Global Trade This Week – Episode 154
What’s going on in Global Trade this Week? Today Trade Geek Pete Mento & Doug Draper of Inland Star Distribution cover:
2:50 - FedEx Right Sizing?
7:46 -Maersk Out of the Running for DB Schenker
11:09 -Halftime
20:46 -Panama Canal Gets Some Much Needed Rain
25:04 -Increasing Risk for an East Coast Strike
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Keenan Brugh 0:00
You're watching Global Trade this Week with Pete Mento and Doug Draper. Hello, everyone
Pete Mento 0:06
and welcome to another exciting episode of global trade this week. I'm Pete Neto coming to you live from my bunker. somewhere outside of all the problems and troubles in this world and with me, as always, is the greatest co host, a co host could ask to co host with him. Mr. Duck Draper. Duck. How's it going, buddy?
Doug Draper 0:26
Good. Good. We're just going great. This is Fourth of July weekend. We were just chit chatting about stuff that we're going to do so yeah, it'll be the exciting and classic Americana. Fourth of July for me up here in Steamboat, small town Caray block, Main Street, people throwing candy kids running around. So yeah, stepping back in time a little bit.
Pete Mento 0:54
Before the show I asked keen. And if he knew who Bauhaus was. He did not but nor did you duck, which was a little surprising to me. Yeah.
Doug Draper 1:02
Well, I didn't know what I said What kind of music they play. And you named off like four or five bands that were like them that I knew. So I know the genre. I just don't know that band.
Pete Mento 1:14
In the 90s. I won tickets through a radio station for their big reunion tour. And it was right in the middle of the.com bubble when all the nerds were just super rich. And it was crazy to see a bunch of people in their 30s and 40s. Showing up like one lady got carried to the concert in a coffin. There's a lot of guys that had you know, fake glowing contacts. A lot of real weird stuff done, but it was it was one of the more unusual band experiences of my life. Nice. So I implore all of you to listen to Bela Lugosi. He's dead. It's one of the better songs that came out of the 80s in my opinion. Wow.
Doug Draper 1:52
Wow, I unusual concert experience if that's one of your all times that's that says a
Pete Mento 1:58
lot. And I've seen some stuff, Doug, I've seen some things. I can't unsee it concerts. And yeah, this was pretty crazy. They started the show off by rolling giant television out of the middle of the stage. And the lead singer Peter Murphy just sat there like singing like it was an extreme close up in black and white singing one of their songs and we all watched her. Then the band all came out after that. It was it was a half art show half music show. That's kind of who they were. They were like an artsy kind of band. But super cool. Bam. Super cool band. Hmm. Interesting. All right. They're their version of Ziggy Stardust might be better than David Bowie's version.
Doug Draper 2:36
I don't know about that. I don't really know how to comment on that. Listen
Pete Mento 2:40
to a buddy. But since I kicked off the show, that means that Doug is going to kick off the topic. And I think we're going to, we're going to take a shot at double time in this one, because there's so much going on in this area. Yeah,
Doug Draper 2:50
yeah, for sure. It's we talked a little bit about this last week, I think it was last week or maybe the week before with forward errs acquisition and how things aren't going that well. And the stock price and all that kind of stuff. That theme continues this week. With acquisitions, or divestiture. That's the right word there. Pete, the latest, what I'm specifically talking about the latest is FedEx, right. So a couple things, they are shedding debt and starting to realign and become laser focused. So I'll explain what I mean by that here in a second. But the two examples I'm referring to number one, is they're getting rid of like half of their 757 fleets, right. So they're retiring aircraft. Right. I think some of that had to do with the contract they lost with the with Uncle Sam and the Postal Service. But I also believe that that's just kind of right sizing. They've been talking and doing things towards that the last really year to 18 months, and it's starting to pay off but the one thing that's come out just in the last couple of days is a maybe we want to spin off our LTL division right? Hasn't been substantiated. There's been a lot of comments on it. A lot of talking heads like you and I are making comments on it, but it wouldn't surprise me. Obviously UPS did that FedEx has a big animal there of LTL when they acquired overnight a decade ago maybe more rounds with I don't really was when I was younger, I'll tell you that. And now they're thinking about spinning that off and just being laser focused on their core competency, which all this is maybe like two years post 18 months post COVID But when the shit hits the fan and you really got to report to stock quarter holders and and make sure your business is profitable, man, you just start getting rid of stuff in the closet, you know, and just get rid of things that may have seemed interesting. may have been a roll the dice back in the day. And now you're just like let's get rid of all this stuff. When push comes to shove and we got to go in the bunker and hunker down Let's do what our core competency is, which is small parcel delivery. Last comment on this Pete is that the, the aircraft? I mean, the 757 specifically, is interesting. But if you look at what is UPS is core competency, a legacy business is ground. And if you look at FedEx the legacy businesses air freight, it's the other piece that you get in the NG. So I don't know what to think of the the aircraft and retiring all of those, maybe it's just part of the fleet, right sizing, so to speak. But anyway, what you know, that's my take on that one, you have a different spin on it. But before we get into your topic, what's your taking? And you heard about the rumors with FedEx maybe spinning off the LTL? Group? Not?
Pete Mento 5:43
Not until you sent it to me. So I did a little bit of a, you know, rabbit hole search on that, in the first thing, you know, when you talk about these aircraft, I don't know enough to say is it just time like to retire the fleet is at a timing issue, I don't know if it was, that had something to do with it. Or if they're, you know, they're utilizing different equipment, maybe they're leasing different equipment outside of it to make up for the needs, but it's a volume business, you know, bigger the aircraft, better the fuel efficiency, less, you're gonna be paying. So I've gotta believe that has something to do with it. But this is a recurring theme, with stock write UPS and FedEx focusing on their core business, and focusing on how their core business is such a monster and creating profit for them. So I have to think that some really smart people, I want to believe Doug, like some super smart people, were sitting around a conference table doing well hunting math, figuring out what they have to do to cut this and squeeze this to get every penny out of the kilo. I don't want to believe that a business that big would do something unintentionally without spending a great deal of time thinking toward it. So that's kind of my initial thought. My secondary thought to this is we came out at COVID. And everybody was making money we dug you and I could have started a freight forwarder and made more money than we know what to do with right. But it's post that now. And yes, there's money to be made on ocean freight and air freight right now. Oh, he says. But the The truth is, it's difficult to make money in a in a very volatile market. And these companies are looking at some of the investments that they've made. And they're asking themselves, is it time for us to get out of what was a bad decision two years ago? So I think some of that has to do with us. And then there's companies that look at those possible corporations and say, Is there something that we can add where there's technology with this particular route? So you know, what is it about it that was strengthened us, we can get rid of the Get rid of the detritus? So I think this is just it's going to be constant that it used to be a lot of people looking to get rid of some companies that they are working with, in order to, like you said, focus on what they do best. My topic this week has to do with DB shaker. So you know, first and foremost, I know nothing before anyone asks me about what he is doing. I am, I am so far down the totem pole on I mean, I have no authority, I have no insights whatsoever. So don't ask me because I don't know. But everyone's speculating about who's gonna buy DB Shankar. But today, we find out that Maersk will not be one of those companies. So after, I guess, some soul searching and looking at numbers, and as such, they decided they were smarter ways to use their money. I know that there are a couple of companies that are still in it. Well, you're talking about one of the largest freight forwarders in the world, and the volume that comes with that the purchasing power that comes with it. This is not going to be your typical purchase. This is a pretty monstrous purchase. And the companies that it comes down to are going to have to be able to, I guess efficiently is the best way I'd look at it. Bring these companies together. And DSP has a long track record of doing that. I think when you look at the size of the company, you're talking about integrating man, that's, that's going to be a lot of work. I would love Doug, I haven't seen this for a few years. Now. I want someone to make a poster of the big companies now. And what they were before then so you know, redex was bought by ai ai was bought by danza stands bought by DHL DHL was bought by Deutsche Post, like, what what it looked like back in the 80s and 90s When we started, and all the companies that were they were names, right, we knew who they were friends and tower and all these companies. And then you know how small of a university is now? I think that some of these companies that were bought are just going to get spun off and bought by somebody else and just become part of that enormous unruly animal that is international trade. Yeah, yeah.
Doug Draper 9:34
Well, I was when you pull this up on my why is Shankar even on the selling block, right and their parent company Shankar is a monster you know, their parent companies that the premise was core competency, exactly what we were talking about with FedEx, right. And I didn't even realize joint Javan VA Chen is the largest railroad company in the world, right? And they're like We're going to focus on rail and and get that done. So a different spin on it right? As far as a mayor saying, we're out, integration doesn't seem to jive, we're out. But then Deutsche Bahn is like, we need to get become laser focused in our railroad. So we're seeing both sides of the equation on this one. And it'll be interesting to see how it spins out. I mean, at some point, it's gonna it's gonna happen, I think, you know, within a week, my take is that somebody's going to raise their hand may not be a done deal, but there'll be a front runner, right? Do it, your boss is not going to screw around with this one, they gotta get rid of some debt, and they gotta they gotta realign. So I think it'll happen pretty quick.
Pete Mento 10:42
And they want that money to focus on rebuilding infrastructure, you know, and it's an expensive business. So this would certainly get them a lot of money to do that. We'll see that like I said, I I wish I had something that I don't know anything. They wouldn't tell me even if they could, you know, I am I am. I am utterly ignorant to what's going on.
Doug Draper 11:04
Well, that's good. You got that precursor out there. So. Yeah. All right. Well, as we said, this is the week of our nation's birthday. So we're gonna have a great halftime brought to you by camp logistics. Both of us have a little spin on the Fourth of July. And so I don't know, Pete, you want to go first? So why don't you go first? Yes.
Pete Mento 11:24
So I spent not all that long ago. I started reading a biography of each president. So I started with Washington, and I moved my way through and this this really all started with a deep dive into the Founding Fathers and how bizarre they all were. I mean, I don't think more than a couple of them were over the age of 40. There were a few that were, I think one was 19. You know, the fascinating people that that put it all on the block. But then as I began to look at presidents it got weirder. You know, so the Fourth of July, President Washington had a list of around 200 things that a man should and shouldn't do. And he would share it with young people as like guides like never pick your nose or scratch yourself amongst other people. Only only drink only drink your fill. If you're around people you can trust. Never loan a family or friend money like it was it's there, common sensical, but have them all in one place was fascinating. And then some of these other presidents like Harrison, who wanted to prove to the world he was a big tough guy. So he when he wasn't wasn't at all like he was a pretty sickly person. He went out and gave his inauguration speech without a coat or hat on and he died like a few weeks later from each in the flu. Andrew Johnson not spoken enough about in my opinion, but he wasn't he was born an indentured servant, and became president of the United States. Jackson, that guy was an nutcase. Right? So die with 18 bullets in his body survived 118 duels, when you look at the Founding Fathers Hancock as an example, the guy was a gangster, like legitimately he was a gangster, he sold stolen goods. He ran blockades. He was bribing everybody. And he was apparently like the richest guy in the colony. So for him, this is just as much about money as anything else. Quincy right, John Quincy Adams. John Quincy Adams was a staunch Christian, a bald abolitionist, and most people don't know this. He served as the defense attorney for the English military officers and enlisted men that fired on the Boston Boston Massacre. And he won the case. He actually wanted British defendants Benjamin Franklin, you know, it didn't invent the discovered electricity. He was recreating an experiment by an earlier scientist, but he got credit for it. Because he did a better job of explaining it. And he put his own son in prison. Because he was he supported the British. You just go through all these names of all these people, man, and they get more and more interesting. And it helps you to understand how complicated and difficult the personalities were, and how unlikely it is that this nation was formed in the first place. And it makes no it makes me proud. incredibly proud to see this diversity of thought diversity and background actually find a way to make things work. Yeah,
Doug Draper 14:17
yeah. I didn't know that. Some of those things. I know that. Harrison, like you said, I think his speech was really long as well. And then you know that that speaks to his character that you just made mention of but
Pete Mento 14:29
one, one person voted. One person voted against the what would eventually cause the Civil War. And that was Abraham Lincoln. Ulysses, like Eisenhower is a lot more interesting than people realize. And my personal favorite of all of them was Truman. He was the one president and never wanted to be president. He was VP and they kind of gave it to him and he sort of ran it, you know, like a half hearted campaign for reelection. He just wanted to go back Back to where was he from Missouri, I guess it will go back to living his life. And because of that he had the courage because he didn't care to make a lot of really hard decisions. There's a new movie coming out about Reagan, I'll be interested to see if it's just a pump up job, or if they get into the complications of his presidency. And I'm been told that there's going to be a mini series about Ford about him taking the presidency. And, you know, I mean, the guy was never elected. He's, I think the only president who was never elected was Ford. He was appointed when Agnew got thrown out of being VP. And then Nixon took a walk. And now all of a sudden, he's president. And one more thing I'll say, done with all this talk about replacing Biden, you know, Jimmy Carter still alive. Think he's turning. It really is the only one one, the only 111 The term he could he could run again. So maybe we can get old Jimmy out there. Yeah. Hey, go get me. My favorite navigation teacher from I was not his favorite student. He hated me. As a matter of fact, Bill McKinley was Jimmy Carter's roommate at the US Naval Academy. Ah, but wonderful things to say about him. Interesting.
Doug Draper 16:03
Nice. Well, my theme is somewhat similar. I have a couple of fun facts. Right. Couple couple of things that the declarations was actually started to be signed on July 2, just the published papers to announce it didn't happen on July 4. So there has been in the past saying, hey, well, July 2, it's really the independence and all those signatures took like a month, right? It's not like everybody got together all the 50 for some odd people that signed it took about a month. So it started July 2, not July 4, it was just published as far as what they were doing today's
Pete Mento 16:40
famous paintings. Why? Where they're all they're all standing around signing together. That's a lie. That kind of hurts man.
Doug Draper 16:47
Yeah, well, you know, fiction, in fact, history. So yeah, that's what I have read and learned about recently. So yeah, it took him I think 30 days or something to get it all done. But this was pretty cool. So not that long ago, well as long ago for for our kids, right. But for you and I whenever, you know, Alaska, and Hawaii, that was like in the 50s. Right. And so when those states came on board, there was this 16 year old kid named Robert Half ACFT from Ohio. And they were his class was talking about what is the new flag look like? Anyway, he had an idea. And he kind of put it together and an iron some things on he spent like three or four bucks on the material. And his teacher gave him a b minus on the flag design. But he went ahead and sent it into to the US government to Washington, DC because they were asking for other other ideas. They ended up selecting his idea. And then his grade was reversed to an A. Yeah, shocker. So I know, I didn't know that. And he's no longer with us. But yeah, it was some 16 year old kid in Ohio. Pretty, pretty, pretty interesting. And I'm scrolling through here on a couple things. One, it said the average age was 45 years old of the of everybody that signed. Let's see. And then they just talked about fireworks and things like that, that that's been a long standing, standing tradition. And here's the last bit I'll ask you. What do you think the population was the United States whenever they signed the declaration?
Pete Mento 18:37
You know, Doug, I've never I don't know, maybe half a million people.
Doug Draper 18:42
Two and a half million. Wow. Okay, to two and a half million when they signed it. But anyway, it's kind of cool. I'd encourage all of all of our listeners to go out and just you know, Google fun facts about our nation's birth or, you know, Fourth of July fun facts. It's, it's kind of interesting. And yeah, I'm super glad I'm American feet. Love this country, greatest nation in the world. And I'm glad our listeners are here. fast to do that. But anyway, God bless America.
Pete Mento 19:15
I gotta give you two of my favorite fourth. I guess they're kind of Fourth of July. Really. The first is Benjamin Franklin, one of the national bird to be a turkey.
Doug Draper 19:24
I had heard that. Yeah. It'll be
Pete Mento 19:25
said it was more fitting, which I guess I should do a deep dive on that. And the second one is most of the founding fathers died penniless. A lot of them died, you know, destitute for whatever reason, but in a report that I read, that was common, like most, most businesses failed, and most business people failed along with it. So guys, I guess I couldn't agree with you more. I've been all over the world and this is the greatest country period. Oh, I would never I would rather be here than anywhere. So good.
Doug Draper 19:58
Yeah. Exactly, it's it's a coma Merica you gotta leave the A off. And then you got to have you know somebody with fast food in one hand and a gun in the other. Right and like a scooter or something.
Pete Mento 20:11
You talked about how you're going to a small town Fourth of July. I much prefer that to being in Boston or New York or wherever. And it just crowds everywhere. And it's just not as doesn't feel as soulful, you know, doesn't feel it doesn't feel as energetic and passionate as it does when you're in a small town. So yeah,
Doug Draper 20:30
well, next week, I'll I'll count the number of horses, because I hear there's going to be quite a few horses on this parade. So I will share with our listeners, the number of horses that were in the Steamboat Springs, Colorado, Fourth of July parade. Can't
Pete Mento 20:45
wait. Yeah, right. Now, what's your next topic?
Doug Draper 20:48
Oh, let's see, my next topic is Panama Canal related. And I know that we've talked about this a lot. But there is that the conversation is, oh, my God, there's no water, there's so many delays. Well, the rainy season has kicked in. And it's fixing itself to some degree that there the water levels are coming up, the wider berth ships are going through, and things to be kind of coming back to light or not back to light, but back back to normalcy to get the vessels through the Panama Canal. But it just amazes me that I don't think the average consumer, whether that's an American consumer, or a European consumer, or whatever, kind of understands the chaos that's going on around us right with with all the ports and things that we've been talking about. And it will eventually roll into the pocket books. Right. But the things that I've been reading about in that you and I talked about, and that our listeners have a good understanding. But I think general concern, consumers don't have a clue of what's going on, they may hear about the Red Sea, because it makes the nightly news for 30 seconds, but they may not understand the length of the chain, if you will, between what's happening there, and why their goods are not are not available. But I'm really excited that Mother Nature has helped the Panama Canal situation, and things should be things should be improving. So I don't know that's that's kind of my thing. Thanks the weather has has pivoted, and the Panama Canal issues are starting to get resolved.
Pete Mento 22:21
You know, Doug, I call people that don't work in our business normies like normals, rug out, people. And I often joke in my seminars that your friends aren't sitting around a barbecue saying, Man, these 301 tariffs are just kicking our ass right now. Killing near your friends aren't saying, I went I went down to pick up some windshield wipers. And that Panama Canal is just wrecking my plans. You know, it's I'm sure that there are tons of industries that have something similar, where they're impacting everything all over the world, but we don't talk about it, you know, but they are they're just they can't stop talking about it. This particular one man, like, you know, the, the, the ocean rates are through the roof right now. And a big part of that is just as you've been pointing out, we have an earlier peak, you know, people are selling, buying stuff earlier in order to avoid what they see as issues with tariffs or, or they're taking advantage of things right now. And it's going to have a whiplash at some point where you're going to see a correction to that. But does the normal consumer feel it? Do they feel it and I would love to have enough time to do an inflationary study to understand what the supply chain over the course of the past five years has meant to inflation because it's meant a lot, it's meant a lot between disruptions to supply chains and availability of capital in order to invest in warehousing and infrastructure. The, you know, the cost of transportation is massive that they always said, if it was are between eight and 11% of the cost of goods sold, you're in good shape, there's no way you can tell me that over the course of the past five years, that was the average I'm sure it was. Then you know more about this than I do dub, but warehouse space is in a lot of parts of the world, you can't find it. And if you do find it, you're paying a premium for it. And heaven help you if you need temperature control. So all that is just going to jack up prices and in the end, it makes our T shirts and our lunch meat and our you know, pens, pencils and everything else more expensive.
Doug Draper 24:22
Now? Yeah, it's it's crazy. But the one comment on the warehousing because people would give me a hard time since I'm in that industry. If I didn't make a comment, it's getting a little bit better. But I'd say the one piece that is not is the temp control, right and everybody that being in California and being hot as hell in Fresno, it's a big deal and there's just not a lot of options out there. But yeah, the warehouse things get a little bit better. But is you know, nobody's doing a whole lot of investments with the interest rates the way they are. There's projects that have been on the books that are completely not but as far as new builds, you know, new new housing starts For lack of a better term or just not, not quite there. But anyway, once you got bring us home, so
Pete Mento 25:05
I'm very concerned about the East Coast, and that that starts with a possibility of a port strike. So if this port strike were to go through, if they were to go around everyone's expectations and actually shut down the port starting in September, that is going to push everything to the West Coast. Now you were just talking about the Panama Canal, right? We're all sitting here rejoicing, jumping up and down, screaming, hallelujah, it's back open again, it's going to be pointless if they are not going through the Panama Canal to go to the East Coast, because the ports are closed. So part of me is saying is a great time for you guys to do some maintenance down there, I think because your volumes are gonna go through the floor, when I look at the way that the ocean carriers are treating the world. So East Coast rates are pretty damn high right now. And a lot of that has to do with the Red Sea. West Coast rates because of volume spikes and capacity spikes are starting to get a little bit creepy. And I spent a week last week in Salt Lake Salt Lake in Minneapolis, I did a seminar that I was on sales calls for three days straight, you know, everyone had the same thing to say. We're feeling it in the transportation cost and that we're feeling it in capacity. We're being told that our contract rates are not going to be honored. That will get you on a ship, but they're getting rolled because they got into that market when it was it was crazy. Remember how soft the market was? contract rates. And now they're being told by ocean carriers Listen, yeah, you can move in that contracted rate. But it's it's subject to availability. And right now, we don't have availability, because people paying 568 10 times what your contract price where we're going to make sure that stuff rides because it's just more expensive to us. And then add in all of these blank sailings, man, you know, their blanket sailings, canceling sailings, you're creating a very good capacity crisis at a time when people are just shoving as much as they can to get over here. So Doug, I've said it a dozen times, I'm gonna say it again, hate the game, Don't hate the player, these guys that are in a position to make themselves financially, you know, to have a windfall during this. We cannot like it all we want, but there's nothing stopping them from acting this way. And we learn nothing from COVID We learn nothing from COVID We did nothing to prepare for this eventuality and all these things happening at once knowing that it was only a matter of time before did it get done.
Doug Draper 27:29
Yeah, yeah, I mean, just the the the port situation out there, you're on the East Coast. Right. I mean, I spoke earlier the LA's back earlier this year. And I think that that rings true, but like you said, if the Panama Canal is open doesn't make a bit of difference if if the East Coast is shut and it's not just New York, New Jersey, it's all along the entire the entire coastline. All the way down. So it'll be interesting to see. LA is going to you know, the LA is back baby and they're going to have a hell of a third and fourth quarter.
Pete Mento 28:04
Indeed, my friend I think don't don't forget Vancouver two years. Well,
Doug Draper 28:11
yeah, thanks for that all the Canadian friends up there. Good call. Good call. So Well, that wraps it up on this holiday edition of global trade this week. Pete as always appreciate you jumping on and being the Yang to my Yang or Yang to my Yang or better stop saying those two words. And yeah, it's great. Thank you for listening to us and engaging always make comments whenever you see these posts out there. And hope everybody has a wonderful and safe Fourth of July weekend. So hey, I think that's it, buddy.
Pete Mento 28:41
Don't play with firecrackers folks.
Doug Draper 28:45
Exactly. I actually catch you guys next week. Take care
Transcribed by https://otter.ai