Global Trade This Week – Episode 227
What’s going on in Global Trade this Week? Today Pete Mento and Doug Draper cover:
3:21 -Union Pacific & Norfolk Southern
7:01 -Mexico, Tariffs, and Costs
10:10 -Halftime
16:14 -Panama & Suez Update
20:35 -World Economic Forum in Davos
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Pete Mento 0:01
You're watching global trade this week with Pete mento and Doug Draper. Hello everyone, and welcome to Global Trade this week. I'm Pete mento. With me is my co host, Doug Draper, and I'm happy to say we're both on mountain time, not the same city, but even the same state, but we're in the same time zone. How are you partner?
Doug Draper 0:24
I'm good. That was fine. We were actually about four and a half, four and a half hours away from each other being in Salt Lake and me in Steamboat. So it, is it, I feel a deepened kinship with you, my friend, now that we're in the same time zone. Yeah.
Pete Mento 0:42
You know, it was weird. I watched the game last night, the national championship game, like a lot of people, apparently. And yeah, you know what? Game was over with at a reasonable time. It's kind of fascinating, buddy like, I can see how living out here from a media consumer like myself wouldn't be so bad. It is really cold, and my body is in no way acclimated to the thin air. This is not an environment for a chubby man done.
Doug Draper 1:11
Yeah, as far as like sports and things like that, I don't think I could live with an 830 kickoff time whenever it's Monday Night Football or any type of big sporting event that's too That's too late of a start for me.
Pete Mento 1:23
Yeah, you're up late, buddy. And I love it when I would go to California on a Sunday and you're watching games like in the morning. I thought that was awesome. I love that. That was great. Is everyone excited for Denver to get the ever loving tar kicked out of him by by the Patriots on Saturday?
Doug Draper 1:38
Yeah, you know what it was. It was so crazy. And I'm sure a lot of people were feeling the same way. There was this elation that we won. And I know people were pissed off about the past interference calls, and then, literally, 30 minutes later, it was just two seasons over for Bo Nix. And people like, What are you talking about? He played the whole game. There was no sign of any injury. So, you know, it's a homer town, so everybody says we can still do it, but I think we're pretty much done. It can happen.
Pete Mento 2:07
I mix feelings about Denver. I am a big fan of Sean Payton because he won my team a Super Bowl. I think that Bo Nix is a spoiled little dink, and I don't like him whatsoever. And kind of happy he's not playing. Not happy he's injured. Kind of happy is not playing. And your quarterback, Jared Stidham, used to play for the Patriots, and he'd probably still be playing for the Patriots if he had not have allowed his wife to pretty much take over his calendar and skip some meetings. He upset Mr. Kraft a great deal. But hey, man, chicks, man, what are you gonna do you know, but I'm. I can't tell you, Doug, how great I have felt. Like these these playoffs have been. I don't know if you've been watching the games, but like every game, just about, I guess the Pats game wasn't so much, but every game was just down to the wire, tons of drama. It was awesome. I really enjoyed the playoffs this year.
Doug Draper 3:01
Yeah, yeah, you're spot on. They were all all good. So hopefully it'll continue three more games left in the season. Hopefully they're good ones.
Pete Mento 3:09
Yeah. Well, I know our producer, Keenan, is scrabbling all this together off site right now, so we don't want to stay any longer than we need to. But Doug, I kicked it off. So that means you get the first topic this week, buddy.
Doug Draper 3:20
Yeah, yeah, for sure. I'm keeping my topics pretty, pretty lean this week, just so we can get this thing done. But one of our listeners had mentioned, like, why you guys so into the rail, right? And railroads and stuff like that, and it's a big part. It's one of those service offerings. And you know, you kind of, you don't know you need it until it's gone type of thing, right? And so this whole Norfolk Southern up merger had a little bit of news the other day. So basically, the Surface Transportation Board came in and rejected the union Pacific's application and basically indicated it was, quote, unquote incomplete. And so the question is, why? Why was it incomplete? They said that, that the service transportation board said that there was no forward thinking market expectations, that everything that they presented was historical data, and they wanted to focus on, well, what does this mean in the future? And they didn't speak to like, how is this going to enhance competition and provide public benefit for the lack of a better term? So it was, wasn't a lot of substance there. So the up and the Norfolk Southern how did they respond? Hey, we'll fix it. We'll resubmit it. And then just underscored the messaging that they've said all along, which is faster transit, reduced delays, lower costs, all that kind of good stuff. Everybody else, Pete, involved with it, the other class one railroads, for lack of a better term, applauded it and said, Yeah, you didn't really give any competitive data. Some Union. Kicked in. Large trade associations kicked in and said, you know, that's really unfair. We're going to lose jobs. It's going to cost more money to move our goods. You know, the big users and the associations that are rail heavy. So really, what that means is the next application deadline is February 17, and they'll do whatever they need to do, and they'll they'll submit it. But this, I wanted to bring it up Pete, because it is a very tangible example that it is not a linear line to have an intercontinental railroad. There's going to be more of these. And even if everything went smoothly after the application on the 17th of February. This is still second half of 2027 so it was a big splash. You know, Jesus months ago that this was announced, but it's not moving quite as smoothly as they wanted. Half the group is applauding that and saying, yes, Norfolk, southern and the up are holding the line, and we'll see how this thing progresses.
Pete Mento 6:02
I mean, we do talk about trains a lot, don't we, you know, but like you said, it's not spoken of enough, and it's one of those connectors that people take for granted. Beyond that, the continued consolidation of these lines, there was only a matter of time before someone started asking the harder questions, like, what does this mean for the next 1020, 3040, 50 years do we have the proper infrastructure to grow the way that we think we do beyond what we can control? And there's so much more, like you said, that goes into making this successful than just the big names that we always hear when we talk about rail, whether it's the smaller areas that are connected to it or the supporting infrastructure that goes along with it, it's much more complicated than I think people realize, which might be another reason why it's not paid attention to enough, though, but I don't think we're ever going to stop talking about it so you don't like it. There's an unsubscribe button, folks, go ahead and
Doug Draper 6:53
click it. We'll give you a refund. Yeah, yeah. Nothing from nothing is nothing happy to do it good. All right? What do you got my
Pete Mento 7:01
topic this week is a little bit off kilter, I suppose, with de minimis going away, the need for retail companies to find ways to effectively get their goods to people as inexpensively as possible has made some people think about shifting. We're beginning to see more and more American retail originating from Mexico. And why is this a big deal? Well, they're saying, if we can't make up the profit margin on the cost because of tariffs, maybe we could find a way to do it through transportation. So labor in Mexico is relatively low, and given that the transportation is much shorter, and rather than going on steamships, it's going over on truckloads and such. And maybe think about that from a broader perspective. Doug, why aren't more people thinking about how to better utilize their supply chains in order to lower the cost of production through lowering the cost of moving goods? I heard a gentleman today say to me that as much as the tariffs blasted them this year, they weren't primarily a Chinese importers mostly Southeast Asia. What did work out for them in the long run was they were making up the money difference, a lot of it in their ocean transportation costs, because they had gone down so much so I don't know if this year will be as consistent. I know. I think it might be as far as lower cost because of volume. But have you heard of anyone doing that? Doug saying we're making up the money on transportation costs, the difference between the tariff inflation we're breaking about even heard that from a couple of people today at a thing I was speaking at. So I don't know, Doug, has that ever come up when you've talked to people?
Doug Draper 8:34
No, it really hasn't. And I think maybe there's so many factors that go into play. It may have been a little bit of luck, right with other factors that went into pulling those transportation rates down. So hey, it's definitely, you know, viable solution, or what am I trying to say here? Pete it, it worked in their favor in the short term. But there's you can't put your finger on it and say, Well, we're going to keep the the ocean freight artificially low to compensate it. I think it's a good it's a good reminder that it's a China plus sourcing strategy. And the plus in this example that you're seeing with your at the event that you're seeking at the plus is Mexico. And I think, rather than, you know, some guy sitting in the back and you and I think you're going to see this at TMP, rather than sitting back and beating up your carriers and saying, I did my job. I'm a one trick pony, and look at me, send it up to your executives, I was able to minimize an increase or eliminate an increase. That's not going to cut it anymore. The China plus strategy, and really looking at your entire supply chain is how you're going to find those pennies and nickels as things move forward. And yeah, I think that's kind of the gist of it. It was coincidence, I think, and beneficial to a lot of companies, that the ocean freight was a. Was muted a little bit this year, and help compensate for that,
Pete Mento 10:03
I believe in coincidences. Doug, when they're when they work in my favor, when they don't. I don't believe in them. So I think you might be right on that one, buddy.
Doug Draper 10:13
Yeah, yeah. So it's brought to us by CAP logistics. It doesn't matter where Cap is. Keenan right now is in a hotel lobby trying to fuse together the internet with some duct tape and bubble gum to make this show happen every single week. And we appreciate their efforts to check out cap logistics.com. Pete, I'll let you roll with the halftime. What do you got?
Pete Mento 10:33
Okay, Doug, some bad news. A couple of days ago, a New Orleans institution for poor dietary habits has filed for bankruptcy, and it's our good friends at Popeyes. Now, Doug, I don't want to cry on camera. I don't, I don't want to, I don't want to actually cry on camera, but I might. I'm so emotional about this. Popeyes is a southern institution, fried chicken, fast service food. As much as everyone else in the country thinks that it's it's not right. We have a vast diversity of choices in the South. You got your boat jangles, of course, churches and then my beloved Popeyes. Popeyes has said that because of an over expansion effort that they did to try to get into more of the country. They miscalculated, and they may have overextended themselves. So they're going to be right sizing the company. You know what? That's key for Doug. I'm telling you right now. It means we're not going to have one anywhere near where Pete lives. It's not going to be, I guarantee there won't be one in DC. There won't be any in Virginia, like I'm probably going to have to drive to South Carolina to get Popeyes chicken, and it it hurts, right? So of all of the quick serve restaurants that could have gone away from me locally, this is the one that could have possibly it's like a worst case scenario for me, Doug. So my question was, is there a quick serve restaurant that, if they cease to exist, it would probably break your heart.
Doug Draper 12:02
I probably have to say Chipotle. I'm a big love it burritos. Enjoy Mexican food. Unfortunately, there is no Chipotle here in Steamboat Springs, the redheaded stepchild known as Qdoba is here, but I'm not a big fan. Don't apologize for anybody that has an affiliation or affinity for Judo, but it's not my favorite. So Chipotle, my friend would be the one that I'd
Pete Mento 12:31
be really concerned about. I brought this up with a friend of mine over the weekend, and he said, Starbucks, you idiot. I'm like, I don't count Starbucks in the same universe as what we're talking about here. It's my coffee place. Yeah, I can get a bite to eat. It's not the same, right? I said quick serve restaurant. This actually started an argument between us, where he Googled it. They are listed amongst all of the other quick serve restaurants, so maybe Google agrees with him. Pete mentor does not. So, you know, pour one out for the homies this weekend on on the Popeyes chicken. I just hope that they are strong enough to keep at least one outlet for me in Virginia.
Doug Draper 13:09
Yeah, yeah, good deal. All right. Well, this is mountain town related, right? So I'm up in Steamboat and they had an event yesterday called the steamboat cowboy downhill. So here's what this is. There was a ski racer that's from steamboat named Billy kid, and you probably have to be north of 40 to remember that name at all. From steamboat had kind of a country cowboy vibe about himself. And there's an event in Denver called the National Western sock show, which always happens at the end of January. Big Event in Denver. Hundreds of 1000s of people come and visit sock show, rodeo, the whole nine yards. Anyway, 51 years ago, he reached out to some cowboy buddies and said, Why don't you come up the steamboat. You don't have to know how to see but we're going to do this race, and we're going to see how you guys do. So this is the 51st year. So you got all these cowboys, and it's not just guys off the street. They have to be professional rodeo bull riders the whole nine yards. So they ski down a little, a little course. They have to cross each other twice. They go off a jump. Inevitably, they all crash. You got to get up and lasso a person, right? And then when you lasso the person, you got to go over and saddle a horse, jump on the horse, and ride it to the finish line. And it's complete chaos. Everybody's in chaps, cowboy hat, spurs the whole nine yards. And it's quite a quite a celebration. So it's got a great history, a great backstory, and if you're into cowboys and and snow and ranching, it's a fun event. So I'm sure you can go online and check it out. There was a couple. The cowboys from some place in Texas, and it was a couple of 20 brother, two brothers. One was 23 one was 24 you know, they had cowboy names like Garrett or Colson or something like that, but they were the winners and had a great time. So I would encourage everybody to go check it out. The cowboy downhill and Steamboat Springs happened yesterday,
Pete Mento 15:21
until I saw the video Doug, I had never heard of this beautiful orchestration of both chaos and violence all together at once. It I was skeptical, but I'm telling you, anyone who hasn't seen it, go, go check it out. This is not this is not the kind of austere, gentle thing you think it is. This is, this is, there's a lot of concussions that come from this particular day. So I would absolutely watch it. I'll go so far as to say we should replace the biathlon, the Winter Olympics, with the cowboy, with the ski rodeo. I think it's a much better idea. It would certainly be more entertaining. And I would also say there's a great deal of skill if you want to win. It's not like you just sort of hurl yourself towards stuff. You actually do some things. Doug, yeah, I was shocked. It was incredibly entertaining.
Doug Draper 16:12
Yeah, yeah, good. Cool. All right. Well, that was halftime brought to us by CAP logistics. We appreciate them bringing the show on every single week. So yeah, let me jump into my next one here. Since we did the proper rotation again, kind of a short and sweet one here, I saw that they had opened up the Panama Canal and the Suez Canal are getting a little bit more attention. As you know, they've been kind of bottlenecked for, really the last, I don't want to say a couple years, but definitely over a year, right? So you got the Panama Canal, which was plagued by drought, and so there wasn't enough water to move some of these mega vessels through. So they slowed everything down. They only allowed less cargo to move through, and the shipment. So that delayed, you know, the transit, and then obviously the Suez Canal, and what's going on over there. That thing was shut down for a period of time, and vessels were going down around Africa to come around and and both of those were creating a lot of problems with, you know, equipment placement and things of that nature. So that's what was happening in the past. What's happening now is that the droughts behind Panama a little bit, it's starting to open up. Volumes are picking up. It's kind of slower and controlled movement, but things are moving in Panama. So that's a good thing. And then the Suez Canal, right slow opening. The statistics I saw Pete just from last week is that they're averaging 25 movements through the Suez Canal per week. That's up from 10 on average in in the last year. But historical averages are 80 a week, and there was 200 vessels that were still diverted to go around Africa. So it's getting up, it's starting to run. Transit speed, obviously will be greatly enhanced, the reliability, fuel costs, equipment availability, all that kind of good stuff. But the one thing, and we've had some listeners that are into the insurance aspect of it, is that everybody's watching. The carriers are like, what's the deal with the insurance, right? Is it still safe enough to move through? What's the additional cost to my cargo? Is it worth the risk, ie insurance cost to give it a go, or do we still keep going around Africa? So the big picture is trade is not going to surge or collapse with either one of these changes. It's not like we're going to see this huge spike of capacity or, you know, the consumer on the shelf isn't going to see an impact with the things that they buy on a daily basis. It's kind of a slower reset to normal. It's not a huge headline. P, but I thought it was enough, because we've talked about both of those canals in the in the past, and I wanted to bring it up that things are starting to move right. It's not going to swing the market, but it will have, you know, somewhat of an impact.
Pete Mento 19:17
There are a few things that are top of mind right now that would have a bigger impact on global supply chains than a consistent chaos free passage in those areas, the cost to operate vessels, the the increase in the amount of time it takes to actually transit things we can't discount enough. We were discounting too much, but it's meant to global trade and the operators to the ocean operators themselves. This is so long overdue. I don't think anyone really thought it would last as long as it has. If you have entire operational cadences that have been utterly 180 in the way that we're moving cargo. And to go back to that way of doing things, ocean carriers are built to operate a specific way. There's not a lot of wiggle room. They build certain ships to do certain things. They build them to the necessities of certain markets, through the most efficient, the most profitable when you use them on those certain markets. And right now, a major chunk of that we're sort of just, you know, engineering around it, rather than doing that it was built for. This is huge news. And you know, I'm gonna light a candle tonight, say a little prayer in hopes and the hopes that it still continues and expands beyond it.
Doug Draper 20:34
Yeah, okay, bring us home, my friend. So
Pete Mento 20:37
my topic, my last topic today, is on the World Economic Forum.
Doug Draper 20:42
Now, you I didn't know if we were to go there today. Pete, I didn't know. I thought about it. I'm like, there's too much craziness going on on that, on that episode this year.
Pete Mento 20:52
Doug, I've said it many times on the show. I'm a big fan of unintentional comedy. I really am. Like, when, when something begins to look like Austin Powers flicks, when, when, when? What's going on in the real world. So for those who don't know, the World Economic Forum, I worked for a company, and the CEO went one year, and he was so proud to tell everyone that he was going. Was like, Can someone tell him not to tell anyone that we're sending someone there, please. It's like amongst serious financial people. That is not where you want to be, okay. You want to read everything afterwards. You don't want to be there in person, because of, you know, there's some questionable things that happen. Let's just call it what it is, okay. It's, it's like, it's like a rump Springer for billionaires. I want nothing to do with that area during that time, started by Klaus Schwab, of course, known not only for starting the World Economic Forum, but for having the fashion sense of Dr no from a Bond film. Everything about this guy just screams, like, Are you kidding me? Well, if that's not enough, folks, some of the things coming out of the World Economic Forum, they've got to be performance art like they can't China's private trans trade minister said today, we never intended to be a massive exporter. We're really sorry about that. We're going to do what we can to change that, to try to find some balance, because what China is really focused on right now is importing as much as we can. We think it's really important. I, I was listening to the to the translation over my I did a spit take Doug. I spit my diet coke on the screen of my laptop because I started laughing like, is this real? Is this actually happening? Then the report that European look at how fired up and get them shaking the camera. The Europeans are saying that if the tariffs that are currently proposed on Europe over Greenland happen, that you can expect a recession, and only one country, just one, only one country, will suffer from this. And that's, that's Great Britain, because they're not part of the European Union. I mean, it is the most self serving, giant bowl of hogwash that you could possibly have. It's like if everyone was was believing sniffing their own farts, like a giant room of everyone sniffing their own farts, telling each other how wonderful they smelled, and they paid 100 grand for a chance to go there. You know, guys kick rocks, guys get out. You need to go meet some actual people. It's like when Bush went to the grocery store and didn't know how they scanned groceries, and it looked like he looked like a jackass. You all look like jackasses. Okay, it's time to leave the World Economic Forum and go into the actual world where people are and see what's happening. I don't know how tariffs are going to affect the price of eggs. I have no idea, but I'll tell you this, much people care a whole lot less about the tariffs and the price of eggs and whatever, you know, Mad Max version of the world Klaus thinks is going to happen if we don't do something right away. What doesn't quite work that quickly. I don't know. Doug, part of me says I never want to go. Part of me says I want to go, and I want to go, and I want to be the one person who just smacks some sense into these people, what an utter and complete waste. It's just buffering. It's total waste of time.
Doug Draper 24:06
Yeah, just kind of jumped the shark, so to speak. Yeah,
Pete Mento 24:10
I bet Klaus has a tank of sharks with laser beams on their head that he drops people into when he
Doug Draper 24:15
has arguments with them. Yeah, yeah. So I would say it jumps the shark. And then when you were just talking, I kept thinking that Burning Man, right? And for those that are listening, I actually went to Burning Man, and people are like, what really Midwestern white guy that seems to be pretty conservative, but I liken it to all of the influencers and the billionaires that now have their own runway they fly in for a long weekend, and the purists are like, this isn't what this event is about, and the billionaires and everybody else are just wrecking it, so to speak. So I think I was, I mean, you and I were talking about it. So this show's been going on for four years, and I remember this topic that we brought up before, and it was serious, like, this is where the power brokers are. This. This is where things are going to transpire, and now it's the shell of itself, and the whole event kind of jumped the shark a little bit. So it's funny that you brought it up, because I was about to say maybe this is one of my topics, but I don't know, too controversial this year, so I'm glad that you brought it up.
Pete Mento 25:15
Nope, it's billionaire rumor. They go and get it out of their system, and they go back to their offices in New York and London and in Geneva, and they pretend like they are no fun at all, but it gives them an excuse to all get together and, you know, have their Burning Man, Doug. Maybe they should do a Burning Man. Maybe they should light a billion dollars in cash on fire, because they can just to let everyone see what it's like. You know, I I'm going out to dinner tonight. I'm gonna have to make a rule of myself I don't talk about it, because if I do, everyone's going to think I'm crazy. It's just the silliest, silliest, silliest thing ever.
Doug Draper 25:48
Yeah, agreed. All right, well, that's a good note to end on. This has been an amazing show because we're in the same time zone. Pete, we were both looking at our watches, and we're like, it is the same exact time. I'm not going to say what time it is, because you're not supposed to do that on podcast, but what you are supposed to do is thank people to put it together, and that's tap logistics. And we appreciate everything they do every single week, whether you are in a studio or a hotel lobby in San Antonio, they make it happen. We appreciate that. So Pete, enjoy your dinner tonight. Stay calm and chive on my friend,
Pete Mento 26:22
thanks, buddy. It's good, good show as always. Thanks, Keenan, see you. Catch you later. You.
Transcribed by https://otter.ai