Global Trade This Week – Episode 205
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Doug Draper 0:01
Hello everybody. Global trade this week is about the land in your lap, and we are super excited, of course. And I am Doug Draper in Denver, Colorado, and Pete mento is my partner in crime. And Pete where in the world you're like Waldo, where in the world is Pete mento this week. Give me the rundown.
Pete Mento 0:22
I am in beautiful Redondo Beach, California. I'm a big, big fan of the South Bay, and, yeah, I've been here all week, sales calls, clients, client dinners. It's been, it's been a pretty, pretty rough week, Doug. I'm looking forward to the weekend with it ever gets
Doug Draper 0:39
here? Yeah, yeah. This is one of the later shows we've done in the week. But you know what we got to give the people what they want, which is global trade every week. And that being said, half of our audience is going to be Thank God this show is short, and half of the audience are going to say, Where's the crazy banter? But this one's going to be rapid fire based on schedules. Pete, so let's just get this party started.
Pete Mento 1:00
Why don't you go first? You got it, bud. So the big talk amongst trade nerds as of last night is this move that President Trump has made regarding chip tariffs. So he alluded yesterday to a 100% tariff on microprocessors and some I think there'll be some related technology for companies who are not producing their chips as well in the US. So get this, folks, the way we're going to determine if a country, if a company, has tariffs on their goods, is going to be if they're also making them in the US. You know, you can take the trade policy bit out of it, just the complexity of how this is going to work. So what does that mean, if I'm a Chinese chip manufacturer, and, you know, I set up some ancient fab from like the 1980s somewhere out in Milwaukee, is that going to be good enough for me to avoid the tariffs? Maybe, I don't know, right? We haven't gotten any more guidance than that. But when these sorts of things happen, the level of anxiety in my world goes through the roof because we're told, here's the result. All right, great, well, well, what's the formula before it like, here's the punch line, what was the joke? And we're waiting. We're desperately waiting for someone to tell us what the joke is. None of us can make any moves. We can't make any decisions. And then chips are in everything, like we learned that during covid, you know, like they're my toothbrush, my electric toothbrush I take on the road. That thing's got a chip in it, right? Everything has a chip in it. So this is going to have massive implications for the trade. It's going to have huge implications for cost on things that that aren't made here. There's a lot of Chinese chips and things that we use every single day, and I think we're about to learn that the hard way. Doug,
Doug Draper 2:46
yeah, I saw that one just, you know, less than 24 hours ago, right? I love your analogy with here's the punch line, What's the joke? Right? I don't the what was it? I mean, the whole concept, it's so subjective to say, what was the term that you use better,
Unknown Speaker 3:04
better, right when you start? Yeah, well,
Doug Draper 3:07
anyway, it was like, just set up an operation in the US, and you're good to go. Good to go.
Pete Mento 3:12
What does it mean? Like, seriously, what if I decide, what if I'm a Chinese fab and I decide, hey, I'm going to open one of these things up in Milwaukee, we're good to go, right? And they make one chip a year. It does that count? I don't know. And don't think that people won't do that. I mean, you're talking about lots and lots and lots of money, and maybe that's the point. Maybe it's to get some of these manufacturers to make the lower end ones in the United States. I don't know if that's realistic, given the capital costs of opening up one of these things.
Doug Draper 3:38
Man, yeah, yeah. I think this this topic because of its implications on every single thing that we use and operates, even your toothbrush could good example. I think this will pivot and change personal opinion. Yeah, so anyway, moving right along. My first topic is kind of related to that, right? And I saw an article the other day about IKEA, right? The furniture Juggernaut, the one where everybody gets pissed off whenever you have one or two screws left after you follow the directions the best you could, and you're like, Ah, screw it. Just put it in the corner. Hopefully it won't fall apart. They are partnering with Best Buy, and they're kind of creating a little store. In a store 1000 square feet. You can't really walk out with anything from the store, but you can see some displays and order things online, have it delivered or pick up in store, all those type of things. So I was thinking, Yeah, that's cool. But in the bigger picture, right? Where can we save money in our organization when tariff uncertainty seems to be prevalent, and it's been happening for the last, you know, six months. Maybe there's no way to manage our corporate profitability on a on a transaction like an like a toothbrush, right? So my point is like, Okay, well, let's look at a grander scheme. Team of our business and how we can generate revenue, and getting to the masses and saying, Well, let's forget tariffs. It is what it is. We're going to have to manage it and make our business decisions. So what else can we do as a company to save money? Here's an option. Let's co brand with another company that is somewhat aligned right, and blend our services. If that's the right word, share some square footage and look to offer our products, even though they may be more expensive, our overhead to show them and sell them isn't quite as great. So, you know, a retail collaboration something of that nature, but I don't know. Maybe this has nothing to do with that, but that being in our in our industry, Pete, and the fact that we talk about this every single week, I'm thinking, huh, well, maybe this is IKEA saying we don't, you know, we can't deal with this, and we're going to look at other ways to improve our bottom line, through co branding, co locating, collaboration, that kind of thing. So I could be way off. But first thing to thought of when I saw that article,
Pete Mento 6:04
you know, when you sent me the the show notes, and I was thinking about it, I'm like, I wonder if it's entertainment centers, you know, is this, is this stuff specific to, like, maybe they're going to have TV hutches, that's probably a 1970s word right there, but TV, TV stands, or maybe they're going to have other things that are related to the living room for entertainment purposes that that might be it. But, you know, we have daughters, and Sephora was in JCPenney, I think they still are. I'm not sure that was a brilliant use, I mean, a genius use of square footage to bring young people in for the most part, right? Younger younger women and younger men, too. I should keep that in mind to come in and take a look at Sephora, and while we're here, we'll look at other things. So I've seen this in a couple of different ways. I also thought about how, you know, Amazon bought space at Whole Foods and bought Whole Foods, and now, when you go to Whole Foods, you can have your Amazon packages return there. I wonder if they'll do returns at Best Buy, right for IKEA. I'm not sure if IKEA has a lot of returns, but could you imagine that you build it, then you have to take it back apart and put it in the box. That's like reverse Jenga. First idea. But I see, I see the logic in this. I'm sure these aren't the only examples. If anyone else has any can comment, but I think it's a great idea to look for opportunities. I'm wondering if they'll start shipping things together, you know, if that's something that they would consider as well?
Doug Draper 7:30
Yeah, yeah. Well, if you and I are talking about it just in a moment, I'm sure the strategy has been been laid out, but you're right. I mean, Best Buy, they sell appliances and things that nature as well. But yeah, I mean, IKEA is home furnishings. There's stuff in Best Buy that is for your home. Oh, yeah, it makes a lot of sense. Collapse, like, what's that you
Pete Mento 7:52
go to Ikea, get all your IKEA, your brand new kitchen for IKEA, when you buy your washers and your dryers and your ovens and your stoves, and think about that, yeah, that works
Doug Draper 8:01
too. Yeah, yeah. Well, it's not a new concept, per se. Because you said Sephora, I remember, I remember that one. But anyway, just because we're talking tariffs and global trade all the time, I'm like, this could be a unique application to try to save money and improve bottom lines in a different fashion that has nothing to do with tariffs. So anyway, they caught my attention. Good deal. Well,
Pete Mento 8:23
that brings us to Doug's favorite part of the show, and that part of the show is halftime. Brought to you by our great friends at CAP logistics. Please do learn more about them at capital logistics.com, Doug, I think ours are related this week, so if you wouldn't mind, kick us off, buddy.
Doug Draper 8:39
All right, well, my wife's a teacher, and this is the back to school season. Up here in Steamboat, summer vacations are starting to wane. Everybody's going back, you know, back to school sales. And I started thinking about classic, nostalgic items that are back to school, that aren't around anymore. And I was just thinking about some things, so things that you and I could purchase when we would go to the store with our list and and walk around, I know now you can just click a box and they'll basically create your school supply listed and just have it delivered. But the the excitement about going to get back to school and get ready for the new year. So here's one. I love this thing. I had a bunch of them, the original gangster Trapper Keeper. You remember that like it was opened it up and it had slots on the side, so if you turned it upside down, your papers wouldn't fall out. Love it, right? This wasn't this is the second one is more elementary school, but big chief tablets. Remember that I do? Yeah, they had all the the dotted lines in the middle so you could understand the capital versus capital letter and lowercase letter. I don't even know they could call it Big Chief tablets anymore. But I don't think that they're around. But scented markers, right? I think there was strawberry shortcake, a bunch of stuff that just seems kind of strange in this day and age. But the one that I love is the metal lunch boxes. People used to bring lunch in a box with the thermos right, and you'd have Spaghettios in the thermos or chicken soup. But it was like, Duke's a hazard. The branding they did was just awesome. Dukes of Hazard Superman. I mentioned strawberry shortcake, that's awesome. And I was looking Pete, you can get a Dukes of Hazard metal lunch box now on Etsy and eBay, they're going for like, 202 50, and the last thing, then I'm gonna let you go. I was talking to my wife, and you remember the book covers that we had to make out of paper bags? Yes, because the books were reused and you didn't want the covers to get jacked up. So I remember making book covers and writing all over them. So depending on the age of our audience, I'm sure that some of these are familiar, and if you our audience thinks about you, put it in our in the in the comments. So anyway, back to school. It's the season
Pete Mento 11:19
I remember the your you cover your books in the brown paper bags, and then you'd like draw band logos and and, you know, you'd have your names on it. Sometimes your friends would write something that was maybe a little naughty. You'd have to cross it out with markers. I love that my mom would sit with me at the kitchen table and we do it together like it felt like, you know, middle school origami, I was so fired up to do it with the with the tape, but man, the lunch boxes. I had a Spider Man lunch box. I love that thing. Absolutely loved it. And it was one of those few ways where I could show some kind of personality. You could do that as a kid. But yeah, my lunch box, my mom would, would, would put soup in my my little thermos. And what else remember Doug, is why those lunch boxes are so rare. By the end of the school year, that lunch box was trashed. It was like, I'm I'm putting the top on, and the springs don't work anymore. The handles being held together with like the the ties for the top of the bread box try to keep the thing together. It was absolutely trash by the end of the year. Man, yet, you know, in Texas, they gave us a list, and you had to buy more than it was for you. And you know, the idea is we would show up on the first day with all these pencils and everything else, and the teacher would put them in the supply closet, and then we had it throughout the year. It was a way, I guess, to keep down expenses. But, you know, teachers buy a lot of their own of their own stuff, I think, even now, for their classroom, for kids to use with their own money, and we don't pay them very well so, and I remember that really well. That was always a fun trip with my parents. There weren't a lot of those, so that was
Doug Draper 12:53
cool. I love it. All right.
Pete Mento 12:56
You go mine. Mine's related, so everyone's got those pictures now, when we send our kids to their first day of school, and I am guilty of this, I have a picture of my daughter's, you know, kindergarten all the way through her senior year. I can, I can put them all in order, that first outfit. And did you ever done? Did you ever have a first like, outfit you were so fired up to go to school wearing? Mm,
Doug Draper 13:18
hmm, yeah, yeah, it was, I can't, there was an outfit. It wasn't, you know, pictures were always taken, you know, not like the first week, but they're always, you know, in Kansas, they were, you know, within a month or so. But I had this like Ernie and Bert, like Ernie mock turtleneck, nice. Just had stripes on it. And I've seen pictures with my bowl cut when I had hair, I looked just, I don't even know, you just laugh at it, and you just like classic 70s, right? Yeah, man, that's the one that comes to mind. What about you
Pete Mento 13:55
two? I remember bud. I remember him so well. I got Garanimals. Do you remember those? Oh yeah, absolutely, I'd match, yeah, so the animals match, and that's how you knew what to wear to school. So my mom was, you know, really wanted me to get myself dressed every morning. I don't know. I must have been like in first grade or something, and I had this vomit Brown, like it was almost green, polyester shirt that had a huge collar, and then I matched it with, like, these maroon pants. I mean, who, what were they doing in the 70s? What kind of drugs were they on the dresses this way? And then, you know, we were, we were sneakers to school at that age. So I had little, little sneakers I wore, and in white sneakers, and then my belt was white. Oh yeah, yeah. And there's a picture of me dressed this way, like on purpose, going to my first day of school, and then the second one in high school. You know, I went to high school in the 80s, and we wore some pretty crazy stuff. But I went to a Catholic school. We had, we had pretty strict rules. The two polo shirts, I don't know if you. Ever did this, but we had the two polo shirts with the with the collar up right, and the one polo shirt was tucked in, but the other one was out. Wasn't supposed to be out, but I still wore it out. And corduroys, we wore these, like thin stripe corduroys. And I had, I dock shoes from, I think, like bass or someone. And, man, I thought it looked so damn cool. I thought it looked so cool. I looked back at it now, and I'm like, did you have head trauma when you were 14 years old? What the hell were you thinking? Man, yeah, so those were, those are the fashions then and now. You know, my daughter would just wear whatever the hell she want. It wasn't like, she's like, Dad, I'm going to school. Yeah, I know, but we just bought you all these new clothes. I'll get to him when I need him. She was never all that fired up about it. Bummed.
Doug Draper 15:43
Hey, on that last, last comment on that white belt. I don't know what it's called, but, you know, most belts have one little thing that you put into the belt hole. I remember those white belts had like, two or three that you had to clip. That was the,
Pete Mento 15:57
yeah, you feel pretty cool when you did it. I can't believe I left the house dressed like that, like I can't believe that was normal. And other kids look that stupid too. But that's how we dress when, when Bob Newhart was on television, I guess. Yeah.
Doug Draper 16:11
Well, that's the back to school edition of halftime. Of course, brought by CAP logistics. We appreciate them. We appreciate Keenan for giving us this platform every single week. So
Pete Mento 16:23
you appreciate Keenan. Yeah, enjoy him, yeah.
Doug Draper 16:27
All right. So, all right, man, you all ended so you go on your next one.
Pete Mento 16:32
My second topic, make might fill me with rage this week. The we get these things when you're a customs broker called the CSMs, there are customs messages from CBP that explain how the tariffs are going to be, are going to be, actually enforced on the level where someone's making the entry right? So how do we interpret the guidance that was given from the Department of the Treasury in the commerce folks, customs looks at all that, and they say, Great, here's how we're going to do it. Well, for months now, we've all been sitting around wondering, What does trans shipment mean? What does trans shipment mean? Right, to anyone who's been involved in this world for a long time, transshipment is pretty simple. You make a product in one country, but then you ship it to a second one, and you claim that it was made in that one and send it to America. And this has been a, you know, a real, a real thorn in the paw of our USTR for a long time, back when he was an attorney, and we were hearing all these rumors that for countries like Vietnam, where there was a 40% additional tariff, instead of 20, if it was trans shipped, we were going to have some kind of regional value content because, you know, to be fair, Doug, a lot of these companies in Vietnam, all of the raw material comes from China, and then they assemble it there, package it and ship it to the United States. Under the old customs rules, that counts as a tariff shift, that counts as a substantial transformation. And now this pile of stuff has become something brand new. All right, great. Well, the guidance we got was we'll know it when we see it. Well, no transshipment happened. We'll determine it at customs. We'll be the ones that make the decision, okay, based on what you'll make that decision based on what, what is the reasoning behind this? Because you have, what, probably millions of containers of stuff that come from Vietnam, Cambodia, Thailand, Indonesia, Malaysia, all over the place, Canada, Mexico, right, where a significant portion, but not all of the parts necessarily, are made in China or someplace else. So what's the guidance? And the guidance is, we'll know it when we see it. And I understand that they're under a rush to get this done, and I understand that, you know, speed over perfection is kind of the attitude with these folks right now, but you're putting people in a position to break the law when they don't mean to, to have higher tariffs when they don't mean to. And this is going to impact our clients. It's going to make me crazy, Doug, I'm already going crazy over it, as you
Doug Draper 19:04
can see, yeah, I could see your blood rising the ambiguity of that one right when I first read it a couple weeks ago, when they were talking about it, when I first read I'm like, so is it legal? Like, can you now skirt tariffs to transship? And I had to reread it. It was super confusing. And then they clarified it. They by saying, well, to your point like, well, we'll kind of know it, like you said, when we see it, I don't know. Man, it's it's crazy, which goes to my other point about companies are going to be looking for other ways to control their bottom line, because the tariff situation is just out of hand. Every day it changes. And what you can control, that's what they're going to focus on. I can control if I decide to build a massive 200,000 square foot warehouse to bring people in, let's just do it and partner with another company. So I think you're going to see some creative, unique branding. I. Want to go back to my first point, but it at at at some level, people like, I can't deal with it. We have to make decisions. We have to move forward with our business. And the uncertainty is the uncertainty. So let's control what we can control, and that's some of the things, in specific to retail with with buildings and any partnerships and you know, warehousing and things here on the domestic side.
Pete Mento 20:24
So, but you know, we're not here Doug. We'll just make it in the US not hearing that
Unknown Speaker 20:27
yet. Yeah, yeah.
Unknown Speaker 20:30
Well, it's difficult.
Doug Draper 20:32
That's another topic that we could go down on a different show, for sure. So, so this one, Pete, my last one it, it's not related to anything, but it caught my attention. So I had never heard of the Northern Sea Route, right, which is a route between EU and Asia, and it's basically a shortcut through the ice. Now, if you look at a flat map, right, and you look at the route, it looks incredibly long, and you're like, what's the deal? But it's essentially the same concept as airplanes, where they kind of go up and over the world, right? So instead of going down through the Suez or potentially even all the way down to the Cape in Africa, they basically just circumvent and go over on top of the world. And there's some Chinese companies that are engaging with this. They've done it once or twice in the past, but it seems to be a little bit more prevalent now. Couple dozen vessel sailings is kind of what we're talking about, but we were talking about zero not too many years ago, right? So it's becoming, it's like transships, you know, four to 5000 teu, type of vessels that are getting, you know, from from China, or from the EU, or back and forth. So I don't know it. Part of me is like, okay, less fuel, that's good, shorter distance, right? Which means the supply chain is cut down, which saves costs. So I'm like, okay, I get it, but it's the Arctic Ocean, right? So talk about dangerous sea voyages. I mean, that's like top two, right? And then the other piece I had read is that the, sorry, something just beeped on my computer. All of that borders Russia, right? So there's potentially Russian influence. So anyway, Northern Sea Route, I had not heard of it a whole lot. I did a little research on it. It's freaking cold and dangerous. Russians can can have influence. But as far as transit cost savings with fuel, kind of makes a little sense. It's
Pete Mento 22:37
even faster Doug. So yeah, when we look at a flat map. It's not really indicative of of reality. The land masses are different. You know, Africa is actually much larger than people realize. And it's called a Mercator projection. And then a when you look at it, at a globe right, a straight line wouldn't be a straight line on a globe. It would be a great arc. So sailors forever have been looking for a way to cross the Arctic. Russia and China have entered into an alliance to keep that route open. And much of the infrastructure is Russian or Chinese. And the United States is very concerned, because if we can move cargo, you can move submarines and Navy ships too, which is why there's such a push to put a base in Greenland, because that would be the first land mass that they would they would encounter. It's dangerous man. I mean, the Russians have something crazy, like 60 nuclear powered icebreakers. We're building them now to to keep it open. From a, from a sheer commercial standpoint, it's, it's a good thing. You're going to have faster ships. You'll be able to have a faster service. It'll save on fuel. But strategically, for both countries. Actually, all three. It's a pretty big deal too. And I think this is going to be a flashpoint for geopolitics because of the ability to get military equipment so quickly by using that northern border, that northern Arctic passage. But yeah, Doug, I mean that water is cold already. You know, whenever I was out there, I was terrified of falling in. I can't even imagine falling in the water up in the Arctic. You're just good as dead. So that's going to be a special kind of Sailor that takes that route. I'm telling you right now. It ain't this one.
Doug Draper 24:12
It's called a pirate
Pete Mento 24:13
yar that's coming up soon. International Talk Like a Pirate Day. We should do the whole we should do the whole show that way? Yeah. Well, that brings us to the end of our show this week. Hey, everybody can't thank you enough for being on with us every single week. Can't think cap logistics enough either. Please do subscribe. Tell all your friends. And as we say, every week, if it's happening in global trade, we'll be talking about it on global trade this week. Take care, buddy.
Doug Draper 24:40
All right, travel, save my friend. See you. Bye. You.
Transcribed by https://otter.ai