Global Trade This Week – Episode 136
What’s going on in Global Trade this Week? Today Trade Geek Pete Mento & Doug Draper of Inland Star Distribution cover:
3:18 -White House Review of US Supply Chain
7:08 -Phoenix is the New Inland Empire
12:35 -Halftime
19:00 China's Eligibility for 321 & De Minimis Treatment
2:56 -Interest Rates & Inventory Levels
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Unknown Speaker 0:00
You're watching Global Trade This Week with Pete Mento and Doug Draper.
Doug Draper 0:10
All right, we are here with another edition of global trade this week, you'll notice that myself and my co host, Pete mento, both have collared shirts on today. So this one's all business. And we're bringing the heat as I say, so it's great. Pete, I want to get caught up on here. We both been doing a little bit of traveling this week. So I want to start with you're doing a hell of a lot more traveling than I am. So give us the rundown man, where have you been? And where does this podcast find you? Well,
Pete Mento 0:40
I finished up my Mardi Gras last week, and immediately went to Greenville, South Carolina where I spoke for the South Carolina Manufacturing Alliance, I believe it's called and the amazing it's an amazing event every year, and lots of TV producers, lots of folks in that space. And as you can imagine, a lot of the discussions are about that. And then I was down in DC on Monday. I was in Dallas yesterday to give a seminar. It went very well. And today I'm back in DC next week, Indiana, Indiana Beatty on Indiana, go to Fort Wayne of go to going to elk Elkhart going to Indianapolis. Going down to South Bend. I'm going to be all over the state next week. So yeah, man, this never stops. It never stops.
Doug Draper 1:35
Yeah, well, I'm not sure if you signed up for that whenever you came on with DSP, but here you are, man. You're making waves and impacting people all over the country.
Pete Mento 1:43
Gotta go with businesses just like you, Doug. Yeah, the choice bow.
Doug Draper 1:48
Yeah. So I just came back yesterday from a conference in Nashville, we were just talking off air about about Nashville, I'd never been there driven through it, but never spent any time there. Pretty, pretty cool. And I visited it was the Society of chemical manufacturers and affiliates. And obviously, I fit in the affiliates category. And I would say I've never been in one room with so many chemical engineers in my entire life. And I was a little out of my league with tabletop conversation. But you know what, all the people were great. I had a wonderful experience. And I highly recommend that show if you're in that industry to check it out or even look at a membership. So had a great time. And good to be back. I'm actually in Denver in my three by three cubicle.
Pete Mento 2:35
Well, you told me you got hot chicken. I'm a little jealous. Yeah,
Doug Draper 2:38
yeah. Hattie B's ha TTIE visas and boy. And as I was saying, you don't play around the place was packed, line out the door. And when you come up to the register to order, you better have your act together. Because at least the one I went to they're not playing around. Hey, we got people behind you. We got to cook some chicken. Let's get up. So it was it was a fun experience. And it was really good food.
Pete Mento 3:03
No chicken for you.
Doug Draper 3:05
Exactly. No soup, no chicken. So awesome. Man with collared shirts, we got to sit up straight and get the show started. So there you go, I'll let you kick it off.
Pete Mento 3:17
I woke up this morning in DC. And my close friend Alex had sent me the new press release from the White House that the executive order has come down, that the United States is going to do a sweeping review of the entire American supply chain when they're doing it for a number of reasons. The first is to understand the sustainability of our current supply chain, whether or not it is a sustainable model. The second is for resiliency to try to determine in the next 100 days, what the where the United States is too dependent on its supply chain in certain key areas, which include pharmaceutical, energy production of batteries for electric vehicles, the military, and endless goes on and on. And then there's a real deep look on cyber, and whether or not we're prepared in our supply chain to manage cyber. And, you know, I'm sitting here just flabbergasted. I can't believe that something I've wanted, so bad is happening. But because I'm used to working with the government, I'm reminding myself to not get too excited that they tend to let me down, but just just the fact that they're trying and that they're really putting some horsepower to this. There's going to be a lot of people from private industry who are involved in this analysis, which is going to mean that folks like us will not not you and I but people like us from this industry. And I just think it's wonderful that they're taking that next step to really take a look at it. Now because we're always forward looking dug. I think that this is the first in a number of long steps that don't think that we're going to see off the basis of justice 100 day review, a lot of big changes, but I think we'll be able to to collectively as a nation, and as an industry begin to identify places where more money or time and more focus should be put. And then it's really up to Congress. It's up to the Department of Transportation to take those next steps. And that's when I get when I get a little less. And I don't have a lot of trust in their ability to execute on the plan. But well, I'm gonna I'm not going to be that guy this time, Doug. Professor positive. And I'm just happy that they're doing it.
Doug Draper 5:28
Nice. Yeah, good point. I the only thing here Pete is I hope they come out with a 400 page synopsis because that's super important. Everybody reads a 400 page synopsis. Okay, here, here's the two things is one, you and I in about five minutes to talk about the infrastructure and the choke points, right. We've talked about that, and how it affects things. The Cyber piece of it, I think is cool. And the fact that they're bringing in professionals from the industry is cool. I think that'll give a perspective. So kudos for those two things. Keep that, you know, how about a like nine page memorandum? They can kind of hammer it out, but we'll see. So what why do you think the over under is on the number of pages that documents gonna be
Pete Mento 6:16
that it's over 400? Then somebody like at the American Enterprise Institute, or Heritage Foundation will give us eight bullet points? Yes. Like a, like a couple of PowerPoint slides with that. Cool, right. We got it. Thanks. So it's gonna look like, Yeah,
Doug Draper 6:34
I'm sorry, I cut you off. Go ahead. No,
Pete Mento 6:37
I completely agree with you, Doug, that there's going to be a lot of great stuff that probably doesn't make the report that people like you, and I wouldn't SR is in it. But that the, you know, from a government perspective, that just not gonna include it. But yeah, definitely over 400 Definitely over 400. All right.
Doug Draper 6:55
I'll go slightly under 400. So Well, whenever that thing comes out, we'll have to we'll have to reference back to the February 22. Show and see, see who got that one. Right.
Pete Mento 7:06
So they'll Yeah, but where would you got? All right. Well,
Doug Draper 7:09
this potentially could be in the report, Pete because I saw something pop up. Was it last week about how Phoenix Arizona is quickly becoming a hotbed for supply chain and logistics, right. Over the years, it seems like it's LA County in the LA Long Beach area, then things moved to the Inland Empire. And then things are moving to like Redlands, California, where it's 60 miles away. Well, now we've jumped over the the desert there in California and landed in the desert in Arizona. And it's it's growing, there's a lot of money that's being put in and I'm gonna pull up some statistics here, too. I'm looking around. Here's the deal. There's interest there, cost space and cheap labor, right, shocker, specifically with building warehouses and things of that nature. That is a big draw, right? We've seen and talked about the warehouse situation in Southern California in general, and you're just pushing so far out, it's like, why don't we just get the heck out of the state of California. So cost space cheap labor. Here's one thing I have not thought of that was called out is that once you get to Phoenix, it's a two day transit to Dallas. And once you get to Dallas, you're in one of the biggest hubs in the entire country, you got the I 35 Corridor going up and down North and South. And you can push things out to the southeast pretty pretty easily. So you take a la to Dallas, which is three days in a truck from Phoenix to Dallas, which is two days. So there's value in that. And then the one piece is that they're building a rail, right from LA into Phoenix, the, the I believe it's the up that's doing that, which, that's kind of cool. And you'll get some trucks off the road. But, you know, it's like 350 miles from LA to Phoenix, something like that. And that just to me seems a little short of a distance to really have an impact, right, by the time you spend a day to get it on the rail day to get access to it off the rail, you know, and then a day to get there. You got three days, man, I need my stuff, right? So it'll be interesting, but I like the fact that money, space and labor dictate where supply chains go. I'm sure they'll reference that in the 400 page document. Supply chain analysis, which you and I just covered in about 45 seconds here. But anyway, it caught me. The one thing about Phoenix is it's so freakin hot. You know that the power and the energy and the requirements to keep warehouses that are a million square feet in a temperature that humans can work in. It's going to be interesting, it'd be a big power draw. It's not a huge point that needs to be brought got up and I think it is important to be identified. So I don't know, man, what's your taking? What have you heard about things? Moving into Phoenix and just saying, you know, we're done with LA.
Pete Mento 10:11
Dawg, I feel like you. If this was volleyball you like, you set the ball for me to just spike. Alright? Yeah, yeah, I know what a good way. So DSV is building, I just looked it up a 1.7 million square foot building in Mesa, Arizona. Next to me, we're building it now, next to the airport where we have a financial interest in the Mesa airport. We have our own charter flights that go out of Mesa, from all over the world. And we specifically went there to deal with all the congestion issues of LA. So all these Evie companies, automotive aerospace, you know, there's that's a huge industry in Arizona itself. But by going over LA, you know, we can deal with Reno and all these other places. And it takes us out of that congestion pool, it gives us more control. We have we have you know, we have the resources to do that kind of thing. But we're not the only company that sees sees the ability, as you said, get to Dallas pretty quickly able to go to the central part of the country pretty quickly. One of the things I don't know enough about and we should probably look into this is the array a lot of Phoenix, I would imagine. It's pretty good. But you know, how does the ocean stuff get there? How do you do outbound exports ocean out of Phoenix, even that's at least we're more infrastructure is going to be needed. But you hit the nail right on the head, this is a, it's a part of the world with dirt. And where you've got dirt that you can buy, people are going to set stuff up there. And when you have a lot of dirt and it's not very expensive. It makes a lot of sense of distribution out there. If if it's a good connection up in Phoenix is a good connection hub for that part of the world. So I 100% agree with you, Doug. I think everyone's going to follow that part of the area. Like another surprising one is the Carolinas. You know, I spent time in South Carolina last week. But so many automotive manufacturers are in that part of the world in South Carolina, Alabama, Mississippi, because they can buy land and set up a physical presence. So I don't know you're 100% right. 100% like Phoenix is an important part of the future of international logistics for this country. Yeah,
Doug Draper 12:21
agreed. Okay, well, I
Pete Mento 12:23
guess V flag Well,
Doug Draper 12:27
you got to put one Hey, I got Troy right here, right. You gotta push off
Pete Mento 12:31
the window. Oh, yeah, it will. Yeah, yeah. Cool.
Doug Draper 12:35
So this is a halftime we've got two, two topics down. We're gonna have our two topics here in a second. But this is the part of the show that we like to just talk about random stuff. And it's brought to you by CAP logistics. Kenan pushes the button. And I always say this wrong. Turns button turns.
Pete Mento 12:53
Push the buttons, insurance dials,
Doug Draper 12:55
there you go turns the dials and flips the levers. Anyway, Cap logistics. Thanks for making this happen. I have time. Pete, you go first, ma'am.
Pete Mento 13:04
So I think I've talked about neuro link before, I don't remember, I think I have. But then the concept of Elon Musk's newer business is that there can be a symbiotic relationship between man and computer. And there they have, they started with pigs, where they put this chip and a pig's brain and what they were able to gather from that things like its ability to control the rest of its body, and the ability for the brain without physical assistance to interact with a computer. So a couple of weeks ago, they did their first human implant of neuro link, and the patient is almost fully recovered at this point. But what's fascinating is the report came out yesterday that this person who has the neuro link implant, who's a paraplegic, by the way, from what I understand her quadriplegic, is able now to to activate and use a mouse just by thinking so this person who, who you know beforehand was unable to communicate from good from what I understand, is able to use a mouse on a computer screen and manipulate windows and all the rest of it just by thinking. So terrifying. One side of it, right? Like, like we are, we are bridging. We're going over that bridge now to combined human and computers. Also incredible to think that people who are unable to use prosthetics, unable to control their body may be able to now based on this computer, like I have no idea what it looks like. I have no idea how cumbersome it is. That it's 2024 Imagine what this is going to look like by 2026 It's incredible. Yeah,
Doug Draper 14:52
yeah. All those things. Check the box. What's the guy's name or the gals name? Where's the where The it's just it's a little ambiguous, right? Elon Musk loves to talk about his endeavors adventures and personal life on x. And other than a hey, we did this. That's all we got. So there's something there. Pete, I think that neuro link is in the right direction for sure. But I just prove it, prove it, show us a little bit more. So hopefully that'll come to fruition, getting everything set up. But what you spoke about is, is absolutely 100% amazing technology that if this is really taking us to the next level, just show me show me more info on it. I
Pete Mento 15:38
would I'm looking now I don't see the name of the person. Why look at this, but I'm sure that will eventually come out there probably for HIPAA reasons and all the rest of it to keeping it quiet, but I know that people thought he wasn't making spaceships either. valid photo photo for this. So what you got done nice.
Doug Draper 15:58
Alright, mine's a little bit more lighthearted. Right. We, I mentioned this before the show, and you guys hadn't heard of it. And it's here in Colorado. So there's two teenagers, both from a high school here in Denver, Colorado, or the metro area called vender. Ridge High School. And they just signed letters of intent to play cornhole or when Thor University. Like literally they're getting scholarships to go play cornhole? Apparently, these these two kids were like two time all American League yada, yada, yada. And in when Thor is giving them a scholarship, which just seems crazy, right? And I was like, where's when Thor and South Carolina? Yes, that makes sense. Yes, that is that is awesome. So these two kids, good for you. Absolutely good for you. They're not taking advantage of the situation. They're leaning into an opportunity to advance their their education. But wow, this is crazy. cornhole scholarship, and Winthorpe. There. Anyway, it's not neuro link, but it'll be interesting to see where this thing goes. And the NIHL name it image likeness, opportunities with these guys. It's just going to be off the chart. I mean, this thing could just catapult these guys to the next level with their careers and their opportunity. So kudos to these guys. I'm not gonna mean you can pull up their names when you when you google this story, but you know, good Anya, that is awesome. They'll have fun at Winthorpe. And they still got about three years to learn how to chug beer and play cornhole, but I'm sure there's some classes and some friends in the at the university that will quickly show them how to do that.
Pete Mento 17:47
Is this town close to the beach duck?
Doug Draper 17:49
I don't know. I don't know where Winthorpe is.
Pete Mento 17:53
I mean, think about it. Right. I was thinking how awesome it is. You're going to school. someone's paying for it. And maybe you're at a college, Coastal Carolina somewhere. You're playing cornhole to go to school? You know, I mean, think about a better existence when you're a teenager and then you brought up the NFL stuff. Oh, do and they're gonna get paid. Like, this is the bag I use if you want to be a collegiate cornhole, or this is the right bag for you like, yeah, just a marketing opportunities. This guy's gonna be swimming in cash living in South Carolina, not paying for school. It's gonna be an awesome existence. I mean, I played college sports. And I can tell you one thing I got out of it was bad knees. So in like eight concussions. So this is awesome. That these guys have found a way to do this together. What a badass story that God bless these kids.
Doug Draper 18:39
Yeah, I love it. Yeah. And I gotta give kudos. Kudos to when for for even thinking of this right? You know, giving these guys an opportunity. So yeah, Hell yeah, man. All right. Well, that was halftime, brought to you by kappa logistics. We appreciate their support, as always bring the show to the masses out there. But let's flip back again, we got collared shirts on. So we got to stay on point on topic. So what's your number two be?
Pete Mento 19:01
Yeah. Number two is a very touchy subject. The President Trump is running on a platform where he has said over and over again, if China is not going to find a way to work with us, I'm going to hit him with a 60% tariff. And then you have both sides of the aisle. Right now in Congress. We're talking about hitting China in a place where it's really going to hurt. And that's taking them out of the de minimis rule. So right now, as an individual dog, or Peter Keenan, we can import up to $800 a day of goods and not pay tariffs on it. And this rule has been used by ecommerce to directly ship from the point of origin in China to the US like you know, T Moon Shan and we talked about all these companies. So, a lot of stuff that we don't want to come into the country is being caught under the dividends program, drugs, certainly drugs, counterfeit goods, you name it. So these members of Congress You're saying we're going to take Chinese origin goods out of de minimis? No more or lower the de minimis amount for Chinese goods to like, I don't know, $35. They would never eliminate them completely, because de minimis is a real attempt, why we use it a lot of the time, it's for sample scientific research. So there would still be something there. But it Take China out of that de minimis number is in I mean, it's not. So it'll be for the origin of the goods? Not necessarily. So even if you set up a bonded warehouse in Mexico and Canada, and you were going to fulfill that way, it would still hit product. So you wouldn't be able to get that lower duty amount. Is it possible? Absolutely. Is there a road for us to legally do it? Absolutely. I think it would be a massive blow to ecommerce stuck if they were to do this. And I think there's smarter ways to manage it as an example, bringing stuff into Foreign Trade Zones or bonded warehouses, and giving customers the ability to more effectively and efficiently review things before they're imported into the US. I think that'd be an excellent way to do it. And then have the people who run those warehouses pay the overtime to have something from customs there, you know, what, an eight hour shift to review it. But I think it'd be a real tragic blow to e commerce if this were to go through them. Yeah,
Doug Draper 21:11
yeah. I like the idea of somehow slowing the process down like with with Shannon and Teemu the whole idea of speed. And if it's zip into the customer so quickly, through, you know, the process. It's, it's like dodging bullets and trying to catch this stuff. Right. So I think you nailed that there's really, some control is slow it down, stop it upon receipt, and do some level of inspection. Right? I think that's going to probably help out. But the the other piece of it, you know, like the US, I don't know, I mean, yes, you can't just ship it to Mexico, and then bring it into Mexico. But if you provide some level of value, and you chat, and you know this better than I do, but you change the product enough that you could go into a different tariff than it's considered manipulation in that country, or, or adding value in that country. So then, then it can import. So you're just throwing more labor at the product, which may not work. But you know, it's like, all these different supply chains that we're trying to partner with these countries. But these Chinese companies are building those supply chains. Right? So all right, well, the factory in India is really owned by China, the new factory in Mexico is really owned by China, or a Chinese entity. So I like the fact that it's been identified and addressed. I don't know exactly what the best way is to manage it. But I think what you said about stopping it, once it gets here to really have a viable inspection is probably the easiest and quickest way to manage
Pete Mento 22:50
to see if anyone's listened to Doug.
Doug Draper 22:53
Yeah, for sure. So good, good. Well, hey, so this one, my final topic, and it the Genesis was yesterday, when I was at the conference down in Nashville, and they talked about the balance between interest rates, and inventory, and in the balance and and how that's impacting manufacturing, right. So I'll dive in that here in a second. But ultimately, we the logistics, and transportation industry, specifically are going to be the beneficiaries, right? So just like whenever you're winning, a sports team is winning, it kind of covers up all the problems of the team, right? And, but when they're losing all of the issues related to the pieces of the pie, come to the surface, right. And so my whole point there is that for a while, you can solve a lot of problems with with a ton of inventory, right? We got consumers buying all this stuff all over the place during COVID, buy, buy, buy, buy, our supply chain may not be super efficient, but let's just put a whole lot of inventory. And that way we can service the ultimate customer well with interest rates. What Well, now that we flushed out that inventory, right, that's what's transpired a lot in 2023. The inventory levels aren't where they used to be. And now the cost of money is extremely expensive with the interest rates going up. So the just in time of hey, I don't have enough cash to go out and put my you know, borrow money to put in tied up in inventory that's moving slowly or I can't get access to to sell. Let's flip back the just in time. While it's not as easy as the old school just in time and so there's this balance between interest rates and managing your money and inventory balances to get product to your consumer and in my opinion, P money will always trump the inventory levels. So until the interest rates pull down, people are going to try and companies are going to try to focus on the pulling of that which is let's do Just in time, less inventory better for my pocketbook and my balance sheet. So what does that mean? Means oh my gosh, there's a delay, I need to get this to wherever it needs to get faster than I had initially anticipated, because I don't have a lot of product here and market. And so that means transportation companies are going to be the beneficiary, because there's going to be a lot more transit transactions and movements of that freight, because it's going to lean more towards a just in time, type type of balance. And so, yeah, I think that my whole point is interest rates are going to trump inventory levels. and a high interest rate is going to benefit transportation, because it's going to be more of a just in time type of scenario. So I think it's another indirect a statement or identification that transportation is on its way back up, and it's going to be a very positive productive 2024 for our industry.
Pete Mento 26:02
Pete mento, and I approve this message.
Doug Draper 26:06
That's a lot of information I just threw out there. No,
Pete Mento 26:09
you're completely right. So I had, you know, you meet these supply chain consultants that have, like PhDs in engineering, you know, so I've been around a lot of them. And one of the lessons that they've taught me is that supply chains are really a never ending battle between your cash cycle and your inventory cycle. It's what it what it what it comes down to. And as you said, the cash cycle is what you're pushing it through, you're, you're dealing with your inventories that you always have enough cash on hand. And it's it's a beautiful, masterful ballet when it's done right in there. Our industry is is just replete with companies that have been fabulous at Dell, right? And apparently, computer companies yet These were companies that were they were managing how much cash can we have, and have a sale, quickly get it to the customer, but not keep too much inventory on hand. There were things like vendor managed inventory, you know, that was really big in the 90s. And everybody was sort of this isn't a bad idea. This company's got more money. And they wanted to invest it in other things, they had to get leaner and leaner in the supply chains. So we went from this just in time inventory to sort of like, not even just a time on time inventory. It's going to get there what it needs to get there not a moment before, how can we lean out the process. The issue that you always have with this is we work in an industry where things come out of nowhere all the time. And it's if I had a crystal ball, right, we wouldn't be working anymore, I'd be retired by now. And so many outside forces attack, the best laid intentions. And like Mike Tyson said, Everybody's got a plan to get punched in the mouth COVID, the Red Sea, a volcano in Iceland who knows what it is. But that's what really mucks up these just in time inventory models. So I would 100% agree with you that we're going to see more people try to lean out the supply chain to increase cash reserves, what they need to do is be mindful of the fact that this is not a perfect system. So don't create a process and try to hone your entire supply chain cycle based on a best case scenario, you got to put some worst cases in there too. But when this thing happens again, and something will happen again, it could it could devastate a company. So there needs to be a little bit of manage expectations, and also being realistic about the history of our business at the same time. And I generally find that the supply chain Propellerheads that do this stuff, have not worked in our business. They have not worked in our business, and they don't fully understand that things go miserably wrong all the time and what we do, so you did pack some of that into your analysis. Yeah, great topic.
Doug Draper 28:44
Yeah.
Pete Mento 28:45
I can't believe that you're the one that brought up logistics financing me.
Doug Draper 28:48
Yes. Well, thanks to the thanks to sock my yet yesterday. It was a speaker that popped the topic into my mind. So thank you. I'm glad you approve this message.
Pete Mento 29:00
100% Well, that's gonna do it for us this week at global trade this week. Big shout out to Keenan back in the booth and to our great friends at CAP logistics for always supporting us in this crazy endeavor. What do we have 238 episodes now done? Something like that. Yeah. Yeah. People have the folks for Kaplan for 200 to talk to them that because of fun. Yeah, but that amazing shows always thanks to everyone for your support. Tell your friends subscribe to the podcast, subscribe to the video. If it's happening in trade. We'll talk about it until the trade news this week. Global trade Ambassador Rhonda, what's happening in global trade to talk about it next week.
Doug Draper 29:40
All right. Thanks again.
Transcribed by https://otter.ai