Global Trade This Week – Episode 181
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Keenan Brugh 0:00
You're watching global trade this week with Pete mento and Doug Draper,
Pete Mento 0:07
hello, hello and welcome to Global Trade this week. I am Pete mento. With me is my friend and co host, Doug Draper, Doug, I'm at NBC suites in Indianapolis. Where does today find you?
Doug Draper 0:21
I am actually in Steamboat Springs, Colorado, and it's unfortunately, it is not a white out behind me. Today is a Blue Bird Day, as they call it in Colorado. It snowed over the weekend, and everything is white, crystal blue skies and behind me, I'm at my house. There is a aspen grove behind me that is flocked with snow against a dark blue sky background, and you can't see it because of the way the lighting set up, and this technology that we're using, it's trying to fade you out. So anyway, it's not a white out. It's a beautiful day in Colorado, and here I am. I gotta
Pete Mento 0:57
tell you, though, Doug, you look fabulous against that white backdrop. So, you know, there, there's, there's some nice externalities that come from
Doug Draper 1:04
this, yeah, big, gigantic, white screen. I can't even, I was kind of a, I'd have run home to do some stuff. And I'm like, I'll just do the show here with that amazing background, and it turns out to be white. But you know what? Keenan pushes the button and pulls the levels. He knows what's best for the show and our viewers, so I'll let it slide.
Pete Mento 1:21
Yeah. And speaking of which, we have a special guest coming on for one of our topics today, which is nice. He is special, all right, but we're looking forward to having him on a little bit. Well, the intro is out of the way. Doug, so why don't you go ahead with your first topic, my friend. All
Doug Draper 1:36
right. Well, every once in a while, we try to get some railroad discussion going on. And there's a couple things that popped up over the weekend that said, Alright, I guess it's time to bring us some railroad discussion back on. Part of it is related to shocker, a potential strike, and part of it is fourth quarter results from from the class one railroads, all of which are kind of similar. So I'll just start with the Canadian National Railway. They're bracing for a strike, right? It could potentially go tomorrow. Again, we're not supposed to timestamp any of these conversations. Peach, so people don't know whenever we actually take the show, but the 28th is when it's supposed to go down. It's 750 signal and Communication Workers. The Canadian National. Everybody says they got it covered. Don't worry about it. I'm sure that's the case. 750 is a lot of people, but it's not that much. So I don't think that there'll be any really big impacts, especially with us down here in the US. But it's noteworthy because of the interconnectivity that the railroad system started to develop with the
Speaker 1 2:47
railroad system into Canada, the acquisition of Kansas City, Southern and then down into Mexico. So I thought it was interesting, because maybe that's going to be something bigger. Maybe the labor issues and challenges will kind of bleed down, but it may just blip and go away, or it may just be another example of how the year of the labor, which was 2023 I think is what you and I spoke about Pete, wonder if that's continuing to happen up in Canada. So little piece of note there. The other piece is the earnings reports. Now, Norfolk, Southern doesn't have their earnings report till end of this month, or end of this month, end of this week, really the 29th but here's the gist of all of the class one railroads, CSX, union, Pacific, BNSF and Norfolk Southern is that profits are down because the coal movement is lower,
Doug Draper 3:41
but total revenues are stable or slightly up because of intermodal moves, especially with Union Pacific, right they're focused in the southwest, out of California into that nature. And you and I spoke about how la ports support strike pending on the East Coast, everybody was rerouting back to LA. You know, 2024 was the year of LA, baby, it's back. And the railroads saw a significant bump related intermodal and, you know, general merchandise movement. So the Norfolk Southern expected to kind of be similar, from what I was reading this morning, and Union Pacific had a really bump with their intermodal volume right, like 25% so basically, what they're forecasting, they meaning the pundits, essentially, is that intermodal growth will continue and that general revenue for the industry is going to Be pretty plateaued. Now, I'm sure if there's some railroad guys listening, they'll rip me apart on my basic assessment of it, but there's not enough money in air modal to offset a unit train of coal. But we'll see what happens with drill, baby drill, and I. Our energy practices domestically in 2025 but anyway, those things caught my attention. I thought we should bring it on to the show, because we haven't talked about the railroad in a while. But I don't know if you heard any of these earning reports. Have any comments on that, or how the drill, baby drill may impact the railroad industry here this year, I
Pete Mento 5:16
think a couple of comments here, you know. So we, don't normally go too, too long without talking positively about the environmental impact, in particular, of railroads, and how we're just we're fans, We're fans of intermodal We're fans of railroads. But this is another great indication of how it just can't seem to get out of their own way, whether it's, you know, labor issues or regulatory issues, just when they start to get momentum, something tends to jump in its path strikes. That's a big one, right? So I hear all this, and I think to myself, you know, if they were making more money, if they were doing even better, they can invest even more in infrastructure, which is something that we really need here. It's just disheartening Doug that they can't seem to maintain that momentum for a long period of time. And my heart of hearts, I really hope that changes soon.
Doug Draper 6:05
Good one. All right, you got a couple good ones here, Pete, so I'll let you dealer's choice on your first topic. Yeah,
Pete Mento 6:11
so we'll bring Keenan in here. He's our special guest, Keenan Brugh, who is our future and our engineer, and basically everything other than Doug and I talking like idiots. So Keenan, welcome to the show. Oh, thank you. Great to be here. I will say that Keenan is a fan favorite. Whenever I I speak to people on the road and they bring up the show, they always say, we love it when Keenan is on. I'm like, he's only on when Doug and I aren't. So maybe you should keep that. You should keep that to yourself. Frankly. You know, prior to the show, I'd sent up my topics, and Keenan and I and Doug were chatting about one of them beforehand, and it's pretty clear that this is a topic that Keenan knows a great deal about. And today, the the financial world, the technology world was a bit shook on news that China has a very well, what's the word looking for? Well, operating, I suppose, AI system, and it's called Deep seek. Keenan has been following this story for quite some time, and how about you give us a little bit of background on what we're talking about here.
Keenan Brugh 7:18
Keenan, yeah, absolutely. So deep seek is a Chinese AI startup. This isn't new. There's been other AI startups. China's up there and doing AI research. You know, America maybe does more of the groundbreaking work, new models, new math. But as far as implementation, China is pretty sophisticated and is right there, up there with us. Deep seek is now making news for having very comparable or superior models to the ones we know about. You know, everyone knows chat, GPT and open AI or dolly for images. Even just this morning, deep seat came out with a new model, Janus pro 7b the 7 billion stands for the parameters. Is chain trained on, and the size it's running, and when you're doing the things is intermodal, so you could do text and images, and this is beating out open AI. And these like big name brands, and they're offering it as an API service way cheaper. And so that's kind of the What's upsetting people, right? There's all this capital out there in the markets that's looking for an edge. Try to find some some alpha. Try to find some investment. How can I grow my retirement? How can I grow my speculative venture capital, private equity, and all this capital that's now been newly deployed into AI infrastructure, Nvidia, right? That, what is their price to earnings ratio? I don't keep up to this on a day to day basis anymore, but it's up there, right? There's a lot of capital looking to get in on the growth using the tools, and we probably will see more chips, and we will see more power used, but maybe some of the analysts, or just the strategy behind deploying all this capital hasn't taken into consideration, what if it gets more efficient? What if China, some people are alleging steals, some other models or training other people have done and are able to then undercut the market and have high end performance, images, text, whatever, deploy this into businesses for an order of magnitude less, and then half again, where it's just not competitive. So it's driving the arms race further and further. And then you also have other people asking about like data safety and those sorts of things. But so far from I haven't personally signed up for deep seek and have signed their terms of agreements or anything like that. I haven't read it all myself, but people saying that they're using it say that it apparently isn't super censored. It's trained on Western English content. So you could ask it about certain events in history, let's say 1989 or things like that that aren't as clumsily ham fistedly Like blocked on other applications. So it is competitive, but there's a lot of capital up. Way. So I think it's people kind of overreact in some ways. You know, buy the rumor, sell the news, type of situation. So I wouldn't drastically change your portfolio, but if you are super heavily invested in Nvidia, nothing else. Maybe rebalance. This is not financial advice. Talk to your fully licensed and insured personal financial planner, yeah,
Doug Draper 10:21
no, no to Robin Hood participants, right? How many people just have taken a chunk of money and put it in
Pete Mento 10:29
there two pieces of this Keenan that really get my attention. The first is the allegation that the technology behind it may have been horn swaggled, or we might have found a way to circumvent what's going on here by using existing models, whether it was done, you know, completely legal way or not. And that's that's terrifying to think that such an important piece of technology could be co opted. And then, second, how are they getting the hardware to run this when practically every single important piece of advanced Hardware and Technology is deeply controlled by the West, they're still managing to get a hold of it. So that's a that's a big export compliance issue with me, which is why I brought it up. How are they managing to do all of this if theoretically, they don't have access to the technology to do so
Keenan Brugh 11:22
what I can say on that right now, there may be exports in place or controls put in place, and that could change things over time, and eventually, maybe they make their own chips as of right now. What's pretty cool about deep secret why is making so much waves is that is being able to be run on people's cell phones like you could be on a small computer off the internet and have it running locally, compared to the bigger models, more parameters, or just older models needed, like a powerful computer capable of doing video rendering, where now it's it's cheaper, so you won't stop them by by controlling those exports, at least right away with that. What's also interesting, and I'm not super up to date on the latest antitrust or meta lawsuit with Facebook, apparently, there's allegings now going on that meta and Lama, the model that they've created, similarly used torrented information, you know, similar to open aI think is, you know, had to do some pay to do business with the New York Times, right? Like, we never told you you could, like, scrape our historical websites and all that stuff. These models are more useful when they contain everything you could possibly train them on. But then, if they're in an arms race, even before China gets involved, and you have Facebook employees torrenting large amounts of like, breaking intellectual property to get this huge library from libgen is in there. Yeah, allegedly, allegedly, right, we don't know, but that's what this lawsuit is alleging. And so if they do that, and then if China steals their model, like llama, and then does it even cheaper and makes it a little more efficient, you know, it's kind of an arms race. It's a wild time to see it. Yeah, yeah, interesting times. Yeah. The
Doug Draper 13:05
one thing that just struck me is, you know, the world is all about money. Who's make your money? And you made a point before the show, like all of this investment that's going in to say, this is the way you do large language models. You got to invest a ton of money. You got to get the tech bros involved. You got to, you know, infrastructure. Let's talk about nuclear power, because it's going to absorb so much, so much energy and power. And then all of a sudden, out of nowhere, deep seek pops up, and they're like, Wait, What? What? It's equal or better, and it's didn't have this interest, you know, didn't have all this, this capital being poured into it, that's going to draw a lot of introspection to what, how, what's going on here in the US with our large language model approach, right? Yeah, well, I
Pete Mento 13:56
think it's about protecting technology first and foremost, and finding a way to make it harder for people to not only get to the software, get to the data, get to the inputs, but also find a way to control the physical technology, which is really top of mind right now at the Department of State. So this is a fascinating story. We will be watching it. We'll continue to report on it, and as we learn more, you'll be hearing more about it on global trade this week. So Keenan, thank you for your insights. Get back in your booth.
Keenan Brugh 14:25
Thanks for having me. One final piece of intrigue on this, as the story is kind of breaking in the Western world, it seems that there is now a counter attack where someone, we don't know if it's Mark Zuckerberg himself or who is doing it, is doing a large like malicious attack on deep sea I'm imagining like a distributed denial of service where people are just, like signing up and or like making bad API calls war dialing, just to take them offline so people can't use them or integrate them, or wouldn't want to. So there's active warfare going on currently in the AI space. But. It. I will let you guys jump on to your next topic. Thanks for that. Keenan,
Pete Mento 15:03
good feedback, buddy. Thank you. Never, never, never start a war with nerds. Ever we get. We know the infrastructure. We know the really good at paperwork. So don't ever start.
Keenan Brugh 15:16
Don't try us. Yeah,
Doug Draper 15:17
good. All right. Well, that brings us to halftime Pete and I keep seeing my screen. I go to dark like now I'm good, and then all of a sudden it goes, Yeah, you get a little bit of every once in a while, yeah, I don't know what's I'm trying to sit as still as I possibly can. So that doesn't happen and distract from the conversation. And this time of the show, the conversation is all about halftime, things that you and I want to talk about whatever we want, and I didn't really have a strong halftime, so we're just going to do one of them, which is your topic, and I know you got a passion about it, so I'll let you jump in and and put your Get off my yard hat on. Yeah,
Pete Mento 15:54
spoiler alert, I'm not going to care about the Super Bowl this year. I'm not going to care. I'm not going to watch it. I don't even really care who wins or loses. I'm so sick of Patrick mahomes. This is what it must have been like for the rest of the world with Tom Brady, right? I've just, I've had it, and the the Eagles and their fans are just unlikable. So the idea of me having to sit through an entire evening of watching two teams that I am in no way interested. Let's see. Here's a problem if, if Patrick lahones wins, I'm going to be annoyed, but if he loses, I'm going to be annoyed at who beat them. So I'm thinking, Doug. I'm going to binge watch reruns of doubt and Abby. I'm going to drink a nice Chardonnay and have cucumber sandwiches with a crush remove, because that's about as far away from Super Bowl Sunday as I can possibly imagine. So I'm I'm taking it in the absolute opposite direction. I know you're a Kansas City guy. I know you're probably real excited for a hopeful three peat here, but after watching those last couple of games the way that it was officiated, and yeah, I just had it. How wonderful would it have been to have a rookie in the Super Bowl and Josh Allen finally in the Super Bowl? That would have been definitely watchable. But instead, I've got this trash, so I'm out. I'm out. I'm 100% out of the Super Bowl this year. I will not be watching it. Yeah.
Doug Draper 17:13
Well, I'm not as strongly opinionated on the topic as you are. And the thing about what, I have a love hate relationship with the chiefs, right? So I grew up in Kansas. I follow them. Everybody in Kansas City and Lawrence or my kids went to school, are chief fanatics, right? And being out here in Denver, I always with my college buddies. Everybody's got their college friends where they have a group chat or whatever, and I'll just, like, strike a match and throw it in the pin and just let the serpents go crazy. So I'll be the antithesis on that one. But I don't know. I mean, I like as much as the pomp and circumstance around it right the leading up to it, the gains, fine. I think it'll be a good game. Those are good teams. But what you just said about a rookie and Josh Allen, you know, that would have been the feel good story of the year for sure. But I'll watch the game. It'll be fun. It'll be entertaining, for sure. And you can enjoy Downton Abbey. I don't Can you name one character name on down
Pete Mento 18:11
so I love Downton Abbey, okay, yeah, I can absolutely do it. Doug the I'm a Saints fan, which means I am built for misery. I am built for disappointment, all right. And then the other team that I followed as a kid is the browns. I love the browns, equally disappointing football team, but I just can't imagine having to care about either one of these teams. And I'm not gonna anything would have been better. I would have loved to have watched young Jane Daniels, LSU product, go out there and do it, and then Josh Allen finally get a shot. That would have been great too, but no, not gonna work that way.
Doug Draper 18:45
Well, another year. So, all right, that's halftime brought to us by CAP logistics, obviously Keenan and his team, he was just on, put this sucker on, and we appreciate, appreciate his support every single week to make it happen. So I'm going to run into my quick topic, Pete, I got kind of a tight line here on our, on our, on our show, so I'm just going to jump into it. Mine's kind of quiet, if you will. And it's kind of related to the four seasons of air freight, right? If you're in the industry, you kind of, know, you got the quiet season, and then you got produce season, and then goes into, you know, peak season and then holiday season, right? So the quiet season is where we are now. It's the first three months of the year and, and to me, Pete, the quiet season is exceptionally quiet, right? There's always some trends with spot rates going up on ocean freight, and there's always some clamor about, is there enough warehouse space for inventory and and, oh my gosh, my PO is going to be late because I didn't get my product out before the factories were closed and Chinese New Year went into place. But it just seems like this. I, from what I've read, and I made an effort this morning kind of say, what's the deal? It just seems really, really quiet for this year. And I. Think a lot of it is just there's as crazy as it sounds, there is stability coming across with, you know, the war, the Israeli Palestine war, that's going to calm down, the Red Sea situation, the port strike has been averted. So there's some crises that have been averted. I think the Fed's not going to do much with the interest rate. So that's a calming factor. It just seems like the calm period, right, or slack season, as some refer to it, is just going to be pretty mellow, right? There's no drama out there that's going to create these spikes and go nuts. So that's kind of the vibe I'm feeling from the warehouse perspective, from the spot market on the ocean freight. And so I wanted to call that out. I think it's going to be a really slow first quarter in the the ocean inbound world. Maybe,
Pete Mento 20:52
you know, and maybe that's the reason why Doug. It could also be that people were front loading their supply chains. Oh,
Doug Draper 20:59
that's exactly it, yeah. I mean, people there was chaos beforehand with, Oh, my God, what happens with the, you know, after November 5 in the election, or whatever day it was, you know, everybody was kind of in a panic. I saw that, right? So maybe some of that happened in advance of the normal Chinese New Year thing. But anyway, I didn't mean to cut you off, but you're exactly right. There was a little bit of chaos there right after the
Pete Mento 21:21
election. Cut me off all you want. It's our show. Buddy Keenan, however, that's enough of that there could be some front loading there. And, you know, there's a lot of chaos, but I think there's a lot of anticipation right now and anxiety people on what the hell is going to go on? So orders could be down. We'll find out. I mean, TPM is in a couple of weeks, I will be speaking there. I think we're going to get a lot of insight for out of TPM. That's always what happens, right? A lot of the big breaking news and assumptions and things come out of TPM. So I'm looking forward to hearing what people have to say there, and she'll be reporting on it when we get back. But you're right, it does feel eerily quiet right now, and that's not a good feeling for people in our industry, because it's usually waiting for a foot to drop, and that foot is never pleasant, agreed.
Doug Draper 22:07
All right, good deal. All right, bring us home on your last topic. Pete, Yeah,
Pete Mento 22:11
buddy. Last topic, so yesterday, I'm having a lovely afternoon watching football. I'm I've got a nice cold fresca next to me, and my phone starts blowing up from everyone, from people inside the government, folks in media, oh my gosh. What's going on with Colombia? And the long and short of it is the President has an executive order, which is sending back a great number of people to the number of South Central American countries in Mexico that were here deemed to be illegal, so the president is sending these folks back, and our the President of Colombia said, No, I won't accept your flights. And you can only imagine what that did at the White House. So immediately, the the response was, fine, don't want the flights to come in. Here's a 25% tariff, and if you don't capitulate to our where our desires, it goes to 50% the week after, we're going to be hyper inspecting all of your cargo. We're going to be hyper inspecting all of your people, and we're going to deny a number of visas. I mean, it was, it was, it was like taking a baseball bat to the knees of trade with Colombia, who is a very, very important trading partner of the US. We have an excellent relationship with that country with regards to trade and talk about bad timing, a lot of the fresh cut flowers that we have in this country come from Colombia. Valentine's Day is right around the corner, and Colombian coffee is still a massive export to the United States. They finally worked out the terms this morning, but it was the shortest trade war, maybe in history. It lasted the same thing, like, like, 80 minutes. And I think that this is a good indication of how the President intends to use the Emergency Economic Powers Act. If he doesn't like a situation in the way that it's going, he could evoke tariffs like that, and he has the right to determine what they are. There is no limit under the PA, yeah. So that would allow him to go as high as he feels like, and I think that for the next few years, at least people in my position, they're going to be managing that left and right. So whenever this happens, I would not, I would not at all be surprised if we see these threats happen again. We already have countries like Nicaragua, Venezuela, Honduras in similar situations, saying we don't want our people treated this way. Want them coming out of commercial airlines. These folks are migrants that have left our country. We want them brought back with dignity. So I don't think this is going to stop anytime soon. Doug and I think that these sorts of shock and awe tactics with regards to tariffs are something we're just going to have to get used to. So what I'm going to say to everyone is take a breath when they happen, take a deep breath. Don't lose it. Give it some time to maturate. And odds are, at the end of it, you're probably not going to be facing these tariffs
Doug Draper 24:55
to begin with. Yeah, same thing. You know, I don't have anybody at the State Department texting me, right? But, um. Um, just my bookie, and he was, he was more focused on the game. But anyway, you're, you're right, like, the shortest tariff war ever, like it happened in the half of the football game, right? I mean, it was, it was crazy. And the fact that Columbia didn't back down, and when you say you didn't back down, and that in itself defines a conflict, right? So it just this tactic is going to be used again and again and again, and it's just going to be like, okay, just, I love your comment. Pete, love it. Calm down. Don't freak out. Yeah, and let's see what transpires. But the fact that this, this tactic worked, and the government or Trump got what he wanted, it will be used again and again again. Just it's raising your kids 101, right? You gave your kid a little slack and he gets away with something. He's going to do it again, right? So anyway, it'll be interesting getting a little too political on this whole deal here, but it's not the first time. It's going to happen, and we will see it again, and we'll see at what point does the country say I call your bluff? And then something transpires. That's
Pete Mento 26:04
why I'm counseling patients with everyone just, you know, don't the no knee jerk reactions based on the shock policy. I put something up on LinkedIn Doug to talk about how fast this was, right? So I put a very quick comment saying, use the tariffs. They'll go up 50% if the demands of White House are not met, I'll be putting up more as I hear. And then, of course, it ends. I'm like, I'm just going to delete the first tweet. There's like, no point. And I just got rid of it was, it was that. It's like, wife and bother keeping it up. It's already open. So this will be something that I think we're gonna be talking a lot about. Doug is just the threat of tariffs and the size of our economy being something that will will generally get us what we want in the end. But there are countries like Mexico as an example, like Canada as an example, and China, they're just not going to play that soft on it, so we'll be watching it pretty closely.
Doug Draper 26:55
Yeah, yeah, exactly. A good way to end the show. Pete, I'm glad it was fun. We I mean literally, Keenan, we invited him to come on probably 30 seconds before the show started. So that was
Unknown Speaker 27:05
great. Well, we didn't invite him, Doug, I think you
Doug Draper 27:07
did. I invited him. I said, come on. You know more about this topic than I do, so it's good to have him pop in. And again, I apologize. I'm trying to, like, stay still or whatever, with my with my lighting here, but the show's over, so it doesn't matter, Pete, and I want to thank everybody for joining us today. It's always fun to see you, Pete, regardless of where you are, it's fun to talk to our audience about our takes on global trade. They're always forward thinking. We're not necessarily talking about what transpired in the past. That's what makes the show fun and engaging. And please make comments about our topics in in the notes. So that's it, Pete, travel safe. You got a busy schedule coming up, and we'll see everybody next
Unknown Speaker 27:43
week. Take care. Thanks.
Unknown Speaker 27:44
Everybody. All righty. Take care. You.
Transcribed by https://otter.ai