Global Trade This Week – April 26th, 2023
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Keenan Brugh 0:00
You're watching Global Trade This Week with Pete Mento and Doug Draper.
Pete Mento 0:11
Hello, everyone, and welcome to an NHL playoffs edition of global trade this week. I peed my toe in my ray bork, jersey. For the Boston Bruins and with me, as nearly almost always is my good friend, Doug Draper who is remote this week on assignment. In I never it's it's not Northern California. We call this like central central
Doug Draper 0:42
California. The Central Valley. That's what it's called.
Pete Mento 0:46
Central Valley,
Doug Draper 0:47
Central Valley of California.
Pete Mento 0:51
And you're in Clovis, is that correct? You're in Clovis, California, Doug.
Doug Draper 1:01
Yes, Clovis, which is a suburb of Fresno. So it is rockin and rollin. Here I was, I was telling you. So yesterday was like mid 80s. Today is low 90s. And the weekend I'll be out of here heading back to Denver, but it's supposed to be mid to upper 90s. So everybody's freaking out. And rightfully so about snow melt and continued flooding here. So it's going to be an interesting spring. I need the temps to come down.
Pete Mento 1:27
Yeah, I made the Clovis sounds like you're your cousin who shows up with his own bottle of wild turkey to the wedding. That's, that's a great, that's a great West Texas name, Clovis. So thanks, everybody for joining us at global trade this week. I Pete mento. This is Doug Draper. Joining us back in the booth is our friend Keenan bra. And Keenan is back from a wedding in Key West. I wish he was on video right now. So you can see him he is rested. He is very calm. He's tan. He he absolutely looks like he's come back from his Island Adventure Mon. He's 100% Jimmy Buffett keen. And now I think he's going to be drinking margaritas and eating cheeseburgers in paradise. He's gonna buy a sailboat and a bicycle. And we're just gonna be like shirtless and cut off jeans, walking around in flip flops and drinking Jose Corvo for the rest of his life, Doug, I think that's yeah, that's going to be keen. And now. Yeah. It's your turn Powell to kick us off. And I think we're going to tag team this week's first. First topic.
Doug Draper 2:40
Yeah, yeah, we certainly are. And it's all about parcel. So Pete, I'm dubbing this tag team section that the Summer of Love was 1967. This is the summer of parcel and it's not Haight Ashbury streets. It's the cross section of Memphis and Atlanta. We're gonna see a lot of craziness going on. So here's my two takes on things. Pete And then I'm gonna have you chime in because you have a different perspective on. UPS strike pending. FedEx is restructuring. You know, and I believe that FedEx had an anniversary a 50 year anniversary a couple days ago, maybe a week ago. He was April 23. Which is kind of interesting. So cool thing is, as we all know, UPS dropped the bulk freight in the LTL market and really focused on you know, parcel and even within that parcel profile, they've kind of ditched the oversize they're really honed in on small conveyable shipments, that they can just go to multiple stops and drop off at front doors. So it seems like there's lots of capacity now you're going to talk about that and the pivot of the economy. But here's the capacity. So your buddies over at the government that USPS, I read that they have capacity for 60 million of its packages, or letters or combination thereof, but they're only moving about 30 million a day. So there's capacity there, FedEx, from from the article, I read 17 million parcels a day, they're pumping around 12 or 13 million. So there's, there's capacity out there, and what transpired 1997 And I'll tell sidebar stories at a later date. But that was the last time UPS actually had a strike for about two weeks. And that floods so much business into FedEx, and I used to work at that time with airborne Express. I think you need to be north of 40 years old to remember that company. But anyway, the surge of money that that created for FedEx essentially allowed them to purchase RPS, which was their LTL division. So there's lots of capacity my whole point with this Pete lots of capacity. I don't know what the impact is going to be. to customers and companies. So that's the UPS side the FedEx deals that, you know, they've hired a tons of employees. And what they're restructuring trying to save $4 billion with combining their ground network and their air network. So they're looking for some savings there. The term that they've used is responsible headcount management, which basically means your ship can and we're going to spin it to the media. Anyway, so it's interesting, there's going to be a lot of posturing. FedEx is saying, hey, there's plenty of capacity, don't worry about it. And and UPS is, you know, saying it's going to really be a disrupter. So some are parcel and O'Brien with the teamsters is coming up with some great sound bites and one liners so it's gonna be a fun summer, not the summer love Pete. That was 1967. This is the summer parcel.
Pete Mento 5:56
I wonderful, Brian has writers. I wonder if he has a room of people that are sitting around and I think of your your quintessential comedy writers. It's a bunch of, of nerds, you know, Ivy League men and women sitting around a big long conference table somewhere with like, half empty pizza boxes and energy drinks, like, give me a premise, you know, because he is coming up with some absolutely hysterical lines and powerful ones too scary ones. So I wonder if he does have a room full of writers? Yeah, man, this is what I wonder when they say percent of capacity. Is it a percent of their usual capacity? Or is it a percentage of total capacity for the market? I don't know. It seems, it seems like a fascinating number to be slinging around. Is it making people feel better about a possible strike? Or does it do what it does to me, which is just, it just terrifies me. I mean, sure, FedEx has, however much percentage, but are they just going to go into the marketplace and say, pay up sucker. Because I imagine if it were me, let's be honest, you know, I'm going to take advantage of the market where I can, I'm not going to gouge the market, but I'm going to I'm going to try to do what I can to at least make a fair profit off of my ability to serve it. The US Postal Service, though, doesn't have that ability. Their, their market prices are set on an annual basis. They they publish their tariff, and that's what it is. So guess what, Doug? Postal Service is going to make a lot of money off of this because their tariff is set. And they can't they can't go out there and profit off the market. So I think you need to admit that this could be a good thing for the US Postal Service if a strike happens.
Doug Draper 7:47
You kind of I couldn't hear that last piece. So I'm not sure
Pete Mento 7:52
what you're talking about. Okay. Yeah. All right. Nice, nice, safe, tough, nice, safe. Now, the second half of this that I wanted to focus on was an article that came out yesterday in a couple of different of our, of our areas of interest. So you know, that it was it was in our industry periodicals, but then it showed up on CNN. So we're, you know, we're used to seeing this kind of stuff in the logistics news. But then last night on CNN, it pops up, which is UPS begins to talk about its financial situation. And very loudly, very boldly says, we're expecting there to be an economic downturn in the United States. So UPS says, We, as a company are expecting to see an economic decline in the United States. And they're very confident of that, like, Okay, well, UPS isn't a bank. UPS isn't a financial firm. So why are they so confident? And I continue reading and it says, because we move 6% of American GDP, because we move 6% of American gross domestic product. I was like, Wow, 6% of American GDP, we're confident that we understand where the future of the US economy is going. And I was, you know, I was absolutely taken aback. I was struck by that. And I began to, as my mind does, my mind's a three ring circus, you know, I begin to start unwinding all of that. So 6% of GDP. Let's look at the first ring of that circus. Think of the products that they move at 6% of GDP, their ability to actually understand what they're moving, who they're moving it to where it's coming from, who it's going to what those lanes are, what particular engine streams that it serves the rate of consumption of those goods, the demographics from an industrial situation of where they're going to the amount of consumption of energy that a company of that size must be using the different verticals of energy that they're using electricity, diesel, gasoline, the labor costs that they have across every vertical have those labor costs, increases in wages, decreases in wages, the footprint of their so there was that whole part, which I then began to really freak out about. And then I thought, could you imagine if you could combine FedEx and UPS is information. So if you could take all of that information, and combine it with FedEx information? I don't know if FedEx is the same size? I honestly don't know, Doug, I mean that, you know, you know, bad on Pete. Bad. Pete, right, bad economist, I don't know, if you took FedEx and UPS, you put them together? What would the total GDP be? Can you imagine? Is it 10%? Is it 12%? Is it 15%? I don't know. But the amount of information that that would give you. And the predictive analytics that you'd be able to do in the data science, that that one a lot for you is absolutely delicious to someone like me, what you'd be able to predict. So when UPS given the amount of information that they have at their fingertips says that I think that that may be one of the more important predictors of the future economy. And I'm going to start paying a little more attention when someone like UPS says that. And I think that if somebody were to be able to put together all of the information for all the logistics companies, you might have a more a more dependable analytic predictor of the future economic stability of this country than probably anybody on Wall Street.
Doug Draper 11:58
Yep. Yeah. I love it. I when we talked about that topic data, it's absolutely amazing, because it's real time. Right. And I did not even think about all the analytics with fuel consumption lane. You know, lanes that are taking priority, I was just thinking about what are consumers buying? How fast are they buying things that nature. So the data analytics, what we can do nowadays is awesome. Pete, here's that comment that I made mention of two seconds ago. It's like when you go to the doctor, and your eyes hurt. And they take all these tests, and they can't figure it out. And all of a sudden, they take a sample of your poop. And they tell you that you have low potassium, and all of the things come together, you take potassium, and you're problem solve. So it's poop analytics is what I'm going to refer to it SP, I think you can say that word on podcast. So that's it. It's poop analytics, through the parcel industry. I love it.
Pete Mento 12:58
Well, first of all, Doug, we say much worse than poop on the show. And second of all, it's big data. It's really, really big data. If you if you had access to that kind of information, literally in real time, but you give yourself probably a few weeks, you could tell which cities were growing, you could tell which sections of cities were growing, you can tell which states were growing in which ones were in decline, you'd be able to tell which portions of which cities were growing economically, you'd be able to tell where large layoffs were affecting particular parts of cities, you'd be able to probably tell probably tell where economic impacts were happening to particular demographics of the American population. I mean, just the things that you'd be able to tell if you had FedEx and UPS has information together, I bet Amazon I bet Amazon would would probably, you know, light a forest on fire for that kind of information. They would, but you know, they would probably pay an incredible amount of information. So you want to talk about another reason for UPS to buy Amazon, or Amazon to buy ups? Ufa. I mean, that's, that's incredible. That's absolutely incredible.
Doug Draper 14:12
Yeah. And Amazon gives that further reach, because they're looking at at what people are looking at drop rates, you know, they can analyze what people are doing in their living rooms, as they research determine what they're going to purchase what they're not going to purchase in the analytics that already exists there. So yeah, I mean, think about that. That's almost soup to nuts. So you can see what the consumers involved with, as well as what's transporting so crazy.
Pete Mento 14:39
Just incredible.
Doug Draper 14:41
Yeah, yep, yep. So anyway, let's jump this thing into halftime. As we know, it's sponsored by CAP logistics. We appreciate those. Those folks given us the platform every week, so please visit cap logistics.com supply chain and logistics needs. So Pete let it rip. Brother, I'm gonna have you go first on halftime.
Pete Mento 15:02
Yeah. So I've got a double halftime here, Doug. So just deal with it. All right, so my first halftime of course, everyone sees me wearing the jersey. No matter where you are in the country right now, there's probably something close to you. Some team close to you that is involved in the NHL playoffs. The NHL in America is probably not as popular not as big a deal as it is in certainly Canada. I do work for a Canadian company, I have that opportunity, that blessing. And I work with people who are who are hockey insane, which is wonderful for a guy like me, because I am hockey. I am absolutely out of my mind about hockey. So I was born in Texas. I grew up in Texas, but I have a father who is from Boston. And he raised me a Bruins fan. And most of my life, I did not have a championship team. That was until the 2000s when the Bruins won, not all that long ago in the eye of a sports fan. But we have a heck of a team this year. But hockey playoffs are long in miserable. As anyone knows who watches Hockey. Hockey is a very physical, very, very violent sport. And it takes a real toll on you. Teams have to get hot, but it's super fun to watch. So if you're not an NHL fan, there are a lot of great teams right now. Great teams, great young players. Very, very fun to watch. If you don't have a team that you're into, go watch a game. There's one on practically any night right now, I guarantee you that the charisma and the drama of the sport, you'll find someone to root for and and you'll you'll end up getting sucked in it doesn't take much. It doesn't take much weather. You know the guys are from Colorado, right? The young avalanche teams of the turn of the last century here. They were incredibly fun to watch. And, you know, Edmonton this year. Really young, fascinating team the Rangers as well that's a really fun, it was fun to watch Tampa Bay, kind of getting their noses rubbed in it with Toronto, a team that hasn't made it out of the first part of the playoffs in very long time. So just get out there watch all these teams find somebody you want to report just as long as that the Florida Panthers f them. Let's go Bruins. Then the second one, Doug, I had a question for you. Would you rather be lucky? Or would you rather be smart? Would you rather be lucky? Or would you rather be super smart. So super, super lucky. Or super, super smart.
Doug Draper 17:48
So is is luck. To me? That means it's always positive. Right?
Pete Mento 17:52
I just want to clarify things. Things just sort of like you know, if things were gonna break one way or the other things just sorta, you know, just you know, this usually kind of break your way when when you need something to kind of break your way.
Doug Draper 18:06
Yeah, yeah. Without question lucky. I'm not, I'm not smart enough. If you're too smart, you're gonna worry about your smarts, you're gonna have ulcers and everything else. So I'd rather just have an enjoyable life. Be a little bit dumb and lock down and lucky and it gets a thing and I'm all in you.
Pete Mento 18:25
I'll tell you what, dude, I've been the smartest guy in the room before. I've been the 10 smartest guy in the room before it's never been nearly as useful as being lucky every once in a while so I'm going lucky which which usually surprises people but I would absolutely go lucky rather than smart
Unknown Speaker 18:43
Yeah
Doug Draper 18:45
cool. All right. Well, I'm gonna jump into this and Pete I hope you can hear me I know we're having some issues with the Best Western out here but you me a heads up you can hear me okay. Yes,
Pete Mento 18:58
I sure can. Yes. All right.
Doug Draper 19:00
Thank you. So my my halftime is about Louie baton and the powerhouse that that is Louie baton Monet Hennessy reached a $500 billion status, recently largest company in Europe and the richest man in the world with Bernard Arnault. He's worth 200 billion I think 212,000,000,060 subsidiaries 75 brands, Tiffany's Christian Dior, Louis, Bataan tag Fendi, Sephora. Amazing, but here's the deal. They got five he has five children, all of which are part of or around the Empire. And if you've ever seen the show secession I know we've talked about that. This is a real life secession. Arno is 75 or 74 years old. So things are gonna get real and I think you could just throw some friends Subtitles into succession. And you're going to have that family dynamic. So the point of this when Pete, amazing company that's just exploding, he's positioned itself, his company and amazing, but there's going to be some, some nuances and some funkiness with that family dynamic as the generation shift to the new leadership. So little different halftime from my perspective, but I wanted to share that when it made headlines this week.
Pete Mento 20:30
So, first of all, Doug, good for him. God bless him. That is quite an accomplishment. Second of all, secession is a stupid show. I want to go on record. And the reason it's a stupid show Is it is it is maybe one of the worst depictions of of corporate corporations are boring. And, you know, all that all that corporate stuff that they're talking about. All the drama that they're leading up to, yes, it's tense, and it's anxious. But it's done with that whole brand that he built. It was done with just a you know, a bloodless, merciless. No anxiety is knocked out with math and banking. And it was done with with with lawyers, and like all the stuff that happens in it, it's just it's, it's basically a soap opera for people who don't know about corporations. So let's just get that out of the way. However, it's Brian is it is Brian Cox is that his name? Who plays Logan, incredible actor. That's funny. I watched, I watched that show because it Tom, the guy that plays Tom, I think he's hysterical. I know that no one likes him. I love the guy. I think he's wonderful. I love the guy. Second of all, when you have these issues with these families, fighting over these companies, I think it's as a shareholder, you know, that must be something terrible to watch. And I think it's a great indication of how you need to have these secession plans in every single business. I don't care how big you are, you need to have your number two identified, if you're the if you're the supervisor of the customs brokerage team and Toledo, you need to have a second identified and your second needs to have a second identified. You owe it to your team and everyone else around you to always be growing that next level, and to have people clearly identified and have someone who them identified. It's so important to have all that set up. So there's no questions. Yeah. All right, Doug, give us your next topic.
Doug Draper 22:44
All right, brother. And we'll do this I'm doing I'm doing this one really quick. Right. So it's the chips act, when I was on the plane coming out here to California, read a great podcast about the chick that ships act the the the analogy that it's the oil of the new generation, if you control chips, just like if you controlled oil, you had a lot of power. So the one thing that this podcast are, and I'll make a reference of it in this post, it said that there's 90% of the advanced processors, these are the ones that go into the smartphones, and will be teaching AI and artificial intelligence and the things that everybody has been hyping about 90% of those are made by TSMC in Taiwan 90%. So if you can imagine if 90% of the world's oil was produced by one country, it would be shocking and concerning. So it's not so the chips act that came out was a big number. US chips, I think it was 39 billion billion dollars that was going to be invested. But to build a plant with the technology, the equipment needed to make these chips, setting up a plant could be $20 billion. When you look at physical structure, the tooling the whole nine yards. So 39 billion is a lot but to get online and develop chips is not a quick, it's not a quick fix. So the chips act, it's got a lot of press, but we're in a worse spot than ever. Pete And this podcast I listened to is just shocking about that. And here's the one thing. So Well, here's the two things, my friend number one, it's another example of if you sell the pics and access to the minor, that's where the money is. So if you're developing the machinery and the technology that goes into the manufacturing plant, then you're going to be in a great position. And then secondly, this individual said that Apple is in the worst possible position because the second largest market is China. Their second largest market is China. I know, almost all of the assembly is done in China. I know they've migrated some of that to India, and all critical chips, or for Apple devices, all of them are made in Taiwan. And with that tension between China and Taiwan, China and the US, and that whole quagmire really puts Apple kind of at the precipice of what happens if. So, they're smart company, I'm sure they'll figure it out. But the chip situation is not going to be fixed overnight. It's more dire, then. And I think the general public realizes, and we're here today, Pete, to shed the light, the spotlight, if you will, on the craziness of the chip situation.
Pete Mento 25:46
Yeah, it's difficult to look at that, that holistically to look at the problem of chips, and not not instantly become terrified. I think as particularly supply chain professionals, and trade professionals to realistically understand from the machinery that makes the chips to the chips themselves, to the ability to move all of that infrastructure in the finished goods themselves, as well as the the raw material that goes into all of that supply chain, and not to get scared. There's all the things you just said, Doug, are not just reasonable, they should cause people to take a pause. So that rather than fuel the fire, which I can easily do, does it mean, you think you're scared now, I will make you need to change your shorts, I'll make it worse. So rather than do that, which I've been doing a lot of, in my speaking engagements recently, I'm going to give you things to be hopeful about. All right. So thing number one to be hopeful about in the 1980s. When we were when we were in high school, there was a book that came out called the Japan that can say no, I believe that was the title or it was close to that. It it was it was written on the shoulders of a number of military studies, about the the incredible amount of Japanese technology that was being used in the American war machine. And how if Japan decided to shut off the supply chain of goods and products coming into the United States, how our war machine would be incapable of answering the call against Russia. That that got a lot of attention for two reasons. One, the the ease with which someone could blockade the Japanese island, and how that would, that would more or less cut off that supply chain to the United States. The second half of it was at the time the United States and Japan had a positively horrible relationship when it came to trade. I think we forget now that it's 2023. Japan is the world's, I think their fourth or fifth economy on planet Earth. And we forget now looking back on it just how ugly our relationship was Japan with Japan was it was it was absolutely positively as bad as it is with China. Now it's not. It's not an overstatement, you would turn on the news practically every night. And you would see a graphic about the surplus between the United States and Japan. There were constant arguments between the US USTR and MIDI, it was nasty. And we forgotten about that. Because today everything is China, China, China, when in the 1980s, it was japan, japan, japan, japan, japan. So I'll start with that. We've been here before. We're here again. And there are a number of different ways that we can avoid all this ugliness. China will do what's best for China and its people. And right now it's best for China and its people really revolves around maintaining that trade. The second thing that I'll bring up is technology is constantly evolving. And our dependency on chips is a generation of technology that is seeing it's it seeing the end of its run coming now doesn't mean that it's here. It doesn't mean that it's that it's imminent, but it's coming and the leaders in the new types of technology that will be using as, as an industry are nearly all Western and mostly American. So most of the technology that we will use In the next generation of electronics, they're not Chinese. They're not Japanese. They're not European. They're American. So what will take the place of semiconductors, but will take the place of these chips are born and bred right here in the good old America, good old US of A. And we will control that technology. And we will not. We will not export it. I'm telling you right now, it will not be manufactured anywhere, but here. They won't. And we're going to hold on to it. And it's going to be a revolution in exports. And I can't I kind of can't wait to see what that looks like, frankly. So that's how I'll make it a little bit better. But at the same time, Doug, between then and now. It's going to be awful. It's going to be just anxiety and, and infighting and misery and a lot of fear.
Doug Draper 30:55
So, yeah, we
Pete Mento 30:57
have every right to be terrified. Yeah. Good. Right. So with that, my friend that will take us to another great edition of of global trade this week with my friend Doug Draper, brought to you by our good friends at CAP logistics. Thank you all for joining us. Please tell your friends continue to hit that subscribe button. You can listen to us as well, rather than watching us on practically every podcast platform that you can imagine. We want to thank cap logistics providing us the funding and the support to bring this to you. As well as as Keenan, who I guess I'll refer to as either Trump or Dan these days. The list goes on and on and Jimmy Buffett jokes that I could I could put together as he strings together the coconut telegraph, and does destination Samba. So thank you so much, everyone. And we'll see you again next week with another great edition of poetry this week. All right.