Supply Chain Secrets
The Supply Chain Secrets Podcast cuts through the noise to bring you real, unfiltered insights from the front lines of global logistics. Whether you’re a shipper, NVO, carrier, or just someone who needs to stay ahead of market shifts, we deliver analysis and hard-hitting conversations that actually matter. Visit nyshex.com/podcast to register to attend live!
Supply Chain Secrets
Tariffs, Rates, and Kilimanjaro
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While Lars laces up his boots to climb Mount Kilimanjaro, he and Caroline dive into the latest global shipping news.
They cover sliding Asia–Europe and Pacific spot rates, uncertainty around reciprocal and Section 232 tariffs, and the U.S. pushback on IMO’s decarbonization measures.
They also analyze H1 financials from major carriers, with Hapag-Lloyd’s standout 12% volume growth raising big questions. Tune in for timely insights delivered from the slopes of Tanzania.
Hi everyone, you're listening to the Supply Chain Secrets podcast. I'm your co-host, Caroline Weaver, and with me is Lars Jensen. Lars, how are you doing?
SPEAKER_02I'm doing great. Hello, everybody.
SPEAKER_00So I think the question this week is not where are you right now? But why are we recording this on the Saturday before? Where are you gonna be?
SPEAKER_02Because tomorrow morning in the early morning, I'm gonna lace up my boots and then I am hopefully going to end up on top of uh Mount Kilimajaro, almost six kilometers up into the air here in beautiful Tanzania and Africa.
SPEAKER_00Amazing. Are you nervous? Are you excited?
SPEAKER_02No, not nervous, but excited. Yes. It's always fun to embark on a new expedition. So that that's why that's why we don't have the podcast because on Monday I'll be somewhere up on the slopes and there's not going to be any internet whatsoever.
SPEAKER_00Yeah, it'd be a little difficult to record there. Well, I hope you have an amazing time. I can't wait to hear about it. We'll have to update the listeners the following week once you're back on how it was and your experience there. But for now, maybe we get started with some of the uh freight news. Let's go ahead and start with rates.
SPEAKER_02Yeah, I mean if if we look at the rates, basically it's weaknesses across the board, especially on the main trades from Asia coming both to Europe and to North America. The Asian Europe rates, I would say they are seeping, especially when you're talking North Europe. They are down, but it's not that they are massively down over the past month, month and a half. It's been going down somewhat faster to the Mediterranean. I think that is more due to the fact that there had been a very large gap between the Mediterranean and North European rates, and that gap is now normalizing. So I would say in the case of Europe, the weakness is more a sign that we are approaching likely the end of the peak season. We're beginning to see some weakening. So I I don't think there's anything to be alarmed about on that development. The Pacific ones I found interesting, and in this case, I would especially point to the quoted rates coming from the SCFI. We have the ones that we know shippers are paying from the Wi-Fi that was expectedly declining again this week, coming off of the highs. We are coming back to now lows that are beginning to approach where we were, not just before the pause and the tariffs, but all the way back to slack season right after Chinese New Year. But when we look at the quoted rates, they are now sliding to a point where we are beginning to be substantially below where we were also in the weakness after Chinese New Year, which means in order to compare where we are going down to now, we are approaching to go back to where we were almost pre-Red Sea. So the Pacific definitely showing weakness. And the one thing that I think is worth noting here is it is now more than a week ago that we actually got clarity in terms of all the reciprocal tariffs. So we may or may not like what the tariff levels are, but at least there is now clarity. There's also clarity that there's a 90-day pause on the China tariffs on top of the 90 days that were due to expire. So in that environment, if shippers want to import for the holiday goods and if they want to produce and ship before Golden Week, this basically needs to be booked within the next four to five weeks. And clearly with the quoted spot rates dropping in the last week, that program activity, we have yet to see that. So either we are faced with a situation where a lot of the importers are genuinely concerned about holiday sales, that would be a valid concern. And therefore, they are simply not going to import as much goods. That could explain the continuum weakness. But if that is not the case, then the scene is set for a last-minute stampede with everybody wanting to move cargo and book it over the next four weeks or so, which could set a scene for talked about it before, a short sharp spike. But right now, at least in the correlate rates, there's not an indication of such a short sharp spike.
SPEAKER_00Interesting. Yeah, I guess we'll just have to see over the coming weeks what the behavior of the importers are. If we start to see the rates potentially creeping a little bit up, we might be able to see that okay, there is volume that people want to move and there's a uh more optimistic take on the holiday season.
SPEAKER_02We're getting to the last chance to loom before the uh Chinese uh holidays kick in and before it's becoming too late to move carcos for the US holidays.
SPEAKER_00Yeah. All right. Well, um speaking of tariffs and um, you know, updates on that. Recently Putin and Trump met. Um that was just yesterday, and they had some conversations. Are there any tangible outcomes from that that would impact global shipping that we should talk about or that our listeners should be aware of?
SPEAKER_02Yeah, I think that uh I mean let's keep in mind we are recording this less than 24 hours after the meeting took place. It is still at this point somewhat uncertain exactly what was discussed and what was the outcome. But what is very clear is that there was not some sort of large, let's call it, deal or whatever word we want to use. There's not a big agreement on anything tangible. And that means the uncertainty around potential tariffs on any countries that are buying Russian energy still remains in the air. As we've discussed before, India is already facing that one here from August 27th with an additional 25% tariff on top of the reciprocal tariffs because they buy Russian oil. Russian oil is also bought by China. They're buying more than India. And if we look at Russian energy products, that means it's can impact New, Brazil, Singapore, Turkey. There's a whole host of countries where it is still uncertain what is going to happen. So the meeting between Trump and Putin did nothing to create any kind of clarity as to whether we are going to get more of these penalty tariffs or whether maybe India can get away from not having it there after all.
SPEAKER_00Yeah, I imagine we'll hear more over the coming days. But yeah, as of right now, it doesn't seem like there's uh much of an outcome and much change in that regard. But there definitely was some change in terms of Section 232 tariffs. So I think we should maybe talk about that a little bit and maybe explain what Section 232 tariffs are.
SPEAKER_02Yeah, I mean I I I can understand why some people get a little bit uh long in the face and start to yawn when we have all these abbreviations and acronyms thrown around. And I'm not gonna bore people with technical jargons, the reciprocal tariffs that we usually call them. That that's at least a word that's manageable. Sometimes you will hear them talked about as the IEPA tariffs. That's basically the law the president is invoking, saying there is an emergency. By the way, these are also all the tariffs that have been struck down in a lower court that is right now under appeal. So that's all the reciprocal ones. Then you have the tariffs on, for example, steel and aluminum. They are under a completely different set of rules. That's the section 232, which is a different law that Trump is using. That one right now is actually not under dispute. So those ones stand and would likely continue to stand. And the interesting thing about what was coming out there is, and I think we discussed that on a number of occasions on the podcast as well, that whenever we get these executive orders and tariffs, which are of course massively important for all the shippers, they are usually, let's call it with a diplomatic word, licking somewhat in the detail department. So it's very large and sweeping statements. Let's say, fine, you've got a tariff on steel. Sounds simple enough, but then the problem is, well, if I'm importing a steel bar, that's perfectly fine. What if I'm importing a product that's made 90% of steel? What if I'm importing one that's containing 10% steel? What if it's containing 0.2% steel? So which exact products are covered by this and which ones are not? There's a whole lot of detail. And usually that falls to the lower agencies. In this case, customs and border protection then needs to come out in the Federal Register and say, well, these are the very specific and detailed commodities that are therefore included. So all shippers need these details. These details were finally published by uh CVP here on Friday, so yesterday, and they go into effect on Monday, two days from now. Which means that most of the shippers have extremely limited time to actually adjust. Hopefully, most of them have done their homework, would have a reasonable idea whether their commodities were going to be included or not, because now that we know for sure. And one of the reasons I wanted to bring this up in the podcast is it it also goes beyond what was just announced here on Friday. It also goes to show the environment that the importers need to plan and operate in. Because this is likely not the last time that we see some of these details being published in the Federal Register with extremely short deadlines. I think Shibbas should expect this to be the norm, at least for the foreseeable future, that whenever there are some of these tariff changes, the details that they need so desperately in their business, they need to have a setup where they expect these details to be communicated very late point in time and with a very, very short deadline. So they need to have their internal processes and manpower lined up to actually handle this.
SPEAKER_00Yeah, it's a very quick turnaround. There's seemingly no time to make any adjustments there. Are there any notable call-outs in terms of the commodities that were listed?
SPEAKER_02Well, that is a good question. I must frankly admit, apart from a long listing of uh numbers of the relevant HS codes, I simply haven't looked into the very specifics of it. So I'm gonna happily gonna leave that to all the individual shippers to find out whether it's your specific commodities that are included there.
SPEAKER_00All right. A little cliffhanger for for the listeners. They need to do their own research there. All right. Well, let's move on. We've started seeing some of the results from the ocean carriers in terms of H1 financials. Could you talk a little bit about what we've been seeing there?
SPEAKER_02Yeah, if we look at the I was especially interested in looking at second quarter here as we got the new networks into play, we got the trade warf going on. Overall, if we look at some of the largest carriers that come up with the results. So if we look at a Musk, Hotloyd, CMA, CGM, Money, more or less they are coming out in terms of profitability at roughly the same level. They got EBITDA levels in the, I think, 15 to 19% range, roughly. And yes, I know you've got a margin of 18%, you're doing better than somebody with 17%. But in the greater scheme of things, performing more or less on par with each other on that. And when I then look across them, many of the metrics look more or less similar. Some might have picked up on the fact that we saw some carriers adjust their expectations upwards, some were adjusting them downwards. I don't think so much that's a reflection that they're reading the future market differently. That might more reflect how optimistic or pessimistic they were six months ago when they were making their forecasts. One thing maybe to note, uh, at least they said it specifically, it was from Musk that are now saying that they are assuming the Red Sea to continue for the rest of the year, which is a change from their expectation as we've begun the year, where they were actually making in a potential change here in mid-year. Given the attacks we saw in July, that's probably very reasonable assumption. But when I look across all of them, there's one thing I think that really stands out because it's so different in performance than the peers. And I would actually then focus on the global volume development from uh Hapakloid. Because if I look at the container volumes from Harpa Lloyd, what they repeated here in the second quarter, they're up around 12%. This is a very, very sharp increase. If we look at the the best source of global demand data, that's container-paced statistics, they have the global market growing at around 4%. This is a massive growth above market. If we compare to again the other large carriers, we had MERS growing in line with market, just above 4%. We had CMA, CPM basically flatlining, and O and E only growing very marginally, less than 1%. So a 12% volume growth in this case for Habakloyd, that is the one parameter that really stands out compared to everybody else. Question, of course, is why? Why? Yes, yeah, exactly. Well, the the one of the main things, of course, that changed is we saw the introduction of Gemini. But before we jump to conclusions, say, well, it's because of the new Gemini network. Well, hang on a second. If it's because of Gemini, why is it then Hopat that grows 12% and Musk that's the other partner that grows 4%? Don't get me wrong, 4% is definitely decent growth. It is in line with the market, but the new network cannot open the explanation. So clearly Hopak Lloyd has done something, I was about to say, worthwhile, at least in the eyes of a lot of prospective new customers here over our second floor.
SPEAKER_00My first assumption was that because they're in an alliance and they have access to vessels, maybe that had an impact on the amount of volume they're able to move. But when we were talking before the episode, he didn't think that was necessarily a a part of it.
SPEAKER_02I don't necessarily think that is a major part of it. I cannot rule out, but that could be some of it, but doesn't seem to me to be the case.
SPEAKER_00But are they expecting that necessarily for the rest of the year from Hapag?
SPEAKER_02Uh in terms of volume, they don't say none of the carriers do usually when they come out with their expectations for the rest of the year, they usually do that only on the financial metrics. And Hapang is an interesting one. They adjusted their full year expectations slightly, but it would be wrong to say they adjusted them up or down. They narrowed the band, I would say, is more likely what happened because the lower performance end was moved up slightly, but the upper performance band was moved down slightly. So they're more narrowing their band there, not necessarily making a huge adjustment either up or down.
SPEAKER_00Okay, that makes sense. All right. And the last topic that we have for today, kind of an interesting one, we've sort of touched on it in a few episodes, but we haven't really dug too deep into it is decarbonization. What is the latest there on that?
SPEAKER_02Yeah, the the the latest and greatest, I mean, before we get to the latest, let's just remind everybody what happened back in April. Seems like ages ago now. After having debated decarbonization, the IMO for many years has been a huge lobbying effort to introduce, I would still call it a global carbon tax on uh marine fossil fuels or marine emissions. It has nicer names than that because no because nobody likes the word tax, but that is effectively what it is. And after years of lobbying, there was actually an agreement at the meeting in April. Again, we get into abbreviation jargon here, but under the IMO, the International Maritime Organization, there are different work groups. MEPC is one of them. And it's the work group where typically you end up agreeing on all kinds of uh environmental regulations. This is also where you want to found, for example, low solar fuel regulations or whatever else we have. So so in April there was an agreement that this is going to happen and likely gonna be introduced from 2027 or 2028. And there was also opposition, definitely not all countries were for it. The US was very vocally back then against it. They were against it on day one, and then they simply left the meeting and left everybody wants to negotiate for the rest of the week. This then needs to then be basically confirmed here in the meeting that's coming up in October. And the US then came out with a statement here over the last week that they were absolutely opposed to this happening, like completely opposed, and they did not want to see that happen. They would be doing what they could to lobby other countries to pull their support, so there would no longer be a majority to actually get this implemented, which is fine. I mean, every country can go and lobby for whatever position they have. The interesting part that came from the US was also a veiled threat in terms of otherwise there might be other types of retaliation. Now, what those might be was left completely unset. At least what I picked up talking to some of the people that were at the MEPC meeting back in April, before the US walked out, there were also veiled threats in terms of if you don't pull the support, we might put tariffs on you. Now, that has not been stated by the government this time around, but that's kind of what is hanging in the air. So we'll see how that one goes. So after the April meeting, it seemed very certain that there indeed was a deal. The open question is now how much pressure the US is able to levy on some of the countries supporting this legislation to potentially cause them to change their minds before the October meeting.
SPEAKER_00At first glance, it's a little confusing, I guess, to understand why the US would be so against it. As I was looking into this topic, I was thinking, well, you know, there's not that many steamship lines that are based in the US. And so if you're looking at it from like a cost perspective, it's not that like the US would have to pay more money in order to meet these new regulations. But I was curious if you could talk a little bit about that. Like why would the US care and sort of the balance there?
SPEAKER_02Yeah. I mean, you you could go at it two ways. You can go at it from the economic angle. I mean, if if this is introduced, basically it's a tax on marine fossil fuel, which means that shipping is gonna be more expensive. Uh, because fuel is gonna be more expensive. This is gonna hit everyone everywhere. It doesn't matter whether you're shipping containers or bulk or liquids or whatever you do, if you're using marine fossil fuels, it's gonna be more expensive to move stuff, which of course also would make it more expensive for US importers and exporters, just as it would for everybody else. So one could make the argument that the US don't want to see that happening. And and I'm sure some would make that argument. I would probably feel a much more simple hypothesis. This is global environmental legislation, and Trump and his government is politically opposed to that. It's as simple as that. Like pulling the US out of other environmental treaties as well. We saw that in Trump 1. We are now seeing it in Trump 2. So whilst the economic argument can certainly be fronted, I I don't think it's about the economy. I think it's just as simple as the current US administration do not want to be part of any global environmental agreements whatsoever. And this would just be another one of them.
SPEAKER_00And so if this legislation is passed um in October, right, is when this vote is supposed to happen.
SPEAKER_02Yes.
SPEAKER_00So what would be the impact of it? Like what what exactly would play out? What happens?
SPEAKER_02As far as I recall, and I'm not completely sharp on all the nitty-gritty details either, but you are basically going to have to pay, again, I would tend to call it a tax. Uh it depends on what type of fuel you're burning. So it's a sliding scale. If you're burning good old-fashioned heavy fuel oil, you would pay a relatively high price. If you're using, say, LNG, you would pay a lower price because you are actually emitting less all the way down to if you're using, say, green methanol, you're not paying anything. So depending on what type of fuel you're burning, you are going to have to pay a levy on part of that fuel. This money will then go into basically a large pool that's going to be used for investments in furthering more green technologies going forward. At least that's the thought behind it. And that's also why I say at the end of the day, it's going to make fuel more expensive and therefore it's going to make freight more expensive. But the numbers, at least, that were thrown around back in April were not numbers that would make global shipping come to a crashing halt. I mean, you were talking potentially a few hundred dollars per ton of fuel, but you were not talking something that would be massively disrupted.
SPEAKER_00The amount of emissions, the percentage compared to other things that emit greenhouse gas, it's only about 3% for global container shipping. But what's been happening over the past few years is that it has increased. And some of the reasoning behind that is, you know, having to go around the Cape of Good Hope. Um, that's significantly contributing to it. But it's interesting to see how that has changed. And even though it's seemingly a relatively small percentage, it's still massive impacts.
SPEAKER_02Yeah, but you would say it is a valid argument. Why should this particular industry do a lot? Because it's only a small percentage of emissions. But you can field that argument with a vast array of different industries around the world. It's not like you have one industry in the world that accounts for 90% of emissions on its own. So I think every single industry has that argument. Say our industry doesn't really matter that much. And those arguments are being fielded. What I think is a more interesting discussion, but I think that also ranges far beyond what we usually have here in this podcast, is if you want to lower emissions, where is it most cost efficient to do it first and then second and then third? And it might be that you will find that industry X should actually become much more aggressive in decarbonizing because that can be done more cost-efficiently than, say, industry Y, where this would only be more feasible, say five to ten years down the line. So this notion that all industries should follow the same decarbonization curve is not necessarily the most optimal way of actually doing it efficiently.
SPEAKER_00Yeah. It's an interesting perspective. Be hard to kind of categorize that and get everyone on board to follow such a plan. Um I like the optimistic approach to it. Anything else to add on the decarbonization efforts?
SPEAKER_02No, I th I think that the the main news here, and you say it wasn't really news that the US is approached it. Uh what remains to be seen is how heavy-handed they are they are at it and whether they're going to be able to persuade some of the countries that would back us back in April to maybe change their minds before the before the April meeting.
SPEAKER_00All right. Well, we shall wait and see. Lars, great talking to you. You all are hearing this on Monday, but we'll be back the following week. Check in on Lars and his trip to Mount Kilandoro. But until then, I hope everyone has an awesome week.
SPEAKER_01Have a great week, everyone.