Transpacific Peaks, Demand Splits, Middle East Risks Mount

You're now listening to the Supply Chain Secrets Podcast, the Ultimate Insider's Guide for All Things Ocean Shipping, presented by Night.

Hello, and welcome to this week's edition of the Supply Chain Secrets Podcast. My name's Rich Heath, and I'm here as always with Lars Jensen. Good morning, Lars. How are you today?

Morning, doing great. I have come out on the other side of the Sahara Desert, and I'm now in Silegal's capital of Dakar. So sand and dry conditions were replaced yesterday by quite a bit of rain and flooding.

Wow. And I see you're out of the van again back in a hotel for a few days.

Yeah, that's correct. Dakar is a place where I got some meetings lined up and also a good place for some administrative challenges to deal with.

Yeah, catching up on everything back out of the van. We've got an interesting podcast today. We're going to start, as always, I think, with the rates. We're going to talk demand as well, some quite a lot of information to unpack there, really kind of mixed picture. I've got some carrier results. Of course, we've got an update on the Middle East as well.

And yeah, plenty to discuss today. So, Lars, where should we begin?

Yeah, let's begin where we usually begin on the Trans-Pacific and look at what are the nitrile rates doing there. Because if we look at the overall Pacific rates on Asia to US West Coast, what we will see here is that on the West Coast rates, it seems we might actually have peak. There's a slight abatement here over the past week.

We could then consider is that happening on the US East Coast as well. Actually, if we pull up the US East Coast for comparison here, we can see that US East Coast continue to increase ever so slightly. It does appear, if you look in the wider market, that this might actually be the people we have seen.

I think we need to remind everyone again here what the NIFI measures is rates for cargo that's actually been loaded on board the ships. Whereas there's a plethora of other indices out there that mainly loom towards measuring at the cooling stage. And of course, you quote rates several weeks before cargo ever gets loaded.

And these quoted indices have also shown that we are now going down on the Trans-Pacific. So this is what's coming through here as well. The unusually strong rally leading up to Golden Week is basically over as far as it seems. I don't think there's much reason in pulling up the futures. We do that sometimes.

But basically, the overall futures outlook is unchanged compared to last week in broad strokes, which again also tallies pretty well with it appears that stakeholders last week had taken stock of the situation, had taken stock of we are likely reaching the peak, we are likely going to see some abatement.

Hence no real major changes. And actually, Pacific didn't deliver any surprises, which I think is interesting. Maybe a final note on the slight increase on the US East Coast. I wouldn't even say that's actually an increase. Of course, if you look at the numbers, yes, it's an increase, mathematically speaking.

But sometimes it's also a matter of interpreting what lies underneath the hood. And in this case, what is the increase is basically being driven by a slight increase in rate levels from China to the US East Coast. But if we were to look further into that one specifically, what we can see is this increase is because there was a dip last week.

So if we hadn't had the dip last week, which now seems to be corrected court, we would also be at a point where US East Code rates are flattening out. We have weeks to peak. So that's basically the main conclusion. If the party for the carriers is over seasonally, we're heading into a slide down, unless something else happens.

Yeah, no, I was looking at the the spreads on these as well, which we sometimes talk about. And I've seen on the East Coast the size of that spread has been decreasing week on week now for the last four weeks, which looking at the history of the index, we often see as we're reaching a kind of price level where the market starts to concentrate.

Yeah, I think as you say, when we look at the data, everything pointing to the fact that we're right at the top of the market now and we can expect it to decrease in the next few weeks. So let's see where we are next week. What about Asia Europe? Lars, shall we dive into that one?

Yeah, let's just uh have a quick look at Asia Europe. Asia Europe has really been the boring one for many weeks, and it continues to be boring, let's put it that way, because rates are simply dropping more or less like clockwork. This is the long slide ever since we saw the extremely early seasonal peak all the way back in July.

And there really isn't any change to this. It simply continues. But what I find much more interesting than the rates this week is if we try to turn our attention over to demand developers. Because what also happened in the week here is that there were new data coming from container trade statistics. And as usual, they measured demand at time of loading.

So when they are talking about the August data, which is the new data, keep in mind if you're sitting in, for example, North America, this would be cargo that's arriving September and into early October if you're on the US East Coast. So if you're thinking for statistics, it's really the September and October data we're talking about here.

But really, it's the origin, it's loading, that's where we tend to watch the demand. And we have seen a complete role reversal here in August between Asia, Europe, and the Pacific. Asia Europe has seen a decline. 1.7% down year on year in the Asia Europe demand. This is unusual for a trade that's been in perpetual growth for almost three years.

I was looking back through the data, October last year, we also saw a year-on-year decline. But that's the only year-on-year decline we have seen since autumn 2023. So we have a three-year growth spurt, and the last two years, usually around the 8 to 10% growth range. And suddenly now we see a minus 1.7% contraction.

I would hold my horses in concluding anything substantial in terms of is this complete reversal that will continue? Because one thing we also need to keep in mind here is remember when we saw the rate level before, we had an unusually early peak this year. And if that is also the case, then that could simply be that for August, we are then comparing an extremely early peak and therefore a peak contraction here in 2026 versus still part of a peak season last year.

So that could be a seasonality effect driving this one. So it's way too early to conclude that this complete reversal, where suddenly we see a decline of Asia Europe is a completely new trend. It could be a one-off due to seasonality. We'll have to wait a month and see the data for the next month before we can say anything meaningful about it.

But it is definitely noteworthy that we see this sudden contraction.

Yeah, it's really interesting, as you say, it might be a seasonality effect. And we know that, you know, where we are in age of Europe now, people are starting to see, you know, where the floor in the market's going to be. Is this rate level going to continue to slide, or are we going to see increased demand ahead of the Chinese New Year peak?

And how are all those kind of factors going to play together into rates? So interesting to see that the demand is lower compared to last year when we have all those questions around, you know, where's the flaw in this trade and when a rates are going to turn around, or indeed, are they, you know, going to turn around and will we see a strong Chinese New Year peak?

Yeah, exactly. And you can say this is also an indication that the overall dynamics of the market actually is not really driven by demand right now, it's driven by capacity. Because as we saw before, the rate decline since July has been very steady and like clockwork. There's not really been any major upheaval.

Yet this is in a situation where for some months demand growth was in excess of 10%. For one of the months now, demand decline was almost 2%. Yet, despite these massive changes in demand growth, the rate contraction stays stable. So this really comes down to, again, capacity management. And if we switch the attention then back over to the Pacific, as I said, it's a roll reverse.

The Pacific grew almost 11%. And this is where statistics starts to become interesting. Because we usually measure year on year and in a stable environment, that makes sense. You want to do year on year because then seasonality is the same. You can look at what are overall trends. Let's drill with the Pacific Eastbound here for a while.

Because if I was only to tell you it's up, it's actually 10.8%. That really is strong demand growth. And we could leave the conversation at that. But we could also, as we've done previously on this podcast, note that last year was really strange on all the American trades because of the start of the U.S.

trade war. So at times it's a better comparison. What about the year before? How have we developed compared to that one? And if we compare instead to precisely two years ago, so August 2024, Pacific volume is down about 1%. Over those same two years, global demand is up almost 8%. Asian Europe is up over 10%.

So if you compare to two years ago, we got Pacific down, whereas the rest of the world has marched on dramatically. If I pitch it in that context, the Pacific clearly looks weak. But here comes another nuance that's important to then notice. August 2024 was a record high for the Pacific. There has never in the history of the Pacific been loaded as many containers from Asia to North America as was the case in August 2024.

But if I look at August now, yes, volume is down compared to two years ago, but it's also still the second highest volume that has ever been shipped on the Pacific. And I'm mentioning all of this to try to put some nuance into what often becomes a very binary debate: is a trade weak or is a trade strong?

This is, I was about to say, a little bit of everything at the same time. Because yes, year and year things are up. This is again where capacity management comes in. How do you manage capacity to the actual demand? But we're at a point where it would be intellectually dishonest to label it either as weak or as straw.

Trans-Pacific is, let's call it a complex beast as it is right now. Where we can both argue that yes, there's actually extremely high volumes. It's not record high, but it's the second highest volume ever shipped on the Pacific. That by any means is actually strong, yet we're still down compared to where we were two years ago.

I would mainly settle this down and say the market is still unstable. We are still in a state of flux, as we have been for the last year and a half on the Pacific, because of all the trade war impacts, continues to reverberate through the whole system. So stability is basically the only thing we are not going to get.

Then when we are on the demand side, I want to shine a little bit of light on the region where I'm in now and have been for quite a while and will continue to be Africa. One of the whole reasons for me setting out on the Africa journey was precisely because I see this as the largest growth area for the next many years to come.

And if I look here over summer 2026, the region continues to deliver. When I look at the container trade statistics data for specifically sub-Saharan Africa, and say, what if we look at the summer period here? So June, July, August. We look at June, July, August, African imports are up 9%. This is the highest import growth of any region in the world.

This has been the case for a long time, that Africa always takes the price as the highest growing region. If I take a much longer perspective and compare to 2019, so seven years before all the pandemic disruptions and all the upheavals in the market, African imports are now up 41% over these seven years.

For comparison, the world in its entirety is up just 19%. Of course, the 19% is the whole world, so that includes Africa. So the whole world, excluding Africa, has grown even less than 19%. So the African growth rate, now over seven years sustained, is more than twice as high as the rest of the world.

This is a phenomenal growth rate, and there's basically no indications that this will stop anytime soon. Wow.

So within all those demand numbers, ending with a very simple and easy to understand picture thing compared to the others, as you say, that growth rate is truly amazing over that period of time.

And you can say we are now also getting far enough into the fourth quarter that we begin to see the usual trickle of carrying results. And as usual, double OCL, of course, they're a subsidiary of Costco, but double OCL are always the first ones of the major carriers. And they issued their Q3 operational results.

Note that they always release operational results, so we know the volumes, we know the revenues, and therefore also basically their freight rates as revenue per TEU. They do not disclose profits at this point in time. But if we look at the Hong Kong-based carrier, the volumes in Q3 are up 9%. This is twice the growth rate that we see indicated from CTS data.

Now, one slide caveat here, CTS only has data up to and including August. So we don't know September. So here we are assuming September is more or less on par with August in the market. But WCL clearly gaining market share in terms of volume by growing twice as fast as market in the third quarter. You then wonder where it is predominantly that they're growing.

Basically, Asian Europe, they're up almost 16% in Q3 in volumes. Whereas their intra-Asia and Australasia business is the lowest at slightly less than 5% growth. So clear market share gain here by OCO. At the same time, they are not seeing their rates increase as much as markets. Their average rate, or rather revenue continue, is up 33%.

That's of course a massive increase. And already here we can also see the ground being made for all the other carriers to come out with stellar results in Q3, precisely because rate levels have gone up dramatically. We even saw ZIM in the past week also come out with an upwards adjustment of their expected profitability.

So 33%, definitely a healthy increase in average rate rate, but it's still dwarfed by the market increase, the CTS indicates, a 41% increase in average rates. So double OCL for Q3 seems to fall into, or almost about to call it the usual cliche. You're gaining market share on volume and you're giving away a little bit on the rates.

Not always it adds up like that, but very often we actually do tend to see that be the case. And double OCL falls into that bucket again here in Q3. But very strong results, and it also paints a very positive picture for the rest of the carriers when they come out with their results here in Q3.

I mean, that's what I was going to ask. I mean, we see this obviously as a leading indicator for everyone else and expect very strong results. I guess somewhere in that picture, we would then see the reverse as well with people with slightly less strong growth, particularly on that Asia Europe corridor, but higher overall rates.

If WOCL are taking market share, it must be coming from somebody else. But with such a strong rate environment, I guess that won't damage other people's results too much.

And let's also keep in mind here in Q3, by far the strongest rate increases we have seen are actually on the Pacific. So Gary's disproportionately exposed to the Pacific are due to have an extraordinary good result from that as well.

Yeah, absolutely. Okay. Should we move on to the Middle East? Plenty to talk about there, unfortunately, again this week.

Yeah, there's definitely plenty to talk about. And what I want to bring up to everyone here is the notion of risk. Because that might just be my personal subjective sense, but it appears to me that stakeholders in the industry, this is going to sound harsh, have grown a little bit too comfortable with a stable situation.

What do I mean by that? What I mean by that is, and here I look purely from a container shipping perspective. I'm not talking tankers, that's an entirely different kettle of fish. But looking at container shipping, we have now for many months had a very stable situation in the Strait of Hormuz, namely that nothing ships on ships.

We will ship cargo in to the ports in the Gulf of Oman, so be that Suhar, Fujaira, Kuopakhan. It's then being trucked overland either to importers that are located in the UAE itself or to be loaded onboard vessels in UAE ports and then using intra-gulf heaters to move it to Qatar, to Ukraine, to Iraq, wherever it needs to go.

That has basically been a stable situation now for months. And that, I think, is lulling everybody into a sense of calm and stability. The problem as I see it is if we look over the last week, it's very clear that the Iranians have significantly ramped up the number of attacks in the Strait of Hormuz.

Of course, on tanker vessels, because those are the ones that are going through, and those are the ones the Iranians are saying they are attacking. But what it would take a cue from is an attack that happened a little bit over a week ago, where a vessel was attacked just off Qatar, which is way inside the Persian Gulf.

And as late as yesterday, a vessel was attacked just off the anchorage point of Shohar in the Gulf of Omar. We've also seen a vessel be an attack off the coast, basically, of Russia Crime attacks. And the reason I'm flagging the locations of these attacks is they are attacks on vessels that are not in transit in the Strait of Orders.

Again, these are tanker vessels. That's what Iran chooses to go for. But what it also makes abundantly clear, Iran clearly has both the capability and the willingness to attack ships very far away from the Strait of Orders. And this is where I think at least it should be on everybody's risk register.

This is an Iranian choice. They choose to go just after the tankers. They could equally well choose to go for container vessels that are located in the ports that we right now use for the bypass. They could choose to go for container ports. They have chosen not to, which we should be happy about. And there are no indications that the Iranians are going to change that choice, at least not imminently, but it is very much on the spectrum of what might be possible.

Iran is, of course, dishing out threats left, right, and center. That's been the nature of the conflict. Both parties here, both the US and Iran, have been dishing out threats left, right, and center for the last six months. Sometimes they carry them out, sometimes they don't. The latest one from Iran, also coming yesterday, or maybe it was actually this morning, is a threat to attack data centers and the internet subsea cables in the region.

But again, just again to flag, we should not be lulled into a sense of security that now we have the overland bypass and everything is stable. It is actually a high-risk gamble that we are depending on Iran not to make a different choice in terms of which supply chains they want to disrupt because they very much can.

As you say, that kind of growing geographical scope of where they can attack. I mean, beyond being aware of the risks and keeping a very close eye on it, what can shippers do? It seems to me they're a little bit helpless in this situation, just to wait for it to unfold and either be impacted or not impacted.

Yeah, you can say part of a risk plan is down to a couple of things. First of all, ask yourself, do I have the right insurance? In this case, again, general average, first and foremost, because if the shit hits the pad, you might actually need that and make sure it's an insurance cover that also covers you in a risk area.

Take that into account. If it then happens, you should then expect your cargo to be unceremoniously dumped in all the wrong ports around the region, very much as what we also saw when the conflict first broke out. Can you prepare for that? Not to a great degree, because you don't know if it's gonna happen, when it's gonna happen, or where your cargo will be ending up, but at least be aware what you are going to do if this is the case.

Who in your team is gonna handle this? Which contacts do you have? So on and so forth. And unfortunately, the the litany of risks doesn't end here because if we turn our attention to the opposite side, namely the Red Sea or the Babel Mandep Strait, we have also now come into a situation where the Red Sea is being gradually improved.

We have talked about that on various versions earlier on the podcast, and this continues. More and more deep sea services are being switched to a Suez routing. This is, as I've also said previously, undeniably good news, normalizing the Asia Europe trade. And now also for some services, the India subcontinent to Europe trade, India's Subcontinent to U.S.

East Coast trade. I'm taking that by SUS again, definitely good news. The risk here is the Houthis. The Houthis right now have chosen not to attack international shipping, the only exception being Saudi-based tangles. The Houthis are right now dramatically escalating their conflict with the Saudis. What we have seen over the last 24 hours is now two successful drone attacks on the international airport in Viet, multiple civilian casualties, unfortunately.

We have also seen the Houthis now launch a drone attack on the airport in Tamam. For those unfamiliar with the Saudi geography, Tamam is all the way over on the other side of the Arabian Peninsula, as far away from the Houthis as you can possibly get. Yet they were able to also hit the airport there.

The reason I'm bringing this one up is just as with Iran, it shows the capability of the Houthis. It shows that they are able to hit targets also very far away, which again also shows us that they remain fully capable of stopping shipping through the Bapramantic again, should they choose to do so. Very much like Iraq, they have chosen not to.

That is a choice, which is great for us, shipping in the container shipping industry, but there are no guarantees they won't suddenly make another choice. So again, first and foremost, on the risk spectrum for all the shippers getting cargo now via the Suez routing, that is great. But nothing bad to say about that.

Make sure your insurance coverage takes into account that this situation could change literally from one hour to the next. What we're dependent on in the wider Middle East, in the Strait of Hormuz, the overland bypass that's being used around the Strait of Hormuz, in the Babel Mandav and the Southern Red Sea, we are entirely dependent on choices made by the Iranian government and by the Hoopers.

That's basically what the situation is.

We talked about these risks, didn't we, a few weeks ago, particularly on the Red Sea side, and that the risk is primarily on the shippers because you know, if there are attacks on container ships there, the carriers are going to re-route immediately as they have done in the past. Do you think you know that's going to play into shippers' minds at all about when, you know, as much as they can, when they shift cargo for pre-Chinese New Year, you know, whether they can bring cargo forward or delay cargo.

It's a bit of a kind of movable feast, isn't it, to think around we have relative stability now? Is it good to ship as much as possible, or should we wait for the situation to stabilize further and maybe rates to even fall? It is difficult.

As always, it boils down to also what are the consequences of your choices? If I'm a shipper and I have cargo where it is exceedingly important it arrives from Asia up in Europe at a particular date. If it is not as time-sensitive, it's fine to go through Suez. But here's the problem. I might well book on a service that goes around Africa.

But then the carrier might choose to blank that sailing and then put my cargo on one of the other vessels that actually do go through the Suez. As a shipper, I have no control over that. I might have booked with carrier A, but carrier A isn't an alliance. And it's carrier B that does the onboard software movement.

Carrier B might blank the sailing, and again, your container might end up going via SOS, even if you did not intend for it to do so. If you look at your terms and your bill of leaving, it's entirely within the carrier's right to reroute your cargo that way. They don't need to have to consult you for that.

So as a shipper, again, you're a little bit at the mercy here of you're facing a risk you cannot control. The only thing you can do is to make sure you have adequate insurance cover and make sure that you at least have an idea of what to do if some of these scenarios start to unfold. And before anybody wonders, now I've been mentioning insurance several times.

No, I am not paid by any insurance companies to promote insurance in any way, shape, or form.

Thanks, Lars. Complicated picture for the shippers. Okay, so let's let's move on from the Middle East. There was a couple of other areas that we wanted to cover today as well. South America, Panama Canal. What's the news in that region of the world?

Yeah, if you look at the Latin American region, first thing to just notice is there's a major reshuffling of services happening, especially between Asia and East Coast and South America. We should remember that whenever we talk about the alliances, they only operate on the major East-West trades, so Asia, Europe, Trans-Pacific, Transatlantic.

They do not operate to and from Latin America. You've got different vessel sharing agreements, different setups there. These are the ones that are right now being completely reshuffled. Partners are breaking up from each other, establishing new services. So the whole Asia, East Coast, South America market right now is in a little bit of flux.

And anyone shipping on that corridor really needs to be on their toes and check up with all of the individual carriers exactly how are your schedules now changing in the months ahead? Because it seems everything right now is changing. There was a lot of focus uh a year and a half ago when all the alliances shifted because everybody saw this changes the entire network on the east-west trades.

It's similar, but right now on East, East Coast, South America, with major changes, major service changes. And staying in that region, uh let's uh just have a quick uh go around by the Panama Canal. First of all, we were lucky uh there was a major earthquake at 7.7, which is actually a very major earthquake in the ocean, not too far from Panama.

Fortunately, the Panama Canal, they got away on scale. There was a few uh buildings that suffered a little bit of damage, but the canal itself, fully operational, did not get impacted. That was definitely good. And in terms of the El Nino, every second Thursday of the month, there is new updates on the forecast for the El Nino strength.

And basically, there are no surprises here. The new forecast maintains it's a hundred percent chance of a strong El Nino up to and including January, 97% including February, and now also 83% including March 2027. So the whole lineup year talls of very strong El Nino season, potentially against the strongest on record, simply continues, which means the risk of water shortages remains.

But I should also be clear, we do not have water shortages right now over the past month. The Panama Canal Authorities have actually relaxed a little bit on some of the restrictions they put in because things in terms of the water levels in Lake Cartoon were not as bad yet as it was actually feared. So the Panama Canal Authorities are doing what they seem and can in terms of managing the water reservoir, but we are still facing possibly the strongest El Nino ever, and therefore the risk of more restrictions coming are definitely high.

Okay, so another area for the shippers to watch out for as we go towards the end of the year. Okay. Thank you very much, Lars. I think that's been a fascinating trip around the world for us this week. I think particularly those demand numbers were very interesting lots for people to digest and unpack there.

But that's it for today's podcast. Where are you off to in the next few days? And where will you be this time next week when we talk again on your journey?

That depends a little bit. I got a visa. I need to fall in place. That hasn't quite fallen in place. This is an area of the world where visas are sometimes a little bit tricky. If all plans out well, and they might not, so let's see where I'm on Monday, then I will probably be in either Mali or Burkina Faso.

And before anyone gets their niggers in a twist, no, I'm actually not driving the van into neither Mali nor Burkina Faso. The security situation does not warrant that as a good idea. So this would be flying in and flying out. But whether I'll be in one or the other or in neither of them depends on a few visa issues that need to get sorted out.

Another reason why I'm going to be here in the car for administrative issues for a little while.

Okay. So something else for us to watch and wait for next week. All right. Thank you very much, Lars. And I hope everyone out there listening enjoyed the podcast for this week. We will be back, as Lars says, next Monday with all the news from everything that's moving container shipping. So thank you, Lars.

I hope you have a great week and good luck for the next leg of your journey. And we'll see you all next week.

Bye-bye. Thanks for listening to the Supply Chain Secrets Podcast, presented by Night Tech. Be sure to subscribe on your favorite podcast app.

Transpacific Peaks, Demand Splits, Middle East Risks Mount

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