Global Trade This Week – Episode 112
What’s going on in Global Trade this Week? Today Trade Geek Pete Mento & Doug Draper of Inland Star Distribution cover:
1:30 -Amazon Letting Go of the Reins
9:27 -China Going Bear Mode
17:25 -Halftime: GTTW Live!
24:00 -EV Battery Supply Chain Explained
29:21 -China Pushing BRICS to Break From Dollar
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Keenan Brugh 0:00
You're watching Global Trade This Week with Pete Mento and Doug Draper.
Pete Mento 0:11
Greetings, everyone, and welcome to global trade. This week. I'm Pete manto, and with me as always is the intrepid damn handsome Doug Draper. Doug, how are you, buddy?
Doug Draper 0:24
I'm doing great. Dude. I appreciate that. Intrepid. I haven't heard that word and a little bit. I'm kind of think I know what it means, but I'll take it as a compliment.
Pete Mento 0:33
Oh, it means incredibly courageous in the face of certain danger.
Doug Draper 0:38
Okay, hell yes. Thank you very much.
Pete Mento 0:41
Yeah. Hey, yeah, I'm glad I could. I could boost your spirits. On a day like today, Doug. Yeah. I'm fired up, man. It's gonna be a great episode can be a great week next week. Yeah. What more could a couple of guys ask for couple of country boys with the laptops asked for?
Doug Draper 1:00
Yeah, that's right. Middle Aged bald men. I love it. And then we'll talk more about next week at halftime. give everybody the hype up video, so to speak. So.
Pete Mento 1:11
Yeah. So Doug, you know, what do you got? Let's just do it. Let's just do it. What do you got, buddy?
Doug Draper 1:17
All right. So this topic is been some personal experiences with my company, and then some indirect conversations with other customers. And here's the topic it is. Amazon is starting to let go of the reins. And I think it's going to benefit everybody. And what I mean by that is, you know, Amazon built their logistics network, all of Bezos style, meaning complete control. Right? I actually had a buddy. Well, my wife's good friend's husband used to work at Amazon, he just retired. He's a little bit younger than you and I and he started from day one, whenever Bezos had doors as desks. You know, total control. So anyway, I digress. But the two things that are happening is in warehousing, which is my direct connection, and transportation. So anyway, Amazon would own all their warehouses for years, as they developed it, they could determine where they wanted them, it was their box, their control their people. And they did the same thing with transportation. I'll explain that in a second. But the warehousing piece is what's going on out there, Pete is they're starting to essentially outsource some of their, you know, their, their requirements, and are not the requirements with their warehousing. And that the key thing is coming from the racking companies, right. So there's been several companies that I know in the racking industry that go out and rack and set up all the handling equipment warehouses. And Amazon is deferring those rack companies to other companies, and third party providers to kind of take over operations, they've done it with an with a major facility out in, in New Jersey, where you are now Pete, where they're like, we're out of it, we're not taking down a lease anymore, there's there's too much capacity in the warehouse market. And, and, and rates are falling and everything else. So my point is, is that they're starting to get out of owning their facilities, and they're starting to engage with three peels a little bit more. And they're showing that by turning off contractors and things that have gone in, to historically outfit their buildings. So you're gonna see that more and more, they're either not going to renew leases, or they're going to open up spots that they wanted to be in, but they're going to use a three PL, the other piece is pulling back on the transportation. So there's a new prime, you know, so if you're Amazon Prime, you got to sign up. And one of the things you have to commit to is make two day delivery, on anything you're selling, if you're designated as a prime, a prime customer. And so when that was there, if you and I were selling widgets, Pete, we would have to go on to Amazon's portal, they would tell us what company to use FedEx, UPS, DHL, whomever, they would print the label, and they would push us the label, and that is the label, we'd have to put on our package, again, controlling the transportation. So they've changed thing on October 1, there's some new procedures involved. Everybody, whether you're a prime member or not, has to kind of reapply to be prime. And rather than pushing labels to you and dictating what service provider, and what service level needs to be used to make the two day they're just laying out metrics and saying we don't really care how you get it there. Just make sure it gets there in two days. And we're gonna monitor the hell out of you to make sure it's done right. So the control is back in the shipper and the prime the company that signed up for prime, so Okay, And they're managing metrics. They're not telling you what, what carrier to use. And they're also you may have seen this Pete, where they've coming out with a deferred prime, they're not really calling that deferred. But if you can't meet the expectations with prime, there's kind of a deferred service that you can play in as long as it gets there. Within four or five days, you're kind of on the second tear down. But the whole point in this beat is that Amazon was all about control in their physical buildings, and how they move product across the country in order to make prime requirements. All of that is waning, and they're letting go. And they're managing metrics, and not doing the control. So I think ultimately, that'll be good for people that are involved in selling something on Amazon, I don't think it really affects the consumer, because I'm not paying for the the transportation, just get it to me in two days. So it's an interesting pivot that has is a 180. From the way Amazon has grown their logistics network.
Pete Mento 5:57
When I saw this topic, Doug, I kind of got three opinions that like immediately sprung in my head. The first one was, did they plan this? Like, did they see the market? What was happening to the market? And did they just immediately say, the market has gotten so soft? Should we start playing the downturn? And did they know enough about what was happening? To take advantage of the soft transportation market? And just start, you know, playing the Lord? And I don't know, I mean, could they have could they have possibly known that this was going to happen, and where their leases and where their contracts coming up, and they're like, I don't don't even bother to start playing the markets, that would be pretty impressive. And I don't know the answer to that. But but maybe the logistics press will, will give us some insight into that. That would be that would be pretty impressive. The second thing that sprung to mind was as a consumer, I buy stuff on Amazon, I'm sure you would keen to do too. And I always click that prime, toggle on top, because I want to get it in a couple of days. And it does drive my behavior, I will generally buy something I'm going to get in two days, rather than buy something that's going to show up in two or three. And I imagine that that's going to impact the sellers. So I wonder if there are consumers that are going to say, I'll buy things that are on that deferred service, that's going to come in three or four days, if I'm going to save 10 15% Because that's just smarter and an economy like we have right now. And then from the sellers perspective, you know, you're saying if it just gets there, we don't really care how it's gonna push them down the algorithm, they're gonna find themselves not as desirable, a product from people who are willing to make the steps and do what they need to do to be higher up the algorithm. And with the, you know, just the unbelievable amount of choices that people have on Amazon. That's not good for them. So I think it's going to, it's going to drive behaviors of the seller. And it's out of Amazon's hands. So it's gonna save them money, one way or the other, it's going to save them money, they're still going to make their profit. They're still going to get their piece. It's going to actually take money out of the sellers hands. And I wonder if that's going to, I doubt I doubt it will push sellers onto other platforms, because Amazon just has such a chokehold on the collective consumers minds. But But wow, I mean, it's just it's, it's so incredible that in such a short amount of time, one company can have such a massive impact on the collective purchasing mindset of the entire country.
Doug Draper 8:50
Yeah, yeah, for sure. Well, we'll see. I'm sure there'll be all kinds of analytics and trends and talking heads like ourselves, bringing it up during fourth quarter because it starts fourth quarter. So we'll see how that changed the buying habits during the holiday season.
Pete Mento 9:05
And all the people that probably make a living only looking at that company. There are probably people who do nothing but cover Amazon as a job in the press. You know, there are
Doug Draper 9:18
you gotta find something to write about. Talk about.
Pete Mento 9:20
They make enough content, man.
Doug Draper 9:24
Yeah. So alright, well, what do you got tech topic one?
Pete Mento 9:28
Yeah, I get to put on my mantle of Dr. Doom again here. But I'm not I'm not you know, I'm not. I'm not sure that I want to I want to be Dr. Doom here. So let's wait till the end. All right. So here's just some fun facts with crazy Uncle Pete. Okay. So, as of today, the Hong Kong stock market has officially gone into bear territory. The one has fallen. The Chinese currency has fallen to the lowest level in 16 years against the dollar. The Central Bank of China No, has just absolutely freaked out. And they've set the RMB to the highest level against the dollar ever, ever done, right. So as long as you've recorded ever, Chinese exports have stalled. So for the last two months, they've just stalled. So that means that that output of produced goods out of China, to all accepting markets are not growing. The real estate market is on the verge of by China's own admission, so this isn't like foreign press who looks at it. By China's own admission, it's the bubble they believe is about to burst. As I mentioned, in the past, each regional, each regional government is pushed into stimulus by the central government of China. So they make them borrow money to go into, into the stimulus projects where they build things in local. They're begging the central government not to make them go into more stimulus projects, saying please do not make us borrow money against our land, to do more seamless projects, they're begging them for that youth unemployment is at an all time high. It's so bad, that China has said hey, listen, we're just not, we're not going to publish the statistics anymore. Because we don't want to let anyone know that an economic growth in China is expected to fall below 5%. Now that their measurement for being successful as a government is 5.5%, they're expecting the official number to be below 5%. So, you know, burry, the guy who called The Big Short, he took a major part of his portfolio to bet against the global economy. And he's basically short of the global economy. And by the way, before everyone freaks out about that, he did some, some trickery on how he put that money in there. So don't be too impressed if he had been wrong before. Berkshire Hathaway, as you've mentioned before, has done something similar. There's a lot of people that are shorting the global economy. And folks are calling this and they're saying that if China tumbles, this would be the the release of the knot at the end of the balloon that would cause a global correction of the global economy that we've all really been waiting for post COVID It's kind of been a long time coming. And there's another economic school of thought that says that this, this releasing of the global economy has been happening all along. But it's been happening in fits and starts around the world, just not all at once. And this is finally China's turn to kind of, you know, get there's another another course of thought. So the big question is, Are we finally seeing China? Take that as weapon? I think that's actually a technical economic term that we've all been waiting for? Or will the Chinese economy find a way to correct this in a way that only their economy can? So what does that mean? Could China say we're nationalizing all of these failed assets, because we can, we're buying all of these failed assets. They're now the property of China. These are now all houses that we own, and we will allow people to live in them. And we'll rent them back to people because we can, and then at a time where it is economically feasible, we'll sell them back at a profit. Let's see, we will put out bonds to these local governments, and we'll sell them at reasonable rates. And then someday, when the market comes back, we'll make a killing and they could do all kinds of wacky things. You know why? Because they're a centrally controlled communist government. And they don't have to play by rules that any other government does, now would have lowered the market trust that. I don't know. I mean, you know, most of my money is in comic books and baseball cards. So why would you listen to me, this show does not give investment advice for a reason. So the whole world is staring at this, thinking the sky is falling. But there's an equal number of people who are looking at it saying, you cannot look at the Chinese economy with any degree of certainty that you would look at any other economy, because it's not like any other. And I'm starting to listen to that argument. With a little more interest. I think I listened to the other one.
Doug Draper 14:22
Yeah. Well, it's a gigantic backstop. I like your comment where that's just start buying the assets that had been have failed, right. And so the rhetoric that's being pushed out, I think things are probably worse. Really, then they're talking about, they have an image to uphold. You know, and so they're dribbling out what what they want to hear but the backstop that is the communist government is massive. The one piece that struck me and maybe it's just because of what happened to the US in 2008 is the real estate The conundrum that's going on out there, right, where there's these massive and we've all seen pictures of these massive, just insane hundreds of 1000s of apartments that just sit idle, right? I, there was this one, one group that is called country gardens, that has pretty much halted almost everything that they're building. And the two pieces there that I read, doing, doing some research on this is that they would do the pre sales. But it's not like pre sales here where you and I would put down earnest money is as a goodwill, and that's what you use to fund the project, they literally start taking a mortgage out, so to speak on a house that isn't even built yet, or the apartment that's not even built yet. And with this company, in particular country gardens, if the pre sales start to dip, they start to slow the construction, which is a pretty smart business play. But it, it's crazy. So I don't know if the real estate market can do as much damage to China as the mortgage lending chaos in 22,008 did to the United States. But that's the one thing that I'm gonna personally keep an eye on is what's going on with all those real estate. But the bottom line Pete, like you indicated to communist country, it's one hell of a backstop. And if shit goes south, they can they can correct it the old fashioned way, and just gobble it up.
Pete Mento 16:30
Yeah, I mean, imagine that if China's like, well, we're nationalizing all these assets. So we own them now. And we're just going to get 1.2 billion people here. So we're just going to have them move from this place to this place. So backup you crap. 100,000 people are moving here now. And we're going to open up up, whatever. And I know that sounds absurd to all of this. But absurd is kind of the middle name. And I don't think it's as crazy as it sounds. So when that came across my ears in a conference call the other day, I took that as an option. And maybe that's not as nuts as it sounds. So, you know, 30 years now, more than that, 40 years now I've been I've been I've been exposed to China. And every every minute now I take it with a little bit of fish sauce whenever I hear some crazy, because it's not as nuts as it sounds, my man.
Doug Draper 17:23
Yeah. All right, we're gonna jump into halftime. One of my favorite parts of the show brought to us by CAP logistics. We always say they're the ones that push the buttons and turn the levers here to make this thing happen. You and I wouldn't be sitting here talking today without those guys. So Keenan, thank you. Cap logistics. Thank you. App. logistics.com Go check it out. I'm going to let you go second. I'm going to jump in here. Right. And our our halftimes have been kind of serious lately. You know, we've gotten away from the the the the candy, analogies and stuff like that. But one thing we spoke about last week, Pete is our our show that we're going to be doing a castle Bonita it's next Monday the 28th it's going to be at 3:30pm. And we're not like in Castle bonita. We're going to be hanging out at a bar that is literally right next to Castle bonita. So you'll see the wonderful restaurant behind us West facts. West backs like Colfax West facts as the brewing will throw it. You know, so you can check it out. I'll do this. Look for it here on your on your screen. But 3:30pm We'll do a remote you and I I'm not sure what the hell we're going to talk about. But it'll certainly be fun. And if there's listeners out there that are local to Denver, come out, Pete and I will be in person. 3:30pm Monday the 28th at West facts brewery right next to Cassie bonita. We're gonna have a good time.
Pete Mento 18:53
Cassava Anita, adjacent duck. That's how I'm describing it.
Doug Draper 18:57
Is that okay, next? Do I like adjacent better, and it literally is adjacent. It's not like it's across the parking lot. And we're kind of like, you see that small dot over there? I mean, we're in the thick of it. Yeah,
Pete Mento 19:07
I will bring my cheesy proof. So my chicken, Popeye and the South Park. stuff is gonna just be flowing out of me. And I just I don't even care, Doug. I'm so fired up. I love that show so much.
Doug Draper 19:21
Yeah. It'll be good. It'll be good. Cool. All right.
Pete Mento 19:25
I'm mostly excited that to have the three of us on the same place.
Doug Draper 19:29
Yeah, yeah, we thought that we could show
Pete Mento 19:33
we could prove once and for all that you and Keenan are not the same person.
Doug Draper 19:38
All right. What do you got, man? I like your topic. Yeah, so
Pete Mento 19:41
I had a great dinner last night with a dear friend of mine from Wayfair, who I've not gotten to see in a long time. It was great to catch up with her. And then I came back to my hotel room here in New Jersey. popped open an ice cold bottle of water. It turned on the Republican prime Their debates, which I don't know how informative they were. But it sure was fun for me to watch. And, as I always do, because I have this myopic attitude towards political, political conversations, I was waiting to hear about trade. And I really didn't dug. So for however long that tantrum lasted on television. I didn't, I didn't get me. They didn't get me. And in a time when international relations has so much at stake with regard to international trade, international economics, much of the talk that had to do with IR really was deeply surrounded on a lot of, you know, of course, the necessary anti China rhetoric. But we didn't talk about trade. We didn't get into the US Mexico relationship, the US Canada relationship, the necessary energy talk was just avoided. So in a period of time, when many Americans are concerned about what's going on with the supply chain, what's going on with with global trade, just think back to a year ago, think back to 16 months ago, not a word. And I found that a little bit concerning, but maybe that's just me, and I'm not your normal voter. I'm not your normal anything. And I'm okay with that. But I do hope that in the coming debates, that there's a little more discussion about what's happening with global trade, so that people can be informed on what these particular folks that are running, probably more likely for Vice President, the President, for the Republican Party have to think about where international trade fits in politically with that party? Yeah, yeah.
Doug Draper 21:41
I think the only person that made mention was Nikki Haley. She made a comment about Evie batteries being made over over in China. I don't remember exactly what the context was. But yeah, that debate, my wife, who is not very political, wanted to watch it. And within 20 minutes, she's like, this is insane. She got up and left, just because it was talking over people. And a bell goes off to say your time's over, and they talk for another 2030 seconds. And I know it was, I would love to go back and look at what a presidential debate looked like, in the 80s and early 90s. Compared to what debates are now it's almost like much, much must watch TV, because there's going to be some outlandish comments and personal attacks and talking over each other. So it's, it'll be interesting. But you're right. I didn't hear one thing other than Nikki Haley making that mention
Pete Mento 22:33
about trade. I have some great ideas on how to make the debate better. The first one would be if you run over time, I give you one warning. And then the second time I have Pete's wheel of correction. And on that wheel of correction would be either I shoot you with a paintball gun. And I'm aiming for your open mouth as you speak. So that's that's one second would be all participants have a shot caller. And without warning, I'm just gonna, I'm just gonna shock you. There's gonna be a trapdoor where I just hit the button and you're done. You're done. You're absolutely done. And this one I'm I'm really rather fond of you remember a Nickelodeon that was a Slime Bucket. Oh, yeah. Yeah. I'm just gonna hit you with a Slime Bucket and you have to stand there for the rest of the debate.
Doug Draper 23:21
I love that. the Slime Bucket I got
Pete Mento 23:25
it felt like last night was like in the Pee Wee Herman's Great Adventure when when he and his bully just sat there saying I know you are what am I? I know you are but what am I just it was it was it was ridiculous. So I do miss the good old days when there was at least some degree of professional respect amongst the people that were on stage and respect for the moderator. And the time, and also the viewership. But I think at 2023. With all the reality television, people want to be amazed to gas in titillated when they watch a debate. And that's, that is the sad state of American politics. Hey, case done. What do you got for topic two pal?
Doug Draper 24:03
All right. Well, speaking of Evie batteries, right. This is some personal experience I've had literally in the last three weeks, right. So I'm going to talk about the electric vehicle battery supply chain. Pete, I'm gonna do a little lesson here. And I'm just gonna go through the bullet points. And I'm going to tell you which one is the most problematic from a warehousing perspective, and I think is going to really be impactful. So the four components, number one is upstream, and we've talked about that that's literally mining. That's people in other countries, mining materials for the batteries, right lithium, Cobalt is part of that graphite, then the midstream is when they process all of that and purify the raw materials, and then they use to create whatever the cathodes and all the other kinds of stuff. Those are pretty mundane. That's basic blocking and tackling. You're just moving rocks and and things around, then the downstream. That's battery manufacturing. So they take all the goodies and they start making the batteries and, and and then get deployed to, to the manufacturing plants. And then there's the end of life and kind of thrown that one in there. But there was going to be a huge a market for recycling, reduce, reuse, recycle. And that's going to be a whole reverse returns supply chain, but the downstream one Pete is, is going to be a little, little crazy. So here's here's the deal. We had a client that called and wanted to warehouse 600 batteries for a high end, Evie, plant that is in Hanford, California. And most people would be like, yeah, no problem, throw him in the corner. And we'll call it good. When you get that many batteries together under one roof, the amount of compliance and the amount of fire suppression and the amount of boxes that you have to check with local municipalities to make sure the place isn't going to implode. And burn to the ground is unbelievable. I have first hand experience towards it. And we Pete walked away from it. And my company specializes in hazardous and packaged chemicals. So it's insane. I don't think people realize that, yeah, let's import these batteries from China. But let's manufacture them in bulk and just put them in the corner. It's a big deal. And California is a little wacky as it is with compliance stuff. But still, it's a big deal. And I think it's going to be my personal opinion, it's going to be problematic. And I think you're gonna see a lot of that, where companies are going to own the rails because the amount of money that you're going to have to invest in order to store finished products of electric and lithium batteries is is not on the radar. And it's going to be problematic. So that downstream part of the four of the four parts that I just made mentioned, is going to be an interesting discussion, and it will be interesting to see how companies deal with it.
Pete Mento 27:08
Agreed. The the American Evie consumer is only tangentially aware of the complexities of battery transportation, the Evie manufacturers viciously aware, and they are looking for every opportunity to sidestep liability and put it in the hands of a third party, which is wise, it's wise, if I were in the same situation, I will be doing the same thing. Because it allows them to competitively manufacture this and hopefully keep it in the hands with someone else if something were to go wrong. And they're going to have to find wise ways to do it. It's an opening for another company to do it. But that other company has to have their own house in order to deal with the liability of insurance in place and manage it. And it ain't easy. If you want us to do it, we're going to have to charge you a fee, that may put it out of reach for that company to do. So there, they're going to have to figure out if the juice is worth the squeeze from a liability perspective. I don't know if that's necessarily going to be the case that these batteries become more and more powerful. And they're let's not forget still very experimental at this stage, as they become more and more experimental. And as we we continue to tinker with them. Companies like ours are going to have to consider the ramifications of playing in that sandbox. So I guess we'll continue to see Doug. Yeah, yeah, for sure.
Doug Draper 28:46
There'll be stories. There'll be stories about somebody that didn't do it. Right. That building burned to the ground and they're out of business because they didn't prepare for it. So
Pete Mento 28:54
yeah, again, Doug, the scariest thing I ever saw was a container of lithium batteries that had to go overboard in the ship. And it just kept on burning as it sunk down into the ocean. That was I mean, was terrifying. See something burning underwater? You're like, how is that possible? You know, but it didn't mean it had run out of oxygen, you know, had to run out of fuel as it was just going on. I was just terrifying. That is terrifying.
Doug Draper 29:19
All right, bring us Oh man. This is the last topic before a big show next week.
Pete Mento 29:23
Yeah, so this topic is, again, kind of the terrifying variety. The bricks all met this week. You know, they're hanging out in Africa and Mr. Putin didn't show up. There was a surprise. But when they when they met China really hammered home this idea that they need to take banking and their own financial health out of the hands of the West. So your your Brazil's your China's your India's they they need to find a way to not be beholden on moving currency, moving their finances and managing your own financial health well being and sovereign tea out of Western banks, particularly the United States, and have the ability to manage their markets without any interdiction, without the pesky office of foreign asset control, always being over their shoulder, then in reality, this is a very self serving attitude by our good friends in China, who are seeing right now how that can get in the way of their own energy independence, because they're still buying so much from Russia. But then again, so is India. And so as Iran, so a lot of countries that we don't necessarily always see eye to eye with. And, as you would again, imagine, it was met with a whole lot of nobility, but because of the, the global reach of these Western banks, because of the overall adoption by every other trading nation on the planet, with the use of these, and because of the structure and the security, and the overall faith in that banking system, that's really being met with a lot of. And I think, because so many of the companies that are working through these resources, that they are international, and that so much of this is being done across borders, and across countries, where these companies are based in Western nations, it's going to be a really hard road to hoe duck, a very hard road to hoe. So until China has a currency that is generally accepted globally, until the RMB has a whole lot more RMB to play with, it's just going to be very difficult to get the rest of the world to take this seriously. Is it possible? Yes. Is it likely? I really don't think so.
Doug Draper 31:35
You know, what, I saw that, in the meeting that they BRICS invited Iran and Saudi Arabia to join the party. Yes, it's almost. So one thing I was unfamiliar with it. So BRICS is an acronym for Brazil, Russia, India, China, South Africa. So that's where you get that list. And now they're trying to, to expand, right, but it's almost like developing this. You know, I mean, the European Union and BRICS, it's almost like they're both kind of building up. And you got to pick your side. We've talked about that in the past. And it's, you know, the Death Star, versus whatever the other thing was in Star Wars. But it's interesting to see, let's add more people that the US government does not align with right. Oh, how about Iran and Saudi Arabia, right. So it's just interesting to see how that's going to, to evolve. And Pete, one of the biggest concerns and things I'm thinking is, how are they going to rename the acronym, right? And I don't know how they're going to do that. But that's really the most important thing in this conversation.
Pete Mento 32:44
And it's called the haters. Haters, because they ain't meant to call what it is. Yeah. Ya know, in North Korea while you're at it, let's just get it out of the way.
Doug Draper 32:55
Yeah, yeah. We'll come up with an acronym. It'll be very inappropriate. And we won't talk about it on the air. Yeah. So anyway, great show. Pete, this is awesome. I'm so excited to see in person for the first time in a long time. It'll be a great show next week in the field. And if you're in Denver, and around, come and visit us, we'll we'll drink some beers and have a good time. So I will then Pete, great to see you again. Thanks for all your insight and our listeners. Thanks for joining us on global trade this week. And guarantee you next week.
Transcribed by https://otter.ai