Global Trade This Week – August 22nd, 2022
What’s going on in Global Trade this Week? Today Doug Draper of ACME Distribution and Pete Mento of Mento LLC cover:
2:00 -Inland Empire Bans Warehouse Development
11:07 -What is E-Commerce Anyway?
17:17 -Halftime
26:20 -Rhine River Halts Barge Operations
31:18 -The Cliff for Ocean Rates that Never Happened
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Keenan Brugh 0:00
You're watching Global Trade This Week with Pete Mento and Doug Draper.
Pete Mento 0:12
Hello, everyone and welcome back to Global Trade This Week brought to you by CAP Logistics. I'm sure all as happy as I am to see that the varsity is back on the field. We said to him back to the kids table. He's back where he belongs, playing with his silly putty and his Power Rangers. While he waits for you know, after naptime to get his bag of fruit snacks, and his Capri Sun, which honestly, I don't do a lot of sugar and that sounds pretty awesome right now. With me as always, is the indefatigable -- you like that word?
Doug Draper 0:49
I have no idea what that means.
Pete Mento 0:54
Unable to defeat. The indefatigable Don Draper. How are you, buddy?
Doug Draper 0:59
Hey, I'm good. I'm good. I want to give Keenan a little shout out. He did a great job kind of came together last minute. He's a good. He's a good co host. I liked it. I thought we pulled it off.
Pete Mento 1:09
It's sort of it's sort of like going to a really high end Steakhouse. And I'm saying all we have is chicken. I mean, I'm sure the chicken will be well done. I'm sure that all the other you know, side dishes will be fantastic. But the people came for steak, duck, the steak, trance so well, he's bringing out the meet today. So yeah, have a good time.
Doug Draper 1:34
He's got his hand on the button. So just be careful what you comment or watch for?
Pete Mento 1:39
That's fine. He can try to come up with this stellar content that I do week after week for the show with you. That's fine with me. Yeah, I mean, honestly, see, plus effort. Which, you know, for him that's really high end of his scale. So you can tell he really tried?
Doug Draper 1:57
Hard. All right. Speaking of speaking of good content, we're ready to kick this bad boy
Pete Mento 2:02
off. I think so buddy wants you to let us know what's going on with our first first topic this week.
Doug Draper 2:07
All right, first one. It is basically warehouse development bands in the Inland Empire. And when I read that, I was like, wait, what baffles my mind. So basically, here's the gist of it, Pete and I'm going to take a pro and con approach. So looks like their cities and towns in the Inland Empire are putting these moratoriums on on a building in developing of warehouses, right. And that's 45 Day bands. And the concept behind it is okay, let's figure out what the hell's going on. How does all this growth impact our neighborhoods, the cumulative effect of warehouses, energy trucks, pollution, things of that nature. So 45 days now, some of them have some of these cities have gone in and said we need more than 45 days, which I'm sure all of them will eventually do. Some of put moratorium 10 years out, or excuse me, 10 months out. So yeah, it just struck me is as odd. But things that come out of California are often such so I read deeper. So here's my take on the pros and the cons, right? So for a band, I kind of get it. Here's some statistics or one statistic in the mid 70s. There's 160 distribution centers in the Inland Empire. That encompasses many, many areas. But everybody knows if you're into the 40 know, the Inland Empire in 2021 4300 warehouses. So there's definitely a lot more out there than there were so I get it. Yeah. Huge. under construction at this very moment. 33 million square feet of warehouse, not what's in market. But what's under construction. Right? So I get the cumulative effect, right? You got the ingestion, the infrastructure demands, pipes, electricity, sewage, all that kind of stuff. Air quality, I get that. There's a lot of residential areas. And so the warehouse areas continue to encroach, right? Kind of like out here in Colorado, that people get pissed off whenever they're attacked by bears, even though they're building closer and closer into a territory that humans are not supposed to be. And so, conceptually, maybe not the same thing. But I think you get the point right there. What's the balance between commercial and residential? At the bottom line, Pete is that Southern California is like the Ellis Island of freight. Right? That's the first first line of defense. And all of that stuff goes into America, just like Ellis Island. So I kind of also understand that they're the buffer there. They're the gateway they're taking The Brunt if you will, of the incredible amount of volume that comes through. I get it, I can see the pros against his short term man isn't gonna do a whole heck of a lot get accomplished much in 45 days with with studies and things of that nature when you when you loop in different levels of government, they're gonna go elsewhere, right? If they're not welcome, they're gonna push even further east, they're gonna push south, they're gonna go in different directions, right? So if you don't want them, and they're not welcome, they're gonna go elsewhere. That could include just getting the hell out of the state of California. Then you got taxes and jobs, both direct and indirect path impact. So that'd be the case against on why they're doing this, right. But here's the forward lean, I always that I'm making a point to talk about with all of our topics, is just another reason for companies to second guess what they're doing. They're right. I mean, California. And you all know everybody's leaving Denver, as a recipient in Colorado is a recipient of that in California is get a bad rap, I get it. But you put too many berries in there with AB five taxes and limitation. And now you can't even build buildings, what's going to happen is there's going to continue to be a surge to second tier ports that you and I have talked about, where those cities and counties will be like, hell yeah, we'll come in, come on, we'll give you tax incentives will assist with the builds, things of that nature. So I don't really understand. I get both sides. Pete. It's just baffling to me at some of the decisions made out there. Where it just encourages companies to say enough is enough. So there's my take on on the 45 day bands of warehouse construction.
Pete Mento 6:51
People from Colorado hate more folks from California or people from Texas,
Doug Draper 6:56
Texas. Really? Me Me, Texas,
Pete Mento 7:01
okay, is this offense?
Doug Draper 7:03
I live in Texas for a while I get it.
Pete Mento 7:06
It's all good, man. It's all good. I understand. I I love this topic for a lot of reasons. When I worked for accounting firms. My dream had been to stop doing trading customs and logistics, and go to work for the practice that was called credits and incentives stuck. I don't know if we've ever talked about that. But they're the ones that like the one of the firms I worked for, they negotiated where the NFL draft was going to go. So they would they said to the NFL, why do you do it in the same city every year? Like, well, convenience, this will what if we did it from different cities that we could bring jobs hidden tax credit. Now, there's a lot of opportunity that comes from that thought about that way. And then for very large production companies, they would negotiate the best possible tax deal funding for certain parts of their facilities. And I just thought that was incredible. And it really comes down to what you were just talking about, what is what is still drawing companies into deciding that they want to operate on the West Coast right now, between constant fears of having to deal with port strikes, incredibly high taxes, outrageous, outrageous congestion. And what has been a real problem with the rail over the course of the past while forever, you know, and then regulation on top of regulation upon regulation, and these the sort of folks that will come in and say it's time to have a look at someplace different, right. But what's always been going for the West Coast is geography. You know, it's the, it's the closest possible port as far as timing goes for products coming in for Asia. And I think that that's, that's kind of their you know, that's their trump card. And they've, they might have played it out. At this point, you may have gotten to the point where you've added so many other elements of costs, and so many other annoyances irritations to doing business there, that you're going to see more and more companies looking at the Gulf Coast, looking at the East Coast and then looking for other ports on the West Coast. Somebody with a lot of money is going to invest in Mexico. And they're going to find a way to bring that cargo it's not that they take it from a guy's driven the ship ain't that hard to turn right man. And you know, a port is a port as far as we're concerned. And then from there have an intelligent way and a I guess, a secure way. It's probably what most of us are concerned with, right? To get that cargo in bond over the rail over tractor trailers, who knows Elon Musk could build a tunnel from underneath the ports all the way to the west coast. But more importantly, there comes a point like we talked about driverless cars and you know what you say the cost of doing business now has gotten so expensive. It's actually almost as expensive as doing But somewhere else, I don't see this business going to a Portland or Seattle, they have their own regulatory issues, or Vancouver because again, the geography gets farther and farther away from where the infrastructure is, someone is going to put some serious money to infrastructure into a secondary place. And when that happens, buddy, I worry about LA Long Beach and their ability to continue being that Megaport that they've always been. It just doesn't, you know, two or two are not adding up together anymore. Oh, by the way, Doug, I'll be dead when that happens, because it's going to take a long time. We are so captured by probably five major ports in America, you know, that we don't have much of a choice right now. So it was gonna take a lot of money cut through a lot of bureaucracy and a lot of red tape to make it happen. It's not happening anytime soon.
Doug Draper 10:49
Yeah, yeah, great points. The boring company. I'm not sure that's really going to transpire. But I think that Mexico you brought that up many times. And I'm, I am a believer in that as well. But it is definitely a decade's oral type of engagement. So it's gonna be Tara, Matt's script once you got for topic one. Yeah.
Pete Mento 11:11
So there's a lot of conversations that are happening right now about the future of retail, the future of commerce. And it really, it made me want to pause because I read a lot of these articles, Doug, and I'm sure you do, too, where well meeting members of the logistics media, say things that are truly misinformed. They're just there. They're clearly they're not as engaged in what they're writing about, as they seem to believe or they're getting their information as journalists from really poor sources. So one of my favorite articles that's currently out is this speculation, that it's only a matter of time before Amazon buys either Walmart or Kohl's. Have you read about this?
Doug Draper 11:57
No, I know, the Kohl's relationship, but I haven't heard anything specific.
Pete Mento 12:00
So you know, I did buy a new computer. Recently, I got one from Amazon. It was a hunk of crap. I'm bringing it back to a Kohl's. I'm dropping it off. And as soon as I drop it off, I get my money back. Kohl's, and Amazon have built a beautiful relationship that allows them to at least get one foot above when it comes to dealing with these, these returns. And then the idea with target everyone writes about is could you put Whole Foods Markets inside of targets rather than their current infrastructure for grocery shopping. And you know, Amy and I were talking about this morning, and she brought up some excellent points that I would never consider like, Whole Foods is not your, your normal place to go buy your groceries, most people don't buy all of their groceries at Whole Foods. Second of all, target is something that you can depend on, you go to target, knowing what the prices are going to be and being able to find a broad spectrum of corporate product, much like Amazon. So I don't know if those two things really jive. But from a supply chain standpoint, yeah, I get it, you're able to put product pretty much in every major American town, you have a built in logistics network of infrastructure, it all sounds great. My issue is, is that people keep forgetting all e commerce is its supply chains. That's all it is. It's the ability for us to get cargo from one person to another and have someone pay for it. I'm telling you right now that the future of E commerce falls into two different groups. Companies that are going to build infrastructure for other companies to use. So you got your Amazon's you certainly your Wayfarer, as Alibaba has, the list goes on and on and on and on. And the second is going to be companies that provide that infrastructure that is easily adopted. And if I were going to write something that made a lot of sense, Doug, I would say that someone like FedEx or UPS needs to build their own platform. They need to buy a company, not unlike a smaller version of Alibaba, or what Wayfair was 10 years not handled five years ago, seven years ago, before the pandemic and say we're taking your infrastructure from a digital footprint standpoint, and we're pairing it with our physical infrastructure. And now we can move whatever the hell we want, anywhere we want, at prices that we want to move that and we have every other piece of infrastructure that we're selling to everyone else. Why are they giving up so much of the profit? Why are they hitting over so much of the money they could be making, when the real financial opportunity is to simply compete with an Amazon who doesn't exist without those two companies. You want to break Amazon in the United States, simple, force them to use either UPS or FedEx because the other one won't do business with them anymore, forced them to consider ways that they're going to have to keep their product and other people's warehouses that aren't associated and attached to one of those logistics companies. They'll weather the storm. I think it's a fascinating concept that really when you get down to it, it proves the point. All ecommerce really is is very well On supply chains.
Doug Draper 15:02
Yeah, that is a very interesting take on things. You know, there's some transition going on with leadership and FedEx stepping down, I get it. I just don't know, if headaches ups, they're just cashing things in with money, like their core business is doing so well. And you've seen ups, you know, become laser focused by getting rid of their LTL division, selling that off the T force. You know, from a shareholder standpoint, that'd be like, keep doing what you're doing, and fine tune a machine. That is the parcel economy, I get it, I love the the angle of it, that those are the groups that can enter and create most disruption quickly. I don't know if they need to, right. If it's if if their shareholders are saying, let's be, let's make a better infrastructure for us. And let's make more money for our shareholders. And let's reinvest into our core competency. I just don't know if if Wall Street is going to allow that to happen. But I love the concept.
Pete Mento 16:11
One of these major ecommerce companies will fail. One of the probably one of the Chinese ones that's really built up a lot of incredible technology, and won't be Alibaba. But one of these, you know, it's very different the platform versus Amazon, the way that they sell things, and when that happens, FedEx or UPS should buy one and simply open it up and say we have an E commerce solution for anybody who wants it. It's all set up, it's all created, and you will have better rates than anyone on planet Earth can provide you. Welcome to the new world of E commerce sign here, and a laugh all the way to the bank. So most of the infrastructure you're talking about making better for them, Doug is actually attached directly to ecommerce. So when it FedEx needs to call me and Adele and ask us to build them a platform, and then just put it on ice. And wait, wait and watch what everyone else goes through on returns. Because once the returns thing gets figured out from a procedural standpoint, they just simply have to adopt it, put it in place until Amazon to kick rocks can take that brings us to halftime my friend which is seems to be everyone's favorite part of the show, which breaks my heart. Because I think that we really bring the content around here. But halftime brought to you by our great friends at CAP logistics, to learn more about their logistics solutions and international and domestic transportation solutions. Reach out to them at cap logistics.com We couldn't do it without them. They could probably give us somebody better than Kenan, but it is what it is. Doug, what do you have for our for our first topic this week on halftime?
Doug Draper 17:47
Oh, you know, I'm sitting here while we're talking. And I'm thinking about pivoting to a comment that you made earlier about California versus Texas. So I'm gonna shrink up, I'm going to shrink my initial halftime that I will give you some two texts on that one. So it goes really to my second topic, which is about water levels across the world, the dropping, and infrastructure waterways are really taking an impact. And I guess if there's a positive to that, and that is one heck of a stretch of a term would be kind of the quote unquote, hidden hidden treasures that have been out there that are being discovered. In Italy. I know there's some ruins and a bridge or something that they think that the Roman Empire may have built the Emperor Nero. There's some Buddhist statues that have come to come to view that they think are six 700 years old. But the thing that catches me is, so those are things across the globe, Italy has, you know, the Roman Empire and Buddhists and whatever. And what does America have dead bodies in need? Right. Dead bodies, the only thing it's, it's, you know, and the funny thing to me, Pete is they're like, Ah, well, we're finding dead bodies and five sets of human remains and blah, blah, blah, blah, blah. And then this is what's the most comical bit and I'm just gonna leave it at this. The rumors say it could be tied to mob activity from Las Vegas. And I'm thinking No shit, right? You think that really? Are you kidding me? There's going to be more and more discoveries as the water level continues to drop. I just think that that was comical that anybody even would wonder, but that is related to it. So that's my take here. This one will be real quick. I'm shifting gears on you. So California versus Texas. California does more damage to the economy when they come in. I'm talking specific to Colorado because they come up with a lot of money. They raise prices rising tide raises all ships so they can provide more damage but individuals and the one Not one, it would have to be Texas. And I know there's people out there there. You know, I'm creating a little controversy because I want people to make comments on our post. But here's the deal, Pete and Keenan and I were talking about this, it's about 100 days till the ski resort opens. So I'm going to give to you a picture, I'm going to paint a picture to you of what a skier from Texas. So first of all, they have their jacket wide open, because they have no concept of how things change temperature wise, so it's all cold. And then the jackets wide open. They hold their poles out very, very wide. They have jeans, and they carry their wallet, just in case, right so their wallets hanging out of their jeans, things are Scotch guarded. There's no concept of ski pants, and everything's tucked into their boots, or their boots are sitting out there. And they're not tied very tight because they don't know how to wear them correctly and their feet hurt. So the last thing that they say before they get off, the run to go down looking like a fool is, Hey, y'all watch this. And then they just go flying down the the slope, make no turns run into people and create chaos. So that is your typical Texas skier. And I apologize, actually, I don't apologize if I've offended some folks because they are all over the slopes. And we season. That's the negative for Texas, the economical impact is the negative from California. That's a double whammy on the halftime Pete Thank you for allowing me to
Pete Mento 21:22
be half of all people from Texas, you can kiss our ass. All right. So my halftime is an interesting one. For those of you who follow the news on Friday, 900 people were laid off from Wayfarer. And guess what? I was one of them. So what had been a relatively stressful couple of months dealing with everything from, you know, contracts seasons, all the complexities and difficulties of a modern supply chain, which we talk about every week on the show, to secession planning really came to a head when I got one email saying, hey, surprise, everybody, we're laying off 900 People today 5% of our workforce, followed up by another quick email that said, You're they're gonna get quick email that says you still got a job or you don't. So that's the way that it went. And I was drinking my coffee at Starbucks. And I got the email saying you have been impacted by the layoffs. It wasn't just me it was a lot of the fellow leaders that I work with. And there's two things that I really wanted to focus on here. First is if you go on LinkedIn right now, the number of people whom I worked with that are still at Wayfair, that love to say in their their LinkedIn messages, hey, I feel so bad for everyone. If anybody knows about jobs for them, please let them know that was very nice. Sincerely, I think that was a very nice touch. And the second thing, Doug, is I have in all of the years that I've bounced around jobs, and I have, I've always, and I tell everyone, this, if you want to get paid, you have to go where your talents are appreciated. That's the whole point of free agency, right? So if you, if you're not getting paid what you want for the job that you're doing, it means you have to find someone who's willing to do it, which is why I've had I think 10 professional jobs and a 30 year career. Now, I've never ever been laid off or fired. I've certainly quit. I've never been laid off. And I got a lot of free time all of a sudden here, you know, so I'm, I'm I'm already on interviews. I've won tomorrow with a pretty big company. I have two more on Wednesday with massive companies. And then another one on Thursday and then on Friday, I mean, I've even been it's my first day back to work since it happened and I'm already people are coming to me not the other way around, which is a nice feeling. But not realizing you weren't going to have a job and just waking up in the morning. I gotta tell you I haven't slept this good in a long time. I'm I'm excited to go back to bgj Practically every single day and watch a lot of rugby and continue to plan the wedding. So it's a weird feeling for me duck so ever been laid off before?
Doug Draper 24:16
No, I have not. Now. I'm my my job. numbers of jobs has been relatively small compared to you. But I don't know Pete does it feel? How's it different? Is there anger? Disappointment or excitement?
Pete Mento 24:31
Well, the difference when you get fired from someplace or when you quit, right, if you get fired. There's a lot of anger there because you generally don't agree with what happened. And I was young, so everything made me angry back then. And then when you leave a job, you know there's this feeling of joy, like yes, I'm out. But if you didn't really want to lose your job, then you do. It's a It's deflating. If you felt like you were on the right track like you were doing great things. And then It really comes down to dollars and cents or whatever the reason that they happen to quote on it. It's a, it's a feeling of that the best way I can put it, Doug is, you, you say if they don't want me, I don't want them. It's not like getting dumped. It's almost like getting ghosted. You know, the phone, she's not going to ring anymore, but maybe you're better off without that person. So that's how I'm feeling. I'm interested to see if I stick with ecommerce. I don't know if I will. But I have. I have a real deep affinity for the fording world and for customers. And I think I'd like to get back to doing what I'm known for. So we'll see. If for the next couple of months, I'm going to get married. I'm going to go on a honeymoon. I'm going to spend time with the kids. I'm gonna watch a lot of rugby. And you know, do what actually love instead of slinging furniture.
Doug Draper 25:52
Cool. Well, your pedigree speaks volumes that you just said with your your week out there. So I'm sure you'll land on your feet. And we can't wait to see where the hell that is. So
Pete Mento 26:04
I don't know. I think Draper and Mentos sounds like a good name for for the company. So maybe we'll just do that. There we
Doug Draper 26:10
go. Yeah, and I appreciate you putting my name first. alphabetically. There's so Ironman here. My second topic is related to water that I spoke briefly about. And this was specific to the Rhine River in Europe, we've heard about rivers all over the world. And it really puts in perspective to meet peak is everybody's so focused on ocean, we talk about trucking and land moving goods via the land and the ocean, but there's a lot of Commerce, in movement on rivers and inland waterways. I think people may not realize that even along the Mississippi, it's not, you know, consumables that you and I will be buying on the shelf, but it's the BASF model, you know, it don't buy the things you make or buy the things you make better. So I think we're gonna see that the one the Rhine River gives me a little bit of pause just because of the craziness going on out in Europe right now. Right. I love this quote. So, first of all, lowest levels and 20. Since 2018, the water levels could hit a record low of 25 centimeters very soon, which is insane how small that is, and things will move on. But this is a quote from a barge company out there and said, I'm gonna I'm reading directly because I read this I'm like, That is freaking awesome. For reasons of safety, we shall largely discontinue our navigation on the upper and middle Rhine, we regretfully have to point out, we can no longer guarantee or meet all deadlines in accordance with our terms and conditions. We no longer have any obligation to transport commodities.
Pete Mento 27:52
We no longer have any obligation. That's pretty rough. Man.
Doug Draper 27:56
I know I've read that. I'm like that is a Oh, G move. That's a big baller move to basically say, You know what, we'll do what we can, but it's not our problem. See page nine of terms of condition. Yeah. I love it. But in all seriousness, it's, it's crazy. So here's my take on that I had some other stuff I was gonna say, but is the climate change the next supply chain disrupter, right? We're hearing about this all over the globe with what specific to low water levels, right emissions and, and things of that nature are big. But you know, what's going to smack you right in the face is when there's not enough water to move things through waterways that most people didn't even know were used for those purposes. So my question to you, Pete is, is climate change the next major disrupter in our industry?
Pete Mento 28:48
I will not go so far as to say it's V. But it's a it's a major disrupter. And for a number of reasons. So first of all, the number of regulations that will be put into place to manage to manage it. So you've got so many new regulations that the United States is is is either passing or green to international courts that they're agreeing to that the entire West is agreeing to that China as an example saying, I don't think so. So what does that mean for intellectual international relations with consumer confidence in certain companies, and more importantly, those regulations are causing everything from scrubbers on vessels. Let's start there, to you know, the way that aircraft actually manage their jet fuel manage how it's loaded onto the aircraft and and how it's actually used. The expense of all of those things because of these regulations. It's going to make the price go up and up and up and up and up. I never really thought about barges even though I've worked on them before integrated second barge when I was at sea. But the the what brought to my attention Doug was was Incoterms and you know a number of Incoterms are focused on can't enter water into canal waterways across in different nations. It was one of those things where until someone pointed it out to me, I never realized how much of it I saw. And the amount of cargo that is moved up and down the Mississippi is astonishing, when you really begin to look at how much moves the amount of intercoastal that goes through Europe, again, astonishing when you begin to really look at it. And I think that the, the future of global logistics is intertwined intensely with what goes on with, with our environmental policy, if for no other reason that the consumer cares so much about it. So if the consumer is demanding a certain type of action of a company, the companies are going to listen, and they're going to follow suit, because without that, they will lose the support of the people who pay their bills. So whether these companies like it or not, there's an expectation now by a significant number of consumers that they will act in a way that's more responsible, that they will try to find ways to adopt those policies. And I've made no joke of it. To me, I think that's a wonderful thing. I think it's a positive thing. And a, it's a major factor duck, if not the, but it's definitely top three.
Doug Draper 31:14
Guys. Oh, all right. Hey, take us home.
Pete Mento 31:18
Yeah, so the third thing really comes down to a lot of conversations lately about Will there never be a cliff with regards to ocean freight pricing. And there's two pieces of that I want to work in here. So the first is, there's a misunderstanding by many people who don't follow ocean freight, that the rates that we're seeing in September that are being sold are generally for a 90 day term. So the things that were we're going to move, or that are going to move in September, they're going to get there in October, early November. At the very, very, very, very, very tail end. This is like these are the last days of your ability to with it with authority, move cargo and put it in place properly, for even to the most advanced of supply chains for the for the holiday season. So the rates that you're seeing now should be about where the floor is, should be about what we see for the rest of for the rest of the year. And then after Chinese New Year, I think you're going to see a correction, it's not going to be massive, but it's a correction. The way that we buy ocean freight is dependent on vessels, it's dependent on where things actually go from port to port. More importantly, though, it's also dependent on the type of consumption that we do. The bigger the company is, the more they can buy more consistent their actual spenders, were consistent their desire to move things across borders, smaller companies that are buying on the spot and getting lucky right now are going to find that the consistency of the rates following Chinese New Year should be almost mind numbingly boring duck, we're gonna get to a point now where we kind of know where the rates are. They fluctuate between $1,000, you know, like, so say the rate is being 5000. Let's continue to the west coast. It's gonna fluctuate between that 40 350 500, let's say, for quite some time, because the ocean carriers are bringing in more capacity. But they're also going to be reading at the old stuff for the very reasons you just talked about their international agreements and accords that have been signed, that these ocean carriers are going to operate more environmentally friendly vessels that will have scrubbers and they put that investment to these new vessels, they're going to take the old vessels they have not put the investment into out of service. And that's going to mean continued capacity issues we're at we're at where we're at now. Because they've done an excellent job of blank sailings not calling on places and canceling sailings. We're going to remain here for the next couple of years as they take capacity out of the market and replace it with newer vessels that give them tax credits to give them all kinds of other ways to help to you know adapt inside of the structure of how their finances work. Anyone who's expecting this great cliff to happen and ocean freight prices and to get their head examined these ocean carriers are operating as one of the operating is one but they're being incredibly smart about hey, how about how they may make sure and maintained and only so much volume is able to move and that capacity is firmly in their hands it's somebody it's going to be a hell of a business case study but the the rumors of a cliff happening in ocean freight rates going back down to $1,500 $2,000 for 40 to the West Coast that's done buddy it's never happened
Doug Draper 34:36
yeah you say business case study I say mafia movie right I'll come up with some catchy catchy name of the movie when I put it in the air but yeah, I think you're spot on and speaking a spot I think if you play if you're a smaller importer, right you are at most risk in my opinion because the stop the the spot market If it's going to be incredibly volatile, and you're just going to be whipped around in the wind like nobody's business, so rather than Pete, I was just thinking about this literally why why you're making that take, if you're a buyer on the spot market, you need to look beyond what your freight forwarder is quoting you and finding out what is the buying group, or what is the bigger buying entity that this freight forwarder may be buying into to understand the stability there. So I think you need to be a little bit more astute a little bit better understanding of how the global supply chain works and where your freight forwarder because lots of out there, smaller guys, you got the big boys that make a lot of news, but there are 1000s that are good companies that actually lean on buying networks to get get the rates that they need. So I think you as an individual importer, that's in the spot market, you have to look beyond what your freight forwarder is saying to understand what they're up against in the spot market. So I think you're, you nailed it, it's going back.
Pete Mento 36:02
Doug, if I could just have one little piece of that before you close this out with this. My advice to small to medium size, consumers a free has always been 6040 7030. Somewhere in there, depending on your ports, you still need a contract or have long term rates that you're comfortable with. So you can do some planning, let's say 60%. But you should always be playing the spot market. Always, because there's something out there. There's always bullet rates, there's always something that comes in from the forwarders that you're going to be able to actually manage and manipulate putting all your eggs in one basket and saying this is how we buy our our ocean freight. It's probably a mistake. You should leave yourself some room for negotiation. It's like anything else in business. If you don't have any leverage at all. You're just going to be a victim to the people who do.
Doug Draper 36:50
Yeah, excellent. Excellent way to send us off for this week in global trade this week. As always, Cap logistics pushes the button and turn the Levers as we say we wouldn't be here pontificating and having fun without those guys so please visit cap logistics.com When you have a chance to talk about their services, and I think that's a wrap Pete Good to have you back we
Pete Mento 37:15
we keep keep talking I've got nothing else to do. Haha Amy is mostly mostly friends laundry like I have nothing else to do. So if you want to do like nine more topics, but I guess yeah, probably has to get back to recess. So we should
Doug Draper 37:28
well think of think of a logo for Draper mento 14 LLC. And you could put that up. Big Chief tablet and crayons everybody's going back to school now. So you should have plenty of them sitting around at your store. Big
Pete Mento 37:42
chiefs whose tablet I forgot.
Doug Draper 37:45
Yeah, yeah. And the markers in the crayons so well. We'll see what see what we come up with on the next show.
Pete Mento 37:51
Quick shout out for we go. Nazareth rugby, everybody. If you're not a rugby fan, you become one. Division One rugby they're going to scrimmage on Tuesday gets Fairfield Watson of course is playing he's a freshman. He's been going through practices a day working his ass off. Really proud of them wanting to know that a doubt he ever watches the show. But for those of you who are big rugby fans, watch out for the big lock. Big Eight man that's playing at Nazareth. He's gonna crush a lot of skulls and for everybody who's going back to school, everybody who's getting back into their life as both a student athlete, be safe, study hard. Take care of your teammates.
Doug Draper 38:29
You got it. All right, everybody. Thanks for watching the show this week. Take care