Global Trade This Week – Episode 111
What’s going on in Global Trade this Week? Today Trade Geek Pete Mento & Doug Draper of Inland Star Distribution cover:
2:22 -Asia to US Ocean Spot Rates are Back Higher than Contract Rates
8:04 -President Biden’s Executive Order on Strategic Industries
13:56 -Halftime
22:03 -Panama Canal Has an Underreported Traffic Jam
27:16 -Unless USTR Acts, 301 Exclusions Are Set to Expire Soon
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Keenan Brugh 0:00
You're watching Global Trade This Week with Pete Mento and Doug Draper.
Pete Mento 0:11
Hello, everyone and welcome back to global trade this week. I am Pete mento. And with me as he is nearly every week is my good friend Doug Draper. Who is in. Should we say beautiful Doug, let's say beautiful. Let's go Fresno. Let's give Fresno a reason to smile. Beautiful Fresno, California. I am in passable, passable, Woodbridge, New Jersey at DSPs corporate headquarters. And thank you all for joining us for what I'm sure it's going to be an action packed edition of global trade this week brought to you by our good friends at CAP logistics, Doug, how you how you doing, buddy?
Doug Draper 0:52
I'm good. We were talking travel earlier and rolled in last night for an airline not to be mentioned, but we're talking about the delays. I've never, ever flown to Fresno without being delayed and it's my own fault because I take the last flight out of Denver, so I can spend the weekend with family and it's always delight. So and then we're Fresno supposed to be here's the forecast. 105105106107 So it's kind of still hot out here in the Central Valley in California.
Pete Mento 1:24
Yeah, it's it's been a pretty tough summer up here. It's just New England and the other tristate area. It's just rain. And when it hasn't rained, it's been hot, miserable. There's no in between. You know, it's just downpours like, go build an ark, or it's just been hot and gross. So can't win, buddy. Joe can't win. We're not here to talk about the weather. They're old old man. You're here to talk about trade, transportation, logistics and global economics. But yeah, for
Doug Draper 2:00
sure. That's funny. You said that because I was like, I think every show we just end up talking like old man on the porch about the weather. And, and and somehow
Pete Mento 2:10
one of my favorite movies is dirty old men with Matthau and lemon. And it is it is a classic. I can watch that movie once a week and still think it's funny. Yeah, yeah. What do you got? But
Doug Draper 2:23
alright, so this one popped up on my radar the other day, it's talking about spot rates versus contract rates in the ocean freight industry, and Asia to the US. ln spot rates are finally starting to exceed the contract rates. For the first time since I think they said May of 22 or so I'm not 100% Sure. So I'm just gonna say 2022. And the thing there is, that's kind of how it's supposed to be right, which is another example of things are kind of getting back to normal. So you know, spot and contract. A lot of people listen to this show or into the industry, some are not, but contract rate says, Hey, steamship line, I guarantee this number of volume from this lane, give me a rate that I can bank on for a period of time, usually annually. And spot rates are a I don't need it that often. And just look at when I need to book it. And whatever the rate is, the rate is so much more volatile. It's almost like an arm on your mortgage after five years, right? It just it is what it is it goes up and down. And so because of the craziness, spot rates had been below contract rates, which is usually just the opposite. So here's a couple of thoughts on that Pete is that I would assume a lot of these large players that signed contracts, intentionally said I'm going to sign a little bit less of a contract this year, because I know the steamship lines need the business. And I'm gonna keep part of my my reserve over here in the spot market, because in the here in the now, the spot market was less expensive, right? So hedge their bets, don't put all your eggs in one basket. Yada, yada, yada. So that could be coming to roost a little bit. And I could see the steamship lines flipping around and saying, Hey, there's no more room at the end, so to speak, right. I know that you have other business over here in the spot market. Right. And it behooves me to keep it over there. Which couldn't start to inflate prices in the spot in the in the in the spot market. So I don't know if that's a big enough concern. It's not like one is dramatically higher than the other one right now. He is just starting to inch up enough that it was newsworthy. But the unique thing about this one is that for years, get as much as you can for the big importers into contracts then you're secured and you know what to expect and you can budget appropriately. I know that this year because of the you know the soft The market softness of the market. Not everybody did that. So is it going to be problematic? Possibly is it going to be to the point financially, with spot rates going up, that you and I are gonna see any of the implications? Maybe not, it just depends. But the beauty and we've talked about this, I shouldn't say beauty, but the thing with the steamship lines is like the cartel, so they could intentionally still have blank sailings and control that. So the spot market continues to increase, because more people are in that market now than years past, because it was beneficial to the importer for a period of time. So I don't know if this really is going to make that big of a difference. But it was noteworthy enough that I wanted to bring it up in today's conversation. So I don't know if you got any take on that. Oh, here's the thing I wanted to ask you. That being said, is it going to impact the air freight market, right, or people are like, I'm not going to deal with the spot rate market, I can't put any more freight in my contract rates, I'll go ahead and use air freight where I normally wouldn't have, which means there's going to be limited capacity air. So that's a little bit of a stretch. But this is your forte, my friends. So tell me what your take is,
Pete Mento 6:07
I believe there's definitely going to be some impact to the air freight market and that a lot of unused capacity is going to get gobbled up. So you may see some adjustments there. But airfreight has been pretty stable. There could be some some adjustment, I don't think it's going to have any cataclysmic increase. But there could be some some adjustment there. I think what we're seeing here, Doug, is there was so many companies, so many companies that were successful bcos going back to these carriers and renegotiating rates. So I think that has had some thing to do with the stabilization of spot getting closer to rates. So that's that's had something to do with this. Not all those kooky rates that and there are still a lot of them. A lot of really out of gauge rates that are catastrophic. But I think this has had a lot to do with that. The carriers are doing a commendable job on their part of the blank sailings and the slowest evenings and, you know, taking capacity out of the marketplace, because they have to, you've just got to, in order to keep prices at a place where they're just not losing their shirt. So that's got something to do with it. It just wasn't a real peak this year, because of all about all the volume of inventory that's just in the United States and haven't seen the fire sale. Everybody was expected. Yeah, so that's just it's just the reality does, you know, they're, they're in a business where they have the ability to constrain capacity as best that they can in order to try to make money on what is actually moving. So I gotta give him credit, you know, hate the game. Don't hate the players.
Doug Draper 7:48
Yeah. Yeah, that last sense you just made we could insert OPEC and the oil industry and nobody would know the difference between that last statement. So interesting. I
Pete Mento 7:57
said it not me, Doug.
Doug Draper 8:00
All right, brother, what you got for your first set
Pete Mento 8:02
topic? Yeah. Mildly controversial topic. The President signed the ability for the USTR and the Department of Commerce to roll out the framework for a piece of legislation and rule changes that are going to allow the United States to constrain investment in Chinese companies that are going to be competing with the United States, on semiconductor production, microprocessors, artificial intelligence, quantum computing, advanced computing and advanced technologies, saw this one common. We talked a lot about this in previous editions of the show. And these are all advanced technologies that the United States has, for years been leading the world in production, and has been competing neck and neck might in mind with the Chinese. The difference here is that a lot of American companies, a lot of American investors, a lot of American private equity, and investment firms have been dumping money into Chinese companies looking to make a quick buck. Not going to be able to do that anymore. So the list of companies that are going to be targeted has been released, the framework for how we're going to put sanctions on these companies has also been put out, and a comment period has been opened up that will end on September the 28th. This is big Doug. So this is true financial warfare, where a lot of that big money that would go into direct foreign investment is going to come from the United States. The expectation is that Europe is going to follow, we're going to put tremendous pressure on the Europeans that Canadians, japin Japanese, other other Asian like minded Pacific nations to follow our lead, they likely will. And this is going to take a lot of that funding that they would have found allowed out of the hands of these Chinese companies and force it to be government funded in China. Chinese have the money to fund it from the government. But it's going to take that money away from other enterprises, like the military, space exploration, you name it. Now, it doesn't stop India will see which side that they decide to go on. It doesn't stop Russia, which, you know, the kind of involved in a ground war right now. This is huge. Now another thing that they did is they they put in there, we're also opening up the ability to apply this to other other technologies that may arise. So who knows what that could be, you know, beyond artificial intelligence, virtual reality. Who knows what may be, this is a long time coming. We probably should have done this 10 years ago to be very frank duck. But it's also going to likely force any investment that's already underway to be recalled. That's, that's pretty incredible. So this is, this is really laying the hammer down between the United States and China. And it's probably about time.
Doug Draper 11:11
Yeah. Well, the two things that caught my attention on this topic number one is it's an executive order. Right. That's why it kind of came out of the blue it may be may have been percolating. Right. But crafted, written and approved by AI by POTUS. Right. So that's interesting. I don't know if there's anything to read into that. I'm not putting a tinfoil hat on by any stretch, but executive order just just happened. Right. And the other thing that I wrote it or read is that it's been couched or positioned as national security, not exclusively economic interest, right? It's correct. And I don't know about you know, my, my, my civics class, I was throwing paper airplanes, and, and jacking around in class and middle school, but there has to be some sort of benefit by sticking it under national security versus economic interests, to position itself in the future, to be able to zig and zag and pivot and open it up to other things. To be frank with you, it could just be a blank check, you know, national security mean, you can pretty much do anything on the benefit of national security. So I'm a little not well versed in that, but it caught my attention, there has to be something there, which struck just struck me as interesting.
Pete Mento 12:34
It's easier to enforce, Doug, and it allows us to enforce it internationally. So if there are other countries who are engaged in it, it allows the the tentacles of international law enforcement, if you will, to be more broadly effective in our ability as a nation to enforce it. That's great news for for international enforcement. And, yes, the President doing this means we don't have to get Congress involved, which means it's going to happen super fast. What I think is interesting, you've not heard a peep of peep from either side of the aisles of Congress about this. It has been, dare I say, universally accepted. And it could have been a Trumpian edict. It could have been for President Obama, Richard Nixon, Truman, it could have been any president that put this out there. I think that where we are right now, from the, from those of us, those people who actually read about this stuff and understand it. The general fear of the adoption of this type of technology in the militarization of it has people pretty much on edge. So the idea that there are Americans who could be funding it, and that it could be used for military and use really does terrified, General, average Americans. So yeah, no, no shock. They're
Doug Draper 13:55
crazy. All right. Well, let's jump into one of the favorite segments of our show, which is halftime, of course, brought to you by CAP logistics. These check them out at cap logistics.com and help them move stuff around, for lack of a better term. But yeah, Pete, we got a big announcement that I'll take, but I love the fact that you have some phenomenal takes on on film and theater and television. So I'm going to have you go first.
Pete Mento 14:26
All right, so I spent a lot of time stuck in airports. Thanks, Mayor Pete. And you know, the, the latest my latest recommendation is on Netflix they have they have a show called I believe it's uncovered. I don't remember what it's called. But it's a sports documentary series. And they have one on Johnny Manziel. Johnny Football. I am a Texas a&m fan. I'm an Aggies fan. My favorite uncle, my uncle Dwayne I was an a&m man, and not being not being given an opportunity to make up my own mind on who I would be a fan of as a young man, I became an a&m fan. I'm happy for it. And journeyman Zell sort of re reinvigorated, if you will, excitement in that fan base. But I didn't really know just the depths of his tomfoolery, of his high jinks of what a knucklehead he was, when he was playing. And this gets into just what a wacko he was being. And it's a fun watch dog. It is a fun watch. Not Not the least of which, getting into the way that he was monetizing his popularity and notoriety. It gets into how he was circumventing the rules, the depths of the lies he was telling in order to do so. The the way that much like any meathead college athlete, myself included, if putting the same position, he really took it to the limit, and how ill prepared he was for fame, and how much he put his opportunity at jeopardy. And then when he did make the NFL, just how stupid there's no other word for it done. Just how stupidly, how, how inconsiderate he was in that opportunity, and how he just wasted it. And then now as a young man, how he looks back on it all and realizes what a mistake he made. And he's just trying to get on with his life. It is a it is a fabulous hour, an hour and a half maybe. And it's a fun watch. What percentage
Doug Draper 16:48
of the show was college versus pro because college is probably all fun. You're rooting for him. And then the pro piece would be like, Oh, no, I really was detrimental. And he's gonna have
Pete Mento 16:59
no, no in college. You're definitely not rooting for him for about half of it. He I'd say it's about 70% College. Okay. But there's one there's one scene doesn't ruin anything where they just be basically, the coaches realize that he's not watching film. They gave everyone iPads to watch film of the teams that were playing. And this coach is a where we just went over Johnny's numbers and he's not. He's not opening up his iPad to watch opposing team film, like what I mean, like, at all is it gets zero minutes. He doesn't. He doesn't watch any opposing team film. Like that can't be right. Like the system is off. No, no, it's not off. He just doesn't watch film. And they do a cut to Johnny's like, yeah, Johnny Football didn't watch any film. He would just go out and get absolutely horrifically plastered the night before a game. And the coaches were like, You can't do that Johnny. And he was like, Well, I don't know. We beat Bama. And I was hungover as hell. That game. So I guess Johnny Football can like referring to himself in the third person and all of it. Well, if you want a Heisman Trophy act in that way, and but no, I'll tell you right now, if I I was I was a terrible college athlete. But if I had been a great college athlete, and people were gonna throw that kind of money at me, I would have done the same stuff. I would have been just as stupid, just as dumb and they put him in that situation. And Texas a&m, that's another thing. They made a lot of money off of his success, and they let him act that way. Not to not to besmirch College Station in the beautiful, wonderful organization that has Texas a&m. But man, they they act in pretty inconsiderately do. It's a fun, it's a fun watchdog. I definitely recommend it to everybody. Yeah, dig, dig him out of these.
Doug Draper 18:57
I think yeah, I think it would be interesting with the NFL deals. Now. Maybe he's about 10 years away, but at the same time, somebody anyway, signs him up or whatever. And then he does some crazy stuff where he'd be like, I can't align my brand with this guy. So it'd be funny off air Pete, for us to think of all the crazy brands he could have aligned himself with. But yeah,
Pete Mento 19:22
I used to joke Doug, you know, I'm basically a brand you're basically a brand you know, the companies we work for, they pay us very well to go out and market ourselves. And that's all we are we are we our name and our reputation. And we have to we have to, we have to represent ourselves and we have to control that and usually takes a few years for young people in this industry to realize that and unfortunately Johnny did not realize that nice, Dad, you got some breaking news. This is exciting stuff.
Doug Draper 19:56
Yes, this is no game. So if you're eating your sand pizza Don't jelly sandwich at your desk and you're just trying to get through this thing as the second half of the day hasn't started yet. Put the sandwich down. And listen, Pete, you're coming out to visit on the week of July 28, which is August, I'm sorry. Yeah, August 28. So two weeks from now. And as a lot of our listeners know, we're big fans of South Park and the cast of Bonita updates. So we are going to take the show on the road, we're going to take our talents to Castle bonita, and we're going to do a live show. We're still the creative team is still trying to figure out the topics, the format, the whole nine yards, but we are going remote, we're going to be a castle bonita. And we're just going to let it rip and see what happens. So I'm super excited. So here's the DLP cast, bonita didn't return a phone call. And they didn't really reply to my email. So we're going to be doing this from a restaurant next to Casa Bonita with the cast Bonita sign. And if we timeout right, we're going to pull over some some employees and see how things are going inside. But that doesn't matter. Because we're going to be there, it's going to be remote. And you and I are going to be in person. And holy cow, I'm not sure what's going to be expected or what's going to happen. But the week of August 28 will give you a firm date next week, time, day of the week, and location. And the fan base is welcome to come out here in Colorado. And we're just going to wrap it up and have a good time. August 28 more information to come alive. Shoot from Castle bonita. I'm stoked.
Pete Mento 21:41
I'm still too I know that there's a very popular Internet conspiracy theory that you and Keenan are actually the same person. But you will be able to prove once and for all that that's not the case. We'll all be in the same the same general vicinity at once. So I'm excited to find out that to rest.
Doug Draper 22:01
Yeah, yeah. Cool. All right. Well, hey, man, I'm gonna jump into my second topic. The funny thing, Pete is, we talked about this on I went back and looked at the show on June 27. Right, so let's just call it two months ago, it was starting to make headlines. It never got any traction. And it's still a little bit under the radar. But I'm talking about the drought down in Panama, and that region of the world that is causing substantial traffic jams, so to speak outside of the Panama Canal. So the Port Authority down there, they are reducing the number of ships that can make passage through there every single day. And that is created a floating traffic jam, as of yesterday. 154 vessels just treading water outside of the port, or outside of the canal, waiting to make passage, on average 21 day wait time of just idling out there waiting for their turn. So I looked at that. And I'm like, well, what's the deal here? Right. So obviously, there hasn't been any rain, there's a drought, there's less water there than has been in the last four or five years. But here's the piece I didn't know Pete every time they move through a lock 50 million gallons of water is used to raise and lower as they go through the elevator process of moving through the canal. And that is lake water. And it's not seawater, it is you know, non saline if that's the right word, there's no salt in it. Right. And, and so that's water that comes from the sky, not the ocean. And so they're really concerned about that. So what's happened is that white folks, each boat, each vessel has to have less weight. So the dispersion isn't quite as great when you disperse the water. So that means that vessels are offloading. So now you got containers sitting on docks, trying to figure out what to do. Yeah, vessel saying, I'm not waiting 21 days, I'm gonna go a different route. So there's additional delays there. And the interesting piece on that, Pete is that, yes, it's freshwater that helps the locks move up and down. But the ocean water does get in there, right it mixes. And because the water levels are so low, there's so much saltwater in that mix now that the desalination plants that serve as the water to that country cannot keep up. So that's also part of the reason why they need to slow it down, because there's too much salt in the slurry of non saltwater and saltwater, that their plants that surface water to the country just can't keep up. So it's going to be interesting. There's a lot of factors in there that have nothing to do with moving cargo through the canal that will have implications of what's, what's the con but we talked about this two months ago, and if there was 140 454 vessels outside of LA. Oh yeah, there was a couple years ago that made international news Is that same process is happening down there. And when the congestion got bad and LA, people started routing stuff to the East Coast, and then when you get to the east coast through the Panama Canal, so that in and of itself is creating problems. So I think that the little issue down there in the Panama Canal is going to have ripple effects big time with with cargo. So thank goodness there, the peak season didn't exist this year, because it could be catastrophic.
Pete Mento 25:27
I will add a another thing to worry about Doug. So the Panama Canal is, first of all, it's not it's not what people think. It is very low tech. It's very low tech, when you go through it, you cannot believe how low tech it is. It takes a long time. There are a lot of chips that go through it at once, it's it's tedious. And you have to have a Panama Canal pilot take you through it. And guess what, Doug, there's not a lot of them. So when you create that, that back pressure, you've got to wait now for pilots to take these folks through to clean up that back pressure. So that back pressure is going to take a while to clear, because you have to have a qualified, licensed, approved Panama Canal pilot, who is a US Coast Guard approved, licensed pilot, by the way, I went to school with a bunch of folks from Panama, that were sent to Maine Maritime Academy to get their license. And then they go back down there to work. And these people are, you know, they're incredibly specialized. So you got to wait till one of these folks is done taking someone through, and they cycle him back. So guess what? This is going to take a long time to deal with. This is a big problem. And people are not. They're just they're not. They're not. They're not screaming from the rooftops like they ought to be. I know, there was something I think in the GFC today or yesterday or whatever, but I don't know why we're not freaking out. We ought to be.
Doug Draper 27:12
Yeah. Agreed. All right, Pete, bring us on topic too,
Pete Mento 27:16
for you. Yeah, top topic, too, for me is another thing that is this is just so typical of the USTR. It's just it's political process. That is absolutely sticking it to importers. And it is doesn't matter what the the administration is, it doesn't matter who's sitting in office, it is an unfair outcome, based on an unfair outcome. When the chapter 301 tariffs started under the Trump presidency, everybody was angry, that was importing products that were hit by it. And we were angry because the timelines were a little wonky. And then exclusions came out to 301, which meant that there were certain products where you could get an exclusion. And then you might benefit from not having to pay those tariffs. Great. Well, every once in a while, those exclusions run out, and then, you know, the USTR comes and saves the day, and then you use those exclusions continue. Well, they didn't tell us about those exclusions continuing until the very last second, a few days before the exclusions we're going to run out of the last times that that happened, we at least heard out of DC, that there was going to be something right now those exclusions run out at the end of the month. We're not hearing anything, Doug. Nobody is saying anything out of DC. And that has people panicking, because if there was going to be something they would probably tell folks to prepare for some good news or prepare for some bad news. But we're not hearing anything. So people don't know what they should change their their procurement strategies. They don't know if they should look for other other vendors. If they do just prepare for the additional duties. It is August the 14th. This is just terrible news, man, what do we do? We don't know what to do. And the lack of information is making people assume that these are good, they're going to be just denied and our stance right now with China being as negative as it is, also makes people believe that they're just not going to include a any of these exclusions. I don't know what to tell people that I'm constantly being hit up for advice here. And I've told them, I'm very hesitant to give you advice one way or the other. These exclusions have been approved over and over again, which leads me to believe that they're going to be approved again, but the lack of information and the lack of guidance from Washington has me nervous. So I don't know what to tell anyone. I'm at the edge of my seat like everybody else. And we're, you know, a couple of weeks away from these things going away. So I think it's irresponsible of the people in DC to act this way to the Import community and we have a right to be upset.
Doug Draper 29:59
Yeah, I can hear in your voice, my friend. It is is crazy. So some of the things I read is COVID related things right that are probably fine to fall off hand sanitizer dispensers would be an example of that. But it's almost like, hey, the US government's gonna run out of money on Thursday, right? And all this clamor, and it happens so frequently, you know, the, it's like what else is you know, what's going on with Jeopardy? Like, nobody really follows it. Right. So I think sometimes people are just Well, in this instance, they don't know. Right? The awareness isn't quite there. And the ones that are that have a vested interest. Don't know what to do. Like you said, I'm not going to rehash that. But I think that they'll probably say, all right, all the COVID related restriction restrictions, but you know, the exceptions, we'll just let those taper off. But I don't know how they can they mean, in the US government can cannot just continue the extension, with this happening in 45 days, or 40 days, or whatever it is, it's just mind boggling that they would treat importers of products that are very important to us, because those exclusions are there for a reason. Right? And nobody knows what to do. So it's disappointing, like you indicated, I think some of them will, will, will drop off. But my gut feeling is it's somebody Oh, right, a pin and days before, it'll all be pushed out another 90 days or six months or something of that nature. So it's an interesting topic that if you are an importer, and you're in this industry, with customs, brokerage, and whatnot, you need to find it online, you need to read about it and see what's happened over the next 40 days or so. Interesting.
Pete Mento 31:49
The last thing I'll say about this, before we close the show is it's another excellent example, with taxation where heaven help you if you owe the government money, and there's a deadline. But if the government is somehow involved in taxation, and there's a deadline you know, we'll we'll get to it when we get to it. It's frustrating. It's frustrating. It's a it's a hypocritical double standard, that it needs to be addressed. Well,
Doug Draper 32:21
I would have to agree with that. And with that note, we are going to shut this week's episode down. We can't thank cap logistics enough for making this happen. It doesn't matter where we are P. California, where are you going? You're in Jersey,
Pete Mento 32:36
Woodbridge, New Jersey, New
Doug Draper 32:39
Jersey, California, New Hampshire, Colorado, it doesn't matter. Cap helps us get this thing done every week. And we'd love talking to our audience about topics, giving you know our perspective and we really appreciate you listening in every single week. I'm super stoked about seeing you in person Pete haven't haven't done that. Geez. Probably since pre pandemic. Throw it. It'll be awesome. It's gonna be a great show. We'll talk more about it next week with our live broadcast from cassava Anita. And with that, thank you all for listening this week with another edition of global trade this week. Big take care of my friends. Thanks, buddy. See you soon
Transcribed by https://otter.ai