WEBVTT NOTE recognizability 0.812 NOTE language en-us 00:00:06.510 --> 00:00:11.073 Welcome to state of freight. I'm Lori Ann Larocco and joining me now 00:00:11.073 --> 00:00:15.636 is Akil Nair. He is the senior vice president of all products for 00:00:15.636 --> 00:00:19.848 Asia Pacific for SECO Logistics, Akhil. Thank you so much for joining 00:00:19.848 --> 00:00:24.762 us now. Akhil, a lot of people don't realize you know with China, and 00:00:24.762 --> 00:00:29.676 with this you know zero COVID or dynamic COVID when it comes to the 00:00:29.676 --> 00:00:33.382 truck driving. You know there are testing requirements and I remember 00:00:33.382 --> 00:00:37.198 you know you sending out these alerts to your clients. Saying listen 00:00:37.198 --> 00:00:41.014 a truck could be commandeered right from the government at some point 00:00:41.014 --> 00:00:45.466 if they need it. Can you talk about how COVID testing what it, what 00:00:45.466 --> 00:00:49.600 you know? What happens with these drivers? How often do they have to 00:00:49.600 --> 00:00:54.052 get tested and then also how many times they might have to be tested 00:00:54.052 --> 00:00:57.868 in their route because each town has their own policy. China has 00:00:57.868 --> 00:01:00.412 rebranded its policy from a from a fixed. 00:01:00.570 --> 00:01:04.860 Hard COVID 0 to a dynamic 0 policy and I think while that's 00:01:04.860 --> 00:01:08.820 definitely a step forward, it does have some impact into the supply 00:01:08.820 --> 00:01:13.110 chain and logistics. What they mean is basically as we see cases rise 00:01:13.110 --> 00:01:17.400 in a particular area or a district they will be going into these 00:01:17.400 --> 00:01:21.030 temporary very strict lockdowns and going into mass testing right and 00:01:21.030 --> 00:01:24.990 because of the nature of logistics within China everything is kind of 00:01:24.990 --> 00:01:28.704 integrated. Cargo moves and raw materials and finished products move 00:01:28.704 --> 00:01:32.552 from one area to another before they hit a seaport. And what happens 00:01:32.552 --> 00:01:36.696 is the drainage or the trucking is the one aspect of the supply chain 00:01:36.696 --> 00:01:39.656 that is immediately impacted by lockdowns which can happen between 00:01:39.656 --> 00:01:42.912 any two provinces or cities and therefore this creates congestion and 00:01:42.912 --> 00:01:46.168 then delays. So those are that's currently the expectation. I don't 00:01:46.168 --> 00:01:50.016 believe that this is going to go away anytime soon, so it's just 00:01:50.016 --> 00:01:54.752 going to be the new normal on how we have to deal with some of these 00:01:54.752 --> 00:01:56.528 challenges that are gonna come up. 00:01:56.690 --> 00:02:00.482 Thing is basically the first aspect and the biggest aspect that will 00:02:00.482 --> 00:02:04.274 impact future supply chains in China. What happens is if a particular 00:02:04.274 --> 00:02:08.066 district or area goes into a lockdown, the drivers are basically have 00:02:08.066 --> 00:02:12.806 to go through a nucleic acid test or a PCR test, and with that that 00:02:12.806 --> 00:02:16.598 usually takes between 24 and 72 hours. So even if they're negative, 00:02:16.598 --> 00:02:20.706 they still have to wait until the results come and that leads to 00:02:20.706 --> 00:02:24.182 further delays. That being said, let's say you're negative when you 00:02:24.182 --> 00:02:26.710 pick up the cargo, but you're moving on. 00:02:26.850 --> 00:02:30.633 Out, and perhaps you've stopped at a truck stop and God forbid, but 00:02:30.633 --> 00:02:34.125 you turned positive at the next place when you're crossing over to 00:02:34.125 --> 00:02:37.908 the next province, you can be asked to test again. Now that's another 00:02:37.908 --> 00:02:42.564 24 to 70 or so normal a truck route, which would take a day or two 00:02:42.564 --> 00:02:47.220 can take as long as up to a week. In some cases, if you have the 00:02:47.220 --> 00:02:50.130 misfortune of getting stopped multiple times, so that leads to 00:02:50.130 --> 00:02:53.040 complexity and basically a large amount of uncertainty within the 00:02:53.040 --> 00:02:56.532 trucking aspect. So this is the biggest problem and that cannot be 00:02:56.532 --> 00:03:00.294 there. No clear rule of thumb yet. We're saying if you were caught 00:03:00.294 --> 00:03:03.678 this place, if you were stopped then these are the procedures you 00:03:03.678 --> 00:03:07.062 have to take each province and each authority can have their own 00:03:07.062 --> 00:03:11.010 rules and in some cases when there's a lockdown or a high number of 00:03:11.010 --> 00:03:14.676 cases in a place like Shanghai, other districts around do not want to 00:03:14.676 --> 00:03:17.778 accept truck drivers from that area for pickups and therefore the 00:03:17.778 --> 00:03:20.880 economies of scale of the optimization of your truck fleet is 00:03:20.880 --> 00:03:24.264 completely thrown out of the window. So additional more you need more 00:03:24.264 --> 00:03:27.366 trucks to be able to cater to things at this point. 00:03:27.570 --> 00:03:31.458 And we have seen with logistics managers and for the viewer out 00:03:31.458 --> 00:03:35.346 there. So what happens is the logistics managers go to Akeel's team 00:03:35.346 --> 00:03:40.530 and say listen, I want to go out of this port with my product. Or you 00:03:40.530 --> 00:03:44.742 know oh this is jammed up. What are the alternatives? And so it's 00:03:44.742 --> 00:03:49.926 really a game of chess if you will to go from one port to the other 00:03:49.926 --> 00:03:54.462 in Ningbo, right? It has been like the has been picking up all the 00:03:54.462 --> 00:03:57.378 slack. If you will, what are you seeing there? 00:03:57.740 --> 00:04:00.925 Because, you know, with the supply chain heat map you see the colors, 00:04:00.925 --> 00:04:02.640 but there is nuance if you will. 00:04:03.420 --> 00:04:06.156 We have actually shipped out of Ningbo. We've shipped as far down 00:04:06.156 --> 00:04:09.348 South out of shamin at times as well. For stuff that is urgent. As 00:04:09.348 --> 00:04:12.996 long as we catch the right ship now that being said it is. It is like 00:04:12.996 --> 00:04:16.416 a game of chess, or actually in some cases like a game of whack a 00:04:16.416 --> 00:04:19.380 mole, because you don't know when you have, you have a couple of 00:04:19.380 --> 00:04:22.344 variables. Yes, can I get through on the trucking too? Is the ship 00:04:22.344 --> 00:04:25.992 going to show up or three? Is there a delay and is it better for me 00:04:25.992 --> 00:04:28.500 to actually stick with the slower, more risky, traditional route of 00:04:28.500 --> 00:04:31.464 Ningbo rather than go to Shaman? And then that's a blank sailing or 00:04:31.464 --> 00:04:33.060 something like that shows up, so it's. 00:04:33.280 --> 00:04:37.578 It's a dynamic game of chess, and that sense, yeah, a lot of people 00:04:37.578 --> 00:04:41.876 don't realize, you know. We heard a lot of stuff during the trade war 00:04:41.876 --> 00:04:45.560 that people were quote moving away from China and going to Vietnam 00:04:45.560 --> 00:04:48.937 going to Cambodia, going to Malaysia. But there's an asterisk to 00:04:48.937 --> 00:04:52.928 that. A lot of people don't realize that China still is a very 00:04:52.928 --> 00:04:56.919 important piece to that. Can you kind of go through with what you're 00:04:56.919 --> 00:05:00.296 seeing now? Originally we had the raw material shortage. Things are 00:05:00.296 --> 00:05:03.366 getting better, but how are things going within that critical? 00:05:03.550 --> 00:05:06.450 Trade route because of the congestion and possible sailings you're 00:05:06.450 --> 00:05:10.220 spot on during the trade war, there was this entire shift of sourcing 00:05:10.220 --> 00:05:14.280 as you call it, and a lot of retailers went through this thing. If 00:05:14.280 --> 00:05:18.050 we're gonna start shipping out of this out of this country, or that 00:05:18.050 --> 00:05:21.530 whether it was textiles from Vietnam or footwear and apparel or other 00:05:21.530 --> 00:05:24.720 places like Indonesia, Malaysia, sure everyone got a little bit a 00:05:24.720 --> 00:05:28.200 little bit more, but the the asterisk is that China remains the 00:05:28.200 --> 00:05:31.680 factory of the world. So what was happening is that these second 00:05:31.680 --> 00:05:33.710 markets or secondary markets like Vietnam were. 00:05:33.860 --> 00:05:37.160 Going to become semi manufacturing hubs, but the raw materials are 00:05:37.160 --> 00:05:41.660 still coming from China so a lot and a lot of the factories in places 00:05:41.660 --> 00:05:44.660 like Vietnam are actually the Chinese original factory that has 00:05:44.660 --> 00:05:48.260 set-up an entity in Vietnam, so it's still their company, but they're 00:05:48.260 --> 00:05:51.560 exporting from Vietnam, so the parent, the parent company, is now 00:05:51.560 --> 00:05:55.160 sending the raw material from China to the semi to Vietnam. They're 00:05:55.160 --> 00:05:57.860 assembling or completing the manufacturing process and the finished 00:05:57.860 --> 00:06:01.760 good is moving out of Vietnam as a Vietnamese product to the United 00:06:01.760 --> 00:06:04.160 States and therefore warning the duties and taxes. 00:06:04.800 --> 00:06:08.424 This was all well and good before COVID because all the vessel 00:06:08.424 --> 00:06:12.350 services and the and the ocean carriers were on an actual weekly pro 00:06:12.350 --> 00:06:16.276 forma schedule as of now. Today. As we all know, the reliability has 00:06:16.276 --> 00:06:19.900 dropped so much and the priority for the shipping lines is still 00:06:19.900 --> 00:06:23.222 actually mainline China, so they would prefer to deploy main capacity 00:06:23.222 --> 00:06:26.544 there versus outports or feeder ports from some of these Southeast 00:06:26.544 --> 00:06:30.168 Asian or other countries. Therefore they take the they bear the brunt 00:06:30.168 --> 00:06:34.396 of that. So in some cases you know not only are we talking about. 00:06:34.630 --> 00:06:38.554 Used ocean mainline capacity from there, but with the delays at the 00:06:38.554 --> 00:06:42.478 origin ports in China and in some cases in these destination ports 00:06:42.478 --> 00:06:46.729 where the infrastructure just doesn't meet up to the scale in size of 00:06:46.729 --> 00:06:50.326 China, you are impacted by congestion and with congestion it draws. 00:06:50.326 --> 00:06:54.250 It basically sucks out supply from the market, So what we're having 00:06:54.250 --> 00:06:58.828 now is a double edged sword because you have a shortage or a slowdown 00:06:58.828 --> 00:07:02.752 in raw materials coming into Vietnam or these markets and then from 00:07:02.752 --> 00:07:04.714 Vietnam outbound as well the direct. 00:07:04.840 --> 00:07:08.896 Services are impacted by the delays and congestion in the US or in 00:07:08.896 --> 00:07:12.952 Europe, right? So they're not on schedule either. So we we we're just 00:07:12.952 --> 00:07:17.008 impacted on both sides. I've hit home on about what's going on with 00:07:17.008 --> 00:07:21.064 the European ports and a lot of people don't realize that Europe also 00:07:21.064 --> 00:07:24.496 provides critical raw materials to the United States as well as 00:07:24.496 --> 00:07:28.552 China. What else are you seeing in terms of the ripple effects of 00:07:28.552 --> 00:07:31.984 European port congestion to the Asia Pacific market? It's the same 00:07:31.984 --> 00:07:35.104 whether it's from Europe or from US, we're getting impacted. 00:07:35.260 --> 00:07:39.196 By fewer sailings and less capacity in the market or vessels showing 00:07:39.196 --> 00:07:43.132 up out of schedule, and therefore there's a scramble for some ships, 00:07:43.132 --> 00:07:46.084 but there's others. There's there's absolutely no ship available 00:07:46.084 --> 00:07:49.692 because there's no actual reliable schedule today. This is not a 00:07:49.692 --> 00:07:53.300 China issue specifically because actually it's a knock on effect from 00:07:53.300 --> 00:07:57.236 the destination markets. Whether you talk us East Coast or you talk 00:07:57.236 --> 00:08:01.828 Europe today, so the raw materials both in and out, I think the first 00:08:01.828 --> 00:08:05.108 benchmark to see is what's happening on the auto manufacturing. 00:08:05.270 --> 00:08:09.300 Right, and that'll give us a very clear idea. Asia has been actually 00:08:09.300 --> 00:08:12.710 suffering the most for the past few months because of these 00:08:12.710 --> 00:08:16.120 congestions in the destination side. I think we talked about earlier 00:08:16.120 --> 00:08:20.150 how US importers as well as the US rail network, which is still 00:08:20.150 --> 00:08:24.180 completely jammed up from the US West Coast, is just absorbing a lot 00:08:24.180 --> 00:08:27.590 of container capacity and the dwell times are extremely high, which 00:08:27.590 --> 00:08:31.310 is reflected on the CNBC heat map in countries like Germany or 00:08:31.310 --> 00:08:34.720 Europe. The rail is even more important, but traditionally it has 00:08:34.720 --> 00:08:38.338 always been. Very smooth operation now with things getting clogged up 00:08:38.338 --> 00:08:43.168 there. If that impacts the rail like we have seen, you have a flow of 00:08:43.168 --> 00:08:47.032 containers that move from the port all the way hinterland into where 00:08:47.032 --> 00:08:50.574 the manufacturing is actually taking place and then coming out. We've 00:08:50.574 --> 00:08:54.438 had a lot of what's called blank sailings or canceled sailings. You 00:08:54.438 --> 00:08:58.946 know I've got a great chart that kind of shows you the breakdown if 00:08:58.946 --> 00:09:03.132 you will from Project 44 which has shown you over last quarter things 00:09:03.132 --> 00:09:05.386 have slowed down a little bit but. 00:09:05.490 --> 00:09:11.991 We're about to pick up congestion equals container prices because it 00:09:11.991 --> 00:09:16.609 actually. Pretty much keeps it stuck right? So you can't move the 00:09:16.609 --> 00:09:19.898 container. What are your thoughts about blank sandlings and how this 00:09:19.898 --> 00:09:23.187 might impact container prices? Think we've seen a lot of press 00:09:23.187 --> 00:09:27.074 recently about how the spot rate or the current spot rate is below 00:09:27.074 --> 00:09:30.363 contract levels, and that's making some of the larger retailers a 00:09:30.363 --> 00:09:34.250 little bit nervous. My guidance to all our customers as well has been 00:09:34.250 --> 00:09:38.137 like, hey, this is a market that moves up and down. Yes, currently 00:09:38.137 --> 00:09:41.426 because of all these macroeconomic factors, sure maybe it's a little 00:09:41.426 --> 00:09:43.220 bit of a slowdown, but if? 00:09:43.360 --> 00:09:46.660 All the things we talked about just now. Congestions schedule, 00:09:46.660 --> 00:09:49.960 reliability, bunching of ships, lack of equipment, all we've already 00:09:49.960 --> 00:09:53.590 seen in history. Very recent history. How those three things together 00:09:53.590 --> 00:09:57.220 can result in a completely different free market price setting, and 00:09:57.220 --> 00:10:01.180 so my expectation is if there is a traditional peak season which 00:10:01.180 --> 00:10:05.140 would start not July but maybe August September a little bit later 00:10:05.140 --> 00:10:09.430 this year just for the normal seasonal goods as well as these factors 00:10:09.430 --> 00:10:12.400 impacting capacity, I would expect rates to go up. 00:10:13.410 --> 00:10:18.285 Is maybe not back to 20,000 or one of those crazy rates, but I do 00:10:18.285 --> 00:10:21.860 believe that we will see a slightly upward moving rate direction 00:10:21.860 --> 00:10:26.085 closer to where contract levels have been this year. In the NFL, Q3 00:10:26.085 --> 00:10:29.985 early Q4. Not to forget. This also ties in with the traditional 00:10:29.985 --> 00:10:33.885 Golden Week holiday in China, which goes off between October 1st to 00:10:33.885 --> 00:10:37.785 10th. So traditionally we see September as a very busy month when 00:10:37.785 --> 00:10:41.035 factories try to get orders out before they close down.