Latest / The Loadstar / News in Brief Podcast| Week 44 | Port congestion, Suez returns and Transpacific capacity crunch

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News in Brief Podcast| Week 44 | Port congestion, Suez returns and Transpacific capacity crunch · The Loadstar

• 0:02
  Speaker A: Hello and welcome to the Lodestar podcast, News in Brief, where we are going to be rounding up this week's main supply chain news in both air and sea. Coming up in this episode we are going to be looking at key takeaways from the World Port Conference. This week we are also going to be looking at the capacity crunch on the Trans Pacific in air freight and the current status of ships returning to the Red Sea versus the continued instability around the Strait of Hummers. Let's get straight into the episode. My first guest for this episode of News in Brief, back again is the Lodestar managing editor, Gavin Van Mul. Hello, Gav, it's great to have you back after such a long time.
• 0:44
  Speaker B: Thank you very much for being back. Yeah, it's lovely. It has been ages, hasn't it?
• 0:48
  Speaker A: It has been. But we've got you back. So we will kick off with some of the ocean freight news from last week. So we saw more news of port congestion. This has been a continued theme for the last few months and concern among car owners was rising that a strike at the Los Angeles Long beach port complex could turbocharge congestion there. That's what we reported. So to give details about 250 watchmen who perform security related duties at the container terminals, they were going to walk off the job at 5pm Pacific time on Wednesday if contract negotiations between the International Longshore and Warehouse Union, or ILWU for short, and the Pacific Maritime Association PMA failed to reach an agreement. So the latest on this is that the PMA and the ILWU Local 26 agreed to extend their contract through to midnight Pacific time on Friday night, which is November 6th. Obviously we're recording just before that, so we can't give any updates there. But Gav, in general, you've just come back from the World Ports Conference in London this week. So what were the major topics that people were speaking on was the worry of port congestion. Is that something that kept coming up?
• 1:57
  Speaker B: Yeah, well, sorry to just go back to the very specific question about the ILW year and in San Pedro ports. So just on that, I mean there were actually at this World Ports Conference in London, which I will come to in just a sec, there were quite a few people from that region and you know, no one could talk on the record or anything. But you know, privately the sort of, the general consensus was that there would be an agreement and a strike averted. I did an interview with the Port of Long Beach's chief executive and he was, because actually another thing's happening in Long beach on the 7th that they're, they're closing this bridge for 16 months, which is one of the bridges that runs across the harbour. And that's going to cause its own problems. And so to mitigate that they're actually extending the gate hours into Friday evenings and at the weekends. So, and then, and then Gene Siroca, the, the, his counterparts at the Port of Los Angeles Authority, he was on the stage for one of the sessions and noted that actually some of the dock workers there had actually been asking for extra shifts. So what I'm trying to convey here is I think there has been, there is, I don't choose my words carefully here, but I don't think that there's quite the combative nature of the relationship between employees and employers that there has been in previous years.
• 3:18
  Speaker A: It's
• 3:18
  Speaker B: been a really, really strong year for those ports. But we'll come to that in a bit on the World Ports Code. So the World Ports, it's the sort of annual gathering of the International association of Ports and Harbors. So it's essentially a body for port authorities more than terminal operators, although terminal operators do tend to become associate members. And in that respect the conversation at the World Ports Conference tends to be sort of one step removed from day to day operations. And so most of the sort of the news that really concerns its members were sort of things around sustainability and position papers that they agree on at this conference and then they take those positions to how it will affect the port industry. At the IMO where the IAPH is an observed is an observed has an observer status. But of course congestion came up as a theme constantly. But the, but it was, it was more of a sort of background really. And you know, there are a lot of challenges facing ports and for these guys it's more just a one of array of issues rather than the central feature than it is for many of our readers and listeners.
• 4:32
  Speaker A: Yeah, no, it has been a challenging few years for the port sector and I mean when they make these changes that obviously cater to the vast amounts of capacity that's coming on stream, I mean it takes a long time to do that. So yeah, I can imagine that these, these conversations were for fairly worried ones, but hopefully productive. Gav we also reported this week that all the mainline operators look set to resume Suez Canal transits for Asia to North Europe and Asia to Mediterranean services. Israeli carrier Zim is the only major shipping line sticking to the cap route, which we can probably attribute to its nationality. The Gemini Corporation partners Maersk and Hapag Lloyd have previously signaled a full resumption by Q1 2027, which is approaching very soon. And also one of my shipper contacts pointed out that MSC have also switched most of their services back via the Suez. They said that it was quite an interesting time now to see what the rates and annual pricing does in light of all of this. Have you noticed any impact of these reroutings? I know when the whole situation started there were lots of warnings about congestion and knock on effects when mass reroutings ensue. They've done it quite gradually. So has, has this been avoided?
• 5:37
  Speaker B: Okay, so there are two scenarios that have been outlined in return to cs. One of this has been that, and I've heard it, and you've heard it presumably from shippers and forwarders, particularly shippers, is that once people start returning to go through Suez, the rates are going to drop and they're really going to sort of claw back some of the money that they've spent on the Cape. And the other scenario was that when Suez would open, all the carriers would rush back, creating massive port congestion in Europe. And you know, I'm just going to say, well, basically if you look at the rates as they are today, if you look at them, how they've performed over the last month, really where we can really see that, that return, that Suez resumption happening, I mean Asia, Asia, Europe, rates both in north and north Europe and the Mediterranean have actually, you know, spent the second half of October either flat or actually increasing. So, so that doesn't really support that. And in fact, and it's the same on the Asia, US east coast trade because we have to remember that the Suez was quite an important waterway for that trade. You know, there was a good 30 to 40% of the services that connect Asia to the US East coast actually transited via Suez rather than the Panama Canal. And if you look at the spot rates on those, those trades, it doesn't really look like they've been, you know, pushed down by a sudden release of capacity at the same time the return, it has been staged. We have seen it go, you know, it has been the case. It's been a couple of services one week, a couple of services the next week. There has been a sort of staging that, that, that fear that suddenly Suez would reopen, all the carriers would suddenly bypass going past Colombo, would suddenly turn right and head towards the Red Sea rather than going left and going around the Cape and then, and then ships that were halfway up the coast, west coast of Africa, arriving at port at the same Time as a ship that came through Suez and you know, creating this massive sort of, sort of mega vessel bunching and that then causing very serious port congestion and that port congestion then causing a big upsurge in rates because that's always what happens. Well that hasn't happened either.
• 7:54
  Speaker A: Gav, you mentioned spot rates there as well and I wanted to ask you about that because you were talking about Asia, Europe. But we had an Alpha Liner analysis this week that showed us that carriers are earning up to $1.30 per nautical mile, which doesn't mean a lot to me. But that's on spot shipments from China to the US west coast and Alpha Liner said that that makes the Trans Pacific by far the most lucrative major contain China trade with returns on China to Europe being significantly lower. So do you have any indication of what the Trans Pacific rates are doing this week and what is driving those higher rates?
• 8:24
  Speaker B: Well, yeah, I mean, I think, I mean obviously the Alpha Liner analysis will have been slightly retrospective so and it has been. There's been very strong volumes, pricing's been really strong on the transfer. So this is no, no news to anyone. Again, I refer to my, the interview the, with the guy from Port Long beach that one of the things he was saying was that there was a lot, he thought there'd been a lot of front loading partly to get in before the USTR 301 port fees which were due to be applied. I think it was at the beginning of October, wasn't it? Or beginning of November and then, sorry, it was beginning of November and then they've been pushed back to the 9th of Jan. So he thought there had been a lot of front loading to try and miss that November deadline. And now that the, the goal posts have effectively been moved, he suspected that there would be more front loading before the 9th of Jan. As far as spot rates this week have gone, it's, it's, it's just a very, it's a really murky market. So they're, they're sort of down 2% from Asia into the North Europe. They were down 3% into the US East coast from Asia and then they were flat both to the Mediterranean and to the US west coast. So I think the strength that Alpha Liner had been seeing over that extended peak season is probably not as quite as pronounced as it is at the moment. Although we wait to see what the postponement of the 301 fees would be. Secondly, we have possibly the beginnings of the pre Chinese New Year rush coming in now. I don't know whether that's quite yet or whether it comes in weeks. It's an early Chinese New Year this year so it's going to start on the 6th of February I think if memory serves. Correct. And that's, that's a good couple of weeks earlier than it was this year. So I was been speaking to some of our European forwarders here about spot rates and stuff and you know they were. Because the year the Asia Europe spot rates they suddenly, they rebounded slightly. We thought the peak was behind us frankly from about the end of July and from the end of July it had been a slow downward slope and we suspected that was just going to continue that way until the pre Chinese New Year peak. But they sort of rallied a bit second half of October. Now people have been telling me that these second half of October rates were extended by the carriers into the first half of November but in recent days they're apparently now beginning to drop. So demand level are uncertain. But there is a suggestion that some of this is around a possible early Chinese New Year peak. So. Yeah, so, so actually that's, that's, that's really about it on the, on the right side we mentioned the front loading on the Trans Pacific and we'll see what happens with, with the USTR things and whatever else is likely to come out in terms of trade policy from the US after.
• 11:26
  Speaker A: Yeah, no, I think it is, it's been quite a good year for, for carriers in terms of rates. I think it was today Maersk Maersk upped its guidance for, for full year profit which is interesting.
• 11:37
  Speaker B: But then you know we've just had, we had the CTS numbers came out today as well for September and that another really strong month of, of volume growth. A lot of these trades. I mean it's interesting, you know we were looking at, we were talking about the Suez return and we were talking about the effect that didn't seem to have had on rates and we were, you and I, Charlotte were in a call with, with Container Trade Statistics this morning and Nigel their CEO was telling us a theory that he'd had which was that, you know that that capacity that's been released from, from the return to sewers which I, I noted that Zenitha today by the way put a number on that that I think they said, yeah, so 600,000 TEU of capacity has now been released by the return to Suez. That's a lot. But what Nigel is saying is you don't seem to, you know, the ships are still very utilized going into the Mediterranean and it's his theory that that capacity has actually been deployed elsewhere. You know, you've got, you've got Hapag Lloyd starting new, two new standalone Asia Latin American services. So there might well be that that capacity doesn't just sit there on the med. In fact, it's unlikely to. It's much more to go towards those faster growing growth trades that we've spent the last two years talking about. Latin America, Sub Saharan
• 12:56
  Speaker A: Africa,
• 12:57
  Speaker B: India.
• 12:57
  Speaker A: Makes a lot of sense. Gavin, thank you so much for joining me this week. It's been wonderful to chat to you.
• 13:02
  Speaker B: Thank you, Charlotte. Great job as always. Thank you very much.
• 13:05
  Speaker A: My next guest for this episode of News in Brief to help me unpack the airframe news is Director General of Tiaqa, Maman Tharakan. Hello, Maman. Great to have you on the podcast.
• 13:15
  Speaker C: Hello, Charlotte. Great to be on your show. You
• 13:17
  Speaker A: are very welcome. It's a pleasure to have you here in your first podcast since becoming Director General officially. And before we get into the new side of things, I have to ask how you are finding the new role and also what your focus is going to be for the next era of Tiaka.
• 13:29
  Speaker C: Well, I appreciate you asking and as I said, happy to be here, Charlotte. It's been a fantastic few months. Very busy as you can imagine, but very exciting. I'm so humbled to be part of the TEACA leadership team. A lot of my first few weeks have really just been listening and learning, connecting with our phenomenal team. Kenneth, Rachel, Riley, shout them out at any opportunity. I get our board members, of course, and hearing from our members from around the world, dispersed all over the world, in all the sectors we represent. It was also really important for me to connect with our association partners, iata, aci, iko, TSA and so on. So that of course took up a good chunk of time and, and that of course took us to last week where we have freshly wrapped up the Air Cargo Forum in Miami as it was lovely seeing and chatting with Alex there. You have certainly missed how much joy I get from creating connections, connecting people, connecting ideas, connecting opportunities. There was no shortage of that at acf. Many wonderful conversations, hugs, handshakes, smiles, high fives, business opportunities, a couple of, you know, some interesting announcements as well that came out from our members on many new initiatives, new products, new partnerships and truly you could just feel this energy and optimism on the floor. I think you heard the same feedback from the community that's still pouring in has been really very positive. So we're really happy. We've had quality participation and there's been some really good turnout in some sectors. That certainly stood out. I think you've reported on this as well. But the airlines in particular, we had over 100 airlines that were at the ACF, which is really great to see. Coming back to the question of what's next the focus, it's really about growing Tiaka's relevance. I certainly don't pretend to have all the answers, just always keep listening to our members all the time. But three priorities have become very clear and will guide my mandate. One, grow and broaden our membership, deliver greater member value, and three, to strengthen our global presence and voice where it matters most. So it's very clear there's no single player in the air cargo supply chain that can deliver on their own. So that's what I love about Tiaka. It brings all those different perspectives together.
• 15:37
  Speaker A: Getting into the current market news now. This week, Lufthansa Cargo reported that it increased base yields by 14% year on year in the third quarter, and its adjusted EBIT more than tripled to 162 million euros, with margin reaching 15.6%, which was up 6% from a year ago. But the group CEO told analysts that the strong performance came during what is usually the weakest season for airfreight, the weakest quarter. We are especially seeing really strong demand and tight capacity on the Trans Pacific route. I spoke to this about Alex to Alex in last week's episode. But from your perspective, what do you think is driving this? And do you think that the Trans Pacific capacity constraints are set to continue?
• 16:18
  Speaker C: So. Good question. We had a very strong Lufthansa Group contingent at the ACF in Miami as well. They were all smiles, I think. Now. Now I know why. But, yeah, indeed, Lufthansa's results are very interesting and. And certainly a reflection of what's happening in the wider market. We're seeing demand, of course, holding up remarkably well despite all of this economic and geopolitical uncertainty. This the industry has experienced this year and continues to experience, really. Demand, in fact, has accelerated almost 8% in the last month, while capacity, I think, only grew less than 3%. So I don't believe their strong performance is solely a consequence of healthy Trans Pacific demand. Certainly, I think plays a factor. But that kind of margin improvement that you just indicated really speaks to how important this combination of network strength, specialized capabilities, cost discipline and operational efficiency overall have become over time. And so it's almost like a bit of a diamond. It's about the right capacity in the right markets with the right products at the right cost and certainly Ashwin and his team have invested in all of those areas. So they're seeing the benefit of that. Do I do I think it continues. The demand fundamentals remain quite optimistic. We're continuing to see a need in movement of high value technology shipments, both new projects and ongoing maintenance replacements of servers as well and other related equipment as I'm sure everyone's talking about. But E commerce also remains strong. Perishables continue to grow despite all the sexy new commodities. And companies are adjusting their sourcing patterns and their supply chains. So in response to this ever so frequent changing trade conditions. So all that uncertainty is also creating uplift for air cargo demand. And where there's a lot of complexity, there's opportunities.
• 18:06
  Speaker A: As you mentioned, demand has massively grown. A lot of this is coming out of the Asia Pacific region. So is the imbalance of trades from the front haul to the backhaul, is that a worry for carriers, do you think? Or are the front haul yields still largely kind of covering that low backhaul yield?
• 18:21
  Speaker C: Yeah, good. Good question. Again, direction imbalances aren't new as we know. It's certainly carriers have to manage. That's where I think the advantage of cargo network planning really comes into play is I used to work on the passenger side, Charlotte of the business and I always appreciated that cargo flights don't have to be there and back. So we were just talking about Lufthansa. They have Frankfurt, Ho Chi Minh, Shanghai, Los Angeles, Frankfurt rotation. And I think they even increased that frequency if I'm not mistaken. But you couldn't do that with the passenger route. So there's some ability to plan route networks that complement trade lanes to a degree. But transpac has historically been so much stronger eastbound than and then westbound, and the pricing and the yield on those lanes reflect that reality. What I would say that is changing is the importance of the cost equation. It went down by about 2% today, I believe. But jet fuel is still sitting at over 100% of where it was this time last year. So the economics of having to make that work, especially these long missions carrying the jet fuel that's required across the whole round trip on these ultra long missions become particularly important. And actually something that we just discussed at the air cargo forum in Miami last week, Ryan from Rotate, who I'm sure you know, presented some pretty interesting numbers on freighters operating over the Transpac, including some very specific dollar figures. And it's clear there's pressure on overall margins. But it just underscores how important this Network and revenue management has become to balance yields and margins and that directional imbalance that is inevitable.
• 19:50
  Speaker A: You mentioned the jet fuel prices there. Obviously at the moment one of the main things that this is being influenced by is the conflict in the Middle east and around the Strait of Hormuz, which I spoke about with my previous guest on the ocean, ocean freight side of things. But we are starting to see more Middle east capacity in air freight returned to the market, which could ease pressure on Asia to Europe routes. But obviously the geopolitical situation does still continue to be a concern. So do you have any indication of where the air freight market sits with a return to normality and its confidence?
• 20:18
  Speaker C: Listen, the Middle east market is, you know, of course, one I know well. I remain confident that the Middle east will not just recover, but continue to be a contributor to global air cargo growth well into the future. Its geographic position, world class infrastructure and their continued investment in logistics will make it a natural bridge between global markets and emerging markets as well as we see new centers of consumption emerge. Sure, its resilience is being tested right now with some of the factors you mentioned, but those fundamentals haven't changed. I see ambition that remains steadfast investment in fleet growth, the regulatory reform, physical and digital infrastructure and so many other enablers to keep cargo moving. And I think that's, that's the key. The region is so focused on the future. In fact, I had Stanislas Veron from Etihad on my panel as well last week in Miami and he happened to break the news on stage that he has two more freighters previously unannounced, that will be joining his fleet just the next two months or so. 330p2f and a 777, 300erf, along with a triple, I think it was adding five more points in China, five more in Africa and many others I'm probably not mentioning. So we're seeing investment there. I just heard a podcast actually just before coming onto this call where the Emirates CEO mentioned that their income is stronger this year than it was this time last year. Just remember that we had nearly 20% of capacity sucked out of the system at the end of February this year. Yet we're sitting at nearly 5% growth globally year to date and continued investment for from the players in that region. So I think in a way these disruptions have just shown how critical this region is to connectivity, especially between Southeast Asia, the subcontinent, Europe, Africa and beyond, as you've indicated. So we're going to continue seeing a greater display of Flexibility and agility, given how rapidly conditions are evolving. So maybe the real task is finding a way to operate and grow through this abnormality.
• 22:17
  Speaker A: From industry chats that you've been having over the last few weeks at the acf, do you have any idea how people are looking at contracting right now?
• 22:24
  Speaker C: Contracting, definitely. Interesting topic of conversation. It's not one we dive into too much in detail, but I think coming out of ACF in Miami and sort of just as we discussed, my sense is that people have confidence in the underlying air cargo demand, but there's a recognition, and I think this has been actually picked up in a few places in the trade media, that the supply constraint is very clear on certain lanes. So market necessarily cautious about locking themselves into long commitments given how quickly conditions are changing. We do this joint webinar with Zanetta and on the last one they mentioned a sizable share of new shipper contracts are now three months or less, which is a good indication. So there's more emphasis on flexibility that flexibility, on contract length, on pricing, and also access to key trade lanes. What I'm hearing is that the forwarders are no longer simply having a conversation about the lowest rate, but it's about reliability, access to capac, and the ability to respond when conditions inevitably change. So flexibility and service certainty are perhaps becoming just as important as price, which again, I think reinforces why strong relationships and collaboration across this ecosystem are so important and why I'm so thankful for the role Tiaka plays in connecting all these players in this very exciting air cargo industry.
• 23:44
  Speaker A: Maumin, thank you so much for joining me. I'm so excited to see what you bring to the next era of Tiaka. It's been a pleasure to talk to you.
• 23:51
  Speaker C: Thank you. Shar. The pleasure is mine. It's a privilege to be able to serve our members in the industry. I'm excited about what's ahead and I would be happy to be back anytime to continue the conversation.
• 23:59
  Speaker A: And that brings us to the end of this week's News in Brief podcast. A huge thank you to Gavin and Maman for helping me unpack the week's supply chain news and a huge thank you to you all for listening and watching. If you are watching on YouTube, and if you are watching on YouTube, then please don't forget to like subscribe, comment, share all of that stuff. I know I say it every week, but it really does help us out. Thank you very much and we will see you next time them.