WEBVTT
00:00:00.000 --> 00:00:06.240
Hi everyone, I'm Jude Levine, head of research at Frados, and welcome to this week's Container Bites Podcast.
00:00:06.400 --> 00:00:10.080
It's going to be just me again this week as Julia is still out on vacation.
00:00:10.320 --> 00:00:22.239
So starting with the straight up removes, there's really not much to report because the uh status is about back to the status quo from before the uh ceasefire agreement between the US and Iran.
00:00:22.559 --> 00:00:31.519
So a little more than 60 days ago, the sides signed a memorandum of understanding that expired after 60 days, and there's been no steps to renew it.
00:00:31.600 --> 00:00:35.920
And really the terms of the memorandum weren't kept by either side in any case.
00:00:36.000 --> 00:00:41.520
So we're back to the status quo, which means uh Iranian attacks on vessels in the strait, U.S.
00:00:41.600 --> 00:00:46.560
blockade on Iranian traffic, and just very little traffic going through the strait at all.
00:00:46.799 --> 00:01:04.959
Despite this, however, despite the ongoing war, despite increased tensions and renewed attacks in the Red Sea by the Houthis, MERSC, along with other carriers like Hapegloy, CMACGM, Costco, also MSC, they all seem determined to continue taking steps back toward resuming Red Sea transits.
00:01:05.760 --> 00:01:08.719
Let's take a step back and remember what's happened in the Red Sea.
00:01:08.799 --> 00:01:17.519
When attacks uh started back in late 2023, it basically caused a very significant drop in Red Sea traffic by container carriers.
00:01:17.680 --> 00:01:28.079
When there was an Israel from us ceasefire signed back in October, we started to see some um cautious steps back by CMAC GM and all and also immersed.
00:01:28.239 --> 00:01:33.040
When the war with Iran broke out in February, basically there were U-turns of those steps back.
00:01:33.200 --> 00:01:38.719
When the memorandum of understanding was was signed, we started to see steps back towards the Red Sea again.
00:01:38.959 --> 00:01:49.439
Um but uh when that collapsed and there was some step back, but now in the last uh few weeks we've seen more and more steps towards a return to the Red Sea.
00:01:49.519 --> 00:01:50.719
So what's the different this time?
00:01:50.879 --> 00:02:02.640
So Leiner Liduka points out that even with significant additional costs of insurance costs for going through the Babel Mandab for passing through the Southern Red Sea, what's different is really fuel costs, right?
00:02:02.719 --> 00:02:18.800
Going around the Cape of Good Hope is a much longer diverted uh journey, and it's become much more expensive than it was in late 2023 because the cost of bunker fuel has increased so significantly, and that might change the calculations, be changing the calculations for these carriers.
00:02:19.039 --> 00:02:22.639
Another new motivating factor may be port congestion.
00:02:22.800 --> 00:02:27.120
So kind of historically, port congestion was seasonal.
00:02:27.199 --> 00:02:30.560
It would come when demand was very strong, when volumes were very strong.
00:02:30.719 --> 00:02:37.680
It would also come from external shocks like labor strikes, like um uh storms, weather, things like that.
00:02:37.840 --> 00:02:49.759
And the current very high levels of congestion that we're seeing in the Far East and also in Europe can be attributed to external shocks, like the recent three typhoons that hit in the Far East, the drought in the Rhine.
00:02:50.000 --> 00:03:05.039
But even before these external issues pushed uh uh congestion to very high levels, congestion has just kind of been a chronic condition, especially in North Europe for kind of more than uh a year.
00:03:05.199 --> 00:03:11.919
And this is causing a lot of problems, and it's due to just kind of growing volumes, increases in demand.
00:03:12.000 --> 00:03:20.879
And now that demand has kind of outpaced or outstripped the capacity of these ports and is really making congestion almost the baseline.
00:03:20.960 --> 00:03:27.759
And then any other issue that would add congestion is making it very much worse, and backlogs take a long time to unwind.
00:03:28.000 --> 00:03:39.360
Mersk in the recent earnings call singled out congestion as kind of a new and major component of container market dynamics in general, of you know, part of what's a factor of supply, let's say.
00:03:39.520 --> 00:03:46.960
And again, because of this growing uh uh volumes, really headhaul volumes, and that means a lot more empty containers to be processed.
00:03:47.120 --> 00:04:07.120
So back to the Red Sea, that might mean that vessel capacity now that's being chronically tied up for longer stretches because of congestion, that might be changing the calculations too and incentivizing carriers to consider the shorter Red Sea route and add some speed to this ecosystem that has now slowed down even more because of congestion.
00:04:07.439 --> 00:04:24.000
So port congestion, which um in North Europe also now includes a labor strike on Monday in some ports in Germany, congestion could be one factor keeping Asia Europe container rates higher maybe than they otherwise would be, as we're just past peak season and demand is starting to ease.
00:04:24.160 --> 00:04:28.399
So we've had cooling volumes that have brought down freight rates from their July highs.
00:04:28.480 --> 00:04:36.800
So if we recall, we had if we recall, we had an early start to peak season in late May, early June, big spike in rates up to the uh beginning of July.
00:04:37.040 --> 00:04:45.680
Early peak season seems to be meaning uh an early end to peak season as well for Asia Europe, where we're seeing uh uh rates continue to cool.
00:04:45.839 --> 00:04:52.959
So Asia and North Europe prices were at about$5,000 per FEU to North Europe and also to the Mediterranean.
00:04:53.040 --> 00:05:03.279
That's a$20 and$1,000 per FEU drop since that July high for North Europe, and that's a$2,000 drop for uh Mediterranean since that July high.
00:05:03.519 --> 00:05:20.800
But rates are still about 60% higher than they were before the start of peak season for Asia and North Europe, and that might be an impact of congestion kind of tying up capacity and not letting rates fall as quickly as otherwise would if uh just based on demand decreases.
00:05:21.199 --> 00:05:24.879
For the Trans-Pacific, though, demand is uh holding up.
00:05:25.040 --> 00:05:43.360
Peak season continues, really to the surprise of a lot of us who um have been watching this closely, um, and and rates for uh for for the West Coast climbed 9% last week to about 7,400, um, and they're about back to where they were in their July high.
00:05:43.439 --> 00:05:56.639
If you recall, we had uh rates really behaving in tandem, or at least West Coast rates behaving in tandem with uh North Europe, climbing very sharply starting in June up to early July, and then starting to decrease in the second half of July.
00:05:56.800 --> 00:06:02.720
It may be that that decrease of really the anomaly was really a supply side factor because carriers were adding capacity.
00:06:02.879 --> 00:06:06.560
Maybe they kind of overshot the levels of capacity that were needed, saw rates coming down.
00:06:06.639 --> 00:06:10.160
Now that that's been right size, we've seen going back up to those peak levels.
00:06:10.319 --> 00:06:16.720
For the East Coast, rates have just stayed elevated at about uh more than$9,000 uh per container, and that continues to be the case.
00:06:16.879 --> 00:06:23.439
Container spot rates could face some additional upper pressure from other uh sources in the coming weeks.
00:06:23.600 --> 00:06:40.000
So one is that uh bunker fuel prices have climbed about 15% since the ceasefire collapse, and some carriers are increasing their emergency fuel surcharges, not by a crazy amount, about$90 per container, and that's starting in mid-September, but just something else that might add to that kind of elevated floor that we've seen.
00:06:40.240 --> 00:06:42.560
The other is in the Panama Canal.
00:06:42.639 --> 00:06:57.519
So the Panama Canal Authority is taking steps kind of preemptively because of anticipations of a coming drought, because of anticipations of a coming El Nino, and that could cause drought conditions later for the second half of this year and into 2027.
00:06:57.759 --> 00:07:10.800
So the authority has reduced daily transits already by two and are going to reduce the maximum draft for neo Panama spessels by uh two feet by uh by early September.
00:07:10.959 --> 00:07:16.319
So some carriers are already announcing canal transit surcharges, and these are big range.
00:07:16.399 --> 00:07:19.519
They're ranging from$200 per container up to$1,000 per container.
00:07:19.680 --> 00:07:21.040
These are going to start in mid-September.
00:07:21.120 --> 00:07:24.079
So that could impact rates really for Asian and U.S.
00:07:24.240 --> 00:07:25.519
East Coast volumes.
00:07:25.839 --> 00:07:37.759
For frame of reference, though, we might recall that the Panama Canal last faced significant drought and low water levels for about a year, starting back in May of 2023.
00:07:38.000 --> 00:07:41.120
At its lowest, the draft restrictions were set at 44 feet.
00:07:41.199 --> 00:07:44.560
And as we said, we're going to be at 47 and a half starting in September.
00:07:44.879 --> 00:07:47.199
And daily transits were reduced to 22.
00:07:47.360 --> 00:07:52.000
Right now, even with the reduction, we're at 34 from kind of a maximum of 36.
00:07:52.079 --> 00:07:59.920
So we're not at very significant restrictions just yet, but there is the concern that those might come later on this year and into next.
00:08:00.240 --> 00:08:03.120
What would that mean for the container market?
00:08:03.199 --> 00:08:11.759
It would mean higher costs and longer waits for carriers, and that they would pass on those costs that we're already seeing through those kinds of surcharges.
00:08:11.839 --> 00:08:22.639
Um, but we also saw how because of this shifts in operations, we saw fewer carriers choosing to transit, instead, changing services, transshipping from one coast of Panama to the other.
00:08:22.720 --> 00:08:26.480
And some in some cases, that's something also we have to keep an eye on.
00:08:26.720 --> 00:08:37.440
Finally, air cargo uh rates out of the Far East in China increased last week, and that might be a result of the latest typhoon, which disrupted operations at some of the major airports.
00:08:37.600 --> 00:08:47.120
So the Freitas Air Index call shows that Far East China to North America rates increased 17% week on week last week, up to above$7 per kilo.
00:08:47.279 --> 00:08:49.039
Rates have started to come down since then.
00:08:49.120 --> 00:08:53.039
They're about$6.50 so far this week.
00:08:53.120 --> 00:09:00.960
Um, Far East and China rates to Europe climbed 8% to$4.45 per kilo last week, probably for the for the same reasons.
00:09:01.120 --> 00:09:07.200
Um in general, though, China and Europe operations are facing lower volumes because of the changes to De Minmas.
00:09:07.519 --> 00:09:13.039
Lower e-commerce levels of e-commerce volumes are travel by air from China to uh Europe.
00:09:13.279 --> 00:09:18.720
But carriers are also shifting a lot of capacity away from China Europe lanes for this very reason.
00:09:18.799 --> 00:09:21.919
And so we haven't really seen a rate collapse in this lane at all.
00:09:22.080 --> 00:09:22.879
Okay, that's it.
00:09:22.960 --> 00:09:23.600
Thanks for joining.
00:09:23.679 --> 00:09:24.559
Hope to see you next week.
00:09:24.720 --> 00:09:25.120
Bye bye.
00:00:00.000 --> 00:00:06.240
Hi everyone, I'm Jude Levine, head of research at Frados, and welcome to this week's Container Bites Podcast.
00:00:06.400 --> 00:00:10.080
It's going to be just me again this week as Julia is still out on vacation.
00:00:10.320 --> 00:00:22.239
So starting with the straight up removes, there's really not much to report because the uh status is about back to the status quo from before the uh ceasefire agreement between the US and Iran.
00:00:22.559 --> 00:00:31.519
So a little more than 60 days ago, the sides signed a memorandum of understanding that expired after 60 days, and there's been no steps to renew it.
00:00:31.600 --> 00:00:35.920
And really the terms of the memorandum weren't kept by either side in any case.
00:00:36.000 --> 00:00:41.520
So we're back to the status quo, which means uh Iranian attacks on vessels in the strait, U.S.
00:00:41.600 --> 00:00:46.560
blockade on Iranian traffic, and just very little traffic going through the strait at all.
00:00:46.799 --> 00:01:04.959
Despite this, however, despite the ongoing war, despite increased tensions and renewed attacks in the Red Sea by the Houthis, MERSC, along with other carriers like Hapegloy, CMACGM, Costco, also MSC, they all seem determined to continue taking steps back toward resuming Red Sea transits.
00:01:05.760 --> 00:01:08.719
Let's take a step back and remember what's happened in the Red Sea.
00:01:08.799 --> 00:01:17.519
When attacks uh started back in late 2023, it basically caused a very significant drop in Red Sea traffic by container carriers.
00:01:17.680 --> 00:01:28.079
When there was an Israel from us ceasefire signed back in October, we started to see some um cautious steps back by CMAC GM and all and also immersed.
00:01:28.239 --> 00:01:33.040
When the war with Iran broke out in February, basically there were U-turns of those steps back.
00:01:33.200 --> 00:01:38.719
When the memorandum of understanding was was signed, we started to see steps back towards the Red Sea again.
00:01:38.959 --> 00:01:49.439
Um but uh when that collapsed and there was some step back, but now in the last uh few weeks we've seen more and more steps towards a return to the Red Sea.
00:01:49.519 --> 00:01:50.719
So what's the different this time?
00:01:50.879 --> 00:02:02.640
So Leiner Liduka points out that even with significant additional costs of insurance costs for going through the Babel Mandab for passing through the Southern Red Sea, what's different is really fuel costs, right?
00:02:02.719 --> 00:02:18.800
Going around the Cape of Good Hope is a much longer diverted uh journey, and it's become much more expensive than it was in late 2023 because the cost of bunker fuel has increased so significantly, and that might change the calculations, be changing the calculations for these carriers.
00:02:19.039 --> 00:02:22.639
Another new motivating factor may be port congestion.
00:02:22.800 --> 00:02:27.120
So kind of historically, port congestion was seasonal.
00:02:27.199 --> 00:02:30.560
It would come when demand was very strong, when volumes were very strong.
00:02:30.719 --> 00:02:37.680
It would also come from external shocks like labor strikes, like um uh storms, weather, things like that.
00:02:37.840 --> 00:02:49.759
And the current very high levels of congestion that we're seeing in the Far East and also in Europe can be attributed to external shocks, like the recent three typhoons that hit in the Far East, the drought in the Rhine.
00:02:50.000 --> 00:03:05.039
But even before these external issues pushed uh uh congestion to very high levels, congestion has just kind of been a chronic condition, especially in North Europe for kind of more than uh a year.
00:03:05.199 --> 00:03:11.919
And this is causing a lot of problems, and it's due to just kind of growing volumes, increases in demand.
00:03:12.000 --> 00:03:20.879
And now that demand has kind of outpaced or outstripped the capacity of these ports and is really making congestion almost the baseline.
00:03:20.960 --> 00:03:27.759
And then any other issue that would add congestion is making it very much worse, and backlogs take a long time to unwind.
00:03:28.000 --> 00:03:39.360
Mersk in the recent earnings call singled out congestion as kind of a new and major component of container market dynamics in general, of you know, part of what's a factor of supply, let's say.
00:03:39.520 --> 00:03:46.960
And again, because of this growing uh uh volumes, really headhaul volumes, and that means a lot more empty containers to be processed.
00:03:47.120 --> 00:04:07.120
So back to the Red Sea, that might mean that vessel capacity now that's being chronically tied up for longer stretches because of congestion, that might be changing the calculations too and incentivizing carriers to consider the shorter Red Sea route and add some speed to this ecosystem that has now slowed down even more because of congestion.
00:04:07.439 --> 00:04:24.000
So port congestion, which um in North Europe also now includes a labor strike on Monday in some ports in Germany, congestion could be one factor keeping Asia Europe container rates higher maybe than they otherwise would be, as we're just past peak season and demand is starting to ease.
00:04:24.160 --> 00:04:28.399
So we've had cooling volumes that have brought down freight rates from their July highs.
00:04:28.480 --> 00:04:36.800
So if we recall, we had if we recall, we had an early start to peak season in late May, early June, big spike in rates up to the uh beginning of July.
00:04:37.040 --> 00:04:45.680
Early peak season seems to be meaning uh an early end to peak season as well for Asia Europe, where we're seeing uh uh rates continue to cool.
00:04:45.839 --> 00:04:52.959
So Asia and North Europe prices were at about$5,000 per FEU to North Europe and also to the Mediterranean.
00:04:53.040 --> 00:05:03.279
That's a$20 and$1,000 per FEU drop since that July high for North Europe, and that's a$2,000 drop for uh Mediterranean since that July high.
00:05:03.519 --> 00:05:20.800
But rates are still about 60% higher than they were before the start of peak season for Asia and North Europe, and that might be an impact of congestion kind of tying up capacity and not letting rates fall as quickly as otherwise would if uh just based on demand decreases.
00:05:21.199 --> 00:05:24.879
For the Trans-Pacific, though, demand is uh holding up.
00:05:25.040 --> 00:05:43.360
Peak season continues, really to the surprise of a lot of us who um have been watching this closely, um, and and rates for uh for for the West Coast climbed 9% last week to about 7,400, um, and they're about back to where they were in their July high.
00:05:43.439 --> 00:05:56.639
If you recall, we had uh rates really behaving in tandem, or at least West Coast rates behaving in tandem with uh North Europe, climbing very sharply starting in June up to early July, and then starting to decrease in the second half of July.
00:05:56.800 --> 00:06:02.720
It may be that that decrease of really the anomaly was really a supply side factor because carriers were adding capacity.
00:06:02.879 --> 00:06:06.560
Maybe they kind of overshot the levels of capacity that were needed, saw rates coming down.
00:06:06.639 --> 00:06:10.160
Now that that's been right size, we've seen going back up to those peak levels.
00:06:10.319 --> 00:06:16.720
For the East Coast, rates have just stayed elevated at about uh more than$9,000 uh per container, and that continues to be the case.
00:06:16.879 --> 00:06:23.439
Container spot rates could face some additional upper pressure from other uh sources in the coming weeks.
00:06:23.600 --> 00:06:40.000
So one is that uh bunker fuel prices have climbed about 15% since the ceasefire collapse, and some carriers are increasing their emergency fuel surcharges, not by a crazy amount, about$90 per container, and that's starting in mid-September, but just something else that might add to that kind of elevated floor that we've seen.
00:06:40.240 --> 00:06:42.560
The other is in the Panama Canal.
00:06:42.639 --> 00:06:57.519
So the Panama Canal Authority is taking steps kind of preemptively because of anticipations of a coming drought, because of anticipations of a coming El Nino, and that could cause drought conditions later for the second half of this year and into 2027.
00:06:57.759 --> 00:07:10.800
So the authority has reduced daily transits already by two and are going to reduce the maximum draft for neo Panama spessels by uh two feet by uh by early September.
00:07:10.959 --> 00:07:16.319
So some carriers are already announcing canal transit surcharges, and these are big range.
00:07:16.399 --> 00:07:19.519
They're ranging from$200 per container up to$1,000 per container.
00:07:19.680 --> 00:07:21.040
These are going to start in mid-September.
00:07:21.120 --> 00:07:24.079
So that could impact rates really for Asian and U.S.
00:07:24.240 --> 00:07:25.519
East Coast volumes.
00:07:25.839 --> 00:07:37.759
For frame of reference, though, we might recall that the Panama Canal last faced significant drought and low water levels for about a year, starting back in May of 2023.
00:07:38.000 --> 00:07:41.120
At its lowest, the draft restrictions were set at 44 feet.
00:07:41.199 --> 00:07:44.560
And as we said, we're going to be at 47 and a half starting in September.
00:07:44.879 --> 00:07:47.199
And daily transits were reduced to 22.
00:07:47.360 --> 00:07:52.000
Right now, even with the reduction, we're at 34 from kind of a maximum of 36.
00:07:52.079 --> 00:07:59.920
So we're not at very significant restrictions just yet, but there is the concern that those might come later on this year and into next.
00:08:00.240 --> 00:08:03.120
What would that mean for the container market?
00:08:03.199 --> 00:08:11.759
It would mean higher costs and longer waits for carriers, and that they would pass on those costs that we're already seeing through those kinds of surcharges.
00:08:11.839 --> 00:08:22.639
Um, but we also saw how because of this shifts in operations, we saw fewer carriers choosing to transit, instead, changing services, transshipping from one coast of Panama to the other.
00:08:22.720 --> 00:08:26.480
And some in some cases, that's something also we have to keep an eye on.
00:08:26.720 --> 00:08:37.440
Finally, air cargo uh rates out of the Far East in China increased last week, and that might be a result of the latest typhoon, which disrupted operations at some of the major airports.
00:08:37.600 --> 00:08:47.120
So the Freitas Air Index call shows that Far East China to North America rates increased 17% week on week last week, up to above$7 per kilo.
00:08:47.279 --> 00:08:49.039
Rates have started to come down since then.
00:08:49.120 --> 00:08:53.039
They're about$6.50 so far this week.
00:08:53.120 --> 00:09:00.960
Um, Far East and China rates to Europe climbed 8% to$4.45 per kilo last week, probably for the for the same reasons.
00:09:01.120 --> 00:09:07.200
Um in general, though, China and Europe operations are facing lower volumes because of the changes to De Minmas.
00:09:07.519 --> 00:09:13.039
Lower e-commerce levels of e-commerce volumes are travel by air from China to uh Europe.
00:09:13.279 --> 00:09:18.720
But carriers are also shifting a lot of capacity away from China Europe lanes for this very reason.
00:09:18.799 --> 00:09:21.919
And so we haven't really seen a rate collapse in this lane at all.
00:09:22.080 --> 00:09:22.879
Okay, that's it.
00:09:22.960 --> 00:09:23.600
Thanks for joining.
00:09:23.679 --> 00:09:24.559
Hope to see you next week.
00:09:24.720 --> 00:09:25.120
Bye bye.
