Latest / Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros / Episode #28: Lufthansa’s 20,000 Flight Cancellations and the "More Closed" (Dire) Strait

Transcript

Episode #28: Lufthansa’s 20,000 Flight Cancellations and the "More Closed" (Dire) Strait · Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros

• 0:03
  SPEAKER_01: My god, I saw an announcement yesterday that Luftanza cancelled 20,000 flights, I think it was.
• 0:08
  SPEAKER_01: First I thought it was flights for 20,000 passengers, which would be a large number.
• 0:12
  SPEAKER_01: 20,000 flights over the course of the next year, uh, due to uh concerns about fuel.
• 0:19
  SPEAKER_01: Obviously, the air cargo impact from fuel not getting out from the build state is just absolutely massive.
• 0:26
  SPEAKER_01: Can you talk to what that impact is?
• 0:29
  SPEAKER_00: What it's doing to rate It's removing much more significant in air cargo.
• 0:37
  SPEAKER_00: So jet cool prices are still more than double for the war.
• 0:41
  SPEAKER_00: That thing to make people uh start months about the same part.
• 0:49
  SPEAKER_00: Um but uh even so the stuff is already having much more of an operational impact.
• 0:54
  SPEAKER_00: For Air Edge, um almost all of the top 20 air carriers at least cancellate some flights without taking any mass cancellations.
• 1:05
  SPEAKER_01: Container bytes episode, I don't know, and I still always insist on starting with a number, even though I never know it.
• 1:11
  SPEAKER_01: Hey Judah, how you doing?
• 1:13
  SPEAKER_01: Hey, how are you?
• 1:14
  SPEAKER_01: I am well, besides that awkward start.
• 1:19
  SPEAKER_01: Let's not edit it out.
• 1:20
  SPEAKER_01: Um but let's get into freight.
• 1:23
  SPEAKER_01: Um we were we started off last time talking about Streets of Hermuz, uh whether there's actually a blockade there or not.
• 1:29
  SPEAKER_01: I think the answer right now is a resounding yes with ships getting stopped.
• 1:34
  SPEAKER_01: So let's let's start with that.
• 1:36
  SPEAKER_01: Where are we right now with the uh ships moving through Hermuz and what the impact is on the container market?
• 1:43
  SPEAKER_00: So um, like you said, ships are getting stopped.
• 1:45
  SPEAKER_00: That's kind of been the the escalation.
• 1:47
  SPEAKER_00: As we know, there's been a U.S.
• 1:49
  SPEAKER_00: blockade for about a week now, and that kind of escalated to not only, you know, instructing vessels to turn around, but actually intercepting and boarding an Iranian vessel.
• 1:59
  SPEAKER_00: Um just yesterday, kind of mirroring that escalation, there were reports that uh Iran boarded two actually container vessels uh belonging to MSC, so that's also been kind of an escalation.
• 2:10
  SPEAKER_00: In the meantime, we had reports towards the end of last week that the street was open, and you saw kind of a big rush of vessels trying to exit the Persian Gulf.
• 2:18
  SPEAKER_00: Um, and then that was kind of counteracted by uh another uh uh you know announcement or action by the RRGC.
• 2:26
  SPEAKER_00: So the first one was kind of by the, I think, by the foreign minister of Iran, and that was kind of counteracted that in fact the the uh street remains closed.
• 2:33
  SPEAKER_00: In the meantime, there was a ceasefire that um expired and then was extended.
• 2:38
  SPEAKER_00: So there's been a lot of kind of drama back and forth.
• 2:41
  SPEAKER_00: Bottom line is that the street remains closed, maybe more closed if there's such a thing than it was before.
• 2:46
  SPEAKER_00: We are seeing these escalations.
• 2:48
  SPEAKER_00: Um that being said, during this period over the weekend, it seems that some vessels actually did get out, including about eight container vessels.
• 2:55
  SPEAKER_00: So that reduces the amount of container capacity that had been stuck in there.
• 2:59
  SPEAKER_00: So there are still vessels going in or out.
• 3:01
  SPEAKER_00: I guess mostly some trying to get out, but for the most part, yes, it remains it remains closed.
• 3:06
  SPEAKER_01: And if we very quickly zoom out, I mean, obviously what we've been talking about for the straits is that container traffic is the impact on container traffic is relatively limited to the the Gulf states that rely on on the Straits of Farm movies to actually get access to their ports.
• 3:23
  SPEAKER_01: The much broader impact is on the global fuel market and how that spills over into air and ocean.
• 3:29
  SPEAKER_01: We'll touch on that in a second.
• 3:30
  SPEAKER_01: Uh, but let's start off for a second on the container rate side side.
• 3:33
  SPEAKER_01: Like what are you seeing?
• 3:34
  SPEAKER_01: Right, and I think also last time you mentioned that those GRIs, especially in the United States, you have to file 30 days in advance, are starting to kick in.
• 3:41
  SPEAKER_01: So where are we right now in terms of ocean freight rates uh globally?
• 3:46
  SPEAKER_00: Yeah.
• 3:46
  SPEAKER_00: So if we start kind of regionally, if you're trying to ship things in or out of the um, you know, of the Gulf states, it's still very, very expensive.
• 3:54
  SPEAKER_00: And you know, there are these alternatives set up, but operations there are kind of challenging, right?
• 3:59
  SPEAKER_00: They're not kind of set up for these types of uh volumes.
• 4:02
  SPEAKER_00: Volumes, you know, containers are going to alternate ports and then going uh over land to their final destinations, and that's very expensive and sometimes getting more expensive.
• 4:10
  SPEAKER_00: So there's just kind of an increase of uh charges for feeder services going from India to those alternative ports.
• 4:16
  SPEAKER_00: So that's very expensive.
• 4:17
  SPEAKER_00: As you said, for the broader market, it's really the issue is fuel costs.
• 4:21
  SPEAKER_00: And, you know, March, April into May, this is usually kind of a low demand, low freight rate time of year for ocean freight.
• 4:30
  SPEAKER_00: It's post-lunar year, pre-um peak season, and normally you see rates kind of decreasing and then kind of maybe bottoming out for the year.
• 4:38
  SPEAKER_00: And we have seen rates increasing.
• 4:40
  SPEAKER_00: Okay, so for the Trans-Pacific, rates ticked up a little bit last week, and for both lanes are about$800 per 40-foot container higher than they were just before the war.
• 4:50
  SPEAKER_00: And this is during to both co both coasts, and this is during a period where we said that's not the norm.
• 4:54
  SPEAKER_00: So fuel costs and these uh various surcharges are pushing rates up, but not to the extent as kind of the carriagers had announced or planned.
• 5:03
  SPEAKER_00: And now uh announced rates don't uh necessarily mean that rates are gonna go to that level.
• 5:08
  SPEAKER_00: It doesn't mean that carriers necessarily try and push rates to that level, but it does kind of reflect the maybe the high-end aspirations, and we're not seeing those go through.
• 5:18
  SPEAKER_00: Even more pronounced for Europe, Asia Europe announced about$2,700 per container.
• 5:22
  SPEAKER_00: It's just nine percent higher than it was at the end of February.
• 5:25
  SPEAKER_00: In Asia-Mediterranean, rates uh increased by several hundred dollars, maybe I think$700 per container at a certain point in March compared to where they started at the start of the war.
• 5:34
  SPEAKER_00: And now they're down um uh nine, uh five percent lower than they were just before the war.
• 5:39
  SPEAKER_00: So we're seeing uh attempts, but nonetheless, kind of the market dynamics of low demand, high supply are still playing a pretty significant role.
• 5:46
  SPEAKER_00: There are additional surcharges, and that's for May, but we'll have to see if those if those are going to go through or not.
• 5:51
  SPEAKER_01: So NetNet as a U.S.
• 5:53
  SPEAKER_01: importer, not a terrible time and probably a little bit easier from a cash flow perspective, just because, as you said, times with the lower demand prices might be up a little bit, but a lot of them are expecting some very significant checks coming in soon from CAPE, right?
• 6:07
  SPEAKER_01: From from refunds on tariffs that were paid.
• 6:11
  SPEAKER_00: Possibly.
• 6:11
  SPEAKER_00: Possibly right.
• 6:12
  SPEAKER_00: That that got underway as well this week.
• 6:14
  SPEAKER_00: So um the uh uh CBP opened an additional portal as part of their customs portal ACE, as you said, is called CAPE, and uh importers are allowed now to kind of submit all the data uh necessary for the refund process to start, which isn't gonna be uh immediate.
• 6:32
  SPEAKER_00: It's not a completely automated process, but it could take, you know, as we were saying, up to maybe 90 days, and those refunds are supposed to start coming in.
• 6:39
  SPEAKER_00: So we might start seeing actual refunds, you know, in the next uh couple of months possibly.
• 6:43
  SPEAKER_01: Right.
• 6:44
  SPEAKER_01: It's nice to make money off of the tariffs.
• 6:45
  SPEAKER_01: I guess it's not really making money.
• 6:47
  SPEAKER_01: Can you tell I don't manage my finances?
• 6:50
  SPEAKER_01: Um the I think the much bigger impact, like my God, I saw an announcement yesterday that Luftanza canceled 20,000 flights, I think it was.
• 6:58
  SPEAKER_01: First I thought it was flights for 20,000 passengers, which would be a large number.
• 7:02
  SPEAKER_01: It's like 20,000 flights over the course of the next year uh due to uh concerns about fuel.
• 7:09
  SPEAKER_01: Obviously, the air cargo impact from fuel knocking out from the Gulf states is just absolutely massive.
• 7:15
  SPEAKER_01: Can you talk to what that impact is and then we could get into like what it's doing to rates?
• 7:20
  SPEAKER_00: Yeah, it's certainly much more significant in air cargo than we're seeing in ocean.
• 7:25
  SPEAKER_00: So jet fuel prices are still more than double what they were just before the war.
• 7:30
  SPEAKER_00: That being said, they've eased a little bit.
• 7:31
  SPEAKER_00: They've come down about 12% in um since the uh start of the month and about the same from the from the peak in March.
• 7:38
  SPEAKER_00: Um but uh even so, as you said, it's already having a much more of an operational impact for air, as you're seeing um almost all of the top 20 air carriers at least canceling some flights.
• 7:50
  SPEAKER_00: So they're not seeing kind of mass cancellations.
• 7:52
  SPEAKER_00: Mostly it's for flights that are already borderline or not profitable, that they are canceling those flights to um to conserve on cost because jet fuel uh prices are so high.
• 8:03
  SPEAKER_00: Um there are concerns about availability also, right?
• 8:07
  SPEAKER_00: Not just price.
• 8:08
  SPEAKER_00: Um and there's are especially in places like Vietnam reports that there are just you know low levels of available fuel, and that would that would get worse.
• 8:16
  SPEAKER_00: Um I saw one report this week that that Europe may have only six weeks of jet fuel stock left.
• 8:21
  SPEAKER_00: So that would be a problem.
• 8:22
  SPEAKER_00: And it seems that even once um the strait opens, it's not gonna be an immediate replenishment.
• 8:27
  SPEAKER_00: It's gonna take time.
• 8:27
  SPEAKER_00: So that's certainly a concern.
• 8:29
  SPEAKER_00: If you get to the point where real, not just the cost of fuel, but the availability of fuel is a real challenge.
• 8:34
  SPEAKER_00: We'll really see sea carriers cancel flights that will reduce capacity and that will push rates um up uh even higher.
• 8:41
  SPEAKER_00: So um, yeah, the other part is capacity, right?
• 8:44
  SPEAKER_00: So the the uh gulf carriers are a big share of global capacity.
• 8:49
  SPEAKER_00: They continue to uh to rebound, right?
• 8:51
  SPEAKER_00: A lot of the airspace has reopened or at least reopened partially.
• 8:55
  SPEAKER_00: And I think those things are combining.
• 8:56
  SPEAKER_00: We have jet fuel prices coming down a little bit, we have capacity recoveries, we also have um non-gulf carriers adding flights to kind of take the place of those Middle East transits from Asia to Europe, so more more uh capacity going Asia to Europe directly instead of through uh instead of through the Middle East.
• 9:15
  SPEAKER_00: Um we want to be seeing that a little bit reflected in rates.
• 9:18
  SPEAKER_00: So the latest from Fredos Air Indexed, South Asia to Europe, prices are just below$5 per kilo, which is still quite expensive, but that's down 3% from from a week ago.
• 9:28
  SPEAKER_00: Southeast Asia to Europe,$4.80 per kilo, again, very expensive, but nine percent lower than was a week ago.
• 9:34
  SPEAKER_00: So kind of coming down from those highs.
• 9:36
  SPEAKER_00: Still, um, you know, Asia uh South Asia Europe is almost double what it was uh before the war, but you know, maybe at least uh a leveling off as we see kind of what's going on in the interim.
• 9:47
  SPEAKER_00: Um we're also seeing um on some other lakes, China and North America, our prices were up 2% last week,$6.40 per kilo.
• 9:54
  SPEAKER_00: That's expensive, but it's just 7% higher before the war would come down a little bit more.
• 9:58
  SPEAKER_00: So we might be seeing some stabilization from now.
• 10:00
  SPEAKER_00: But again, if the street remains closed or even more closed, whatever that means, and fuel supply actually comes under threat in some areas, that's going to be an even bigger impact.
• 10:11
  SPEAKER_01: All right, interesting.
• 10:12
  SPEAKER_01: And I yeah, I keep on you and I have been talking a lot about forecasting recently.
• 10:16
  SPEAKER_01: Uh spoil alert for some uh really exciting movies coming out from Fredo's, but uh just like looking at the spread that we've had over the past couple of years.
• 10:23
  SPEAKER_01: Like I just pulled this up where obviously in 2022, China US was at like sixteen hundred dollars almost fifteen thousand six hundred dollars.
• 10:32
  SPEAKER_01: Last year that route was at 2,300.
• 10:35
  SPEAKER_01: The previous year it was 3,100.
• 10:37
  SPEAKER_01: So we're just like, I mean, we're all over the place.
• 10:39
  SPEAKER_01: And right this year we're at about 2,600, as you said before.
• 10:42
  SPEAKER_01: Uh, we are all over the place.
• 10:44
  SPEAKER_01: And I I think you know seasonality has become important, but such a lower predictor of where prices are going.
• 10:50
  SPEAKER_01: Uh if you had to take a wild guess, and I won't hold you to this, about what we're gonna see for prices looking like over the rest of the year.
• 10:58
  SPEAKER_01: Like, would you are you are you guessing prices go up, stay the same, drop a little bit?
• 11:02
  SPEAKER_01: What's what's the uh what's the polymarket uh guess for this?
• 11:06
  SPEAKER_00: Well, you know, I think seasonality is still a big driver of when rains go up or down, um, but not necessarily how high they go or how low they're gonna go.
• 11:15
  SPEAKER_00: Right.
• 11:15
  SPEAKER_00: So before uh the the uh war and the closure of the strait, the big issue was overgrassity.
• 11:22
  SPEAKER_00: And so I think we're gonna see rates go up around peak season months and go down afterwards, but maybe not as high as last year, maybe a little bit lower.
• 11:29
  SPEAKER_00: Now, with fuel costs and and things like that impacting, we might see kind of maybe more on tar to what we saw last year as opposed to up until the start of the war this year, we saw rates much lower year on year, and they had been lower year on year in 25 can break to 24.
• 11:44
  SPEAKER_00: So um, I think it's a mix of the two.
• 11:46
  SPEAKER_00: So as they said, very hard to say, but I think it's a mix of seasonality and these kind of quote unquote external factors um impacting the the degree to which they go up or ground.
• 11:56
  SPEAKER_01: Fantastic.
• 11:56
  SPEAKER_01: All right.
• 11:57
  SPEAKER_01: Well, Judy, thanks very much for this.
• 11:58
  SPEAKER_01: Really appreciate it.
• 11:59
  SPEAKER_01: Looking forward to the next week.