Latest / Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros / Episode #30: Project Freedom and the UAE Airspace Whiplash

Transcript

Episode #30: Project Freedom and the UAE Airspace Whiplash · Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros

• 0:00
  SPEAKER_00: Oh, and welcome everyone to this week's episode of Container Bites.
• 0:03
  SPEAKER_00: I'm Julia Frowein here with our resident freight expert, Judah Levine, ready to kick off another 10-minute session on all things freight.
• 0:10
  SPEAKER_00: Judah, how are you doing today?
• 0:11
  SPEAKER_00: Doing Yeah, doing all right.
• 0:13
  SPEAKER_00: Yeah, getting into it now, week two.
• 0:15
  SPEAKER_01: A pro.
• 0:16
  SPEAKER_01: You're a pro already.
• 0:16
  SPEAKER_00: Uh we'll see how it goes.
• 0:18
  SPEAKER_00: All right, let's talk freight.
• 0:20
  SPEAKER_00: So again this week we saw more volatility in the Strait of Hormuz.
• 0:24
  SPEAKER_00: What has the latest stopping and starting meant for container freight?
• 0:27
  SPEAKER_01: Yeah, so early this week, uh President Trump announced in the U.S.
• 0:30
  SPEAKER_01: launched what they called Project Freedom, which is basically a new US-led effort to have vessels transit basically out of the Strait of Hormuz, but through the Strait of Hormuz.
• 0:43
  SPEAKER_01: Um and earlier in the week, the U.S.
• 0:45
  SPEAKER_01: supported two U.S.
• 0:46
  SPEAKER_01: flagged vessels, supported in various ways, but including Navy missiles presence and escorted them out of the of the strait.
• 0:54
  SPEAKER_01: But this entailed Iranian attacks on those vessels, both on the commercial vessels and on the Navy vessels.
• 1:00
  SPEAKER_01: And the U.S.
• 1:01
  SPEAKER_01: responded sinking some of the Iranian kind of attacked speedboats.
• 1:05
  SPEAKER_01: And as part of this event or context, Iran also restarted missile and drone attacks on the UAE.
• 1:12
  SPEAKER_01: Um so all these are really escalations in terms of the level of military back and forth that we've seen since the ceasefire went in place, which was about a month ago.
• 1:22
  SPEAKER_01: But then quickly by Tuesday, the U.S.
• 1:26
  SPEAKER_01: said that they were suspending this operation.
• 1:29
  SPEAKER_01: Uh, President Trump says it's because there is now more progress in negotiations.
• 1:33
  SPEAKER_01: So there's a lot of drama, but it was kind of uh short-lived.
• 1:37
  SPEAKER_01: Um overall, even if it had continued for the freight markets, if it's not a full opening, then container vessels are most likely not going to be going through.
• 1:45
  SPEAKER_01: But the larger issue for the freight markets is the price of oil and therefore the price of fuel.
• 1:50
  SPEAKER_01: Um, and it would probably be unlikely that these types of efforts, without something much, much bigger, would be possible to kind of really restore oil flows through the through the straits.
• 1:59
  SPEAKER_01: So so far, um, it's kind of been more of the same.
• 2:02
  unknown: Okay.
• 2:02
  SPEAKER_00: So what does that mean for freight rates?
• 2:05
  SPEAKER_00: Any changes there?
• 2:06
  SPEAKER_01: Yeah.
• 2:06
  SPEAKER_01: So again, the the big issue for freight rates is the price of oil and therefore the price of bunker fuel.
• 2:12
  SPEAKER_01: And that's putting cost pressure on carriers in terms of those higher bunker prices.
• 2:17
  SPEAKER_01: Although so far there really are very few instances of actual fuel shortages.
• 2:21
  SPEAKER_01: Um, but of course, the longer the stretch is on, the higher that that risk is.
• 2:25
  SPEAKER_01: But we're also in a period of ocean, you know, supply and demand dynamic that make it difficult for carriers to push rates up very high.
• 2:31
  SPEAKER_01: So, first of all, in terms of demand, we're in that slow season between after lunar new year and before peak season.
• 2:38
  SPEAKER_01: And so demand is typically low during this stretch and it's it's low now.
• 2:42
  SPEAKER_01: And of course, we also have high capacity levels, like we've seen sweet growth over the last um few years.
• 2:48
  SPEAKER_01: So we're seeing carriers having some difficulty in pushing those uh costs to shippers, or at least in increasing rates very significantly, although there's different behavior on different levels.
• 2:59
  SPEAKER_01: So on the Trans-Pacific, last week rates ticked up 2% to the West Coast and 10% to the East Coast.
• 3:05
  SPEAKER_01: But overall, since the start of the war, rates are up$1,000 per container for both lanes, which is more or less a 50% gain for both of these.
• 3:12
  SPEAKER_01: And that's uh significant.
• 3:13
  SPEAKER_01: And it's also significant that this is kind of stuck, that we haven't seen backsliding on these on these lanes.
• 3:19
  SPEAKER_01: Um, but the actual rate level is not much higher than we had in the lead up to in the New Year, which was a high demand period, even though now we're in a low demand period.
• 3:26
  SPEAKER_01: Um, so it is significant, and carriers seem to be passing on costs on these lanes, but we're not seeing very, very high level spiking lows like we saw in some of the other um disruptions, which were much more kind of uh actual container supply impact or demand impacts.
• 3:42
  SPEAKER_01: Um, for Asia Europe, on the other hand, we're seeing rates that are really about back or just below levels they were before the war.
• 3:49
  SPEAKER_01: So we saw rates increase um in the first few weeks and kind of stay relatively elevated, but have come down really across uh through April.
• 3:57
  SPEAKER_01: Um, and now uh Asia-Mediterranean rates are um slightly below where they were uh before the war.
• 4:04
  SPEAKER_01: To your North Europe, they're about only$100 per container high.
• 4:08
  SPEAKER_01: So um so kind of less success on this lens.
• 4:10
  SPEAKER_01: But again, if we're in the low demand period, we didn't see rates continue to fall.
• 4:13
  SPEAKER_01: They stayed, you know, where they were just kind of posting in the New Year.
• 4:17
  SPEAKER_01: So there's probably some um higher costs being being pushed through and passed on, but um not to the same extent that we saw on Trans-Pacific.
• 4:25
  SPEAKER_00: Okay, so uh you touched on this earlier about the fuel and fuel costs.
• 4:28
  SPEAKER_00: What would you say is the economic impacts from these higher energy costs and any concerns these could have ramifications on the freight?
• 4:36
  SPEAKER_01: Yeah, so so far we're not seeing kind of direct impacts on consumer uh behavior in any of the major importing markets.
• 4:46
  SPEAKER_01: There are some initial signs that manufacturing activity or new orders are starting to slow in some of the Far East countries, especially.
• 4:53
  SPEAKER_01: Um, I think in places like Vietnam.
• 4:56
  SPEAKER_01: So that is a factor.
• 4:57
  SPEAKER_01: So if we're seeing slowing demand for manufacturing, that's going to be uh you know an indication of what imports are sticking into consumer demand.
• 5:06
  SPEAKER_01: But these places are also facing higher costs, um, higher input costs, and that might be why some of that manufacturing is slowing, and also um just supply availability.
• 5:16
  SPEAKER_01: Some of the inputs aren't available because they're you know typically come through the the Street of Hormuz.
• 5:23
  SPEAKER_01: And so that is an impact.
• 5:25
  SPEAKER_01: In terms of consumer spending, we haven't seen that big uh a shift yet, and consumer spending has kind of kept up um in the U.S., although there are kind of shifts or reports of shifts in how consumers are spending and what types of goods because of you know just higher prices overall, which are you know uh energy costs are likely to impact that further.
• 5:45
  SPEAKER_01: Um so that's really a question mark of what this will mean for peak season in terms of consumer demand or in terms of importer expectations of what consumer demand is going to be during the big shopping events.
• 5:55
  SPEAKER_00: And okay, moving to air tribal now.
• 5:57
  SPEAKER_00: As we've seen, there's been some renewed attacks on the UAE this week.
• 6:00
  SPEAKER_00: Has that impacted operations there?
• 6:02
  SPEAKER_00: And what's the recent volatility meant for air cargo in general?
• 6:05
  SPEAKER_01: Right.
• 6:05
  SPEAKER_01: So as we said, part of the results of the operation freedom were these renewed attacks on the UAE, which really haven't really been any since the ceasefire went into effect about a month ago.
• 6:16
  SPEAKER_01: And actually just on May 2nd, the UAE said that they had fully reopened their airspace.
• 6:21
  SPEAKER_01: So their airspace was completely closed at the beginning of the war, and they were the first to kind of start to open and gradually reopen and had continued to gradually reopen until being fully opened by May 2nd, but then basically the day later, there were these renewed attacks, and now it's closed till May 11th.
• 6:35
  SPEAKER_01: So operationally, that's going to be a disruption for uh the UAE and Emirates.
• 6:41
  SPEAKER_01: Metihat are our major characters that uh have their bases there.
• 6:45
  SPEAKER_01: So that will have operational impacts.
• 6:48
  SPEAKER_01: Um, at the same time, we've seen kind of uh a reshuffling and a gradual um, you know, shifting of capacity to to follow the demand shift and the volume shifts because the Middle East was basically less accessible.
• 7:00
  SPEAKER_01: So this will certainly be be a setback.
• 7:02
  SPEAKER_01: But overall, what we're seeing is more capacity being moved to uh other routes to go from Asia really to Europe instead of going through the Middle East.
• 7:10
  SPEAKER_01: And because of that, and because of some of the capacity recovery out of the Middle East itself, we've seen rates kind of stabilize.
• 7:17
  SPEAKER_01: So rates increase sharply to start the war.
• 7:20
  SPEAKER_01: Um, and on some lanes they'd continue to increase, but the rate of increase has stopped.
• 7:24
  SPEAKER_01: And on some level, on some lanes, they've kind of evened out, and others they even cooled a little bit.
• 7:29
  SPEAKER_01: So if we look at the overall rate behavior, our Fritos Air Index Global Benchmark, it's 25% higher than it was before the war.
• 7:36
  SPEAKER_01: That's significant, but it's 5% lower than it was uh a month ago.
• 7:40
  SPEAKER_01: Um so if we look at at uh kind of specific examples, Southeast Asia to Europe, those rates ticked back up a little bit this week, but they're about level with where they were uh when they reached their high in April.
• 7:52
  SPEAKER_01: So they kind of went to a high and now are still at that level and not continuing to climb.
• 7:56
  SPEAKER_01: Uh South Asia to Europe prices are down 10% um from their high, which is a few weeks ago.
• 8:02
  SPEAKER_01: Southeast Asia and North America prices are down 9% from their peak, but again, quite elevated, more than$6.40 per kilo.
• 8:10
  SPEAKER_01: If we look at liens into a Middle East, though, those are facing more cost price pressure by comparison.
• 8:15
  SPEAKER_01: And maybe this closure just this week will worsen that.
• 8:18
  SPEAKER_01: So we have North America to Middle East prices, they were up 6% this week.
• 8:23
  SPEAKER_01: Europe to Middle East uh were up only 2%, but they're about at its peak level, which is almost$3.90 per kilo.
• 8:30
  SPEAKER_01: And some of this difference between kind of upward pressure on rates to the Middle East compared to the others is a little bit um counterintuitive because we know that capacity is is rebounding.
• 8:39
  SPEAKER_01: But it's possible that as capacity is rebounding, we're also seeing a big increase in um demand because volumes that normally go through that way because it's the most efficient route for them, uh, is not coming back.
• 8:50
  SPEAKER_01: So that's probably what what's happening there.
• 8:52
  SPEAKER_01: So overall we're seeing kind of a stabilization, but certainly rates that are still quite elevated.
• 8:56
  SPEAKER_00: All right.
• 8:56
  SPEAKER_00: Wow.
• 8:56
  SPEAKER_00: Okay.
• 8:57
  SPEAKER_00: Thank you for that, Judah.
• 8:58
  SPEAKER_00: Uh super interesting updates this week.
• 9:00
  SPEAKER_00: Thank you all for listening and we will see you again next week.
• 9:03
  SPEAKER_00: Have a great day.