Global Trade This Week – May 1st, 2023
What’s going on in Global Trade this Week? Today Doug Draper of Inland Star Distribution and Trade Geek Pete Mento of Mento LLC cover:
4:26 -Janet Yellen’s Warning about Decoupling from China
8:38 -Warehouse Automation Segmenting 3PL Services
15:40 -Halftime
24:02 -Friendshoring is Starting to Shift Ocean Freight
26:50 -US Government Now the Largest Bank M&A Deal Broker?
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Keenan Brugh 0:00
You're watching Global Trade this Week with Pete Mento and Doug Draper.
Doug Draper 0:10
Hello and welcome to a another edition of global trade this week. I am Doug Draper, one of your hosts. And on the other side of the coast, I always say other side but I'm not sure if that really comes to term correctly or not is my good friend. Partner in crime Mr. Pete? mento. Pete, how you doing my friend?
Unknown Speaker 0:32
I'm good, buddy. Good.
Doug Draper 0:33
How are you? Good. Good. Yeah, it sounds like you did a little rugby action. You put your bucket hat on a second ago.
Pete Mento 0:39
I did. I had the bucket hat on a few minutes ago. Down in Maryland over the weekend to watch the boy play in sevens tournament. For National Championship he was in the national championship tournament, the tough, tough weekend for the golden flyers. But he played well, his team fought bravely against the elements as well as other rugby teams. I'm pretty sure that I was Amy and I were gonna have to build an ark at one point. It rains so hard. It was absolutely miserable here on the East Coast, didn't read about that was it was terrible, but played hard. They they did not come away with the championship that went to Mount Saint Mary's kind of kind of an underdog team. But they they came away with it. It's funny. There was a much mocked rugby personality who had picked them to win everything. And they did. So beating some massive teams like army and Kutztown and part of you know, the Midwest teams like Indianapolis, Indiana, sorry, to come up with the whole thing. So it's nice to see a smaller club. Come and take it all. But Hudson had a had a great show played really hard and very proud of them. And after freshman year, to make it to the national championship tournament is a great thing. It's got three more years to go out there and prove to everybody so we'll be seeing a lot more heavy championship tournaments. Don't you worry.
Doug Draper 2:14
Yeah, well, that's awesome. proud father and rugby enthusiast yourself. So that's cool. Always makes. Yes. There you go. Make yourself proud when your kids succeed in life. It's good, good feeling.
Pete Mento 2:29
We have lots of athletic moments here, don't we? Doug? You and I,
Doug Draper 2:34
yeah, I made the second time and so I'm taking three trips to Kansas. The next one is for graduation, my son. But you don't have to say my daughter is a badass. I'm so proud of her. She was at another rowing event. But better than that my brother was out there this weekend with us and she had has been a been an athlete, she's got access to everything. So we went and saw all the cool stuff and for for those that are listening, that are hardcore basketball fans, like access to try to get into Allen Fieldhouse, without a tour or without anything is a very difficult feat. And she's just clicking buttons and pushing secret doors open and we were in Allen Fieldhouse by ourselves on the basketball court hanging out, which is something that just doesn't happen. So yeah, our kids are both doing well. Having fun, they're happy. And that's all you can ask for from a parent. So yeah, kudos to us, Pete.
Pete Mento 3:37
I don't know that my my, my youngest had her prom this weekend. She's your typical, you know, teenage girl. I don't know if she's ever really happy. So let's not get carried away. I was talking about this. So Amy has the rowing bug. And how many people are on one of these big long boats here that your daughter Rosalynn? How many is that?
Doug Draper 4:00
I say again, yeah. I couldn't hear you.
Pete Mento 4:02
How many how many women are on these boats that your daughter Rose on?
Doug Draper 4:07
So it's either four eight, my daughter's on the V eight boats. Okay. So yeah. They're a lot of fun. And, yeah, I'm just I'm in a good mood. It's warm here today. The sun is bright in Colorado. And I'm excited to be part of global trade this week. Pete brought to you by CAP logistics. We got to get that plug in there. Right.
Pete Mento 4:30
We do. We do. Well, let's let's get to the show. And I have having the first topic this week and Janet Yellen had some some pretty interesting words over the course of the last week where she was talking about the conscious decoupling, which I think it's funny how that's become a word now in finance and trade, of how the the offshoring of so much trade is happening right now between China and the West, that it's actually becoming concern. So it's happening on both sides of the of the ledger, the United States has been moving a significant enough amount of trade out of China right now, to back to the Americas. And so much trade is moving out of China to other parts of the world from Europe, that it's actually causing China to act unkind, where they're beginning to do things with regards to trade inside of their own country, where they're actually making it more difficult to, to do business in China for some of these Western companies. So they're increasing some of the regulatory trip wires and difficulties to do business for Western companies in China. And they're, they're making it easier for Chinese companies and easier for companies that they have closer alignments to. So think of the Cambodia's the Vietnams, certain Eastern European countries, the list goes on and on. And making it more difficult for these Western companies to turn a profit maybe make their way regulatorily through the red tape of doing business in China. And the concern now has become if we continue to escalate in this way, is it just going to make it even harder in what is a very difficult environment for Western companies to succeed to continue to succeed in China, after what had been decades of us finding common ground? So it's hard to believe, but maybe Janet Yellen, who's not really known for being the voice of reason, might very well be the voice of reason right now between two countries that are trying to find some common ground.
Doug Draper 6:34
Yeah, that's interesting. When you when you shut that one over, it's like, I can't think of a good analogy while you were talking there, Pete, but you know, it's a love hate, I guess would be the easiest thing is that we need each other more than we would like to admit, right. But you always got to have the cover, and the outward appearance, or I shouldn't say appearance, because that rings hollow. But I don't know, it's just interesting, you know, you need want each other to succeed. But at the same time, there's this friction that's ongoing, that is almost, you know, needed with the media and everything else. So interesting. And the fact that Yellen verbally, a leader and verbally made mention to that lady just believe that that's been happening a lot longer than just her making that comment the other day.
Pete Mento 7:28
And you have this two quick follow ups to that. The first is, you wonder if she was asked to say something, because, you know, as you pointed out, she verbally said something. She's not known to be a woman who just says things off the cuff. So most of what she does is done with intention. And then the second is, there's so much bluster. And there's, there's so much loud talk between these two countries, how much of that is really being done for just political highlights how much of it is just soundbite ism, and how much of it is, you know, under the surface, that you and I have been involved in international transportation and business our entire careers, and we know that, under the surface, we've all got fantastic relationships with our Chinese businessmen, mirrors on the other side of the world, and we all get along quite well. We've been doing business with people on the other side of the ocean, our entire careers, and we've never had any political problems with one another. But we all get along perfectly fine. It just seems to be you know, while these people who are screaming and yelling at one another over things that really don't concern us when it comes to dollars and cents again, and be and pound sterling, and whatever else you want to throw in there. So it just seems like it's for their benefit. Certainly not benefiting any of us. Yeah, yeah. All right, but what you got
Doug Draper 8:46
All right, so this one's kind of going back, not back to my roots, but as focused on my my current area focus into warehousing. And this came up with a friend I was talking to the other day, he is in a three PL everybody knows everybody in this industry, right. And one of the things that they were aggressively moving towards is automation in the warehouse. Now, if you have a product and you INSOURCE, your, your warehouse services, that's been somewhat common trying to find, let me rephrase that it hasn't been common, but it's not uncommon, where the cost of robotics and the options out there to automate or semi automate your facility is coming down. But that's if you have a specific product that you can build automation around. Whereas a three pl You know, they could be moving large, heavy odd objects, smaller objects, you name it, and so it's always been challenging for for three pls to create automation that's really efficient. For the vast variety of customers and products they moved from their building used to be labor and money. Solon will get it done attitude. And, and you know, behind the scenes, it's not very sophisticated. But I think what's going to happen Pete is that with this automation, you're going to find three pls that are going to be uber Uber specific on the type of business they want. And obviously, the automation is going to be more inclined to focus on smaller higher volume, reoccurring type of shipments, and what a friend of mines organization is moving towards that. And so what you're finding is that if you have a small box, the size of the size of a bread box, or a small type of shipment, where you're selling, I don't know vitamins or something that has a subscription based model where you're cranking hundreds and 1000s of packages that are all relatively the same size. And the same way, you can insert automation pretty quickly. And you can also be laser focused and get rid of all the noise and the other types of products that that same warehouse may be going and managing. And my whole point there Pete is I think that those warehouses, then embrace the automation and want to focus on the smaller ones that are more conveyable, if you will, they're going to be less of an option for other clients out there. So if you have a general commodity, and you need to look at three PLS, your choices may be limited if your product doesn't align with the automation that three peels are investing in. And so you may have less choices. Or you may make a decision to insource that and handle it yourself. So my point is, if there's 103 peels out there, and a year ago, they would take anything and everything and try to make it work. Well now 25 of those three peels are like forget it, we're dropping an automatic automation and robotics and alls we want are small products that are 10 pounds or less that are in a 12 by 12 by 12 box. And everything else we don't have interest in doing well, that just reduced the capacity out there three PL options by 25%. And I just think as the cost of automation comes down, you're going to find more and more three peels that say we want to get rid of the noise, we want to get in focus on things that we can be incredibly efficient with. And ultimately remove some of the labor costs around a three PL environment, which is what people have been talking about for years. And so I think it's going to be an interesting shift, it's not going to happen this year, maybe not even next year. But in the next three to five years, I think you're going to see a lot more automation. And that's an obvious but it's going to Uber focus clients who say I don't care about furniture, or 50 pound boxes, I want small stuff that can hum through my building, I got one or two people in the warehouse working these robots. And we're very efficient, making a lot of money and having a lot of fun. So it's going to take capacity out of the market, if that makes sense. So it's a three to five year projection, in my opinion, but I think it's gonna happen.
Pete Mento 13:10
Yeah, it harkens back to that old, I forget if it was FedEx, or USPS or UPS. Remember that old commercial, it's it ships, right, where they, they had those boxes. And they still do, you know, if you go to the UPS store, FedEx, they have those standardized boxes. And they do they encourage you, you know, use our box. And there's one standard rate for each of these zones, if it fits in this box, that a lot of that does come down to standardization, they know exactly how many of these boxes in these configurations fit in our containers that then are are going to be put into certain formats that we have for the standard configurations on our aircraft on our on all these different types of over the road size capacities. And they've done an excellent job of doing that. And then you take what you just said, that next step forward, and they're massive warehouses that they're constantly automating. And then fine tuning that automation to first scale like that, you know, they're, they're cutting pennies into 20 different pieces, you know, but then you get the size operations that you and I are used to working on, they've never really been able to afford that level of automation. But that level of automation is now becoming more and more affordable, because of the most aggressive ecommerce and the demands for that at the Amazon level. And now that one level down to serve the Amazons of the world. And now we're getting a hold of it, that some of it's actually because of secondhand equipment, the cost for the parts for that equipment, and just the pervasiveness everywhere. I think you're absolutely right, Doug, we're going to see more and more of that, not only we're going to see more and more of that, I think you're going to start to see some incredible innovation, not only on the hardware for it, but the software as well. That's going to make it more efficient. can't make it lasts longer. And also find new and interesting ways to use it. I think that I keep saying this on the show. Ours is an industry of incredibly creative people. And as they get to tinker around with this more and more, they're gonna find ways to use it automation, probably the people who invented it and never thought of using it for so they're gonna find ways to probably get more out of the invention more out of the product than than the people that invented everything considered for it. So
Doug Draper 15:28
yeah, it'll be it's a trend that you know, we won't see this this year maybe I think it's going to draw attention and and really increase in the problem I just that I just described, will be prevalent a couple years out, not necessarily in 2020.
Pete Mento 15:43
Probably not. All right. Nice to halftime. Yep. To halftime, brought to you by our friends at CAP logistics. To learn more about CAP logistics, please visit them at their website at cap logistics.com. We appreciate them so much for all of their support. Without them, we wouldn't have my producer Keenan who I would say we give a lot of flack to but it's not we it's mostly me, but without keying in the incredible things that he does. And we have technical problems like we did last week that you would never know because of his editing skills and as technology skills he just takes care of. So we really do appreciate the incredible hard work that he does to keep the show going. And all the hard work that that he does to keep us on time and keep the show on the road. So we think at logistics, and we thank our incredible engineer for all the work he does for us. And this we can have time you want to go first you want me to go first?
Doug Draper 16:41
You know, I'll go first because mine is kind of yours is more serious, I think that we need to focus on so, you know, we'll go from there. But Pete one thing that is officially this this happening because it is May 1 You know while timestamp is the session is it it is officially the month of Cassatt bonita, right. It is expected to open again this month, which is a big deal. So for all of you in Colorado definitely know Cassidy and Pete You definitely know Castlevania but for those that don't 1974 It was a Mexican restaurant. There was one in Oklahoma City, which I didn't realize Tulsa Little Rock and Lakewood. And it was a all you can eat. Well, it's all you can eat soap appears which is the dessert. But the food is below average. At best you get a tray and they just slop it was almost like you're in prison. They would just slop rice and beans. And the food was was really not good. But that wasn't the point of going it was the chaos inside of the restaurant where you had cliff divers. You had themed rooms, you had magicians, you had caves, puppet shows, just craziness. And and it was awesome. So if you're from Colorado, you remember that and you probably went with your family or group of friends. If you were in the Midwest, wouldn't Midwestern states, you would always go there whenever you took your bus on a ski trip, right? Because I remember I went there on ski trips and you show up. And then the folks that are on the coast, probably never, never even heard of it. But what happened is that it was a, you know, COVID took it down the restaurant closed, they couldn't they couldn't come back. And you know, Trey Parker and Matt Stone from South Park bought it. And there have been in the process for the last year to 18 months to redo it. And everybody's wondering what's going to happen. And they said probably a year ago that it was May of 23 where they were going to reopen. So it's starting to get a little hype. Nobody has a specific date yet, Pete, but it is going to happen in May, I want to make sure everybody was aware of it. And they're talking about the chaos that will ensue when they pick the date. I'm sure there'll be people that will camp out. It will have a Taylor Swift ask craziness surrounding it. And and it'll be it'll be pretty amazing. So this will not be the first time I talk about this in the month of May. Because Cartman and the crew Trey Parker and Matt Stone, they bought it and they do crazy stuff. And I can't wait to get in there and check it out. And when you come out here to Denver, we'll make sure we go so there you go.
Pete Mento 19:31
That you kind of glossed over the most important part of this. You spoke a little bit about it. That's how most people know what Casa Bonita is from. It's from the famous South Park episode of How Cartman just wanted to go to this birthday party of a friend of his he didn't even like and so he weaseled his way into the birthday party to go to Casa Bonita. And the most most of us I've been to Denver I don't know how many times I've been to Colorado. Tons and tons and tons and tons. I have never been to Casa Bonita. I only know it from the South Park episodes and then I've seen videos of the Casa Bonita. I've been by the constantly did because our mutual friend Mark Saxelby is such a dick. He wouldn't take me to Costco. Right? So I want to go because he's like, there's great Mexican food here. Why would I take you to that dump? And I said, You don't understand man, I need to go to and I turned into Cartman, which should not surprise anybody because I'm basically the grew up version of Cartman, I want to go to Casa Bonita. So the three of us talk about it constantly. Right constantly. We talk about you, Keenan, we have to do a show from concept like I don't care if we're just sitting around the table. You have to do the show from possibility that we will do it. Alright, so my halftime is pretty simple. Today is May 1. And what is May first may 1 is the first day of Global Trade Month people Global Trade Month and just very simply put this is this is one of those things like National Ice Cream day for most people, you know, national golden retriever day or whatever. But to us, it's great. You know, it's it's it's a full month of celebrating National, the National love of global trade. And I'm pretty sure I'm not positive. But I'm pretty sure it was invented by the World Trade Center. I'm not I'm not sure but I think the World Trade Centers invented this holiday. And God bless him for it. So the World Trade Centers all over the country, put on events pretty much all month. So World Trade Center, Denver has their big their big hullabaloo starting this week. World Trade Center New York's is next week I'll be speaking at the World Trade Center in New York, I have a panel that I'm putting on. I'm speaking for world trade day in New England for Bryan college for for there's going to be on a panel there. There's World Trade Center stuff, everywhere World Trade day, there's countless webinars, countless in person things that you can be doing all sorts of things. So for everybody who watches the show for all of you seek out content this month, it's going to be recorded. There'll be things that will be may be online, and you'll be able to watch it throughout the next following months. But this is a great month, because so much information is going to be shared. So let's hear it for World Trade Month.
Doug Draper 22:27
Yes, yeah. And being in Denver, the World Trade event is May 19. It's a full day at the Sheraton downtown. If you go to W TC denver.org You can learn more about it. But great speakers great. And I think that's supposed to be 700 people here in Colorado with you.
Pete Mento 22:47
It's great to have Karen Gerwitz, who runs your World Trade Center is an absolute, I mean, she's a beast of a of a executive out there, she has an incredible group can't say enough about the hard work they do there. I will be at Midtown Manhattan, you're holding it at Baruch College and speaking for the Port of New York and New Jersey and the World Trade Center of New York. On a panel out there I have the the new port director for the Port of New York In New Jersey, I have the head of ecommerce for Maersk lines. I have the the head of Roanoke, their Division of Insurance and the head of the chamber, the US Chamber of Commerce on the panel and I'm speaking about the digitization of logistics. We're gonna get to all kinds of things for cybersecurity to the lack of standards, it's going to be pretty cool as a panel for the New England, one at Brian College up in Rhode Island, I'm going to be specifically talking about just the complications of regulations with regard to global trade and how they're it's just getting even messier when all of us think it should be getting easier. So I mean, it's a great talking about the economy, you know, and that's everywhere, all over the country this month. So seek it out, folks.
Doug Draper 24:03
Yeah, absolutely. Excellent. Great. Halftime topic beat great halftime topping both of them.
Pete Mento 24:09
Yeah. So my next topic is pretty short and sweet. But I think it's it's a little creepy. So the numbers are coming out. Again, it's it's a decoupling but this is called friend shoring. So this this idea that countries are looking for countries that they get along with, to send their business to. So not all that long ago, we saw a lot of reshoring of their business to places like Vietnam, and Cambodia, which to be quite honest, you might as well be giving American business to China because most of those facilities where the goods are being made are owned by Chinese companies. Well now we're seeing it sent to places like Indonesia, Malaysia, Mexico, places where the US has a vested financial interest. And I sent everyone I believe I sent you the link to the story today. In 2017, roughly three quarters of America's ocean import volume from Asia came from China. Now it's 53%. In 2022, that is an incredible decrease in ocean volume from Asia. And it's getting less and less. It's very, very good. For Americans who want to buy less from China, it's actually pretty bad for the ocean consumer. Because rates from those places are very high. And they'll continue to be the, the reality is that the ocean supply chain and logistics network, the vessels that were built for it, and pretty much all of our infrastructure was built for inexpensive ocean carriage from Chinese base ports to the United States. So these vessels, all the infrastructure, and the way things were built, were built for that purpose. So we start to go into other parts of Asia, between the lightering barges between the way that that bunker is sold, and the way that vessels are refueled. It all drives up the prices, including the sailors, the way that ships are refitted way that ships are actually recruited all of it becomes incredibly more expensive, by doing it this way. So believe it or not, it actually brings an increase to the cost of operating vessels, which will in turn, drive up the price of costs for the shipping. So this is a very interesting number that I will continue to watch over the course of the next couple of years.
Doug Draper 26:28
Yeah, simple analogy of flight from New York to Chicago. There's a lot of them. They're gateways. It's pretty cheap. You want to fly out of Bozeman, Montana to New York City. It's a whole nother Avenue, you know. So I think that's, that's the analogy, I think of when whenever you just made that comment, you're spot on. It may be cheaper over here. But the infrastructure that has been developed over decades is not there.
Pete Mento 26:53
Yeah, that's a good point. But it brings some power.
Doug Draper 26:57
All right. Well, more banking. news out there. Again, it's Monday, May 1 in over the weekend. First Republic bank was, you know how to run I think there was like $90 billion was pulled out of that bank in a very short amount of time. And the US government came in and kind of brokered a deal, and JP Morgan just acquired the remaining 100 billion, or maybe it was vice versa. But they're taken over. And the US government kind of brokered the deal. And so it's kind of interesting in the topic of this one is, is the US government now the biggest bank broker for acquisitions in the world? And I think the answer in the last couple of months would be would be yes. And part of it is the precedent they sent they set when when SPV went out, and they said it doesn't matter what your holdings are with the bank, we will guarantee it, that 250,000 per depositor, you know, kind of went out the window, and there's no way the government can continue to afford to guarantee that because the precedent has been set. And so it behooves them to find a buyer pretty damn quick and facilitating being the broker, the middleman to make that happen. So I don't think we're in a banking crisis. Trust me, this is just, you know, Doug Draper's take on it is I don't think we're in a banking crisis. But I think that the US government will intervene more and more if this happens in the future, for selfish interests of the precedent that they have set up, it doesn't matter how much money you had in the bank will make sure you don't, you don't get burned and lose any of it. So it'll be interesting. And hopefully, this is not so commonplace that it becomes second and third page news in the newspaper. And that, and we'll go from there. So risky business strategies, and kind of weak risk management of what these banks are doing, I think are kind of the two focus or two focal points. And you know, that'll get shored up and cleaned up and more regulation to come in there and really scrutinize what what these banks are doing. But anyway, I thought it was interesting that good old Uncle Sam's a bank broker nowadays.
Pete Mento 29:15
Yeah, a couple of quick things to talk about here. The first is this purchase is really nothing but upside. For JPMorgan Chase, they they bought a distressed asset that they've been told, there's nothing but positivity here. They can, they're gonna have all their assets covered. What do they have to lose? Right? So they're buying this distressed asset that will only end up going well for them. Second of all, I think this is the second largest bank failure in history. I believe the first one was presided over by the same guy. Same purchase so this this CEO, now you know, he's been involved in both of them. So my well, you think that resume but the sad reality here is that, when you say that you're going to cover the problems of the people that are running these banks, they got nothing to lose. So the only silver lining I see in this, Doug, is that the likelihood that we're going to see just a full on run on bank again, it's this is just mental speaking, it certainly isn't advice seems pretty low. Because the kinds of assets these guys were playing with, they're not pervasive across all of banking. So we're not gonna see future many more of these, I can't imagine. But you're seeing the Fed, say, do what they said that they would do. They're going to literally do whatever they have to do to keep this thing from going any farther. And that includes allowing JPMorgan Chase to go over the deposit limits that were set in place for something like this not to happen. So it's incredible. That's where we are.
Doug Draper 30:50
Yeah, I have a feeling this will not be the only time we talk about this topic on the show.
Pete Mento 30:55
No, but you know, it gets me fired up. And thank God, it's the last one today, or else I would just, but that's gonna be it for our show this week. As always, we want to thank all of you for joining us for listening for telling your friends, for watching the videos listening to the podcast, we are on all podcast platforms for those of you who just want to listen to us while you're taking a walk, or exercising or whatever the case may be. One thing Keenan back in the booth and all the great people at CAP logistics for supporting this show. And we'll see you again next week for another great edition of butcher this week. Thanks a lot. Thanks, everybody.