00:00How are these container shipping companies doing it, Lee, having to deal with new routes,
00:04traditional routes being off limits and so on?
00:08Yeah, surprisingly, Merrick's management noted that about a third of their routes that typically
00:12go through the Suez Canal are back through the Suez Canal. And they seem pretty confident that
00:17they're eventually going to get back to 100 percent over time. Obviously, if things change
00:22in the area, in the Red Sea, they can divert back through Africa. And we were a little bit
00:29surprised about how confident they are about the fact that even though that ships are going to start
00:34going through the Suez Canal again, which is going to add capacity to the market because it's going to
00:38cut down the trip between Asia and Europe by 10 to 12 days, it's really not going to impact rates
00:44that
00:44much. And they cited increased congestion not only at the ports, but also inland as well. And as ships
00:52do return to the Suez, it could in the short term increase congestion as well. So keep those rates
01:00up. And the company noted that in the second quarter, their rates were up, their global rates
01:05were up around 22 percent, which was well above expectations and helped drive the beat, whether
01:11it's on the operating income or EBITDA side for its oceans business.
01:15When you look at these companies, how much do the president's trade policies kind of contribute to
01:18what they're seeing in terms of their successful earnings here? I think of the way that in advance
01:23of tariffs, companies tried to rush goods out of China, for instance. Does all of that continue?
01:27Are we still seeing kind of the knock-on effects or the follow-on from what the president's put in
01:32place here when it comes to trade policy? Yeah, obviously, you know, tariffs on, tariffs off,
01:37impact supply chains, and shippers try to get in front of that. So that's definitely had something
01:41to do with it. You know, we did see also some shippers pull forward some peak season demand a little
01:46earlier than normally would have just to make sure that their freight is going to get where it needs
01:50to go just because of the dislocations that are created by whether it's the Iran war or what's
01:56going on in the Red Sea. So they were just looking to kind of make sure that the products are
02:02on the
02:02shelves and the congestion that, you know, I cited earlier is not helping things earlier, not helping
02:08things either. Lee, Hormuz matters a lot for oil, right, and for petroleum products generally. How much
02:14does it matter for container shipping? Well, the container shipping industry in the Middle East,
02:21it's not huge. You know, it's low double digits in terms of the percentage of the overall market,
02:28call it 10 percent. So it's not a huge part of the overall market. And so, you know, the biggest
02:34issue that we saw during, you know, the conflict between Iran and the U.S. is a lot of ships
02:39got caught,
02:40stuck in the area, and they couldn't leave because of fear of getting, you know, hit by some sort of
02:48a
02:48missile or something like that. So obviously, you know, shipping companies were really concerned
02:52about their crew and their assets and limited the movement around the straighter Formuz. You know,
02:58that part of the market seems to be kind of quiet right now. You're not seeing a lot of ships
03:05going
03:05in and out of there. Maybe, you know, if there's a lasting piece, you can see a normalization. And that
03:11will probably have a slight headwind for earnings or a rate, should I say, that, you know, could impact
03:18the overall capacity of the global market, which is expected, the global liner market in terms of volumes
03:24is expected to increase around, you know, four to five percent this year. None. As of last check, I think
03:30no ships going through that straight as of today. Lee, let me ask you just about kind of the legacy
03:35of COVID, the pandemic, the way that that's kind of shaped the way these companies are acting today.
03:40How much can you attribute these good results to changes that they made in the middle of the pandemic
03:43or in light of it? How has that kind of set them up for the current conflict and situation that
03:47we're in?
03:49I mean, the container liner industry has not been very rational when it comes to
03:55their order books in terms of buying new ships. It's actually a boom and bust market.
04:00Maersk has actually been pretty conservative with their with their ordering, and they're not
04:05necessarily so concerned about being the number one, number two or number three carrier. At least
04:10that's what it appears to be. And they're really more focused on, you know, ROI and their focus on
04:16really expanding their reach within the supply chain beyond their traditional liner business. So,
04:22you know, I think Maersk is a little different than the rest of the industry when it comes to that.
04:26We heard from Hot Bag Lloyd. I guess Costco is another big one that we will hear from, Lee. The
04:31entire
04:31industry, is it all benefiting? Are there some fragilities for some of the companies?
04:37Yeah, I mean, absolutely. I mean, higher rates, it's a fungible system that we have here. You know, if Maersk
04:43is
04:44having higher rates, you know, it's a good chance or it's probably a very high probability of not 100%
04:51that everyone else is enjoying the same higher rates. And that really trickles down into the
04:56margins. You know, you saw margins for their business coming in their ocean business coming
05:01at 8.9%. That's up from 4.3% last year. And consensus was only at around 2.7%. So,
05:09you know,
05:10the beat on the margin side really has to do predominantly with the rates. But Maersk has
05:16also been really active on improving the overall productivity. It has a marketing alliance with
05:22with Hot Bag Lloyd called the Gemini Alliance. And, you know, between those two, they're able to,
05:29you know, take costs out of delivering a container. And you did see their cost to serve decline
05:34slightly year over year, even when you had higher fuel prices.
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