Global Trade This Week – Episode 189
-
Keenan Brugh 0:00
You're watching global trade this week with Pete mento and Doug Draper,
Doug Draper 0:08
hello. I am Doug Draper, with global trade this week, we're so glad to have you with us. We took a little hiatus for a couple weeks. We were letting things simmer, letting things simmer, because we really wanted to have some good intel when we come back on here. But I am only half of this show, the other half of me. I can tell by his staircase that he's in Washington, DC, I believe. Pete, where are you today? I'm home. I'm home. I'm actually on vacation,
Pete Mento 1:13
Yeah, yeah. Well, we got all kinds of stuff. Literally, we were talking before we jumped on air and stuff. There were some pivots, like, 20 minutes ago. That's just how crazy it is nowadays. So all of our topics are around the obvious, Pete, why don't you kick us off? Alright, bud. So last week, right on time, you know, right on time, we found out about the new reciprocal tariffs and how they're going to be done. What we also found out was that none of us had any clue about what these tariffs were going to look like. I don't care if you were a Nobel Prize winning economist sitting in your golden tower. I don't care if you were someone who was in the administration. Nobody had any idea what they were going to these were going to look like. And the the ultimate effect is this baseline global tariff of 10%
Pete Mento 0:38
but it doesn't feel like it today, and it didn't feel like it Thursday or Friday either when I took those days off, you know, poorly time time off, buddy. Poorly time time off. Doug, I love the I Am. Doug. Draper, I feel like I am Iron Man. That was fabulous when you announced yourself with great authority this afternoon that I'm
Doug Draper 0:56
stoked. Man, this show we like I said. We were out for a couple weeks, but we're back. I'm excited. You saw some of the text message I sent. Man, I'm ready to land it. Yes. He
Pete Mento 1:07
took his pre workout, he did his squat thrusts and his lunges and his push ups. He's ready to go.
Pete Mento 2:02
and then on top of that, a reciprocal tariff that can, you know, go as high as 60, 70% depending on where it is and the mathematics for making it are hysterical. Doug, right, like I was, I was expecting it to be all right, we're going to take into account tariffs versus this versus that. No, no, it's just the trade imbalance divided by exports, that's all. And there's this great on the ustrs website. They have this picture of the formula they use, and it looks like something that, you know, Good Will Hunting put up on the board at MIT in the middle of the movie. And then on the bottom, it says, In plain English, and then it just says, you know, the trade imbalance divided by exports. So they were trying to make it look more exciting than it was, but it wasn't. The immediate effect of this has been incredible. So, you know, Doug and I were talking with Keenan before the show started. The rumors that you're hearing right now, like the president's going to, he's going to delay these for 90 days, and then Trump comes on. That's fake literally said. That's fake news, right? And then the retali Retaliation that's happening not even 20 minutes ago. The President said, If China continues to retaliate, we're raising their tariff to 50% you know, just this. This just absolute twisting of the knife. So what's happened in the interim is a lot of confusion, and here's why the the executive order came out, Doug, but it was a bit confusing about how the tariffs were going to be applied. It was difficult about when. So if you have product on the water, when is it going to actually be impacted, right? It's got to get here before the 28th I believe, and it has to leave by the fifth. So then the new tariffs, the extra reciprocal tariffs, have to have left before midnight tonight and get here before the 27th but really, you know, other big surprises, Mexico and Canada don't have the additional tariffs. The 232 tariffs will take the place of reciprocals in some places, or won't be impacted if there's a reciprocal. It's just so complex and so confusing that I've spent most of the last five days, just really with a spreadsheet trying to work it out for people. And, you know, Doug, let's just be honest about this, there is a chance, of course, that a lot of these countries will negotiate away their tariffs. We've already heard about India, already heard about Vietnam, Cambodia, a lot of other countries, Israel, of course, being another one that has said, We'll drop all of our tariffs, if you'll do the same, and we'll work this out, you know? But now Navarro was on TV today, who's the Special Economic Advisor to the President, saying that that's just not enough. It's not enough that you go to zero tariffs. No, no. We want more. We want to worry about, you know, all this Chinese money coming in and transshipment. We need a bigger commitment than going to zero tariffs. It's just this is the craziest. What are we at now two and a half months of my entire life, my entire professional life, it is just mad cap, end to end, knuckleheadedness from start to finish. Brother, yeah.
Doug Draper 4:59
Well, Pete, you are an expert in your craft, and the fact that you say this is the craziest time in your career speaks speaks volumes. And then the other thing I'm just picturing you with an abacus and a pencil behind your ear trying to figure out all the formulas that you just mentioned over the last five days. Yeah, yeah,
Pete Mento 5:18
it was, it was more like a red crayon, you know, while I was drooling on myself trying to get through all of it. But the good news is, we appear to understand now how they're going to be applied, and they are stacking. There are some cutouts certainly that are going to be good for the automotive industry, some cutouts that are great for for our friends in Canada and Mexico. But honestly, Doug, this is just, you know, the de minimis. They're going to start hitting mail shipments with a minimum tariff of $25 it goes to 50 in June. It's, it is an absolute ass kicking as far as how this goes. And you can see it in the market. We were talking about that too. I mean, for a brief time this morning, oil was under $60 a barrel, which is not good at all, and it's a great sign of people's expectations that there's going to be less movement around the world. I got a text from a friend of mine today that said the spot market on aircraft for getting a charter went from like 350 grand to like 2.2 million today. Because people, what do
Doug Draper 6:16
you say? 2.2 million?
Pete Mento 6:19
Because people are just trying to do everything they possibly can to get this crap in here as fast as they possibly can before the night. And I am, I'm here for it from the perspective of, you know, the academic perspective, I think it's fascinating, but just the pain and suffering that my clients are going through trying to manage all of this, it really is. It's an awful time to be an import gun,
Doug Draper 6:41
yeah, yeah. Well, you made a comment about de minimis, which is my first topic. You okay? If I jump in, yeah, let's do it, brother. All right. Well, as you said, I was trying to come up with a clever tagline, right? De minimis Dubai, by de minimis Donata, and from from free to fee, those were the three best ones I could come up with about
Pete Mento 7:07
de minimis departs,
Doug Draper 7:12
all right? Well, you just nailed it, right. So effective May 2, right? They're eliminating it as simple as that, right? So here's some bullet points. I was thinking of Pete, because everybody that listens to this show pretty much understands the minimus, the $800 of value and lower free duties, taxes. So to your point, just a second ago, I think the air freight is my personal take on some stuff, right? Air freight is going to get hammered as soon as this gets done, if it transpires right, I think it'll emerge completely opposite of what you just said for the next, you know, 30 days. But after that, look for excess capacity, I think vol rates are going to plummet. The thing about air freight is you can pivot a lot faster than the steamship line industry, reposition aircraft, land them, but don't take off, right? So I think that that'll balance out the supply demand. But look at air freight, it's going to be volatile. The $25 thing that you just mentioned, 25 bucks minimum effective, may one, and then it goes up to 50, effective May 6. Now I got my abacus out right, and this is the Midwestern Wichita, Kansas math I'm going to implement. But I did some research Pete. There was 1.3 billion packages that went through and under de minimis in 2024 and the value of all of that was $64 billion so if I do my root rudimentary math, that's like $46 in average value shipment. And if you tack on a $25 minimum and then a $50 minimum, that's a big deal.
Pete Mento 9:02
It's all for x. What's the equation? It's all for a really big deal. Pete, that's what the number is. Yeah, yeah.
Doug Draper 9:07
It's crazy. It's crazy. The one thing to you, Well, there's two things here, the one of which is that I heard, and I'm gonna ask you to elaborate on this in a second here. But not right now, is it the collections and the transmissions of all the import data, the onus is on the carrier, right, right? And, and so if I'm a carrier, and I'm not 100% sure what's in these products, and the whole fentanyl situation and some of those reasons, I'm going to be as far away from that as I possibly can so that. But just give me a comment on that right now, because I think that's important, right? So the carrier now has the responsibility. What? What are your thoughts on that? Because I was trying to do some research and stuff. But my simple understanding is, if I owned a carrier and I was responsible for what was coming in, I would be very hesitant to just swipe the pen and say, Everything's good. Bring it into you. Less well
Pete Mento 10:00
the couriers, Doug got a little love out of this, right? So they still have an opportunity to use manifest entries, which is going to lower the cost of processing the diminished import, but doesn't relieve people of the territory. So they're having the opportunities. The FedEx the UPS is the dhls of the world. They're gonna have the opportunity to still bring it in with a much easier processing, but to do that, they had to take on more responsibility for the safety of the goods and what's inside them. So yeah, it's a gamble, and I'm sure that they've got better lawyers than we could ever dream of, buddy, so they'll find a way to make it work. But I think de minimis as a whole, on the E commerce side of things, is going to have a complete and total rehaul as part of the conversation between China and the United States, I think you're going to see more responsibility going on the exporter. I think the exporting country is going to be involved in drug interdiction and lots more screening. I think that's also probably we're going to see a lot more of as well. But de minimis has become just kind of a way of doing business. It's part of our business. It's part of what we do every day now. And unfortunately, we've gotten so used to doing it this way, we haven't really understood what the long term negative effects are of this program to the economy, to people's health to people's safety, and of course, still, the counterfeiting that probably goes along with this
Doug Draper 11:14
problem. Yeah, yeah. It's gonna be be tough. The other two final things on this is, de minimis still stays in effect, right? The benefit for certain countries, but a lot of those countries are where, over the past decade, people are like, You need to come up with a plan B. You need another sourcing strategy. Like, okay, I'll move it to Vietnam, I'll move it to Thailand, I'll move it to Cambodia and and those, the tariffs on those is greater than China in some instances, right? So, hey, I've done the right thing as a manufacturer and importer here in the United States by transitioning my supply chain over to other countries. And in hindsight, it didn't do anything right? There's no value. Just a swap of a pen. And then the last piece, Pete is like, how is customs, CBP going to handle all of this stuff? Right? As far as the data, the entries I just spoke to 103 1.3 billion packages, right? And now those have to be accounted for. I don't know you've talked about this before, about the overwhelming impact on to the regulatory aspect of coming into the United States. So what? What's the, again, I'm deferring to you, because you're the Pro on this stuff. What's the general vibe, like, holy shit, here comes a wave. Or what's the thoughts? You
Pete Mento 12:40
know, each one of these now becomes a line on a type one formal entry. So a lot of times, when you look at the volumes that a customs house broker does on formal entries, there'll be two or three lines, four lines, five lines, but there's usually not a lot of lines. There are exceptions, of course, but when you're talking about 10,000 20,000 individual shipments in an ocean container that's 20,000 lines in a formal entry, and it's complicated to do, and it's difficult, and it takes more time. It's going to be more expensive for these guys to operate that way if they do continue to operate that way. And then onto that as well. Doug, you were just talking about Vietnam and Cambodia. Here's where customs really is going to be a pain. They're going to assume that a lot of this stuff is just being transient, that people are moving it to Vietnam, Cambodia and to Thailand, and then just repackaging it and sending it to America, and Heaven help the companies and the people that do that, because customs is going to absolutely burn their village to the ground when they figure it out. Yeah,
Doug Draper 13:36
yeah. I think the shenanigans to work the system is going to be on high alert. And if you're an importer, and you think that that's the easy solution, you're going to be in
Pete Mento 13:46
trouble. You're wrong. You're big time wrong. You're going to get caught. You're going to get caught, yeah,
Doug Draper 13:51
well, that takes us to half time, right? Feels good. We haven't had half time in two weeks, right? So this is good, and it is, of course, brought to us by CAP logistics. We appreciate their efforts, giving us our soapbox every week, and Keenan taking care of us. So this is an all sports halftime. Pete, I'll let you start off
Pete Mento 14:12
baseball's back, and that makes Pete Very happy. I love baseball. I love the Boston Red Sox, what a friend of mine who passed away called the baseball poet. I love the game, and I love all the foolishness of the game. I love all the drama and all the romance of the game. I like it a little too much. There was a period in my life that when the Red Sox lost the next day, I was in a really bad mood. I've since overcome much of that psychological grooming that I went through as a young man with my family to make me love the Red Sox that much. But Doug, you know, for a period of my life, I worked for a baseball team as part of a job of the freight forwarder, and maybe hate baseball for quite some time. So the last couple of years, I've really gone back to being a purist and loving the game, to me heading off to a game and having a couple. Couple of beers, or a couple dozen beers, and eating about a pound of peanuts and just hanging out with my friends and watching the slow pace of it, enjoying the moments of it. It's just something that I truly love, and I liken it to the idea of cricket, where I have friends that will spend days watching Test matches on cricket, and for them, that's not boring at all. To me, the game's shorter now. It's more fun to watch. It's gone down in popularity. It will continue to because it is a slower paced game, and younger people just aren't as excited about it. But I'm excited for baseball to be back, and I'm wondering, Doug, I don't think I've ever asked you this. We've talked about every other sport, I think. But do you care at all about that baseball? Ish, ish, ish. Are you? Are you a Kansas City Royals fan? Are you a Colorado rock Rockies fan? Do you only care when people are winning? Is that what it's like?
Doug Draper 15:49
Yeah, I know, if to answer your question, I'd be more of a Rockies fan. But anybody here in the state that goes to in the state of Colorado, you show up a little late. Drink some beers. You enjoy the beautiful sunsets from the stadium, you hang out till like the fifth inning, the Rockies are probably losing, and then you eject, and you go down to lodo, drink a few more beers and go home. So it's more of the experience out of the diamond than in the diamond, and that, in and of itself, is a lot of fun. And I think to your point, Pete, if there's no better time right now is to have baseball or you can just go into a stadium and relax and turn your brain off and just focus on what's going on the field. So I think the baseball season is time very well to the chaos that you and I speak about every week
Pete Mento 16:35
so much. Doug, of my time with baseball has been with friends. It's just my other idiot buddies that love baseball. Karen way too much about a silly game and talking for hours and hours and hours just hanging out, you know. And I do love that very much. I missed it a lot during COVID, and I'm excited for another great year of baseball. I'm sure the Red Sox will crush my soul again, as they do every single year, but I will. I'll be root root, rooting for the home team and loving my boys. And I hope this year is different, but I know Hope's not enough. So, yeah, to baseball.
Doug Draper 17:11
Cool. All right. Well, baseball is like a six month season. I'm talking about a one day or a four day event called The Masters Pete that's coming up this weekend. I'm not a golfer, right? But there was a lot of pageantry around it, and there was a couple things that popped up that I saw this morning. They were very proud that the concession costs are very low and stable in the in the Masters over the years. But here's the deal. Have you ever heard of a freaking pimento cheese? I want to get this right here, like, what? What is it that they do pimento cheese? Where is that thing? Hold on, a second pimento cheese, an egg salad sandwich for $1.50
Pete Mento 18:01
Yeah. I mean, pimento cheese is like a it's a mainstay of the Southern diet. So yeah, that's when you knew your family was poor, when you went to school with pimento cheese sandwiches. And I did it many times, Doug, so yeah, I, I'm familiar with it. It's, it's an acquired taste. I recommend you get some club crackers, Keeler club crackers, and just scoop it on there, and you'll acquire that taste pretty quickly.
Doug Draper 18:24
Yeah? Maybe throw the sandwich away and just eat the club crackers. Yeah? Well, the other thing here's, I think Pete, they've they're coming out with $3 tomato pies. What? I don't even know what that is. I don't want to know what that is, but pimento cheese, egg salad, tomato pie and on the bottom of this article, Pete, what they said is they were going to have barf baskets. There's two per hole, because as you eat this crappy food and chug down $6 beers, all you're going to do is throw up, because that food is just got to be horrible. I cannot put some meat in there, right? You need some meat to to offset that stuff. I saw those two things, pimento cheese sandwiches, an egg salad and a tomato pie. Like, what are they doing down there? Doug, when
Pete Mento 19:15
we do our next live show, I'm going to have you taste some pimento cheese and tell me what you think. But this is, this is peak Southern cuisine. We're talking about, okay, this is, this is true, you know, trashy trailer park trash kind of kind of Chow. And it's from a different time. I think I'll put it that way, like that kind of food is what my grandparents would have loved to have had while they were watching a sporting event. I mean, go to Yankees games now they have, like, tiramisu and a helmet, and I think it's the Dodger nothing, either Dodgers or the angels. They have, like, $100 sushi plates you get at the game and stuff. The concessions are a big part of how these companies make their money. I don't think the Masters is so worried about making cash on pimento cheese sandwiches. So you're telling me I couldn't go find a hot dog at the Masters. You. Yes,
Doug Draper 20:00
exactly, processed meat that I don't want to know where it came from. I'll eat that all day long over pimento cheese and egg salad. Dude that that is horrible.
Pete Mento 20:10
It's kind of sad to get better food at a rodeo than you do the masters. That's messed up.
Doug Draper 20:15
I don't know. I'm sure golfers that are watching the show or like, that's a purest perspective. What do you do? Or what are you doing? Bad mouthing pimento cheese. I
Pete Mento 20:25
guess I get that. But name another sporting event where you eat peanuts, you know, as part of it. Or, I guess, I guess I think about it, most American sporting events you do, but yeah, that's, are you? So I can't golf either Doug, and that's a big part of like this in a lot of other industries, is a lot of golfing events, and I am god awful at it. I am just, I've never put the time into getting any better. I get frustrated with the game. I just, I can't do it. So whenever I get those invitations to come to a golf thing, I'm like, Yeah, I'll meet you guys after about that.
Doug Draper 20:57
All right. Well, that's halftime. Brought to us by CAP logistics Pete, we got to jump back into the topics of the hour. So what's your second topic, my friend, I like this one. By the way, you just shot this to me a few minutes before the show. I like this one. It's a different perspective. Exports
Pete Mento 21:14
are going to be impacted a great deal by these tariffs, and here's why. So we had something called the smooth Holly Tariff Act. I've talked about it on the show before. It happened a long, long time ago, and it's believed to be the impetus of the Great Depression and a lot of other terrible economic things that happened. But one of the big reasons the Great Depression happened was America depends so much on exports, and as the as the tariffs continue, if they if they do, if they continue long term. And that's speculation, right? No one really knows how that's going to go. It's going to mean that foreign countries are selling less of their goods, which means they have less money on hand to buy American goods. So that's part of the problem. Now there's an opportunity as well as the dollar loses its strength, it becomes less expensive to buy American goods. So the tariffs can make a big dent in changing that. They can make it worse by raising tariffs a great deal on America. But believe it or not, putting high tariffs on American imports actually impacts our ability to export. It can cause a tremendous amount of confusion and chaos, and it can rupture any any kind of, you know, advantage that we have on exporting our own goods, and it seems kind of antithetical. It doesn't seem like it makes sense, right? Like you're what would that have to do with it has a lot to do with it, because we are the biggest consumer in the world. You know, I use this metaphor today. It's like, if the fattest guy in town stops going to the Chinese buffet every day for lunch, you're going to sell a lot less crab Rangoon. You know what I mean. So the the if we're buying less and less from these places, they're going to have less and less money to invest in other economies, let alone their own, and it will have an effect long term on American exports if we don't find some way to manage this tariff crisis.
Doug Draper 22:56
Yeah, that's why it's called global trade. Yeah.
Pete Mento 22:59
I mean, think about it. Doug, right? So here we were just talking about how imports into America have played chaos on prices, short term and long term. For air freight, we can imagine ocean freight would probably be something similar. Well, now imagine if it's not just coming to the US, if all over the world there's less and less transportation consumption being done. What that would mean for global transportation rates and for our jobs, you know, for our jobs, we would have to try to find ways to make more money with less freight. And that's this hard thing to do, as we all know.
Doug Draper 23:30
Yeah, good point. I keep thinking of the, you know, be it with inland star, headquartered out in the Central Valley California, you know, one of the biggest groups is going to be impacted is farmers in the ag sector, right? So what does that mean? When there's problematic, you go to the farm bill, and you get subsidies, and they ask you to stop, you know, the conservation, I think, is what they call it, like, just don't produce, we'll pay you to sit on your land. And there's going to be some implication. All that money comes from the US government, right? You know, so they stopped that, and then they and they meaning the US subsidizes the farmers out there. And it's real. I mean, I've already started to hear about it with some of our clients, and it's a big deal. How are the commodities going to be impacted in the ag industry? It's going to be substantial if this
Pete Mento 24:22
transpires. Yeah, you're absolutely right. Doug, all right, what you bring us home, buddy? All right, here's
Doug Draper 24:28
my last one. And I want to preface this that this has been proposed, it's not gone into effect yet. Right is that whole million dollars per vessel, when they the port of call, the fee million dollar 25 Doug 1.5 What's that? 1.5 million? 1.5 I thought the extra 500k was just on, like high risk or unique commodities. Is it not 1.5
Unknown Speaker 24:53
million?
Doug Draper 24:55
Yeah. Well, the the thing that. The results of that, right? In my opinion, is, and some of these vessels, it's per call, right? So you come in and you just, you bump up the coast, and maybe your vessel will hit, I'm just going to keep it simple, Seattle, Oakland, LA, right? 123, there's, you know, four and a half million dollars. So I think what's going to transpire if this goes through is these large vessels are going to be like, I'm going to get the biggest boat I got, and I'm just going to call on one port. And there's only so many ports that can handle these mega ships, right? So that means the second and third tier ports that you and I spoke about that were the beneficiaries of the potential strike in LA, and then the chaos of COVID, where they really reap the benefits, right? They had phenomenal years because they were second and third tier ports. Those ports are the ones are going to get hit because they're going to call on Houston, LA, New York, Miami, and they're just going to bypass these smaller ports. So what happens when you jam more stuff? It's called a supply chain. So the ports are busy, the operations on the port, the drayage companies, the warehouses, and then ultimately the trucking go into the end consumer so just start jamming more product into these mega ports. And there's not that many of them in the US. It's going to create more congestion, which is going to create delays, and shocker, prices are going to go up. So I think that's something that folks need to take a listen to and see how that's going to impact their supply chain. Where are you calling? Did you take advantage of the smaller, second and third tier ports during some of the chaos. Again, they came up with a plan B. I came up with a plan B. I'm importing my products now. I'm bringing them in this in through Savannah. Well, those are going to be impacted, and the ultimate consumer is going to be impacted. So I don't know, have you thought about that? What's your take on it?
Pete Mento 26:57
Yeah, I've thought a lot about this. Doug. I mean, I get asked questions about it constantly. And so first of all, right, this $1.5 million the President today, what we're getting for answers is very low. Are they going to go through all the appropriate, appropriate responses and processes, or is the President just going to do another executive which he believes he can do? So I put up a post. I copied the post from Eric Johnson, friend of the show, from the Journal of Commerce, he he put up today, and we really don't know. I mean, he could enact these overnight if he felt like it. The President has an agreement now with CMAC GM, where they're going to they put $20 billion to port infrastructure and to, you know, American maritime infrastructure. And I think if you were to look at it, we've talked about this before on the show, right, that if every one of these carriers made similar pledges, he'd get about as much money from that. And that would probably be more beneficial politically. But that money is going to come from somewhere. They're not going to just like, find $20 billion a piece out of the bank account, hand it over. I imagine it would, it would affect raids, pardon me, would affect rates. And you know, another side of this Doug is the President wants to see half of our exports on American flag vessels. And they've talked about allowing Korean made vessels to be American flag, which right now, under the Jones Act, they can't do. So this creates all kinds of other problems. We don't have enough sailors, we don't have enough officers, we don't have people engineers to manage these ships. There's a supply chain that goes into building a supply chain, no different than truck drivers and airplane pilots, people operating gantry cranes and warehouse workers to find these people. So it's a much bigger strategic issue, the ability for America to have sea lift in a time of war and to keep the sea lanes open and manageable. I understand all of that, but to pull this thing on a hair trigger like this, I mean, sure, it could be a revenue generator, but one way or the other, it's going to increase costs. That's A and then B. In the interim, we really don't have a way of addressing the shortfall.
Doug Draper 28:57
Yeah, I like that last comment for sure. So interesting times. And you know what? Pete, all the things we just spoke about could be irrelevant in 48 hours. I
Pete Mento 29:06
hope so. Oh gosh, Doug, I hope, I hope that it's all puppy dog kisses and wedding cake and rainbows the next time we talk. That would be wonderful. But Hope's not a strategy. Yeah. So, as we often say at the end of the show, thank you all for joining us listening, please do subscribe on whatever platform it is that you listen to a deep, heartfelt thanks to our friends at CAP logistics for their unwavering support of the show. Again, neither Doug or I work for CAP logistics, and they continue to support us by allowing us to have Keenan on work release from his juvenile home, where he comes on once a week, and I thought that would get a laugh at a Doug. It didn't to work with us. And I think most importantly of all, as we always say, every week, if it's happening in global trade, you'll hear about it on global trade this week. See you next week. Buddy, take care. Drop today. You.
Transcribed by https://otter.ai