We are very tight when it comes to vessels, to equipments to everything else. So if we have another geopolitical issues that the, the war in Middle East, you know, spread out then we are in real pain.
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Hi, this is Victoria Meyer. Welcome back to The Chemical Show where Chemicals Means Business. Today I am speaking with Farid Tahvildari, who is the managing director at NUCO Logistics. Farid has a wealth of experience in chemicals and marine logistics, as well as some other places. And he is here today to talk about what's happening in shipping, really with a focus on the impact of the Red Sea ,Panama Canal, and more. So Farid, welcome to The Chemical Show.
Good to be here today, Victoria. Thank you for having me. me
Thank you for joining me. So let's just start by telling us, tell us a little bit about yourself and how you got involved in the shipping industry.
Well, that's an interesting story. Uh, My background is in finance and in previous life I was involved with the hospitality industry, so managing hotels acquiring new properties, managing restaurants and nightclubs, and even was involved with the transition of, casino in Vegas. But um, Noushin and I, we started NUCO Logistics back in 2008. And initially uh, Noushin was pretty much carrying the load till uh, NUCO could stand on its own.
And in 2014 that was the time that we realized that I need to join the company. Even though finance for different industries and different companies is pretty much the same, but it was a whole different industry for me. So it's like going back to school and learning the new lingo and learning about all the variables that impacts the logistics industry. Of course with COVID pandemic happening, it was like a crash course for all of us to learn more about it.
Even though I've been involved with new logistics since 2008, but I got really heavily involved starting 2014, and I spent a lot of time learning talking to our vendors, to our clients. And of course, Noushin was my uh, TA. So definitely I learned a lot. And I still every year I learn new things about this industry.
Yeah. Awesome. That's great. And for those listeners who don't know, Farid is married to Noushin Shamsili, who is the CEO of NUCO Logistics. So basically his wife
I I'm my boss. there you go.
Yeah. Oh, you're your boss. Okay. And and Noushin's been on The Chemical Show a couple times, so I will link her episode so that we can go back and listen to those episodes if you're interested. So, you touched on, uh, just some of the challenges in COVID, which I think. You know, So many supply chain related and marine logistics related challenges due to COVID, especially in that 2020 to 2022 time period. We seemed to be getting back to normal, right?
I think I heard from so many people in 2023 that, okay, things are lining out, we're getting back to normal and now. That is not the case. So we've got challenges with the Red Sea, the Suez Canal, and of course the Panama Canal as well. So let's start with the Red Sea. Can you just provide an overview of what's happening there and how it's affecting the industry?
Sure. Just to summarize how we ended up here, of course, the war between Hamas and Israel happened and the Hamas, their supporters and the proxies of Iran, they started making some noise.
And we had skirmishes in Lebanon, in Iraq, and of all the proxies, Houthis in Yemen seems to be the most active one, and they started attacking container shipments that goes through the Suez Canal and that kind of put a stop to the commerce through that Suez Canal and of course, US and allies, they start attacking the Houthis in Yemen. And we've seen some reduction in their attack. But basically all major shipping lines, they have stopped the route through Suez Canal.
And they've basically gone around Africa going through Cape of Good Hope to get to their destination in Europe and the east coast of US. Even though only like 12% of US import comes through Suez Canal, but because of the uncertainty it has an impact on the global stage. So that's basically where we stand right now in regard to Suez Canal.
Right, And and obviously the Suez Canal, much like the Panama Canal, um, you know, it's intended to help streamline that shipping. So as people and, and vessels have to go, not through the Suez Canal, but around the Cape of Good Hope, is that right? it adds to the shipping time, does it not? not
So on average it adds 10 to 14 days to the time that it travels through that area. What it happened was initially when the Houthis started attacking there was a shock to the system because all of a sudden they stopped all this container ships stopped. But it took the shipping industry to a while to adjust their inventory, basically move fleets around. And they had some idle vessels that they brought into their network. If I can back up a little bit.
Most shipping lines, they were flushed with cash. So all of a sudden they started adding, ordering a lot of new vessels. The latest number I saw was like additional 30% capacity to their existing fleet. So of course some of it was to get rid of their old vessels and these new vessels to be in compliance with the new IMOs. So about. 10% of the 30% that they were ordering. They're coming on board in 2024. So the timing of it was perfect.
So in a sense they could bring these new vessels to their network and instead of getting rid of the old vessels, they're keeping them in service. The initial shock that the system got, that we pretty much passed that point, but the challenge remains that, number one for each shipping line, for each ship, if they expected to use that ship like 10 or 12 times round trip per year. Because of the additional time that is gonna be reduced to five or six times a year.
So all of a sudden the return on investments will be much lower. So, uh, I don't foresee too much increases in rates. Like we've seen during COVID, but the reduction in rates that we had experienced last year, I don't foresee that. There are some GRIs in place that they opted like a thousand dollars to use. But with our clients, what we've seen is like $200 or $400 depending on destination.
Okay, So I'm gonna interrupt you here real quick. Farid, what if, so what is a GRI?
Uh, General rate increase.
Okay. So basically a, just an increase that they,
Increase rate. Yeah, it's like a temporary increase. So rather than increasing the rates by $500, this is like a temporary increase. And that's where they look looking into it. But, what happens is for all these GRIs, they need to submit their requests. And then FMC Federal Maritime Commission, they have 30 days to approve it, but because of the emergency here, FMC was approving it, basically waiving the 30 day notice.
So all these GRIs are in place for January and February and, but other than the GRI going back, we haven't seen huge increases in rates as we had seen right after COVID. But by the same token we tell our clients don't expect like a huge discounts in rates because of the challenges that the shipping lines face right
Right. So a couple of things here. Farid, I what I, number one, what I had not appreciated was that um, that there was actually excess capacity from a shipping perspective because just, um, I don't know. It seems like it, I knew it had gotten tight and then it had gotten looser, but, um, the fact that many of the shipping companies had vessels that they could. Keep in service and add to service has certainly helped, which is probably why frankly, as a consumer, we're not seeing.
you know, challenges that we saw like back in 2020, 21 when in, in our inability to get the products we wanted. So certainly the intermediates, the chemical companies and others may be seeing that, but I that's, um, that's pretty interesting. And then the second piece that the base rates you're seeing are staying flat for now, but it's just that we've got surcharges applied temporarily and we don't really know how temporary
Exact, exact. ly. Exactly..
Yeah. Yeah. So I know that for a while, um, it, it sounds like the, the vessels are working their way out, but I also had heard that containers themselves got very tight again. Is that what you're seeing as well? I.
Yes we've seen some shortage in equipments like ISO tanks. So that's a combination of, because of a situation in for the Suez Canal and also seasonal because of the Chinese New Year you have a lot of containers in certain areas and then they need to move back to other areas. So, because it takes 14 days, additional days for these ships to get from one port to another port. Of course these containers are sitting on the ship rather than in their destination.
So definitely the tightness, I would say of the equipments will remain in place. Because even though we have additional vessels, we don't have additional containers or chassis or things like that. The restriction and the tightness on equipments will remain in place. But with the, chinese New Year behind us that to some extent that should remedy itself.
But what I tell everyone is even though we have additional vessels in place and the shipping industry has been able to cope with this new challenge, pretty well, considering the challenges that we face, but we are very tight when it comes to vessels, to equipments to everything else. So if we have another geopolitical issues that you know the war in Middle East, spread out then we are in real in a really pain area that right now that we everybody needs to deal with.
Our recommendation to everyone is to plan plan, plan. It's I know everyone wants to kind of, last year everyone had excess inventory, so nobody wanted to order anything. And it was like, if we need it, we order it, we get it right away. That's not the case this year. We know most shippers, they try to have a 30 day inventory on hand just to be on the safe side as a precaution, as an insurance.
So we definitely recommend our clients to have adequate inventory in place and, have secondary and third option for their shipments because you never know from blank sailing or some other geopolitical thing happens, or lack of equipment things could go away.
yeah We're, yeah, we're kind of one crisis from another crisis. Right? Yeah. And so, your mention of having, adequate supply on hand? I asked within The Chemical Community um, I reached out and asked people, okay, so how are you handling, this Red Sea crisis and, and the impact that it's had on shipping? And that was one of the feedbacks that came back, is people are, moving a little bit from, you know, there was a certain amount of just in time, right,
Absolutely. Yep.
especially 2023. Everyone was so focused on cash management. There was a destocking trying to reduce the inventories in place. And now what we're seeing, and I picked this up at ACI where I was recently, and also as I said in The Chemical Community, just asking people that are part of that. And they are starting to increase their safety stocks a little bit. So being much more mindful that boy, an extra 14 days, requires more product.
But also, as you pointed out earlier, we're really one crisis away from a real crisis and critical situation.
Exactly. Exactly.
Yeah, so let's turn over and look at the Panama Canal.
Mm-Hmm.
because that's our next big, critical shipping channel. And it seems like at times we get mixed answers, and yet it's clear that the availability of transit via the Panama Canal has actually decreased by 30 to 40% versus a year ago.
I actually came upon a, something probably that you guys use all the time, some tool online and I'll, I will find it and link it 'cause I don't recall the name of it, but actually showed daily shipments through the Panama Canal and it was fascinating just to see that significant drop. So clearly it's an issue. Can you talk more about what's going on with the Panama Canal and how companies are responding? I.
Sure. This year in Panama, they had a really dry season. It seems every May is like their monsoon season. And last year they didn't have adequate rain. So all of a sudden the, water reserve that they need to work the locks at the Panama Canal doesn't work as efficiently as it's supposed to be. All of a sudden the number of vessels that can go through the canal has been reduced. The tonnage has been reduced.
So all of a sudden there is another kink in the in the geopolitical issues that we have here. Now so there are some, uh. solutions here. One in Panama, they had this big project of additional water reservoir uh, they were supposed to build and it was like over $2 billion and they decided to forego on that. So unfortunately. That project, I'm sure they're trying to get the project up and running, but like anything else is gonna take a while to come online.
So we are all waiting for next May and see whether they're gonna have adequate rain or not. We have plenty of rain here in California this year, so I'm not sure whether that translates into rain in Panama or not. So that is the second thing that we need to look at is come May, are they gonna have adequate rain to replenish the water reservoir that had they had in place. Now I came across this documentary a couple of weeks ago, which was rather interesting.
So in Mexico, so all those Latin American countries, all of a sudden they see, oh, Panama has issues, so how can we take advantage of this? And there are a lot of different projects. Everybody's talking about it, but. The most pros promising project is in Mexico. There's a it's called CIIT. Of course the translation is Inter Oceanic Corridor of Mexico. Sorry, I had to look because I keep forgetting the
Yeah, no, I remember that
So this is basically a railroad that connects the East coast to West coast, so Atlantic to Pacific. And this railroad was in place before Panama Canal came on board. They were using that for a few years. So basically ships come on, either Atlantic or Pacific. They off offload, they put on a train, they crosses the country, goes to the other side, and then they load on the other side and take it to their destination.
So actually make, it was working fine, but with Panama Canal opening up, then everybody just decided to go through Panama Canal because it was easier. You didn't have to deal with unloading and offloading and so on and so forth. With the new president that of Mexico that came on, about five years ago. He decided to get that railroad open. So they worked on it, they replenished it, they rebuilt it. So the railroad is working now.
This year they started the passenger train and now they're working on, basically making the ports on either side of the railroad up and running so the ships can come in and offload and onload. They're supposed to open up by end of this year, and so far they've been going strong. Definitely, I wouldn't expect until 2025 we'd be like everybody uses that.
But definitely it would be like a complement to Panama Canal because it's like it's close enough and it only takes nine hours to cross from east to west. So it's not it's not too cumbersome. That's
faster than I would've anticipated. anticipated
it's like the narrow side of the Mexico. And so those ports are supposed to be up and running by end of this year. I would say it takes a year for the shipping lines to do their due diligence and see how viable that option is, but with the challenges in Panama they definitely look closely at it, and it might become an alternative to Panama Canal, but for this year we gotta cross our fingers for May and see whether they get adequate rain.
If not, then this challenge for Panama Canal remain in place.
Yeah. So what are companies doing today if they can't utilize the Panama Canal? 'cause obviously capacity is reduced, um, and product still needs to move. So how are companies and shippers moving this product? product
They're using smaller ships to deal with the tonnage issues and they're giving enough, themselves enough time to do the waiting in line and so on and so forth. But there is also a railroad right next to Panama Canal that they, what Mexico is planning to do, they can do it in Panama as well. These are all the alternatives they're using. The other option is to going all the way down to Argentina, because that, but that is like a really long, and nobody wants to take that route.
So between the railroad right next to Panama and or basically a lot of shippers coming to West Coast or East Coast and just getting on the rail and hauling their cargo from east to west. So not the best options, but there are options available, but once again, it
a lot more marine or a lot more rail movement versus
marine movementt. But once again, it adds to the time between Suez Canal and Panama Canal. It's still happening, but it takes much longer to get your cargo from one point to another.
Right. So what are the biggest questions that you're getting from your customers? Obviously you've been dealing with, and you guys deal with logistics and marine challenges all the time. But as we sit here in 2024, what's on people's minds? What's on your customer's minds?
Initially it was like prices because all of a sudden because of the soft, as you mentioned soft market last year you could find some good uh, good options, but that was like out the window this year. And number two is like lack of equipment, as I mentioned, is uh, ISO tanks right now. We have issues with, depending on which market they wanna ship it to.
And as we tell 'em, it's have second plan, third plan, fourth plan to just back up because there's a good possibility that the, your schedule vessel may not depart on the scheduled date. We tell 'em adequate inventory and uh, plan accordingly.
Yeah. Makes sense. Makes sense. Um, and then, you know, we maybe touched on this already, but should we expect normalization this year? You know, What's the likelihood of us getting back to kind of business as usual, so to speak?
You never say never but in all reality is uh, market doesn't expect Suez Canal to open up this year. Because even though, as I mentioned earlier the Houthis have basically their capabilities have been diminished because of the skirmishes that were made by us and its allies, but they still can create havoc. And when you're not a hundred percent sure, nobody wants to touch that area.
And as a point of reference, the Six Day War back in 1967 between Israel and Egypt and Syria, even though it was only six days of course Suez Canal was shut down, but it took seven years for it to open up. I'm not saying it's gonna take seven years for Suez Canal to open up again, but things when go wrong, they shut down immediately. But to get back to normal, as we've seen recently after COVID, it takes a while.
I would tell our clients not to have their hopes high for Suez Canal opening up this year. It could happen, but we'll just cross our fingers and see how it goes next year, if there's a peace treaty in between Israel and Hamas, take uh, things go back to normal, then yes, by end of this year, we should see the opening up the Suez Canal. But so far we don't see that unfortunately.
Yeah, and then we're all supposed to pray for rain. Pray for the monsoon in Panama
Yes, for uh, in month of May. And yes, let's see how that goes because if at least Panama Canal is back to its capacity, then at least kind of alleviate some of the challenges that we face right now.
Yeah. And, And Farid for you and your team at NUCO How are you guys adapting to this and what do you see as the year ahead for you as, 'cause you're obviously a service provider working closely with a variety of shippers, with the shipping companies and, and really helping solve these issues. You know, What are you guys looking forward to?
Interesting. This year I'm looking for the organization that actually produces this uh, report. The global port tracker they uh, predict that the US imports for the first year, for the first half of this year is gonna increase over last year. So for example, in February the year over year increase was 23%. So if you compare February 24 versus 23, there's an increase of 23%. They predict the same thing in March and April. Not 20%, but 5% and 6% respectively.
The outlook in US economy is strong and the issue with the inventory that everybody faced last year have been resolved to some extent. So all of a sudden everybody's, basically gearing up to import more products. So everybody wants to import more. We have issues with, as we discussed, with our equipments and vessels and the timing. So hence going back and telling everyone, plan, plan accordingly, because everything is gonna take much longer than we are used to from last year.
Then, we hear about GRIs uh, increases. We hear about lack of equipment. So our team is literally dealing with challenges on a regular basis. But what we pride ourselves is we are, we might be bearer of bad news, but if we will inform our clients of the challenges that they face and we come up with some options for them, but that's what we tell everyone is like, plan, plan, plan because this year is gonna be a challenging year.
Not as bad as COVID, not as bad as what we faced after a pandemic, but everything's tight. So buckle up.
Hmm. And that's a great final statement there. Farid, thank you for joining us today on The Chemical Show. Really appreciate you sharing your insight and expertise.
Well, Thanks for having me. It was enjoyable always. I enjoyed talking to you, Victoria, and thanks for having me today.
Absolutely. And thanks everyone for listening. Keep listening, keep following, keep sharing, and we will talk again soon.
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