Global Trade This Week – Episode 159
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Keenan Brugh 0:00
You're watching global trade this week with Pete Mento and Doug Draper,
Pete Mento 0:07
Hello everyone, and welcome to what I'm sure is going to be a very low key edition of global trade this week. There's not much going on. We had to come up. We were digging deep in the barrel trying to find something to talk about today, Doug and I, but luckily, you know, there was some stuff around. Yeah. So with all that with me, as usual, as my good friend, Doug. Draper, Doug, it appears you are in Colorado, my friend
Doug Draper 0:33
I am. Yeah, Troy's with me up there. And yeah, it's been kind of a crazy weekend. It's interesting when the Olympics are on and big news happens on a Friday, just kind of gets lost, and then people come in on Monday and be like, holy shit. What
Pete Mento 0:48
just happened? Yeah,
Doug Draper 0:50
I think a lot of that is what we're going to talk about today. So
Pete Mento 0:53
or if you're like me, and you just mainline data into a port in the back of your head, you've I didn't sleep much last night, once things started going south, I was up watching Bloomberg most of the night. So yeah,
Doug Draper 1:05
that's, I don't know what to say about that, but it before we jump into it. Based on the the light behind you and you are in the nation's capital,
Pete Mento 1:16
correct? I am. I know you're jealous. It is hot, nasty. And, yeah, but I am, I am. I wanted to point something out today, Doug, I'm wearing a new cover. You know, see my lid
Doug Draper 1:27
here? Yeah? UCI, California,
Pete Mento 1:31
Irvine. Do you know who that mascot is? It's the only reason I bought this house, this hat, I do. It's the anteaters. And what's, what's his name? Alvin, I don't know. Peter the ant eater.
Unknown Speaker 1:46
Ah,
Pete Mento 1:47
there we go. Once I heard that, I had to have one of these hats. Peter the Anteater, this is going to be in heavy rotation. I know that you see. Is it Santa No? UC Santa. Santa Cruz. Santa Cruz fighting banana slugs. I love that as well. But their mascot is it nearly as esthetically pleasing?
Doug Draper 2:09
Yeah? No, I like it. I like it
Pete Mento 2:12
well. I introduced a show Doug Douglas,
Doug Draper 2:15
yeah. So you get the first topic, my friend, all right. Well, mine are almost are not the opposite of yours, but I think your topics and our commentary will dominate. But I saw something the other day about our good company, Tesla. They're going to start and or they are in the process of building a semi Gigafactory right next to their massive Gigafactory outside of sparks in Reno, Nevada. So they're breaking ground. They're full on with with EV semis. They want to start producing at the end of 2025, right? And this is construction, and they want to have them up and running. So that's not that long, or that's not that far out, right, but not even 18 months. And once they get that thing fired up, they want to crank out 50,000 semis a year, which is great. All of that is nice, but let's get back to reality. What's going on? Number one reality, there's only 140 Tesla trucks that are out there zipping around, about 100 are in use, and of that, 36 are used by PepsiCo Pepsi out in California. The rest are kind of used by Tesla themselves. So there's not a lot of people using these, these semis and Pepsi pretty much got subsidies in order to to get those 36 trucks. So they're just kind of zipping around their brught, their logo, you know, they look kind of cool. It's almost more marketing than than, than substance there, right? So when Pepsi brought them on board, there was a 30% failure rate, like I said, the government and they fixed it. All right, I'm not here to badmouth Tesla. I mean, it's a new whole new, whole new vehicle. So anyway, the government of California is subsidizing it. Pepsi, it's kind of a marketing ploy. They're kind of using it. It's primarily in and out of one distribution center. They want to crank out five or 50,000 a year. You know, if anybody can do it, it's Tesla. They got good brand recognition. They're very creative or whatever. But this concept, and this stuff is, it's not years away Pete, it's decades away before this goes on. And really the companies and where this is going to go is short haul planes in gateway cities. So LA, Dallas, Chicago, Atlanta, you know, the New York metro area, those those gateways. And I think private fleets are going to jump on exactly just take the Pepsi model, except New York will subsidize it, and Georgia will subsidize it. In. Don't know if Texas will subsidize it, but, you know, la will subsidize it. And so it's interesting. I get it, it's probably needed, but the adaption of this whole concept is still many, many, not years, but decades out before it's going to be really viable. So I don't know if you heard about this plan. What's your general take on the beyond Tesla, just kind of the EV semi market?
Pete Mento 5:26
Well, I speak every year at an automotive conference in South Carolina, big fans of the show, by the way, so everybody else out there. The one more interesting conversations I had was with a gentleman who was operating electric trucks. Now, I didn't get the brand, but there's only a couple of them, and he said that it's complicated for them because they're so heavy he can't move as much. So the economics are sort of backward right now. I mean, he does get a pretty amazing tax write off on it and tax credits, but their ability to actually turn a profit on them is difficult because they can't move as much because of the weight of the truck. And I never asked him this, but I mean, what about drayage Doug? Would that make sense for this sort of a setup? It sounds like it would. Yeah,
Doug Draper 6:10
that's what I'm talking about. The short haul in those gateway markets would be perfect. But I think the other thing is that you want to jam that ocean container as heavy as you possibly can, right? So if you're pulling a can, that's 40,000 pounds, and your gross vehicle weight is, you know, not double, but it's excessive. It'll be interesting to see. I mean, how much can they pull? Yeah,
Pete Mento 6:30
another thing I wondered about when I was reading about this this morning was, why aren't they just focusing on things like straight trucks and box trucks first? That seems because of the way that it's set up and the model that it's set up, it will make a lot more sense to me. And I don't know why they're not focusing on that first. Yeah,
Doug Draper 6:45
that's a great question. If anybody in our audience knows, you know, kick us a line, because I don't know. It's a very, very valid point, right? They do?
Pete Mento 6:54
They have alternative fuels, like liquid propane, natural gas in them now, and make sense to me?
Doug Draper 7:00
Yeah, well,
Pete Mento 7:04
I can't talk trash about Tesla, but I will talk trash about Reno, Nevada. One star cannot recommend did not enjoy my time there at all. Oh,
Doug Draper 7:14
well, the only time I've been to Reno is when I flew in there and took a burner bus up to Burning Man got probably seven years ago. Now that's the only experience I've ever had with Reno. So I was in and out in a heartbeat, and then I still super hung over and and feeling terrible about my body when I left. I
Pete Mento 7:31
still want pictures of Doug at bed. I think that's
Doug Draper 7:35
something, all right, buddy. This is when the show starts. This is when the fun begins. So what's your topic? My friend, I know what it is, so let it rip. Yeah,
Pete Mento 7:43
at the beginning of our the end of last year, we did our prediction episode, and I said that there were a number of things that were going to happen in line. I told you in February, one of them, a couple more months, another one. And it is almost a curse being this, right all the time, Doug, but the collapse of the Japanese banking system, along central banking system, along with their attempt to just gingerly judge it a little bit, and then a greater fear of all kinds of things happening at once, has caused a global sell off in markets, particularly focused on high tech and things that support high Tech. And because these these stock exchanges, are so heavily invested in ideas that haven't necessarily come to fruition or that are still building that's a big reason for it. But if you were to ask 20 economists right now why is today so crazy, you probably get 15 different answers. It has a lot to do with the United States, our job numbers, the fact that there's, there's a feeling that we're already in a recession. We just haven't had a quarter to report it yet. Inflation numbers bouncing a little bit, but really not dropping dramatically. And the Fed's non desire to drop the prime rate. You add to that the presidential election and the just a complete chaos that's going on around the world, wondering what will the American market look like in four or five months? And then on top of that, one, Iran in Israel caught up in some pretty ugly, emotional fighting. Right now, I did come out and say they didn't plan on, you know, blowing this thing to pieces, which is nice, but the other side of it is, yeah, they're not going to blow Israel to pieces or try to make a limited response, but it's still enough to spook markets. So this is a broad correction. It's everything from oil and certain commodities. However, other commodities are doing quite well, but even Bitcoin, yes, Keenan, even Bitcoin, is getting a good swift kick in the teeth. The thing that drives me the craziest Doug here is that no one's 100% sure why it happened, but I can tell you that this is the first, the first in a long line of massive corrections to our economic system. Yeah, and you heard it here first in December on global trade this week.
Doug Draper 9:55
Nice. Yes, I remember that. It was very clear. There was a couple predictions. I was like, wait, what? Uh, but this one, it just seems like, Well, we talked about how it was the Roaring 20s, right? You know, post covid for 18 months, or something like that. And this is just more fallout. It will be interesting. You know, the Intel situation that happened on Friday caught my attention, right? It's just kind of like, what, what happened? They're part of the beneficiary. The chips act. Down in Arizona, they're building this massive plant. Those take a long time to come on board, so it's still a couple years out. But, you know, they're talking about how they didn't pivot to support mobile and AI development. They were still worried about chips, or not worried. They were focused on chips for, for, you know, come computers more than the mobile. So I don't know. It's just like this confluence of craziness that's going on running. And we shall see. It's not the end of the story. It's the beginning.
Pete Mento 10:49
Great album named Doug. Confluence of craziness. Yes,
Doug Draper 10:53
well, yeah, I'll take it. I'll take it. Well,
Pete Mento 10:56
that leads us to halftime, Doug, so halftime. Brought to you by our friends at CAP logistics. Thank them as always. We thank them all as always for their financial support and technical support and for loaning us Keenan on his work study in junior high. It's very kind of them all. So Doug, you going first? Am I going first? You're going first. Okay.
Doug Draper 11:16
Why don't you go first?
Pete Mento 11:17
Okay, so we spoke last week about the Olympics. Doug and I are both Olympics heads. I did not know about this competition, but have you watched kayak cross yet? Doug,
Doug Draper 11:29
uh, no, I don't know what that is. Wow. It's crazy. So they've got
Pete Mento 11:34
these kayaks set up, and it's almost like, like, imagine motocross, but it's in rapids with crazy water, and these guys erase one another, and it's Bedlam, like it's total bedlam. It's, it looks super dangerous, and it's, it's really chaotic and wild. It's a lot of if you would have told me that, I would have been glued to the television watching guys in kayaks, I would have thought you were smoking crack. But I can't get enough of it. It's really fascinating, and the people that do it, they're crazy. So it's a lot of fun. It feels like it belongs more on the X Games than it does the Olympics. It's really cool.
Doug Draper 12:09
What countries are excelling? Yeah,
Pete Mento 12:13
we're doing really well. It's clearly like a bunch of dudes from Colorado and in Montana and Wyoming that have probably done some heroic doses of edibles just out there, like killing it. It's wild. You got to watch it. Yeah,
Doug Draper 12:27
I will. There's so many little you know, I've been watching the Olympics every night on NBC prime time. I'm still old school like that. I'm not going to peacock and they're just doing snippets of all these events that you and I have never heard of, right? I think the one everybody has seen this, right? It's that shooter from Turkey with his just, yeah, hanging out. I
Pete Mento 12:54
love it in his blue jeans. We were, I was at I was at one or no, I was at a happy hour last week in Phoenix, and someone said it's almost like they called some CIA guy. Like, get the jackal on the phone. You know, he's like, he's running a shawarma place, or, like, he's got a, he's got a car rental place, like, we have, we have to activate. He's like, I've told you, I'm out of the game. Like, no, you've got to come in. Doesn't even have a uniform. Just rolls up in tennis shoes and blue jeans, a couple of little soft ear protection, raises one hand and shoots a perfect round. Was awesome, yeah, apparently, apparently, he walked away from the competition and asked him, and where can I go smoke a cigarette? Like, he went outside and, like, had a smoke after
Doug Draper 13:34
loved it. That's I was gonna make a joke about that, that that would be something that he did. But the fact that it really happen is even better. And
Pete Mento 13:42
the next picture of him is him at home with his cat. Like, you know, he's just this, this chill dude, I like to email him, yeah, interesting. Also, I haven't seen break dancing yet.
Doug Draper 13:53
Have you seen that yet? No, no, there's too many skateboarding breakdancing. There's probably a few others. It's like, Why? Why is that an Olympic sport?
Pete Mento 14:02
I thought the kids interested. Hey, what you got? Doug, all right, I'll
Doug Draper 14:06
just be super quick with mine. I noticed, or I read an article the other day on freight caviar about, no, actually, it wasn't, I'm trying to think it was thing called Morning brew. You ever heard of that? It's a it's a daily kind of news feed. It's these guys up in New York City. That's it's funny. They bring up some good stories, but what they brought up was that small cars are making a comeback, right? Essentially, the, I think they said the average cost of a pickup truck's over 60 grand, and with the cost of money, there's tons of incentives from dealerships to buy these cars that are smaller. The financing is pretty aggressive, and obviously you're not finding financing as much money. But the one thing that led me to believe is that could she and her team. Be jumping into the car market, right? Hey, I'll buy a car for 20 grand. I'll zip around with it, and when I don't want it in a couple years or one year, I'll just chuck it aside and get something else. So it was interesting. I have our listeners look at some of the trends that smaller vehicles, not specific to any model or make or car manufacturer, but just small cars in general are kind of rebranding and and becoming more popular.
Pete Mento 15:26
I hate them. Doug, I test them. This is one of those ways that I'm an ugly American. If I lived in London, I'd drive a suburban with a left hand drive. I I absolutely can't stand small cars. I drive a Jeep Wrangler, which is pretty small, frankly. But you know, my idea of a small cars and S Class, Mercedes Benz, or, you know, an f2 50, like even an f1 50 is too small for me. I'm a powerful built and I need room. So small cars, to me, they just don't do it. I understand the utility I get it. You live in a city there, it's hard to park. They get great gas mileage, all that stuff for your commuter, not for Big Daddy.
Doug Draper 16:02
I ain't doing it, but yeah, nice, yeah, I don't. I my first, I think your first car was a VW thing, right? For some reason that sticks in my mind.
Pete Mento 16:12
And then I had a Carmen which was very small, yeah. I had a la car which was very small. And then I had a Chevy spectrum hatchback, which was, which was pretty small to that car would not die, brother, it wouldn't, yeah,
Doug Draper 16:24
yeah. Vita, a red VW Bug convertible. That's what I said around Wichita, Kansas. And I thought I was the coolest guy in town.
Pete Mento 16:33
You were blasting like winger and Dio and,
Doug Draper 16:37
Oh yeah, yeah. And it was the crappy system, so the speakers would just pop and get all gargling when he cranked it up.
Pete Mento 16:44
I know welcome. Like, I don't see people buying aftermarket stereos and stuff anymore, like when we were younger, that was like a thing everybody. I remember
Doug Draper 16:56
getting Crutchfield magazine and flipping through there and looking at all the different
Pete Mento 17:01
speakers and going to Circuit City and tweeter and listening to stuff on the walls. So some guy who clearly sells dope on the side telling you all about the different dynamics of it, yeah,
Doug Draper 17:13
for sure. All right, well, that was brought to us by CAP logistics. Please visit cap logistics.com they're a great supporter of the show. They actually don't support the show. They put on the show, and we appreciate them letting us banter back and forth every single week. So my second topic, I'm going to just hammer it out. I think the headline should be, hello McFly, that there's two trends that I've seen that are really going to start, I think rearing its ugly head, if that's the right term in 2025 number one is industrial development pipeline. So who's out there building warehouses? Right? That is slowly declining. If you look at some some statistics, like the last four to five quarters the warehouses that are coming on board and coming to market dramatically exceeds the number of new builds that are in the works to build more warehouses, right? So yeah, there's plenty coming online now, but there's nothing in the pipeline, and obviously there's been, my opinion, a little bit of overbuild, because you can't put a building up in two seconds after covid, right? I'd almost put it at the peloton. Everybody needed warehouse space. Let's build let's build a build. People's consumer buying habits pivoted so quickly, peloton couldn't keep it keep up. And so this starts. You know, I talk about housing starts. This would be the equivalent of a warehouse start. Is really on the decline, and there's just not much in the pipeline. So that's one thing. So what happens whenever there's not a lot of houses being built, there's a house housing shortage? So I think we're going to see some of that, but this is not going to transpire for another year or so. And the other thing I noticed Pete is that truck brokers, there's a decline. There's been about 11% this is what I got from freight caviar, about 11% year over year, decline. So there's brokerage companies that are basically closing up and going out of business. Now that doesn't mean the capacity of the trucks out there is changing. It just means the access, right? So if you have many brokers to access the trucks that you need that access point is is shrinking, which means there's less people that can offer the service, which means the price is going to go up. So I think the Hey, McFly moment is going to be in 2025 it's going to be a seller's market, more so than a buyer's market that we've experienced in post covid, there's the warehouse crunch that's going to transpire, and the access to trucks is decreasing because the brokerage firms, albeit a lot of them, are smaller, mom and pops, but those two things are going to come to, I'm going to use the word again, confluence, and we're going to see those repercussions next year. So I don't know if you've heard of either. One of those topics, or have any thoughts,
Pete Mento 20:01
I just, you know, tangentially, right? So we have million square foot warehouses all over the place, like we have these, and then we'll have like, two or three of them next to each other. They're so big. They have drones that go up and down and like, pickups. I mean, they're just massive, buddy, yeah, I know you hate I know. I know. The the the change in our economy towards focuses on E commerce, the different distribution models, is really facilitating a change in how we look at that warehousing. I find it fascinating how quickly they go up with these, you know, Port cement walls, and you just, you buy a piece of dirt, and you're operational pretty quick. So I'm a little concerned that there are parts of the world where it seems to be built up, but other parts where it's not, I don't know, Doug, like in the middle of the country, in places like Kansas, Oklahoma and Nebraska, right? Are we? Are we building up for better distribution? Are we just building up the hold onto inventory? So that was really where my question came about this one,
Doug Draper 21:02
yeah, yeah. Was that a question posed to me? Yeah, yeah, you're
Pete Mento 21:07
the warehousing expert, not this cowboy, yeah.
Doug Draper 21:11
Well, we'll see. I don't think there's been a big pivot. This is my take, and somebody on this, on listening here is going to be drapery or moron, right? But I still think, as I said, Gateway markets dominate. People want to get their product off of the water as fast as they can, especially if they're financing inventory. I don't want it to go inland to Wichita, Kansas, where I can buy dirt cheaper. Now, in some instances, there's viability to that, but I still think that the growth is, you know, in major cities and Phoenix is going gangbusters. You were down there last a week ago or so. Dallas is just has land beyond belief, so they're sprawling. But those are big, you know, top 10 cities in the in the entire country. So, yeah, there's some growth there. But I personally, in my experience, have still seen larger metro areas that are really
Pete Mento 21:59
where people are migrating. Yeah, that's a fascinating thing. We'll definitely keep an eye on it. More bad news,
Doug Draper 22:08
bring us home,
Pete Mento 22:09
buddy, like we're all sitting here waiting for news about whether or not Iran has taken a shot at Israel, and Hezbollah is in the mix now, America sent carrier groups over there another carrier group, right? And it would appear that there's no slowing down, there's no there's no cooling off right now, of what's going on in the Red Sea. And that's, that's a challenging news. I don't want to say it's bad, but it's challenging news for the supply chain, because we have to deal with, you know, the increased, elongated supply chain and routes, the extra cost of fuel, extra cost of personnel that goes along with it, the unavailability of equipment, because, you know, the containers are on one end. They got to get to the other, so that you have chance to So really, the whole point of this is, I think Doug, it's going to be worse. I think that the the issues in the Red Sea are actually going to be worse, and I don't see them ending anytime soon, until after the presidential election. And as a matter of fact, I think they might get much, much worse. I
Doug Draper 23:07
think the President presidential election will be the pivot point, right? Not going to happen on, you know, the Wednesday after, after election day, but I think that will, let's see what happens in first quarter. But it's like a flare up, right? You? Things kind of flare up. People freak out rightly so they reposition their equipment, they go around the troubled area, things kind of calm down, and then insert a new bad actor that you had just indicated, and things flare up again. So I think it's going to be ebbs and flows, but to get back to where it was before October 6 last year. It's just it's gonna be a while. No way. Yeah, yeah. So good deal. Well, I think that brings us to a close on this week's edition of global trade. This week, I'm Doug Draper coming to you from my home in Colorado and Pete's in the nation's capital. So we are home this week, and that's great. So thank you all for listening what
Pete Mento 24:04
I leave for San Diego in the morning, and then I'm in Baltimore, propeller club, clap crab feast next week. I'm in Chicago. It never ends. Brother,
Doug Draper 24:14
you're you're home, at least for today. So, and we hope that everybody enjoyed the show. Please listen. Like push us out there. You can access us on all the social sites to listen. And we can't thank cap logistics enough for making this thing happen. And Pete, you love to say this. So if it's happening in the world related to trade, you'll hear it here first, at least our two cents on the topics, and that'll take it in. So we'll see you next week. Pete, thanks, man, see ya. All right. Take care. Bye, you.
Transcribed by https://otter.ai