Global Trade This Week – Episode 264
What’s going on in Global Trade this Week? Today Keenan Brugh & Doug Draper:
1:27 -AI infrastructure boom is helping keep global trade afloat
9:17 -Judge upholds C.H. Robinson verdict
14:21 -Halftime
19:20 -China’s export surplus and leverage over rare earth minerals
27:11 -Record LA and Long Beach port volumes amid tariff and Panama uncertainty
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Keenan Brugh 0:01
You're watching Global Trade this week with Pete Mento and Doug Draper.
Doug Draper 0:10
Hello, everybody. Welcome to another edition of Global Trade this week. My name is Doug Draper. I'm one of your hosts every single week, and every once in a while, our good friend Keenan comes from behind the camera into the front to take care of things. Generally, when Pete is on quote unquote assignment, I'm not really sure if he's in the country or hiding under a rock in New Orleans or not. But that doesn't matter because the show must go on. And Keenan, I appreciate you being here, brother. How you doing?
Keenan Brugh 0:41
Doing well. My pleasure to join on this side of the camera as well. And yeah, I think he was traveling this week. I think he was mentioning on the show recently he's hoping to do less travel. So get him while you can, and or maybe expect some digital keynotes in the future where he can call in. I'm hoping hoping he can get his travel under control.
Doug Draper 1:00
Yeah, yeah, yeah. Well, he he's good. Our audience may not know, but like Monday mornings, we're like, "What's the story? Are we doing this thing? And and it it's very organic and natural, which is the reason I love the show. So we make it happen whenever it happens. So anyway, all right, my friend, let's get this. Let's get into it. What's your first topic for this week?
Keenan Brugh 1:19
Absolutely. So, first topic of the week is that the AI infrastructure boom is one of the main things keeping international trade afloat. You know, there's been plenty of drags on global trade this year, these past years, with geopolitical issues and tariffs and energy reducing what would otherwise normally be flowing, but the World Trade Organization's latest forecast is actually up 2.4% for this year, 2026, and projecting 3% in 2027. So pretty high numbers for the overall global trade growth, and a lot of that is driven by AI-related demand. So many of us have heard or have seen how concentrated the U.S. stock market is, specifically within the AI space. So you know, looking at the Magnificent Seven being you know 35% of the S and p5 100, and then I think it was J.P. Morgan has a 41 company AI basket that's about 50% of the market cap. So we've been seeing that on the investment side and valuation side of capital, but it is also showing up in the global trade of things. Not only the GPUs and the chips, but the data center gear, the cooling, the the pumps, the connecting points. A lot of that is making up for the lack of other trade that has slipped in certain areas. So it's interesting how how concentrated that is, and you know certain Asian countries that are producing those things are definitely benefiting from that, but that's not a universally shared result. Many countries don't produce those goods, but overall, net in net, the world trade forecast is up this year and looking even stronger for next year, barring some dramatic change of events that would reduce interest in AI. You know, even as AI models get cheaper and better, and even as security risks come out, there so far to date has not seemed to be a slowdown. The investment just keeps going, and critically, we're hearing more and more about the supply chain crunch of certain things. Right, of getting enough of the power generation, the turbine fan blades have you know a 12 to 18 month delay time before they can actually get shipped, and so as of right now, it looks like demand is holding strong for the AI infrastructure build out. Have you been seeing anything on this, or what are some of your first thoughts that come to mind when hearing about global trade being propped up by AI build-out demand.
Doug Draper 4:05
Yeah, well, what isn't being propped up by AI, right? It's but two things come to mind when you were talking. I'm like, okay, this is, in my opinion, a little bit like cryptocurrency, right? Like it's the hot new thing. I kind of understand it. I kind of don't, but everybody's talking about it, so I need to to get involved. This is a little bit AI is a little less complicated, in my opinion, to kind of understand, right? But it's it's a race to the finish line. But I don't know if the finish line has been defined, right? It's like we have to get there first. But what what does first what does that mean? And then I thought back on my career years and years ago. I worked with a freight forwarder, or worked for a freight forwarder, and we had three gigantic accounts, all in the fiber optic business. It was Quest Level Three and a Canadian company called 360 Networks, and everybody was racing. To get fiber in the ground, right? You have to get it because whoever connects from one one end to the other is going to win, right? And it was just throwing so much money at it in the transportation side, manufacturing side, and and then it kind of spun up and spun down. And to be frank with you, two of those three companies are out of business, and it's a little crazy, so I think it's a, I think it's a little bit like that, right? And the biggest thing is, there's a race we have to go invest, invest, invest. We don't care what it costs, but when is the finish line? How will you be defined when it's when it's over and when you have won, and all the money that you invested can now start getting a return on that, right? I saw something on last comment on oh, it was on Diary of a CEO. If you ever listen to that podcast, and they had a a guy on there, and I'm going to butcher it, but the gist of it was is that even though you and I pay a subscription for the next level, you know, not the free version and and everything else. The cost to it doesn't the the cost you and I are paying does not even pay for the amount of money that's going in for that compute, right? So absolutely, just as an example, let's just say we pay 30 bucks a month. The things that I do for that $30 is costing those companies $3,000 to generate it, right? So it's this gigantic loss leader. The finish line is undefined, and people are going to keep throwing money at it, and that is scary. If there was ever a market collapse, with how much your 401k, my 401 401k, is all tied into it, so it's it's interesting on all levels.
Keenan Brugh 6:45
Absolutely, there's a race between the companies. There's a race between countries. I think you bring up a good point of what is the the end point, and you know you don't want to be last. You want to get there as a company, as a country. But even if AI stays relevant and really important. Will it be the current paradigm of investment, or will that crash just like a.com bubble crash, valuations crash? But then you know we still got Amazon and all sorts of obvious internet companies here today that are very relevant and do produce a lot of revenue. I thought that was interesting. You bring up the spending, absolutely. I think a chart I saw recently on Anthropic for the $200 a month subscription, they are subsidizing the amount of compute that would be equivalent to between 12,013 $1,000 worth of compute prices if you were to make those same requests through the API, so that's a huge that's a huge difference: $200 to you know 12,000, $13,000, and I don't expect that's going to continue forever and ever. It's a little bit like the cell phone games where it's unlimited talk and text, and try to get the market share and get the users and that. It's also interesting times where not that many people yet are paying for the $20 subscriptions, let alone the $200 subscriptions or the more enterprise grade scale ups of it all. And the buildouts happening big and fast, but also the capability. Just looking at the models we have today compared to a year ago, two years ago, they're way more capable using the same amount of compute. So it's a interesting time. Tough to see if this investment boom will crash compared to other things like railroad investment or you know South Seas or other historical bubbles in the past, but it it is here and it is happening. And I feel like there's more to learn about it than crypto. Crypto's big, and there's lots to learn about it. But AI has a lot to learn about it. I feel like I know a lot compared to other people I know, but I feel like there's so much more for me to learn. So do your best every day.
Doug Draper 9:01
Yeah, exactly, exactly. All right, I'm gonna I'm gonna dumb it down a little bit on my first topic here, and we spoke about this a couple months ago related to the C. H. Robinson a jury verdict back. I believe it was in July. There was a there was a an accident in 2021. There was a crash in Mississippi. Three died, two injured, and the jury basically said that C. H. Robinson was complicit in that, and I think they were responsible for 23% is what the jury came back with, and obviously they appealed, and a judge on the 16th of October said, "Nope, we're going to uphold the verdict, and C. H. Robin will continue to appeal that. I am sure. The interesting thing is that the verdict was for 604 million. Now the verdict is 711 million because there is interest on top of this verdict. And so the more appeals, until this is resolved, that that number will continue to go up. Now, will it be mitigated? Possibly, probably, but it's interesting. So, basically, here's the gist with this, Keenan, is that you know C. H. Robinson is a gigantic company, and they are doing the vetting, and I feel very confident that they're following the rules and doing everything they can. But to me, this means there needs to be some sort of national standard that says we complied to the standard, therefore we're covered in liability, right? Because a lot of it now, and I'm going to, I think that the the the term I'm looking down here, reasonable care, right? So you need to vet your carriers with reasonable care. Well, that is so ambiguous, if that's the right word, that that'll never stand up in court, and lawyers lawyers will tear that apart, right? So so my point is that all of these nuclear verdicts that are coming along. I think the FMCSA needs to define it. I hate to give the power back into the government to tell us what to do, but it's going to continue to happen until there is some sort of documented, agreed upon rules to follow that says this carrier is okay. Go ahead and use them. So I think that that'll continue to be a discussion. The other piece, the last thing I'll say here, Keenan, is that I think this is going to do a lot of larger companies are going to basically look again at private fleets. I think that'll be a be a trend that'll that'll be coming up as well. So and then I think care or shippers, right? If you are going to book a truck, you may not just say what's the cheapest price. You're going to say what's the price plus how are you vetting your carriers? Because ultimately, some of that responsibility, the way things are trending, could go back down to the the company that wanted to acquire those services. So it's still a mess. I think that the government needs to step in here and clearly define what is compliant and what isn't1.
Keenan Brugh 12:08
100% I think that's a great role for government to set the playing field. What are the rules? What are the standards? What are the the licensing or approvals that can help brokers, carriers, shippers all decide and make good decisions. You know, there's obvious price forces where shippers and brokers sometimes want to find low rates for things. But is it really a low rate if there's some nuclear verdicts or life's at risk? And it's kind of an arms race where whether they're non-qualified immigrants that don't speak English trying to to carry freight, or they've had a bad track record with safety and drugs, or speeding, or various violations. Just making a new company. The term chameleon carriers has been coming up and up, and people just kind of making shadow companies, and so I'm grateful. We at Cap have some very talented people who, for many many years, have had way higher stringent requirements for our carriers than anything the government has listed, and that helps us be in a good position. But I think more and more people are going to have to do that in order to make sure that people are safe on the roads, freight and the risk exposure is not higher than it needs to be. Yeah, you want a good deal, but are you cutting corners, or is someone you're hiring cutting corners and actually exposing you to much higher risk? So I'm glad more people are paying attention to the safety. You know, you hate to see people lose their lives or have some massive verdict against them, but I think that's needed feedback in order for people to up the safety standards. Hopefully, the the government can help with the setting of the rules, but I think a lot of the responsibility does come onto carriers, large ones like CH Robinson or other brokers, and vetting the people they work with, and yeah, really taking that seriously-it's an important thing.
Doug Draper 14:05
Yeah, yeah, that is a topic that will continue for many, many years, I'm sure. So, well, hey, this brings us to halftime. Brought to us by Keenan, you and your company, Cap Logistics. We say it every week. Can't thank you enough for giving us this platform. We enjoy getting on here and talking every week. But halftime is where we can talk about whatever we want. May have nothing to do with the logistics community. So, Keenan, you go first, my friend.
Keenan Brugh 14:32
Absolutely. Biggest halftime topic that immediately came to mind for me was the Tesla Roadster reveal. Did you watch that either live or see some clips the next day.
Doug Draper 14:42
Yeah, saw clips.
Keenan Brugh 14:44
Yeah, pretty awesome. It was kind of mind breaking. Of like, wait, they're building this ramp. What are they going to do? Some high speed? Nope, wasn't high speed centrifugal force. They have suction fans to hold this supercar down on the ground, kind of like what a. Boiler would do keeping more traction for the wheels as you're taking turns at high speed, but it's so strong that it just held up at a 90 degree angle and stayed there and continued going up the ramp and then using SpaceX style cold compressed air thrusters like you would see on an EKV or a satellite making adjustments to stay in the right orbit, using that to move the car here on Earth. Very, very impressive. Now it may be a $10 million supercar, and you have to be invited by Tesla to even consider buying one. But it was very impressive and kind of inspiring, you know. Even if we're not planning on having a $10 million supercar like that, it's cool to see that level of mind breaking innovation and what is possible, and kind of combining some space technology with some terrestrial supercar technology. I thought it was awesome. It was very fun to watch, and you know it's interesting to see how that plays into. There's rumors now about a potential Tesla and SpaceX merger. Clearly, those two teams work together on that project. Could there be more synergies down the line in order to justify combining those two companies? I thought that was very very interesting,
Doug Draper 16:22
yeah yeah for sure it caught a lot of attention, and we'll see how that transpires. What's the practicality of it? Probably not much, but if you have billions of dollars and you want to join the hype, put your $250,000 deposit down and see what you get. So interesting stuff. All right, well, Keenan, I'm gonna. There's a bucket list that I checked off this past weekend, and and our viewers may think it's kind of silly, but I'll I'll back up a little bit. When I was a kid on PBS during the holidays, there was the Mormon Tabernacle Choir that would do a holiday show, and it was all the songs that we all know for the holidays, and this past weekend I went to Salt Lake City. It was the fall break. My wife's teacher, so we went over to Salt Lake City and had a city experience. Right, I won't get into all that that details, but I was able to get tickets not to the holiday special because that hasn't happened yet, but was able to attend. It's called Music in the Spoken Word on Sunday morning, and the choir blew me away. It was unbelievable, right? The sound of the tabernacle and and the organ and everything. I mean, I was I had goosebumps, and maybe it's because I just had that when I was a kid and was so in awe of this of the sound and the harmonies and what was they were doing. Anyway, I was incredibly stoked about it. If anybody has a chance to go, it's tickets are free. You gotta you gotta reserve a ticket. It's only 30 minutes, right? And it is literally a live broadcast. They do a countdown like we do here on the show, and over a million millions of people across the world join in. But it was just absolutely spectacular, and I would encourage anybody that's in Salt Lake City on a Sunday morning at 930 that wants to go check this out. Absolutely worth it. The last thing I'll say, Keenan, is is the the venue where where they where they do their singing. We went the day before to hear somebody play the organ, and the acoustics in that place is crazy. We were like pretty much in the back just because we wanted to duck out if this thing got boring or not. But anyway, they tested the acoustics and they took a pen-not a pen that you write with, but a pen-and dropped it on a table, and you could hear it crystal clear anywhere. Wow! And you, so the acoustics. of this building is just astronomical. So anyway, I'm going down a wormhole here, but it was a bucket list. It sounds silly. I got to see it, absolutely unbelievable. And if anybody has any interest in that, go check it out. It really impacted me, and I thought it was
Speaker 1 19:00
awesome.
Keenan Brugh 19:01
That's amazing. Didn't even know to have that on my list, but I'll have to keep that in mind anytime I get the opportunity. You know, I get to Salt Lake for work or Utah generally for some snowboarding, but I've not really checked out Salt Lake City or the amazing architecture that goes into something like that acoustic design. That's really really cool.
Doug Draper 19:21
Yeah, yeah. So anyway, there you go. Some halftime stories that you may or may not wanted to hear, but it's our show, so we can talk about whatever we want. So thanks again for Cap Logistics. All right, this is the second half. So Keenan, what's your second topic?
Keenan Brugh 19:35
Yeah, looking at a China's export surplus and some critical minerals being leveraged, so in some sense these stories aren't new. China exports a lot, right? Their economy right now is doing quite well with an annualized GDP growth rate at 4.5% and a lot of that is from exports. They've been doing that for a long time. Was it 2000 or 2001 when they joined the World? Organization, they're an export-led economy, right? Their own domestic economy has been developing, but right now their domestic demand is pretty soft. So this GDP growth is really led by the export side of it. You know, ever since they were first led into the World Trade Organization and throughout, people have criticized for various trade barriers to sell into China, maybe it's unfair. They're still developing, but now they're pretty high tech and not so developing. They're pretty developed in a lot of ways, so there are critiques, or you know, people calling for better policy coordination. Still unresolved issues there. You know, she and Trump talked recently. Europe and China had an understanding about some of the EV type imports and competitiveness because you know the European Union has their own car companies, and so you know people want high quality, effective cars, EVs from China, but they also need to protect their own industry. So it's kind of a balance with that protectionism versus just the raw kind of mercantilism of well, this country is just exporting so dominantly, and related to that is the leverage that goes with being a sole provider of certain things, specifically some rare earth minerals. Now, again, this story isn't quite new. I've been hearing about this for 1015, maybe 20, maybe 15 years. I'd say about China producing, you know, 9798, 99% of the world's rare earth minerals that go into a lot of high-tech things from, you know, certain grades of steel produced for military and automobile industries, as well as magnets and electronics, and as we were talking about with some of the AI build-out type things, components that go into the fab labs for making computer chips, all the GPUs and all the RAM that is needed to to build out these AI infrastructure investments. While that's been something discussed and concerned, is it okay that they control that much of the market? It's just been so cheap. There hasn't been large movements of reopening the mines in California or other countries in order to try to compete or balance or take some of that market share away. But right now, it seems there's a more Pressing issue with Japan not getting the yttrium, one of these rare earth minerals that they need for high end steel production. Think automobiles, think military, think the turbine blades for power production, as well as the fab lab buildouts, and that seems to be a little bit political. Where yes, China's always kind of controlled it by producing all of it, but now specifically Japan is not getting their imports because of statements made by their prime minister relating to issues around Taiwan that China wasn't really happy about hearing that, and so China saying that they don't want to see a remilitarization of Japan. Maybe there's just the commercial competitiveness. But yttrium is a very expensive. I think it was reading over $1,000, 1200 or so per kilo outside of China, but it's $9 inside of China. So that's a massive difference. If you're a robot company or a car company, or a maker of machines that make chips and other high-tech equipment-it's going to be a lot cheaper for those companies within China. And not only is it more expensive for manufacturers in Japan, but it sounds like they're months away from running out, like they just won't have any more. They're not getting shipments from China. I think I was reading the U.S.
Keenan Brugh 23:47
is still getting about two thirds of what we're trying to buy and asking for, but Japan's has just fallen off a cliff, and so they're asking for help from America and other countries within the global trade ecosystem of hey help us out here we're getting hit pretty hard by this lack of a critical supply so it's been a long running story with China rare earth minerals but it seems to be coming more and more into the present with a month's runway before companies just run out of their input goods they need to keep going. So pretty wild. It's a long time in coming, but now it's actually kind of happening here now today.
Doug Draper 24:27
Yeah, yeah. Well, are rare earth minerals the new oil, right? I mean, they that is that is an ingredient that is needed. Talk about AI and the chips and everything else, and like the global growth of the economy and global trade, you kind of need rare rare earth minerals, and there's a whole hell of a lot of them in the in the country of China. So that is going to be a leverage point, right? I mean,
Doug Draper 24:54
literally, they can withhold, and I keep using this as an ingredient, right? Yeah. Hey, you got grandma's cookies. And their their chocolate chip cookies are freaking amazing, but you got to have baking soda for the one ingredient. And if you don't have it, they don't taste that good, or they don't whatever. It's a horrible analogy. But my point is that they have one key ingredient that is critical for so many things that are driving the global economy right now. That they have a lot of power, and they can leverage that in the political arena, in the commerce arena, and I think it's going to continue to be a topic that we're going to speak about, and it's going to be used kind of as a weapon, not literally right, but a leverage point. I think would probably be a better term, but yeah, interesting, interesting stuff.
Keenan Brugh 25:42
Yeah, and it's an interesting comparison you made with rare earths with oil. I mean, you know, there are limited amounts of oil. However, there are multiple countries that produce it, right? With everything we've been seeing in the Middle East, like you know, now it's getting a little better flowing out of the Middle East, but for a while, it wasn't shipping, but other countries, U.S. being one of them, but several others, Norway have been able to produce more because of that that shortfall. There's been a lot less of that capacity in the rare earth mineral space. Where if China decides to not sell yttrium to Japan, there's not really another country with an active rare earth mine that can supply that amount of yttrium, and it'll take time to get some of these mines up and running in that manufacturing capability. While they are called rare earths, again, they're not rare in the sense that they're not found anywhere else, but they are a lower part per million type component of a lot of rock that gets processed in order to find them or pull them out, and while it exists in other countries, the mining capacity, the production capacity is not there. So if that does slow down, you can't just have the U.S. or Norway pump more oil or LNG. It's kind of a oh, we need to start making new mines in different countries around the world, which people have been talking about for a long time, but haven't seen as much movement as it'll take. And here we are now, where it's kind of coming to a coming to a head.
Doug Draper 27:15
Yeah, yeah, interesting. All right, so my last topic is related to hey, the economy's struggling a little bit here in the U.S. The inflation is up, hesitation with with purchases. Everybody's trying to figure out what's going to happen for the holidays, but yet the L.A. and Long Beach ports collectively had a record in September. Right, we spoke about this a couple of weeks ago, maybe a month ago, that Long Beach itself is 25% up year over year, so we got all these record volumes. But what what what's the deal going on? And so here's my here's my hypothesis. Right is number one, there isn't more imports coming into the U.S. They're just being consolidated and coming through L.A. and Long Beach because one fuel right the the the the cost to get and the time the fuel expense from China to L.A. is a lot less than China to New York City right so let's just minimize that transit get it off the boat as fast as we can because fuel's expensive right number two the tariffs. There's still some uncertainty there. What's going to happen after the midterms? Things may change, but you know what? I'd rather have my stuff. I want my hands on my stuff as soon as I possibly can, because then I have more control as a company. Third, we've talked about this with the Panama Canal, the water challenges down there, the limit of passage. So to take something through the Panama all the way up to an East Coast port, more gas, more time, more challenges. So I think a lot of that is like I just need to get my hands on my product, so I have control to my bottom line, so I know how to sell it. I can't have the stuff floating around North America to try to get there. So I really think that the surge in LA is not because there's more imports. It's just centralized into Los Angeles, and a lot of people are doing this because I did a quote for a customer to do a full truckload from LA out to the East Coast, it was kicking close to 10 or $11,000 for for a dry van just to get from L.A. because they can they can charge what they want. So it'll be it'll be interesting that I think the high fuels driving business through L.A. The uncertainty with tariffs, challenges with the Panama Canal, so I don't know what that'll look like in Q1. But if these things don't change, LA and Long Beach are going to reap the benefits for the foreseeable future.
Keenan Brugh 29:53
It reminds me a bit of some of the similar stories we've seen in the Gulf or in Europe, as there are some. Disruptions or changes, people, all the shippers and companies out there try to make the best decisions. But then, as big movements of freight or the flow of freight changes, it causes new choke points, and so you get like, how can we get around some of these drayage limitations or do all that sort of stuff, and there's these knock-on effects. And you know, when the changes happen slower, firms, companies, providers can kind of rebalance assets or flows and keep things smooth. But as we get big changes or large volumes, you end up getting some of these choke points that can cost shippers quite a lot of money, even as some port or drayage companies or other people may do well in the meantime. Yeah, lots of changes and lots of lots of shocks to the to the system and options shippers are facing.
Doug Draper 30:52
Yeah, yeah, for sure. All right, well that brings us to the end of global trade this week for this week. And Keenan, I can't thank you enough for sitting in. Great topics. I always appreciate your insight. You you have a more in depth take on stuff than I do at times, and I really appreciate that. So I'll give you my namaste this week, my man. I appreciate you sitting in. Appreciate all the listeners and viewers every single week. And as our buddy Pete says, if it's happening in global trade, we will be talking about it on Global Trade this week. All right. We'll catch you later, my man.
Keenan Brugh 31:27
All right. Have a good one. Thanks, Doug. Thanks all. Cheers.