Global Trade This Week – Episode 153
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You're watching global trade this week with Pete Mento and Doug Draper.
Hello, everyone. And welcome to Global Trade this week, a all mountain time. Pete And Doug, even Kenan, right. We're on mountain time this week, although we're not all in the same state. Doug is in Colorado, I believe. Yeah. Now,Doug Draper 0:22
no, I'm, I'm Pacific time. It's an hour earlier. I'm out in the great city of Fresno, California. Alright,
Pete Mento 0:30
well, I screwed that up. But I'm in Salt Lake and Doug is in California. So kind of West Coast this week, I suppose for both of us, but an exciting week of travel, and adventure. Doug, fir, for the dynamic duo here. Yeah,
Doug Draper 0:47
yeah, it's. So normally we talk about weather. And we said we wouldn't and I'm not going to so I'm going to speak about cows, right, a couple of things. Central Valley, there is a ton of cows here, one undisturbed this yesterday on some farm report when I was driving in 20% of all the cows in the United States live in California. And it is, well I'm not gonna say it because we said we wouldn't do it. They're kind of bad acids, they just hang out outside all the time. And it has the exposure. I'm trying to tell the story Pete without talking about weather. So anyway, cows are bad asses. And there's a lot of them here. And this is big business,
Pete Mento 1:29
whether you're
Doug Draper 1:30
powdering milk selling it, butter, cheese, you name it. I mean, there's a lot of cows out in the Central Valley of California.
Pete Mento 1:43
I'm always, you know, a little surprised, I suppose that the amount of agriculture in California between, you know, almond, citrus, tons and tons of livestock north of it just north of San Francisco, maybe they got it? Yeah.
Doug Draper 1:59
Now, man, it's like Bakersfield and I barely knew where these cities were before I started this job out here. But Bakersfield, up to like Sacramento, for lack of a better term, maybe a little bit south. If you look at a map, you know, this is just me and, and, you know, elementary geography. But if you look like San Francisco Bay, that's where the water came in. And then if you look at the entire San Joaquin Valley, and then you got the Sierra Nevadas, just to the east. That was a lake, gigantic Lake, you know, million years ago or whatever. If you just look at it a topography map, you can definitely see that's where where the water was in, in the valley. But agriculture is big time out here. Cows big time out here. And it's kind of cool. It's a learning experience for me for sure.
Pete Mento 2:53
Well, the explosion of almond milk as required an expansion of almond farming. So you have all of that out in California. Yeah. And then, you know, American avocados have what's left of it, because most of it, I guess, is Mexican. But yeah, it's It's massive. I don't think people understand that's quite such a large part of California's economy. But I can feel people falling asleep while we do farm talk does. Yeah, I could do it all morning. But they Yeah,
Doug Draper 3:21
it's funny. This is the only place in California where you can see a pickup truck and a gun rack.
Pete Mento 3:29
Come to New Hampshire, buddy. There's plenty of that. Where? Yeah. Anyway, another exciting episode of global trade this week. And because I introduced the show, that means Doug gets to go first was first topic going down. Absolutely.
Doug Draper 3:43
So this one caught my attention yesterday. So this both of my topics are related to mergers and acquisitions, right? The first one is, hey, things aren't going the way they planned. The second one is just happened. And I'll get that to my second topic that I think will probably play out. And I'll explain why. But the first one, forward air Omni logistics that came about in January, and the trials and tribulations of that thing, just having difficulty coming together. I don't know if you saw last week, but they're laying off 150 employees. And the interesting thing is a lot of salespeople, so you and I probably know a couple of those people that are impacted some C suite type of people. And it's just one thing after another so I did a little research on this. And here's a couple of things right is ideally it was cost savings, the reason of the acquisition cost savings, expanded network footprint, direct access to clients. And in really what transpired is that Omni had a hell of a lot of debt. Integration harder than anticipated with is always the case, right always seems easier than it is. And then some of the objectives, what I would call soft objectives, which are really hard to quantify, which were accelerate strategy and reshape the industry. Sounds like buzzwords that some salespeople would use, right? It's just like, well, what does that actually mean? I think it was a little a little nebulous. Right? So this is the bottom line. Pete, I have found, right? It's a pretty good gig, to provide services to service providers. And that's exactly what forward errs core business was right? They provided the line line haul for a lot of expedited freight and a lot of freight forwarders. And I, I always love that as a service provider, is that when you're providing services to service providers, they kind of get it, they get the problems that happen. So you have a conversation, you're like, here's what happened. Yeah, I kind of get it. And they're the ones that are dealing front and center with the customer, right, who may not understand why. And so the challenge is that forward error was providing services to service providers on the logistics was a direct forward facing to clients. And so I think there was a mixed message, this is my opinion of clients saying, Are you going to steal my customers? Why would I give you freight to a customer that I have a relationship, and it just kind of got confusing. So conceptually, it sounds good, but they were on opposite sides of the of the service offering. Now, Omni did have some, some line haul that they sold everything else, but the forward facing nature of the company. And the back support that forward air provided just was was it was kind of weird. It just didn't match. And it was, in my my opinion, it was confusing to the marketplace. And so people can track it as investors and you're like, what's going on here, and then the debt. And then the last thing people say about this one, and I didn't realize this is I went back and Omni logistics board wrote kind of an open letter to the shareholders a forward air back, like in November, justifying why this needed to happen. So anytime you start a relationship off, and having to justify what you're doing, whenever you're a board going to shareholders, that equals hostile takeover type of thing or desperation. Again, in my opinion, that holy shit, this gigs not going to work, we need to pull on the heartstrings of the Omni shareholder. So just kind of weird. It's a little bit bad. You know, when I was in the freight forwarding world forward, air was a powerhouse. They knew what they're doing. And it just seems, I don't know, man, I don't know how this is gonna go. I could see it just kind of spiraling down the drain, and then they just get bought by somebody else and maybe get pieced out for assets. I don't know, what's your take on it. It's been in the news quite a bit lately. Yeah,
Pete Mento 7:56
the, when you were talking about like a service provider, who also is a service provider to both sides. It's really reminiscent of what I'm seeing as a struggle by very large ocean carriers to get themselves in the freight forwarding game. So there's something similar to it, right? Where you've got the Americas and the CMA is of the world of these large ocean carriers, who also have massive forwarding lanes that have mostly been created through acquisitions of historically large freight forwarders, who are now in a similar situation where you have the consumers of freight forwarding services saying, but I'm using one carrier, and Are you only going to give me one carrier as an option to use? Are you always going to give it to the parent companies? carriers, you know, this doesn't seem like you have my best interest in mind in what they do or not. Who knows, right? I'm not here to pass judgment on that. But you can understand where the skepticism would come from. The other side of it is man, things are tough all over right now, you know, I hear every day, every day, I hear another friend of mine is like, hey, Kenya, Kenya, Kenya, talk to this friend of mine who got laid off at XYZ company, they're really good. Is there something you guys could do for him? You know, it's it's just seems to be that right now. The even with all the pressures that are currently happening to our industry, which are affecting price, it doesn't appear to be helping to expand the rules of people working there, if anything, every day, I'm hearing about more and more layoffs. So I put those two things together. When you look at this kind of a merger and acquisition, timing is just not real good right now, to come out the other side of a merger that happened that had financial expectations that were probably based on some sort of a percentage of what was going on with the pandemic. Not sure if it was the best decision, but yeah, we'll see how
Doug Draper 9:45
that plays out. All right, Pete, I have no idea what you're going to talk about. So we'll, we'll see how this goes. So
Pete Mento 9:52
yeah, I'm gonna talk about two countries. On my two topics today. And the first one is Lydia. So Libya is really going through it, but their, their currency is practically worthless right now. And a big reason for that is not only the fact that there were so many sanctions and so many FCPA violations in Libya. But now there's a conversation that it's central bank, its actual bank was money laundering. They were they were taking in currencies from other parts of the world, and laundering it through that bank. And there's another interesting conspiracy theory that the Russians, the Russians flooded Libya with counterfeit currency, in order to continue to lower the value of the currency, which made their oil more, you know, less valuable, and their ability to sell it and make anything with it. You're also seeing Russian companies now going into Libya, and looking for opportunities to buy up different parts of it. So this is a great conversation and an excellent illustration of how both inflation and deflation and currency adjustments can absolutely wreck a country that I know we've talked in the past about the petro dollar. And what that would mean to the US if countries like Saudi Arabia stopped accepting payments in dollars. Imagine being a tiny country, and more or less losing any ability to use your currency as a fiat currency and as an international means of transaction in a in an economy that's already on the ropes. So not good. And, you know, how the how the global economic world ends up reacting to this, I think is not going to be as favorable as if it were another nation because it's Lydia. Yeah.
Doug Draper 11:36
Interesting. Now, the conspiracy theory? I don't know, right? It's always good to throw Russia in the next because you just don't know what the hell's going on over there. What Putin is happening. So it's always interesting when, you know, when in doubt, insert Russia as the problem right now, I have no idea if that is true or not. But it's just funny how that that comes about. And then, you know, money money laundering and inappropriate behavior from the central bank and in Libya, I think that that kind of thing goes on a hell of a lot more than we may realize. Right. And I'm not saying specifically about banks, and what you just spoke about. But I think the vision of democracy and everything that's going out there, and I know the likes of these countries are not democratic. But I think there's just a lot more crazy stuff going on, if you peel the onion back in different countries that you and you and I may not realize, but the one thing that struck me on your comment, Pete was that, when in doubt, insert Russia to you know, explain away what's going on. Maybe it's true. I don't know. But I don't know if it's gonna be that big of a blip. Right. There's a lot of big oil producers out there beyond Libya. But anyway, it's good to call out
Pete Mento 12:52
in the words of the great Van Halen in their seminal was it 92 video for right here right now. Remember, it was basically just just sayings on the bottom of it while they play this on? Yeah, your government is probably doing things that you think other governments do that are reporting. Right. So I don't like to think about it too much. But it wouldn't surprise me, Doug. Yeah. You know, Russia is always the best. The best villain I mean, Drago and Rocky, do I need to keep going?
Doug Draper 13:27
Yeah. Yeah, that's funny. So you know, the other thing completely off topic, but we love to do this. You remember the NSS video? I can't remember the name of the song. Yeah, yeah. Just stood there and threw white cards onto the ground based on the lyrics.
Pete Mento 13:42
It was. It was on a kick album. And it was it was a a play on a Bob Dylan. Yeah. Bob Dylan videos. Very good.
Doug Draper 13:50
Yeah.
Pete Mento 13:53
Absolutely love that band. And that's one of my go twos for karaoke is what you need. No,
Doug Draper 13:59
okay. Yeah, that's a good one. That's a good one.
Pete Mento 14:02
We're talking about a live a live shot of his face right now when we talk about in excess. Good band. Yes. Even don't google how the lead singer died. You don't want to know that. You're
Doug Draper 14:15
like Michael Hutchins. Intro. Anyway, speaking of off topic, this is what we do every week during halftime is just grabbed some interesting news that we may read about, or have a personal opinion about and we just go to town. And it's brought to us by CAP logistics. I always say thanks for giving us the platform to do this. It's always fun. We appreciate the listeners. So check out cap logistics.com. And with that, Pete let it rip, buddy. What's your halftime topic?
Pete Mento 14:44
So my halftime topic is remix. It's movie remakes. Alright, so there's a ton of them. And either their their direct remakes which is like a retelling of the same story or we take we take a character so of this spring, there was an abomination of a film called The Fall Guy, which was, it was just terrible, Doug and it really it really stomped on the memory of a great Lee Majors show from you know, the 1980s That was fantastic. And then you have you know, ones that aren't bad luck. I thought they were great. Like Starsky and Hutch, I thought was a pretty fun movie. 21 Jump Street. Pretty fun movie, you know, but a lot of these remakes are stupid. So I'm gonna, I'm gonna put something out there, right? You can you can Google this. The rumor is, you know, James Bond quote unquote, died in the last film. So the James Bond double Oh, seven died. And the the buzz on the net, and it's everywhere, is they're gonna start with the first book, right? The first book that that was done by Ian Fleming and remake them as in historical context. So redo like, Doctor No, like, it's 1950 redo the spy who loves me like it's 1961 in make the movies in the period of the time the book was made. And I think that would be pretty badass. I mean, we're just talking about Russia being the bad guy. The espionage stuff that we had growing up in the 70s, the 80s those movies, whether it was, you know, Ludlum or Tom Clancy, or Ian Fleming, these were fantastic books, because they were, they were about the time. They were about that time in the Cold War, and it made more sense. So I would love to see James Bond and you know, in a, in a period Bentley in the 1950s, or 60s, and, you know, go into Casino Royale when it was, you know, Monaco, the 1960s I think it'd be pretty awesome. So I don't know, Doug, how do you feel about movie remakes and TV room? remakes, and it's ever been when you thought was fantastic.
Doug Draper 16:53
So whenever I hear remakes, I equate that to lazy writers and producers that are looking for the fast buck, right? There's a few that you know, I wouldn't even call a remake, because it's more of a series when you relate to James Bond. You know, maybe Fast and Furious, and they've done nine of them. F nine, I think was the last one. But for the most part, they can get away with it on kids movies, right? Because kids are crazy. And how many times whenever you're growing up, did your daughter sing the same song 1000 times or want to read the same book 1000 times right. So I kind of get that one star wars were was so overplayed, they had to go back to the beginning and
Pete Mento 17:37
maybe get angry at one time by following along.
Doug Draper 17:40
I think it's a lazy writers with lack of creativity. As far as I don't know, it's, I can't think of one off top my head. But the challenge with going back to the 1950s and 60s of James Bond is that I made my kids when they were in high school, sit down and watch the Breakfast Club. Because that was impactful. You and I love it. And probably 30 minutes in the movie, I look over my daughter's on her phone. And she's like, Dad, this is so boring and so slow. I don't know what to think. So I don't know if the movie goer in this day and age could handle the classic nature of going back to the 50s and 60s on a spy movie. I think it would just I liked the concept. But you and I are north of 50. So maybe that's just us. But anyway, I was thinking when you spoke that Breakfast Club was an amazing movie, and my daughter could give two shits about it whenever she was watching it with me. And I made her watch it to the very end when John Nelson threw his hand up in the air on it as he walked off with the credits rolling. So
Pete Mento 18:47
you have to watch brats on Hulu, Doug.
Doug Draper 18:51
Yeah, I've seen it. Okay.
Pete Mento 18:55
Jackson. Excellent. That's excellent. It's excellent. Alright, so what do you got for halftime?
Doug Draper 18:59
Well, my take is about being stranded. Right. And you may have seen that probably the mic drop of being stranded is the two astronauts that are in the International Space Station that are for lack of a better term stranded where the Boeing ship, they're supposed to take them back is having thruster problems or something of that nature. And they're doing a pretty good job of spinning it. Hey, we want to do more testing. And we want to do more spacewalks than that. But if you peel back all the crap, they're kind of stuck up there. Right? Will they get down? Absolutely. I feel very confident. But they're stuck, right? They're stuck in frickin space. And I read that and I'm like, you can spin this all you want, but the public knows there's some problem up there. It's not catastrophic. They'll figure it out. And I'm sure there's some objection pod that worst case scenario. So my take gone that is have you ever give me a scenario? I have Kenyans here of where you were stranded. What's the worst place? You've been stranded? You tell me yours. I'll tell you mine and I'll share with the audience Kenya's I
Pete Mento 20:15
was stranded in the Pune airport in India for two days. And it's not a big airport. It's it's maybe the size of like Manchester, New Hampshire airport. It's little. There's not a lot to do there. But sit there and ask yourself why the hell am I in Pune? I could have driven to Delhi and back like four times as I waited there. But the I was not there with an office in Pune at the time I had gone to see customers. I'm not driving it myself. And I just ended up sitting there. miserable. No Wi Fi. I couldn't find a place to plug in my phone. It was it was pretty awful man like sleeping in an airport overnight in India. And when I finally got on the plane I don't I don't think I've ever been happier to be on a plane particularly Air India which is you know you're rolling the dice. You know, I used to have a joke Air Air India now with seats Air India now seat belts during the a ghost flight. But it was it was awful. But it was absolutely awful. What's yours and Kenyans?
Doug Draper 21:20
So Keenan sent some this morning. So apparently he was driving through Minnesota. He didn't tell me how many years ago and I was confused. I thought this was very recent. But middle of the night in the winter, negative 30 with the crazy winds that hail across the the Upper Midwest, trying to change a flat tire. So flat tire middle of the night. winds blowing negative 30 getting out there and trying to take care of it. So that was his stranded story. Mine is related to Moab Utah, right. And if anybody has been to Moab, it's like you're on freakin Mars. There's no trees, there's no markers. There's a trail that you're supposed to follow. We are we were mountain biking. And it was, it was crazy. Like we got lost. We were on this mountain bike trail. And this is before cell phones and GPS and stuff. And you probably couldn't even get a signal out there. But it was We've been riding all day. sun was going down. We didn't know where we were the desert at night and Moab can be pretty crazy. And we were out of water. And like what the hell are we going to do? So anyway? The crazy thing is that a mirage out of nowhere, basically this guy in a jeep showed up. We filled our water directed us to what where we were supposed to go and we were like 2020 miles away from Moab. And we made a bag but it was dark. We had no lights on our bike completely unprepared for what we were walking into. But I really thought I'm like, I have no idea where I am. I can't see anything. I don't know what direction is. We're going and that I felt stranded and a little bit panicked.
Pete Mento 23:08
I think with every reason to man like a desert with no water. That's, that's absolutely a worst case scenario.
Doug Draper 23:14
Yeah. Yeah. Pretty crazy. So good deal. Well, that was halftime brought to us by CAP logistics, we appreciate their support of the show, visit cap logistics.com. So I think I may have flipped the script. Let me do mine real quick, because this is the second half of the mergers and acquisitions. And this is one that caught my attention just it was in the news yesterday or over the weekend where our x O is going to purchase coyote from from UPS the truck brokerage division for like a billion dollars, right. And a couple of things there UPS bought that company in 2015 for 1.8 billion. So think about the good deal that our XO has picked up on that. And you know, some of the I saw the CEO being interviewed about this. And basically the gist that I gathered was, hey, you got to strike, oftentimes in a down market, so they did that they got a good deal on Coyote, the bigger so that's number one. Number two, indicated the bigger the brokerage scale, brings stability and volume and revenue. And so our expo went from the seventh largest truck broker to the third largest with that acquisition, so better purchasing power. And then the funny thing I thought of is that XPO exploded with Brad Jacobs concept of growth by acquisition and then he spun it all down and then left the billionaire. So I was like, Okay, well this has happened RSO was spun off. They kind of understand how to do m&a. And the other thing is It ups is another example of going back to core competency, which is partial delivery, they sold their LTL division, I think in 21, a T force up in Canada, that was pretty smooth for both parties, I think this is going to be pretty smooth for both parties. So RX O has the pedigree with XPO, with understanding the benefits of mergers and acquisitions. And I gotta give UPS some credit, man, they're laser focused on their core competency was get rid of the noise, get rid of the baggage, non core business, and let's go back to delivering parcels and doing a really good job at that. So I think that one is going to be pretty smooth, we're not going to hear a lot about it. And I think both of those parties are winners in the acquisition. So the first one was a little bit troubled. The second one, I think, is going to play out just nicely for both.
Pete Mento 25:50
But I love what you said there about how size and size and purchase power matters, you know, there's something to be said for buying in a down ish market, right? And having all that volume, when it comes back, it's gonna come back. And when it does having the purchase power, as well as those customers were, maybe the margins aren't as big as you want them to be, this business is going to come back and when it does, being able to maintain those volumes is going to pay off in the bottom line. So this is probably a good time to have made that decision. And like you said, you know, UPS is walking away with a bag of money. So it seems like a winner all around it.
Doug Draper 26:27
Yeah. All right, bring us on. What's your second topic?
Pete Mento 26:31
Well, more bad news for one particular country. We were talking about oil states earlier. Venezuela is at the point now where they used to be a nation that was you know, they would explore and they would drill about 3 million barrels a day. That's nothing to sneeze at. It's a significant amount. They're down below about 720,000 barrels a day right now. And it's dropping further. One of the reasons for that, apparently, is that a large cup of companies like Chevron are moving back out. And this has to do with American sanctions. So the US had sanctioned Venezuela. And when they did that, a lot of companies took their exploration out. They couldn't do business in Venezuela. We told them as well, if you have free and fair elections, we'll let these companies come back in. Well, surprise, surprise, it's not happening. So now these sanctions are coming back and Western companies are taking exploration back out of Venezuela. Again, this is not good for that country. And you know, the simple math, the math equation here, points out just how fast that as well as entire economy could collapse, if this continues to be the case. And they've never really been unsure footing. So, Doug, as the sanctions go back into place, I think you're going to find incredible instability in Venezuela. And unfortunately, we're Venezuela has instability. The rest of South America does as well. Yeah, so we'll see if I'm right on that one. Yeah.
Doug Draper 27:58
I guess just the thing that pops in my head on this one is that I guess sanctions work. Right. Yeah. You always talk about, oh, we're going to sanction this country because of what they did. Tit for tat. And obviously, this is worse. Now. I don't know what the concept is just destroy an economy and a country. But sounds like that's pretty much what's happening right now. Like you said, the volume has gone down. It's not as significant as before production. And exploration here in the United States is at an all time high. So sanctions worked. But I don't know if the intent is to destroy a country. Right, which potentially could happen as things progressed, when you have all your eggs in one basket like Venezuela does. And, you know, big countries are basically saying we're pulling out and all the investment beyond just drilling, that the indirect jobs and support that comes along with that. So I don't know. It could be pretty catastrophic for Venezuela. So anyway, take I was
Pete Mento 29:07
deceased. We'll see if I'm right in the year showed up.
Doug Draper 29:11
Yeah, yeah, for sure. So, all right. Well, that wraps us up. What's that?
Pete Mento 29:17
I get to close the show duck because you opened it. No. I open the show up turning into you, Doug.
Doug Draper 29:23
I know. We joke back and forth like who's doing what so but it's early in the morning for all of us and early late on the space station, Salt Lake City, Fresno, we're here for you. We bring great topics every week. I'm excited every week Pete to sit down with you and banter back and forth. And I can't thank our listeners enough. Whether it's global trade, whether it's transportation, logistics, if it's happening now. We're going to put a forward spin on it. We're gonna give you our take. And we thank you for listening to us every week. So I think that's it who knows knows where we're going to be next week. And thanks for jumping in. Thanks,
Pete Mento 30:05
doc. Thanks again. And thanks, everybody. And I guess we'll see you next week.
Doug Draper 30:08
All right. Thank you, everybody.
Transcribed by https://otter.ai