Latest / The Loadstar / News in Brief podcast | Week 38 2025 | Bullish IMO and emerging rate war

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News in Brief podcast | Week 38 2025 | Bullish IMO and emerging rate war · The Loadstar

• 0:00
  Speaker A: Foreign.
• 0:06
  Speaker B: Welcome to the Lodestar Podcast. News in Brief. This episode is sponsored by Air Charter Service. Air Charter Service is the aircraft charter broker of choice for thousands of shippers globally. So if charter is the answer to your shipment, then contact Air Charter Service for a no obligation quote. Well, last week I was rushing around London attending various seminars and panels for International Shipping Week. On Wednesday was the main event, the headline conference at the International Maritime Organization. And this was really interesting, especially ahead of the MEPC meeting next month to decide if they're going to formally adopt the decarbonization framework for 2050. I mean, even just being in the IMO building was very, very cool. But IMO Secretary General Arsenio Dominguez said that he is very confident that it will be adopted next month. One major hurdle currently is US President Donald Trump's opposition to the IMO's framework for decarbonization and also the threatened measures of retaliation against any countries that support it. Obviously this along with the lack of suitable alternative fuels available. So it's going to be really interesting to see what happens in October. I think they need a two thirds majority of the countries in attendance to get it formally adopted. I also attended a talk on ship fires and they were warning that emerging products such as like new tech or chemicals are going to be an ongoing reason for increased ship fires. And they were saying that the difficulty is that these emerging risks are only really being identified through the process of carrying the cargo and then having the incidents. So there are obviously calls for increased vigilance and awareness around this. Now I think I've done enough talking. I'm going to take a breath. So I'm going to be bringing Gavin Vanmarle into the discussion. Gav, I just mentioned that we are getting close to the October deadline to decide about the IMO framework, but there is also another date in October and this is the implementation date for the USTR fees on Chinese vessels calling at US Port. And we spoke a bit last episode about the surcharge aspect from carriers. But I now want to ask you about networks because we had some reports on the Lodestar recently that carriers are beginning to redesign networks to avoid these fees, but that some carriers were yet to make changes. So what have we seen?
• 2:26
  Speaker A: Okay, so the portfolios are due to come in Force on 14 October. There's been some discussion over the last week. Some analysts have questioned whether it will be applied at all. I mean, my view is that it will because it comes from a bipartisan bill introduced before Trump's Victory and was passed by Congress. So I don't see how they can backtrack from that position given that all eyes are on A what Chinese built ships are on US trades and that is by the way, US trades that are longer than 2000 nautical miles, because under 2000 nautical miles there is a waiver and I think that was largely to not price out services into the Caribbean, et cetera. And B, the Chinese operators are set to be levied. So remember, the fees aren't just on Chinese built ships, they're also on Chinese vessel operators. So obviously chief amongst B is Costco and its double OCL subsidiary. Previously we reported that they could face about an extra $1.5 billion in extra costs. That was based on some calculations done by HSBC Last week, analysts at Linalytica suggested it would be about 1 billion. Frankly, Charlotte, we don't really know how much Costco OO are going to be in hop for. We don't know how much operators of Chinese vessels are really going to be in hop for until, you know, the fees start being assessed and then collected. However, final caveat for you, we did have this statement from Costco that they issued late last week. Begin quotes. While the port service fees may pose certain operational challenges, Costco Shipping Lines remains confident in our ability to ensure stable and reliable service to the United States. We are committed to maintaining stable capacity, deployment and service quality. At the same time, we are actively enhancing our product portfolio to meet the evolving demands of the US Market. We will maintain competitive rates and surcharges along with related policies that align with market conditions. So sort of a slightly opaque wording, I would say. I mean, you can hear it yourself, can't you? You know, there is clearly we will maintain competitive rates and surcharges indicates that, you know, surcharges might be on the rate. I mean, we talked about this in the previous podcast. Can they. In a market where rates are in a weak position, is there actually any wriggle room to start introducing surcharges? When you're the only carrier that really faces the extra fees, it's going to be difficult for them to push that through, I would think at the moment.
• 5:18
  Speaker B: But I mean, other carriers have been moving things around. As you said, they're in a bit of a difficult position because no matter what they do, they're going to be exposed to it. But some carriers have the luxury of moving their services around. So what's been happening there?
• 5:30
  Speaker A: Yeah, yeah, you're absolutely correct. And you know, they're doing what you'd expect them to do. They're removing Chinese built ships from their US services. So the story that we reported last week was that the Premier alliance was the latest grouping to rejig its services, switching Chinese built ships from a transatlantic service to an Asian Medstream. Industry wide. There's analysis last week for both Drury and Sea Intelligence which would suggest that there's still some way to go in this process. According to Drury's calculations, There's still around 100 Chinese ships on the TransBAC, another 33 ships on the Asia US East coast routes and another 44 on the transatlantic. So I would expect that we're probably going to be covering further developments on this subject over the next fortnight.
• 6:19
  Speaker B: Yeah, I went to a London Shipping Week seminar at law firm Watson, Farley and William and they were talking about the kind of pros versus cons of Chinese ships. They were saying there's some major discounting going on at Chinese shipyards to kind of counteract the cons of getting a Chinese vessel at the moment. And obviously Chinese shipyards global order book for the first half of 2025 fell from 72% to 52% of the global share, losing out to places like South Korea and Japan. But obviously this huge discounting, it has some advantages, especially if you're not exposed to the Americas trade. So there are some opportunities to be had here from certain people. So it's going to be interesting to see how that plays out after the fees have been introduced. But I mean this growing capacity is a big factor into what is happening on the rate side of things. You mentioned that, but you reported at the start of the week that there could be evidence of a rate war on the Asia Europe trade. So what, what evidence did you have?
• 7:19
  Speaker A: Okay, so just one. One thing quite sort of important to remember, that there's still a very large time lag between orders being made and the capacity actually hitting the water. Right. So. So a lot can happen in that time.
• 7:33
  Speaker B: Right.
• 7:33
  Speaker A: But nonetheless, the fact is that the industry is in a state of overcapacity at the moment. So on Asia, Europe in particular, Alpha Liner ran an analysis this week. They counted up. There are 31 full services between Asia and Europe, both to North Europe and the Med. And in order to fully staff each of those services so that it maintains a weekly schedule, you would need 461 ships as a total. However, Alpha Raina could only count 425 ships employed on these trades. A gap of 36 vessels. Right. Which based on the average Asia Europe vessel size of 14,000 TEU amounts to around half a million TEU of capacity. That's absent from the trade. And in the face of that, us, the analyst of Alpha, how come freight rates keep dropping? Because it would appear there's a natural capacity constraint on that. Its answer was that it indicated that a rate war is underway. And that to be honest, that was confirmed to me by several sources. One major forwarder told me last week it already looks like a rate war is underway. We're getting daily updates now with revised lower rates. The blank sailings and the investment adjustments so far appear to be having little or no effect on the rate erosion. So Asia North Europe rates as recorded by Drury were down 11% week on week. To the meds, they were down 9% week on week. Interestingly, the WCI for its Shanghai Rotterdam leg fell below what I think is quite a psychologically important mark of $2,000. And it ended last week on 1,910 per 40 foot. Looking for any sort of signs of a silver lining. My sources suggest that the demand slump and the rate erosion will certainly continue to golden week, probably continue after golden week. Although there are initial indications of demand picking up later in the year. So it might not all be terrible news for carriers.
• 9:41
  Speaker B: What about other major trades? What's happening on the Trans Pacific?
• 9:45
  Speaker A: Yeah, so the Trans Pacific has. There was a bit of bifurcation between the indices this week. The WCI had Trans PAC rates down sort of 4 to 5%. The SCFI, which we've previously sort of talked about, can often indicate where the other indices are going. The following week, the SFI was down 31% from Shanghai to the West US West coast and down 23% from Shanghai to the US East Coast. And that basically wipes out all the, all the gains that we've seen in this sort of little freight rate rally that's been going on on the Trans Pacific for the first half of September. So basically the headline on the Transpac is that after two weeks of rising rates, everything's going south again. Although the Zenithus XSI and freightos FBX recorded slight increases on their Transpac rates this week, the consensus amongst the analysts who are employed by those platforms was that they would start to fall again for the remainder of this month.
• 10:56
  Speaker B: Thank you very much, Gav. It'll be interesting to see what happens there. I look forward to chatting next week.
• 11:01
  Speaker A: Yeah, you're very welcome, Charlotte.
• 11:02
  Speaker B: And before we move on to the air freight section, I just want to take a moment to remind listeners that this episode is sponsored by Air Charter Service. With a network of 34 offices worldwide and 650 aviation specialists. Air Charter servers can always deal in your preferred language, time zone and currency, no matter where you are located. The team is available 24, 7 to help you with charter requests so that you can find the perfect solution quickly and efficiently. I'm now joined by Alex Lenane to talk about air freight. Alex, it seems from our coverage last week that air freight's been having a bit of a rubbish time. We've been kind of monitoring for the past few weeks what is going to transpire around peak season for air cargo, what with all the external volatility. But you wrote that there might not even be a peak.
• 11:50
  Speaker C: Well, if you believe FedEx's management from its earnings call last week, it was quite bullish on the fact there may be a peak, but that doesn't seem to be a popular opinion. Transport intelligence in its Q3 air freight rate Tracker points instead to a dampened peak season with all the short lived spikes now over. It does concede that there's a lot of fragmentation, so not all routes are faring equally, but the overriding sentiment seems to be that sort of despite pockets of tightness, a combination of high capacity and muted demand points to softness. Tacindex appears to agree, noting that rates have edged lower. Capacity is outstripping demand, which doesn't herald well for carriers and this week saw for example Kalita take on two, Triple seven Silkway took on one, there's more capacity coming in. So I had quite an interesting chat with a mid sized forwarder about capacity. He said he was booking much less long term capacity, keeping an eye on the spot market and that he didn't want to put all his eggs in one basket. He said this year has been much harder to predict the most, as I think we all know.
• 12:54
  Speaker B: Yeah. In particular we looked at the struggles faced by Indian air freight stakeholders. I mean presumably this is to do with the huge 50% tariffs they've got when exporting to the US, right?
• 13:07
  Speaker C: Yeah, that's exactly it. So World ACD said that the India US downturn was about 14% last week, with rates falling below the $4 per kilo mark for the first time in months. So we asked a selection of Indian forwarders for their take on it and they agreed. It is a very tough market. Most said they're in kind of wait and watch mode with exporters, particularly in sectors like garments, having cancelled or deferred orders. So shipment sizes are being reduced significantly. But shippers you know, ever adaptable, are looking at the Middle east and Europe instead, while others are calling for more bilateral trade agreements. But, yes, it's all a bit of a mess in India, and we had.
• 13:48
  Speaker B: An exclusive too, that one Indian forwarder in particular is struggling to stay afloat. I mean, what are the details? Is this related?
• 13:55
  Speaker C: No, I don't think it is related, to be honest. There have been quite a few startup digital forwarders shutter their operations in India. This latest one, which was actually backed by Tiger Global and Nippon Express, is Wizz Freight. It appears it ran out of money after acquiring two businesses employing thousand people. It had operations in the us, Southeast Asia and the Middle east, but it ran out of funding, investors stopped the cash flow, and its policy of capturing a lot of cheap volumes turned out to be unsustainable.
• 14:27
  Speaker B: And finally, Alex, you had an interesting story about Russian cargo airline Volga Dieppe after the news that the Russian government had rejected the takeover plan. So what prompted this decision from them?
• 14:38
  Speaker C: Well, Volga Dnieper founder Alexei Isakin has found himself in legal trouble after a raid at the group's offices. At the same time, Volga was running out of cash. With very little business and 1,500 employees still on the books, he offered the group to the government, which was thought at the time to be a bit of a bid to stay out of prison. But the government, rather ironically said it didn't want a sanctioned airline on its books. Anyway, a new buyer who was fired as CEO of Red Wings over maintenance trouble, has sent Volga a proposal which will see it return airbridge Cargo's Boeing aircraft to lessors and reinvigorate Volga's Russian operations. We will see what happens next. Nothing's certain at all, but I don't know. I feel that Isaacin should really be celebrated for all that he's achieved in air cargo. I mean, hundreds, maybe thousands of people have been trained by his airlines, and there's a whole slew of senior executives who've worked for Isaac Kin over the years. He hasn't always made the best decisions, but to have built numerous freighter airlines is, I think, quite an extraordinary thing. So I'm sorry to see this sad end for the group.
• 15:49
  Speaker B: Also, I want to ask you about Lodestar Premium. I mean, they've been reporting lots this week, but what have been the highlights over there?
• 15:56
  Speaker C: Yeah, just briefly, Premium, of course, had a great take on the FedEx earnings call, plus another exclusive on new management changes at Coon and Nagel. In the uk, there was an analysis on the Mega Rail merger between Union Pacific and Norfolk Southern, plus a deep dive on dhl. I mean, that's just a shade of what was on premium this week. So I advise you all to go and look at premium.
• 16:19
  Speaker B: Thank you very much, Alex. Appreciate your time.
• 16:21
  Speaker C: Thanks, Charlotte.
• 16:28
  Speaker B: So now we have recapped all the main events of last week's supply chain news. Here is what you might see coming up on the Lodestar. Well, it is the Caspian Air Cargo Summit this week, so I'll be over in Baku getting the very latest in air freight trends from the people who are right at the heart of the operations. I'm hoping to get some exclusive interviews over the few days that I'm there, as well as obviously reporting on the panel discussions. So I'm really looking forward to that. And I'm really looking forward to going to Azerbaijan. It's somewhere that I've never been and I think it's safe to say that I probably would never have gone if it wasn't for this job. So yeah, I'm really looking forward to that. We are also launching a brand new podcast episode in collaboration with Raft AI that is set to be released on Tuesday and it goes into detail about the use case of AI in customs operations, which is a very hot topic right now, and one that Raft and one of its customers were able to shed some real light on. So do tune into that episode if that interests you. And also just a reminder that last week we released our podcast with Container Trade Statistics about the dynamics impacting the ocean freight market and there are a lot of them and also how this is translating into TEU data. That is also a really interesting listen if you haven't already. Thank you so much for joining me and I will see you next episode.