Red Sea Shipping Issues and Resolutions with Farid Tahvildari of NUCO Logistics

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Navigating the tumultuous waters of shipping logistics in the Red Sea and Panama Canal has never been more critical for the chemical industry. Join host Victoria Meyer as she interviews Farid Tahvildari, Managing Director at NUCO Logistics, who shares his wealth of experience and insights into the impact of current events on global shipping. 

From the challenges of increased shipping times due to geopolitical tensions in the Red Sea to the decreased transit availability through the Panama Canal, Farid provides valuable recommendations for businesses, highlighting the importance of adaptability and strategic planning. With rising imports and the ongoing struggle of shortages in equipment, this episode of The Chemical Show offers a timely and comprehensive look at the shipping challenges that lie ahead for the industry.

 

Learn more about the issues affecting the transportation of chemical products as Victoria and Farid discuss the following: 

  • Red Sea events that are affecting shipping through the Suez Canal
  • How excess shipping capacity is alleviating some of the global shipping predicament
  • Shipping equipment restrictions and tightness affecting global shipping 
  • Panama Canal challenges
  • Alternatives to the Panama Canal
  • Impacts on the logistics industry and customers and what’s ahead in shipping

 

Killer Quote:Plan accordingly, because everything is gonna take much longer than we are used to from last year… everything’s tight. So buckle up.” – Farid Tahvildari

 

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Additional Links:

Episode : How NUCO Logistics Pivoted During The Pandemic With Noushin Shamsili

Episode : Innovative Logistic Solutions With Noushin Shamsili Of NUCO Logistics

PortWatch – Great resource for tracking Panama Canal shipments.

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Watch Farid and Victoria Discuss Shipping Issues on Youtube Here:


 Red Sea Shipping Issues and Resolutions with Farid Tahvildari of NUCO Logistics

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. 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.

Good to be here today, Victoria. Thank you for having me.

Thank you for joining me. Tell us a little bit about yourself and how you got involved in the shipping industry.

That’s an interesting story. My background is in finance and in a 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 a casino in Vegas. But Noushin and I, we started NUCO Logistics back in 2008. Initially, Noushin was pretty much carrying the load until NUCO could stand on its own. In 2014, that was the time we realized that I need to join the company. Even though finance for different industries and different companies is pretty much the same, 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 impact 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 NUCO Logistics since 2008, I got really heavily involved in 2014, and I spent a lot of time learning and talking to our vendors/clients. And of course, Noushin was my TA. So I definitely learned a lot, and still every year I learn new things about this industry.

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 is his boss. 😉

And Noushin’s been on The Chemical Show a couple times, so I will link her episodes so that you can go back and listen to those episodes if you’re interested. There were many supply chain and marine logistics related challenges due to COVID, especially in that 2020 to 2022 time period. We seem to be getting back to normal now. 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?

Sure. Just to summarize how we ended up here, the war between Hamas and Israel happened. Hamas and their supporters and the proxies of Iran, they started making some noise. We had skirmishes in Lebanon, 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. The 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. They’ve basically gone around Africa going through Cape of Good Hope to get to their destination in Europe and the east coast of the US. Even though only like 12% of US import comes through Suez Canal, because of the uncertainty it has an impact on the global stage.

So that’s basically where we stand right now in regards to Suez Canal.

Aerial view of container ship in the sea with mountains background, Container ship passing through the Panama Canal, shipping container

Obviously the Suez Canal, much like the Panama Canal it’s intended to help streamline that shipping. So as people and vessels have to go, not through the Suez Canal, but around the Cape of Good Hope, due to the Red Sea issues, it adds to the shipping time, does it not?

Correct. So on average it adds 10 to 14 days to the time that it travels through that area. What happened was initially when the Houthis started attacking there was a shock to the system because all of a sudden they stopped all these container ships. But it took the shipping industry a while to adjust their inventory and basically move fleets around. They had some idle vessels that they brought into their network. If I can back up a little bit, most shipping lines there were flushed with cash. So all of a sudden they started adding and ordering a lot of new vessels. The latest number I saw was like an additional 30% capacity to their fleet.

Some of it was to get rid of their old vessels and these new vessels to be compliance with the new IMOs. So about 10% of the 30% that they were ordering, they’re coming on board in 2024. The timing of it was perfect. 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, we’ve pretty much passed that point, but the challenge remains that, for each shipping line, if they expected to use each 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. I don’t foresee too much of an increase in rates, like we saw 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 $1000 TEUs. But with our clients, what we’ve seen is like $200 or $400 depending on destination.

So I’m gonna interrupt you here real quick. What is a GRI?

General Rate Increase.

Okay. So basically just an increase that your clients are starting to see.

Yeah, it’s a temporary increase. So rather than increasing the rates by $500, this is like a temporary increase. 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,, but other than the GRI going back, we haven’t seen huge increases in rates as we had seen right after COVID. By the same token we tell our clients, don’t expect a huge discount in rates because of the challenges that the shipping lines face right now.

So a couple of things here. Number one, what I had not appreciated was that there was actually excess capacity from a shipping perspective, I knew it had gotten tight and then it had gotten looser, but 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 the challenges that we saw back in 2021 in our inability to get the products we wanted. Certainly the intermediates, the chemical companies and others may be seeing that, but I think that’s pretty interesting. 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 that is.

Exactly.

So I know that for a while it sounds like 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?

Yes, we’ve seen some shortage in equipment like ISO tanks. So that’s a combination of the Suez Canal situation 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. Because it takes 14 additional days for these ships to get from one port to another port, these containers are sitting on the ship rather than in their destination. So definitely the tightness of equipment will remain in place. Even though we have additional vessels, we don’t have additional containers or chassis or things like that. The restriction and the tightness on equipment will remain in place.

But with the Chinese New Year behind us, that to some extent should remedy itself. 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, we are very tight when it comes to vessels, to equipment, to everything else. So if we have another geopolitical issue like the war in Middle East, then we are in a really painful area that everybody needs to deal with. Our recommendation to everyone is to plan ahead. 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 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 have an adequate inventory in place, and have secondary and third option for their shipments because you never know from blank sailing, some other geopolitical thing or lack of equipment, things could go away.

Containers awaiting loading and transit from the Red Sea

Yeah, we’re one crisis from another crisis. Your mention of having adequate supply on hand, within the chemical community I reached out and asked people, okay, so how are you handling this Red Sea crisis and the impact that it’s had on shipping? That was one of the answers that came back, is people are moving a little bit from, there was a certain amount of “just in time” that we’d gotten to, especially in 2023. Everyone was so focused on cash management. There was a destocking, trying to reduce the inventories in place.

Now what we’re seeing, and I picked this up at ACI and also as I said in the chemical community. They are starting to increase their safety stocks a little bit. So being much more mindful that an extra 14 days requires more product. But also, as you pointed out earlier, we’re really one crisis away from a real critical situation.

So let’s turn over and look at the Panama Canal because that’s our next big, critical shipping channel. 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 something that you guys probably use all the time, some tool online and I’ll link it because I don’t recall the name of it. But it actually showed daily shipments through the Panama Canal and it was fascinating just to see that significant drop. So clearly it’s an issue. But can you talk more about what’s going on with the Panama Canal and how companies are responding?

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. 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 geopolitical issues that we have here. Now, there are some solutions here. One in Panama, they had this big project of an additional water reservoir they were supposed to build and it was like over $2 billion and they decided to forego on that unfortunately. I’m sure they’re trying to get the project up and running,, but like anything else it is gonna take a while to come online. So we are all waiting for next May to 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, in May, are they gonna have adequate rain to replenish the water reservoir that they had in place? Now I came across this documentary a couple of weeks ago, which was rather interesting. So in Mexico and all those Latin American countries, all of a sudden they see, oh, Panama has issues, so how can we take advantage of this? There are a lot of different projects. Everybody’s talking about it, but the most promising project is in Mexico. It’s called CIIT, the translation is intro Oceanic Corridor of Mexico.

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 the Panama Canal came on board. They were using that for a few years. So basically ships come up either the Atlantic or Pacific. They offload, they put the containers on a train, they crosses the country and it goes to the other side, and then they load on the other side and take it to their destination. So actually it was working fine, but with Panama Canal opening up, everybody just decided to go through Panama Canal because it was easier. You didn’t have to deal with unloading and reloading. With the new president 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 in 2025 for everybody to use that. But definitely it would be like a complement to Panama Canal because it’s close enough and it only takes 9 hours to cross from east to west.

That’s faster than I would’ve anticipated.

Exactly, it’s the narrow side of Mexico. And 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. With the challenges in Panama, they will definitely look closely at it, and it might become an alternative to the 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 the Panama Canal remain in place.

So what are companies doing today if they can’t utilize the Panama Canal? Obviously capacity is reduced and product still needs to move. So how are companies and shippers moving this product?

They’re using smaller ships to deal with the tonnage issues and they’re giving themselves enough time to do the waiting in line and so on. But there is also a railroad right next to Panama Canal, 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, but that is really long, and nobody wants to take that route. So between the railroad right next to Panama or 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.

So a lot more rail movement versus marine.

Rail movement, yes. 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.

Two foreman, a woman and a man, stand together and look forward on the background of the cargo shipping container.

So what are the biggest questions that you’re getting from your customers? 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?

Initially it was prices because all of a sudden because of the soft market last year you could find some good options, but that was out the window this year. Number two is lack of equipment, as I mentioned, ISO tanks right now. We have issues depending on which market they wanna ship it to. As we tell ’em, have second plan, third plan, fourth plan because there’s a good possibility that your scheduled vessel may not depart on the scheduled date. We tell them, adequate inventory and plan accordingly.

Makes sense. And then, we maybe touched on this already, but should we expect normalization this year? What’s the likelihood of us getting back to business as usual, so to speak?

You never say never but in all reality, the market doesn’t expect Suez Canal to open up this year. Even though, as I mentioned earlier, the Houthi’s capabilities have been diminished because of the scrimmages that were made by the US and its allies, but they still can create havoc. When you’re not 100% sure, nobody wants to touch that area. 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, the Suez Canal was shut down and it took seven years for it to open up. I’m not saying it’s gonna take seven years for the Suez Canal to open up again, but when things go wrong they shut down immediately. 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 the 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 between Israel and Hamas, things go back to normal, then yes, by the end of this year, we should see the opening up of the Suez Canal. But so far we don’t see that unfortunately.

Yeah, and then we’re all supposed to pray for rain. Pray for the monsoon in Panama.

Yes, for the month of May. Let’s see how that goes because if at least the Panama Canal is back to its capacity, that will alleviate some of the challenges that we face right now.

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? You’re obviously a service provider working closely with a variety of shipping companies and really helping solve these issues. What are you guys looking forward to?

This year I’m looking at the organization that actually produces this report, the global port tracker, they predict that the US imports for the first half of this year is gonna increase compared to last year. So for example, in February the year over year increase was 23%. So if you compare February 2024 versus 2023, 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 the 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, our equipments and vessels and the timing. So hence going back and telling everyone, plan accordingly, because everything is gonna take much longer than we are used to from last year. Then, we hear about GRI increases. We hear about lack of equipment. So our team is literally dealing with challenges on a regular basis.

But what we pride ourselves with is, we might be bearer of bad news, but if we will inform our clients of the challenges that they face and we will come up with some options for them, but that’s what we tell everyone is 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.

Aerial top down view of a large container cargo shipping ship in motion over open ocean. Red sea. Panama canal.

Yeah. Awesome, and that’s a great final statement there. So Farid, thank you for joining us today on The Chemical Show. Really appreciate you sharing your insight and expertise.

I enjoyed talking to you, Victoria, and thanks for having me today.

Absolutely. And thanks everyone for listening. Keep listening, keep following, keep sharing, and we will talk again soon.


About Farid Tahvildari

Farid Tahvildari is the Managing Director at NUCO Logistics with more than 25 years of experience in Finance, Accounting and Management. As Managing Director, Farid manages the business operations, communicates with stakeholders, drives strategic company growth, and ensures optimal business performance. He is responsible for overseeing the research and due diligence activities that keep NUCO at the forefront of the industry and ensures that NUCO adopts cost-efficient methods and strategies, delivers innovative products, and services, and maintains a competitive edge. Farid holds a BA and MBA in Finance.