Latest / Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros / Container Bytes #52: Saudi Airport Strikes, Asia-Europe Contract Negotiations, and AI Air Cargo Shifts

Transcript

Container Bytes #52: Saudi Airport Strikes, Asia-Europe Contract Negotiations, and AI Air Cargo Shifts · Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros

• 0:00
  SPEAKER_01: Hi and welcome back to Container Bites, your 10-minute update on the latest in freight.
• 0:04
  SPEAKER_01: I'm Judia Frewine, joined as always by Judah Levine, our FreightOffs head of research.
• 0:09
  SPEAKER_01: Judah, how are you today?
• 0:11
  SPEAKER_00: Good, how are you doing?
• 0:12
  SPEAKER_01: I'm doing well as well, thank you.
• 0:14
  SPEAKER_01: All right, let's kick off.
• 0:15
  SPEAKER_01: This week we've seen further escalations in the Saudi Arabia Houthi conflict, including attacks on airports in Riyadh and elsewhere.
• 0:22
  SPEAKER_01: What has this meant for the freight markets?
• 0:26
  SPEAKER_00: So there have been multiple attacks, actually multiple attacks on the airport in Riyadh, some of them deadly or quite deadly last week and into this week.
• 0:34
  SPEAKER_00: There were interceptions of attacks at other airports in Saudi Arabia as well.
• 0:38
  SPEAKER_00: This has led to disruptions and cancellations at a lot of these hubs across the country.
• 0:44
  SPEAKER_00: For air cargo, uh Saudi Arabia is not a major kind of international hub for air cargo or transshipment hub like some of the other Gulf countries, particularly UAE and Qatar.
• 0:57
  SPEAKER_00: So probably the cargo disruptions will be felt locally, right?
• 1:01
  SPEAKER_00: So on kind of shippers or exporters who are uh dependent on those airports specifically, but probably not for their broader market.
• 1:10
  SPEAKER_00: Um, you know, the escalation has come with retaliations, and Saudi Arabia has hit uh oil and fuel sites in Yemen.
• 1:18
  SPEAKER_00: Now the Houthis have attacked Aramco headquarters, so kind of the saga continues.
• 1:22
  SPEAKER_00: For the broader market, the question is what this could do to oil prices.
• 1:27
  SPEAKER_00: Um, and the other factor is the Red Sea.
• 1:29
  SPEAKER_00: So the Houthis have sought to kind of close the Babil Mandeb Strait, um, the southern part of the Red Sea to Saudi lakes traffic since July.
• 1:39
  SPEAKER_00: There were attacks on several vessels into August, but they're, you know, following nine months really of no attacks on vessels in the Red Sea, um, but there haven't been any attacks since August.
• 1:50
  SPEAKER_00: So the question is whether the current escalation is going to mean an increased likelihood of attacks on vessels in the Red Sea.
• 1:56
  SPEAKER_01: Okay.
• 1:57
  SPEAKER_01: And the increase in the Red Sea transits was one factor in the falling container rates for Asia Europe lanes.
• 2:02
  SPEAKER_01: Is that trend expected to continue now that we've passed Golden Week?
• 2:06
  SPEAKER_00: Right.
• 2:06
  SPEAKER_00: So container carriers really on Asia, Europe lanes, so Asia, North Europe, and Asia Mediterranean have been gradually increasing Red Sea transit since June, which is kind of surprising because we just had attacks restarted after a long pause in July.
• 2:20
  SPEAKER_00: But the attacks, according to the Houtis, are limited to just Saudi-linked vessels, even though earlier they had, you know, in principle limited to U.S.-linked vessels or Israel-linked vessels and that had caused everyone to turn away.
• 2:33
  SPEAKER_00: Nonetheless, we've seen kind of a gradual and consistent return to the Red Sea.
• 2:37
  SPEAKER_00: Now all the major alliances are returning.
• 2:42
  SPEAKER_00: As we said, you know, if things really deteriorate, will we see them turn around again?
• 2:47
  SPEAKER_00: We might, but you know, that remains to be seen.
• 2:50
  SPEAKER_00: It has been a one factor in putting downward pressure on rates on those lanes that we've seen increased effective capacity because vessels are taking this shorter route.
• 2:59
  SPEAKER_00: And it's been more so for Mediterranean than North Europe, but really for both lanes, much bigger factor, and the main driver of rates falling has been just being post-peak season.
• 3:08
  SPEAKER_00: So peak season started early, ended by uh, you know, started easing already by mid-July.
• 3:13
  SPEAKER_00: We've seen rates um falling since then.
• 3:16
  SPEAKER_00: Right now, though, we're post-Golden Week, as you said.
• 3:20
  SPEAKER_00: And for Asia Europe lanes, annual contract negotiations usually start around now because contracts are usually finalized by the end of the year.
• 3:27
  SPEAKER_00: So last year, this time, you know, we had seen rates fall post-peak season, and carrier started increasing rates through um reducing capacity and through passing, uh pushing through GRIs, really one after another, almost up to the end of the year during that negotiation.
• 3:42
  SPEAKER_00: Rates were starting at a very low starting point last year, uh, around this time, probably a several year low at that point.
• 3:50
  SPEAKER_00: This year, rates are above$3,000 to both lanes.
• 3:53
  SPEAKER_00: That's relatively high, 70% higher than it was last year.
• 3:56
  SPEAKER_00: Nonetheless, we've seen some carriers announcing GRIs.
• 3:58
  SPEAKER_00: We've seen rates tick up a little bit.
• 4:00
  SPEAKER_00: Last week they increased 7% for Asia Mediterranean.
• 4:03
  SPEAKER_00: Um, so it's possible that carriers will try to increase rates anyway as we're entering this um negotiating season.
• 4:10
  SPEAKER_00: But um rate levels right now are being supported by a few things that might change, right?
• 4:16
  SPEAKER_00: One is congestion.
• 4:17
  SPEAKER_00: So we have congestion in North Europe.
• 4:19
  SPEAKER_00: There was nearly um uh a very broad strike um called in Germany that was just uh kind of a verte, as there was uh uh an agreement reached between uh port labor and then port operators.
• 4:32
  SPEAKER_00: Um so we have congestion in North Europe.
• 4:34
  SPEAKER_00: Um we know there's really still congestion in the Far East from these series of typhoons.
• 4:39
  SPEAKER_00: So that's one thing holding up rates to be higher than they otherwise would be.
• 4:43
  SPEAKER_00: We also have fuel costs that are higher.
• 4:44
  SPEAKER_00: It's possible that that will change next year.
• 4:46
  SPEAKER_00: And on top of that, we have fleet growth, right?
• 4:49
  SPEAKER_00: We know that there's new vessels being delivered all the time.
• 4:51
  SPEAKER_00: The largest ones are delivered to these lanes.
• 4:54
  SPEAKER_00: And we have this possibility that Red Sea capacity is going to continue, Red Sea transits are gonna continue to increase and increase capacity and all those things, right?
• 5:02
  SPEAKER_00: If congestion subsides, if fleets grow, if fuel rates go down, and if Red Sea transits increase, all those things would put downward pressure on rates.
• 5:11
  SPEAKER_00: So you're seeing some uh shippers being a little bit hesitant to enter negotiations right now and reports that some of them are are are asking for uh extending current contracts for a few months to wait and see where it goes.
• 5:22
  SPEAKER_00: So that's another kind of um element of what's going on in those lanes right now.
• 5:27
  SPEAKER_01: Okay, got it.
• 5:27
  SPEAKER_01: And as you mentioned, Golden Week is now behind us.
• 5:30
  SPEAKER_01: Is there any effect on Trans-Pacific rates?
• 5:34
  SPEAKER_00: So on the Trans-Pacific, there's been a different story.
• 5:36
  SPEAKER_00: We had the same early start to peak season, but we just kind of had sustained um uh demand through really right up till Golden Week.
• 5:45
  SPEAKER_00: Um, there seems to be some signs that demand is starting to ease right now.
• 5:49
  SPEAKER_00: So just in terms of freight rates, you've seen them at at peak levels.
• 5:52
  SPEAKER_00: Right last week, um, Far East US West Coast rates dipped 2% to um about$8,150 per FEU, which is still very elevated, but it's maybe uh an indication that we're gonna start to see rates come down post-Golden Week.
• 6:06
  SPEAKER_00: The National Retail Federation they project that November arrivals are gonna be 11% lower month on month compared to October.
• 6:13
  SPEAKER_00: So that's another indication that we're just finally past that kind of peak season demand and you know a further easing into December.
• 6:21
  SPEAKER_00: But here too, we have congestion in the Far East, we have relatively strong demand, so rates will probably stay more elevated than they maybe otherwise would have.
• 6:30
  SPEAKER_00: And it's not that long until pre-lunar new year demand will kick in.
• 6:34
  SPEAKER_00: So they'll probably be starting at a kind of higher uh starting, a higher floor from which you know that demand will start to push uh rates up.
• 6:43
  SPEAKER_00: But we probably are past peak season finally, and we'll probably see rates uh easing.
• 6:48
  SPEAKER_00: But again, how far, how fast they'll they'll uh fall is probably um a question.
• 6:54
  SPEAKER_01: Okay, let's talk a bit about air cargo.
• 6:56
  SPEAKER_01: So we touched already a little bit on it with the Saudi Arabia, but what are the trends in the broader air cargo market?
• 7:03
  SPEAKER_00: So as we've been saying, kind of the big trends are some slowing in growth and even contraction in e-commerce volumes to some markets, but the emergence of AI, you know, data center-related hardware being a big driver of growth.
• 7:18
  SPEAKER_00: So we've kind of seen reports of capacity shifting where those two factors are at play.
• 7:23
  SPEAKER_00: So you have kind of capacity shifting away from Asia Europe, where the minimum rules changed in in July, and towards um the Trans-Pacific, where there's been this big growth in um AI-related hardware.
• 7:33
  SPEAKER_00: And overall, there's been, you know, globally, there has been volume growth.
• 7:37
  SPEAKER_00: So, and we also have the Fredo's Air Index.
• 7:40
  SPEAKER_00: If we look at global rates, rates now are up 33% compared to where they were last year and 29% higher than they were before the street of hormone.
• 7:48
  SPEAKER_00: So that shows um kind of the drive uh increased fuel prices is kind of across the board and um one element of what's going on here, and also just reasonable demand at some points outstripping capacity.
• 8:02
  SPEAKER_00: If we look at rates on um specific lane levels, so if we look at Southeast Asia or North America, similar to the global benchmark, right?
• 8:09
  SPEAKER_00: 40% higher than they were last year, and that reflects that data center growth, especially on those lanes.
• 8:14
  SPEAKER_00: But if we look at China-Europe, prices last week dipped a little bit to$3, about 60 cents per kilo, and that's down 9% year on year and up just 4% compared to before the war.
• 8:26
  SPEAKER_00: So even with those increased fuel prices, it seems that on the China-Europe spot market, with um, you know, this big decrease in in e-commerce volumes, even with capacity shifting away, we're seeing downward pressure on rates.
• 8:37
  SPEAKER_00: And this really seems to be more or less the outlier.
• 8:39
  SPEAKER_00: On most other lanes, it's more similar to what we've seen in South States or North America, this big increase because of fuel costs before um coming with with the war and kind of uh you know come down a little bit since then by kind of remaining at that more elevated level, which is something we're not seeing for China Europe for now.
• 8:55
  SPEAKER_01: All right, great.
• 8:56
  SPEAKER_01: Thank you, Judah.
• 8:56
  SPEAKER_01: That is all we have time for today.
• 8:58
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• 9:02
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• 9:04
  SPEAKER_01: Thank you for listening and have a great day.