Trans Pacific import based association, certainly global volumes, but the great majority of the freight is from Asia, the US and then like total volumes. We don't release our volume stats, but you would if we were, if our group of 300 plus companies were in kind of a table, it would be firmly in the middle of the top 10 importers in the United States.
[00:02:41] Speaker B: This year's container shipping market has been to say the least it's been a bit stop start especially around tariff deadlines and all these short lived truces that we've had. This was all ongoing right through the Trans Pacific contracting season in late Q1 and into Q2 as well.
Now we covered those tariff twists in detail on the last podcast which focused on air freight. We also did quite a lot on de minimis rule changes.
So please check out that everyone if you missed it now for Those watching on YouTube or Spotify, you can see a graph appearing now hopefully on the screen from Zanetta. Thank you Peter sand over at Zanetta for supplying this. This shows this year's Trans Pacific spots and average long term contract rate pair TEU from China into the US west coast where you can see the short term rates have been lurching up and down, but the long term rates have have been in a more steady decline. Ken, can you walk us through your procurement strategy this year? Especially the challenge of agreeing contracts with so much uncertainty and of timing shipments as tariffs kicked in at different points.
[00:03:50] Speaker E: You know, I think if you look at the chart, I mean I think you could boil it all down to one piece of paper and say okay, the blue line is higher than the orange. I should stay away from that and focus on long term. You know, we tend to think and how we procure. We are a long term contract kind of organization.
But that's not to say one's better than the other. I think it's more important that people go in with a strategy, period.
And so when I think about that channel mix, am I going to go short term, long term use forwarders, direct contracting, use a shipper's association, it really has to tie back to ultimately the customer's freight flow. And so things that we think about when we kind of advise companies on, on what to do and how we procure for ourselves, certainly there is price sensitivity. Do I need to be the lowest benchmark day to day over a cycle? Am I competing against one specific competitor? Seasonality, A big piece of it. And so direct contracting is really about 52 week a year rates. But 52 a week your cargo flows. So if you don't have that, you're going to be forced into that spot rate channel. And so you know, for us, you know, the hard part this year of course is we came off second half of, you know, 24, 10 million, you know, boxes imported, super strong half the year, a very strong Q1. But of course looming tariff news and unknown tariff news. Certainly the Red Sea issues, you know, really putting a, an Interesting twist on the supply side.
[00:05:21] Speaker D: Right.
[00:05:22] Speaker E: Sucking up more capacity than probably we would have needed. And so our big thing was the lesson learned in Covid was not to bet against the American consumer. And so that was our first, that was our first core lesson was as we polled our members to hear their stories and kind of their forecast for the year, we took a bias towards more space and that's what we needed in Covid. And so a definite lesson learned there and then really to think about what exogenous force, if it happened, what would be the outcome? Could spot rates spike up? Would they crater down? And what we saw this year and our bias was we saw more upside rate risk than down. And so we over contracted. I'll say. And I think ultimately our members were rewarded for that because the spot rates ultimately in May and June shot right up and our members ultimately weren't exposed to that this year.
[00:06:15] Speaker B: So you did stick mainly with the longer term or the annual deals as opposed to going near that spot market which is, which has been up and down as we can see.
[00:06:24] Speaker E: Yeah. So for us, you know, our, our members ultimately they rely on us for long term pricing. There's lots of ways they could get to short term rates. We're not generally their first choice there. And so you know, we do believe that, you know, that three legged stool of using forwarders and nbos, using shippers associations and direct contracts, those all have merit. And so, you know, what we tell our members is you have to decide how much weight you want to put on each leg of that. But, but for us, you know, we, we kind of know our space and kind of stick to it.
[00:06:51] Speaker B: Were people bringing a lot of cargo in direct reaction to tariff news? Was that how it was working? I mean it is sometimes easy to forget that the Suez Canal is also closed, which is the big factor affecting global container shipping market. But just on the tariffs where people are going, okay, right, we're going to stop now. Oh no, we're going to speed things up. Is that how it was happening?
[00:07:10] Speaker E: Yeah, we've had an incredibly strong, our member base and some great companies, but if I look at them in aggregate, a really strong first half of the year. And I think there was always going to be kind of some pressure year over year comps for second half mostly because 24 second half was so darn strong because people did pull stuff forward but it really did carry through. And so, you know, first quarter we saw total market, you know, up almost 10%.
Second quarter comes down a little as we got in that Weird period of the pause, but then a pretty strong May and June. And now as we kind of get into that pre traditional peak season, I think the tariff news plus that kind of traditional summer low, I think we're there now. And so I think, you know, ultimately we'll see where that goes here as, as we get into the more traditional peak.
[00:07:56] Speaker B: Okay, well I'll come back on on those. This particularly the US China tariff 90 day extension tariff truce and what that's meant for for peak season with the front loading and what happens next a bit later. But let's turn to Jess now if we may.
Jess, how has this market roller coaster looked from a retailer's perspective? Your you're the ones making these tough calls about when to ship, what products to prioritize and how much tariff cost the US consumer can really absorb. How's that been playing out?
[00:08:27] Speaker C: Yeah, it's definitely been an interesting 2025 so far. Now Rela is the trade association of the country's largest retailers. So they're very big movers of freight generally and for retailers and really, you know, any company shipping products, the usual shipping rhythms of a typical year been kind of out of whack, right? To use a technical term. This sort of disrupted landscape makes it really challenging to plan effectively at all, let alone to optimize for, you know, time and cost and so on. So with all of these supply chains, you know, the, it's a different calculus really for every retailer depending on, you know, the retail segment, their sourcing footprint, where they're, you know, bringing things in from product mix, their customer base, all of these different variables. And you know, we've heard from some companies already about where that price impact is going to fall. And in terms of kind of the shipping aspect, there were a lot of companies who front loaded a lot and tried to beat some of those tariff deadlines earlier in the year. Then you saw kind of the lull and falling off in April and so forth and then in July seeing a big surge again ahead of kind of August deadline. So the usual kind of peaks and valleys that we see in a typical year have been a bit different.
And you've seen retailers making different choices around kind of prioritizing key merchandise and bringing things in earlier rather than at normal times. I think to Ken's point, we will see a bit of fall off in the second half of the year, but it has been quite an up and down story so far in 2025. And as far as the US consumer, as Ken said, the consumer spending has continued to be pretty strong overall throughout, despite uncertainty. And I think we'll really be watching all of the economic indicators as we continue through 2025 continues to unfold.
[00:10:14] Speaker B: Jess, a real A poll found over 70% of retailers have revised their 2025 inventory plans, prioritizing some SKUs while shelving others. I should have just explained, SKUs are basically product lines. I don't want to lose anybody on an acronym. So, Jess, what does that look like in practice? Have. Have many retailers brought in holiday product daily this summer to dodge tariffs? I think you were saying the answer to that is yes. And if so, does that mean that's left them sitting on bigger than usual inventories?
[00:10:46] Speaker C: Well, yeah, I think earlier in the year, many retailers, although, you know, not all, did some front loading of shipments ahead of tariffs in late 2024. Just expecting, you know, what kind of landscape we're going to be looking at in 2025.
And then in some cases, as we've gotten further into 2025 and you've seen a lot of, I think, more fluidity in the tariff landscape than many may have even planned for, there has been a bit of kind of prioritizing with SKUs and kind of hitting pause on production or delaying shipments to try and hedge until there is more clarity in the trade landscape.
The past months have continued to be very dynamic. So through the late spring and summer, we did hear from many retailers about prioritizing key merchandise to produce and to ship.
About, I think two thirds of large retailers in the spring had told us they were kind of prioritizing like this to some degree in certain product areas and also getting really creative about the cadence of shipping. Like we talked about kind of the different rhythms over the course of the year compared to what you'd see in a normal year. It might be why you saw some Halloween merchandise and displays in some of the stores here in June quite a bit earlier than you ordinarily would have. But that's not the case for every retailer. And it's kind of been an individual decisions, but definitely it disrupted inventory flows and certainly changes to the cadence and in some cases also changes to kind of the overall levels. And then, you know, we saw last week, you know, Port of LA announced that their July was the absolute busiest month of the year in their entire history of, you know, over 100 years. And that's largely due to a lot of volumes brought in ahead of, you know, the anticipated August tariff deadlines that were on the calendar. So some retailers have. Have bulked up inventories, but overall I think the inventory numbers are lower than kind of that inventory spike that we saw in the kind of COVID hangover of 2223 and certainly varies by retail segment. You know, different story depending on various retail segments. But overall and kind of industry wide, the inventory levels compared to last year are really only up again Overall kind of 2 or 3%. So not kind of a significant jump like you might be expecting, just more of a disrupted story.
[00:12:54] Speaker B: Many of your members were expecting tariffs on China if Trump returned to the White House. But this trade war has gone global, pulling in Southeast Asia, India, Brazil, even Mexico.
That must make any sort of long term planning really, really difficult or maybe impossible.
[00:13:13] Speaker C: Yeah, I think, you know, most people plan for some, some trade shifts with the new administration. I think that was very much widely anticipated. I think a lot of people were surprised maybe by the scale and, you know, speed of the administration's tariff announcements. Certainly the last several months have featured a really dynamic trade landscape. Frequent changes to tariffs and timing and definitely operationally it's been challenging to optimize supply chains and that kind of shorter time horizon that they're looking at.
Companies and supply chains really need more certainty and more clarity down the road to really effectively plan for those long times. More predictability for retailer bcos. I think in transportation markets that's really translated to a lot of stops and starts like we've been talking about, you know, with, with production and at origin ports and kind of a choppy sort of flow compared to what we would ordinarily be experiencing. A lot of question marks about ocean capacity and Blake sailing, you know, congestion at origin ports and transshipment points. The environment has been, I think, challenging for a lot of shippers. Large retailers have really prioritized kind of close and you know, long, long term working relationships with carrier partners and aligning with committing to those quantity commitments to ensure that they continue to have that steady ability to move boxes when needed.
[00:14:35] Speaker B: Thanks, Jess. Ed, the Consumer Technology association represents a $537 billion US industry supporting over 18 million jobs. How are your members adapting to this?
I was going to say policy whiplash, but maybe we're talking about multiple whiplashes. Is that a better description?
[00:14:55] Speaker D: That's constant whiplash, Mike.
You know, tear us on, tear us off. It's, it's difficult for a lot of our members to grapple with, particularly our small business members. And you know, we have 1200 plus members, 80% of them are small businesses and startups. So when we spend time talking about Terence with our members, we have that set of our members in mind because they use us predominantly to understand what is happening. They might not use any other association but cta. So our industry faces, I think, more uncertainty than most, mainly because there's another set of tariffs looming in the background. It's not just these country specific tariffs under the International Emergency Economic Powers act.
It's the Section 232 tariffs that the President used, has used again and again on a national security basis. And so we're concerned about the semiconductor tariffs because those could not just impact semiconductors, but downstream products containing semiconductors. And we don't know what the scope's going to be. The President's throwing out rates of like 100%, 200%, 300%.
We don't know what this is going to look like. And that could cause even greater dislocation in the marketplace.
[00:16:12] Speaker B: Yeah. And of course, when you're looking at things like machinery, steel, aluminium, a lot of these imports semiconductors you mentioned there, if you were going to relocate manufacturing back to the US that becomes awful expensive if all of those inputs have got massive tariffs on them. It's hard to see when that rebuilding period would be.
Is that something that's come up? Ed, I know you've been over in Asia talking to manufacturers and trade leaders. What's, what's the view over there on Washington's new tariff playbook?
[00:16:42] Speaker D: I mean, they're just as confused as the rest of us. Right? They don't know what tomorrow is going to look like. You mentioned steel and aluminum. Just this week, the Bureau of Industry and Security announced that a whole new set of derivative products, over 400 HTS codes, would be subject to the 50% steel aluminum tariffs under Section 232. And BIS will run another inclusions process again for steel and aluminum in the future. So that our trading partners are looking at this like, when is this going to stop? And they're going to do this for copper. When they roll out the other two 32s, they'll probably have inclusions processes. The umbrella of tariffs is getting larger and the stacking of the tariffs is getting more complex.
[00:17:29] Speaker B: Yeah, it's getting really complex, isn't it? I want to come back to some of the legal battles about how these tariffs are implemented in a moment, but let's just take a short break here.
[00:17:38] 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, Demerco connects Asia with the world like no other global3PL. You are listening to the Freight Buyers Club.
[00:18:13] Speaker B: Welcome back. Ed, you spent over six years at the Office of the U.S. trade Representative. Can you explain that legal situation I referenced there? There's a lot of legal challenges going on to these tariffs, aren't there?
[00:18:27] Speaker D: There are I, I think there's at least nine cases that have been brought by various plaintiffs against the IEEPA tariffs and also de minimis. And some of these cases are further along the road than others. So I will speak to two of them that are in front of the Federal Circuit, which is the US Court of Appeals for the federal government.
And just recently, in July, July 31, as a matter of fact, there was a hearing. Oral arguments were presented at the Federal Circuit for two of the cases, both selections and the state of Oregon, plus 11 other states and the Federal Circuit. This is an on bank hearing where you had all 11 judges present. And so that means that instead of just a subset, it's all the judges in the Federal Circuit. So they're treating this very seriously. And I was in the room for those oral arguments, and what I heard was a lot of skepticism of the government's position that the statute, the International Emergency Economic Powers act, allowed for the imposition of tariffs. Somehow, when the Congress passed that act in 1974, without even saying the word tariffs, that it allowed the government to use tariffs in that statute. Up until this president, that statute has never been used to impose tariffs. So again, lots of skepticism of the judges on the part of the government's position.
That leads to, like, you know, vacation of the tariffs is another matter. I think that the Federal Circuit will rule at some point as soon, perhaps even in September. But one way or another, this case is going to get appealed to the Supreme Court, and that could be on a fast track this fall. What the one thing I want to emphasize, Mike, is for anyone who has paid tariffs under ieba, whether it's IEBA fentanyl tariffs or IEBA reciprocal tariffs, document your payments.
Document your payments, because if these tariffs are vacated, you might get a chance of a refund.
[00:20:30] Speaker B: I'm going to come back to those refunds and what that might mean for freight markets, in fact, in a moment. But just Ed, I presume that obviously you're in the room for all of this. You're lobbying hard, can you give us any sort of a better sense of what you think might happen when.
[00:20:46] Speaker D: Sure. So cta, we actually submitted an amicus brief along with the US Chamber of Commerce at the Federal Circuit in support of the plaintiff's cases. So we, we felt very strongly that we had to do this because we've said that the tariffs are illegal. And you know, I think the government is working very hard to suggest that if you get rid of the tariffs, there's going to be economic calamity. They even sent a letter to the Federal Circuit that said there will be massive job loss and economic dislocation and we will be able to pay back all these investments that our trading partners are making. It was, I would say, very hyperbolic. But in reality, what we know, that importers are paying those tariffs. It's not other countries that are paying the tariffs. And so they've been bearing the brunt of it. The economic data is showing that the absorption of the tariffs so far has been by US Firms and then, you know, to a certain extent, consumers. But that may change over time now that we have these new tariff rates in place at higher levels. And if there's more 232 tariffs rolled out, you would might see more pass through, perhaps from importers all the way down to consumers. So it's a bit of an uncertain situation economically.
[00:22:03] Speaker B: Jess, retailers are also pushing back. What's your sense of the legal case? And is anyone in the White House actually listening?
[00:22:10] Speaker C: Yeah, I mean, I'm not a legal expert and I think I did a great job kind of covering that aspect. And certainly there are a number of cases, as they said, you know, currently churning in the legal system by various small businesses and other parties. So we'll be certainly watching the outcomes of that. And you know, the fact that it probably will go to the Supreme Court in the meantime, kind of still trying to plan with the information that we have while looking ahead to what that future state might be. As far as, you know, the White House, I think, you know, the message from the retail industry has been clear that America's retailers, you know, have, have long advocated for trade policy that holds trading partners accountable, expands market access, spurs innovation, supports economic growth, national security and consumer affordability. Retail supply chains are really technical, global and complex. And we've been urging the White House to make sure that trade policy has some predictability, to allow businesses to plan and that there's transparency in the compliance process and that we can protect consumers and the impacts of tariff on the American consumer as much as possible.
So watching all of, certainly the legal cases, but I think the message to the administration is really around how we can preserve American businesses and protect the American consumer long term and the need for a predictable and clear trade policy going forward so that businesses can plan according to that.
[00:23:38] Speaker B: Just on what Ed said there, this is a bit of a crystal ball question or a what if? Say, for example, the supreme court rules against IPA tariffs in early 2026, as some say it could do.
Refunds are estimated to likely top $100 billion, assuming everyone keeps all their paperwork. So there's a good message out there for you from Ed.
How would the sudden end of tariffs and massive rebates reshape supply chain strategies as you feel fit?
[00:24:11] Speaker D: I mean, look, I think it would be a boon to the economy if, you know, there was refunds because these tariffs have been a burden. It's not just the tariff payments, it's the uncertainty, it's the burden of compliance. But, you know, then again, the administration is going to respond with other tariffs because they want to keep in place their deals that they've been trying to negotiate. I'm quote, unquote deals, because we haven't seen a lot of the. The documentation of these deals yet. But they believe in tariffs and the power of tariffs to enable more manufacturing in the United States and to create more economic independence from global markets. So in other words, autarkies, no matter what happens with these tariffs, I. E. The tariffs under the Supreme Court, you know, if they actually get to the Supreme Court, there will be more tariffs in the future because that's what the administration wants to do.
[00:25:04] Speaker B: So get used to chaos. Jess. Ken, do you want to come in on that at all about the rebates?
[00:25:09] Speaker C: Yeah, I think I agree with Ed. I think, you know, they, they have a goal and a kind of plan in place. So if this avenue shut off, I think they have a commitment to a certain way of approaching it. And I think as far as retailers, you know, in the near term, retailers are planning for what they know now and further out, really planning for a number of eventualities. So is there going to be a rethund? Are there going to be different types of tariffs that I think, you know, that given how dynamic this trade landscape and how operationally, you know, retailers are just trying to plan for all of these possible outcomes. I mean, the good news is that the COVID era and the near constant disruptions of the past few years have really strengthened that contingency planning muscle and the flexibility around that. So I Think, you know, in particular, when, when you're asking about kind of what does that mean for kind of the sourcing landscape and what countries, you know, people are companies are sourcing from. I think the tariffs are one of the data points in that calculus, but not the only one. So large retailers continue to reevaluate that sourcing footprint and look at different scenarios and build those supply chains that function even in a disrupted environment, and come what may, with tariffs and court decisions and so forth down the road. Again, it just goes back to that kind of unpredictability and lack of certainty that makes it really challenging for any US businesses to plan.
[00:26:25] Speaker D: Mike, can I add one point here?
In the overall scheme of things, one of the administration's goals seems to be avoiding too much Chinese content in products. And they're posing this 40% transshipment rate. And it's not just products directly moved through third countries, it's potentially products where there's a high percentage of third country content. And I think their goal here is not high content coming from a Southeast Asian country or, you know, a European country is really about China. And so we don't know how that's going to be applied, what the rule is going to look like. But this is something that all the R member companies are looking at and trying to prepare for because it's really hard to get rid of inputs or raw materials that start off in China and ended up in a third country. This is part of the equation now that we all have to grapple with.
[00:27:19] Speaker B: Well, when you have a more complex system, people, you know, the game is always going to be workarounds. There's no point denying that people won't be trying to do that. But the transshipment element, maybe Ken, can speak to this in a second. The transshipment element. If you're in freight markets, you think of transshipment as a container shipping strategy, right? This is how the carriers have set up their networks. It's you go into your main hub and then you transship and then you could get access to a whole load of all the ports, just to simplify it. But this is what we're talking about here, Ed, is it's very different, isn't it? It's very hard to follow. You're saying the rules aren't clear yet?
[00:27:51] Speaker D: No. The CBP hasn't offered any new guidance on this. The USTR hasn't come up with an approach on what they actually mean by a transshipment.
Is it a rule of origin that it gets applied for every Single country that's uniform. I mean, we just really don't know what this looks like in practice yet.
[00:28:10] Speaker B: Ken, feel free to answer to any of those points that we've just been talking about. But I'll just bring you back on container shipping markets as well, if I may. Spot rates are still sliding on the Trans Pacific. Some say peak season's been and gone already, at least on the Asia US Lane. That's not necessarily true on Asia Europe.
Others think the latest tariff truce between the US and China could see a late rally. What's your reading?
[00:28:36] Speaker E: Yeah, sure. It's interesting. Jess talked about, you know, shippers want predictable and really what they don't have is predictable. And so they really need to just end up with flexible and resilient as a, as a second option, I think for the tariff pause. And when you kind of think about what, what does another 90 days look like, you're now firmly into, you know, the normal traditional peak season, right. That second half of August, September and October period. And so you could argue that, you know, most of the holiday goods will end up getting into the country, you know, before, majority of them will get there before that deadline. And so that's probably makes it pretty important to catch it, right. As we saw, you know, certainly as we saw with the first extension. I think the thing that we didn't know then and we don't know now is will something happen in between, right. And we don't, we just don't know that. And so I think, you know, there it gets to, you know, when I make a strategy to hit a deadline, it assumes the deadline is written in pen and it's not, it's written in pencil right now. And so I think to the extent people can say, I know what's going to happen, I'd be wary of those people. I don't know. I think none of us, you know, I think everyone, everyone talking today, you know, we all know that this could change on a dime, right? Where, you know, obviously and, and there's this direct tension between geopolitical and economic right now. And so there's a lot going on in the world.
And so, you know, we think that there is still holiday goods that need to be shipped. We think they do come in that traditional peak period. And we think that potentially news on tariffs could push that out a little bit or extend. But you still end up with those deadlines of getting stuff in pre holiday, right. That doesn't ever change. And that kind of puts a bit of a line in the sand. But we don't think the, with all the, everything we see on the economy, although there are some headwinds, there's still lots of good news. And so we, we are moving along pretty well. The consumer is pretty darn resil, thankfully, and so we don't see a collapse. We also don't likely see, you know, we don't think that this run up looks like what we saw in the spring.
But that's not to say that rates can't creep back up.
[00:30:40] Speaker B: This uncertainty around transshipment is that coming up with your, with your shipper partners, your carrier partners, your forwarders, are people talking about this or, or are you just hoping that someone can hand it down, some proper guidance?
[00:30:52] Speaker E: I think the, the worst part was the use of the word transhipment for shipping people meant ships in ports like Singapore and Busan. But I think as it relates to, as CBP is talking about transshipment, you know, I think the thing that people aren't thinking about is, you know, if you look at from say 2017 till now, 23, 24. Right. China's down from 21% to 16% of our imports. What's up though, of course is China to Southeast Asia, China to India. And so elongated supply chains, more complex supply chains. A lot of these raw materials and component parts are coming from China still. And so that transshipment piece is real and it does add complexity. And so I think for shippers thinking about lead times and what do I plug in my ERP from purchase order date to NDC date, you have to really start thinking about as we elongate the supply chain and add those intermediate steps, what does that mean for me? And that gets back to not only, you know, their goods, but also global capacities. Is there going to be enough, are there geographic issues with that supply and demand side? And so I think, you know, it's a pretty complex question and I think a lot of people are struggling and you know, we do a lot of work with companies on this, on the consulting side of our world to try and help them kind of map that out.
[00:32:11] Speaker B: How do you plan ahead? You mentioned flexibility. You obviously have to plan for uncertainty. But what does that look like as you look maybe beyond Q4, maybe towards. We normally have a brief sort of rally in the container shipping market. Demand spikes ahead of Chinese New Year, but who knows what that looks like if there's no tariff truce on with China? How do you plan for that? And how does that then feed into your Trans Pacific contracting strategy for next year?
[00:32:39] Speaker E: Yeah, we start everything with modeling supply and demand around here. And so we really believe that liner shipping is incredibly sensitive on service and price to supply and demand changes. And so you know, if you think about kind of order book to fleet, so things, you know, obviously we're tracking like, like many companies we're tracking, you know, total order book, order book to fleet, which is now at like 29%. Which you know, if you think about it, the last time that number hit was, you know, prior to the spike in right there in the middle of COVID was you have to go all the way back to, you know, about 2011 when the order book to the fleet ratio was that high.
[00:33:14] Speaker B: Yeah, it's record order book.
[00:33:16] Speaker E: Yeah, but, but of course, you know, that doesn't tell the whole story because you end up getting to, you know, when is that order book going to show up? So this, you know, this year there were about 6% order book to fleet, you know, delivered. This year it drops down next year it's about 4% and then it goes back up to 6%. And so when those ships appear, we also, we all have to accept the fact that probably, you know, somewhere between 6 and 10% of the global fleet is tied up with ships running around Africa versus going through the Red Sea and to as. And so that could instantly put a supply increase in. We don't think that's a, doesn't sound like that's going to be a near term thing that happens, but it will happen invariably at some point. And so, you know, we really think about modeling out the supply demand side. Really tough to do because both variables have lots of unknowns in there. But for us, as we think about 26, you know, what we know is the fleet is increasing.
We don't necessarily see if you think about GDP to trade growth ratios, you've kind of been in this one to one and a half X kind of band for the last number of years. There's not a lot that says there's a massive oversupply next year other than the Red Sea opening up.
[00:34:26] Speaker B: But there's also nothing massive excess supply. Right.
[00:34:30] Speaker E: It's really going to get tight either. And so, you know, with those 850 ships coming over the next four years, it looks like there's a bit of a balance with maybe a bias towards oversupply until the Red Sea opens up and then it looks like it certainly tilts back to an oversupply for the most part.
[00:34:48] Speaker B: I will be doing a deep dive on container shipping, but yeah, it's a very interesting market. It's sort of been relatively tight since the Red Sea closed. But if you look at that massive order book and then if you look how much capacity is tied up not going through Suez and going around Southern Africa, that market could change very, very quickly. But then you have to set that aside against the carriers have learned some lessons from COVID There's a lot of ships out there that could be scrapped, so plenty to keep an eye on. Let's finish by looking a little further ahead. Jess, what does the retailer of the future supply chain look like in this new tariff world? Are we moving towards permanent diversification or will costs eventually push business back to China?
[00:35:34] Speaker C: You know, from a, you know, sourcing footprint and diversification standpoint, your tariffs definitely have an impact and can be significant. However, you know, they are just one of multiple data points in that, you know, retailers sourcing calculus.
Regarding China specifically, you know, the reality is that overall many retailers had already been diversifying away from China for years before the current administration for multiple reasons, you know, apart from tariffs or anticipated tariffs, including cost, political climate, development of other, you know, sourcing options and so forth. You know, and, and to Ed's point, I think it, it brings up an interesting question as you see more of China shifting into other, other nations, what the true kind of China content of something is.
As for kind of the, the retail supply chains of the future, you know, we talk a lot about that. You know, I realize a big theme in our annual link retail supply chain conference. We're having a lot of these conversations.
I think apart from tariffs, even you know, modern supply chains are, are diversified already. I think it's just a part of survival in this kind of current geopolitical context. And these modern and supply chains of the future are very technologically enabled, assisting with a lot of these contingency planning that we talked about and putting data to work for building those supply chains. And these supply chains are really built for, to Ken's point, to feature responsiveness, flexibility, resiliency, especially given the frequent ongoing disruptions, whether those are trade related, geopolitical weather, climate related, armed conflict, you know, otherwise, whatever the particular disruption of, you know, the day is leading, retailers are always going to, you know, find a way to adjust and adapt the supply chains to ensure that their customers get the products that they need and want, you know, where and when they need them.
[00:37:18] Speaker B: Ed, for tech companies, do you see innovation in supply chains?
I'll, I'll throw some ideas at you. Digitalization, near shoring, AI driven procurement, bringing it home. Reassuring.
Take your pick. Could Any of that offset the pain of tariffs? Or will policy always trump strategy? Sorry, I've just thrown that one in there.
[00:37:39] Speaker D: Yeah, pun taken, Mike.
But you're making a great point on how companies are using technology in their supply chains and in trade in general. So we are diving into this space on trade tech, and we think there's a lot of really great innovations happening in this space, and we're trying to identify the companies that are on the leading edge, whether it's using generative AI, like you said, digitization.
I mean, look, just the digitization of trade documents is just an important phenomenon. And getting rid of the paper and moving towards a paperless system. I mean, we've been talking about this for decades now, but I think it's really happening at the moment. And what I'm also hearing from companies is that they are trying to lean in to the use of artificial intelligence in terms of identifying risk, mitigating that risk, looking at their forward planning. I mean, all of this is a very exciting space, but in many ways, the tariffs and the uncertainty of the tariffs and the complexity of the tariffs is forcing companies to use this technology to reduce their costs and mitigate their risks. So I feel like this is an exciting time for trade tech, but I personally would rather have less tariffs than more tariffs because this is not good for business and it's not good for small businesses in particular, and startups.
[00:39:06] Speaker B: Ken, if tariffs are rolled back tomorrow, would buyers like the type of companies that Gemini represents?
Would they go back to old sourcing patterns? Or are they the changes of the issue this year and maybe also the first Trump presidency? Are they now set in stone, baked in? Take your pick.
[00:39:26] Speaker E: You know, I think you definitely have to see, and you kind of look at our, you know, use history as a guide for the future. I mean, we definitely saw some migration back to China, but the general bias after the first set of tariffs in the first Trump presidency, it mostly stuck. And I think, you know, that idea of diversifying the supply chain is embedded. I think Covid also really changed the way we think about risk. And so it wasn't something that people hadn't really thought this through necessarily as to how disruptive it could be. And so I truly believe that, you know, we won't see a complete rollback.
[00:40:03] Speaker D: I think it depends on the circumstances with each individual partner the United States is negotiating with.
Our position has been, if you're going to use tariffs, make sure it's leveraged to address barriers to trade in other markets, whether it's tariffs or non tariff barriers. And if the country makes meaningful commitments to reduce those barriers to trade, to eliminate them. If that actually happens in practice, there needs to be reciprocity on the US Side where they're reducing the tariffs in order to create a stronger, more durable relationship. That's gotta be the dynamic. And what we're seeing right now is tariffs as a permanent fixture and more tariffs coming down the road. This is not good for business. And the other thing about the diversification argument is that China right now is in somewhat of a driver's seat with this 30% tariff rate. I mean, obviously you have section 301 tariffs and other tariffs on top of that for certain products.
But it's causing companies to rethink, well, maybe China looks better. Like if you're a company and you move your production to India and your India is getting a 50% tariff or even higher, that doesn't look good. You got penalized for making that decision, you know, or Vietnam or, you know, there's further tariffs on products from Vietnam, which has a 20% I EBIT tariff. It's so hard for a company to actually say, here's where I want to source from or produce when you've got this constant uncertainty.
So my biggest takeaway is if you're in the rest of world and you're not in this set of 68 countries, you only get 10%. Rest of world looks like a great opportunity at the moment.
[00:41:41] Speaker B: Thanks for finishing us up there, Ed. That's it for today's episode. If you've enjoyed it, please do like subscribe and follow. Which leaves it just for me to say. Jess Dankert, vice president of supply chain with the retail industry leaders associated with association, Ken o', Brien, president of Gemini Shippers association and Ed Bristol, VP of International Trade at the Consumer Technology association, thanks for joining me today on the Freight Buyers Club.
[00:42:06] Speaker D: Thank you, Mike.
[00:42:07] Speaker E: Thanks for having us.
[00:42:09] Speaker B: Much gratitude to Karen Ball and Tom Matthews for all their production guile and skill. And thanks again to the Merco Express Group for sponsoring this episode. We'll be back soon. I'm Mike King. Thanks for listening into the Freight Buyers Club.
