Latest / Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros / Container Bytes #49: The Washington Summit, Post-Peak Ocean Cooling, and German Strike Threats

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Container Bytes #49: The Washington Summit, Post-Peak Ocean Cooling, and German Strike Threats · Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros

• 0:00
  SPEAKER_00: Hello and welcome to today's episode of Container Bites, your 10 minute update on the latest in freight.
• 0:06
  SPEAKER_00: I'm Judia Frowein, joined by Judah Levine, our freight expert.
• 0:09
  SPEAKER_00: Judah, how are you today?
• 0:11
  SPEAKER_01: Good.
• 0:11
  SPEAKER_01: How are you doing?
• 0:12
  SPEAKER_00: I'm doing okay.
• 0:13
  SPEAKER_00: Thank you.
• 0:14
  SPEAKER_00: All right, let's get to it.
• 0:16
  SPEAKER_00: So President Trump and China Z are set to meet this week in DC.
• 0:20
  SPEAKER_00: What are expectations for this meeting and what ramifications could there be for the trade and freight in general?
• 0:26
  SPEAKER_01: Yeah, so teams from each side have already been meeting in the days leading up, and reports are, or it seems, that there isn't uh an attempt to really, you know, rock the boat or change the relationship very drastically or push for things one way or the other, but rather the sides are looking for stability.
• 0:44
  SPEAKER_01: Of course, there are big issues or bigger issues that have emerged since their previous meetings, such as um how to proceed in terms of AI.
• 0:52
  SPEAKER_01: But overall, in terms of trade, there seems to be the desire on both sides to kind of maintain this fragile stability that we've had so far.
• 1:00
  SPEAKER_01: If you remember back, there's been a um uh trade agreement that was come to uh almost a year ago, so last November, but it was extended for one year.
• 1:10
  SPEAKER_01: So it it expires on uh in November, I believe on November 10th.
• 1:14
  SPEAKER_01: Um tariffs were agreed at a certain level, but we know things have changed since then.
• 1:18
  SPEAKER_01: We had EPA tariffs that were you know used to put tariffs at whatever levels they were for various countries, um, but that was struck down by the Supreme Court early this year.
• 1:27
  SPEAKER_01: Since then, the U.S.
• 1:28
  SPEAKER_01: has restored tariffs on uh many countries.
• 1:32
  SPEAKER_01: For China has restored tariffs, but it's about 7.5% lower than agreed upon in EPA.
• 1:38
  SPEAKER_01: Meanwhile, the U.S.
• 1:39
  SPEAKER_01: trade representative has um reportedly concluded uh a Section 301 investigation on a number of countries, including China, that is looking into excess manufacturing capacity, and it is purported to recommend 7.5% tariffs on China on this basis, which would in effect put tariffs back at the levels they were for EPA.
• 2:02
  SPEAKER_01: There were reports that this was going to be announced before the meeting between uh Trump and Xi Jinping, um, but instead it's been held off.
• 2:10
  SPEAKER_01: So either it's being held off not to look like a possible um, you know, escalation just before these negotiations, or maybe to be used as leverage in the current negotiations, but so far it hasn't been introduced.
• 2:22
  SPEAKER_01: So the other part is reports are saying that the U.S.
• 2:26
  SPEAKER_01: is prepared to offer a three to six month extension of the current trade agreement.
• 2:31
  SPEAKER_01: Um and in terms of freight, you know, obviously there are changes in tariffs.
• 2:36
  SPEAKER_01: If there is a deterioration in that trade uh relationship, it would have implications probably for trade volumes.
• 2:42
  SPEAKER_01: It would depend if there are new tariffs and new tariffs being announced ahead of time.
• 2:45
  SPEAKER_01: You can see front loading, and who knows?
• 2:47
  SPEAKER_01: But the other part we need to keep in mind is that part of that trade agreement was a pause on U.S.
• 2:52
  SPEAKER_01: port call fees.
• 2:53
  SPEAKER_01: So the U.S.
• 2:53
  SPEAKER_01: had uh rolled out in mid to late October last year about a million-dollar port call fee for any vessel linked to China, either either operated or owned by China.
• 3:05
  SPEAKER_01: Um, and the China uh placed uh uh port call fees on U.S.
• 3:11
  SPEAKER_01: linked vessels in retaliation, and then we came to this truce by November 10th.
• 3:15
  SPEAKER_01: So that's also on the table, right?
• 3:17
  SPEAKER_01: If there's no agreement, then technically that goes back into November.
• 3:20
  SPEAKER_01: Um, but it looks like both sides are looking to kind of keep things steady instead.
• 3:25
  SPEAKER_00: Okay, let's shift to ocean fire for a minute.
• 3:27
  SPEAKER_00: Looks like the Trans-Pacific rates just won't let up.
• 3:30
  SPEAKER_00: What's keeping pressure on these container rates for the lanes and when might they start to ease?
• 3:35
  SPEAKER_01: Yes, I think it's a combination of both supply and demand that's keeping rates elevated for now.
• 3:41
  SPEAKER_01: So um generally through this, you know, we had this early start to peak season back in May, it's really mostly been demand that's keeping things elevated.
• 3:50
  SPEAKER_01: So there's just been uh resilient, you know, relatively strong um uh volumes really since then.
• 3:56
  SPEAKER_01: Why is it held up so long is a good question.
• 3:58
  SPEAKER_01: Some of it might be that you know we had a tariff deadline in late July, and when that passed, tariffs are kind of maintained at the same level instead of increasing.
• 4:06
  SPEAKER_01: So if there is front loading ahead of that deadline and it didn't materialize in terms of higher tariffs, we might be seeing you know some continued uh stronger volumes afterwards because it didn't materialize.
• 4:15
  SPEAKER_01: Um, you know, it's hard to say, but we're certainly volumes have have remained relatively strong.
• 4:21
  SPEAKER_01: They're probably already past their peak now as we get towards uh Golden Week.
• 4:25
  SPEAKER_01: There may be some kind of final push just you know now, these next in this week and these next few days in before the Golden Week holiday that starts October 1st, which is what maybe in a uh a small additional bump in demand.
• 4:37
  SPEAKER_01: But we also have a couple things on the supply side.
• 4:39
  SPEAKER_01: So one is as we've said, we just have really bad congestion in the Far East because of these series of typhoons that have disrupted operations there.
• 4:47
  SPEAKER_01: There are blank sailings because of those disruptions, right?
• 4:50
  SPEAKER_01: If vessels are delayed and they're not going to get back in time for their uh slot, so sometimes the uh uh uh sailing is blank for that reason in terms of schedule recovery.
• 5:02
  SPEAKER_01: Uh, there are also blank sailings now because of expectations, which is happens every year, that there'll be lower volumes over the golden week holiday when manufacturing really slows down.
• 5:10
  SPEAKER_01: Um, and there may be additional blank volumes for afterwards when carries are expecting uh demand to start to uh ease kind of post-the peak season.
• 5:18
  SPEAKER_01: So we both have a kind of um intentional capacity reductions and effective capacity reductions because of uh these disruptions.
• 5:27
  SPEAKER_01: Uh far east to west coast prices increased last year about 4% up to$8,100 per container.
• 5:34
  SPEAKER_01: East Coast prices were steady but up to$9,600 per container, which are both at about peak levels that we've had uh so far, um, but kind of remaining at that elevated uh level for for quite a while.
• 5:46
  SPEAKER_01: Um we are seeing fewer blank sailings than uh compared to previous years in terms of uh percentage of sailings, according to some analysis.
• 5:55
  SPEAKER_01: And that might indicate that, yeah, carriers are reducing capacity, but demand is also strong enough that they're reducing it as much as they usually would.
• 6:03
  SPEAKER_01: Uh, one of the things that some uh reports are saying that these current rates are approaching pandemic levels, and that's not really what we're seeing.
• 6:11
  SPEAKER_01: So if we compare to our Frey's Baltic index data, during the pandemic, we saw rates get up as high as$20,000 per container, and we saw rates where they are now, about$8,000 or$9,000 per container back in peak season of 2024, which was kind of the early ish, the first peak season during the Red Sea uh crisis when there was a lot of uh capacity uh absorption.
• 6:32
  SPEAKER_01: Some of the distinction and why you know we saw uh container rates up, you know, more than double than what they are now during the pandemic, um, might be because at that time things were so crazy that you really couldn't get a container removed without paying a premium surcharge.
• 6:47
  SPEAKER_01: So if you were paying the base rate, which maybe were were near where the levels we have now, um, you could maybe make that booking, but that container wasn't going to be moved, it would be rolled and rolled and rolled.
• 6:57
  SPEAKER_01: And so uh the effective market rate back then really was about for the spot market, really was around you know up to$20,000 per container.
• 7:05
  SPEAKER_01: So we're not there yet.
• 7:06
  SPEAKER_01: Plus, there's kind of light at the end of the tunnel here.
• 7:08
  SPEAKER_01: This is partially or largely demand-driven, and we can expect demand to start to trail off.
• 7:12
  SPEAKER_01: Now we'll probably see demand start to pick up again ahead of lunar new year as we get closer to um you know into January.
• 7:19
  SPEAKER_01: But that seems to be uh you know what we're seeing now for this line.
• 7:22
  SPEAKER_00: Okay, interesting.
• 7:24
  SPEAKER_00: And meanwhile, for Asia Europe routes, container rates continue to fall.
• 7:27
  SPEAKER_00: Is that right?
• 7:28
  SPEAKER_01: Yeah, so here we had an early start to peak season like we had in the Trans-Pacific, and we've seen an early um uh end to peak season now, right?
• 7:37
  SPEAKER_01: So we had uh rates peak in July, maybe early July, maybe mid-July, but they've been trailing off and kind of cooling pretty gradually since then.
• 7:47
  SPEAKER_01: So Asia to North Europe rates fell 15% last week to$3,700 per uh 40-foot container, and that's down from their July peak of almost$6,000 per FEU.
• 7:58
  SPEAKER_01: Asia Mediterranean is down to$3,900, so like very close to what we're seeing for Asia Europe, but that came down from a peak of$7,000 per container.
• 8:07
  SPEAKER_01: And that level of about$3,900,$3,800 is back to pre-peak season levels for Asia Mediterranean.
• 8:14
  SPEAKER_01: So mid-May rates were at about the level they are now.
• 8:16
  SPEAKER_01: They went way up and now they've come way back down, which makes sense if we're saying that you know this was demand-driven, this is early peak season, now demand is coming down.
• 8:25
  SPEAKER_01: We're going back to that uh baseline.
• 8:27
  SPEAKER_01: Now that baseline is fairly elevated, and that's probably due to the uh closure of the Strait of Hormuz and elevated fuel prices.
• 8:33
  SPEAKER_01: You know,$3,900 is still historically quite high for this lane.
• 8:38
  SPEAKER_01: Um, but it's come back to to you know, quote unquote normal, at least before the peak season demand kicked then.
• 8:44
  SPEAKER_01: Why are we seeing this distinction between between the two lanes?
• 8:47
  SPEAKER_01: I think part of it is due to uh Red Sea, the resumption of transits by some carriers.
• 8:52
  SPEAKER_01: So we're seeing some carriers, according to sea intelligence, there's about 25% of Asia Europe, overall Asia Europe capacity that has now transiting the Red Sea.
• 9:02
  SPEAKER_01: It's mostly backhaul and it's mostly Asia Mediterranean.
• 9:05
  SPEAKER_01: And so that might be why we're seeing this distinction here, that Asia Med rates are falling more quickly because there's more effective capacity because ships are moving more quickly than they were just uh a little while ago, together with that easing demand.
• 9:19
  SPEAKER_01: And the other part is port congestion.
• 9:22
  SPEAKER_01: So both these lanes, Asia Med and Asia North Europe, are dealing with congestion in the Far East, but North Europe is also dealing with congestion um in some of the major North Europe hubs.
• 9:31
  SPEAKER_01: And with that being the case, um, that might be another reason why rates are falling less quickly for Asian North Europe compared to the Mediterranean.
• 9:40
  SPEAKER_01: There's just kind of been persistent congestion.
• 9:42
  SPEAKER_01: We have low water in the Rhine and various factors uh combining.
• 9:46
  SPEAKER_01: There have also been port strikes from time to time.
• 9:48
  SPEAKER_01: And um uh labor union in Germany um that had uh two one-day strikes um earlier this month are now voting about whether or not to uh call a kind of an indefinite strike.
• 10:01
  SPEAKER_01: And that voting is open until October first, so there could be a decision afterwards, which again would cause further or or more severe port congestion if those ports are are shut down or slowed down significantly.
• 10:13
  SPEAKER_00: Okay.
• 10:13
  SPEAKER_00: Interesting.
• 10:13
  SPEAKER_00: Thank you so much, Julia.
• 10:14
  SPEAKER_00: That's all we have time for today.
• 10:16
  SPEAKER_00: If you enjoyed this session, please hit the subscribe button to get notified about all our future episodes.
• 10:20
  SPEAKER_00: Thank you for listening and have a great day.