The Minefield Hotline and the UK’s E-commerce Backdoor

Welcome back to Container Bytes! I’m Julia Frohwein, alongside our resident freight expert, Judah Levine. 📍 Let's get "Strait" to it. (Yes, it's a bad joke, but things are moving too fast to pass up a pun). Following the historic US-Iran Memorandum of Understanding, the Strait of Hormuz is finally seeing a trickle of traffic. But behind the headlines, the reality is a logistical obstacle course.

In this episode, we expose the secret military hotline opened between the US and Iran to coordinate transits. The traditional middle channel is still a total no-go due to mines, forcing the IMO and Oman to set up a rigid, emergency transit mechanism along the coastline. Tankers are getting the priority check, while container carriers are playing it safe—running strictly feeder vessels into the Gulf to avoid losing their mega-ships to another lockdown.

We also break down why ocean spot rates have violently decoupled from reality. While crude prices and bunker fuel are tumbling (down 25% from March), container spot rates have exploded by a staggering $2,000 to $3,000 since the end of May. Shippers are caught in an absolute front-loading frenzy to beat the July contract BAF cliff, producer price hikes, and looming tariff changes. Transpacific rates have slammed into $6,000/FEU for the West Coast and $8,000/FEU for the East Coast.

Finally, we track the massive regulatory tectonic shift landing in July. As the EU officially kills its de minimis exemption, a massive loophole has emerged: The UK is keeping its de minimis until 2029. We explore why the British market is bracing for a tidal wave of diverted, cheap Chinese e-commerce packages turning the UK into Europe’s ultimate trade backdoor.

Chapters: 

• 00:00:00 — Strait to It: The US-Iran hotline and the new status quo. 
• 00:01:15 — The Coastline Reservation System: IMO and Oman take the wheel. 
• 00:02:00 — Feeder Ship Pivot: Why ocean alliances are refusing to risk long-haul mega-ships. 
• 00:03:00 — Fuel Deflation vs. Peak Inflation: Why dropping oil prices aren't saving your rates. 
• 00:04:15 — The June Spot Monster: Breaking down the $8,000 East Coast reality. 
• 00:05:30 — Overcapacity Masked: How front-loading broke the rules of supply and demand. 
• 00:06:45 — The UK Loophole: Turning Britain into an e-commerce smuggler's paradise.

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_00 0:00

Hi there and welcome to today's episode of Container Bites, your 10 minute session on the latest in freight. I am Julia Frowein, joined as always by our freight expert, Judah Levine. Judah, how are you today? I'm good. How are you doing? Yeah, I'm also doing okay. Alright, let's get straight to it. Oh, bad joke. There we go. Following the US-Iran memorandum of understanding, we're finally seeing the Strait of Hamas starting to open. How is this going to work practically for us?

SPEAKER_01 0:26

Yeah, so there certainly is uh an increase in traffic. They have um increased pretty much each day since the um announcement. As part of the renewed negotiations, there is a report that Iran and the US has opened a hotline between the two to you know avoid misunderstandings and enable some types of coordination when necessary to you know make things go as smoothly as possible. Reports from the talks also show that Iran is really trying to assert control and have some sort of control over the waterway, even once there is a final agreement, which is a big shift from the status quo. So we'll see what happens there. Um but in terms of practically just now, there are reports that the IMO, the International Maritime Organization, and uh Oman are setting up kind of a mechanism to facilitate transits, I think mostly through Oman's um, you know, waterway to the south of the strait. Um, because really the only two safe passages now are along the coast of Oman or along the coast of Iran, because the middle, which is the the typical way that vessels will transit, is still not safe because of mines. But the fact that they're setting up this kind of organized mechanism that's going to, you know, I don't know if it's a reservation system or what it's going to be, but it's going to facilitate individual transits and make sure there are kind of controls in place. So those are all steps in the right direction, but we're not seeing it's still going to be a gradual process just because of the limited kind of lanes that are available.

SPEAKER_00 1:51

Okay, and what about for container traffic specifically?

SPEAKER_01 1:54

Right. So most of the vessels that are exiting are tankers because the big kind of disruption from the closure is the flow of oil and other energy products. So there have been some container uh transits, but not that um, you know, I don't think they're being necessarily being prioritized. Probably we'll see more container exits than entrances to start because you know a lot of vessels that have been stuck there for for a long time. And also we're kind of in an interim, and I think that we're not going to see regular traffic, um regular port calls back into the Gulf until uh there's a final agreement or until it's clear that there's that there's stability. So we'll probably see these vessels exit and then we'll probably see carriers um start making port calls in the Gulf with feeder vessels and not with the long haul vessels because it would be more disruptive for those to be stuck there. But again, this is definitely going to be a gradual process.

SPEAKER_00 2:45

Okay, and as the straight hopefully is reopening, oil prices are falling. So is that going to ease pressure on container rates also?

SPEAKER_01 2:51

So yes, oil prices are falling by some measures. Crude oil is something like only 5% higher than it was before the war. And this is, I think, kind of on the prospect that things are improving as opposed to the fact that oil flows are you know only 5% different than they were beforehand. But these are all moving in the right direction. Jet fuel and bunker rates are also easing, they've been easing for a while. Bunker rates are down 25% from their high, which was in March, and that's down 12% just since the start of June. So things definitely are shifting. But even for the container market, even as we see uh fuel costs easing, and they're probably easing for carriers now, um, rates are continuing to climb, and that's because of peak season demand. As we said, there's an early peak season this year, it's really keeping vessels full. By some reports, they're booked all the way you know into early July, which is uh rapidly approaching. And this means that uh spot rates are going to start easing when demand eases, even if we're seeing uh you know changes in fuel prices or even if fuel prices stay the same. What's driving container rates now is demand. So, as we said, we have this early start to peak season. This is um, in many ways driven by what's going on in the street of Hormuz. A lot of big shippers are front loading ahead of their BAF adjustments, increased fuel costs, which are gonna happen in July. Producer prices are gonna increase for some for some importers in July. So there's front loading ahead of those. For US shippers, some are front loading ahead of uh changes to tariffs that's gonna happen in late July as well. So this has pulled um demand forward. And we've really seen rates continue to increase throughout June. Big spike to start the month on initial GRIs, big spike in the second half of the month for mid-month, mid-month GRIs and PCs and surcharges for all major east-west lanes. Rates are now $2,000 to $3,000 per 40-foot container higher than they were at the end of May. So things are increasing significantly. To the West Coast now, rates are about $6,000 per container. To the East Coast on Trans Pacific, $8,000. Asian Europe are at $5,000 per FEU and Mediterranean, $6,400. So rates are really quite elevated and at or above levels from last year's peak or last year's high. Um, and cars are announcing additional increases for July. For Asia Europe, some are are uh announcing increases as much as $3,000 higher than they than they are now, and same thing for Trans-Pacific um increases being announced. So the question is how long will the demand hold up? Because if it's front loading, then it's being pulled forward from some later date, and if it's all coming at a very concentrated time, it could mean that demand is gonna start to ease soon, and that'll mean that rates start to come down soon. I would expect that rates will climb again to start July, but maybe not to the full extent that carriers are aspiring to through these GRIs and uh peak season surcharges, because some of the uh rates set for mid-June haven't gone through to the full extent. So I think rates are probably gonna keep continuing to increase into July, but possibly by mid-July will start to level off or ease because of the nature of the front loaning. But it kind of shows that even with continued fleet growth, when the conditions are right, rates can still increase quite significantly on demand. So, yes, they're starting from an elevated level because of higher fuel costs. Yes, there are Red Sea diversions which are absorbing capacity, and there's also congestion now, which is which is absorbing capacity as well. Um but when we have this big demand push, we see that rates still can can climb quite uh significantly, even though you know overall the the picture is one of over capacity.

SPEAKER_00 6:21

Okay, and moving on to air cargo now, what's what's the impact there?

SPEAKER_01 6:25

So air cargo, uh sorry, so jet fuel prices are also easing, as we said, and really they've been easing even before the announcement of the of the agreement or the potential of of the agreement. Um and we've really mostly seen rates leveling off for the last uh few weeks. On most lanes, or almost all lanes, rates are down from highs they hit earlier in the conflict, and that's kind of what we're what we're seeing now. We haven't seen any additional rate drops for some of the uh lanes into the U.S. We've seen the rates increase in the last couple of weeks, and that's possibly kind of a last minute rush ahead of uh prime day. Um so overall we're seeing kind of rate stability there, and I would think that as if we see fuel costs drop significantly, we'll start to see air cargo rates start to ease as well. The bigger story right now, at least for parts of the air cargo market, uh, is uh what's happening in the EU. So the EU is going to suspend its de minimis exemption at the start of July. And I think as we said last time, there aren't expectations that all of a sudden e-commerce volumes are going to just you know disappear from the air because we've seen that the e-commerce platforms have learned to adjust like they did on the Trans-Pacific. So the US canceled de minimis, there was a decrease in volumes, but volumes have not recovered all the way, but they're still a significant part of the air cargo market as these platforms have kind of adjusted their strategies in terms of how they're using air. The bigger question, though, and an interesting one, is in the UK, and that's because the EU is going to end their de minimis exemption. The UK is as well, but not until um 2029. So if all of a sudden you have this very close proximity um markets and one all of a sudden is a lot more attractive, there are some concerns in the UK that all of a sudden there's gonna be a surge of uh low-cost goods entering the UK at the expense of what's happening in the EU. So we'll see if that materializes or not. Or you know, there are kind of pushes for for the UPay to expedite the timeline for when they are making the rule changes as well. So we'll see what happens there.

SPEAKER_00 8:21

Watch this space.

SPEAKER_01 8:22

Once again.

SPEAKER_00 8:24

Once again, as always. Okay, that is all we have time for today. Thank you, Judith, for your insights as always. If you enjoyed this session, please hit the subscribe button and you'll get notified of all our future episodes. Thank you for listening and have a good day.