Global Trade This Week – Episode 132
What’s going on in Global Trade this Week? Today Trade Geek Pete Mento & Doug Draper of Inland Star Distribution cover:
1:31 -Red Sea Marine Insurance is Skyrocketing
5:39 -Vessel & Equipment Crisis Brewing
10:26 -Halftime
18:11 -Customs Sets Up Change to Entry Requirement
20:44 -Rail Update: Collaboration is Critical
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Unknown Speaker 0:00
You're watching Global Trade This Week with Pete Mento and Doug Draper.
Doug Draper 0:10
Hello, everybody and welcome to another edition of global trade this week I was caught up in some mountain chaos last week and Keenan and Pete did an amazing job and now we're back together. And Pete is actually in what I would call the players clubs kind of like a lounge outside of San Diego so I'm not sure what's going on with those with those curtains behind you my friend but that is where you are though. San Diego Correct?
Pete Mento 0:39
Yeah, I'm in San Diego. I'm actually doing this from my hotel room in San Diego. At this beautiful hotel at the marina it is it sad that I have to be on my phone to do it today because the internet here is crap. Which is a good indication of the rest of the property. I don't think anybody here would ever give this more than a two star review. But when you're asleep, every hotel looks the same though. Everyone wants the same.
Doug Draper 1:05
Yeah. Well, not not every hotels curtains look the same. So you know that's a that's an A plus right there.
Pete Mento 1:11
You know, I can ask them where they got these dog if you want to put him in a new crib. Maybe they'll ask
Doug Draper 1:19
ya know, I think I'm good. I think I don't I don't think my wife would approve. But I appreciate you asking well, let's let's get this thing rapid man. What do you got your your up first? And I?
Pete Mento 1:30
Yeah, so we talked a lot about this earlier on in the year about how the Red Sea situation could could possibly cause issues with marine insurance and boy howdy has it ever. So G Captain GC APTA i and i can't recommend it enough as a follow on Twitter, or GCS. One of those daily news sweeps you do put out an article on Friday or Saturday care which day it was exactly that was getting into an interesting phenomena regarding war risk insurance. So war risk insurance right now to transit, the Red Sea has gone up an unbelievable amount. So depending on what part of the article and whose professional you want to believe in the anywhere from 700% to 1,000%. Put that in, you know, Pete and Doug terms, it's, it's costing about a million dollars. Now, when it used to cost anywhere from 70,000 to $100,000. To insure a vessel, that is a lot of money. That is a lot of money. And although it's really probably not going to have as big an impact on the ocean container industry, it will likely have a pretty significant impact on the tanker industry where there's a lot of tanker traffic going through. Again, just about any any mu IG Captain are looking at some are graphs to the the guys on Twitter, and they'll show the vessels that are transiting every day. And right now it's mostly tanker traffic, that increase in cost, of course is going to be passed on to the people moving the cargo, which will eventually get passed on to us. So yeah, this is this is a significant increase. You're talking about real money, and as a tax increase as vessels continue to get hit. It's only gonna go up farther, buddy. Yeah.
Doug Draper 3:14
Well, you said it's war risk insurance, and there is a war going on in that region. Right. It's, it's crazy. I don't think the general public would understand the amount of money that you're speaking of, or how that relates. So that that's crazy. There's Oh, and my first topic, I'll jump into a second is also related to that. I think it's just a trickle trickle trickle effect, unintended consequences that are starting to materialize in everything, but that that's insane. The question Pete, is, is it going to go down as fast as it went up when things get resolved? Or? Or what do you think on that?
Pete Mento 3:53
I imagine it will. I think that'd be a realistic, you know, as as the threat goes down? You would imagine it would as well, I don't know for sure. I have a friend Paul smart, who's kind of my go to guy for insurance questions. I could certainly ask him that for the next show. But the you know, the the scary thing about this is just how quick you can have an impact on things like inflation, certainly on transportation, inflation, and the cost that's associated with that, and reinsurance and insurance and risk is something that people don't pay nearly enough attention to in this industry. And I don't think that it's because of a non non interest thing, just because it's always been so mystical, you know, people, it's a small group of people that manage it, and they do a lot of very difficult mathematics to understand their risk. So for people like you and I, we just end up getting the result of all that analysis in a number. Yes, I do see it probably going forward. You know, if you look at the pictures last week, if one of these ships that came in that had been struck by a missile, it hit the house. I mean, it were the people do their work every day above deck where they live, and it didn't, it didn't breach The, the bulkhead didn't breach the wall. But it left a hell of a mark pow. And you know what everyone's worried and concerned with this, eventually, it could actually impact the life and safety of not just the vessel, but the mariners as well. So I say this all the time, you know, as a sail, your first responsibility is to your crew. The second is to any of the crew at sea. The third is your vessel. The fourth is to any other vessel at sea. And the fifth is to the cargo. This is really a larger reflection on the safety of the men and women that are currently underway and at sea and keeping them safe. And hopefully, making people consider Secondly, about how they're going to move that cargo before they do it. Yeah.
Doug Draper 5:40
Well, that's a good dovetail into, into my topic, which is also related to the Red Sea. And it's related to equipment and vessel access, more specifically to the equipment piece that I was, was speaking to so Shaka, you have a longer transit time, right before going down around to Africa. And you have all these container or excuse me, vessels redirecting. So if you have a asset, an ocean container that has a longer transit, it's gonna be inaccessible for a longer period of time. But the flow of goods doesn't change, you're expecting that container to be in this port, because they normally go through the Suez Canal on a specific date. And oh, by the way, it's going to be an extra 10 to 14 days later, what are you going to do, you got to do something, you need more equipment. So I think that there is starting to get some attention on an equipment shortage. Obviously, there's vessels that need to need to help the flow of goods as well. But I think the as far as container traffic, it's going to be a big deal, because they're going to be repositioned in the wrong places, there's going to be vessels that need to call on different ports simply because of issues that come up where they're like, we're running out of fuel, we got to get this stuff off the vessel, there's a heightened sense of security that needs to be maintained. And so I think equipments going to be the big deal, possibly going back to vessels, maybe some blank sailings where you got a vessel that just has to get back on track, figuratively and literally, to where its port needs to go to pick up the cargo that's waiting. And so I think there's this trickle effect. And I'll be it it's over in, in Europe and Asia. So it doesn't affect North America, at least United States quite quite yet. But it's starting to, and it will, because those vessels all come around and just like an airline, you know, it doesn't go from Denver to San Diego and San Diego to Denver and Denver to San Diego. I mean, it's zipping all over the country, depending on what the routing is. And the last thing I'll say about this, Pete is that there was a situation, I don't know, a couple of years last year, where dia Denver International Airport was snowed in. And so they redirected a plane down to Colorado Springs, which is about an hour south of Denver, and everybody was like, Yeah, cool. Just send that when that's over to send the the, the airplane backup? Well, here's the shocker is Colorado Springs is smaller, they don't have the infrastructure to handle it. How do you get the plane out of there to reposition it? How do you get the people off the plane and get them back up to dia to make their connections? And so simply saying, oh, move the move the airplane to this, this airport, which is closer, the unintended consequences of what that materializes is what we're starting to see with repositioning of equipment. And oh, my God, we need more ocean containers. Where are they? How do we buy them? How do we procure them? So I think it's going to become a bigger topic. As things continue to progress. I
Pete Mento 8:39
agree, man, I had a guy work for a bit of a mentor when I first started working at panel Pina, many, many decades ago, his name was Marty Gillespie, really just a wonderful man. And he said, You need to start thinking of the supply chain as a whole environment. You can't you can't think of it as little pieces, you know where everything that affects something at point A is going to affect it eventually at point z, then when you begin to contract, what's happening in one part of it, it just snowballs. So it gets worse. It would be like if you had a limp, well, that limbs can affect the rest of your leg and the rest of your gait. Before you know it a different part of your leg hurts, you know, whenever we have to do things a little bit differently, it impacts the entire environment. So with these vessels taking longer routes, it means less available availability on the other side. And if you are vessels as well, because of the crunch right now on manufacturing, so it will eventually have an issue. What I worry about is capacity. At what point will it become so difficult that getting that container means you're missing a vessel, not getting it on a vessel? And then at that point, maybe you're gonna see some changes to the cost. I have not done enough research or spoken to the right people to really get enough information here at DSP. We have a gentleman named Ben Kaufman really, really dialed in. I know that they have And watching it very closely. But this is on everyone's top of mind right now. And it's gonna stay that way, buddy. till it's over. Yeah.
Doug Draper 10:06
Well, if your leg has a limp and you're walking away, I say what? You can't be a Kaiser. So say right
Pete Mento 10:13
now because it says, Hey, buddy, yeah, I don't know how many people are gonna get that joke, but me and you and maybe five other people. But that's cool. Just for us. Sometimes. For us, that
Doug Draper 10:24
is exactly right. And what what another fun time is just for speed is halftime because we get to talk about whatever we want. It's brought to us by CAP logistics. They're the platform and the folks that bring the show to us every week. So I want to thank cap logistics.com to check them out. So anyway, he went first. So let's let's see your, your halftime
Pete Mento 10:47
and my halftime is very personal this week, man, I'm telling you, I, I had been flying a lot since I took this new job. And, you know, with that comes being on airplanes, and being on airplanes means the reward system. So when I was with ch Robinson, and probably before that I did most of my flying on to airlines, and that was American Airlines and Delta. I have flown over 6 million miles with Delta Airlines in my career, which is preposterous, but I was going overseas so much. A lot of that's probably reward miles, you know, but still a ridiculous amount. And I can remember being a diamond with them. I remember being the concierge key with American Airlines. And they treated me so incredibly well. Well, now, years later, what the airlines have realized is a lot of people fly. And there are games that we play with our miles. So that just making it really, really hard, really, really hard to gain status. And to get the perks that come with it. I flew a red eye back from Seattle. Last week, I flew from Seattle to San Francisco and then from San Francisco home. And I was in the middle seat for both flights on United. I've been flying united, consistently. I mean, at one point, I had the 1k. But right now, after all the foreign I did last year, so I was I was in his job for six months, I was unable to obtain the next level up, they sent me an email yesterday saying that for $2,200, they'd be happy to bring me up that to that next level, which I'm not happy to pay that kind of money. So that you might my complaint here is that for frequent travelers that are traveling every week, multiple flights a week, there should be some way of keeping me there because I live in work out of Washington, DC. And that means there's really only one carrier out of Dallas, and that's united, unless I want to go to the commuter airport, closer to DC Reagan, which I do love that airport. But honestly, man, it's it's killing me. It's absolutely killing me the way that I'm just not getting the love from these guys. Yeah,
Doug Draper 12:48
I think you're right. It's just the fact that everybody's flying, right? I'm premier silver on United. And I'm like, Hey, I'm kind of a big deal. And I walk up there and the upgrade list. I'm like number 17. And I'm looking around. I'm like, There's 17 people here that have. So you're right, yeah.
Pete Mento 13:04
That doesn't help that you live in probably one of their biggest hubs, either man like Newark, and Colorado, and then any of the West Coast airlines like yeah, you're you're gonna be number 510 on the upgrade list. And in the middle seat.
Doug Draper 13:16
Yeah. Wow. The TSA PreCheck. I'll, I'll give that thing credit.
Pete Mento 13:23
Love it clears. Fantastic. You
Doug Draper 13:26
know, so Alright, man. Here's why. Yeah, it was related to a story that popped out on Friday about Sports Illustrated, right. There was a, basically that the thing is, are they closing down? Right? 70 years of history. There was a notice that came out that said, almost all, if not all, of the employees that Sports Illustrated said you no longer have a job. And it could be the end of an era. So like almost all the employees were terminated. And there's been, you know, great memories. Everybody has the Sports Illustrated. I'm not even talking about the swimsuit edition. I'm talking about the stories, the sports stories that have been out there. And two things that that struck me One is there's a guy named Rick Reilly, if you remember him. He was a CU grad University of Colorado. He actually wrote for the boulder daily camera when he was in college, and he did some work at the Denver Post. But that guy, he was what was he called? He was like the back page columnist of so everything was great. He was witty and funny, and he was relevant to the topics and it's phenomenal. I mean, that was one guy that that popped out at me. But there was a guy, another gentleman named Mark Conrad and you and I don't do a good job. At least I don't do a good job of referencing some of the stuff that we talked about here. But there's this guy named Mark Conrad, Director of Sports Business concentration. I'm not really sure what that is. But he said it's a sad event for sports journalism because SSI was the breeding ground for some of the finest long form writers, sports or otherwise found in American journalism. The problem with that, and the reason that we are where we are, is the term long form writers. It just doesn't exist anymore. People don't have the attention span, to sit down and open a magazine and read a five page article about the new emerging pitchers that are coming out of which has stopped state university or Florida or something, right. So it's just, it's just another demise of an amazing historical run of, of them magazine. It's been phenomenal. And I always think of Rick Riley when I think of that show. So if anybody knows Rick Riley, Tell them we'll get him on the show. We'll talk a little less sigh. But anyway, on that, that's my take. Yeah,
Pete Mento 15:50
for me growing up, you know, my pop got the local paper, we were in Texas at the Dallas Morning Star. When we moved up to New Hampshire, he would get both a union leader in the Boston Globe. And my dad was a voracious reader of, of journalism. And I remember every morning, I would take the sports section, and I would see what was going on nationally, every box scores, and I looked for the local stuff that was going on for my own team. So opening that one of my friends was mentioned, God knows I never was, but when Sports Illustrated came every week, it was different. You know, it was like, the elevated pipes of insight and national news stories, and these awesome pictures of people that I really emulated as a young athlete, that's a young guy. And then also, I love the section where they would, they would say, you know, around the country, these college and high school students, I love that you're just even even though I didn't think I ever knew anybody that made that list, it was just awesome, right to see them locally. And then ESPN, the magazine came out in the 90s. And that was a little more to my taste as a consumer. But I still read si and I realized when I saw your topic today, I don't really remember the last time I read Rollingstone Sports Illustrated, I still physically get a copy of The Economist and that's probably the only physical thing that in foreign affairs is the probably the only two I ever get that are still physical. But I get all of my sports journalism from espn.com barstool, you know, and I read it all there and you're right. The coverage we get it's very small. And they're generally pushing you towards video. So it's a it's a it's another one of those things we're seeing go away with with just long form journalism. It really sucks, man. It just sucks. Yeah. Yeah, I can remember a Sports Illustrated had a April Fool's issue. Do you remember when they had the picture that pitch barefoot that had gone to Tibet? He threw like 120 miles an hour. Do you remember that? ticker?
Doug Draper 17:48
I was gonna do I was gonna make comments on Rick Riley or that one? I didn't know enough about that. That that article. But yeah, that was the big one. I remember from April Fool's Day. I
Pete Mento 17:58
bought it. I bought it last time you seen this guy's like even more on? It's an April. April Fool's joke, you idiot. Go Go do your homework. Yeah. Come on one. Yeah,
Doug Draper 18:08
cool. All right, second half of the show, you start off. Yeah.
Pete Mento 18:12
So second half. Last week, there was a notice that came from customs, that they're changing the den in this chapter 86 entry requirements and other requirements, but how we do the entry. And that seems, you know, pretty out there pretty far out from a trade topic. But here's why it's so important that right now, all these de minimis entries under $800 that ecommerce is doing, they're following the same basic processes, other types of entries, meaning we can do them wheels up when the aircraft leaves, or in the case of ocean, we can do them up to 10 days prior to arrival. And this gives customers time to play around with whatever's going on with the document. For manifest entries, that isn't necessarily the case. And now they're saying you're going to do it upon arrival. And this is going to add even more congestion, in my opinion. And it's going to add an even bigger push of information and data in a in a way that's going to give customers less and less time to understand what's happening with that entry, it's eventually going to slow it down. So we always like to talk about what's going to happen with trade. I think that this is a great indication that you're probably going to see the chapter 86 e commerce entries actually start to slow. It could take days to possibly process because the information is going to be available to customs much farther down the stream than rather than up the stream. So I think ultimately, this is going to be a bit of a problem. It's going to hamstring our ability currently to deal with with E commerce. I'm going to watch that pretty closely.
Doug Draper 19:39
Interesting. Well, I'll just throw some AI over it right mix up a little AI cinnamon, some sugar, salt and pepper and some AI and maybe it'll fix that problem. The interesting thing on that one is the whole is the $800 de minimis too high too low. You know, that's all Always a debate up there. But it wasn't the key focus of what I had read about on this last go around. So
Pete Mento 20:06
now they're more concerned with processing at this point. And, you know, as the system that it's all built off of was supposed to cost $200 million and be done in two years, we're 22 years since then were $2.4 billion over budget. And it still struggles because it just hasn't been able to keep pace with trade. And this is making it even worse. So yeah, I'm gonna watch this real close to it, but I think it's gonna have an impact.
Speaker 1 20:31
Yeah, it'll be well, you got she and and team as a team, you.
Doug Draper 20:36
Can you can you? Yeah. Well, they're, they're going to be pushing from one side of it. So we'll see how that goes.
Pete Mento 20:42
We'll we'll what you got for us, but it take us home. All right.
Doug Draper 20:46
So we haven't had a rail discussion in quite a while. This is the first one of the year. So I wanted to kind of throw it out there. And here's my, I want it to be a prediction Pete because I it needs to happen. But the rail moves so slow, not the physical movement, I'm just talking about decisions makings and transitions and things of that nature. You know, the whole Canadian Pacific acquisition, Casey Southern, you know, that's still kind of messing around. But my point is that if the rail wants to start pulling business from trucks, because there is an insane amount of capacity right, now, they need to make the network very much more seamless, right. And so there's the collaboration that needs to transpire the interchange agreement, right, because these railroads own the assets, they own the track. And so if you're trying to ship something from the West Coast over to the East Coast, you got to transfer it to another railroad at an interchange like Chicago, or Dallas or something like that. So those handoffs and the ability to work with each other, those barriers need to come down to speed needs to go up. There's so much capacity in the market right now. I've seen firsthand here in Colorado, that the amount of coal that's being pulled out of the mountains, is decreasing. And so the Union Pacific is now talking about opening their tracks up a little bit more for commuters, or not commuters, but let's get people up into the mountains, before coal was king, and it still is to some degree. But as things change with alternative energy of alternative fuels, they'll always be a need for coal, things of that nature. But I think collaboration with the class ones needs to really happen and 2024 Otherwise, they're going to, you know, Miss Miss the, the opportunity to take advantage of, of pulling business away from from trucks, lots of truck capacity out there. But the key thing is the interchange. And each each class one is like wow, you know, we make money. This is me talking, you know, we make money through the interchange, if I'm gonna move your rail car, you got to pay me for that, well, if I'm gonna move your car, you got to pay me for that. And ultimately, the consumer ends up paying it or, or the manufacturer. And so anyway, I've said it three times on this little little rant here. But there needs to be collaboration far more than there has in the past with the class ones to compete with the capacity in the truck market right now. Or they're going to, I'm gonna say they come a relevant because we're always going to need the rail, they're going to miss an opportunity. Kind of like what I've talked about with the USPS had to get that one in there collaboration for class one, let's make it happen. Let's see it here and 2020 for such a
Pete Mento 23:40
postal hater, honestly. We have made no, you know, no, no. There's no allusion to the fact on the show. Doug and Pete are big fans of rail. Okay. We're big fans of rail. We're big fans of rail for a host of reasons. But one of the reasons that it's difficult to expand it is the the barrier to entry being cost, and the amount of money that's associated with upgrades. That's something so not just strategically, economically important, but strategically important for national defense, strategically important for our ability to maintain food security, I can keep going, you know, but the the amount of money that's dumped into it, for the most part, for the most part, appears to be private. It's going to take a lot of money coming from federal sources, and that collaboration that you've spoken about to take this thing to the next level where really needs to go. We have a lot of open space in this country still, believe it or not. And it's worth us making that investment to make it better. But there's no point to it. If these companies can't find a way to make decisions about standards and to find ways to make it more efficient. That you know, I sincerely hope for this whole industry that they do find a way to do that, because it's so much better for the for the consumer of both transportation and the final product. And honestly, it's just better for national security.
Doug Draper 24:57
Yeah, agreed. We'll see All right. Well,
Pete Mento 25:02
that takes us to the end of the show. And we want to thank all the viewers, all the listeners, global trade this week, if you do watch the video, you can listen to it instead and vice versa. We are available on all podcast networks. Want to say thank you again to our great friends at CAP logistics who do support us on the show, even though again, neither Doug or I work for the company. They have been incredibly kind to us by allowing us to continue to, you know, speak our mind and talk about we think it's going to happen. The big thanks back to Keenan in the booth. He did passable job last week with me. You know, I can see some areas and opportunities for improvement. But you know, he's a young guy. He's still coming up the ranks. Hopefully one of these days. He'll be ready for full time but want to thank him again. Thanks to you, Doug, as always for great show. We'll see everybody next week on global trade this week. Thanks
Transcribed by https://otter.ai