Supply Chain Secrets
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Supply Chain Secrets
Lars Jensen Predicts an Early - April - Peak Season
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Is peak season coming early—again? Global shipping expert Lars Jensen and Caroline Weaver unpack market weakness, carrier capacity decisions, and the ripple effects of upcoming tariffs. From reliability improvements to geopolitical curveballs, get ahead of what’s shaping Q2 and why an April surge may already be underway.
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Hi everyone, you're listening to the Supply Train Secrets Podcast. I'm your co-host, Caroline Weaver, and with me is Lars Henson. Lars, where are you today?
SPEAKER_00I am located smack in the middle of Denmark in the beautiful island of Tunen. For those that are not familiar with it, it's close to the birthplace of Hans Christian Henderson. I think people are more familiar with that.
SPEAKER_02It's always fun following you around the globe to see where you're at this week. Well, let's get started with some industry news. Where is the market at right now?
SPEAKER_00The market continues the downwards trends that we also spoke about last week, and then it's basically been following for the last two months. The question still remains why is the market so weak? And when I look at the data, it appears to me to be very much capacity driven right now. I was running some of the sea intelligence capacity numbers. And of course, this time of year, we have to be cautious doing a straight comparison year on year because Chinese New Year tends to shift from one year to the next. So when I sit down and really try to correct the data and line them up so that the decline typically in a lot of blank sailings after Chinese New Year last year matches the pattern this year, what you end up with is actually fairly significant on the Pacific. Going into US East Coast, it's basically in line with last year, which should be fine. But capacity from Asia into the West Coast, so the actual Trans-Pacific, capacity is up 14%. So even in a strong demand environment, this would weaken the market, but that's not the most pressured part. That's actually if you look at Asia to Europe. So from all of Asia to all of Europe, capacity is up. And here I'm talking the eight weeks following Chinese New Year. Capacity is up 27% compared to last year. That is a massive amount of capacity increase. And I know we talked a little bit about it last week, and the numbers now clearly bear it out as well that the weakness appear to be, let's call it the carrier slacking off a little bit on capacity discipline. Normally they would likely have been much more active in uh blanking sailings, but right now they're not. They are more focused on phasing in all of their new networks, and that of course has a price. The price is tactical overcapacity, significant year-on-year increases in capacity. Is that going to change prior to peak season? Maybe. It would require the carriers to begin to ramp up a bit more on blank sailings in the coming weeks. We cannot rule that out. And we might have seen the first inkling of it with MSC announcing a raft of blank sailings on the Pacific service over the coming weeks. So that might actually be the direction the market is beginning to take. So, yes, weakness, but it appears more capacity driven than demand-driven out in the market.
SPEAKER_02Why aren't we seeing a capacity increase into the East Coast as well?
SPEAKER_00That I don't really have a good explanation for. I can just see in the numbers that there's basically not been any change in capacity. Maybe because the setup the carriers also with the new alliances are pursuing is not that dissimilar to what we were used to previously. That could be one of the explanations.
SPEAKER_02Okay, interesting.
SPEAKER_00And of course that that that segues into if this is because we're phasing into the new alliances, how well are they faring? And for as a starting point, this would be the positive news, also all shippers out there, it actually looks pretty good. The new reliability data covering all arrivals in February, of course, the networks are not phased in fully yet. So we can see the ones that have now begun to phase in. And if we look at that from a reliability perspective, the sea intelligence data show fantastic improvements. We're seeing the Gemini arrivals in that month have a 94% reliability. Clearly above their stated target. MSC is at 80%, Premier Alliance at 60%. All of this is massive improvements compared to the alliances as they were. And actually, if we look in February, there are still vessels arriving under the hat of the old alliances. I mean, this is a couple of months where both of them coexist, right? And they continue to paddle along around, let's call it 50% reliability. So it also, I think to me, this also proves clearly that over the past six months, the carriers could have improved reliability if they wanted to, but they didn't prioritize it at all. Which personally I can understand. Why would you spend time and effort on improving a product you know you're gonna phase out within the coming months, anyhow? And now as we are seeing them phase in, better reliability seems to be the name of the game, not just for the much taunted Gemini, but also for MSc and for Premier Alliance in the data that's coming out now. Shippers really take this as quite a positive sign.
SPEAKER_02Yeah, it's definitely some good news in a sea of um turbulence for us in the shipping industry. Um how long do you think it might last? Like, is this just a temporary thing?
SPEAKER_00No, uh my view, it has been for quite a while. I expect all of the major alliances to have better performance here in 2025. Take all numbers right now with a grain of salt because we are in this phase in period. But I would say second half 2025, when everything is stabilized, hopefully, we should expect all of the alliances to perform significantly better than last year. Because there's not really any good reason for them to continue to have the very low reliability we've seen over the last six months.
SPEAKER_02All right. Well, it's good news for us. Um switching topics a little bit. So last week we had the hearing in the US about the um USTR legislation. Can you tell us a little bit about what they heard there? Um kind of the the outcome of that session.
SPEAKER_00Yeah, you can say we we don't know about the outcome. Again, that's at the end of the day up to the politicians in terms of how much they want to listen to the input, whether they want to change the proposal, whether they want to shield the proposal, make a new one, or whether to ram it through as an executive order. We simply don't know how the politicians will act on this. When I look at not just the written testimony, but we now at least also have the transcripts from Monday's verbal hearings. We don't have them for Wednesdays yet. The overall pattern is let me be slightly diplomatic and call it the diplomatic expediency. Because most of all hearings, the responses, they all start with the same thing. We uh basically saying, paraphrasing it slightly, we agree with the stated political objective that the US should strengthen US shipping and US ship building. That's of course a political aim. There's not necessarily anything wrong with such a political aim either. But it is, of course, an aim. But in order to reach an aim, what are the practical measures you then want to employ? And that is where the hearing answers start to diverge wildly. From what I've seen so far, almost everyone, not everyone, I'm gonna get back to what the differences are, but almost everyone point out that even if they are in agreement with the stated political aim, they see the specific proposal here and the things in it to be economically destructive to the US businesses, and that it would really not bring the US anywhere near achieving the stated political aims. That is basically the criticism that's levied. At the most extreme, perhaps from some of the smaller shipping lines like a tropical shipping or an ACL to some degree seaboard marine, basically saying they're gonna shut down their US operations because they will not be able to survive this. At the other end, there are also what seems to be proponents of uh the specific one. You tend to have some of the unions that see this as a matter of preserving US jobs or maybe creating new US jobs when you're looking specifically at the port workers union on the West Coast. They're not really opposed to the proposal, they're merely mentioning that it should be augmented with additional fees placed on US cargo coming in via Canada and Mexico in order for vessels not to be siphoning off there and thereby reducing US jobs. You also see the Association of American Manufacturers be in favor of this, and you also have some of the steel producers. I think maybe one of the examples is a major US steel producer that thinks this is a wonderful idea. Obviously, if you can have more shipbuilding in the US, they can sell more steel, and they're even suggesting that to augment the proposal so that ships built in US shipyards should be manufactured from US-made steel as well. But if we look aside from the Union and some of these US manufacturers, the vast overwhelming responses you get there point to very negative economic consequences of implementing this. I would say in a normal world, if it didn't lead to a complete abolishment of proposal, it would at least lead to significant changes or amendments to the proposal. But with the current US political process, everything is still up in the air.
SPEAKER_02It's such an interesting piece of legislation that was proposed. I think it's caused a lot of people to come from all sorts of industries to have input because it affects a lot of different people, a lot of different parties.
SPEAKER_00It does. And you can say, just to add another one, and I'm sure the carriers will hate hearing me say that, but at the end of the day, as we've learned over the last five years, if you create major bottlenecks in a supply chain and USTR301 will create major bottlenecks, that causes freight rates to go up because you're not going to have enough capacity, which at the end of the day will mean profitable windfalls for the carriers. And you say in that context, I think it's at least upfront and honest by the carriers to be very clear. They're mainly talking through World Shipping Council, which of course is their overall trade association that's relevant to this. They're also pointing out just how negative and how expensive this is going to be. So it's not that they are trying to hide and hope for this to happen. I genuinely don't think they want this to happen at all because of all the economic disruption we'll reap. But if it does get implemented, it's likely going to boost carrier profits because of congestion issues.
SPEAKER_02Yeah, that's something good to keep in mind. What I was seeing with the summaries of what was being talked about last week was um a lot of people were saying it was kind of collaborative. Like it wasn't just, hey, we shouldn't do this, it's gonna be bad for us. It was okay, and like what should we be doing? Like, do you have alternatives? Because there's still this goal of strengthening US ship building, but how do we get there if it's not doing it this way? So I thought that was kind of interesting to see.
SPEAKER_00It definitely is interesting. And maybe looking at a little bit black and white, the approach here from at least the parts in the US administration that wants to do this is very much can we use penalties to get people to act the way we want? In this case, build and operate ships in the US. That seems highly unlikely. I I have a hard time finding any other examples from shipping where penalties helped. It just causes people to find other cheaper workarounds. Are there other countries with the same political aim? Absolutely there are. I mean, China had this political aim 20 years ago, and they've definitely lived up to that one. They didn't do that by penalties, but it cost them money because they've been leverage leveraging uh state subsidies. India right now has a similar aim. India aims to get to a point where 20% of the global fleet is being built in India by 2047. And the way India seems to go about it is also establishing rules that makes it easier to build ships in India and are also having the allure of putting some uh state subsidies into it. So, do you want to use the stick or the carrot? Well, China used the carrot, that worked. India is gonna use the carrot. The US, at least in this proposal, seems to want to use the stick. Now I'm not convinced the stick is gonna bring them any nearer the politic the state of political aims.
SPEAKER_02Yeah, I agree. Um, and it's interesting to hear the international perspective that you always bring, so I appreciate that. Let's talk a little bit about the Hutchinson ports. What is the latest on that?
SPEAKER_00Yeah, the latest is facts are thin on the ground. Let's put it that way. The only facts we know is what was already announced several weeks ago that okay, BlackRock and MSc is gonna buy all the non-Chinese, non-Hong Kong ports from Hutchinson, which of course would strengthen the MSc. The assumption at the time was surely a deal of this magnitude would not happen unless it was already pre-approved by the government in Beijing. What at least the rumor mill has it out there is that this might not have been approved by the government in Beijing and they might actually not favor this deal at all. And that creates some uncertainty going forward. And I specifically mentioned this is the rumor mill. So for now we should all act as if this deal is actually gonna go through. But it is a little bit up in the air whether the Chinese government can throw a spanner in the works, and if they can, what kind of spanner would that be? My own take would rather be they wouldn't necessarily want to throw a spanner in the works, but they might want to get something else politically. The question being, what is that? And we might in that context not see it as disassociated from, for example, the tariff discussions that's gonna be really hot and heated in the next couple of days.
SPEAKER_02Yeah. When the news of this broke, this was during TPM, if I'm not mistaken. And it felt very much like a done deal. So hearing the news about it, kind of teetering on like, will it happen, will it not happen, is a bit of a curveball.
SPEAKER_00Yeah.
SPEAKER_02All right. So I think we've caught up on the current events. Are there any other topics you wanted to touch on before we get into peak season?
SPEAKER_00Yeah, I think the only one is uh you can say that's in between the current topic and the peak season. That's the event uh two days from now, which is the time for reciprocal tariffs. I think uh the Trump administration is calling it something like Liberation Day. I might more use the word from a business perspective that these are the this is doomsday for the tariffs, if at least it comes in the way that they are gonna be announced. It's likely gonna be extremely disruptive, and there are a couple of elements in it. No matter what is being announced on April 2nd, I'm sure everybody will sit back and say, okay, so these are the new tariffs, until some of them might then again be postponed or pulled back, because this has been the pattern the last two months. That tariffs have been announced, and then they have been fully or gradually pulled back or postponed again. So no matter what is announced on April 2nd, I don't think you're gonna see any shippers or importers or exporters do any material changes to their supply chains on April 2nd based on what is being announced. Everybody will hang back and say, Well, let's give it a week or two and see what changes, because that seems to have been the recurring pattern over the last two months. We can't quite trust it. Then there is another spanner in the works. I mean, one thing is all of these reciprocal tariffs. We could talk at length about those, but that's not the only one. The novelty now being thrown in that actually came a couple of days ago are what you would call secondary tariffs. The first one that was announced was if you are a country that buys oil from Venezuela, your country will now be subjected to US tariffs. And there's quite a number of countries that buys oil from Venezuela. China is the largest one, US is actually the second largest one, but that's being wild down. Spain is one of them, so for practical purposes, use Spain as an example. It's not the country of Spain that buys oil from Venezuela. This would be private companies in Spain that buys oil from Venezuela. So because a private company now buys oil from Venezuela and Spain, all other Spanish companies that are exporting to the US are now going to be penalized. This is the reality of secondary terrorists. That's gonna be extremely difficult to deal with. That one has already been announced. Uh then yesterday Trump was alluding to potentially doing something similar when it comes to Iranian oil. And again, this would be another round of secondary tariffs that will be very, very difficult for everybody to manage.
SPEAKER_02Okay, a lot to unpack there. Let me go back to the reciprocal tariffs. So, for those listeners who aren't super in tune with what's going on, I mean, we've been hearing about tariffs nonstop for a while now. What is the difference now with reciprocal tariffs? Like, why is that more impactful?
SPEAKER_00Because it's going to impact a large amount of uh cargo and it's gonna be extremely lopsided. The way at least Trump has announced it so far is let's just make up a hypothetical example. Let's say that the France has a 20% tariff on American genes, just to make uh in a hypothetical example. I don't know what the tariff rate is. Let's say 20% on American genes. The US will then look at that and say, then we are also gonna put a 20% tariff on French genes coming into the US. There are several issues with that. First of all, this is going to be enormously complicated. Because down at the HS code level, which is all the different commodity types, you're gonna be talking hundreds of thousands, if not millions, of lines of different types of tariffs. That's gonna be changed. That is a major undertaking in itself to manage. The next thing that's going to be problematic is the US, again, let's say my hypothetical example says, well, France, you have 20% on genes, so we are also now gonna do 20% on genes. Sounds fair, you would think. But the problem is the US also have tariffs against other countries. And again, let's make a completely hypothetical example. Let's say the US has 20% tariff on French use, but France might have 0%. Reciprocal here does not mean that the US is now lowering the tariffs where the other countries have lower tariffs than the US. So it stands to reckon that every single country in the world will see this as being unfair, and they would then potentially do the same thing the other way around. And that means all tariffs on all goods around the world are going to increase. It appears, at least from a lot of the headlines, that there is this kind of implicit assumption that other countries have tariffs on the US and the US don't have tariffs on them. That is patently untrue, absolutely untrue. US also has, in some cases, some of the largest tariffs on specific goods around the world. So this is not a one-way street, but the reciprocal tariffs are, which is why this is gonna cause a large round of retribution from all the other countries around. Adding further into this problematic issue, doing this will de facto render all of the trade agreements the US have with other countries invalid. Because in every single trade agreement, when they were made, there was always a bit of give and take and say, okay, we're gonna allow you to sell these goods without tariffs, but we want these goods. And every country would then have negotiated and say, okay, we can live with tariffs on goods A and B, but not on C, and then you give us something else. So these trade agreements are, of course, compromises where each country will have focused on what's important to them. Doing the reciprocal tariffs will go completely counter to every single trade agreement the US has ever negotiated. So they're basically all, at least from a technical perspective, being ripped up by the US.
SPEAKER_02Yeah, the optics don't look that great there.
SPEAKER_00At least it opens the floodgates for a massive trade war with every single country in the world on every single individual commodity, which will be very unwieldy and very, very difficult to manage.
SPEAKER_02Yeah, I would say that if you um if you're an importer and you're working with a customs broker, be gentle with them. They've got a lot going on right now. Um is there anything more that you wanted to talk through with the secondary tariffs? What I got from that is that it's just gonna be an administrative nightmare.
SPEAKER_00It is. I think maybe we should use them as a segue into what are some of the things we should consider for peak season.
SPEAKER_02Okay.
SPEAKER_00Because we need to keep this in our mind. Think back to last year. Everybody was caught by surprise when peak season basically started early May. That was about a month earlier than we're used to. I think everybody should prepare themselves for the same thing happening this year. For some of the same reasons and for some different reasons. One of the reasons last year, that's especially pertinent for Asia and Europe, that's going around Africa. Transportation times are a couple of weeks longer. That's still the case. This year, the Red Sea crisis is not resolved. So that in itself stands to reason we're still gonna get an early peak season in Asia Europe. Last year there was also a lot of concern over reliability. A lot of vessels were severely delayed. So all importers were factoring that into their supply chain as well, and more delays means you're gonna ship cargo earlier. That will still be the same concern. I think everyone can look at the numbers, as I was also saying here initially, the numbers actually look very good. But everyone is jaded over the last five years. They want to see it for real. And if you're planning your supply chain now, I don't think you are gonna take for granted that reliability is gonna increase. So that's the same thing. One thing that has changed. Last year we had front loading as people were afraid in the US of the US East Coast strikes, which, well, we got a small strike in October, but otherwise the problem was resolved. That of course is not an issue here, but that is where these tariff wars start to come in. Because whereas fine, nobody should be afraid of uh of port strikes. What they might want to be concerned about is bottlenecks at customs. Either because you're gonna get fewer customs agents if they get dosed, but even if they don't, the complexity and the workload that's gonna be placed on customs and border protection in the US from these massive changes in tariffs should not be underestimated. And I think for a lot of especially US importers, this will translate into, again, building a larger buffer in the supply chain so you can handle delays in customs and still get your goods in for peak season on time. So the front loading because of strikes might actually be replaced by I wouldn't necessarily call it front loading more a matter of being more ahead of time this time around. So all of this pointing towards an early peak season.
SPEAKER_02It also kind of seems like after what you're saying, that front loading is almost like a herd mentality. Like you hear of other shippers doing it, you see it happening, and so you want to also be part of that, and you don't want to fall behind.
SPEAKER_00Yeah, and you say it it's one of those where does it cost you money to frontload? Of course it does. It makes your supply chain longer, you have longer inventory carrying costs. You may even have genuine costs in your warehouses if you don't have enough space, but it's a risk reward trade-off. What is the risk here? The risk is suddenly your goods don't arrive in time for when you want to sell them at peak season. That is even more costly.
SPEAKER_02But if what we're seeing with the reliability is actually the case, then you wouldn't expect it to be delayed, I guess. But if you're thinking of the other factors that we're talking about, you might have some problems that you run into.
SPEAKER_00Yes, indeed. And again, I don't think any shipper out there will trust predictions on reliability getting better. They will want to see it for themselves first.
SPEAKER_02Is there a correlation between shippers signing their contracts a bit later this season, maybe compared to years past, and looking at the uh potential for peak season to be sooner?
SPEAKER_00No, what overall I don't think. See much difference this year from last year. Remember, last year people were also trying to drag their feet a little bit in the hope that the whole Red Sea situation would go away. So there was a lot of turmoil around contract negotiation time last year, just as there is this year. I don't conceptually see much difference there. Gotcha.
SPEAKER_02All right. Well, the other thing that I wanted to ask you about was the anticipated port congestion in Asia. We saw that a bit last year with early peak. Might we see that again this year?
SPEAKER_00I wouldn't think so. The early peak congestion was, at least the way I read it is, is a significant element of ripple effects from the Red Sea chaos when the Red Sea crisis first emerged. Because remember the peak of Red Sea chaos, that happened during basically Q1 last year, and everybody had to change their networks. We had to then find out how do you then get cargo from Far East into the Red Sea? You saw a lot of new services set up by niche carriers. All of that has now stabilized. That is normal operations as it is right now. So if we continue with the Red Sea crisis as is, I would not expect to see a sudden major bottleneck, sudden major bottlenecks arrive in Asia the way we saw it last year.
SPEAKER_02All right. Okay. Well, Lars, is there anything else you want to discuss before we sign off here?
SPEAKER_00I actually want to then point to two different scenarios because the baseline is we should expect a reasonably healthy slash strong peak season, seen if you're from the carrier perspective, from the shipper perspective. That means no, the low rates are not going to continue into peak season, basically because demand is okay, capacity is fine, we still have not enough capacity in the world. I mean, the latest numbers still show an idle fleet below 0.6%, which means that all ships that can save are still saving. So we should expect a reasonably strong one. The two scenarios to prepare for one is the downwards one of a US recession. If consumers start to hold back, that could of course cause especially the Pacific rates to collapse. Is this a baseline scenario? Not yet. But all of the different financial institutions have been busy adjusting their predictions downwards over the last week, week and a half. The latest one was just yesterday, where Goldman Sachs adjusted their GDP expectations for the US this year down to just 1%, which is not a lot. And they also estimate now the risk of a recession in the US to be 35% over the next 12 months. So it is a scenario that should be taken seriously. It's not the baseline, which is why we expect still a strong peak season. But should the US tumble headfirst into that recession, it obviously goes in the other direction. And for the peak season scenario for Europe, it's actually the other way around. The obvious scenario there is that the rapid rearmament of Europe and the 800 billion euros that's going to be put into weapons manufacturing basically could create an enormous economic boom, which again would increase containerized volumes into Europe. And likely some of this production would also require the movement of subcomponents, materials also to be moved in containers, part of it in bulk, but some of it in containers as well. So we actually have this dual one where we could in a peak season suddenly see a crash on the Trans-Pacific from a US recession, but at the same time actually see a European boom.
SPEAKER_02Alright. Wow. That's a lot going on. I think we probably should actually have an episode where we talk a little bit further about this in more detail, especially for those who are less familiar with the macroeconomic flows.
SPEAKER_00Exactly. I think we should do that. And if we do that, we should take in some of the other scenario risk elements just to finish off on one of the ones I think are right now completely underappreciated is the Hormuz Strait. We usually don't talk much about it from container shipping because I wouldn't say it's unimportant. I mean, we have one of the world's largest terminals in Jebel Ali uh located uh inside of the Hormuz Strait in the Persian Gulf. The reason uh it becomes more interesting to talk about is within the last few days, the Trump administration have also warned they might start doing strikes on Iran, like what they're doing on Yemen. And if this is the case, it really heightens the risk that the Hormuz Strait would be as troublesome as the Southern Red Sea. The Strait of Hormuz right now carries about 30% of the global oil flow. So that would have significant ramifications. There are various reports out there, but some of the estimates are if that genuinely happens, it could double oil prices. And of course, that would have significant impact also on freight rates globally, as oil prices would then double and go to levels we really haven't seen before.
SPEAKER_02Yeah. All right. Well, Lars, I think we've just come up with next week's episode to dive in a little bit further into all of this. But thank you all for listening to this week's podcast. You can subscribe wherever you get your podcast, Spotify, Apple Music, YouTube. We'll be back Mondays at 9 a.m. Eastern. So look forward to catching up with you then. Everyone, have a great week.
SPEAKER_00Have a great week.