Global Trade This Week – Episode 129

What’s going on in Global Trade this Week? Today Keenan Brugh of CAP Logistics & Doug Draper of Inland Star Distribution cover:

1:52 -Libya’s Top Oil Field Halts Production
8:51 -Air Freight as the Solution for Chaos in the Red Sea?
12:38 -Halftime
20:06 -US Mexico Rail Closures Cost $100 Million Per Day
26:00 -The Year of Parcel is Underway

• Full Show Transcript

  Keenan Brugh 0:00

  You're watching Global Trade This week with Pete Mento and Doug Draper.

  Doug Draper 0:10

  Welcome to our first episode of 2024. This is global trade this week. I am your co host, Doug Draper. And my normal partner in crime is on assignment. We'll just leave it at that. And we've decided to bring in Keenan who does a phenomenal job filling in and we were able to, to make it all happen. So Keenan, first and foremost, Happy New Year. I think we're allowed to say that until January 7.

  Keenan Brugh 0:40

  That'd be when I'm told. Is it kind of like Christmas where the holiday season begins with the holiday? And then it's, you know, 12 days, seven days of Happy New Year? Well, Happy New Year to you happy 2024 to all of our listeners as well. Thanks for joining us. Yeah,

  Doug Draper 0:54

  yeah, the thing I've been saying just to keep it light Keenen is that one one wish I one thing for you and 2024 is I hope you crush it. Right? And whatever you want to interpret that crushing to be? I hope it materializes for you. So, so Keenan crush it this year, buddy.

  Keenan Brugh 1:14

  Absolutely. Thank you. And we'll do

  Doug Draper 1:19

  that I will crush it. Anyway, speaking of crushing it, we got some good topics that we're going to kick off and since I opened up, Keenan, I will let you run with the first topic. Our first two are kind of intertwined. But we'll let you get the stage set.

  Keenan Brugh 1:37

  Absolutely. Well, thank you. And it's one of those things I always appreciate global trade is an opportunity to learn and see what's going on. And if there are any questions, comments, feedback, it's always great to learn from our audience members as well. Our first story today here, Libya's top oilfield halts production. This came officially now in the western world from a Bloomberg publication. And in reading up on the story, it seemed like there were maybe some rumors, the rumors were then called false. But then now it is turning out that Libya's top oilfield has halted production, it seems to be sort of a labor issue sort of a citizen issue of people in the area are wanting more jobs, they're wanting a newer refinery, I don't know if that's including safety. And then they're also wanting more government services from the area. So it's kind of related to what we have seen in 2023, with more and more labor activity that, you know, maybe wasn't as forefront during the beginning of the pandemic 2020 2020 was just hey, all hands on deck, we got to do it. Now there are more labor negotiations and strikes. And this is one that is happening in Libya, a large oil producer, I believe that they had been running around 1.2 million barrels per day, they were looking to get to 1.4 by the end of this year 2024. And I think I had read that they had announced they were looking to get up to 2 million, 2 million barrels per day by 2030. So this is kind of throwing them off track with that, though, who knows, maybe it's short lived and they can come to an agreement. And part of that investment of new refinery and things could help them get to that 2031 of the things why I wanted to bring this topic up for us today was that this seemed to actually have an impact on oil prices, I was looking at WTI index for oil crude was up 3% On the day, and this is something tying into some of your feedback. And then even to your next topic where oil has been, you know, a little variable but relatively low and relatively not that reactive, to what, to me seems like some interesting, important issues going on in the Middle East that could impact oil. So now that we're seeing in Libya, you know, North Africa, oil production going down, oil prices are going up. And this could have obvious impacts on the economy overall, as well as transportation and logistics. So yeah, any comments from you on the Libya and the oil side of things? And then when you're ready, let's dive into your topic. Yeah, yeah.

  Doug Draper 4:16

  A couple things come to mind. Is that Is it coincidence that this is transpiring? Or is it relative to the fact that the the situation in in Israel is growing into more of a regional conflict? We're starting to see that transpire? A little bit? So is this just an anomaly? And I'm not asking you to answer this question unless you want to comment on it. But I don't think that the US is self important enough to think that ups the Teamsters, and the Port Authority is saying that, hey, it's the year of the International worker and let's use our strikes like the US was in 2023. So I don't think it has anything to do with that. As the US is not as self important, as we may think, on a national scale related to labor, but coincidence is at all part of just this regional or the conflict becoming more regional in nature. I think the next week will determine that is it going to morph and pivot from workers demands into more of a political posturing piece? So those are the kind of the the initial take I have on that one. But interesting, you know, and it's like, all of the stuff that's going on. And I'm using stuff as a very general term, because I'm not an expert. On on, on things over there, but the price of oil, it hasn't really skyrocketed, right. Just to your to your point. I mean, I filled up gas. I mean, this is me, how is it impacting me personally, it's not at all. I mean, the you haven't heard stories of crude going above $100 a barrel, I haven't seen it at the gas pump. And it just seems like the nuances happening in that region would have already spiked it. So I'm not sure what to think about that.

  Keenan Brugh 6:08

  It's absolutely a complex area. And there are people who make a full time job out of analyzing all the news and production numbers in order to do effective trading and come up with that price, though. I like you have been seeing that it hasn't been that high. I mean, I think it was closer to 100 in September, like it was in the 90s in September. But since then, including October 7 than the start and the now escalation of regional conflict within the Middle East. We're now making news but that Bloomberg is reporting that it's pushed over $70 a barrel. So it's, it's not that high compared to what it could be with war as a prospect. There are multiple factors that go into price, obviously, both supply and demand. And so while we're not maybe in a severe recession that a lot of people have maybe been predicting for a while or concerned about for a while as a risk. It is slower. So maybe demand, you know, is there, it's not tanking, but it hasn't been as high as maybe it would have been if we did see dramatic prices. But now that supply is being impacted. Whether this doesn't necessarily seem 100% related, it is more labor, but it is in the region, and it is oil production. And other players within this increasing regional conflict also produce in us oil and also are important in regards to the Suez Canal with the shipping of oil. I know you and Pete were just recently talking about the tanker trucks and Maersk and all the other hapag Lloyd and some major lines, no longer shipping through that. There's lots of activity going on with US aircraft carriers and things going there. And then the latest I heard that some of our largest equipment is now being pulled out. And maybe Iran is moving some equipment in lots of things going on. Unfortunately, I, you know, obviously don't like to see war and regional conflict seems like Israel's now attacking some strikes in Lebanon and Syria. And then there was an unfortunate not sure who's responsible terrorist attack at a funeral in Iran. And so if that's related, or if people are thinking that's related, then that could further increase tensions. So yeah, what else have you been seeing on that? And what are some solutions for us in the transportation space and some suppliers, as you're looking for options of getting your goods from point A to point B? Any thoughts on that? Yeah,

  Doug Draper 8:34

  well, I'd say it's well above my paygrade to get in the weeds of everything, right. But it's just, there's so much transpiring over there that, you know, it's happens moment by moment. I mean, you just brought up things that I was unaware of. But one of the the fallouts related specifically to transportation that I've seen is like, what is air freight going to do? Now that the vessels and ocean freight has been halted, slowed down and redirected? Right? So I think that air freight is going to be a solid option out of the Red Sea. There's a lot of commodities and fuel and things that move through that that canal as well. But I think that you're going to see airfreight take a spike in customers using it for a couple reasons. As much as we'd like to say that we're trying to near shore and things of that nature, which is happening. Chinese New Year still drives a lot of decision making related to transportation and it is coming upon us. And if you have product that you need to get to its final destination, and you don't have time to roll the dice and figure out is there going to be on a vessel going around the horn of Africa or redirected or whatever. So I think there will be certain types of commodities that will be pulled out of the water and into the air. So Chinese New Year's kind of a deadline that's going to be driving some of that the holidays over fourth quarters over so there is some capacity that's already deployed. And that space needs to be filled. And I think that the carriers that have decided to go vertical in their service offerings Pete and I have talked about this in the past where Maersk that the two I was thinking of, to add a dichotomy is Maersk has been on board with going vertical with services and getting extending their reach, you know, all the way from soup to nuts, so to speak, they're doing ocean freight, air, air freight, they're getting into contract warehousing here domestically. And so I think they're going to be a beneficiary where they could quickly have their customers divert over to air freight, whereas Zim has doubled down on just providing ocean freight and providing that service to service providers. And so they may not be that would be an example of a carrier that may not be able to pivot. But you know, we talked about air freight, and it was a little bit law that needs a shot in the arm. There's been laying consolidations, pulling equipment out of service ending contracts. So that uncertainty of the conflict, the fact that it continues to increase into a regional nature, I think that airfreight could be the saving grace for some bottom lines with companies out there that are positioned to pivot quickly. And it will all happen in the next 45 days or so before Chinese New Year. So I don't know what your thoughts on on airfreight?

  Keenan Brugh 11:36

  Absolutely, you know, that's something you and Pete have been talking about recently, where there was a little bit of a pullback in demand. I agree with you, especially on the international side, especially for countries not directly involved in the regional conflict in the Middle East, but might have just been in Europe or might have just been in Asia, and we're looking to get goods going back and forth and had often relied on ocean. I think a lot of that traffic, we'll be looking at air freight as an option to be moving on. So I think we make good insight that the companies who are a little bit more diversified or have access to those solutions will be able to serve their customers where maybe others who were relying on just the one mode and or that one lane, they're going to have a tougher time serving when they're going to have to go around Africa and takes a little more time takes more gas. It's still going to be there and for some things that isn't that aren't as time sensitive that will be held they'll move. But many things are more time sensitive and airfreight is going to be their option. Yeah,

  Doug Draper 12:37

  Agreed. Agreed. All right. Well, that moves us into our halftime. It's brought to you by CAP logistics that is officially Keaton's employer, so he does not have to plug his own company right now. But if cap wasn't around, and Keenan wasn't with us, the show would not transpire. So we appreciate cap logistics. Check them out at cap logistics.com. So I didn't know if you were doing a halftime I can jump into mine. And you can make some comments. But what do you think, buddy? You want to go first? Do you want to just dovetail off mine.

  Keenan Brugh 13:08

  I'll dovetail off yours. I think what I had in mind was just wishing everybody a Happy New Year. No, there's always challenges in the economics and in transportation, though, there's always solutions to be found and ways to improve and get better. So Happy New Year, everybody.

  Doug Draper 13:23

  Nice. Very good. All right, well, I'm going to take a page out of peach book, as you know, in our audience now he's a big movie buff. And he comes up and like some pretty strange films that I'm not on board with. But I'm going to take his his tact here and talk about a documentary that I just saw over the weekend, called Arnold talks about Arnold Schwarzenegger. on Netflix. Now, it just didn't come out. I think it came out in the last couple of months. But it's a three part series. I watched all three of them kind of binge watched. And the three parts as you probably can figure out is his bodybuilding career, his career as an actor, and then his third career as a politician. And I was super impressed. I'd forgotten about how dominant he was in the bodybuilding. Now I was barely alive at the time, right. But the things that he brought to the table with with that, and then the amount of action movies that he kicked out in, like the 80s and early 90s was just unbelievable, right? They were just going through it. And and then obviously, you know, his political aspirations and it sounds like I had forgotten that. He got involved because of gray Davis's recall vote. And he went from I'm going to run to be the governor of California in less than 60 days. And he had spoken about how that there's no way he could have dealt with the traditional campaign season if that wasn't the case. So I had completely forgotten that it was a fast a fast turn. And then obviously he was reelected. But the cool thing is, I like what he's talking about, you know, post in his in his career as a speaker, whatever. But there's a line in the third episode that he said is that keep busy and be useful. And that's kind of his mantra now is that don't waste time on yourself be useful and do something for others. And that was something that his father had had mentioned to him, which is be useful. And I think that's actually the title of a, of a book that he just put out. But I think that can resonate with, with a lot of people in our audience. And me personally, I'm like, yeah, be useful, just don't sit around and be self absorbed. And so my bottom line, Keenan is I would encourage you, and our listeners to check it out. Some people like Arnold, some people hate him, but I have a different perspective on the man. And I really like what he's got going on in his fourth chapter of his life. And I would just encourage everybody out there to keep busy, and most importantly, be useful.

  Keenan Brugh 16:11

  Absolutely. Useful is also a term more like kind of utilitarian. But like you're helping people, if you're being useful, you're helping people moving things forward, making someone's life better. That's interesting. I had not seen that documentary yet. Did you say it was on Netflix? Or what planet platform? Can I find it

  Doug Draper 16:27

  on? It was on Netflix, and I'm sure his book came out, like in October, so I'm sure the documentary was really sometime in October, but it's very recent. But yeah, I check it out. I it each one's about an hour. So it's a three hour, you know, engagement. But I tell you what, I was skeptical when I watched it. And I got a lot of respect for the guy after the fact. So I'd encourage you to take a look. I'll

  Keenan Brugh 16:52

  take a look at it. Yeah, I know. He has lots of fans, and also lots of critics, but it's hard to deny he's one of the goats the greatest of all time. Yeah. So it's good to learn all check out that documentary, and maybe even the book learned some lessons that he might be able to share. And it's also just an interesting area. To learn about kind of the Vince Gironda super early bodybuilding type worlds or another contemporary of Arnold Schwarzenegger, other people might be familiar with or want to be familiar with Mike Mensur also has really interesting training techniques, as well as philosophy. And that kind of resonates, you know, something that must be with these champions to be able to be the top of their field within bodybuilding, but then also be able to take that into business or acting and then take that into politics and philanthropy or having an impact on the wider world. So very interesting. I did end up coming up with a an actual halftime here, while listening to yours. Oh, there

  Doug Draper 17:51

  you go. I love it. That's what this show is all about is just being impromptu in the moment, go for it.

  Keenan Brugh 17:57

  That's also what the industry is about, you know, you have a lot of good plans. But you also have to be able to embrace the ambiguity, when all of a sudden peak can't join us. And I'm going to be filling in. So excited to share halftime news here today that January 3. Today is Tolkien's birthday, the author of Lord of the Rings, and The Hobbit was born on this day. So if you're not always thinking about the legends, and the stories of the Lord of the Rings, now is a good day to think about them. Watch the movies, read the books. And if you're having trouble sleeping at night, and us talking about economics, for some reason, doesn't put you to sleep or keeps you up worrying about all the things that are going on. There's a great YouTube channel called down to sleep extra. That's doing a sort of reading of many books, but including Lord of the Rings, has kind of some rain sounds and it's a nice soothing voice. You can listen to the book as you fall asleep. So if you're having trouble sleeping, that is a good option for you to check out here on Tolkien's birthday.

  Doug Draper 18:54

  Wow, okay, okay. Not a fan. Oh,

  Keenan Brugh 19:00

  really? Man, you're missing out. I don't know, Pete's perspective, but I imagined he recognizes it's one of the ghosts of that fantasy fiction genre. Yeah, yeah.

  Doug Draper 19:13

  That's funny. If Pete was here, I would do this. So this is not directed to you. This is not directed to you, but this is exactly what I would do. If Pete's topic was that. All right. Oh, no. Excuse me. Forgot. Apologize. That's very rude of me.

  Keenan Brugh 19:33

  You know, that's not a derogatory word anymore. Back in the 80s or 90s. It could have been derogatory, but I'll wear that badge with honor. It is cultural. Great. And I apologize for nothing.

  Doug Draper 19:46

  There you go. Good retort. Alright, let's get into the second half of our show here. So I'll let you start off and hit your second topic.

  Keenan Brugh 19:55

  Sure. Something just hearing from within discussions account been some of our customers and people just seeing, maybe some people heard about this, but other people hadn't as much. There had been some rail closures kind of last minute, last month, on the 17th of December, US and Mexico rail closures were happening because of a surge of illegal immigrants and just not being able to control human trafficking, drug trafficking, what's going on, including on the rail. And so that decision was made, I believe, by the Department of Homeland Security, but then also implemented through Customs and Border Patrol to shut down train traffic. And we didn't have a lot of heads up on this sort of thing. And it ended up causing some chaos for especially agricultural producers rely on that mode in between the two countries. So think us produces corn and wheat and soybeans that then would be sent down to food and beverage companies down in Mexico to be made into final products of other sorts. And then in the opposite route, the US purchases a lot of fresh fruits and vegetables from Mexico. And so according to some reports, you know, I don't know how if we have all the numbers accurately, but some industry reports are saying it was costing as much as $100 million per day. You know, it might even be more if you were to take into account more and more things. But undoubtedly, it is a pricey prospect and showing that not having a good immigration policy or border policy can then suddenly impact other businesses. So it's a little bit of a shock, I think people are grateful that there were quick responses where it only lasted about five days, somewhere around a week where it was shut down, and things are flowing again. But whether from some backlog of that delay, and or the new uncertainty of this could happen, again, will be impacting rail. And if we haven't seen it already, it could also impact trucking as people are looking for options to not have their supply chain disrupted, or things just moving around right as supply and demand shifts, then there's new movement in order to make that fit. So something customers have been asking about and curious and just wanted to report what I was able to research here in the short time. And if you or any of our listeners have any stories of how that's impacted you or how you interpret the situation, they'd love to hear it.

  Doug Draper 22:31

  Yeah. Yeah, I think that the key thing on that one is it happened so quick. Right? It's kind of like you woke up and like, wait, what? What's going on? So I don't know if it if it's, here's my two takes on it. One, I don't know if it's Posturing as a statement to talk about how not poor because that's I'm going to get too political on that stuff. But the immigration policy to say, look, we have to pull resources off of that. And so it's going to impact trade. I don't know if that's grandstanding, if that's the right word, or if it's just kind of a, you know, something to show the impacts of what immigration policy can do related to international trade. The fact that it happened so quick, I don't know if that was just poor judgment by somebody, or if it was positioning. So that kind of gives me suspect the fact that it was turned on and turned off so quickly. And the other piece, can you can kind of may remember this, right. So back in COVID, here in Denver, right, when things were shutting down, it was you know, mid March of 2020. And our our mayor, Hancock said that one of the things they were going to close was liquor stores and weed shops. And people just lost their minds. And that whole concept lasted about 36 hours. And then he said, Wait, those are essential businesses, people need to get drunk and high. So let's go ahead and make those available so that that thing happened in such a short period of time. So I don't know if it's posturing or somebody literally tried to do the right thing to pull resources to manage our our borders, and didn't realize the implication it was going to have and then immediately backtracked and fix it. But regardless of how it happened, and why it happened. The implication of trade is huge. And somebody needs to realize that, you know, trains are unsexy. You don't you see them a lot, but you don't pay a lot of attention to him. You don't we collectively don't understand the amount of cargo and goods that flow on the rail. So I don't think it'll happen again. But that was an interesting blip of five, five days right before the right before the holiday.

  Keenan Brugh 24:47

  Absolutely, yeah, surprises are always chaotic and expensive. It's interesting now that that is on people's minds that maybe that could happen again. I think you did a good job not being too political just analyzing the situation whether They are refugees coming from Mexico, Latin America or elsewhere in the world, or if it is more dangerous, you know, people are talking about more dangerous criminals or elements coming in or drug trafficking, human trafficking, those sorts of things are also real and kind of mixed in with that. And if they're hopping on trains or within train cars, regardless, whoever they are, that's not safe for them as people and over the operations that are trying to move goods on rail, and you bring up a good point to that rail isn't always thought about, but it does move a lot of freight. And it does so in a usually pretty consistent and pretty affordable timeline. And having new surprises like this could mess up timelines and also mess with costs as it requires more people. And I think that was kind of the story of they needed a surge of manpower. But then yeah, grateful. I think a lot of businesses are grateful that it didn't last for too long. Because of the importance of those lanes for businesses on both sides of the border.

  Doug Draper 26:01

  Yeah, yeah. Well, Kingdom we're gonna end on a very light note, right. For my for my last time, we've been kind of heavy and taking a page from Pete doom and gloom, right. So so this one is related to parcel and my background is was in parcel for those that may remember a company called airborne Express. That's how I got my start in this industry. And Pete, and I've talked about the year of parcel and how it's going to be a buyers market, things are going to pivot, we're going to see a lot of change. And I think it is starting, the year of parcel is underway. And I think it's starting with returns. Now the concept of a box lists, label lists, return, and we'll just call that B L L L, if that's the right trying to think of an acronym. But anyway, you don't need a box, you don't need a label you just roll into we'll use FedEx as an example. Because they just rolled this out a couple of weeks ago, the person that you're returning it to the company sends you a QR code, you walk in, you scan the QR code, you give them your stuff, they box it up and away it goes. Amazon and UPS have this already. So the big three are working it and it's just an example of returns are always going to be there, they're always going to be hard to figure out the most cost effective solution. And it's, let's make it as easy as possible, right? You just show up with your stuff like I don't want this shirt, or I don't want this widget. And so my point is, is that the year a parcel is underway. That's one example. And I think that the tight competition between those three carriers and the need to grow business, we've seen realignment with FedEx, we've seen UPS really double down on their parcel and shut off their LTL business a couple of years ago, is that the competition is going to breed innovation related to to the parcel market. And a couple of things I was thinking about this morning, Kenan was one, I think that flat rate shipping is going to become popular. I know it's out there in some degrees. But I think that you're going to see service offerings that say, Hey, if it's under three pounds, we'll give you a flat rate anywhere in the country. Now, this is me, talking about creative solutions. I'm not saying this is in the works, or this is happening yet. But I know flat rate, shipping, there is some semblance of that right now, but I think you're gonna see a increase in flat rate shipping for smaller parcels going ground. The other thing is, I think you're gonna see pop capacity pricing, the PCP and there are ebbs and flows and seasonality and shipping just beyond the fourth quarter. And I think that you're going to be able to see pivoting pricing structures to pull shippers over to FedEx, or UPS or Amazon. So it's going to be kind of a battle there, but pop capacity pricing. And I also think that specifically with FedEx and UPS, those companies are going to look to engage their customer at the storefront and try to upsell services. Now we can talk about what type of services are on a different different, different show. But let's get this customer in our building in our storefront, make it easy to return and then let's talk about other services that we can bring to the table that are not core competency, transportation, and, and parcel shipping. So I think flat rate pricing is going to be more prevalent, I think you're gonna see some surge or pop capacity pricing, which will benefit the shipper. And then I think that they're going to FedEx and UPS are going to utilize their storefronts, more so in 2024 to leverage additional service offerings, and that is the start of the year of parcel. So that's my take. Very

  Keenan Brugh 29:50

  interesting, a lot of new information for me and I'll keep watching this space as well. You have predicted and it's already happening. and things are moving. And there's new options. And that's an interesting discussion about them making use of their brick and mortar, square footage people coming in there for something that's more convenient than previously of them returning something they bought online. But then consumers are also producers and employees of businesses. And maybe that can neatly fit into their routine of you know what, that FedEx or that UPS isn't that far away. And I'm doing my online returns. And also, I need to get boxes, labels, office supplies and or new partner for regular business shipments. So very interesting. Very interesting.

  Doug Draper 30:36

  Yeah, should be good. Well, that's gonna wrap it up. I'm looking here, and we're just right at 30 minutes. So I think that's a good that's a good time for the show. Right? That's a good duration we strive for so he didn't want to thank you for filling in, man. I know you got the you got the tap on the shoulder like I don't know, an hour ago. So. So great work. It's always nice to talk with you on global trade. And I want to thank our listeners for joining us on our first episode of 2024. We look forward to many more discussions. Please give us some feedback. When we post the show, Keenan does a great job of getting that thing out straight away. So that's it. Thanks again, everybody. Appreciate you joining the show. Global trade this week. Take care

  Transcribed by https://otter.ai