[0:19]Hi everyone. You're listening to the Supply Chain Secrets podcast. I'm your co-host Caroline Weaver, and with me is Lars Jensen. Lars, how's it going? Going great, and hello here from a nice spring day in Hamburg, Germany. Amazing. That sounds wonderful. Let's get started talking about the rates. So where are we at today? Well, if we start out with looking at the NYFI spot rates here on the Pacific. What I've chosen to start off with here that you are also showing are the six subtrades. So it's China, Taiwan, it's Southeast Asia, and it's Northeast Asia going to both US West Coast and US East Coast. The overall pattern as is extremely visible here, we have quite a run for many weeks of generally increasing spot rates. Not massively so, but gradual increases in spot rates and we are continuing to see that this week. You can see overall Asia US West Coast is up some $200. Asia - US East Coast is up some $150 on average compared to last week but there is an interesting thing to note. If we were to look at the subtrades, if we look at especially Northeast Asia to US West Coast, we actually see a decline. So as everything is on an upwards trend, Northeast Asia suddenly decided to decline $300 per 40-foot and we were to say this without any context, we might believe 'what is going on with Northeast Asia? Why is the market suddenly weak specifically there?' And, and that's where visually, sometimes it's instructive to look at some of the trends. Because, if we look at the trend lines in front of us here, what we will see for both US East Coast and US West Coast, the subtrade was specific origin in Northeast Asia, so that will be South Korea and Japan, it's a lot more volatile. We see that consistently. We see the Northeast Asia rate lines weave around, up and down around the baseline that is more often made up of China, Taiwan, and Southeast Asia. That's exactly what we're seeing here again. For our listeners that listened to it last week, you will likely recall our saying we saw a significant increase suddenly in rates from Northeast Asia to US West Coast. So that's, again, one of these weaves up and down, and for me at least, this is where it's important if we wanna understand the dynamics in the market to look at, yes, the overall indices in this case, Asia to US West Coast and East Coast, but at times also then take one level further down to find out what is happening, and the reality is, at least has been for quite a while, if you are shipping out of Northeast Asia to US, doesn't matter whether it's the east coast or west coast, your spot rates are quite simply more volatile than those shipping out of China, out of Taiwan, and out of Southeast Asia. That's what we once more see reflected. Let's see what happens next week because if we continue with this slow upwards trend, we might actually see a rebound again on Northeast Asia as it weaves its way around the overall trend. Yeah. Generally, overall conclusion: Pacific Trade, fairly strong. I wouldn't say strong with a capital 'S' because it's not that rates are skyrocketing as we have seen in the past six years. But slowly and gradually climbing its way upwards. Yeah, it's good to see, you know, when you dig in deeper, there are these really unique patterns within the specific subtrades, so it's good to keep an eye on that, not just the overall trade there. Yes. Let's take a look at the transatlantic eastbound. Yeah, because this is another one where I wanna dig into some of these sub developments. I wanna look at something we rarely look at. That's the difference between 20 and 40-foot rates. I've chosen the Atlantic eastbound this time around because it shows the most extreme development. What you're seeing here, you see two lines, a full line and a dotted line, where the full line is, what's the price of sending a 40-foot? And the dotted line is what's the cost for a 20-foot? And we have had a period here of several months where it has actually been more expensive to send a 20-foot container than a 40-foot container. And suddenly from basically two weeks ago to now, this has completely reversed. We've seen a massive uptick in 40-foot spot rates, whereas we are now seeing a slow decline of 20-foots. So a complete reversal from one to the other. And as I was mentioning here, just like with the Transpacific, is worthwhile for people that are active in specific submarkets at times to take one step deeper down and look at what are some of the underlying components. And the thing here is, you are shipping, for example, 20-footers on the Atlantic, you should look at dedicated 20-foot indices because this is a trade where 20 and 40-foot rates really do not work in sync with each other. We could have shown, say, Asia North Europe or some of the other trades, and yes, there are some aberrations, but most of the time, 20s and 40s move roughly in sync. But on the Atlantic, that is most certainly not the case. They do not move in sync. You cannot assume that just because a 40-foot is twice the size of a 20-foot, that then the rates will automatically be higher because times they aren't. Yeah, it's a really good point. A lot of the people that are moving the 20-foot containers are generally moving dense cargo, very heavy cargo. So it's important to keep an eye on this because your cost curve may actually decouple from the, the broader market that you're shipping on. Let's go ahead and take a look at the futures rate for Asia North Europe. Anything interesting to call out? Yeah, because there is an interesting development. We've talked about it also last week. We are seeing a weakening of the spot rates right now on the Asia to North Europe market. It's weakening to the point where if we look back at the bottom, we had just before the Hormuz crisis rates went up, that's when the Hormuz crisis started. Carriers were trying to push through all sorts of increases, including of course, emergency bunker surcharges. We've now seen the decreases for several weeks. We are actually at a point where now on Asian North Europe, the rate level now compared to pre-crisis is only marginally higher. The increase no longer even covers the increase in fuels that we've seen. That would lend itself naturally saying, okay, does this mean the Asian North Europe market is simply weakening and we got a problem? Well, if you look over in the futures market, the answer is clearly that the market is not anticipating this to be a long-term trend. The market is in contango, which basically means sure, we've got lowering spot rate right now, but the futures rates are going up over the coming months. So the market expects the current decline in spot rates to be very temporary. They expect to see an increase, basically expect to see an increase already as we are getting into May. And what we cannot see here, this is the image of where are the future rates right now. If we were to compare to the future rates just a couple of weeks ago, they've actually moved up slightly. So despite the continuing weakening in the spot rate market as it is right now, there's an increasing expectation for all market participants, so here both from the buyer and seller side, that the market is actually gonna strengthen as we head into a peak season. Yeah. Definitely an interesting call out. We'll definitely keep monitoring that and talk more about it as things change. Let's shift gears a little bit and talk about what's going on with the Iran US conflict, the Strait of Hormuz, what's the latest there? The latest and greatest, sadly, is, I mean, compared to when we spoke a week ago, matters are just getting from bad to worse. We are now at a point where the two MSC vessels that were attacked shortly after we actually had the podcast last week, they have both been seized by the Iranians. One of the vessels kept its AIS on while it was being dragged up and placed at anchorage in the Port of Bandar Abbas in Iran. The other one, the MSC Francesca, which was also attacked, the AIS tracking signal disappeared shortly after the attack and has not reappeared again. So factually, I do not know whether it is still in the location further down the Strait of Hormuz or whether it has also been dragged to anchorage up in Bandar Abbas as it is right now. But the fact remains that Iran has seized these two vessels from MSC. In that context, I would also like to remind people it's only two years ago that the Iranians also seized an MSC container vessel, the MSC Aries. And at that point in time, it took three weeks before the crew were released. So how this is gonna play out still also remains to be seen. So from that perspective, the Strait of Hormuz is as closed, as I was about to say it ever was during this entire conflict. If anything, the situation now is potentially worse than what it was just a few weeks ago because not only do we still have the threat of the Iranians shooting at ships, we still have the threat of potential mines in the Strait of Hormuz, now we have the added threat of the Iranians actually seizing a vessel and basically keeping the sailors hostage. That's part and parcel of it. At the same time, the US blockade against vessels that call Iranian ports is being ever more strongly enforced as well. The number of vessels that seems not to be interdicted has been declining sharply here over the past week, so Strait of Hormuz, definitely closed for almost all vessels as it is now.
[11:52]Hmm. Well, thank you for the update there. Are we seeing any impact on bookings in the Middle East region? We most certainly are. I mean, it's one of the regions where you don't necessarily have a lot of data material, but I try to dig into some of the data from, from the trade view platform that the company Vision is providing. And they have data not on the entire market, but they have data on a subset of the market. So just keep that one in mind. For the subset of the market they're watching, if I look at bookings placed from anywhere in the world into the Persian Gulf countries and compare that to the same two-week period a year ago, bookings are down a staggering 66%. So two-thirds of the bookings we had a year ago for right now missing. Yeah, that's pretty substantial. Is it expected though? Like to me it kind of feels like, all right, well, you know that that region's effectively closed right now. To some degree, yes. Because keep in mind, right now it is exceedingly expensive to put cargo to go into the Gulf countries. The only way you can get the cargo in is to ship it either to the ports on the south coast of Oman or the ports on the Saudi side of the Red Sea and then truck it over land. There's insufficient trucking capacities or rates are sky high. That in itself would then cause a lot of shippers say maybe we shouldn't book right now. The problem with this is, let's keep in mind the Gulf countries are heavily dependent on imports, on everything from food and clothing, everyday materials, building materials. There's a large array of goods where they're dependent on imports. So a two-thirds dip bookings, imports, is going to be felt. Yeah, that's a good thing to keep in mind. And you can say that we have yet another actor joining the fray. Maybe with the risk of sounding slightly callous in a serious situation, but it appears these Somali pirates have decided this is a good time to join the party as well. Where over the last four days, there have been four pirate attacks off the coast of Somalia. Two of them were successful. They have now hijacked fishing vessels and a tanker. Both of them have been dragged and anchored off the coast of Somalia. We have the military forces in the region updating their advisory warning that there is an active pirate group actively operating now in the Indian Ocean of the Somali coastline. So here we were thinking that matters were bad enough with the Red Sea crisis and Hormuz crisis, and suddenly the Somali piracy issue is growing in importance again as well. Yeah. Do you think they're just kind of essentially capitalizing on the turmoil by seizing a tanker? For now, I would think that is the case. This kind of crime is to some degree opportunistic. And I think at least we should entertain the notion that potentially someone looked at the current situation and said, 'whatever military forces are in the region down there, they are preoccupied with the Iranian problem up there, so why not ramp up the efforts on the piracy side?' Well, we've talked, you know, about the, the price in oil rising, the effects that it has on fuel for ships. I think it'd be interesting to talk about some of the downstream effects and how it could impact importers and also consumers. I mean, we have some of the previous podcasts talk about not just oil. We've also talked about how fertilizer is down, how aluminum is down, it seems it's becoming a weekly theme. What's the next thing that we can look at that has downstream impact? And one of the important things here is plastics. This is not me, this is the CEO of Dow Chemicals that went out on the record and basically said it's 50% of the global production of ethylene and polyethylene that's impacted. 40% of all naphtha that we use in Europe comes from the Persian Gulf. For those unfamiliar with those chemical sounding names, basically these are the raw material for making any kind of plastics. So what he's saying there is we have a severe shortfall in the raw materials for making any kind of plastics. What does that mean for the consumer? Well, anything we buy, so that's everything from your garbage bags to a lot of your clothes, which you using plastics, to your PVC pipes if you want the new plumbing. Everything, including plastics, is gonna be impacted. At best, it's gonna be impacted in the way that it's gonna be more expensive. At worst, it might be there's not enough to go around, so we are gonna see a shortfall in the production of some goods where plastics are a part of it. Yeah. And polyethylene, that's in things like films, wraps, bottles, liners. So beyond just the, the consumable goods, it's also like the food, the way the food is packaged, and water bottles, things like that. So yeah, you might see some increases here. If you wanted that nice cheap new dress or that new fleece jacket or whatever it is, you might wanna buy it now before prices go up. Interesting. All right, well, let's talk about reliability. It's been been a little bit since we talked about that. What are the latest numbers showing? Yeah, the latest numbers came out here for March from Sea Intelligence, and sure, on the, at the headline, it increased slightly, 62% vessels were on time, which is not exactly a stellar performance. A slight improvement though. But here's the thing, if we look at the normal market before the pandemic, so 2011, when the data started until 2019, normal reliability was between 70 and 80%, then came the pandemic. And fair enough, during the pandemic, it was absolutely abysmal. But ever since the market started normalizing in '23, even if we take into account the Red Sea had a bit of a hiccup effect, the market has never really recovered to the same level as we saw before the pandemic. And this is where it starts to become interesting from not just a customer service perspective, but also from a global supply demand perspective. Because if, again, if we look at the normality before the pandemic, when vessels are delayed, that effectively is the same as some capacity being taken out of action. So, a vessel that's delayed that was supposed to move, that means your three days delayed, has three days where you should have been moving cargo on another trade, but you are not on average. So you can use the delay to calculate how much of the global capacity, so to speak, is missing in action because of perpetual delay. And before the pandemic, this was around 2.2%. That's just a baseline. So fine. That's the normality. 2.2% is just not available. We were used to that. As I mentioned, then the pandemic became all wild. At the worst of the pandemic, it was 14% of the global capacity that was unavailable because of got a hundred vessels off Los Angeles, for example. It's a lot. It is. But if you then look at the last three years where the world seems to have now normalized into a state where reliability is consistently worse and delays are consistently longer, what then happens to this capacity absorption? What used to be 2.2% of the global fleet being absorbed, the normality now seems to be a little over 5% of the global fleet is absorbed. This is not small potatoes. A little over 5%. That basically means a fleet the same size as Evergreen. Yeah, that's substantial. It is really substantial. Or another way to look at it and say, okay. We should have at 2.2% still out, so maybe it's only the difference between the old baseline of 2.2% and the new one a bit over five. That's really what has worsened. This is still a fleet the same size as a Hyundai Merchant Marine. This is the amount of capacity that right now remains unavailable simply because the industry has systematically become worse at reliability. What does that then mean for overall global supply and demand? It means overall supply and demand is kept stronger in favor of the carriers than it otherwise would have. It helps absorb not all of the over capacity that's coming, but it helps absorb some of this over capacity. So when you're talking about the capacity being absorbed, are you also, you're accounting for all the new vessels that are being released and put into rotation? Yes. Yes. Five and a half days, you're inching up to a week there and if you're an importer managing these containers coming in and having to operationally work with them, that can be pretty disruptive.
[20:41]You're coordinating with a lot of different parties. You're truckers, your warehouses, that can be a big headache for people. Yeah, and you can say this, this is where shippers need to also look at their own suppliers out there, because here we're talking the overall average, but basically no carrier is average. The global average is 62%. You have very small niche carriers that are performing close to a hundred percent. You have very small niche carriers performing at 0%. And then you have the major global carriers that tend to perform in a range around that median. And, and that's actually quite a spread. Just to throw a couple of data points out there, the one most people seem to be watching is of course, what's Gemini doing that, remember they promised 90% reliability for almost the first full year of the operation, they actually delivered under 90% what we have now seen here in February and March is a decline. They're performing at 80%. So there has been a decline there, but we still have a wide range of performances across the major carriers. The other data point I want to throw in there is an interesting one. The Sea Intelligence report, they usually also have a ranking amongst not all carriers, but all the global carriers who, is performing how in terms of reliability, and this is now the third month straight where it's Hapag-Lloyd that takes the top spot.
[22:05]The reason I find that interesting is this has been measured for 15 years and now we have Hapag-Lloyd and top spot for three months. Prior to this, over the full 15 years, Hapag has only snagged the number one spot twice, two different months, over 15 years. Hmm. So clearly, Hapag-Lloyd has improved their performance quite considerably compared to what they actually did the last 15 years. Yeah, a classic case of shoot for the moon. If you miss, you'll land among the stars. So it's still, still a good, definitely a big improvement and maybe a good milestone regardless. All right, Lars, anything else you want to talk about today? I think that is enough information overload for all our listeners out there. Let's see where the world is a week from now. All right, sounds like a plan. Thank you all for tuning in. If you haven't already subscribed, we're on Apple Music, Spotify, and YouTube. Be sure to subscribe so you are notified when we release new episodes every Monday. We'll be back next week and until then, I hope everyone has an awesome week. Bye y'all. Thanks for listening to the supply chain secrets podcast. presented by. Be sure to subscribe on your favorite podcast app.
