Global Trade This Week – Episode 137
What’s going on in Global Trade this Week? Today Trade Geek Pete Mento & Doug Draper of Inland Star Distribution cover:
2:03 -China/US Container Volumes Are Up
7:56 -Risks of Cyber Attacks on Infrastructure Such As Cargo Cranes
10:43 -Halftime
16:45 -Walmart Unloads 14,000 Intermodal Containers to JB Hunt
20:48 -Chinese Subsidies VS A New, Across the Board Tariff
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You're watching Global Trade This Week with Pete Mento and Doug Draper.
Pete Mento 0:10Hello, everyone, and welcome to another exciting edition of global trade this week. I'm Pete mento. And with me is my dear friend and co host Doug Draper. Doug. How's it going?
Doug Draper 0:23
Pete? I'm not as excited as you are. But it's Monday. I'm in Colorado. It's sunny. And how do we always talk about weather? I don't know. I just default to weather. And we've got you and I get together.
Pete Mento 0:35
We're gonna talk about hip replacements and 401 K's next. Yeah, buddy. And
Doug Draper 0:40
losing hair. But anyway, it's been good. It's a nice weekend. And yeah, I think nothing really of substance has happened to me in the last seven days, which is good. So it
Pete Mento 0:54
is good, isn't it? Right? It's great.
Doug Draper 0:58
It is. I don't have any, I don't have any crazy stories of my new new home up in Steamboat, which is good. Means money's not being poured out of my back pocket. So yeah, think things are good. Good, buddy. Where does this your background every time we get together, it changes. So where are you? Where does this podcast find you today?
Pete Mento 1:23
I am in the Indianapolis office of DSV. Some of my favorite people in the company work here. They're very nice people. And I will be here for the next four days doing sales calls. So as soon as I'm done here, I have to get out of the office and do two sales calls. And then I'm driving all over Indiana, doing sales calls this week. So going to Elkhart never been to Elkhart going to Fort Wayne. haven't been there in a long time. So I'm excited to go out and visit with customers and, and potential customers and see what I can do about bringing them over. Nice. Very cool. Very well. I kicked off the show, Doug, so that you go first. So what's going on now? Gotcha.
Doug Draper 2:02
This one. We can kind of, you know, tag team a little bit on this topic. But it's kind of weird. So my topic is related to China to the US container volumes seem to be up despite the economic instability in in China. Right. So there's the real estate implosion that we spoken about Evergrande liquidation? I don't know if you're a 60 minutes guy at all, but they interviewed the ambassador to China yesterday, I watched 60 minutes, like twice a year and I happened to catch that one last night. Did you see it?
Pete Mento 2:37
Yeah, I record it. So I can watch it. I love it. Yeah.
Doug Draper 2:41
Yeah, that Ambassador, I can't remember his name. But he seems like pretty, pretty legit guy. But my whole point is that he made mention of the Evergrande liquidation and they did this whole thing out there as far as the number of of apartments that have just been abandoned. It's it's crazy. So you got this real estate implosion, you got high unemployment, that we've kind of heard about their stock markets and in the in decline. But the ocean container inbound business, from what I read this morning on a Freightways. Article was that it's higher than it's been since May of 2022, which was like, you know, pandemic, a central at that time. So it's just, it's just weird that, you know, I almost said, it's like the Cookie Monster effect, right. And I take this from you, as far as Cookie Monster is gobbling up and consuming as much as possible. So now that inventories have been burned off, interest rates are somewhat stable. Seems like our economy is starting to level off. But the economic and political landscape doesn't seem to jive. So it's almost like this. Imports are increasing. But the instability specifically to that 60 minutes thing that we spoke about, is just it's as in stable, as it's been in many, many years. So it's like this. It's this weird. I Yang and Yang may not be the right because that means more complimentary, but it's just weird situation that we're in that the Cookie Monster effect is happening. Everything's been kind of right sized here in the United States. There's so much instability economically, politically, militarily, but yet we're still saying we need to buy buy buy from from China. And it's kind of like the infrastructures there already. Yes, people are looking to to alternative sourcing strategies. And that is happening. We've seen a lot of a documented processes where people are nearshoring or French shoring, but still when push comes to shove and you need to gobble up in the consumer here in the United States, where do you go? You go to where infrastructure already exists? You go to where up races are, are affordable. And I think the Teemu and she en appetite is part of that. People just want things now and it was funny. My wife my last thing on this beat, and I'll kick it over to you. So my wife bought a swimsuit, right? It's getting close to the springtime, and you know, got to do a swimsuit. And she didn't quite work out. She wanted to return it. She couldn't find the receipt. It just came in a bag. And she kind of found this email because you ordered it a while back. And they replied via text message. They didn't reply in an emails, very informal, lot of broken English. And they pretty much said, Just keep it, we'll give you 20% off your next purchase, which speaks to the fact that returning is nobody's going to return it to China, because that's exactly where it came from directly. Right. So anyway, my whole point here, Pete is there's so much instability in China. But yet volumes are up people are consuming. Everything's been right sized here in the United States. And it just doesn't seem to jive. Right? I don't know if that's good or bad. It's just an observation from my part.
Pete Mento 6:11
That's it's an excellent observation. The I heard a I guess it's a theory, right. And I've read a couple of articles about it now, with deflation so bad in China. And with unemployment and businesses struggling so much, they've been just dropping prices as hard as they can, to try to entice people to get into production to buy things are saying, well, you know, you have enough but look at these prices that are good at while the getting's good before things get better on consumables that you should put into inventory that you might use in the future, that's not going to be enough to make up for the difference that we're seeing here. The vast amount of that really just has to do with the fact that people in America are still buying a bunch of stuff. So consumer confidence is pretty high right now. And it's really a function more of our, our faith in the current market, and the fact that Americans are working and have disposable income, even with inflation. And with regards to your return issue, it's pretty common, right? People say, don't, don't bother sending it back to us just keep it because it would cost them more to ship it back. And it would just take away all their profits. And most people aren't going to use that 20% off going forward. So it is pretty common. They end up in you know, some goodwill thrift store, rather than being worn or given to some friend of yours, who it might fit, or that might like it, rather than just shipping it back. So that's pretty common man. But I'll be watching those container rates and watching the volumes pretty closely over the course of the next quarter in particular, now that we're gonna start seeing the numbers for Chinese New Year, because I think it's going to be consistent with what you've said, I think it's going to be a pretty consistent market.
Doug Draper 7:51
Yeah. Well, we'll wait and see. All right, what, what's your first stab? What's your first go at it?
Pete Mento 7:56
Well, being Chicken Little, and telling the universe that it's only a matter of time before we have a major cyber attack. Boy, did I have a weird week last week. There's a couple of things that happened. You know, we had an FBI report that came out two weeks ago, that explained the the Chinese attacks or attempted attacks on infrastructure. And then we had a huge at&t issue where ATT, let's be clear about this is saying it was not a hack, that it was an internal software issue. And that's what they're saying. So that's what I'm going to believe. But to me, when I start seeing that there's hundreds of 1000s, when it was all said and done, Americans that were unable to use your cell phone. It was bedlam. It was chaos, you know, and then think about the things that affects when your phone's not working. You can't use Uber and Lyft. When your phone's not working, right. You can't you can't access all of the applications that you use on a daily basis to make your life easier. When your phone's not working. I wonder if your Tesla will still start. Its issues like this, that really got my attention. And it wasn't that big of a service issue. When you look at the number of people's big service issue for at&t. And they're being kind they're offering a $5 refund, because that's how I saw that a day's worth of service would cost. But it goes into that bigger conversation about how America would manage in the event of a real cyber breakdown. And we had another report come out last week, the United States is going to be replacing all of our port infrastructure in the form of cranes, where they were purchased from China and using a particular system, because it's been determined that it's just not something we'd be comfortable with. If we went to war with China, they're just sitting there ready for the taking. So you're talking about, you know, probably $100 billion when all this done to replace all these cranes with companies that are friendly to the United States. The problem is nearly every crane in the world works off of the same Chinese operating system. So they may have to come up with their own operating system to manage it. Doug I, the conspiracy theorist in me, when it happened last week, I immediately thought this is a test. This is a test to see what would happen. And I'm looking forward to the post incident report with 18 T to understand it. But this is the level of of dependency that Americans have on technology. Take it away from us. Our country falls apart.
Doug Draper 10:22
Yeah, good point. Yeah. The one thing you said that made me laugh was the Post report. What do you say, to see what you at&t? Well, anyway, that's just a funny comment that you may
Pete Mento 10:36
post incident report like, yeah.
Doug Draper 10:40
Yeah, that'll be a good read. For sure. All right. Let
Pete Mento 10:44
me just halftime, buddy, go ahead. Yeah,
Doug Draper 10:46
no, I like this one. And sometimes, you know, morning up, I'm like, what's out there in the world? It's, it's interesting that we can bring to the halftime because it's pretty much whatever you and I want to talk about, unrelated to our industry. So I saw this one, I literally laughed out loud. And I probably will do the same thing as I'm reading these because it is so awesome. So in St. Augustine, Florida, this past weekend, they had the Florida man games, which is essentially, where they poke fun at the state's Rebbi reputation for like bizarre stories that relate to booze and fights and guns. And, you know, there was one quote that said this stupidity. This was from somebody that attended, the stupidity occur on the grandest, most spectacular scale. So here's what transpired. And here's some of the events that happened at the Florida man games this weekend. So first of all, every participant had to wear tank top and cut off jean shorts. They played the Star Spangled Banner on an electric guitar. And then whenever they were having all of the teams parade out, the audience was encouraged to drink beer and yell expletives at them. So here's the first event, they eat a whole bunch of barbecue and chug a beer that's not that big of a deal. This one just cracked me up. It was a theft simulation relay. So the competitors had to race while carrying bicycle, copper pipes and catalytic converters. There was another one where they had to run from actual sheriff deputies while they were jumping fences and other obstacles. And then there was a scramble, it was called a cash grab where they simulated a hurricane and threw a bunch of money in the air and everybody had to, to try to catch money. And one of the participants was interviewed. And they said that, you know, he said, they're calling these events. I'm calling this a freaking Tuesday afternoon as far as I'm concerned. I love it. You know, the thing is, like, if you Google, my kids sent it to me once like, Florida, man, and then you put in the date. Right? So you can say Florida man, February 26 20. And, and it would come up with some outlandish story that that just is not even any anyway, it's just comical. So anyway, the Florida man games, you and I are going to have to get down there and do a live broadcast on next year's event. I
Pete Mento 13:25
don't think I've ever wanted a field trip more. Doug. This seems like our kind of event. After you sent it this morning, I actually looked real quick on YouTube. And the videos were hysterical. I guess one of the events was trying to throw a live Gator through a drive thru window. This just this just seems like the kind of thing that we need to go to. I think that it would just be hours of content and talk about embracing you know the haters. I just think it's wonderful. Yeah. And I really hope that when they were running from the sheriff's they were had they had flip flops on.
Doug Draper 14:00
I don't know. I don't know, but it's just, you know what, it's all good fun. They're making fun of themselves in the stereotypes. And oh, the tickets were 45 bucks and they sold 5000 tickets. Wow.
Pete Mento 14:11
Where The Money for bail.
Doug Draper 14:14
Yeah, I don't There you go. We'll just say we'll just say it was for bail.
Pete Mento 14:18
Yeah, I would hope that it was. Well, I have times a little bit different buddy. Last week. We had a bit of a of a sneaker drop and you know that I'm a sneaker head. You're aware of
Doug Draper 14:31
this right? Yeah, yeah, movie buff and sneaker head.
Pete Mento 14:33
I love the sneakers buddy and Donald Trump dropped his shoes last week. And they are they're pretty unattractive footwear. Let's just be honest. I mean, bright gold LeMay high tops with American flags on them. And then his low tops as well. The the low the low rise sneakers also very unattractive. But of course they sold out immediately. They sold out like crazy. I don't even know how many pairs they made. But it was almost as though the second that they dropped. People just ran out, buy them as fast as they could. Now, I'm not going to talk about Trump necessarily, but I think every celebrity needs to do this. If there was a Charlie Sheen branded tennis shoe, I would buy it. If there was, you know, you name it, whatever, whatever celebrity is up against it right now. Lindsay Lohan flip flops, I'm getting them right, like whatever they are. I think this is an excellent way to embrace the fact that the world is kind of making fun of you by coming out with your own footwear and making it yours. So Doug, you're going to run out and buy yourself some some Trump Air Force ones?
Doug Draper 15:41
No, and that has nothing to do one way or another with political beliefs. I'm not that big of a. Well, I am kind of a shoe guy. But yeah, I don't. I got to look good. And those shoes were just tacky. And I think they made 3000. And they sold out within minutes from what I understand. But yeah, it's a strange looking shoe. But you know what, they'll probably be something crazy like that. That's going to come out in the next seven, eight months. Anyway.
Pete Mento 16:05
Now when you bought them, Doug, you also get a bottle of his cologne. Victory cologne, which has his head is the stopper. I'm sure it's basically the greatest fragrance ever. Nothing better. Absolutely incredible. I'm thinking about buying some of that as gifts for certain friends of mine that would not appreciate your holiday gifts. Yeah. Love
Doug Draper 16:27
it. Yes. That's crazy. Well, halftime, always brought to us by CAP logistics. Please give them a look at cap logistics.com. We can't thank them enough for the platform they give to us every single week. So I don't know my who kicks off the second part here. Is that near you? All right. So mine is going into transportation logistics, I'm just gonna pull up. You know, you go without notes. I go with notes here, Pete So but I saw that Walmart is transitioning out of all the of the rail sector and all the assets that they had with their 53 foot boxes, they put on the rail, right. So they're intermodal containers. So I didn't even realize this, but they had 14,000 intermodal containers that they actually had ownership of, and they're getting rid of those, and they're selling them, or transitioning them as the term to JB Hunt, which happens to be another Arkansas based company. And the financials weren't disclosed. So I don't know how they're taking it over. But the thing that caught me on this is during COVID, you and I spoke multiple times about the vertical integration that we saw during COVID. And we've literally referred to it as owning the rails, no pun intended. Where if you need to get stuff moved during COVID. Let's just control that. All right. So you had these retailers and Amazon was in the play with with chartering vessels. Everybody wanted to own every aspect of supply chain. So Walmart just sold their intermodal boxes. And last week, they just bought Vizio, right, which seems to be more in line. So is there a shift from vertical integration that we saw during COVID, back to let's refocus on our core business, the Walmart is a key example. The other thing this does is it bumps up their eco push, right? And you and I've spoken about if I was in the rail business, I would be jumping up and down so hard, and raising my hand so high to talk about the reduction in the carbon footprint that happens when you move things on rail versus, versus rubber wheels in over the road. So I don't know, is this going to be a growing trend? where companies are saying forget it COVID is behind us we need to refocus on what our core competency is. And then is this abandonment? That is my my comments happening too fast, right? They wanted to integrate to control. And now Walmart is an example of getting rid and shedding some of those assets and saying we're gonna focus on what we're good at, which is selling stuff in our big box and online. I don't know man, what do you think about that?
Pete Mento 19:12
I think it's kind of a combination of all those things. I think that there may be some accounting moves here right where you could you could do very well on a on a you know, on your on your spreadsheet if you dump a bunch of assets and try to make some money off of it after you've gotten what you wanted out of it before you completely depreciate them. I think that Walmart moves in such large volumes that their ability to sell these in a market right now they can probably get a hell of a lot for what their their export afford their shipping. These might not stay in the US remember that these intermodal containers are international they can be used in a lot of other places. You know note today the Walton the Walt fant Walton, Walton Family Trust sold $1.5 billion worth of their shares in Walmart which is nothing they like 45% of the company. And this, I think this is more of a trying to get it while the getting's good, and you've gotten the most you could out of your assets, let's see what we can get now that they're not necessarily needed. They control so much transportation and so much logistics, their market leader and all those things, this is probably a very calculated decision on what makes more sense racking them than owning them, and then trying to make money off of it while the getting's good. So I think it's combination of all the things you said, Doug, I don't think it's just one thing, but I'm not sure that it means that they're moving away from from owning rails, I think it's more likely what this is a good sign of is just intelligent business decisions on what they've got when it comes to their assets. But I guess we'll find out when the numbers come out.
Doug Draper 20:43
Yeah, we'll see what other companies are going to be doing along those lines. All right, bring us all my friend. Well,
Pete Mento 20:50
I read a very learned interesting article that was in the Financial Times that talked about the the constant friction between a China who is doing as much as they can to subsidize certain businesses in America who's trying to put tariffs in place to fight it. And it really comes down to this argument about how do we enforce all these things, you know, China's doing what they need to do to keep their their government, active in commerce and keep people busy and keep people employed. And the United States is doing everything they can to try to stop China from decimating our business here locally, by importing such low cost goods. And really, the gist of the argument philosophically is, do we need to come up with a way to enforce global trade differently? Has the method that we've done it for years to the World Trade Organization? Does there need to be a revamp of all of it, given how large these two economies are? And how trade is being used in a very strategic way, almost like economic warfare? And I would say, yes, I think we need to start considering ways for us to enforce global trade and enforce defectors and global trade in a way that we're actually going to be able to get them to come to heal for what they've done. The United States could very easily put that 60% tariff on everything imported, that President Trump's talked about, and it would have a dire effect, in my opinion on the global economy, not just the United States. And China can continue to just dump money into production, because people really don't hold them to task for doing it. And that's because the current regime of enforcement maybe isn't as effective as it could be.
Doug Draper 22:26
Yeah, it's a good point, it kind of goes to the I can't think of the right not dichotomy, but you know, all these sanctions and stuff. And we're going to drop, you know, potentially additional tariffs, depending on what happens in November. But yet, people are consuming. And if I have to make a widget and set up my infrastructure in another country, or exists already, and you can just, you know, plug and play coming out of China, I mean, every single time that that's going to that's going to work if you're if your ultimate goal is is a financial angle on it. So I don't know, that'll be interesting. And I think it'll be pretty stable for until the election, everything just kind of halts. everything slows down on election year. So we can just see, then we'll
Pete Mento 23:10
see some crazy stuff posted.
Doug Draper 23:14
Yeah, I think we're gonna continue to lean more political as things go on, which we said we wouldn't do Pete. So we got to check ourselves whenever when we come up with our weekly topics. Cool. Awesome. Well, thanks for joining us. In Indianapolis, Pete. As always, the you're traveling around the country. And we make time every week to bring this show to our audience. And we want to thank everybody for listening. And we want to thank Keenan for making it happen on the other side. And, again, as always, thanks for listening and join. If you have any comments about our shows, and you suggested topics, just pop it out there when these things go out into into the world. So Pete, good to see you, my friend, everybody. Thanks for listening. And we'll catch you next week on another edition of global trade this week. Take care later
Transcribed by https://otter.ai