Global Trade This Week – July 13th, 2022
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Keenan Brugh 0:00
You're watching global trade this week with Pete mento and Doug Draper.
Pete Mento 0:10
Hello, everyone, and welcome to another breakneck episode.
Global trade this week brought to you by our good friends at CAP logistics. IP bento and with me as always, is the erstwhile damn sexy driver. Now everyone, I'm going to warn you that I did not send anything ahead of time this week to duck. And there's a reason for that. This is Raizy week for me, God. This is our summer review cycle week. So we are going through our live or live reviews live promotion boards. I'm also preparing for my boss's visit next week from Germany. And on top of all of that, I have I had another webinar today. It's just been, it's been a crap slinging shitshow for me today. So everybody, I want you to know that Doug has not had the opportunity to prepare for the complete non sequitur madness is dealing with me. Normally, he's had a chance to get ready for my crap. Yeah.
Doug Draper 1:35
I mean, so the prep time can be anywhere from about two minutes to two hours with me. So sometimes it's good. So we'll see how we roll. I'm excited.
Pete Mento 1:47
Profit. Yeah, you're welcome. So since I, we flipped the coin. I love doing this. Since I, I elected I flipped the coin you want to toss? You have elected to receive that, therefore you will be doing the first topic today, my friend. So what do you have
Doug Draper 2:03
like it? Go man I'm in. So this was something so I've been on a lake vacation. I bet some of our listeners know exactly what I'm talking about big family, you fight over meals, everybody gets on the lake to get away from each other. And you drink a lot of booze. So that's kind of my experience in the last week. So I'm back. But one thing that popped in my head was this topic. And I said, Have we missed the golden era of the E commerce? So basically, are we chasing a consumer profile that has already changed and morphed into something else? And my immediate take Pete was yes. I'm like, kinda, then I changed to well, maybe. And I came up with three things that I think are indicators, we could say they are valid, whether or not but they're indicators that that I know is number one. Warehouses have a stupid amount of inventory, excess inventory, as we've spoken about. And the big box retailers have a lot of those warehouses, and they have brick and mortar they got to support and still deal with even though there's the ecommerce boom. So I think that there's going to be a lot of inventory push to a lot of brick and mortar and a lot of sales going on. In the fall, we've spoken about that. But those sales are going to come with you got to come to us, we're not going to you in the form of a deliver, you got to come to us. So I think that the big box guys have that advantage. The other piece is I just read last week that Amazon's canceling, or delaying the opening of 16 different warehouses. They are a smart logistics company. And you have to take note of big steps that they make. So the fact that they're backing off a little bit, I think is is a sign. And then the other piece, which is kind of interesting that I wanted to throw in there, Pete is that just eat take away jet, which is a European based, a food delivery company, they actually bought Grub Hub for like $7 billion a year ago. And then they're now trying to potentially unload it, right. There's a lot of rigmarole and communication and crap about what they're trying to do. But the bottom line is they're not seeing the benefit of that. So initially, I'm like, yep, people aren't gonna ecommerce anymore. And then I'm like, well, kind of a little bit and then I was in the maybe category, but I think there was going to be a shift. We talked about this before. Pete This is my last comments is 2020 was kind of a WTF is going on in the world. People were just crazy. 2021 was the purchase of goods. I've talked about goods and services that define the economy. So 2021 was good. And we chase the consumer profile and 2021 because of supply chain issues, we couldn't get stuff out. over here. So now that it's landing and accessible and sellable, that's where this glutton of inventory is coming from. And then 2022 has been all about services, which is the flip of goods and services. So people are doing experience economy traveling just like I did last week, and enjoying those those level of experiences.
Unknown Speaker 5:21
Now that we're in this, I know,
Doug Draper 5:25
potential recession inflation through the roof, what happens in a time of uncertainty, people pull back, and they do what's familiar, not only with buying habits, but how they manage their life. And what is familiar, is the way that we purchase and consume goods, prior pandemic, which is going to a store and purchasing them. So my point is, I think the E commerce wave is still growing, but not as fast consumer buying habits are definitely changing. And it'll be interesting to see, but the bottom line, it might take p, fourth, third, and fourth quarter going to be killer, if you're a brick and mortar retailer, to push goods, tangible items out your door for the holiday season.
Pete Mento 6:15
Okay, that can be a lot to consider there. So here's where I'm going to start with this, I think that we have to take into consideration some things that people were not paying attention to, when this inventory began to just pile up. First was a lot of companies that companies had a lot of cash, a lot of cash, and having a lot of cash and being fluid, allow them to make some decisions that they normally wouldn't pick, a lot of people got sloppy. Our industry, the supply chain industry is one that has always rewarded people who made frugal decisions, people who were cheap, but they were smart with their money, people who bought lean people who were able to develop a supply chain strategy, develop a purchasing strategy, that was smart. And when you got a lot of money in the bank, you don't have to be as smart anymore. So when they saw that it was getting more and more difficult to get inventory to the country they were bought, because they felt comfortable. Like, you know, consumers are doing some really stupid things right now with our money. We have a lot of money. If ever, there was a time to overcorrect, it's now let's do stupid things. Because odds are we're going to be in a situation where we overcorrect one way or the other. And they did. But they missed the market. They over calculated and they went the wrong direction. And now they have warehouses full of crap that people don't want to buy, even though they have the money to buy things. So now they're in a situation where they need to get the inventory people do want to buy people who have money, have jobs that are still according to, you know, the Consumer Index in Dubai. And we're with a supply chain on top of it that's still dysfunctional. So I think that if these brick and mortars want to sell things, you gotta get them. And you've got to put them someplace to hold them in inventory. So they're gonna have to go through a mass discounting, flooding of the market ridiculous prices to sell things for pennies on the dollar before we can get there. That's going to be painful. It's going to be painful, and it's going to be a hell of a lesson to learn. And there's going to be a reward for people who remember the old ways, you know, who remember the ways of the the old grizzly bastards like you and I, who still find value in doing things, the quote unquote, right way, doing things that go back to what it was like before the golden age of E commerce. Maybe the best lesson that we learned here is that we weren't as ready as we thought we were to convert as much as we did to this new brave world, where ecommerce was important as we thought it was. Maybe we've invested a little too much in the.com EECOM world for so many things. Maybe we weren't quite so ready to have milkshakes and pints of ice cream delivered to our houses as we thought that we were, maybe we weren't quite so ready that 50 pound bags of dog food delivered for free in three days. Maybe there is a price to pay for that, that we didn't quite build into our revenue model. And maybe that lesson was learned the hard way. Yeah,
Doug Draper 9:28
yeah. Did I just hear you say that drones are the end of drones because nobody wants 50 pound back? Well actually, they can't really carry more than about 1.5 pounds so it'd be dog treats I guess it's as best but the I think we agree on this one. So
Pete Mento 9:46
we do agree on this one, but I will never I'm dying on the route Hilldale dying on the drone Hill. Right market for drone deliveries my friend.
Doug Draper 9:54
All right. So here's the fishing pole. Let's go what do you what do you got?
Pete Mento 9:59
Alright, So number two, for those of you who wake up every morning and look at your 401k portfolio, for those of you who are paid in stock options and look at your stock, most of this has been pretty painful when you take a look at that thing. But here's the thing that I take a look at all the time, I am going on my vacation at some point in September. And on top of that, I don't think I've discussed this. I'm getting married, Doug. I'm getting married in the fall, if I told you he ended up with I
Doug Draper 10:30
have now I mean, I heard it from mutual friends across the country. But yeah, congratulations, that's a big one.
Pete Mento 10:38
And I, you know, I'm going on a honeymoon, I'll be in Italy for a very long time. So whenever you're whenever you're going to vacation to Europe, in in, in September, and then getting married, then I'm taking the new Mrs. trader to Italy for a very long, extended honeymoon. And when you're going to go to a foreign country, what's one of the first things you take a look at the foreign exchange. Now, I've spent a considerable amount of time in Europe in my 51 years roaming the planet. And one of the things I could always count on, was when I got to Europe just getting shellacked, we just get dunked on, by the exchange rate, I'm old enough to remember when I would go to Great Britain, when I would buy a pint of beer, it was like, you know, $2 to the pound, just getting hammered that exchange rate have, you just put your stop thinking about you know, you just stop thinking about it, and you enjoy it. And then when you come home, you realize you just got fleeced by the pound. And the euro, it was relatively similar, you know, it was, like $1.50 to the euro. And you just try not to think about it, and then you come home. And between that and that you're like broke for a month. Well, good news, everybody. Euro sucks right now. Like it's almost at parity. I think it's 1.18. Like it's, it's a it's $1. And like, it's $1.02 or something like it's almost a parody. So when I go to England and France and Germany and Austria and a couple of weeks, yeah, to get my drunk on. And, you know, an AMI decides that she's gonna go spend half of my salary on a Louis Vuitton bags, it's gonna be like, I'm doing it in New York, only with 17% national tax on top of it. So what's going on? What's going on is is the European economy is getting absolutely battered by what's happening in Ukraine, that their energy prices are killing that economy. There's nothing, there's really no nice way. But it's killing that economy. And they are now feeling the after effects of what's going on with COVID, what's been going on the global supply chain. And it was just that lingering effect of all of these different decisions that were made with everything from quantitative easing, to dumping money into the economy, the long term effects of the recession and inflation. So Doug, what you're seeing now is the rest of the was economies hampering their currencies. So for those of you head off to Europe, for your vacations, good for you, hopefully your flight makes it there and social luggage, if the second of all, enjoy it. While you're there, you're gonna see these these currency issues linger for quite some time. Yeah,
Doug Draper 13:38
I agree. 100%. And I noticed that when I was coming back, Wisconsin is not out of the country, but it depends on the part of Wisconsin it could potentially feel like another country. And yeah, I noticed that it almost in parity, and it hasn't made that much national news. Maybe it's not as sexy as a story. But it's phenomenal for the services aspect of the goods and services that I've mentioned before that the thing that I would say is, what's it gonna look like in September. And the one thing that just popped up, is that it's pretty damn cold in a lot of Europe. And a lot of that fuel and natural gas is coming in impacted by by the war over there. And I don't know if that's going to help or hinder, but I don't think it's going to help a whole hell of a lot. So I think that that parity of exchange rate will be with us for a while at least long enough for you to enjoy the benefits when you head over there and September,
Pete Mento 14:42
which is my second topic, and second of all, buddy, when the US dollar and the pound and the euro are all basically the same. That means that our exports are all competing pretty much at that same currency level, which means that it's going to be just as easy to buy that American high end tech export and it is Citiz, that German one, or that French one, or that Japanese one, which means that American workers are going to have a pretty good competitive edge if the technology is better, and frankly, these days is. So you're gonna see some advantages for us from an export perspective on things like aerospace, medical technology, high end, high end computer science, we've actually got a chance to pick up some ground. I'm hoping that that's exactly what we do. Yeah, that brings us to halftime. So what do you got my friend? Well, it's
Doug Draper 15:33
a it's a big topic that made a lot of splash in the last 24 to 48 hours. And I'm just going to call it the Jimmy Webb rage. And it's not a new basketball player at the rookie league in Vegas for the NBA. It's the James Webb telescope that has, you know, just saturated the market. And the pictures that are coming out of that Pete are absolutely amazing. And I think a couple of things on this one, technology around bringing those pictures, which is like orbiting the James Webb satellite is orbiting like a million miles away around the sun, and it detects objects, like 100 times more faint or fainter than the Hubble and I guess the text infrared light, which enables it to look deeper into space, which is deeper back into time. And at the end of the day, Pete, I think it's awesome, because I think I have a new desktop background saver on my computer, that statistics and the things that we're saying and the mind boggling scope, and perspective of what this telescope is bringing to the table is just not tangible enough, at least for my simple mind from Kansas to wrap my head around. And, you know, if it's going back in time, and looking at billions of years, I just want to go back in time enough that I can buy Apple or Amazon, right, its infancy, so I can crush it in the market. And then I would have sold it. So I think it's great. I love the pictures, I get the concept. But this is going to have a pretty short new cycle, as far as what it is. But pictures are kick ass. I love them. I don't even look real. But I think the Jimmy Webb is pretty cool. And we won't hear about it much again in about 72 hours.
Pete Mento 17:31
You're wrong. All right. There are there are moments in humanity that define us. We define us as an animal. And this is one of them. Where we are seeing the very edges, our ability as mankind, to touch to touch the extremes of our ability to understand the universe around us, Doug, we are we are literally using the frontiers of our understanding of science to determine where we come from, how we came to be, and the nature of our existence. And I understand that maybe a Kansas, you don't spend a lot of time looking into that. But for those of us that went to schools that are worth more than the paper the degree was actually All right, we we spend time focusing on these very interesting questions. So you go back to watching basketball, people that places like MIT and Harvard, we'll worry about those big questions. As we spend more time considering whether or not we all just live in one giant simulation. I don't know when you you just got to take a look into the very beginnings of the universe. And that doesn't, I get it, you and I to sit down on some big pretty Hill someplace out Colorado and just start doing fistfuls of mushrooms and start thinking about these big questions, because you are a brilliant man. And I don't think you've just had a little time to think about these questions, man. This is Well, whenever the question.
Doug Draper 19:23
Yeah, well, whenever the there'll be a new marijuana strand that will be developed here in Colorado, and it will be called the Jimmy Webb. I guarantee it. And when that happens, I'll let you know. Then we'll go to the to the mountaintop and have that conversation. So
Pete Mento 19:41
I'm willing to bet someone's already by the bell. That sounds like yes, it's a good idea. All right. Mine is a little is a lot less interesting than yours. So it is the middle of July. And my thoughts turn to equally as important issues as You know, astronomy, and that would be fantasy football. So I think it's fascinating that this time of year, all of the guys that got wedgies in high school for playing Dungeons and Dragons become the masters of sports. As they spend all of their time preparing for their fantasy football leagues I am the Commissioner of one league I played two other ones stuck up but this one week in particular, which is made up mostly of guys I played rugby with and then people that I I worked at free for three different freight forwarders ch Robinson Expeditors and crane worldwide. And it is a it is 12 different people in this league. It is the only league i Men where there is no money involved in all we do is talk trash. And we are awful. The guy, I can't even begin to tell you how terrible we are to one another in this league. It is very much like the television show. This the way that we treat one another could easily be a 30 minute long format. The extra show is absolutely horrible. I found a Dre carrier for a Friday night in the in the midst of the worst part of the of the of the of the COVID crisis. And I actually told the person I got afford that I demanded a second round pick. In order for me to make this happen for him. Like it was it was it was absolute. It's awful to one another. So I cannot wait. I cannot wait for fantasy football season. I am I won last year's league. And I talked so much trash about it. It was absolutely brutal. Done. I'm wondering, do you bother with the fantasy sports? I've got a feeling that's a no. But I mean, right off the bat. I'm seeing it in your face that you're you don't have time for this stupidity. And I'm guessing it's a no, no. The answer is no. So you don't even bother with the fantasy football. And because of that, I'm guessing that you don't have a first round pick that you're you're hoping that None
Doug Draper 22:25
None of the above. Not interested. Don't care. The whole bit. That doesn't mean it's not important to other people. And based on the picture on your over your left shoulder was some animal shooting a laser at something up there. I get it. Some people are into it.
Pete Mento 22:45
I'm not. These are our concert posters from the bookstore. This this is this is to to concerts from Washington DC that did not happen during the pandemic. These are highly collectible. So they got a big struggle fan. See Doug. I love it. People say I love fantasy football because it makes me excited about all the games and what if you want to be excited about all the games? Go like 500 bucks on a five game parlay. And then like you'll suddenly care about the bagels? No, again, it's against the Texans on the Thursday night game where there's a seven point spread. And you really want to care about football. That's my second question is Do you ever bet on sports? Isn't that's also a big hard No.
Doug Draper 23:31
Nope. I do not bet on sports. the only the only comment I have on sports betting and it's not relative anymore because the Monday Night Football game is not as big it's more Sunday night now but I heard a statistic a while back that the the game that is bet on the most week in and week out is the final football game of the week. Because you got to make your money back or you made your money and you want to really go for the big hit. And that's where all the desperation starts to chase into the end of the betting. So no, other than that point of information.
Pete Mento 24:05
I don't bet on sports. Well, that's gonna wrap it up on more boring. One wonderbread great jelly and skipping peanut butter with a glass of white Belk middle of the country answers for halftime brought to you by capital. Sweet. And with that, Doug, why don't you give us your second topic?
Doug Draper 24:29
I love it. I love it. Yes. So second topic. We talked about a little bit and this one's just super quick. Shocker. There's still congestion at the ports. And the media has decided to pick it up in the last couple of weeks where they say there's X, the quantifiable measure that we've seen to see out there which people, the layman, the muggles of the world can really get around is number of vessels that are often off the coast. That number is increasing, which is obvious. You and I talked about that you specifically talked about that multiple times. That is not over and still coming. The interesting piece on this one is number 160 5% of the vessels that are out there that are waiting, are now in Gulf ports and East Coast ports, which again, makes complete sense because when things were congested, in the heat of the pandemic, people were going around the other part of the country, and hitting these Secondary ports that we spoke about. So they're all congested, Li still congested. And we're not done with this thing yet. The one piece, I want to call out Pete, which simply just if you follow the flow of goods through the supply chain, it is absolutely so evident. It's unbelievable. Here's what's going to happen next, real estate, warehousing is going to be astronomically expensive in the second and third tier cities, which is where all these vessels are coming into and backed up on the on the ports on the Gulf Coast and the East Coast. So if you're a freight forwarder, or warehouse provider in Savannah, Georgia, and you know, South Carolina, you're going to crush it as far as the ability to make a lot of money. And if you're an importer, and have decided to use some of those ports, you better strap your boots on because there ain't going to be any capacity. And it's going to perpetuate the things that we just spoke about on my first on my first topic. So shocker, we're not done. There's congestion. It's now all over the entire country. And warehousing is the next supply chain node connector that we spoken about, that's really going to get hit.
Pete Mento 26:45
Yeah, I think all the connectors on the east coast there, it's going to be it's going to be just compiled, it's going to be one after another after another of a year. It's going to be backed up frustration. So you have that that fear of a West Coast port strike. And know right now there's pictures I saw just an hour ago with this this trucker issue of Oakland, you got people blocking the cord. And whatever happens out there is whatever's going to happen up the church will have that great tweet this morning, where he said, You got the situation conflicting information coming out of the negotiation, where you have some people saying, there's definitely going to be a resolution, it's just going to take longer than was expected. And that resolution is going to end in will probably be a sizable increase to pay. And what will be a bit of a losing hand to the owners who are going to end up getting less automation and they wanted but some automation. And then other people that are telling the press that workers are happy. And you're nowhere near conclusion. And this is gonna go way past August. And that type of of instability, lack of information that drives people to keep using the East Coast, which is what you just said. So, you know, I can do from my own personal being in that market. All I hear is oh, hey, how about those East Coast rates? And can you tell me about capacity east coast? And if I can't get the Savannah, what's Charleston seem like and talk to me about Jacksonville and what's going on in New York anyway, talking about containers, and it's getting bad, but now it's starting to get to that. Okay, I need to find warehouse space. Talking about the mail. What can you do for me with regards to chasis? Is there anything at all about we're more drivers, Pete, what something's gotta give, something's got to give. And for most of our career, it was West Coast, West Coast, West Coast, West Coast, West Coast. And you got people now really rolling the dice stuck for the label. And I want to do it, but it's peak. Those rates are pretty sweet on the West Coast. And they go to their boss's office and like, what do you say? I'm saying is, is give it a shot. But if this thing even goes a little bit sideways, it's your job. You're never working in this business again. You're the one who convinced me to do it. And in a time when for the past two years, just start with one monkey circus after another right? I mean, why not? At this point, like why not? People are just there to take the chance and because it's like you keep saying these connectors. One after another. Just back it's almost like a like a virus. It's ruining the next thing that it touches going all the way back. I'm running out of things to tell people to try next. Yeah.
Doug Draper 29:51
All right. Bring us on my man. What you got topic too.
Pete Mento 29:55
That was my that was my long winded way of saying I agree with the dog. So The last the last thing I'm going to bring up today is no, this is a pretty dire thing for us to talk about last today. So there was a fire talked about, it was talked about pretty extensively in the media, some of the largest lnd expert points out of North America down in Texas. And the fire that happened in the LNG port has made it very difficult for American exports of liquefied natural gas, natural gas. Why is that important? The Nord Stream pipeline between Europe and Russia is currently down. So today is the 13th of July. It's currently bound for maintenance. Some questions about how long it's going to be down in the maintenance associated, there's two things that you should keep in mind. The first is it being down for maintenance could have been permanent. So it could have been that had been down for maintenance could have been permanent. But the Canadians decided to send back a very important component, it was a gas turbine that had been sent to Canada for repair. Now, wasn't supposed to be sent back, that would have been a violation of the export protocol. But there are very specific loopholes that could have been used to send this back to Russia. So they did. There are also ways to look at the sanction to say that it could not have been sent back. But the Navy and export enforcement regulators decided they would send it back a lot of this having to do with the financial windfall, then also I think, severe. I really do. So this one very large component was sent back allowing Nord Stream to actually continue to be functional. If it had not had been sent back, there wouldn't have been any question about whether or not Russia would have been able to actually continue to send natural gas and to most of Western Europe, it would not have functioned. You would have had Russia on the roads. That would have been the end of it. But they sent it back. Now, if Russia decides to turn off the gas to Germany, or if Germany decides to no longer buy gas, it's game over. Right now Germany is experiencing some of the highest cost of energy that it has seen its modern era since the creation of the European Union. There are parts of the country that are experiencing brownouts. There are parts of country that are being told that the rolling blackouts, they're being told that they may have to ration energy, the economy itself is suffering for the first time since the 1990s, so you're talking since the wall went down, they're actually feeling recessionary hits, their export economy is suffering, that exports that they're they're actually going to have trade imbalances. That doesn't happen to Germany. European economy is going in, they need to buy energy. And natural gas hasn't been exported out of America, because of this terminal problem. At the rate that would necessitate growth. They're going to buy natural gas from everywhere, including the United States. Natural gas has been expensive in America, but not as expensive as it could have been, if we could have been exporting it at pace, which is going to start as soon as that terminal opens up again. When it does, the cost of natural gas in America is going to go through the roof. Does that happen? Late August. So in early September, when fall starts, the cost of natural gas in this country is gonna go through the roof. And it will continue to because we're not explored more. And we can't pull out enough to deal with our own needs. But gas companies are going to export it wherever they have to to make as much money as possible on it, because that's what you do. You sell your goods wherever the markets going to get you the most money in the world is looking at the most expensive ledger that it's seen in a very, very long time.
Including us. Yeah. Well, that dovetails Yeah, go. The last thing I want to say about this is that it's going to make producing goods more expensive in Europe, because they rely on natural gas much of their production costs. They rely on natural gas to move things around Europe with LNG, dollies, LNG, trucks LNG, you name it is going to be done. should have because more expensive, which is going to get their goods more expensive, which is only going to make the recession deeper. That's going to make keeping buildings and warehouses in this country more expensive as well for heat, dog, we have just made the recession worse. We have also made inflation worse. And we're doing it to ourselves over the new power, yeah.
Doug Draper 35:24
That is pretty deep. I'm not sure if he just wrote the script for the next mission impossible. Movie or not, but the first half of that sure sounded like it. And yeah, I think the bottom line it one thing that caught my attention on that one P
Unknown Speaker 35:40
is, or it's gonna go to the highest bidder,
Doug Draper 35:46
right? And if people are willing to pay in Europe, and we need it here in the US, and it's gonna have a walk off of our shores, and we're gonna wave goodbye. So be it. That's just how life and business works. And so, yeah, it's going to go offshore, it's going to make our situation more expensive. And all this is going to transpire, right? When we need heat, and the fall in the winter starts to come into play. So yeah, excellent detail. Great story. You're a storyteller all of it valid. And it makes complete sense P.
Pete Mento 36:21
Slash folks,
Doug Draper 36:23
by by sweaters. That's often what cap logistics says, When Kenan is about ready to push the button and say the time of the show is now over. So unfortunately, before we get pulled, I'm gonna have to wrap it up. And, and thank cap logistics for, as I say, pushing the buttons and turning the letters because you and I wouldn't be here without those guys. So thank you cap logistics. And thanks to our listeners, I think that was a hell of a way to kick off or end the show. And hopefully, our audience found it to be very enjoyable, and all of our topics exciting and relevant, as we continue to analyze, engage, and try to figure out this crazy thing that we're in called supply chain logistics. So until next time, Pete, thanks for joining me, my man. Always fun to talk to you. And oh, I think we should have a weekly update on Mrs. mento. Kind of how the wedding planning is going. I think our audience would really appreciate that. So just keep that in mind as you prep for next week's
Pete Mento 37:23
Very expensive.
Doug Draper 37:27
Okay. All right. And thanks for joining us today. Global trade this week. Pete. We're out of your mind, man. We'll catch you next week.