A Jittery Market, A Clear Signal: Lower Rates Ahead?

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Hi everyone, you're listening to the Supply Chain Secrets podcast. I'm your co-host Caroline Weaver and with me is the esteemed Lars Jensen. Lars, how are you doing? Doing great, thanks. Once again this week calling in from Copenhagen. Not that I've been standing still compared to last week. I have been... in Germany for a few days on work engagements and having the fun of driving a car around a racetrack, but back in Copenhagen.

Some people do weekend trips, but you do like just regular weekday go to a new country kind of trips. Yes. Must be nice. Must be nice, Lars. All right. Let's get started with our typical first topic. Let's talk about rates. Yeah. It's hard to box in how to talk about rates this week because they are really all over the place. Even if you just look at something as simple as the Pacific. There's a specific point in perhaps digging a bit deeper into this.

For anyone that is still under the belief that if we just have one price, we can see here's an index price on, say, the Trans-Pacific, the past week was a clear-cut case that this is absolutely not true. origin, destination, and equipment splits. Let me just give a few very, very tangible examples. Let's start at the relatively easy end. If we look at China to US West Coast.

So that's usually the benchmark everybody's using. So in this case, it's the NIFI, so it's spot cargo. We know for a fact this has been loaded at these prices. So China-US West Coast is up some $600. You might then naturally assume, sure, then everybody else is up $600 give and take and 20-foot containers a little bit less. But here's where it gets fun.

might be a bit over $600 from China, but from Southeast Asia, and actually from Northeast Asia as well, it's around $350-ish, which is a significant difference. But it gets even more interesting if we not only look at the change in sub-trade, But if we go into the equipment split, because if we're looking at 20-footers into U.S. West Coast, now keep in mind the overall benchmark everybody always looks at, China, is up $600 for a 40-foot. For a 20-foot, if I come from Southeast Asia,

it is down $25. So going completely counter. Then you think, okay, if 20 foot up from Southeast Asia is down $25, the 20 foot market is weak. Well, not quite. If I look at Northeast Asia, it's not down $25. it's up more than $700 for a 20-foot, which are some very extreme differences across not only equipment types, but also simply the origin of it. And what should we make of this? The way I see it is the market is, let's call the technical term jittery.

It is very much in flux. We've seen a bit of up and down also in the NiFi the last couple of weeks. So it appears to be a very, very... unsettled market right now, where there's not really as such a clear direction. It's a bit up, it's a bit down, varies depending on geography, varies depending on equipment. So there's not really any material trend.

which to me also signals that the core driver, which is of course the U.S. importers in this case, they don't quite know what to make of the current situation, with some moving more cargo, some moving less, but there is not a clear direction. in terms of what is actually going on. Yeah, and you would kind of think like, all right, if it's down $25, like...

so was sort of negligible. Would you say it's more the direction that matters or is it still significant even though it's $25? Yeah, I would say $25. A drop in $25 is usually not something we would talk about when you have two origin. in Asia, and one is suddenly saying $25 down, the other one is saying more than $700 up, there's a massive disparity happening.

And these are, of course, the NIFI rates. So this is cargo we know has been loaded. If we take a sneak peek over at the SCFI, which is what's just being quoted, and we have seen in the past how that tends to... exacerbate some of these movements. What we have seen here over the past two weeks is a substantial decline.

Remember a while back during October, we talked about at least how the quoted rates had been rocking up rapidly on the SCFI. Well, the last two weeks, 70 to 80% of that increase is now completely gone, very rapidly. So again, this very unsettled up and down dynamic. And it is not just on the Trans-Pacific. One of the more noteworthy ones this week on the EES CFI is actually from Shanghai to East Coast of South America.

where rates have now dropped $900 per 20-foot equivalent unit. So it's not per 40-foot, but per TEU. This is a massive drop over just two weeks. For those that remember back over summer, the Asia to South American market saw a magnificently high spike in price. That is now completely gone for the recent drops.

maybe to be expected given the seasonality? Or is this still an anomaly? I would rather say it was an anomaly what we saw over summer, that we saw these massive, massive increases. But irrespective of the drivers of that, all of that increase has now completely evaporated. And I can't see why, at least in the short term, we would see it revived again. Maybe the most boring part out there is actually Asia-Europe.

There's really not much to say. Asia-Mediterranean was at a standstill, and Asia and all the Europe are increasing marginally compared to the extremely unsettled Trans-Pacific market and the rapid declines into South America. Asia-Europe the last couple of weeks have been fairly stable and benign. Might be boring to you, Lars, but I think probably for shippers and for carriers, it might be a nice relief that there's something dependable. Yes.

So given where we're at with those markets, you know, there's contract seasons coming up. What might shippers and NBOs kind of be thinking going into the upcoming contract year? For those that have annual contracts, of course, we need to keep in mind the annual contracts they have now to the degree they haven't renegotiated them, which some, of course, would have done. But if we look at what happened with the original annual contracts for this year, they were done a year ago.

at much higher freight levels because the market was much stronger. So it almost goes without saying that, of course, annual contract rates coming into 26 are going to be lower than what we saw in 25. For those that may have succeeded in renegotiations here, I would still expect you're going to see a weakening again coming into 2026. But there is a catch here.

especially if you're shipping Asia Europe but I would also say Asia US East Coast particularly for the ones that use the round Africa and the usual through Suez routings make sure that you agree between shipper and carrier What is the contingency if the Red Sea Route becomes open? Because if you have an annual contract for 2026, it is certainly a possibility that this will happen. Is that taken account of in the contract?

Or is that left completely unaddressed? If it's unaddressed, I can see a significant problem. Because if we start to then go through the Suez routing, on one hand...

you might see a reduction in freight rates because now suddenly your supply chain is two weeks short of the carrier saves a lot of money. We're heading into a little bit of overcapacity. And at the same time, you might for a while see massive terminal congestion charges in Europe as a consequence of this shortening of the supply chain.

So at least I would suggest for anybody looking at contracts for 2026, at least think it through, discuss it between the shipper and carrier and agree on, if it opens, then what? Does the contract continue as is? then at least you have spoken about and agree this is the case. Or do you have other contingencies built in saying, well, these are the rates that apply if we go back, or these are the maximum caps of terminal handling, or...

whatever it might be that you think of as a contingency. I won't be the judge of what would be the right way of handling this. There's a lot of different way to handling this. But at least have the conversation during contract negotiation. for full year 26 contract. If this reopens,

What is then the impact on the contract? Yeah, it definitely seems to be becoming more of a real possibility that the Red Sea opens up. So I think it's very sound advice to at least have the conversation, set some level of expectation around what that might look like.

for you. Yes. Awesome. All right. Well, let's talk about the latest on tariffs. It wouldn't be an episode if we didn't have some kind of update. No, there's always something happening. Exactly. Several updates. First of all, there were new agreements announced last week.

It's only been a week, but we now have agreements apparently announced with the US and five different countries. In these cases, it's Switzerland, El Salvador, Argentina, Ecuador, and Guatemala. And as usual, the devil is in the details, so... Unless we have three or four hours for the podcast, we can't go into all the different commodities. Shippers would need to go in if they're dealing with these countries and look at the specific commodity HS codes, what is included, what is not included.

How does this actually change? On top of that, we now also have an executive order with a lot of exceptions for the reciprocal tariffs as far as I understand it. These are blanket exceptions across all countries. in relation to reciprocal tariffs. And it mainly covers a lot of food stuff. So, again, not to be exhaustive, but avocados, bananas, coffee, tea, various meat cuts. If you want the full list of...

exemptions to these reciprocal tariffs. That was updated in relation to the executive order. We have had other similar exceptions made before. The document listing the exceptions at commodity code level is now 98 pages long. There's a wee bit of work to be done to sift through are my commodities included or not included.

The foodstuffs I was mentioning here, that is only the top of the iceberg, so to speak. 98 pages, man. I hope you can control F and just type in your HHS code and see if you're exempt.

All right. Well, thank you for that update. Let's talk a little bit about carrier results. So we have the Q3 results for most of the carriers now. Yes. Basically, all of the major global carriers have come up with results. And if we look at, well, of course, except for MSC, MSC does not release results, which I think everybody is fairly familiar with. But apart from them, all the global carriers have come out with Q3 results.

They're all making very, very decent money. They, of course, all see a significant reduction in profitability compared to same period a year ago. That's not because Q3 here was bad. It's just because Q3 last year was... unbelievably good because of the Red Sea disruptions. Results for the carriers are still solid and good here in Q3. However given how we have seen freight rates develop here over recent months

This might also be the last really good quarter that we see from the major carriers, potentially for a while. Again, barring any black swans and... Let me, in the typical Danish way, just say, well, of course, we haven't seen any black swans the last five years, have we? No, definitely not. Yeah, exactly. So barring that. But what is interesting, if I look at at least the five largest carriers that provide results, so Musk, CMA, Costco, including Adoblo, HAPAC, and O&E.

and look at how they developed both in terms of volumes and in terms of their freight rates. That is interesting because it's really, really a mixed bag if we look at volume developments across these largest carriers, for example. Musk is the one that have gained the most volume, up almost 8% on volume year-on-year. At the other end of the spectrum, we have O&E being up just 1%. For comparison, the market is up just shy of 4%.

pretty wide span there but then we can also flip it around and say well how has that translated into freight rate developments or in the case where they don't outright say freight rates calculate their revenue per unit. And in that case, we find Musk being down the most, almost 31% year on year. And then we also see why it's mattering. And the one that actually did best was Hoppock Lloyd being down only about 14%.

So we see a pretty wide span. Now, if we try to make a pattern out of this, what we would normally expect, not just in this industry but potentially in any industry, is... If I am aggressive on my pricing, lower price more than my competitors, I would likely gain some market share.

And by and large, this is the pattern we see across the major carriers, that the more they grow in volume, the more they've also given away on the freight rate side. Doesn't match perfectly, but that is the rough one we see. But there is one very, very notable exception. Hapag Lloyd. Hapag Lloyd is the second largest gainer of volume.

They grew more than 6%. So they're number two after Maersk. Yet Harburg-Lloyd's freight rates only declined around 14%. So they did not give away on rates. Actually, they did better on rates than all the other carriers. So Harburg-Lloyd really is the odd one out. able to stem the decline on rates much better than the competitors, yet at the same time gain market share. Good on them.

Yeah, it seems HAPAC's been having a pretty good year overall, with reliability numbers tending to be higher than their competitors. So they must be doing something. They must be doing something. I mean, one thought here also, of course, is I can't help but notice that the two carriers that gained the most volume are also the two Gemini carriers.

We, of course, need to keep in mind Gemini is absolutely not the full book of business for neither Merson or Hubbard Lloyd. It's the east-west part. They have a lot of activities on other trades outside of Gemini's go. But it is a thought here to see, okay, They start the Gemini. They have certainly delivered on the reliability they promised. I know a lot of shippers are not necessarily measuring it the same way or feeling it the same way. Fully acknowledge that.

But on a comparative basis, they are clearly performing better on the East-West trades than their competitors. And we are also seeing these as the highest gainers of volume.

All right, let's switch gears and kind of go into our mixed bag of news. So let's start off with the Houthi update. Is there an update there? What are we looking at right now? Well, there might be an update. The interesting thing is, remember back when we had the Israel-Hamas ceasefire back in the beginning of the year, the Houthis explicitly also stated they had a ceasefire.

We're now at a point where the Husis have not stated explicitly they have a ceasefire, but what they have done now is say if hostilities flare up again, then they will start shooting at chips. paraphrasing slightly. So the implication is apparently they have a self-imposed ceasefire, but they haven't said so explicitly. And of course, this begins to lead to speculation, the same as we had at the beginning of the year, is the Red Sea just about to reopen? That depends on the...

Believe you have on whether the ceasefire between Israel and Hamas will last. Now it's been slightly more than a month. Again, keep in mind the one back in the beginning of the year lasted two months before breaking down. There has been... fewer headlines at least in terms of breaches of the ceasefire between Israel and Hamas. But we should also acknowledge that does not mean that there hasn't been a single-shot fire. There has indeed.

been a number of actions taken in that conflict up there. So we cannot take it forgiven yet that that ceasefire is going to hold. But there might also be a wee bit of battle fatigue coming in on both sides. It might be the second time he has the charm and it might actually last, which is also why, as we discussed earlier in the podcast, there is a realistic hope that at some point in 2026, we might actually see the Red Sea passage reopen again.

Have there been any carriers that are moving container ships through the Red Sea now? Are we starting to see that at all? Of course, there's always been carriers for a while. I mean, the only global one that has been doing it consistently has been CMA, CGM, that for a year have had one, two services operate there frequently under French naval escort. They have...

taken to take a few additional vessels through here over the last few weeks, some of the 18,000 TEU vessels. Some might have seen headlines to the effect that this was something of a groundbreaking thing and suddenly they're sending ultra large vessels through. From my perspective, that's a bit of an exaggeration or hyperbole in order to sell headlines, because reality is they have been sending 16,000 TEU ships through fairly regularly.

over the last year so if you're suddenly sending an 18 000 teu through well I don't really see that as a major new shift or a major new move. Yeah, it's a slightly larger vessel, but come on, it's not like it's a quantum shift in what's happening. The other major carriers for now are not changing anything. But of course, I would fully expect that all the carriers already have plans ready to go, that they already know.

how to face over what their new networks will be when and if this actually happens. Yeah, there's probably been an action plan that's been put together for a while, just a matter of when they implement it. Yeah, and if we think back two years ago... before the Red Sea crisis erupted, with all the new alliances coming, the new alliances had already announced. I mean, we know what the networks would look like for the new alliances because they announced them. And then they had to...

revise them and suddenly present everybody with two options, one if they go through the Red Sea and one if they go around Africa. All right. Well, we will keep monitoring that and provide updates as things progress. Let's talk about Iran and an oil tanker that was seized recently. Yeah, I mean, there was an oil tanker that was exiting through the Strait of Hormuz coming into the Gulf of Oman.

when it was then seized by the Iranian Navy and taken to Iran, where it's now anchored up. And I sit here with a little bit of a sense of a deja vu. Again, we had this development also spring last year. At that point, we had Iran seizing a few oil tankers, and then they actually also seized a 15,000 TEU container ship from MSC, the container ship. That was really the odd one out. But Iran seizing an oil tanker every once in a while...

is not really a new development. Iran always claims that these are oil tankers that are moving illicit oil under Iranian sanctions. Whether that is true or not, I don't want to be the arbiter of that, but that's at least the Iranian claim every time. I can just note that it is certainly not the first time. This has happened multiple times in the past as well. If this is the only incident we see, I don't think we should read too much into it.

Last year, there was a beginning concern because first we had a few oil tankers and then suddenly also a container ship, whether we were heading in a direction where the Strait of Hormuz could be troublesome the way the Red Sea was troublesome. But with this single oil tanker right now, I don't think that is the spectrum that we're looking at. For now, I don't think we should be concerned of a sudden closure of the Strait of Hormuz. Closure was never on the table, but...

at least a challenged area in the way of the Red Sea, but I don't think that's on the table right now. Yeah. What actually happens when they seize these vessels? Usually, it appears to me, they seize the vessels, then they anchor them up off Iran, and that's basically it. They hang on to the ship for the container ship. The crew was released after a few weeks.

But as far as I know, that container ship might still be in Iran. If it isn't, then it would be a very, very new development if it has been redelivered. It's interesting. Last topic today. So, Harold Duggett.

is going to Lisbon and talk about port automation, maybe fight against port automation. Can you tell us more on that? Yeah, maybe for the possible viewers out there that say, Harold, who on earth was that? Just to bring people up to speed, remember this whole potential of a massive strike on the U.S. East Coast a year ago, which was then postponed into January. Harold Daggett is the union leader for the ILA union, which covers port workers on the U.S. East Coast.

coast and he has always been very much anti-automation as has his union i mean it goes all the way back to the 70s where they were also against containerization because it loses job so so the whole entry point from the union there is they are anti-automation because they see it as a job killer. That is also part of what they took to the negotiation and basically won.

With the new six-year contract that was made on the U.S. East Coast back in January, that's going to be difficult really to do automation on the U.S. East Coast.

He has then taken it upon himself to basically start a crusade against port automation across the world under the name of the Global Maritime Alliance. So... A bunch of other port workers unions from around the world gathered in Lisbon, and they were basically talking to each other about how they could fight automation in the terminals globally.

Can you talk a little bit about what is actually automated right now in terminals, what they're specifically fighting against? You can say what they're fighting against. I think the easy answer is they're fighting against job loss. That is their key fear. And of course, if you sit down and say, well, if I take all the moving equipment out in the port and replace that by autonomous vehicles and robots, that would be job lost. You could argue that way.

If you look around the world, what is actually happening, automation is not a binary thing where either you're automated or not. It's a whole spectrum ranging from you might have a few pieces of equipment that are automated to a lot of equipment to the entire terminal. being completely automated. So you have the whole spectrum around the world. But there are many different ways of looking at it. Let me point out an example where I visited one of the newest terminals in Busan-Newport last year.

And we were there. They had just opened a new completely fully automated terminal. And indeed it was fully automated. The intention being you don't have a single person walking inside doing the usual job. Of course you still have jobs. Some of that related to equipment maintenance, some of them back office functions. You have a lot of functions. But what is interesting from this tale is...

This is a terminal project that was created to move or rather shut down an old terminal in the old part of Busan Port and replace it with a new one. And one of the premises set up for this one was that the ones that got the concession to build the automated terminal should do so in a way so that no jobs were lost in the process. So, of course, that meant two things.

First of all, in order to then get something out of your automation, you still have the same amount of people working, but now the terminal is capable of handling a lot more cargo than it was. So you may get a lot more productive with the same amount of staff. And of course, there was also a significant amount of work which then had to go in in retraining, reskilling the people so they could take on some of the new jobs that follow along with the terminal.

And at least from what I've seen personally, I think that's a discussion that is sometimes missing from this whole relatively also confrontational discussion about automation kills jobs. What I'm sometimes missing is...

What are the efforts that should go into re-skilling some of these people so they're actually having valuable skills going into a more automated future? Yeah, and I would imagine too that... it becomes a safer terminal if you have less people on the ground with all the moving parts.

I would imagine you have less injuries, less problems that come up. But again, this is where the discussion sometimes becomes very confrontational because absolutely the argument is there. It has also been fielded. If it's automated, it is safer. The counterpoint from a union that's afraid of jobs would be, sure, it's safer because there are no jobs. Not that I agree with the union position. Just say these are the positions you typically hear out there. Yeah.

That makes sense. It's interesting that he's taking the fight internationally. I'm curious to see kind of what comes about with it.

All right, Lars, anything else you want to add before we wrap up today's episode? I think the one thing I want to add now that you ask, I forgot to mention it under the whole tariff thing, because for now it is not a thing. It is merely a threat that is coming. There is apparently a bill underway in US Congress. It has not been approved. There's not even a timeline on, so don't necessarily assume it's going to happen tomorrow. but it was now endorsed by President Trump and that is basically

for a threat of up to a 500% tariff on countries that are buying oil from Russia and are not actively participating in helping Ukraine. Wow. Okay. Just drop a bomb right at the end. Drop Obama at the end. But again, this hasn't even passed through Congress. I see this more as a... For now, at least, an attempt to put some pressure. The problem here is, who is it you want to put pressure on doing this? Basically, it's India and China. There's already a 25% penalty tariff on India. China.

The U.S. just made an agreement with China. I'm not sure it would be conducive for the longevity of that deal if China suddenly feels threatened by a 500% tariff. But yet here we are. Well, it's interesting, too. It's going through the rounds of Congress versus just sort of declaring it and saying this is what it is now. But one thing doesn't necessarily rule the other out. True.

All right. Well, thank you for sharing all of that. I think that is it for today's episode. If you haven't already subscribed, please do. We're on Apple Music, Spotify, and YouTube. And until next week, I hope everyone has an awesome, productive week. Have a good one. Thanks for listening to Supply Chain Secrets Podcast, presented by Nice Shacks. Be sure to subscribe on your favorite podcast app. Want to be a part of the show? Register to attend a live recording at the link below.