Episode #29: The Jet Fuel Sharing Plan and the "Quiet Crisis"

Welcome to a very special episode of Container Bites! If you’re wondering why Eytan suddenly has long brown hair and a British accent—don’t panic. 📍 I’m Julia Frohwein, and I’m thrilled to be taking over the mic. This week, Judah and I dive into the "Quiet Crisis." The ceasefire is holding, but with the Strait of Hormuz still closed and the US blockade in place, oil prices are creeping back up.

We break down why Asia-Europe ocean rates are hitting a stubborn floor—50% higher than October levels—despite the seasonal lull. We also look at the high-stakes game in the skies: Lufthansa and KLM are scrapping thousands of flights to conserve fuel, and the EU is already drawing up a "Mandatory Jet Fuel Sharing Plan" to prevent a regional blackout.

Plus, we discuss why Maersk is struggling to guarantee export services out of the Gulf and how Gemini is doubling down on Jeddah as the ultimate land-bridge fallback.

Chapters: 

• 00:00:00 — Meet the New Voice: Julia takes the helm. 
• 00:01:00 — The Gulf Strain: Maersk’s export warning and the Jeddah pivot. 
• 00:02:30 — Ocean Rate Split: Why the Transpacific is winning the rate hike war. 
• 00:04:15 — Peak Season Anxiety: Will high energy costs kill consumer demand? 
• 00:06:00 — The Air Cargo "Club": Lufthansa, KLM, and the 20,000-flight cull. 
• 00:07:00 — Europe’s Fuel Stash: The EU’s emergency sharing proposal. 
• 00:08:30 — Air Index Update: Why Southeast Asia to Europe is still climbing.

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. 

For more detailed weekly freight updates delivered straight to your inbox, check out our weekly freight email. Want the freshest freight data on demand? Hit up terminal.freightos.com.

Transcript

SPEAKER_01 0:00

Hi, welcome to this week's episode of Container Bites. If you're wondering why Aitan now has long brown hair and a British accent, don't worry. It's not a peculiar byproduct of working in freight. He's passing the Container Bites podcast over to me. Hi, my name is Julia Frowwine, and I'm really excited to be here. Julia, how are you doing?

SPEAKER_00 0:18

Good. Welcome aboard. Um that's a little freight humor. And also I think um, at least to Americans, the British accent really adds some gravity that makes people think that we know what we're talking about, so I appreciate that as well as welcome.

SPEAKER_01 0:29

Okay, all right. Happy to help. All right, let's get into it. The US Iran ceasefire seems to be holding, but there is little sign of real progress. Iran is still keeping the Strait of Hamoos closed, and the US blockade on Iran vessels remains in place. That's clearly affecting oil prices, which have started to climb again. But what does it mean for container shipping? Is it more of the same as the situation continues?

SPEAKER_00 0:52

Um Yeah, so kind of operationally, it's a yes and no, but mostly yes. It's more of the same in that we're still seeing a split between containers trying to get in and out of the Gulf states, which are still very disrupted, and basically the rest of the container market where operationally things are continuing basically undisturbed. But there is a change in the in the sense that for containers trying to get in and out of the Gulf, there have been these alternatives set up. The accessible ports are being um our services are going there by ocean and then land bridges to final destinations. But we continue to see or maybe see a worsening of the strain that these new networks are under because they're just not built for these types of volumes. So they're actually lower volumes than were being booked before, which makes sense. Um even so we're still seeing a strain in terms of vessel delays, but especially in terms of the land side. And Mersk even um released a report this week saying that for export containers specifically, they can't guarantee that they can really offer that service so that it's the feasibility is really strained right now. So that's something that may be worsening. That being said, Gemini has increased the capacity that they're sending to Jeddah, which is a port in Saudi Arabia on the Red Sea, and that's kind of been their one of their main um alternative access points. And so they're kind of increasing capacity. So they are, I don't know that increasing the capacity the ocean capacity is going to ease the road issue, but um, that's something that's continuing.

SPEAKER_01 2:14

Okay. And what about container rates? Are we seeing any shift there?

SPEAKER_00 2:17

So also kind of a yes and no. So here it's all been about increased cost from the price of oil and fuel costs. Um, so the Strait of the Hormuz closure continues to keep container rates under kind of upward pressure. So we're in this low demand period post-lunar year and before peak season. Normally during this time, we see demand uh lull, decrease, and we see rates possibly hit their floor for the year in this period, and that's not what we're seeing. But we are seeing a shift and really a difference through last week in terms of how rates are behaving on different lanes. So if we start with Asia Europe, meaning Asia to North Europe and to the Mediterranean, we saw rates ease about 3% last week to both um destinations. And both of these uh lanes, we saw rates increase by several hundred dollars or a few hundred dollars in the first few weeks of the war. But right now, North Europe rates of about$2,700 per 40 for container, they're just 8% higher than they were before the war. And Mediterranean prices of$3,500 are actually 3% lower than they were in late February. MERS recently kind of extended current rates, meaning they're canceling a GRI that was meant to go into effect in May. Cars are starting to increase blank sailing. So we're seeing that war-related increases haven't really succeeded in keeping prices on these lanes much above their pre-war baselines. But there is upward pressure from the conflict, and that's likely keeping prices higher than they otherwise would be, which of course is a hard kind of claim to prove. But we could, if we compare Asia Europe rates year on year, they're 15% higher for both of these lanes than they were a year ago. And if we compare it to October, so October was kind of the previous low demand period for ocean freight, you know, post-peak season pre-uh-lunar near gear, rates are 50% higher than they were in that previous low demand period. So even with low demand, we're not seeing rates raise much for where they were before the war, but um they're not dropping lower either. For the Trans-Pacific, though, carriers have had more success, and really rates have kind of steadily increased since the beginning of the war and haven't really seen much backsliding. On these lanes, prices ticked up slightly to both coasts last week. West Coast rates are about$2,700 per FEU, that's 45% higher than before the war, 90% higher than in October, right? The previous low demand period. East Coast prices are$4,000 per FEU. That's 30% higher compared to just before the war, and also 30% higher than back in October. So we're certainly seeing an impact, but we're not seeing big um uh spikes, and we're seeing some challenges to carriers maybe pushing rates as high as they'd like to at this period.

SPEAKER_01 4:48

I got it. And as you mentioned earlier, uh ocean peak season is just a couple of months away. So what does all this mean in terms of expectations for this year's peak season?

SPEAKER_00 4:57

Right. So if the closure continues into that period or our fuel prices remain elevated in that period, which is possible, even if the strait uh opens during kind of an interim like normalization, um, that's when we probably see uh prices increasing in once we have that demand side also kind of supporting higher REITs. Um and kind of we see that seasonality. The question though is is higher fuel costs, higher energy costs in general, are there going to be expectations by shippers of uh or lower expectations by shippers for consumer demand?

unknown 5:28

Right?

SPEAKER_00 5:29

So they're bringing in all these peak season goods for these um consumer, you know, the shopping periods and shopping events. And if there are expectations that consumers are kind of being hurt by higher uh energy costs, we might see lower demand and therefore lower rates and lower volumes uh for peak season, but we'll have to wait and see.

SPEAKER_01 5:45

Yeah, that makes sense. Um okay, so let's turn to the air cargo market now. Seems the price of oil and the spiking jet fuel costs are having a bigger impact on air cargo than on ocean. Can you share the latest uh what's happening in the air market?

SPEAKER_00 5:57

Yeah, so certainly in air cargo, we're seeing the much more operational shifts as a result of higher fuel costs. So um we're seeing a wide range of carriers cancel at least some flights because of the higher costs uh of fuel. Luftanza last week scrapped its entire uh city line service, which is kind of its domestic uh Europe short haul service. That's eliminating 20,000 of their flights through October. KLM also amounts enhancing some domestic flights. Now that sounds like a lot. Both of these said that those cancellations only represent like a 1% of their total capacity or their or their total memory. So it's not as big as it seems, but we certainly see carriers already uh reacting, and these two are kind of joining the club. United Airlines is rolling out a market disruption fee for cargo bookings starting in May, so there's certainly that aspect of it. And jet fuel supply is actually uh also becoming an issue already in some places, particularly Southeast Asia. So Kununaga reports that they are uh making additional refueling stops in China before they continue on to Southeast Asia for that reason. So we're already seeing some of these adaptations to supply already becoming tight for jet fuel. The EU also met and um some officials there are discussing the plan for what happens if jet fuel supply gets tight in Europe as well, which by different estimations is a few weeks or a couple months away. And there's a proposal possibly of a kind of a mandatory jet fuel sharing plan. So you won't have certain spots um in the Europe that have fuel and others that don't, there'd be kind of a mandatory spreading around. Um so we see that you know already industry is getting ready.

SPEAKER_01 7:31

Okay, so have air rates just kept climbing as well as a result?

SPEAKER_00 7:34

Yeah, so even despite these cancellations, we said it's you know 1%, but that's still, you know, uh not insignificant. Uh overall, air cargo's global capacity has been recovering. So we saw a very sharp drop initially at the start of the war, um, really because of the Gulf carriers and the closure of airspace in the Middle East. Um, and since then we've seen kind of a gradual recovery. By some estimations, there were only single-digit deficit in terms of capacity now than just before the war. So capacity is coming back. We've also seen carriers shift capacity to where the demand is. So we saw volumes shift around, you know, that were no longer able to go through the Middle East. Um, and carriers have shifted capacity to those lanes, really, a lot of the Asia uh Europe lanes. Uh, and so that adding of capacity, which was following the volumes and following the higher rates, also has the impact of kind of bringing rates down a little bit. So our the Freedos Air Index global benchmark is still 30% higher than it was before the war, and it's 30% higher year on year as well, but it's been about level um since the start of April. And if we look at specific lanes, uh China-Europe rates were just above$5 per kilo, China, North America, uh$6.40, and those both dipped slightly last week, one to three percent. South Asia to Europe rates also dipped by 1% and are just below$5 per kilo. But there are some lanes that are still climbing. So Southeast Asia to Europe, those climbed 9% this week to$5.24 per kilo. That's not a high for the year or since the war.30, but they have been cooling the last couple of weeks and come back up. So we see there's still certainly a lot of pressure, but we're not seeing that kind of steady or sharp increase that we saw earlier in the conflict.

SPEAKER_01 9:17

All right, great. Okay, thank you, Judah. Super interesting. And as always, a busy week in freight. Thank you all for listening, and we will see you again next time on container bites.

SPEAKER_00 9:26

Thank you.