Global Trade This Week – June 13th, 2022
What’s going on in Global Trade this Week? Today Doug Draper of ACME Distribution and Pete Mento of Mento LLC cover:
2:25 -Real Inflation? More like 18.9%
9:32 -Too Much “Just in Case” Inventory
15:37 -Halftime
25:46 -Worker Strikes Getting Down to the Wire
30:38 -Mexico the Manufacturer
Inflation Reference Link:
http://www.shadowstats.com/alternate_data/inflation-charts
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Doug Draper 0:09
Welcome, global trade this week has landed. I am Doug Draper, your co host. And on the other side of the coast is my friend partner in crime. Mr. Pinto. Peter. How's life out there in New Hampshire?
Pete Mento 0:25
It's great man. Live for your die. There are worse evils than death. So we can't
Doug Draper 0:33
we can't start that way on this one. We can start that way. Nope. We're good. Yeah.
Pete Mento 0:38
No, man. It's great. It's great. I'm I'm all packed up. I'm getting ready to go to the airport. I'm giving a speech tomorrow with my friend captain Alex Johan off to tap his annual meeting on cybersecurity and the supply chain. So yeah, on planes next week. late next week, I fly to London. I am giving a speech for the Economist magazine. They're doing World Trade day, live for the first time in forever. And that is as long as my job doesn't force me to be home. And then the week after that. I'm speaking at our supplier Summit, our big annual supplier summit Boston for all of our wonderful suppliers for Wayfarer. So, yeah, lots of speaking. And then it just dies. It just just dies. Doug, it's like nobody wants to, you know, summer starts and nobody wants to have anyone show up for speeches. And that's fine with me. I'm gonna get on my motorcycle and enjoy some fresh air. But
Doug Draper 1:41
there you go. Why not? Tapas has been a big supporter of the show. What's Why does that happen again? Where is it?
Pete Mento 1:47
Today and tomorrow in Memphis, Tennessee, buddy, and I'm not gonna have time to go to Graceland or pick you up some Elvis stuff, but not this time.
Doug Draper 1:56
All right, well, in and out, get the job done. Hopefully, it'll be a good event you can tell us about next week.
Pete Mento 2:02
It's always great. Capital is great. Yeah.
Doug Draper 2:05
Awesome. All right. Well, you know what else is great. Pete is the show. And it's time to start jump in with our topics. So well. I'm working on my transitions, man. Now.
Pete Mento 2:14
It's tough. Yeah, transitions are tough. It's one of the hardest parts of comedy, but you work hard at it, buddy. So
Doug Draper 2:21
thank you. All right. That being said, By the way, topic one.
Pete Mento 2:25
Yeah, man. So topic one is is very relevant to our times, it has to do with inflation. So all of us listen to the news every week, and we hear about how inflation is growing. And we hear this number. So this week, the number is about 3.7%. And, you know, it's kind of like when people tell me tennis statistics. I guess that's impressive. But I don't even know how you score tennis I never have, or when people tell me about the CrossFit Games, and how someone did it. the CrossFit Games, I don't know man, basketball statistics, same thing. Or probably like when I talk about hockey statistics to you, you have no idea what I'm talking about, or rugby statistics. Inflation, we just know that when we start talking about it, it must be bad. That's kind of the way that that most Americans look at inflation. But I'm here to tell you that we're not really talking about just how bad inflation is, during the 1980s. Again, then again, in the 1990s, we radically changed the way that we discussed inflation, because we went from a peg, where we looked at inflation based on how the dollar was reacting to a market basket of goods. So in the 1980s, and the 1990s, we looked at the US dollar, and how it was incorporated against other currencies and other commodity which at that point was actually gold. And instead we said, well, let's not do that. Because that number is so radical and terrifying. And there's nothing the government can do to manipulate it. And instead, let's go to a market basket of goods. It's worked out pretty well, because inflation and the Federal Reserve is a way for us to keep people from panicking, keeping markets in line and doing a better job of a politically keeping people in office. So now we look at the price of a certain type of goods that every American buys. And it's easier for us to consume as people who are impacted by an economy, gasoline energy prices, cars, rental cars, you know, rents write certain types of food commodities, like eggs and milk and bread. So it's easier when you look at that graph to see it. But in reality, if we were to look at inflation, which we're being told that market basket of goods is worth about 8.7% right difference, inflation is actually that damn near 18.9% higher than it would have been if we use the old gauge of inflation 18.9% Which it has not been that high since then. 1949 At the very end of World War Two, when we were churning out war bonds, and the US dollar was worth practically nothing because of our war effort against the axis. Why does that matter? It matters because the way we look at things in the quote unquote optics of things are extremely important to Washington DC in the world. Inflation has never been this bad. And a good part of that reason is because of our quantitative easing. And the way the Federal Reserve has been having to deal with both the COVID shutdowns, the American economy over the past two decades, having to deal with the constant ups and downs of our economic strife. Everything from the global political meltdown that came from the mortgage crisis is, believe it or not, the impacts of 911 It's all strung together, you can't blame it on just one political party. And just one president, or one particular White House regime, this stuff goes on a long, long way. And the reserve has to find ways to make it more politically untenable. We have never in our lifetimes seen inflation like this, and it's nowhere near close to being done. We have not hit inflation, then the recession, as we know, it has not hit hits rock bottom, you're probably going to see like a point seven five basis point hit at some point from the Fed hit our, our, our bonds, you're gonna see the Fed come out and brutally hit brutally hit interest rates before this thing is over with. And I'm gonna call it right now, Doug, by the end of the summer, gasoline will hit on a national average to $7.
Doug Draper 6:41
That is shocking. That's what gets people's attention. And I did read a little bit about how they changed the metrics. In analyzing inflation. You said a couple a couple of years ago, one interesting taken I can't remember the guys name, maybe everybody down here knows exactly, I say Williams. And one of the things he came back with, which I kind of get at is that, well, you talked about the quality of goods, right? In the sense that while the quality has decreased, if you really wanted to buy the same level of quantity of an item, that you're going to be paying even more so than that. So inflation that you spoke about, but the quality of goods in general has decreased. So if you want to purchase something that the quality was years ago that can impact inflation as well. So yeah, I, it's $7, the gas is scary. I mean, holy crap, you look at what's going on now. And it's seven bucks, we'll have to make a note. So follow that up at the end of the summer. But
Pete Mento 7:46
national, the national average today is at five. So that's the the national average. But in pockets of the United States, it's quickly creeping up to six. And when you have, you know, the giant proportion of people in California that are all well paying over six right now, and when New York with the taxes is getting there, and you have a you have a lot of lawmakers in the US that are really hesitant to push gas taxes away hesitant to do you know much about about price fixing. And you can understand why, you know, there's a likelihood it's going to creep up that high. Add to that OPEC doesn't really feel any sort of pressure from US lawmakers to do anything about not lessening the easing of drilling. There is nothing coming out of Washington DC, about increasing drilling exploration, we only have so much that we can do with refining. People forget that part. We can drill all we want. We can import all we want of raw oil, but you've got to refine it into something usable, there's only so much we can do with refining. And one of the main areas of gas importation that we have, we've cut off because of their actions in the Ukraine. So again, buddy, there's only so much we can do. Americans are traveling, they're going on vacations, they're taking all that money they've made with their new jobs that they're probably all going to lose in the next year, and going on these wonderful trips. And jet fuel is going through the roof, which means people are gonna start making that instead of gasoline. So yeah, but I think gas is gonna hit seven bucks before the end of the summer.
Doug Draper 9:18
Yeah. Wow, crazy times for sure.
Pete Mento 9:25
So that suburban folks,
Doug Draper 9:28
there you go, what you got. I am jumping into some stuff I wrote over the weekend. And I think you've probably heard of the concept of just in time. And in the last year or so it's been replaced by just in case, which is a fun term to say, Holy shit. We don't want to be out stuff anymore. So let's import a lot of it. And I'm here to tell you that I think the pendulum has swung too far to the other side, in the sense that I read somewhere Of course at Walmart gap target, and a lot of other retailers out there have excess inventory that is equal to about $45 billion. And I think there's a couple things that are of note in that is that we are now in an experience economy. I think before we talked about goods and services, goods, was when things were going crazy in the, in the moment of the, the pandemic, peloton, bikes things you could touch and feel and work within your home. That was the stuff right? Those are the goods. And as you just said a second ago, we're now into the services aspect goods and services or the experience economy. Yeah, gas is five bucks a gallon on national average, but people are still going on vacation. You know, goods are focused on pandemic related post pandemic its service. So I think what transpired is you had the C suite and C level folks and these big multinationals were like we cannot be out of this product, do what it takes to get it in house. By the time it got here. The consumers pivot their buying or their buying habits and what's important to him right now. So there's a lot of stuff that's in route in a warehouse, that may not be churning as fast, as fast as it wanted to because consumers have pivoted. Right. So I think the what does the future hold and maybes pretty self evident, but there's gonna be a lot of fire sales. If you're going back to school, things in the in the, at the end of the summer, it's gonna be good deals, because you know, what's right behind all this shit that's in the warehouses. There's a whole bunch of things for the holidays. And so it's got to push it out. But all of this, even though with the firebox, on average, $5 per gallon, we're still surely believe speed in the roaring 20s. We've just flipped from, from goods to now services. And I'm not sure what the other word is after goods and services. But I think that we're are getting to the end of it. But the roaring 20s is still happening. My man, we switched into an experience economy. And retailers didn't pivot as fast. And there's a lot of stuff sitting around a lot of buildings.
Pete Mento 12:18
Yeah, buddy. I think we talked about this once before, you got a lot of retailers that bought a bunch of stuff. And they bought it because they were worried about the supply chain. And now they've got warehouses just chock full of things. And unfortunately, it's the wrong holes. It's a lot of stuff that consumers just don't want. So now they're in this unenviable position, they gotta get rid of it. So you hear about Target and Walmart. And those are always the two everybody talks about target Walmart, Target Walmart, who are considering having these ridiculous July 4 sales and, you know, ridiculous back to school sales to get rid of things that were winter inventory that showed up in the dead of winter that had been sitting in and you know, warehouses since spring, then you know, a lot better than I do. Warehousing is crazy expensive right now. So to have inventory wrapped up in a warehouse that you can be doing a lot better with selling stuff that's actually going to move. That's a that's a really difficult, you know, drained financially draining situation. And as you just said, we've got an armada of ships that are about to show up with a bunch of crap you want to sell right now, where are you going to put it? What are you going to do with it? It is it is a it's a brutal lesson yet again, in a long line of years now of lessons. Nobody wanted to learn from the pandemic, it just keeps on coming. And you know, we're playing whack a mole right now with COVID. Over in China. They're doing more closures all the time. Now they're doing testing again, in Beijing and Shanghai, closing down big parts of the city, again, testing people talking about shutting down parts again. So now they're getting worried again, saying, you know, we started, we started the we started the rush on the holidays early, should we start rushing it even more like what they can't get get a hold of raw materials. Doug, this is just the dog that keeps chasing its tail over and over and over again. At what point is this going to get any better? It all comes down to inventory. And I think this may be where the computers and the big thinkers come in bigger thinkers than us and start to get ahead of understanding what it is consumers want. Buying less and doing more with it, and possibly making higher profits and higher margins on having the right kind of stuff available. And I'm wondering if it's going to be companies like Amazon and like my employer that start to use mathematics, start to use machine engineering, start to use AI to get a better idea of what people are going to want before they want it they get available and just expect higher profit margins, or one more thing. I wonder if someone like Amazon is going to do a second Prime Day to clear out all that inventory that they need to clear out before, you know, or you know, if something similar to that what happened with target if they would do a Prime Day because they they're certainly known for their their online shopping as well.
Doug Draper 15:14
Yeah, yeah. Well Friday's coming up I don't know the exact dates, but it's always a summer summer events. So you're right, Friday is maybe the ultimate day of prime. So we'll have to
Pete Mento 15:26
get rid of it just firesale it. I mean, think about how much you gotta have coming in. Geez.
Doug Draper 15:35
Yeah, yeah, I love it. And, obviously have times brought to everybody, you and I and our listeners, I cap logistics, please visit cap logistics.com for supply chain logistics solutions that we just been talking about. So with that being said, I don't know you want to go first? You want me to go first?
Pete Mento 15:53
I am pretty upset about this man. So we've made No, we've never hidden it. Right, Doug, you and I are both really into rock and roll. And we both have an affinity for 70s and 80s. Maybe even 90s Right, you know glam rock, metal, hair, metal, metal, metal, speed, metal, just metal. You know, we like rock. And there was a really sad news report that came out over the weekend about Ozzy Ozzy Osborne, you know, pleasing our Black Sabbath went on to a whole bunch of great success all on his own. And it's this report that he's going to have to have a surgery that will really determine his quality of life going forward now as he's no spring chicken. He's He's, he's actually he's up there in years. And not only that, as Keenan pointed out, prior to the show, guys lived a spirited life. I think he snorted up half of the cocaine producing countries in one nostril. And then most of Afghanistan up the other one. So this guy has done some drugs. It should be of no, no, no surprise to anyone that the guys, the guys wrecked his body, but he's an Ozzy that he he's sort of up there with with Keith Richards and that we always thought he'd indoor you know, and he's just such a badass and we love Ozzy in the idea that this guy who we grew up with watching a be such a train wreck, and such a badass and kind of represented what it was to be a rock and roll star is now going through all these terrible surgeries and just trying to keep his crap together. You know, I mean, it's just this realization to me, man, that a lot of our idols, they're mortal. And we're going to start seeing, they're not going to die from choking on their own vomit or driving off a bridge. You know, they're going to have heart attacks and colon cancer and die peacefully in their sleep and it's going to be a bummer. It's going to be a really big bummer, man. I'm not. I'm not ready for it. I'm not a prince died. I did take a day off from work. David Bowie died. I was a wreck for a week. And I'm just not ready for it.
Doug Draper 18:05
Yeah, well, they're gonna come fast and furious. You know, Eddie Van Halen, last year, smoking, lung cancer, that one. And I started thinking that the two things popped in my mind on the story. Number one was the Def Leppard Rock of Ages where they said it's better to burn out and fade away. So I think the lifestyle of these iconic rockers, basically they're gonna burn out, things are gonna happen quick. And another thing is, I was looking at the Osborne's you ever that show on MTV? So you and I are in the sixth decade of our lives. Right around the 50 mark Ozzy was breaking like 52 years old. He was 90 He's essentially would be one of our peers right now on that show. And so talk about experiencing hard living and how that can affect you. I was I was just saying because I was like, the Osbornes How old was Ozzy back then? Frickin like 53 years old. And I was like, God bless. I thought that guy was 75 at the time. So anyway, it is. It's crazy time.
Pete Mento 19:17
When I saw Black Sabbath, my buddy yaki we went saw them, probably like 10 years ago, I don't know we saw in the great woods. He forgot the words to paranoid halfway through the song. And everybody else is upset about it. I'm like, that's the most Ozzy shit ever. Like, like that's kind of what I expect from Ozzy at this point, because his brains adult and it was great and he was such a showman and he was still fabulous in the show was great. And I loved it. And it was the first and only time I ever saw us. And it was and it was perfect, you know? And Slayer right? What's going to happen when the guys in Slayer have to wear adult diapers on stage? You know, I'm not going to be okay with that man. I'm going to see Paul McCartney this summer at Fenway and Paul McCartney is like 1000 years old, but he still gets up there. And he's perfectly cool with it. Ozzy can't keep his crap together. You know what happens when the guys from Metallica are going up there in wheelchairs with oxygen masks? I'm not going to be okay with all that, man. I'm not gonna be okay with AC DC can't play anymore because someone can't hear.
Doug Draper 20:23
Yeah, yeah. It's gonna come fast and furious. We get out a topic on that every every week for
Pete Mento 20:29
sure. What do you got for me? Doug? What's your halftime? All right,
Doug Draper 20:33
so this one. I saw it ended last week, maybe. And it's going to be validated by my wife, she says never talked about me on the show. But I'm gonna have to not, not by name. So here's something that we're the name Gary G A ROI as a name is dying off. Nobody's naming their kids Gary anymore, right? There's a handful of them out there that you could probably say, I don't think I know anybody that's under the age of like, 20. That's named Gary. Right? And doing some research that peaked in the 40s, early 50s. And they think they mean some of the research in this baby names site that I've looked at, is because of Gary Cooper. And he was kind of a big actor coming up. And so all the parents were like, I want my son to be like Gary Cooper. But, Gary, I don't know how this statistic comes up. But they said they mean this baby name website. There was only like 250 kids that were born and 2021 babies born in 2021, that were actually named Gary. And I started thinking about that. So here's the take with my better half. She is a first grade teacher. If there's ever a gauge on what names are popular, it's gonna be a first grade teacher, right? Yep. So this one kind of surprised me and really finds a kid for the rest of his life. Cash, GA s h is kind of a popular name. I'm like, Okay, we'll do it. Noah is another popular hand. Lots of kids coming through with Noah. And then Emma, Emma, and Olivia, which are kind of traditional names. Those have come back. And so look for that, you know, moving forward, Gary, on the way out cash, you better be a badass when you go around. If your name is cash, I'll tell you that. And if you're not you're gonna get pummeled quite a bit whatever you're moving along in your life but anyway, those are the names at least in Denver, Colorado first grade are catching some steam. So anyway, Gary's out cash No, I am at Olivia are in.
Pete Mento 22:43
Yeah, if you've never read Freakonomics Doug, there's an excellent chapter in it about how names ebb and flow. How people in the higher echelon of economics tend to give their children a certain name. And over the course of the next 10 years, it becomes adopted by people at the lower economic echelons. And as it becomes adopted by people in lower economic echelons, people in higher economic Echelon stopped naming their children those names. And it's an ebb and flow. So for every Tiffany and Brittany, whose parents are millionaires, 20 years from now, they'll no longer be Tiffany's and Britain's. And it's exactly what happened with those sorts of names. They become adopted by people. And it's fascinating to see the kind of work that they did on it. It's it was a really cool chapter. But for me, what was interesting was, you know, my daughter's name is Charlotte. And when we named her that, a long, long time ago, nobody we looked it up, it was not a common name at all, it was an incredibly uncommon name as a matter of fact, and now it's become extremely common. But what I have noticed is names like John. Bill, right? How many Bob's if you met recently, Doug, you know, little kids named Bob, you know, just a guy named Bob, what's going on, Bob? You know, Jim, little Jim here. Your Henry, what's going on? Hank, you don't meet guys like that anymore when I was a little kid. And because my grandfather was a bookie spent a lot of time in car shops. I met a lot of guys that were working on cars in the 1970s with names like Hank and Jim and Bob and Jack. Don't meet a lot of those guys anymore. Everyone's got to give their kid a name that makes them super special and unique. I have a name that I'd hated since I was a boy. I don't like the name, Peter. I've never liked it. I've always hated it. But as I grew older, I found out that it's a Sicilian tradition that you name. You name your son after his grandfather. So you know
Doug Draper 24:38
while there, yeah, when I was asking about our names, there's she's never taught a dog. She's been doing this for quite a long time. So that makes me a little nervous Peters. There's not as many Peters Peters and nobody named Kenan. So no, I don't know what to say. I know a couple
Pete Mento 24:54
of key little kids. Yeah. A couple of minutes and you're stuck. I don't know what he does, buddy. and all the dogs I know are British so they're either like Scottish or Welsh or English but I do know a lot of Douglass's and they don't go by dunk they go by Douglas they go by the full name and for little boys there's never any peaks but in my family because the Sicilian things we had so many Peters so as PD Peter Pete big PD little PD you know PD from Brogden. You know, Jimmy's P there's like all these peds. So, you know, yeah, I was little PD if you can imagine that, because I've never been little I came out big, still big.
Doug Draper 25:31
Well, as long as there's, you don't name A Boy Named Sue.
Pete Mento 25:34
Man, are you gonna catch? And whenever I put in a song for kids that have never heard it? They're like this was on the radio? Oh, yeah. That was looking good.
Doug Draper 25:46
Yeah. All right, man. Let's flip back into the gears. For number two.
Pete Mento 25:50
So number two is fascinating. You know, it's a fun one, because we've all been talking so much about the West Coast port strike, that we kind of lost track of the fact that port strikes happen all over the world. And recently, there was a work stoppage in German by German dock workers. And they're asking, like any other dock worker to be taken a little more seriously, paid a little more money, give it a little more time off. And it's causing some real bedlam. And it brings swings attention back right, to two very important topics. The first is when you have a port strike, it really jacks up spot rates on those lanes. And we're seeing that immediately. So you have your core carriers, who go China to Germany, have already said they're going to add additional voyages, additional strings, and all of the voyages that were currently impacted, already gone up. So you're already seeing an impact on rates, as you would expect. Second of all, you're already seeing people begin to say, well, how come nobody was talking about the fact that the West Coast, you know, the ILWU, and the PMA, they kicked this thing a couple of weeks forward, because they weren't getting anywhere. And now it's June 13. And their contract ends on July 1, and kind of do the math here. That's not a whole lot of time. And this seems like a super important thing. And what, what are we gonna do, right? I mean, there are all these things that are converging again, China opening up again. And, you know, I used to ride on ships across the Pacific, super long trip. And if I'm doing my math, right, the stuff that's about to get sent over here, it should hit right around the time a slowdown would happen. So if China, you know, China's opening up again, hits just about right. If these guys decide to do a work slowdown, or just do it by the book, duck, they decided to just do everything by the book, nothing special. There slowdown could start right when those vessels start showing up in the beginning of July. And if they decide to just walk, if they decide to really do a strike, it would screw up Christmas, it'll screw up all the back to school stuff. I mean, we'll all be wearing the crap that target Walmart have got given away presents that target Walmart have gotten their warehouses because that's all it's gonna be available. It will be, I mean, hey, bright side, it's gonna be great for the supply chain. Because we're going to just clear everything out, like it's going to be, you know, we're gonna have, we're gonna have everything cleared out, we're gonna be able to export all those, all those empties, because the ships are gonna have anything on them. Right. So on the East Coast, we'll just ship everything out of the east coast. It's gonna be wonderful for the backlog. But my gosh, duck, I think, for the first time, I'm, I'm actually worried. You know, everybody went to the White House saying get in there and do something about this in the White House, and, you know, Secretary weld and that weld. I can't read the guy from Massachusetts. Buttigieg throw like, yeah, here you go. You know, we'll make some phone calls, but I don't think anyone's really done anything about this and everyone else is running around holding hands singing Kumbaya, save, it's all going to be okay. And then I'm not so sure it's going to be okay anymore. I'm getting actually genuinely nervous.
Doug Draper 29:13
Yeah. Any, you know, the media hasn't glommed on it it hasn't been it's almost like a like a midget magician, you know, sleight of hand look over here. Look over here. Don't look over here while something's going on. And so I don't know it just it's baffling to me that nobody's talking about it. At least from my perspective. There's not a lot of press on it. It's just there aren't any says they're just gonna kick the can down the road because everybody has too much at stake to hold the brakes or flex any muscles. But part of me says if there's ever a time to flex the muscle, even for a little bit, now this would be the year to do it. So I don't even know how to go out but or how it's gonna go down. But it is interesting that the biggest thing is why the hell haven't we heard more? about it, because like you said, it's like two weeks away.
Transcribed by https://otter.ai