Farid: We are very tight when it comes to vessels, to equipments to everything else.
So if we have another geopolitical issues that the, the war in Middle East, you
know, spread out then we are in real pain.
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Victoria: Hi, this is Victoria Meyer.
Welcome back to The Chemical Show where Chemicals Means Business.
Today I am speaking with Farid Tahvildari, who is the managing
director at NUCO Logistics.
Farid has a wealth of experience in chemicals and marine logistics,
as well as some other places.
And he is here today to talk about what's happening in shipping, really
with a focus on the impact of the Red Sea ,Panama Canal, and more.
So Farid, welcome to The Chemical Show.
Farid: Good to be here today, Victoria.
Thank you for having me.
me
Victoria: Thank you for joining me.
So let's just start by telling us, tell us a little bit about yourself and how
you got involved in the shipping industry.
Farid: Well,
that's an interesting story.
Uh, My background is in finance and in previous life I was involved with
the hospitality industry, so managing hotels acquiring new properties,
managing restaurants and nightclubs, and even was involved with the
transition of, casino in Vegas.
But um, Noushin and I, we started NUCO Logistics back in 2008.
And initially uh, Noushin was pretty much carrying the load till
uh, NUCO could stand on its own.
And in 2014 that was the time that we realized that I need to join the company.
Even though finance for different industries and different companies
is pretty much the same, but it was a whole different industry for me.
So it's like going back to school and learning the new lingo and
learning about all the variables that impacts the logistics industry.
Of course with COVID pandemic happening, it was like a crash course
for all of us to learn more about it.
Even though I've been involved with new logistics since 2008, but I got
really heavily involved starting 2014, and I spent a lot of time learning
talking to our vendors, to our clients.
And of course, Noushin was my uh, TA.
So definitely I learned a lot.
And I still every year I learn new things about this industry.
Victoria: Yeah.
Awesome.
That's great.
And for those listeners who don't know, Farid is married to Noushin Shamsili,
who is the CEO of NUCO Logistics.
So basically his wife
Farid: I
I'm my boss.
there you go.
Victoria: Yeah.
Oh, you're your boss.
Okay.
And and Noushin's been on
The Chemical Show a couple times, so I will link her episode so that
we can go back and listen to those episodes if you're interested.
So, , you touched on, uh, just some of the challenges in COVID, which I think.
You know, So many supply chain related and marine logistics related
challenges due to COVID, especially in that 2020 to 2022 time period.
We seemed to be getting back to normal, right?
I think I heard from so many people in 2023 that, okay, things are lining out,
we're getting back to normal and now.
That is not the case.
So we've got challenges with the Red Sea, the Suez Canal, and of
course the Panama Canal as well.
So let's start with the Red Sea.
Can you just provide an overview of what's happening there and
how it's affecting the industry?
Farid: Sure.
Just to summarize how we ended up here, of course, the war between Hamas
and Israel happened and the Hamas, their supporters and the proxies of
Iran, they started making some noise.
And we had skirmishes in Lebanon, in Iraq, and of all the proxies, Houthis in
Yemen seems to be the most active one, and they started attacking container
shipments that goes through the Suez Canal and that kind of put a stop to
the commerce through that Suez Canal and of course, US and allies, they
start attacking the Houthis in Yemen.
And we've seen some reduction in their attack.
But basically all major shipping lines, they have stopped
the route through Suez Canal.
And they've basically gone around Africa going through Cape of Good
Hope to get to their destination in Europe and the east coast of US.
Even though only like 12% of US import comes through Suez Canal,
but because of the uncertainty it has an impact on the global stage.
So that's basically where we stand right now in regard to Suez Canal.
Victoria: Right, And and obviously the Suez Canal, much like the Panama
Canal, um, you know, it's intended to help streamline that shipping.
So as people and, and vessels have to go, not through the Suez Canal, but around
the Cape of Good Hope, is that right?
it adds to the shipping time, does it not?
not
Farid: So on average it adds 10 to 14 days to the time that
it travels through that area.
. What it happened was initially when the Houthis started attacking
there was a shock to the system because all of a sudden they stopped
all this container ships stopped.
But it took the shipping industry to a while to adjust their inventory,
basically move fleets around.
And they had some idle vessels that they brought into their network.
If I can back up a little bit.
, Most shipping lines, they were flushed with cash.
So all of a sudden they started adding, ordering a lot of new vessels.
The latest number I saw was like additional 30% capacity
to their existing fleet.
So of course some of it was to get rid of their old vessels and these new vessels
to be in compliance with the new IMOs.
So about.
10% of the 30% that they were ordering.
They're coming on board in 2024.
So the timing of it was perfect.
So in a sense they could bring these new vessels to their network and instead
of getting rid of the old vessels, they're keeping them in service.
The initial shock that the system got, that we pretty much passed that point,
but the challenge remains that, number one for each shipping line, for each
ship, if they expected to use that ship like 10 or 12 times round trip per year.
Because of the additional time that is gonna be reduced
to five or six times a year.
So all of a sudden the return on investments will be much lower.
So, uh, I don't foresee too much increases in rates.
Like we've seen during COVID, but the reduction in rates that we had experienced
last year, I don't foresee that.
There are some GRIs in place that they opted like a thousand dollars to use.
But with our clients, what we've seen is like $200 or
$400 depending on destination.
Victoria: Okay, So I'm
gonna interrupt you here real quick.
Farid, what if, so what is a GRI?
Farid: Uh,
General rate increase.
Victoria: Okay.
So basically a, just an increase that they,
Farid: Increase rate.
Yeah, it's like a temporary increase.
So rather than increasing the rates by $500, this is like a temporary increase.
And that's where they look looking into it.
But, what happens is for all these GRIs, they need to submit their requests.
And then FMC Federal Maritime Commission, they have 30 days to
approve it, but because of the emergency here, FMC was approving it,
basically waiving the 30 day notice.
So all these GRIs are in place for January and February and, but
other than the GRI going back, we haven't seen huge increases in rates
as we had seen right after COVID.
But by the same token we tell our clients don't expect like a huge discounts
in rates because of the challenges that the shipping lines face right
Victoria: Right.
So a couple of things here.
Farid, I what I, number one, what I had not appreciated was that
um, that there was actually excess capacity from a shipping perspective
because just, um, I don't know.
It seems like it, I knew it had gotten tight and then it had gotten looser, but,
um, the fact that many of the shipping companies had vessels that they could.
Keep in service and add to service has certainly helped, which is probably why
frankly, as a consumer, we're not seeing.
you know, challenges that we saw like back in 2020, 21 when in, in our
inability to get the products we wanted.
So certainly the intermediates, the chemical companies and others
may be seeing that, but I that's, um, that's pretty interesting.
And then the second piece that the base rates you're seeing are staying
flat for now, but it's just that we've got surcharges applied temporarily
and we don't really know how temporary
Farid: Exact, exact.
ly.
Exactly..
Victoria: Yeah.
Yeah.
So I know that for a while, um, it, it sounds like the, the vessels
are working their way out, but I also had heard that containers
themselves got very tight again.
Is that what you're seeing as well?
I.
Farid: Yes we've seen some shortage in equipments like ISO tanks.
So that's a combination of, because of a situation in for the Suez Canal
and also seasonal because of the Chinese New Year you have a lot of
containers in certain areas and then they need to move back to other areas.
So, because it takes 14 days, additional days for these ships to
get from one port to another port.
Of course these containers are sitting on the ship rather than in their destination.
So definitely the tightness, I would say of the equipments will remain in place.
Because even though we have additional vessels, we don't have additional
containers or chassis or things like that.
The restriction and the tightness on equipments will remain in place.
But with the, chinese New Year behind us that to some extent
that should remedy itself.
But what I tell everyone is even though we have additional vessels in place and
the shipping industry has been able to cope with this new challenge, pretty well,
considering the challenges that we face, but we are very tight when it comes to
vessels, to equipments to everything else.
So if we have another geopolitical issues that you know the war in Middle
East, spread out then we are in real in a really pain area that right now
that we everybody needs to deal with.
Our recommendation to everyone is to plan plan, plan.
It's I know everyone wants to kind of, last year everyone had excess inventory,
so nobody wanted to order anything.
And it was like, if we need it, we order it, we get it right away.
That's not the case this year.
We know most shippers, they try to have a 30 day inventory on
hand just to be on the safe side as a precaution, as an insurance.
So we definitely recommend our clients to have adequate inventory in place
and, have secondary and third option for their shipments because you never
know from blank sailing or some other geopolitical thing happens, or lack
of equipment things could go away.
Victoria: yeah We're, yeah, , we're kind of one crisis from another crisis.
Right?
Yeah.
And so, your mention of having, . adequate supply on hand?
, I asked within The Chemical Community um, I reached out and asked people,
okay, so how are you handling, this Red Sea crisis and, and the
impact that it's had on shipping?
And that was one of the feedbacks that came back, is people are, moving a
little bit from, you know, there was a certain amount of just in time, right,
Farid: Absolutely.
Yep.
Victoria: especially 2023.
Everyone was so focused on cash management.
There was a destocking , trying to reduce the inventories in place.
And now what we're seeing, and I picked this up at ACI where I was recently, and
also as I said in The Chemical Community, just asking people that are part of that.
And they are starting to increase their safety stocks a little bit.
So being much more mindful that boy, an extra 14 days, requires more product.
But also, as you pointed out earlier, we're really one crisis away
from a real crisis and critical situation.
Farid: Exactly.
Exactly.
Victoria: Yeah, so let's turn over and look at the Panama Canal.
Farid: Mm-Hmm.
Victoria: because that's our next big, critical shipping channel.
And it seems like at times we get mixed answers, and yet it's clear that
the availability of transit via the Panama Canal has actually decreased
by 30 to 40% versus a year ago.
I actually came upon a, something probably that you guys use all the
time, some tool online and I'll, I will find it and link it 'cause I don't
recall the name of it, but actually showed daily shipments through the
Panama Canal and it was fascinating just to see that significant drop.
So clearly it's an issue.
Can you talk more about what's going on with the Panama Canal
and how companies are responding?
I.
Farid: Sure.
This year in Panama, they had a really dry season.
It seems every May is like their monsoon season.
And last year they didn't have adequate rain.
So all of a sudden the, water reserve that they need to work the locks
at the Panama Canal doesn't work as efficiently as it's supposed to be.
All of a sudden the number of vessels that can go through the canal has been reduced.
The tonnage has been reduced.
So all of a sudden there is another kink in the in the geopolitical
issues that we have here.
Now so there are some, uh.
solutions here.
One in Panama, they had this big project of additional water reservoir
uh, they were supposed to build and it was like over $2 billion
and they decided to forego on that.
So unfortunately.
That project, I'm sure they're trying to get the project up and
running, but like anything else is gonna take a while to come online.
So we are all waiting for next May and see whether they're
gonna have adequate rain or not.
We have plenty of rain here in California this year, so I'm not sure whether that
translates into rain in Panama or not.
So that is the second thing that we need to look at is come May, are they gonna
have adequate rain to replenish the water reservoir that had they had in place.
Now I came across this documentary a couple of weeks ago, which
was rather interesting.
So in Mexico, so all those Latin American countries, all of a sudden
they see, oh, Panama has issues, so how can we take advantage of this?
And there are a lot of different projects.
Everybody's talking about it, but.
The most pros promising project is in Mexico.
There's a it's called CIIT.
Of course the translation is Inter Oceanic Corridor of Mexico.
Sorry, I had to look because I
keep forgetting the
Victoria: Yeah, no, I remember
that
Farid: So this is basically a railroad that connects the East coast to
West coast, so Atlantic to Pacific.
And this railroad was in place before Panama Canal came on board.
They were using that for a few years.
So basically ships come on, either Atlantic or Pacific.
They off offload, they put on a train, they crosses the country,
goes to the other side, and then they load on the other side and
take it to their destination.
So actually make, it was working fine, but with Panama Canal opening up, then
everybody just decided to go through Panama Canal because it was easier.
You didn't have to deal with unloading and offloading and so on and so forth.
With the new president that of Mexico that came on, about five years ago.
He decided to get that railroad open.
So they worked on it, they replenished it, they rebuilt it.
So the railroad is working now.
This year they started the passenger train and now they're working on, basically
making the ports on either side of the railroad up and running so the ships
can come in and offload and onload.
They're supposed to open up by end of this year, and so
far they've been going strong.
Definitely, I wouldn't expect until 2025 we'd be like everybody uses that.
But definitely it would be like a complement to Panama Canal because it's
like it's close enough and it only takes nine hours to cross from east to west.
So it's not it's not , too cumbersome.
That's
Victoria: faster than I would've anticipated.
anticipated
Farid: it's like the narrow side of the Mexico.
And so those ports are supposed to be up and running by end of this year.
I would say it takes a year for the shipping lines to do their due diligence
and see how viable that option is, but with the challenges in Panama
they definitely look closely at it, and it might become an alternative
to Panama Canal, but for this year we gotta cross our fingers for May and
see whether they get adequate rain.
If not, then this challenge for Panama Canal remain in place.
Victoria: Yeah.
So what are companies doing today if they can't utilize the Panama Canal?
'cause obviously capacity is reduced, um, and product still needs to move.
So how are companies and shippers moving this product?
product
Farid: They're using smaller ships to deal with the tonnage issues and they're giving
enough, themselves enough time to do the waiting in line and so on and so forth.
But there is also a railroad right next to Panama Canal that they,
what Mexico is planning to do, they can do it in Panama as well.
These are all the alternatives they're using.
The other option is to going all the way down to Argentina, because that,
but that is like a really long, and nobody wants to take that route.
So between the railroad right next to Panama and or basically a lot of
shippers coming to West Coast or East Coast and just getting on the rail and
hauling their cargo from east to west.
So not the best options, but there are options available, but
once again, it
Victoria: a lot more
marine or a lot more rail movement versus
Farid: marine movementt.
But once again, it adds to the time between Suez Canal and Panama Canal.
It's still happening, but it takes much longer to get your
cargo from one point to another.
Victoria: Right.
So what are the biggest questions that you're getting from your customers?
Obviously you've been dealing with, and you guys deal with logistics
and marine challenges all the time.
But as we sit here in 2024, what's on people's minds?
What's on your customer's minds?
Farid: Initially it was like prices because all of a sudden because
of the soft, as you mentioned soft market last year you could find
some good uh, good options, but that was like out the window this year.
And number two is like lack of equipment, as I mentioned,
is uh, ISO tanks right now.
We have issues with, depending on which market they wanna ship it to.
And as we tell 'em, it's have second plan, third plan, fourth plan to just
back up because there's a good possibility that the, your schedule vessel may
not depart on the scheduled date.
We tell 'em adequate inventory and uh, plan accordingly.
Victoria: Yeah.
Makes sense.
Um, and then, you know, we maybe touched on this already, but should
we expect normalization this year?
You know, What's the likelihood of us getting back to kind of
business as usual, so to speak?
Farid: You never say never but in all reality is uh, market doesn't expect
Suez Canal to open up this year.
Because even though, as I mentioned earlier the Houthis have basically
their capabilities have been diminished because of the skirmishes
that were made by us and its allies, but they still can create havoc.
And when you're not a hundred percent sure, nobody wants to touch that area.
And as a point of reference, the Six Day War back in 1967 between Israel and Egypt
and Syria, even though it was only six days , of course Suez Canal was shut down,
but it took seven years for it to open up.
I'm not saying it's gonna take seven years for Suez Canal to open
up again, but things when go wrong,
they shut down immediately.
But to get back to normal, as we've seen recently after COVID, it takes a while.
I would tell our clients not to have , their hopes high for
Suez Canal opening up this year.
It could happen, but we'll just cross our fingers and see how it goes
next year, if there's a peace treaty in between Israel and Hamas, take
uh, things go back to normal, then yes, by end of this year, we should
see the opening up the Suez Canal.
But so far we don't see that unfortunately.
Victoria: Yeah, and then we're all supposed to pray for rain.
Pray for the monsoon in Panama
Farid: Yes, for uh, in month of May.
And yes, let's see how that goes because if at least Panama Canal
is back to its capacity, then at least kind of alleviate some of the
challenges that we face right now.
Victoria: Yeah.
And, And Farid for you and your team at NUCO How are you guys adapting to this
and what do you see as the year ahead for you as, 'cause you're obviously a service
provider working closely with a variety of shippers, with the shipping companies and,
and really helping solve these issues.
You know, What are you guys looking forward to?
Farid: Interesting.
This year I'm looking for the organization that actually
produces this uh, report.
The global port tracker they uh, predict that the US imports for the
first year, for the first half of this year is gonna increase over last year.
So for example, in February the year over year increase was 23%.
So if you compare February 24 versus 23, there's an increase of 23%.
They predict the same thing in March and April.
Not 20%, but 5% and 6% respectively.
The outlook in US economy is strong and the issue with the inventory
that everybody faced last year have been resolved to some extent.
So all of a sudden everybody's, basically gearing up to import more products.
So everybody wants to import more.
We have issues with, as we discussed, with our equipments and vessels and the timing.
So hence going back and telling everyone, plan, plan accordingly, because
everything is gonna take much longer than we are used to from last year.
Then, we hear about GRIs uh, increases.
We hear about lack of equipment.
So our team is literally dealing with challenges on a regular basis.
But what we pride ourselves is we are, we might be bearer of bad news, but if we
will inform our clients of the challenges that they face and we come up with some
options for them, but that's what we tell everyone is like, plan, plan, plan because
this year is gonna be a challenging year.
Not as bad as COVID, not as bad as what we faced after a
pandemic, but everything's tight.
So buckle up.
Victoria: Hmm.
And that's a great final statement there.
Farid, thank you for joining us today on The Chemical Show.
Really appreciate you sharing your insight and expertise.
Farid: Well,
Thanks for having me.
It was enjoyable always.
I enjoyed talking to you, Victoria, and thanks for having me today.
Victoria: Absolutely.
And thanks everyone for listening.
Keep listening, keep following, keep sharing, and we will talk again soon.
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