Episode #26: Strait Talk And The Air Cargo Hit

Better late than never. 

Hope your supply chain is holding up better than my audio equipment. 

The ceasefire news is hogging the headlines, but don't let the noise fool you;the Straits of Hormuz are still effectively a "no-go" zone for container ships. While carriers like CMA CGM and COSCO are trickling a few vessels out, nobody is exactly rushing back in. 

Ocean rates are staying surprisingly soft at around $2,500 for Transpacific lanes due to a massive ghost of overcapacity. Meanwhile, Air Cargo is getting absolutely pummeled, with South Asia to Europe rates spiking 60% to over $4.00/kg. It’s a tale of two markets: one is floating on a sea of extra ships, and the other is running out of jet fuel.

I’m not crying about these air rates. You are. (Actually, we both are). If we don't see fuel availability stabilize in hubs like Singapore soon, we might all be shipping via carrier pigeon.

Chapters: 

00:00 — Microphone Malfunctions and Strait Talk 

01:15 — The "Hostage" Ships: Who is actually getting out?

03:45 — The GRI Bluff: Why $6,000 rates aren't happening 

05:30 — Overcapacity: The only thing keeping ocean rates alive 

08:15 — Air Cargo's 60% Nightmare: Fuel, Flights, and Fumes

11:00 — Singapore’s Fuel Clock: 30 days and counting

This podcast is a little experiment from Freightos—and may not be around forever—so if you dig quick bites of freight wisdom, let us know. 

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Transcript

SPEAKER_01 0:02

Okay, well after a good 20 minutes of fiddling with my microphone. I don't know if people are anticipating this as much as I am, but container bites, we're back.

SPEAKER_00 0:12

We're back.

SPEAKER_01 0:13

It's been a while. You good?

SPEAKER_00 0:16

I'm good.

SPEAKER_01 0:18

I'm good. Better than the straights and four mirrors segue.

SPEAKER_00 0:24

Not hard.

SPEAKER_01 0:24

Um for a while. Well, um ceasefire right between the US, Israel, Iran. We're now maybe a I don't know, a day and a half into when it was initially announced. Without getting into the geopolitics of this, what are we looking at right now in terms of ocean freight and the Straits and Hormuz?

SPEAKER_00 0:47

Yeah, so I think uh de facto it is not open, right? There's a uncertainty is the name of the game. There are, you know, the US saying it is going to be open. It's not what you're hearing from from Iran, but the facts on the grind is that it's not open um to transits as usual for sure. Certainly not to uh to container vessels. Uh if it does open, there is something like a hundred or more container vessels that have been stuck there since the end of February. A handful have actually gotten out. Costco moved a vessel as is CMACGM. These were in coordination with Iran and possibly, you know, also via payment to Iran. It's unclear. Um the rest of these vessels, if the strait does kind of open completely, which doesn't seem like uh uh an immediate likelihood, those vessels might go out, but they're probably a lot less likely to go back in. So, in other words, even if it opens and carriers are able to get their vessels out of the Persian Gulf, they're likely not gonna just start, you know, doing usual typical uh port calls into the region because of the uncertainty. They're not gonna go back like we saw for the Red Sea, they're not gonna go back in full until they know it's safe and that they're not gonna get stuck again. So that's kind of the story now. Again, a lot of uncertainty. Operationally, though, it's still really limited to volumes trying to get in or out of the Gulf and in terms of operations, not really impacting the rest of the market.

SPEAKER_01 2:06

Well, we did see right when this all initially started to erupt, we did see some initial global ocean cargo spikes uh kind of impacting beyond with the oil prices. I don't know if that was only related to fuel. I think the last time uh we did we did an episode, we were talking about potential for GRIs and for surcharges that were going to be tapped on on top of that. Um, you know, obviously, right, the straits so much more important from an energy flow perspective, gas and fuel um than for anything else. But what are we seeing now in terms of container spot rates? And is this panning out kind of how we expected last time we spoke?

SPEAKER_00 2:41

Yeah. So even if the broader market isn't being impacted operationally, the price of oil impacts a lot of industries in Cuba, including ocean freight. So we saw early on a lot of announcements of emergency fuel surcharges and then just kind of a lot of other variously named surcharges, peak season surcharges, and other GRIs or FAQs and things like that. And we, in fact, have seen rates increase on non-impacted lanes. So on the Trans-Pacific, rates were at about$1,800 before the war. The latest rates are at about$2,500, so about$700 increase, similar to the East Coast, uh, similar to for Asia Europe, which went from about$2,400 to$2,900. So there have been price increases, but we haven't seen kind of the extent to which all those rate announcements might have might have led you to believe rates are going to increase. So rates are certainly increasing, and they're increasing at a time of year where normally rates would be decreasing and kind of leveling off because we're we're post-peak season and we're pre-I'm sorry, we're post-lunar new year and we're pre-peak season. So we're in a low demand period. Nonetheless, we're seeing rates increase somewhat somewhat. So this is uh can be attributed uh to the war. Uh that being said, we're not seeing the extent of increase that carriers were seeking. And for um Asia Mediterranean, we've actually seen rates kind of increase and come back down to only about$100 higher than they were, and much lower than uh some of the GRIs that were announced. So we're seeing rates at$3,300,$3,800 per container, and the GRI is announced for like$5,300 or even$6,000 per container. So rates aren't increasing, maybe to the extent that carriers anticipate that they could uh increase.

SPEAKER_01 4:21

Yeah, I mean, totally like I, you know, I was looking at I think maybe this is a testament to how bad volatility has been over the past couple of years, but I was just taking a peek at TransTec for 2024, 2025, and 2026, and just like comparing the rates there. And TransTAC is actually kind of at the bottom end of where it was over the past couple of years, right? This is these rates are pretty good. So with a global conflict that is spiking fuel prices across the board, rates are still pretty pretty low, all things considered. Is that an indicator of demand? Have you seen less global container demand, or is there still a lot of talk that kind of shippers are not really looking to move as much product as they were last year?

SPEAKER_00 5:04

So on the Trans-Pacific, but a little bit somewhat, because of the trade war, we've seen drops in in demand, but globally we've seen increases in volumes throughout that period. So the big factor is really meant to be overcapacity, and that's why we've seen rates kind of decrease year on year since um since 2024. And that's what you know, the story was likely going to be continuing into this year. Rates right now of$2,500 per container in slow season is quite elevated. But for the first part of the year up until the war, we saw rates um at about 50% lower than they were last year in January, February 2025. And just in the last few weeks since the war, we've seen rates kind of increase compared to year-on-year. I think they're about 8% higher year-on-year for Trans-Pacific, like 20% for Asia Europe. So this is another factor that's kind of changing the all-else being equal kind of supply and demand balance. But overall, we would have expected overcapacity to mean lower rates year on year. And this is another example of kind of, you know, you could call it an external factor that's impacting rates.

SPEAKER_01 6:02

So that means that if if traffic resumes, if if for some, you know, suddenly we wave magic wand and all this goes away, uh, we can expect rates to drop pretty dramatically given the overcapacity. Uh, I think maybe good time to shout out if anybody's looking for data on this, and I've I think you'd also consistently find that Alpha Liner's uh data on the order books is a great way to kind of look at how bad that overcapacity is and and what is coming up when it comes to new containerships. You know, maybe looking forward a little bit, what happens like played out for us if the strait remains closed uh or if traffic continues to just like trickle through rather than opening up in mass and like uh en masse, like what does that do for global container trade?

SPEAKER_00 6:46

Yeah, well, I think first of all, if it were to kind of reopen, I don't think it's going to be en masse. I think it would be uh gradual. Uh and in terms of the impact on the larger market, first of all, you might have some congestion as you know, a bunch of these vessels go out at once, even if it's relatively gradual, more than usual are going to be arriving at times they're not supposed to. Um so that might cause some congestion in uh in the Far East. But uh the larger issue for container rates is uh price of oil. And for what I've seen, you know, even if the street reopens completely, it's gonna take time for kind of uh oil and energy levels to get back to where they were. And so that would mean higher fuel prices, which should mean higher uh container rates. Um, the other issue is what happens if it, you know, stays open, if it opens very limited or remains closed, is not just the price of oil or or fuel for a container for the container market, but also availability. So we're already seeing reports of places like Singapore, which is the biggest hub for refueling, um, that they report they have something like a month left of stock. And that they're very reliant on um flows from from the Gulf. And that's gonna be another problem that is gonna mean that carriers need to adjust, and that's gonna mean higher costs to them and probably higher rates to uh to shippers and forwarders. Uh, and they'll also try probably try to reduce their exposure to that, which would mean kind of fewer vessels, which will limit supply and therefore push-up rates, or uh slow steaming, right? And being more fuel efficient, which also effectively um silks up capacity. So uh I think this is this isn't going to kind of disappear immediately, even if the uh if the straits open up, if they stay limited or closed, it could you know have additional effects that we haven't really seen yet.

SPEAKER_01 8:31

Dramatic turn or dramatic takeoff. Looking at air cargo, what what is I assume that fuel is probably the most dominant impact factor right now on air cargo as well.

SPEAKER_00 8:40

Yeah, well, certainly fuel is the story there as well, both fuel costs, literally jet fuel costs, and fuel availability. So there's a report this week that uh Vietnam is reducing some of its domestic flight schedules to kind of conserve uh supply of jet fuel. And that hasn't gotten to freighters or international freight yet. But you know, if it's gotten to this point, it could mean that it will uh impact other types of uh of flight and turning, including freight uh and other reports that places like South Korea and Philippines are also considering steps like that. So um fuel prices and fuel availability are certainly becoming a factor uh in air cargo. Operationally, the Gulf is actually important to markets beyond the immediate, you know, uh destinations there in the Gulf, in that you have these major carriers, uh Emirates and um and Qatar, they make up more than 10% of global capacity, and they have been kind of restricted since the beginning of the war. Qatar really only restarted in the last couple of weeks. Um, UAE has opened their airspace more and more, and so Emirates getting closer to kind of full capacity. DHL estimates that they're at something like 60% of their normal schedule and Eti had at 40%. Qatar is still at or only at 20%, but that's a lot more than it was. So you had this drop of capacity because of these uh carriers had limited access to their airspace. Um, and so that's kind of gradually improving. But while it's been gone, that's a drain on capacity. And then all those volumes, a lot, a big share of them being Asia to Europe, that normally would have gone through there, are now have to go directly from Asia. And so you had kind of increase of demand to those lanes. Um, carriers are adding capacity to those lanes to meet that demand, but there's been kind of this pressure on rates from both from both of these factors, a drop of capacity and an increase in demand. And so we've seen rates uh increase really quite significantly. So, for example, South Asia to Europe rates are now more than 60% higher than they were before the war. So now they're above$4 per kilo. Southeast Asia to Europe, 33% higher at$4.50. And Europe to the Middle East, which you know, we uh can imagine that there's a big drop of access there, have more than doubles. They're almost up at uh above$3.50. So we're seeing a much more uh uh broad and stronger impact on rates um and operations and error that we're seeing uh in ocean. That being said, the last couple of weeks we've seen rates kind of level off on some lanes that even decreased a little bit, and that might reflect that these uh that the uh Gulf carriers are recovering their capacity and recovering operations, and also that uh other carriers are adding flights to these to the low to the lanes where there is demand. But there's certainly still upward pressure and on rates, even if they ease a little bit. And of course, the price of fuel on fuel availability is still the wildcard. If that gets more expensive or worse, then you're gonna see those costs pass on to uh uh to forwards and shippers as well.

SPEAKER_01 11:40

Yeah, and first of all, maybe great opportunity to shout out to the carriers that are doing a tremendous job in and uh going back and kind of getting capacity back up now under very challenging conditions. Uh and be maybe in contrast to what we're starting before the ocean front, that air cargo actually is, at least on our global freight index, is a good 25% higher than it's been over the you know 2024, 2024, 2025. Like rates, rates really are very elevated. And maybe that's the best indicator of how how disruptive this is on global level, not just you know, localized in the Middle East. I think the conflict in the Middle East and the Straits are really sucking up a lot of the oxygen in the room. Judith, thanks very much for this. Appreciate it. Uh catch you next week.