Global Trade This Week – Episode 216
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You're watching global trade this week with Pete mento and Doug Draper,
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hello everyone. Welcome to another Weekly edition of global trade this week. I am Doug Draper, one of your co hosts, and we're excited to get this show started. My other partner crime, who's like, Where's Waldo is Mr. Pete mento. So Pete, good day, sir. How are you? I'm
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good buddy. I'm coming in live and direct from beautiful Indianapolis, Indiana, yeah.
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And you know what? You know? What I like best about Indianapolis is the headboards on their hotels are awesome. I'm thinking that thing behind you is that a headboard? What is that flowery thing? You
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know? It's that typical Marriott kind of structure, you know, art piece that they call a headboard. Yeah, man, I'm in so many hotels I don't even know anymore. You just, I should just get a sleeping roll and find a hostel everywhere I go, for God's sakes, yeah, yeah, yeah. I was there beautiful hotel last week in Norway, really, really nice. And there was something interesting. The key cards were made of wood. And I said, said, Is this an environment? Said, Absolutely, you know, you wouldn't want to know how many plastic key cards hotels create a year. And we just see this as another way. I was like, that's pretty cool, yeah. So I'm wondering if I'm going to see more of that now as I travel.
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Yeah, well, you will certainly find out with the amount of traveling that you do. So all right, well, let's get this party started. Pete, we got good four good topics today. I'm excited about it. We'll let you kick off.
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I am too. So the real nice bit of information that's been published out of DC and a number of different media outlets is that both the US and China have kind of made clear what's holding up the framework for an agreement. So it's not it's not earth shattering news, but to see that these are the things that are holding it up. So for the US side, we're asking China to reverse the course on the soybean purchases. As we've talked about in the past, soybean farmers are getting really beat up bad right now because China has made the decision to look at other parts of the world as a way to use their leverage on the US. So that's one of the first things, is they want to see China knock that off. The second is a sort of an attitudinal switch from our friends in China about rare earth materials to get those flowing again to the US and not make it so difficult. And you know, the third Biggie right now between us and them is fentanyl and their continued support of us interdiction movements towards it. So trying to keep China involved, as they have been, maybe even kick it up a little bit more to help us to deal with the Fentanyl crisis. On the Chinese side, they want an agreement from us to purchase our rare earth materials for a long, long time, because they're facing all sorts of competition now from Canada and Australia, who are setting up their own refineries, and they see that. So they want some sort of long term. They want to have access to high end American technology too, which is huge. We have been stymieing the ability for them to growth with technology by saying no. So these are the things. And again, it's not some revelation. We all knew it was there. But to say this is really it all the other stuff, we think we found some common ground, but this is it. They're big things, but I think that they're things that we can probably find a way to work on together. Doug, so I'm going to stick with my latest prediction, that I think that they're going to come out of this a pack with some sort of a framework, or we'll have rumors that they've gotten over those things between Xi Jinping and Mr. Trump.
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Yeah, of those three things, right? I know there's some peripheral topics that are in there, the soybean thing, again, you know, with my company, focused a lot in the ag industry in central California, being a Kansas boy like I personally know soybean farmers in Oklahoma right now. I I know them. We're not like, drinking buddies or anything like that. But you know, one of them I went to college with, that's a big deal. And my concern Pete on that one specifically, has the window passed. And so I was doing some research on, like, when do you grow some soybeans? You know, when do the contracts sign to produce? And that window is closing, right? And so even if we come to an agreement on the soybeans, like the POS have already been cut in other parts of the world, right? And then what is left is the reorders, right? I'm dumbing this down just to keep things simple. The big purchase order is done, right? So let's work all this stuff out. But what's left is the second order, so to speak, the reorders, and then all the crap that's left over that people are just trying to get rid of, and so the market and the commodities market just drops it down. So I love that it's a priority. I don't know how much help it's going to bring to the farmer right here and right now for this season. Again, I'm not a. Farmer, obviously, right. But I'm concerned that that window has passed, and those POS have already been written in other countries and other soybean producers that are not American, and that one gives me pause, so I'll be curious to see what happens positively if that transpires in the next couple
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of weeks. I agree. Doug, I mean, the harvest has passed, right where they've already got their orders. They've been on that. So is that really helping for this year? Can they convince China to buy some of that surplus? Maybe that's part of this. But even then, how much can they buy? You know, and something that a friend of mine brought up this morning we were talking about it, there's a lot of soybeans that move on ships to China. So what is this doing to transportation rates on bulk, on ag. We're big Friends of the ag, ag group here on the show. We probably talk too much about farming to be farming. And railroads get a lot of get a lot of attention from us. But the factor means it's a backbone of a huge part of the American economy, and those exports mean a lot to not just people on the farm, but processed foods, transportation, providers, fertilizers, all the, all the, all the inputs that go into making it as well. So this is a real problem, and I don't know if the average American considers that when they think about
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the trip. Yeah, it's it'll be interesting, but I'm glad it's happening. And when you have a positive, when you bring this topic in a positive light. Pete, before the show, you weren't dropping F bombs and we weren't frustrated about what's transpiring. So I am confident, based on your demeanor related to this topic, that we're going to be in good shape.
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I feel pretty good. Yeah, good, good. What you got?
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Doug, all right. So my first one is tariff related. Shocker that the and I saw an article pop up this morning on it, the 25% tariff for imports on medium and heavy duty trucks that goes into effect on November 1. Kind of, you know, what does that mean? And everything else. So, yeah, it's the 25% tariff. The question I had Peter is like, Okay, what about the assembly that's been something that's been publicized in for decades. You know, they've been talking about assembled in Georgia, assembled in Tennessee and South Carolina. Are some of the states that I remember that our big assembly. So, so what does that mean for companies that are like, yeah, we're already doing the best we can at this time and in this moment with the assembly. And so for our audience, I wanted to simplify it, mostly for me, so I can explain it, right? But so the 25% tariffs will apply only for the parts that are imported, right? And then, so if you're assembling it, American parts are not affected. Labor involved with or not. It's just the part. So a couple things on that. There's also a 3.75% credit back on the full value of the truck if it is assembled right. So you got to call out and manage the parts that were procured overseas. You're not taxed on other things, obviously, that are made domestically, the labor and such, to put it all together, and then at the end, you can say a 3.75 credit on the value of the truck. Now, it's not the resale value, right? If you're buying a truck for $300,000 right? The 3.75 is not on the MSRP, for lack of a better term. It's really the cost to produce. So that's okay. There's some things to try to mitigate it, but the thing I thought of mostly Pete is your people, right? Your people that I see chimed in on your posts on LinkedIn is in compliance, and customs brokers that are like my mind is about to explode, the compliance, the documentation, the in the weeds mentality that needs to happen in this day and age to make sure their employers and companies are compliant. This just adds another level, right? And there's even talk about the ambiguity of how things are are checked, and how do they validate this? How do they verify they meaning, you know customs. You know when in doubt, you got to comply. And you've spoken about that many, many times. You know you don't want to mess around with this. So I was thinking the first thing is like, Okay, you got to quantify the value of this, the products that are coming in, that are that are sourced internationally and out of the US. Then you got to figure out this 3.75% if you want to credit, and is it on the resale the manufacturer? Do we add labor? Do we not add labor? All that kind of stuff. It all boiled down to your people. Pete is just another level of Holy shit. My job just got infinitely more complicated than just years past. So anyway, I wanted to get your thoughts on that. Yeah,
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it's another circle of Dante's Inferno, man. So the the the things that really came to mind when I saw this topic today was, was first, you know, usmca, parts that come from Canada and Mexico should be exempt. So that's good news, because a lot of the inputs for American trucks are. Come not all, a lot are. And the second thing that frustrated me was the how Foreign Trade Zones are kind of ineffective. Now, because you would have, you have all these parts come in, and then you apply the duty to the finished good but now, because the parts are coming in under privileged foreign status, we have to account for that higher tariff when it comes out, so it's kind of erased all the benefit that that gave. And that's unfortunate, because most of these things are made in Foreign Trade Zones. And the third thing that came to my mind was, when you're talking about compliance, this is a mess that needs a process. This is, this is going to require systems to manage. It's going to require, you know, inputs, where people are putting in, what the percentages are for regional value, content, determining it that doesn't exist right now. No one is really focused on a kind of a large, sweeping concept. The government sure isn't going to make it. So it's going to open up this hole for people to either build it themselves or use a third party. And can they do it fast enough? I don't think they can. You know this, this stuff changes so quickly. There's going to be a period of time where folks are just going to have to suffer through doing the math, and that's super unfortunate, but it's, it's where we are with all of these tariffs, not just the automotive
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one. Yeah, interesting. Good call. All right, yeah, yeah. So, all right. That brings us to halftime, brought to us by CAP logistics. We were talking before the show about how much we appreciate their efforts in Keenan, week in and week out assistance to make this show possible. So check out cap logistics. Com Pete, you're you're staying in, in in theme. So I'll let you go first on your halftime, yep.
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So every week during the spooky season, I want to use my half time to talk about something about Halloween. So my daughter loves to watch old 80s, Halloween spooky movies and tell me how they're not scary anymore, that what I thought was scary is not, in fact, scary. This is a kid who's 19 years old, and like her and her friends, giggle while they watch saw. It's very troubling. I don't know if I have to put into therapy or what, but I am not really a horror film guy Doug. So I'm not really that guy. When I was younger in high school, we would all go to the movies together, and big packs of teenagers were, you know, big group dates, if you will. And we would go see the latest the latest Nightmare on Elm Street or whatever the case may be. And looking back on them, maybe they weren't so scary. But I wanted to see if you had three of those movies that you personally enjoyed. So are there three movies that that would be in the hard genre that you're a fan of? Yeah,
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yeah. Hard genre is probably wouldn't put these in these categories. It would be the laughable. I can't even, I can't even as a young person like this is lame, right? When my kids watched Breakfast Club or Pretty in Pink, they're like this show was so boring and it is so slow, they literally got up and left. And I was personally offended by that. Me too. Yeah. So to answer your question, poltergeist back in the day. So my films are so long ago, some of our listeners may remember him, but poltergeist and Carrie Anne, that little girl, freaked me out, right? So that would be the one of them, the Amityville Horror. That one was, I put that number three, poltergeist number two, and then obviously Nightmare on Elm Street that was like next level in the moment, right? And they turn that into a franchise. But the first one right was like, Oh, my God, Freddy Krueger and these fingers and all that. That was pretty crazy. And just right now, Peter, I was thinking about, what was that one that was made? Everybody thought it was real, and it was just made with, like, like, the budget was, like a couple 100 grand or something. What was
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their project? Blair Witch? Yeah, yeah. So, so my list number one is a Blair Witch Project. I went my with my ex wife and a friend of hers who was a costume designer. She worked in theater back then, and they all made fun. So I went and saw it with them, and they all made fun of me that I thought it was so scary and that hurt, that really hurt my masculinity. The second without question is The Exorcist I saw way too young. I was raised way too Catholic, and that movie messed me up, and I've seen it since in it's not as scary, but it's still, it still hits pretty hard, man, like It still freaks me out enough. And my third is Poltergeist, the just like the idea of remembering that preacher in the series of movies, it freaks me out. So those are, those are three movies that still managed to scare me. I really love some of the movies just because of the catch, like Attack of the Killer Tomatoes and, you know, the silly ones, like Fright Night. So the humor, the humor horror genre, but I'm a big fan of the Romero flicks, like land of living dead, all the zombie flicks, and again, on that humor genre, the one with Simon Pegg in the zombies can't. The name of it right now, but yeah, I would rather watch something that makes me laugh with a little bit of horror in it than just trying to scare the bejesus out of me. Doug, yeah, yeah.
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I think we're obviously our movies. What was six of them? Four of them were completely aligned. So yeah, and
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you talked about Breakfast Club. I do want to mention to everyone I will be at Comic Con in Rhode Island. And the main reason I'm just not sending my daughter up for the weekend and but I'm going with her, is that most of the cast at the Breakfast Club will be there, so I'm probably, I'm probably going to melt into Star struct romantic love when I see Molly Ringwald face to face, their security may get involved. Doug is what I'm trying to say. It's going to be uncomfortable for everybody, but I'm really looking forward to her. John crier will be there from Pretty in Pink, so it's gonna be pretty awesome. So anybody who's in New England, if you ever wanted to meet a John Hughes star, a significant number of
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them are going to be there, yeah. All right, nice. One is that
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November the eighth, I think. Okay, coming around. Coming around. Good, right? You got a good
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topic popped up. I don't know if you heard about this, that there was some French crown jewels that were stolen over the weekend. Did you hear about that? Did they did? Yeah, I literally read about it this morning. And for those that don't know, so some of the, not all of the crown jewels, but some of them were stolen from the louver in France, the museum. It was on Sunday, the thing, and the reason that I brought this story up Pete is here, here's how they did it. They took a cherry picker, but you'd see, in a warehouse, and took it up to, like the second or third floor. They smashed the window, they ran in, they smashed the box for these jewels, and they left on motorcycles. I'm like, That, like, what happened? So give me an Ocean's 11 type of scene, right, where there's, like, super complicated, and this person has to, has to do this at the right time that this person opens his door, and you know, it's at the end of it, you're like, that's amazing. These guys, they just broken a window and smashed the case and left right. So part of me is like, wow, the louver is really, they need to beef up their security a little bit, right? And then the last thing I'll say about this, Pete, is that there's people like, we're never going to see the jewels again because they're going to get melted down or repurposed. I don't know the exact terminology, right, but anyway, I was thinking like, how simple was that heist? And maybe that's the whole beauty of it, right? Just give me a cherry picker, break a window, break the glass, and head out on a motorcycle. Seems when they're
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putting this together, they're like, Let's go case the joint. Like, it can't be that easy. Can it?
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Yes, that's what I mean. I've been to
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the louver a bunch of times, and you walk in there and it feels like, you know, there's a lot of security, the Mona Lisa and all the rest of it's there. And it does feel like it's pretty secure. But after reading this, you know, and Doug, I love heist movies. Oh, I love them. I'm too stupid to have ever pulled one of those off. But there's a two that already came out called, now, you see me now you don't. You know these magicians that do these heists, any of them? You know Kelly's, Kelly's Heroes and all those, I love those movies. And to think that just a bunch of dudes walked around the louver like, that's a piece of cake. I can't believe and, and, you know, the technology in those heist movies is always awesome. There was none of that. It's probably a guy with a brick. You know, that's how they got in and out. It's just not stuck. And then where were the people with the guns to stop them once it
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was happening? I don't, I don't know, dude, yet it seemed, it seems like art and jewelry thefts only happen in Europe, right? You never hear about that, and I guess that's where the art is located, right? Maybe some Andy Warhol stuff over here, but I guess it would kind of make sense. But you never hear of jewel thieves as much as you do in Europe.
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Or famous portraits. Have you seen the British Crown Jewels in London at the Tower of London? Doug, no, I'm not. When you go there, they've got them, they're all they're all right there in the tower, and they have these moving walkways that you get on, you can't stop. So there's dudes with guns that are there. It's like, you get on the moving walkway and you move past them. Don't stop, don't walk backwards. But you can look at everything. And I've often thought the same thing, like, wow, this is probably pretty easy to rip off. Nope, nope, no. You there your whole documentaries about what? They'll just tell you about the security. So the fact that the poor French got punked like this, I don't know. I think it's kind of funny. I'm taking my daughter to the louver in December. It's our big Christmas trip. Before Christmas, I'm taking her to Europe for a bunch of days, using all my airline miles to do it. Man, I'm so fired up, and she's all excited to go to the louver and see all this stuff. And I can't wait till her 19 year old cell phone adult brain gets bored of it in about 20 minutes, but I'll have a good time.
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Yeah, yeah. Last comment on this topic, my daughter went there after she graduated from college and. And she went to see the Mona Lisa. And it looked like a rock rock show, because she was so far back. I mean, she was probably 30 rows, if you wanted rows, everybody had their cell phone up right? Like the thing was this tiny little postage stamp on the wall. You couldn't even see it. And they, like you said, they just moved them on through. Come in, move them on through. So it
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feels like one of those things, like, when I saw the Grand Canyon, it was really awe inspiring, like I felt so insignificant and overwhelmed by nature. It was beautiful. Or when I saw the Niagara Falls for the first time, I remember that was pretty awesome. See the Mona Lisa. Was like, Yeah, cool. It's like, it's like, I checked a box. Ooh, I saw it, you know, as opposed to, like, seeing the Sistine Chapel in Vatican City, that will that will knock you back, but I felt the weight that I had to see the Mona Lisa really didn't give me the payoff I had hoped for.
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Yeah, yeah. All right, well, that was halftime brought to us by CAP logistics. We appreciate them and Keenan every single week. All right, let's get to the second half. Pete, what's your second topic?
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I'm going to talk about ocean freight. Doug, you know, it's something I don't normally talk about, but we have these new fees that are coming on with regards to ships that are either owned by or were built by or are operated by Chinese firms. So the math comes out to about $400 a container. These ships will only be hit for their first two trips when they come in. But it's a lot of money when you start doing the math. Turns out to be a lot of money. Well, China said, Oh, I'll see your and I'll raise you right? So they're doing them too, and they've already started. We haven't started ours yet, but they've already started theirs. And I was having a conversation with one of my colleagues in Asia about it, and he said, what's going on right now is all these ships that that are American operated, they're stopping in Korea and dropping off the containers, or they're stopping somewhere with the empties, because it's the empties that we're sending back a lot of the time, right? So now they got to send a ship in there that is an American to pick up all these things. And so there's two problems here. The first is increased expense, big time, and the second is availability of equipment. If you don't have the containers, that's a problem. You can have Miss sailing. So I don't think it's a big volume, really, but we've talked to us a lot of times. Doug, the global supply chain barely works. It barely works, you know? And it doesn't take much of a wrench in there to screw up the whole mix. And I think that this should be something we should be knocking some alarm bells off in both directions about, and I'm not hearing enough about it.
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Yeah, yeah. I was thinking of this topic more. So on the inbound flow into into America, and the connectors, right? So a vessel comes in and there's going to be blank sailings. The vessels are going to say we need to make sure we are jam packed full so we can maximize the payload of this steam ship line. And I'm just making up numbers B, you would know more than I would. Hey, if it's 85% full, just send it, right? Well, they're going to wait till it's full full. I know it's per box the fee, right? But they're not going to send that vessel unless it's full. So then you're then you're going to have these explosions of container arrivals in, let's just say, La, the chassis, right? For one example, it's like, there's only so many chassis. The companies that own the chassis, and and, and the DRE companies, like, Okay, we know this, the cadence of what goes on. We know the sailing schedules. We know how many chassis need to be, where in, which location to get them off and keep it moving. Like you said, it is very fragile. That's the connector to get it off the boat and into the domestic supply chain. And then all of a sudden, you're going to have these vessels that just come in and in spurts, right? There is no stability. It's going to be a spurt and then nothing, and a spurt and then nothing. And that's going to affect, you know, hey, my container is already late because it sat over there for an extra week until it sailed. And now you're telling me there's not enough chassis to get it to my location. There's more delays. So is it going to be monumental? Probably not. Is it going to be a nuisance? Probably will. And it's a great topic that kind of flows a little under the radar, but very valid.
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At Maine Maritime Academy, my cargo professor, Captain stinky weeks, called him stinky because he smoked a pipe. He had a thing. He said, ship only. Ships only make money when they're falling down. So they've got to be full of cargo and down to their Peninsula marks. And if they're not, they're not making money. So these guys are dastardly. You know, the ocean carriers are really smart at making sure that they make money on every single crisis. And, yeah, it's just like one crisis after another. So they'll, they'll find a way to make money, and disruptions are good for their business. So, yeah, hey, here comes another one. Folks, here comes another one. Yeah, all right,
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disruptions are good for business. All right, and all wind it up with, actually, a little similar topic related to ocean freight. So there's something called the pier 500 project going on in. La, I don't know if you've heard about it. They want to build a new Pier. Pier 500 it's going to be south of wait for it. Pier, 400 200 acres, like 3000 feet of war front. And it sounds amazing. There's been a couple of press releases I've seen about it. But here's the thing, Pete to a lot of these things, it's a killer headline. We're expanding, and I'm not downplaying LA at all. Right? I get it. They're trying to get these peers for these mega ships, and the appetite for larger, bigger, better, that whole concept, the American way, of more and more and more, bigger, bigger, bigger. I get it, they have to accommodate based on these ships and the mega size of what's coming in. But this project, specifically, it's a 10 year timeline. There's no official cost estimates yet. There's extensive environmental reviews that need to go on. And being a company that's headquartered in California, you might as well 10x anything related to compliance and environmental protection in the state of California versus anywhere else, and then, like, they're not really sure where the money's coming from. Is it a private, public partnership or whatever? So it's a splashy headline. I get it. It needs to be done. It's a 10 years out. But there's a lot of ambiguity. You know, devil's in the detail, so to speak. So I'm sure we'll hear more about it. It's an absolute necessity with the size of the vessels that are being built and manufactured nowadays. But, yeah, we'll see. It's a good headline. It is a decade away. Pete, you and I hopefully will be retired by then, and we'll be, you know, sipping margaritas at the beach while this thing unveils Doug.
26:44
I had no idea about this until you put it in the show notes. I didn't even know what's happening. And that kind of shocked me, because, you know, normally, something of this size would be all over the place in the press, and I, you know, I echo everything that you just said. It's a wonderful idea, but how long is this really going to take, and what's it going to cost, and who's going to pay for it? To pay for it? Is it going to be the steamship lines that kick in? Is it going to be municipal, federal? I don't know. Ports don't move fast. There's a lot of things you have to worry about. And you mentioned all the environmental stuff. Well, think about how it affects neighborhoods. Think about there's there's people that live around the port. How is that going to impact them? And you're bringing in more vessels. More vessels means more infrastructure, everything from the harbor pilots to the folks that are managing which is probably good for the Longshoremen, right? Just means more work for them. But man, this is big, and I don't think people understand just what a commitment it is from both the state and the port the federal government do this. Let's not hold our breath. I think you're right. Doug, I think maybe that'll be our last show. Is when we talk about Pier 500 opening up. Yeah, all right. Well, that's going to do it for us this week on global trade this week, want to thank everybody who listens, everybody who watches, everyone who shares these episodes. Can't believe we've done like 216 episodes. Doug, it's pretty ridiculous. But you know, as always, big thanks to our friends at CAP logistics. I mentioned this all the time. We don't work for cap. Talking, I don't work for cap, but they have, for years, supported us and supported the production of the show. It's kind of, you know, the level of commitment. If they did give us a Keenan, I'm sure there's somebody better than Keenan they could have given I'm not going to complain about it, you know, it is, it is wonderful, and we thank all of you for joining us every week. And like we always say, it's happening in global trade, we're going to talk about it trade this week. Take care everybody.
28:29
All right. Take care you.
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