Global Trade This Week – Episode 207
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Speaker 1 0:00
You're watching global trade this week with Pete mento and Doug Draper,
Pete Mento 0:08
good morning everyone, and welcome to this week's edition of global trade. This week, I'm Pete mento, and with me is my almost as handsome as he is dependable and brilliant the wonderful Doug Draper, we are both remote this week. Doug, where are you, buddy?
Doug Draper 0:24
I am in the great city of Fresno, California, and I'm in a different office, the fake plant back there. But you know what? Usually it's a white wall. So I've been upgraded.
Pete Mento 0:37
Yeah? A little color today, buddy, that's nice. Yeah, yeah. I'm in Middle River. I'm in Middle River, Maryland this week. It is not this week. Pardon me, today. I've been everywhere this week. But this is the annual crab fest today for the propeller Club, which is a very big maritime and freight forwarding event. It's outside. It's always hot and miserable, but it is. It is a Maryland crab party, interesting. So I'll be there with DSV today, representing the blue, the Blue Flag of victory, with a bunch of my friends here in the Northeast. And I do mean that these are a lot of my old friends in the industry that I work with here at DSV, and seeing some other old friends from all the other forwarders. So although there'll be a lot of of clients, I'd say I'm just as excited to see my friends I worked with at other forwarders coming up in my career. So it should be just
Doug Draper 1:34
like, is this like a county fair, right? I mean, crabs, I'm I'm picturing you guys like at a booth, and kids are coming up and you're selling crabs. I've never heard of the town. I've never heard of that event. And it seems odd that a freight forwarder, unless this is all logistics and perishable
Pete Mento 1:51
transformation. So in Maryland, a crab fest is when you you just you have 1000s of pounds of of Maryland Blue crab, and they steam it in that super, super nice, spicy Old Bay. There'll be pit beef barbecue. Everyone brings stuffed drink, and it's a huge it's a huge social gathering. Doug, like sitting around with a hammer cracking crabs for hours. It's a lot of fun. Yeah, nice.
Doug Draper 2:19
Great. So that's the county fair. So looks like Pete's gonna be at the county fair all weekend. Yeehaw, get
Pete Mento 2:25
her done. Well, no no, rides. Reo speedwagons not playing, and I don't think I can get a funnel cake.
Doug Draper 2:35
All right. Well, I'm sure there'll be some stuff on LinkedIn. So post a picture too, so I can get a get my head around this whole event.
Pete Mento 2:44
You got it, pal, I'll do that. Well, I kicked off the show. So that means you start with the first topic, buddy, what do you got this week?
Doug Draper 2:51
Yeah, I'll hammer through this one, right? So the rail merger is still getting some traction that we had, you know, talked about, everybody's been talking about and I saw something pop up, I guess it was earlier this week, maybe, maybe last week, and it basically called out who are the top intermodal carriers, and how is this going to impact them? And I'd not thought of it this way. It's pretty simple, as far as kind of a puzzling them together, right? So there's really four class ones, right, that are out there. There's two in the east, two in the West, and they got to marry up. And how are they going to marry up, and how this, this merger, going to impact so the three big boys, JB, hunt, Schneider and hub groups in there, right? TSC is involved with there a little bit, but we'll just focus on those guys, right? So then it's like, who are they partnering with on the west? Who are they partnering with on the east? Right? So JB Hunt, their BNSF on the west, and Norfolk Southern in the east. So that's not very good, because it's not part of the merger, right? We're we're talking Union Pacific and Norfolk Southern. So they got half of the equation. Schneider is up on the west. They check that box, or CSX on the east, not part of the merger. Hub group up on the west. Nor Norfolk Southern on the east. So I think you're going to see Norfolk's or, excuse me, hub group, getting some play, and maybe their stock price popping a little bit, right? So I had not thought about who's connected to what, right? And obviously the networks are not going to be cut in half, right, or chopped you're still going to be able to use one and the other, you know. So JB, Hunt is not going to be unable to move freight, but it'll be interesting to see of those big three. One of them is, call it luck or whatever, right? They are positioned to say that the merger they're playing with both of the merged class ones, and so I think that's going to be be interesting to see. B and you know, who wins in this one? It's basically the up in the Norfolk Southern, because there's going to be others. I mean, if you're JB Hunt and you're with BNSF on the West in Norfolk Southern, you're gonna be like, All right, I'm gonna sign a contract with the up. They're gonna try. The other ones are, in my opinion, gonna try to align with that merger and ride the wave of the predictions and the expectations of the efficiencies, quote, unquote, that are out there. So anyway, it was interesting. I had not thought of as simple as that is of the big three who's hanging out on the west, who's hanging out on the east. Do those align? And what happens if they do not? So that was my perspective on this week's perspective on the rail.
Pete Mento 5:45
Yeah, man, it's funny. You know, this topic came up yesterday during a QBR with a customer, and the thing that just kept popping in my head Doug was, how is the government allowing us to only have really four railroads? You know? I mean, you're talking about a number of really big intermodal players. They're losing optionality, like they only got a couple of folks they can call and at one point is that lack of or is it already has, that lack of choice, ended up sacrificing the ability for the freight consumer to have a number of different players to go to in order to get their cargo moved. It's, it's fascinating to me, you know, I don't think they're done. Man like Berkshire Hathaway owns one of the railroads, right? And, yeah, and he's got a pile of money, I mean, like $100 billion or something sitting in the bank. So is he going to try to do another one? While, while, the while, the taste of regulatory taste for this seems to not necessarily be be negative. I don't know. Man, like, are we done with consolidation, and is the government going to let any more happen? I mean, how many different companies are these poor folks going to have to choose from to move their goods? It's crazy, dude. I
Doug Draper 6:57
know. Yeah, you know Warren Buffett, smart guy. He's made a lot of good purchase. So this is a shake up with a big, big holding that he has. So it'll be interesting to see how they react. But to your point, you know, last one in, you know, I mean, there's only the first ones in, you know, Norfolk, Southern the up. So they're going to struggle through the successes or failures of that will determine how people react to another merger, and so it's not good to be second fiddle on this one, so it'll be interesting to see. But you're right, you're right. It's the consumer, I think ultimately, is going to lose as the monopoly, the monopoly starts to develop. So
Pete Mento 7:35
we are a pro rail show, and we talk a lot about rail. I think it's because we both have interest, personally and in the in the whole mode. So I'm sure we'll be watching where prices go and how this all shakes up and shows to come.
Doug Draper 7:51
Yeah, interesting. All right, brother, what you got on topic? One,
Pete Mento 7:55
well, as predicted, as we said, Doug, so another, another. Check in the win column for gttw, the pause on China was was was extended, which gives us and China an opportunity to do more negotiation. So then comes the next big question, right? The last time there was a pause, freight rates went cuckoo. I mean, it was just bananas out there, right? With everyone trying to find space and capacity, the carriers had moved all kinds of capacity all over the place, so they didn't move it back. And the the market went nuts, the tariff, the tariffs, the the the rates went crazy. It was hard to find capacity. There weren't empties sitting around like it was. It was all kinds of issues. And now, with this new change in the pause, are we going to see that again? I'm not sure we are. Dude, you know, we've talked about a lot about this. There has been a peak this year that's kind of weird. You know, that's the first strange thing. And the second one that's really strange is that, you know, that rolling peak from time to time means a lot of American companies have an excess of inventory. So what's beginning to become clear is that these American companies are going to get through their inventory, get as much as they can, but at some point, all those boxes of stuff that are taking up all these warehouses, they're going to be gone. And then I think you're going to start seeing a real serious pressure, financial pressure, on companies to figure out what they're going to do about these tariffs. Are they going to share the load with their foreign supplier to a degree? Are they just going to pass on the cost? And sooner or later, we got to rip off that band aid and figure out what's going to happen here, man, but I don't know. Do you think there's going to be like a false peak? Because we had another pause as
Doug Draper 9:41
far as far as the peaks that you and I are historically used to, nope, right? I mean that that should be popping now, and we haven't heard anything about it. It, it's so my take on that, Pete is that, from what I've seen from the warehouse perspective, right, we're on the receiving end. A couple things have happened everybody. There was a huge pop on bonded. And FTZ in April and May, right? And a lot of it was just executives like, what are the options? Get it done. They may or may not even know the concept of the difference between the two, and you know the benefits, they're just like, it's in the US make sure we don't have to pay these taxes, find a place for it. So the bonded space just skyrocketed, and then it calmed down right during the summer months, and now I've seen some interest in it again. So here's my take. Is that I think that you got to have product here for q4 right? So I think the purchase orders are a little smaller. You know, we got to sell our stuff, right? Our shoes or our apparel, just buy enough to get us through, because we don't know what the hell is going on. We got to be present on the shelf, but we can't have too much there. So I think that huge peak isn't going to happen. But I think what, but what is going to happen is that the fear of the inventory buildup that we saw at the end of covid where consumers change from the goods and during covid, where they were, buy, buy, buy tangible things, and then it immediately, like within weeks, ship shifted to services, right? I want to go on a vacation. I want to go out to dinner, and all that inventory was still coming in. So my whole point with this is that I don't think there's going to be a big peak, and I think that there's not as POS are smaller. And then whenever the stuff gets out of the warehouse because of the money tied up in the inventory, people are like, do not send it back. Get it out of here. Fire, sell it. Just we got to move on, right? This is a weird year. It's crazy. We kind of got it covered, and, oh my god, let's just get this thing done. So I think it's going to be good for consumers at the end where just liquidate and get rid of this crap, because we didn't make as much money as we thought because of the tariffs. We're certainly not going to invest any more money to reclamate or try to get this inventory back to sell it again. So I think the consumer is going to benefit from this, and then hopefully the 90 day won't be kicked again. And then q4 is focused on, what's our strategy in 2026 so I agree with you, no peak, and the consumer is going to benefit from this at the end of the sales season, during during holidays. So I'm
Pete Mento 12:19
going to, I'm gonna, I'm gonna make a bold statement. I think that the US and China will figure this out by November, which falls in line with what you had said, Doug. And I think that, you know, come the end of q4 again, as you said, a lot of these companies are going to start strategizing for the new normal, for the new environment that they'll be operating as an importer from. And I think that's when it's going to get squirrelly, starting next year, but yeah, man, I think you're spot on.
Doug Draper 12:43
Yeah, good stuff. All right, that brings us to halftime, brought to us by CAP logistics. And we can't thank them enough for the support. Check them out at cap logistics.com. So Peter, you got a good one. All right. I mean, anyway, I don't know what to expect on this one, so you
Pete Mento 13:00
just let it rip. It's a new one. So we got five questions that have nothing to do with trade and the rapid fire. So number one, Doug Coke or Pepsi coke. Do you drink regular Coke or Diet Coke? Regular? Yep, yeah. Because I'm a Diet Coke guy, I will drink Diet Pepsi, but it is not my first choice. I do, however, have people in my life that will tell them, I'll just have water if they don't have Diet Coke. Yeah, yeah, that's a that's an interesting one. Beat your pool. Ah, pool. Cool. Yeah, I'm, I'm a beach guy, so I would rather be in the sea water, but I'm learning in my old age to enjoy the pool. Yep. Are you a sandals guy? Are you in and out? Are you in or out? When it comes to wearing sandals in the summer,
Doug Draper 13:50
I'll do some flip flops time and again, but probably, yeah, flip flops on on certain occasions. I know there's, there's a lot of people that have horrible looking feet and and and nail fungus not to get to whatever. But like, dude, cover that shit up, because I don't want to see it, right? So I guess I would be more of a shoe guy,
Pete Mento 14:17
okay? And I think we're number four now, right? Yeah, number four, you go to a restaurant, they have the whole list of the typical salad dressings. Which one do you go with?
Doug Draper 14:27
Usually, standard Italian. Second choice would be a vinaigrette.
Pete Mento 14:32
Do you go the creamy Italian or the oil Italian? Doug?
Doug Draper 14:34
I used to be creamy. Now I'm more regular kind of oil based What about you?
Pete Mento 14:43
I'm a big fan of Russian Russian dressing, which is terrible for you. It's nothing good about Russian dressing.
Doug Draper 14:50
That's surprising. I don't know anybody. I don't even I mean, are you allowed to say that as a condiment in a restaurant anymore?
Pete Mento 14:57
I wonder if it's been, it's been canceled. You. Yeah, that's an that's an excellent question. Doug hadn't thought about that. Okay, vacations, or, pardon me, seasons. Are you a summer guy or a winter guy? A fall guy or spring guy?
Doug Draper 15:10
I'd probably say, as crazy as it sounds because of my footwear response, I'm probably more of a summer guy, right? But you know, at the end of every season, you're ready for the next one to start right? Like, it's, you know, I'm kind of like, let's get some fall leaves, and then let's get some snow. I mean, I live in Steamboat, so, you know, we got 325, inches of snow. So I love snow at the time, but I'll be ready for spring. But if I had to do it, I'd probably say summer. You I'm
Pete Mento 15:38
a fall guy. I'm definitely a fall guy when the weather's not quite cold, but it's not quite warm. Football is coming back, kids are back in school. It just feels like a time of renewal to me, more than spring does. I don't know why, and I'm a big fall guy, so I love the fall. So that's it. Five questions. Got nothing to do with trade. We're going to do this every once in a while. I think it's just an interesting thing for us all. Think about you got you got a fun one? You got a phone this week? I'm proud of you, buddy. So let's hear
Doug Draper 16:04
about it. Yeah. So anyway, I'm out in Fresno. I actually drove down to LA the other day and came back driving through, if people know the Central Valley, it's basically Fresno Bakersfield. You go over the grapevine, take home, pass, and then you drop into LA. It is freaking hot here. It was a buck, oh, six. When I was driving from Bakersfield the other day, 106 106 so I was at one of our warehouses in Visalia, and I'm driving back up here to Fresno. And I looked, it was, it wasn't 106 but it was 101 and there's this kid, well, I don't I call him a kid. Anyway, he had his motorcycle helmet, and he was walking on the, not the highway, but, you know, a street that you go into a warehouse district. And I drove by him. I'm like, man, it sucks to be that guy. And then I drove a little further. I'm like, that that's the wrong approach to take. So anyway, I'm like, I got to see if this guy's okay. So I turned around and I pulled over. I'm like, Hey, man, are you okay? And he looked like he was gonna die. He was helmet. He had shorts on, but he was exhausted, and the whole bit. I'm like, Get in the car. I don't know where you're going, but I'll make sure you're there. Had the AC crank. Actually had a bottle of water. So I gave him a bottle of water. And nice kid. He was 28 years old. He just bought the motorcycle, and it broke like literally, he drove it from his purchase. So he was kind of bummed out about that. He's not sure what to do. His girlfriend had a cell phone because he was following her. She was at work, and I drove him probably 10 miles to his destination, and I'm like, brother, I don't even know how you would have survived in 100 degree temperature. And we had an awesome conversation his concerns in life, although our paths were not on top of each other, they were aligned, if you break it down to what was important with him and what he was trying to accomplish in his day to day life, pretty much aligned with what I cared about and what I was trying to accomplish in my day to day life. So my point on this one Pete is that you never know what people are going through. If you see somebody that needs help and you're like, maybe I will, maybe I won't. I'm glad I did made that U turn and go back and help this kid, and we had a great conversation, and he was so grateful for for me to stop it. He's like, I think I would have died, you know? I mean, he would have found some shade and stuff. But anyway, this is the message to everybody is, is, take care of each other and don't be afraid to help, help others out, because it is being filled. And this happened two days ago, and I'm sitting here talking about on our show. You
Pete Mento 18:43
Yeah, that, Doug, it's all chaos out there. Right? Be kind, whatever you can do to be kind. And you're absolutely right, if you can help somebody do it. And as somebody who's been on the other end of a broken motorcycle, no one's ever pulled over for me. So nice job, Doug, you get the you get the global trade this week, Good Samaritan award. No, I agree with you, finally, always do it, and good on you for being there for somebody everyone's struggling. If you can help, help, yeah, yeah,
Doug Draper 19:13
thanks, man. Appreciate it. All right, I'm gonna jump into my second topic here, and it's interesting, right? And here's the you can appreciate this with export controls, right? Nvidia just agreed to a contract commitment to the US government that they were going to share 15% of revenues and profits from certain types of chips that they're going to sell in China. And AMD had kind of the same deal. So 15% hey, let's just let, let's let export controls be solved by money, right? So I know this is a slippery slope or not? Is that? Hey, if, why don't we give you 15% we're like one of the largest companies in the world. Our trajectory is sky high. And we're going to just crush it as a company. Why don't we give you 15% of the profits of these chips that we sell into this country, and then just let us continue to do that. So is it creativity? Pete, is it a slippery slope? I mean, export controls are there for a purpose and a reason, right? A lot of folks are talking about security for our country. Yeah, just throw some money around and let's solve the problem. Right? Is that just how the world works now? Is this creativity, or are we enough in a situation that could be quite dangerous if this becomes the norm?
Pete Mento 20:34
So Doug, I'm, I'm not sure it's legal this, um, these past couple of days, I've been looking really deeply into this. It's it's against the law to have export I can hear you now. Yeah, okay. The The thing I'm having questions about is whether or not it's legal to do this. It's not legal to have export taxes, but I think they're going to call it a commission. And if this technology is so important in order for us to keep safe on this side of the of the pump, I'm not quite sure I understand why we're exporting all this stuff out of the US, even if it's going to mean a whole bunch of money to the federal coffers. I got a real problem with this one buddy, we have export controls in place for a reason. We've set up these processes and these systems in order to keep things better and, you know, keep dangerous things out of the hands of our rivals. I'm not feeling real good. I'm not feeling real good at all about this decision by the White House, even if it's going to end up with more money for for the for the Treasury. So I'm really out on this Doug, and I'll be interested to see whether or not it holds up to any legal challenges. Right? So I know we have limited time here before Doug's got a got a bounce. So I'm just going to get to my final topic. And it's, it's a it's a little more personal than I thought it would be. I've thought a lot about this this week. It's made me a little bit nuts focusing on it. But, you know, I had a call yesterday with an American company, where the head of procurement made it very clear that they are not just considering bringing manufacturing back to the US. They're actively going to doing it. It was, it was a couple of things. First of all, was inspiring to hear an American company who is making that investment and bringing jobs back to America on something that's not it's a very complicated process. And then, second of all, it got me thinking, what percentage of companies are going to make that decision to come back to the US? I don't know if it's a very big one, but there will be some. I think that we're in this topsy turvy world where we were all expecting that China was going to be some 40, 50% tariff. Moving forward, I don't think it's going to end up that way? There's a world that I can foresee where China's tariffs really aren't, quote, unquote, that bad compared to the rest of the world. Then if it ends up being 15% you start to look at the the advantages that China has on both their supply chain to the port and then the products coming into China, as well as China's ability to ship things out of China, how efficient it is, how relatively inexpensive it is, how many ships call in that part of the world. There's a world that I can see Doug, where, after all of this trade war stuff, it actually makes more sense to make something in China than it does in Southeast Asia, than it does in parts of Latin America, it does in parts of Eastern Europe. And I think that that's a reality. Doug, I think that's the more I think about it. I don't think China's dead when all this is said and done. Pal,
Doug Draper 23:30
that's a great perspective. And you're, you know, in your line of work, you've talked to so many different companies. I always tell my wife, I love our industry because we're really kick ass at cocktail party discussions, because we know a little bit about a lot of different topics. So you're getting that feedback, not just from traditional manufacturing, and then you have the food, the food, the shoes, everything else. So I like your perspective, because it's broad, and I think you're right. It's just been elevated to the next level, the infrastructure and the ease in which you can handle things out of China. You know, it's an infrastructure that's been built for decades. The efficiency over there is phenomenal. And so, yeah, I think there's certain commodities I off top my head. I can't tell you that this one works in in the US for manufacturing. This wasn't, does not work in the US. I'm not that well versed on it right now, but I think that you are correct. Because of the infrastructure, I think POS and purchasing is going to change a little bit. Instead of buying 10,000 of a widget, maybe it'll just be 5000 and the financial outlay will be changed. But I think after things shake out, as long as things don't go apeshit in the next 90 days, right? And they and they work through it, I think it's just kind of the new norm, and people will deal with it, and companies will manage it in creative ways and and look for profit and revenue streams, maybe not just in beating down the cost. Of the widget. So I like that one. Pete, it's a good one. Thanks, bud. Yeah, let's take us home. Doug, yep, all right. Well, I appreciate everybody listening. In these last few shows have been more end of week versus front of week. But in order to understand and talk global trade, we're traveling. We're all over the country. And Pete, your schedules just blow my mind every single week as far as where you are and what you're doing. So I appreciate you making the 30 minutes every week make it happen, and we appreciate our audience listening. Your feedback and comments are welcome. And as you say, Pete, if it's happening in global trade, we're going to talk about it week in and week out. That's it, my friend, have a good one. Travel safe, enjoy the county fair.
Pete Mento 25:45
We'll talk next week.
Unknown Speaker 25:47
Bye, bye. You.
Transcribed by https://otter.ai