Latest / Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros / Episode #36: The Sixty-Day Peace Clock and the June Rate Monster

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Episode #36: The Sixty-Day Peace Clock and the June Rate Monster · Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros

• 0:00
  SPEAKER_00: Hi there and welcome to today's episode of Container Bites, your short and sweet session on the latest in freight.
• 0:05
  SPEAKER_00: I am Julia Frowein, joined as always by our freight expert, Judah Levine.
• 0:09
  SPEAKER_00: Judah, how are you today?
• 0:11
  SPEAKER_01: I'm good.
• 0:11
  SPEAKER_01: How are you doing?
• 0:12
  SPEAKER_00: I am also good.
• 0:13
  SPEAKER_00: No birthdays this week.
• 0:14
  SPEAKER_01: In the per post birthday glow.
• 0:16
  SPEAKER_00: Post birthday glow.
• 0:17
  SPEAKER_00: You're very kind to say so.
• 0:18
  SPEAKER_00: All right, let's get to it.
• 0:19
  SPEAKER_00: It's been a busy few days, and it finally seems like Iran and the US are gonna agree to reopen the Strait of Homes.
• 0:26
  SPEAKER_00: At least according to President Trump, it'll be fully reopened by this weekend.
• 0:30
  SPEAKER_00: How long do you think it will be until traffic finally returns to normal?
• 0:33
  SPEAKER_01: So it will probably be a while, but basically, as you said, the US and Iran are set to sign an interim peace agreement or member of memorum of understanding at the end of the week.
• 0:45
  SPEAKER_01: And so it's going to include, as part of the agreement, the agreement to reopen the street of removes, meaning both blockades will be removed.
• 0:52
  SPEAKER_01: Reports are that that will be required within 30 days.
• 0:55
  SPEAKER_01: And that's going to start the clock on 60 days that the sides have to arrive on a final deal, a final peace agreement.
• 1:02
  SPEAKER_01: But the text hasn't been uh released, so there's really a lot of uh uncertainty about what all this means and what this means the timeline for reopening.
• 1:10
  SPEAKER_01: Um, as you said, President Trump said the street will be fully open by the time of the signing.
• 1:14
  SPEAKER_01: It is possible that the blockades will be removed by them, but even so, um, the consensus is that for a full return of traffic is likely going to take weeks and possibly months, because the narrow passage is made even narrower by the fact that there are possible mines in various places.
• 1:30
  SPEAKER_01: So there are only a couple kind of verified safe uh channels.
• 1:35
  SPEAKER_01: And for an already narrow waterway, um, just not big enough for all these vessels to exit.
• 1:42
  SPEAKER_01: At once, normal traffic is something like 150 vessels a day.
• 1:45
  SPEAKER_01: Um, so it will be a while till uh we get there.
• 1:49
  SPEAKER_01: Experts are saying it's gonna take several weeks for daily transits to recover to just half of the normal level, so it's going to be a while.
• 1:56
  SPEAKER_00: Okay.
• 1:57
  SPEAKER_00: Uh, what will the rate putting up a straight mean for the container market in general?
• 2:00
  SPEAKER_01: Right.
• 2:00
  SPEAKER_01: So, as we've said from the beginning, they're kind of two different groups.
• 2:04
  SPEAKER_01: There's the smaller group, which is container traffic going in and out of the Gulf, servicing the Gulf states, and kind of the broader market.
• 2:10
  SPEAKER_01: And so for the Gulf states, this could mean, you know, it might take a while again because it's just not the availability for all these vessels to pass at the same time or when they want to.
• 2:21
  SPEAKER_01: But it's coming that there'll be a resumption of port calls back to these Gulf container ports.
• 2:27
  SPEAKER_01: It's possible that there won't be the same number as there normally were because you know this is an interim agreement and vessels don't want to get stuck there again, or maybe as we approach the 60-day mark, but who knows?
• 2:37
  SPEAKER_01: Um, but it will ease uh ocean logistics for the Gulf states.
• 2:42
  SPEAKER_01: There have been these alternative ports and then land bridges set up, but they're not really structured to handle everything, and there are long delays.
• 2:51
  SPEAKER_01: Mersk has kind of stopped uh receiving bookings to to some of the services through through Saudi Arabia and then now are only going through UAE.
• 2:59
  SPEAKER_01: So that's been a problem.
• 3:00
  SPEAKER_01: So that will probably start to improve.
• 3:03
  SPEAKER_01: The broader market, as we've been saying, is really impacted by the price of oil and therefore the price of bunker fuel.
• 3:10
  SPEAKER_01: And the opening could mean some kind of near-term easing of fuel costs for ocean carriers.
• 3:16
  SPEAKER_01: But as we said, it's going to take several weeks for traffic to get back to you know half of normal.
• 3:21
  SPEAKER_01: It'll probably take much longer, maybe six months, for oil flows to normalize.
• 3:26
  SPEAKER_01: Because in addition to just equipment being out of place and damaged infrastructure, it takes time for oil to get to where it needs to go.
• 3:32
  SPEAKER_01: And for refined products like bunker fuel and like jet fuel, it will take even longer once that crude gets there to be refined.
• 3:38
  SPEAKER_01: So there could be some near-term easing for fuel costs, but it's probably going to be a slow and gradual process until fuel costs and oil prices go back to kind of pre-war norms.
• 3:49
  SPEAKER_01: That being said, the reduction in emergency fuel surcharges, um, those will impact spot shipments and will reduce prices there a little bit.
• 3:58
  SPEAKER_01: For larger shippers, though, they're only paying those higher fuel costs on their Q3 BAFs and their bunker adjustment factors, which go into effect at the beginning of July.
• 4:07
  SPEAKER_01: So they'll still be paying, or they'll start to pay those higher fuel costs over the next quarter, regardless of what the oil or bunker fuel markets do.
• 4:16
  SPEAKER_01: Once fuel prices do normalize, though, we could expect freight rates kind of to pick up where they left off before the war.
• 4:21
  SPEAKER_01: And we were seeing downward pressure overall on rates because of growing capacity, because of a growing fleet.
• 4:26
  SPEAKER_01: And if the peace deal kind of hastens a broader return to the Red Sea, some carriers have started going back to the Red Sea since October, and then when the war with Iran broke out, kind of did a U-turn.
• 4:37
  SPEAKER_01: So if that resumes or if there's kind of a more broad return, that would mean even more capacity back into the market, which would mean even more downward pressure on rates.
• 4:45
  SPEAKER_01: But given that this is kind of a drawn-out timeline for the oil markets and for fuel recovery, this easing is really going to come too late for peak season.
• 4:53
  SPEAKER_01: In any case, prices are spiking now in peak season because of demand and not because of the fuel component.
• 4:58
  SPEAKER_00: Okay, all right.
• 4:58
  SPEAKER_00: And as you just mentioned, so early ocean peak season demand push rates up sharply to start off the month.
• 5:03
  SPEAKER_00: Are they continuing to climb?
• 5:05
  SPEAKER_00: And how long do you think it will last like that?
• 5:07
  SPEAKER_01: So, yeah, so we saw rates climb very quickly to on June 1st GRIs and peak season surcharges.
• 5:13
  SPEAKER_01: There was a whole bunch of mid-month, June 15th, peak season surcharges and GRIs amassed as well, and kind of rates had stayed level for the first couple weeks.
• 5:22
  SPEAKER_01: And now that we hit June 15th, we're seeing them rise again.
• 5:24
  SPEAKER_01: So for Trans Pacific to the West Coast, rates have increased 25% just since last week.
• 5:29
  SPEAKER_01: That's on Bailey rates so far this week.
• 5:31
  SPEAKER_01: They're approaching$6,000 per container.
• 5:34
  SPEAKER_01: Um, and that's up$2,700 since the end of May.
• 5:37
  SPEAKER_01: So just in June, rates have increased$2,700.
• 5:40
  SPEAKER_01: To the East Coast, rates are uh went from$5,000 now to$6,700 per container.
• 5:47
  SPEAKER_01: We haven't seen mid-month increases yet, but we likely will.
• 5:50
  SPEAKER_01: Uh Europe, the Asia Europe and Asia-Mediterranean rates have climbed 10% since last week.
• 5:56
  SPEAKER_01: But Mediterranean rates are up$2,000 so far in June, up to$6,400.
• 6:02
  SPEAKER_01: And Asia Europe is up to$1,500 so far in June, up to$4,600.
• 6:06
  SPEAKER_01: So we're likely to see more increases mid-month.
• 6:09
  SPEAKER_01: They're probably likely to take because we're hearing reports of you know uh fully booked vessels and really nothing moving till July.
• 6:16
  SPEAKER_01: But the strong demand now, the strong demand early, a lot of it is front loading.
• 6:20
  SPEAKER_01: There's demand being pulled forward ahead of these BAF adjustments, as we mentioned, ahead of manufacturer prices increasing and ahead of tariff deadlines.
• 6:28
  SPEAKER_01: And so if that is being pulled forward, then it's possible that we've kind of already reached the peak and rates will start to either level off or start to ease in July, although carriers are announcing more increases to start July.
• 6:40
  SPEAKER_01: So it's a question of whether demand is going to hold up until then and for how long.
• 6:43
  SPEAKER_00: All right.
• 6:43
  SPEAKER_00: And speaking of tariffs, there were also some developments with trade war uh this week.
• 6:48
  SPEAKER_00: Last week we talked about the US government objections to refunding AIPA tariffs for liquidated entries, and this week it's about section one to two.
• 6:54
  SPEAKER_00: Can you share the latest, what's going on then?
• 6:57
  SPEAKER_01: Right.
• 6:58
  SPEAKER_01: So just to review, section 122 was this kind of interim tariff that is the the trade law is designed to address a balance of payments issue.
• 7:08
  SPEAKER_01: Uh and the the Trump administration uses to put in 10% global tariffs from the time that EPO was invalidated, and it's valid until uh July 24th, at which point the administration is working on other tariffs kind of to take their place.
• 7:23
  SPEAKER_01: But there were challenges to the section 122 as well in the Court of International Trade, and the Court of International Trade ruled against the government, saying that this the use of section 122 is not valid because it's it's being used to address the balance of payments issues that it hasn't really proved the case for.
• 7:40
  SPEAKER_01: And so that's gone to an appellate court, and just this week the appellate court said that those tariffs could stay in place until the appeal process is over.
• 7:49
  SPEAKER_01: So that had kind of been up in the air, and that will probably go past the end of July in any case.
• 7:54
  SPEAKER_01: Um, but also that it was leaning towards ruling in favor of the government, um, in which case that would mean that Section 122 tariffs would have remained valid for this stretch and these this 10% on global goods.
• 8:06
  SPEAKER_01: Um, one caveat is that it's really limited to, and therefore the government can continue collecting Section 122 tariffs.
• 8:13
  SPEAKER_01: Um, one caveat is it's really limited to the plaintiffs in this specific case.
• 8:16
  SPEAKER_01: So as opposed to EBO, where they kind of applied the ruling to all entries that came under EBA.
• 8:21
  SPEAKER_01: This one is just for those specific plaintiffs.
• 8:24
  SPEAKER_01: But if they had those plaintiffs had one, then there'd be precedent for everyone else to to sue as well.
• 8:29
  SPEAKER_01: But in any case, it seems like possibly we're not going to see Section 122 refunds, at least where things stand now.
• 8:35
  SPEAKER_01: But it's very possible that you know there's a ways to go because presumably they'll there'll be um uh further appeals as we move forward.
• 8:41
  SPEAKER_01: All right.
• 8:41
  SPEAKER_00: So stay tuned, basically.
• 8:42
  SPEAKER_01: Yeah, as always.
• 8:43
  SPEAKER_00: As always.
• 8:44
  SPEAKER_00: All right, thank you, Jude.
• 8:45
  SPEAKER_00: That's all we have time for.
• 8:46
  SPEAKER_00: If you enjoyed this session, please hit the subscribe button and you'll get notified about all our future episodes.
• 8:51
  SPEAKER_00: Thank you for listening and have a great day.