Global Trade This Week – September 12th, 2022
What’s going on in Global Trade this Week? Today Doug Draper of ACME Distribution and Pete Mento of Mento LLC cover:
2:14 -Shortage of Customs Brokers
9:10 -Europe’s Energy Crisis & Impact on Freight
14:05 -Halftime
20:09 -Winter is Coming: Freight Rates to Decline?
25:00 -Parcel Peak Season Surcharge
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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 one of your co hosts Doug Draper. And I am out in the inner mountain region. Pete, I'm going to keep saying that. And my co host is on the other side of the United States, Mr. Pete mento. Pete, how you doing, buddy?
Pete Mento 0:30
Guten Tag. Bon jour in cheerio Hall. I'm fine. Very excited to be leaving for my vacation tomorrow. Little family fun trip to the cost and the United Kingdom for some reverie. Can't wait. I will miss you. But not so much that I would ever I mean, I'm not gonna cry over it.
Doug Draper 0:56
That was my first question. Are you going to cry? And the answer that the fact that you answered it so quickly, I appreciate that. So no, well, here's here's the big news as a teaser is that even though you're out of the country, global trade this week, keeping with its namesake of global will still happen next week. And you will be?
Pete Mento 1:16
I will Yes. i My intention is to be on the show next week after a after a sizable number of litres of beer from Oktoberfest. So that is my intention. I won't be able to smell the sauerkraut of my breath. But I hope that comes through while we're talking next week.
Doug Draper 1:37
Yes, that will be I don't even know what to say or prep. I don't even know how to prep for that kind of show, Pete, but I'm looking forward to it. You should
Pete Mento 1:44
be excited. Many of you will be drank many bottle of wine will be drank while I'm in France. Many a Frenchman will be deeply insulted by the way that I treat their waiters. And with any luck, I will remember all of my German curse words for next week by probably my best language outside of English. So Well, we'll see. We'll see how it goes. But
Doug Draper 2:07
that's good. That's good. All right. Well, that's next week we have this week to worry about. So let's jump in with the topics. You go first, my friend.
Pete Mento 2:16
Yes, sir. So this week, I wanted to really focus on two topics. The first one, they've been bugging me. The first one is the lack of brokers. So as I have been trying to find something to do with myself, that excites me, I've had a lot of small freight forwarders asking if I would simply come to work for them to be their license holder. I mean, they said to me, if you don't have to keep your license someplace, for wherever you go next, would you be willing to be our qualifying license individual manage oversight and control? And I've said no. I need to be there in the weeds night and day in order to put my license on the wall because I worked really hard for to get it. And everyone's speaking to the same the same thing, the number of new customer sales brokers, just as not living up to the number that are leaving the business. We've talked about this before. But it got me thinking why? Why, Doug? Why, you know, why? Why don't we have more brokers? Why aren't more people coming into this truly fascinating business? And I think the the answer is a couple fold. I think first of all, the exam is stupid. We need to just say it. I said something on LinkedIn about today, I want to double down on those comments. I'm not certain that it license. Holding a license holding a customer's house license really determines whether or not you know that you're doing because I've taken the test and passed the test first time. Brilliant like that. And I've been a broker for my license now. 25 years, I think. And it's it's not the kind of information if you were to say, Hey, Pete, I got a friend of mine who wants to be a customer service broker. What should they learn right away? I'm not really sure that it's what I would have them focus on. I really, honestly believe this, Doug, I think that customers should move towards an apprenticeship program, where young people who decide they want someone who decides they want to do this as a living, goes to work for a broker, transact centuries, understands how customs works, sees the interaction between the trade and the enforcement community. And then when a license holder says they're ready, and they're willing to sign off on it, they get a chance to go take that test. And I think that for people who claim to be operative customers, house brokers, people who work all day transacting customers business, there should be one license. And there should be another distinction that's given by customs for people who want to be compliance professionals, or makes a lot more sense to me. As everyone knows, I am a big jujitsu guy. I spend every waking moment thinking about it, talking about it, dreaming about it, and practicing it. And in our world. If You are a student, they ask who your teachers are, if you're a black belt, they ask give your black belt and his black belt you got from his black belt, I can tell you that brokers that taught me and the brokers that taught those brokers, the brokers that taught those brokers, there is a tribal way that it's happening now. It's just not prescribed. And I think done as people like me. And according to customs, there's only 12,000 of us left. And we're only getting about 150 170. So more every year, as we continue to die, retire, letter licenses, lapse, or just leave the business, we need people to step up and want to do this. And a stupid test that doesn't really reflect what goes on in our business is not a great way to determine who should and should not be given. So that's where I'm at God, it's time to get away from this testing regime and help with a smarter world.
Doug Draper 5:53
Yeah, I would, I'd agree on a couple points. Number one is, it's a government regulated and certified thanks. So you're never gonna get away with a test, in my opinion, but the thing that I liked and I was gonna go to when I when I saw about this one is a customs house broker is transactional, I sit and look at my computer and I push buttons, and I click on screens, and I do that kind of stuff, in my opinion, that's gonna go away, right? You got computers to do all that stuff. Now data in data out, it'll push a button, everything will be take care of it. So the transactional concept of a custom SAS broker is waning, right? Look at that, look at that. It's a fact how 9000 is coming to get yet. But the thing that I like the is the apprenticeship and the fact that you can be a compliance officer, which understands engagement, understanding how things work in the world, so they can be classified correctly, and helping as a strategic advisor for a company that does importing, exporting, or some level of compliance. That's where the future is. But the thing is, nobody knows that exists, right? Which means the apprenticeship is good. There's so many schools out there that have supply chain and logistics degree programs, I'd be interested to know how many of those have any sort of focus on customers house brokerage, and what that means and the career opportunities that you could take in that field. So I know you got the Yatta, yatta yatta going on with your hand, but how 9000 is going to take over the transactional nature, but they can't take over, you know, the consulting aspect of it, which I think could grow and be really engaging and challenging to individuals getting into the field.
Pete Mento 7:36
Yeah. So you got a microwave?
Doug Draper 7:42
Yeah, yes, I do.
Pete Mento 7:46
Would you make a turkey in it?
Doug Draper 7:49
Possibly.
Pete Mento 7:51
Probably not, though, right. But you have existing technology in your house to cook very, very quickly. But you still spend your money going out to eat. And when it comes time to have a well prepared meal. You go to a chef. You don't try to make it in your cuisine or in your microwave. Go to someone who knows what they're doing, Doug, you're making my point, brother, you're making my point. For me. Customs House brokerage is one of the last places in this business of ours. But actually knowing what the hell you're doing matters. And as E commerce becomes the only thing that people are trying to distinguish themselves from, this will be the only part of logistics that isn't overwhelmed by a bunch of people keyboards in master's degrees in computer science. You've got to become a broker kids got to become a broker.
Doug Draper 8:40
Does you say better? Again? I'm a computer a Hal 9000.
Pete Mento 8:43
Go ahead. Well, you can you can code all you want. But anybody can learn to code. It takes a truly twisted, broken, emotionally distraught individual become accustomed.
Doug Draper 8:55
I guess we'll agree to disagree. Transactional nature is out the door Consultants is absolutely and
Pete Mento 9:01
we will not agree to disagree. We will agree that I am right. And you are. That's all the same. Right? Yes. All right. I disagree with you. Although I know what the topic is. And I'm already on board.
Doug Draper 9:16
Yeah. Well, this is dabbling into into Pete isms there, right, the European energy crisis and the freight markets. So in my opinion, there's two words consumption and production that are key to that to this topic. So consumption. There's a lot of similarities to what's going on in Europe as in America with inflation increases interest rates going up, obviously, energy and fuel and going through the roof. So, obviously, as those things rise and interest levels rise, the consumption de is going to go down, right. Import prices are going to decline at some point. You know, routing changes, so the consumption of it individuals is going to slow, which means ocean freight and imports of tangible things. And we've spoken about the goods aspect versus the services aspect. As people aren't buying durable goods anymore, there's going to be less product flowing into the country. That means there's going to be less ocean freight, less inland things of that nature. So over time, the steamship lines are like, hey, these have to make revenue, these meaning ocean containers, trucks and things of that nature, they're going to divert them away into revenue generating lanes. And so that capacity is going to start going away. There's also a driver shortage going on one thing that is abundantly clear, which I did not think of Pete is that there was a lot of men that are now fighting in Ukraine. And there's a significant amount of individuals and migrants that have come in to start their own business, just like America, and we've talked about the last of the cowboys out there, same concept in Europe. But all those folks are going to war for their country. So there's a driver shortage and chaos. So driver shortage, inflation, reduced consumption. And then then when you have all that the production goes down, so there's not a lot of new orders, there's falling sales, the euro and dollar, the euro, and the dollar, kind of equal ish. But the thing is, is even if they're equal, it takes more money to make the same thing. So if it took $100 to make this widget, it now cost $130. So even though the currency values are very common, and on par doesn't mean things are dramatically different. Looks good on paper, and it makes a good headline. But But I don't know. So I think the energy crisis is just one thing that's going on out there in Europe, that Americans should really pay attention to, because unlike so many different things, when America's isolationist and people like doesn't affect me, I can still get my hamburger and fill up my gas tank. So why should I care? I think in this day and age, what's going on over in Europe, we should care, because it's going to have a bigger impact than we may think.
Pete Mento 12:12
Yeah, I agree. I think I brought this up last time before, I'm very concerned about how the drawing down of the European market is going to end up negatively affecting the world economy. And as the energy prices there continue to push down their ability to be competitive. So European companies are paying more to make everything because of energy prices, which makes them less and less competitive, which means they're gonna have to lay people off, which puts a greater strain on their economies. I mean, it's it's just to, you know, to tumble. It's a tumbling, ugly, ugly type of model. This just gets worse doesn't, it just gets worse, and it just gets worse, we're going to start selling them energy. Now that our ports are open, ready to start selling natural gas, again, which is going to increase our cost of energy. And they can also have a negative effect on us. Unfortunately, the only places that seem to be making any money on this are the Russians, India, China. So anybody selling coal these days, so I'm not sure really what this is helping to be quite frank, but it will continue to drive down all markets. We talk a lot about transportation markets here, but I don't know anything that's used in production that isn't moved. There was the farm to table situation. So you're right, Doug, the macro economic impact of what's happening in Europe, and its effect on energy prices is gonna spill over into practically everything.
Doug Draper 13:40
Yeah, well, that brings us to our halftime This is where the fun banter comes in. And it's brought to you by CAP logistics. Not only is halftime brought to you by CAP at the show, for goodness sakes, beats brought my CAP Logistics, you and I wouldn't be sitting here without those guys. So please take a look at their service offerings. CAPLogisti.com. All right. If you are you go first me.
Pete Mento 14:03
Oh, first. Yeah. Alright. So very, very quick on this one. I will be leaving for the United Kingdom, tomorrow night. Then I'll be the continent of Europe. But the UK a special place in my heart. I have a lot of very, very close friends that live there. They were kind enough to allow me to pursue my doctorate at the University of Durham there. God bless you. Even pay for most of it. So thank you. But the whole point of my rant here is that I've always loved visiting there. I've always loved going over there, because as someone who lives in New England how close the two places are is not lost. But there's something about tradition, Doug, there's something about tradition. And her majesty died last week and I am certainly no apologist to the idea of a monarchy. But it is interesting to see that since she's passed away, there are certain things that are happening, the Queen is Dead, God save the King and King Charles the third is already living up to his duties. While he is in mourning for the loss of his mother, he is trying to get his world in order and keep the British people on track. If you watch the news, people who just days ago were upset about every little thing, or upset about the passing of a minor, you know, they might not like a monarch, they are upset over her going away, because for many of them their entire lives, she was the only thing that was constant outside of their own family and their traditions of the monarchy as well. So why do they still have a monarchy, for those reasons, it represents everything about who they are as a nation, and it helps them to maintain some sort of a hand to the past. And as I look at our own country, I would never ever want one. But the idea that we should try to get back to some of our traditions, no matter what they are personal ones, family, ones, regional ones, local ones, ones in our city, I would come home every Thanksgiving to watch my old high school play the other old high school until I got too old. But for a good 15 years, it was an important part of my traditions. In my house, we like to have a German Christmas Eve and an English Christmas Day. And that's just the way it's always going to be, you know, I do the same things that my parents did on certain holidays. And I hope that my kids do the same things as well. So Doug, I think as the Queen passed away at a time that we really need to remember our traditions and who we are as a culture, we have the opportunity to see why that is still so important as keeping a country that has its own problems happening right now. A queen who blessed the new prime minister days before her death, is helping to remind them why it's so important to embrace the cultures of
Doug Draper 16:37
Wow. Thanks, Pete, I appreciate that. The one thing that I learned is that on the monarchy, whenever you throw on the currency, when you put your face and your bust on the currency, the direction in which they look alternates based on who the monarch is. So you were saying that? Yeah, Queen Elizabeth faces right. Now, I don't know if that stage right. Or right, it is. The coin. Yeah, I don't know. I don't have any, you check it out in advice. But that means whatever side she was looking that King Charles a third will be looking the other direction and alternates back and forth.
Unknown Speaker 17:14
So that's cool. Yeah, yeah. Well, I
Doug Draper 17:18
was gonna get cute and smart with my halftime but I think based on yours, Pete, I think I should take it over to this
Pete Mento 17:25
side. What you can be as cute and smart as you want to be. I mean, that's what halftimes for. Now, I
Doug Draper 17:31
don't know what I was thinking. I can save this one till next week. Right? I won't even get into because it is pretty funny. But I think it's important because this one is time stamped with this week. And it's the national truck driver appreciation week, it's entirely up. And this week's way to, you know, show appreciation 3.53 point 6 million professional truck drivers out there men women, they're out there every day delivering our goods on time, securely and safely. And they're out there zipping around. So I know that there's a lot of companies that have fleets that are embracing and, and thanking those, those drivers out there. But I would say if you're an average Joe, that really has no interaction directly with a truck driver. Here's one thing that you could do when they're trying to move over in a lane or merge or need to make their job easier to move from point A to point B, don't be a jerk, give them the space, allow them to do their job and merge in, you'll feel good about it. Even if it's for one week. It's National truck driver appreciation week. So the one thing you can do and the one thing I'll challenge our audience is Be kind to a trucker. If they need to navigate to be safe, get into a different lane. Turn have a wide berth on a turn, don't be a jerk, given the space allow them to do their job. And I just want to personally thank all the truck driver because I know a few by by name and things of that nature a lot by name in our industry here. But anyway, thank you very much national truck driving Appreciation Week. I wanted to make sure that that was called out Pete.
Pete Mento 19:09
Yeah. Well said and well pointed out. We don't take enough time to thank all the people in our logistics industry. But the ones that have a never ending daunting task and ready to take a lot of criticism and are not thinking enough are the people with driverless trucks and you make an excellent point of trying to treat them with respect on the road like they try to treat us with respect. They understand with a large and dangerous piece of equipment that are driving. I don't think that people in cars understand that as well. So by taking a moment to really respect the fact that they're there, the dragon goes around the country and they're doing so in a piece of machinery that is quite dangerous. They take it very seriously. Give them a little extra berth. Try to do what you can to make the job a little bit easier. And you never know what's on that truck. It could be literally something that can save somebody's life that we care about. Yeah, so great job yeah. They could all the truckers out there.
Doug Draper 20:02
Could do. All right. So we're on our we're on the back half here. Pete, you can roll with your next topic.
Pete Mento 20:08
Yeah. So my next topic is that winter is coming. I do I do so enjoy the game of thrones stuff. Because I am a dork, Doug, I am going to own that. Not going to sit here. And I'm not going to sit here and try to pretend otherwise, I'm a nerd. And winter is coming as an excellent, excellent phrase for so many different things. But for our industry, you know, just when you think it's over. Because what we're about to see coming in 2023 is the market dropping and stabilizing at rates that are still awful, but much, much better than what we've seen in the past couple of years because of all the economic booms. And with that, you're going to have a lot of companies who bought into relatively high rates going into full rebooking periods, by then vos, a lot of VCs that went out and got those rates at a time. And you're gonna have a line, however, that didn't, you're gonna have a lot of people that are suffering with these ocean carriers, who are going to have to decide are we going to let them off the hook for these terrible rates, as the market is lowering? Because it's going to be better for our relationship going forward for the next 10 years, right. But you're also going to have a lot of NGOs that are going to have to say, is it really my best interest to go? Just guns blazing after these carriers now? Because man, they pissed me off the last couple of years. And you mean, we've all been there, right? We're all like, Oh, now it's, it's your turn to cry, right? Like, it's just as time you know, there's a lot of people who've been waiting the last couple of years to say, oh, it's time to renegotiate our rates. You remember when you told me I had to pay $22,000 for 40. Now, let's talk about that. And I'm really hoping people have learned, I'm hoping that they've learned that you have to have a degree of respect between yourself and the carriers and the carriers and the shipping community. We need them to make money. We need them to make money so that they can have great vessels that live up to our energy needs and our environmental needs, but also that they can have sailings and build that infrastructure that and the carriers, I hope that they've learned that they can't treat us like an ATM machine, that when things are to their advantage, they can't use some of the tactics that they used to just make all the cash they could for that boom and bust cycle, you know, we've seen again and again, but nothing changes, nothing changes, the need to look at this as an opportunity to build long term relationships that are based on actually working. The second thing I wanted to bring out, which goes on that sort of collaborative approach. We're about to be a Washington empties my friend, particularly in the US, as American companies stopped using containers as extra warehouse space, when they get through the holidays, they're going to be able to bring all of that extra material into their warehouses is just going to mean a crap ton of empties, that can't get back because of blank sailings. And you're going to see the first quarter of 2023, probably into the second quarter of 2023. piles and piles and piles of empties imports. And it's going to cause some real arguments between carriers, importers, and ports on who's responsible for clearing them out. Who was responsible for paying that extra time. And who's responsible for all the other mess ups that happen in the supply chain? Because I'm here for the drama. I love the hostilities. Doug, you know me, so I'll be watching it with big old skeptical hippo eyes.
Doug Draper 23:38
Yeah, yeah. I love the container part of it. First of all, Pete, I want to say something to your comment about the rageous are going to be high, but they're going to settle down. If you remember one of our prediction shows, we talked about, hey, things aren't gonna get any better until we start entering 2023 And I think we're starting to see some of that. So shout out to our prediction show, but I love the concept. I'd not thought of this about all of the boxes just sitting around. Right. And if you have a business that engages with that, I have a friend that refurbishes 20 foot containers into like mobile bars and he's done you know repurposing ocean containers into houses and things of that nature. That's not where everything's going to be absorbed into but I think you bring up an awesome point. I think we should take a look at that in first quarter because there's going to be people like screw it, I'm just going to abandon the piece of metal and it just does what it does. And walk away I'm not saying all of it, but it's going to be some pretty unique ways to handle that situation. So I'm excited. Yeah, I'm excited because I'm a nerd when it comes to supply chain I'm excited to see how that thing transpires
Pete Mento 24:48
but not Game of Thrones. Now, watching House of the Dragon delegates bring money
Doug Draper 25:00
All right, my man. So this is, let me pull this sucker up here. So this is fun. And I'm just going to simply say, a peak season surcharge. were announced, I'm specifically talking about parcel. And then the second question is like, what are you going to do about it? What are you gonna do about it with all these additional charges coming up. So there's two things I wanted to say, because there is something we can do about it. So, big picture, it's a lot of the same formulas, which is rolling averages of weekly volumes and things of that nature. And then the fees have are the same, but everything's been escalated. So last year, a surcharge fee was $1.15, to like $5, and some odd change. This year, it starts at 215 $2.15, and rolls up to like six and a half dollars or something. And that's really, whenever you hit shipping thresholds, I think it's, you know, 1000s and 1000s. of dollars. But anyway, my point is, is that the amount is just more expensive as far as the surcharges. And the other thing is that you have to hit a higher volume. So last year, if you exceeded, like 25,000 shipments a week, and that in and of itself defines that it's really the large shippers that are going to be taking the brunt of this. This year, it's 22,000. Mac's though I'm speaking specifically to UPS, I'm sure FedEx has something very similar. But not only are the rates going up, the threshold in which those will be kicked off and start implementing is lower. And so really, there's two things, pass it on to the consumer, people are going to pay it, right, just pass it on, if you're a company that thinks you can absorb 20 to $30,000 a week, in your freight, you're crazy. And the consumer will pay, I would pay an extra dollar to get it in the big picture. So maybe I'm naive, whatever, but I would push a lot of that off. The second thing, and this is probably more important, is it with the data analytics you have right now, you're gonna see a lot of other parcel delivery services that are out there that you may not even know about, right? So there's this whole network of Super Regional parcel carriers and Courier networks that don't have these peak season charges that you can tap into, you know, Amazon kind of has their dabbling in the delivery of non Amazon parcels. And then you got the post office, which is out there. So there's other avenues and the data, and the tools that are available to you to make a decision as a logistics professional, on what stuff goes on what carrier to minimize your your hit, I think you're gonna see a lot of other service offerings out there. And feed I'm bringing this one up. Again, I'm waiting to see your face here. But a lot of this is going to be driving with some bogus baby, just come on into my store, order your stuff completely free, pick this thing up and grab some eggs and milk on the way out the door. And life is good. So I think you're going to see some bonuses, but I think you're also going to see some smart logisticians, being able to use all carrier networks available and data will help them make that decision.
Pete Mento 28:14
This is the finally the opportunity for drones has arisen. 2020 22 Christmas Rise of the drones. This is the time when we're finally gonna see. All kidding aside, you know, you, you've really tapped into an incredible point. And that's that the parcel carriers have us where we want to, you know, you're, you've had a consistent message when it comes to the US Postal Service. Nope. Right. So when that's the case, you've got really two main companies you can go to with that group of smaller carriers. But even the smaller carriers end up having so much subcontractor that buy these larger ones, one way or the other, you give them your money. And it's I was a situation where one of my clients had a compliance concern with one of the two large parcel delivers, like I will never give them my business again, because they won't give me an answer about these things. You know, they were just asking for a report. I will never and I just said yet. Yeah, you will. You will. I mean, it's just uh, you know, I understand you're angry, but you pay me by the hour to be honest with you and give you good advice. And you will, it's not like it's a trucking company. And there's a couple 100 to pick from to link to. And then if you want to throw DHL in there is three, three and a half, right, three and a half. Okay, so, depending on where you are, there's some more to Eega percolator, but do okay, if you want to spend more money on something you're trying to do everything you can to make cheap be an idiot, but there's too right so the angrier you get. It's just, they're gonna drink your tears and maniacally laugh like some dumb I've done an excellent job insulating themselves from what their service does. And if they decide that they're going to put a peak season church in, they should just call it what it is. Welcome to your rate increase. Inflation is tough. And so our energy prices, we've got to raise rates in order for us to maintain the expectations of our shareholders. Merry Christmas, get out your checkbook. That's what this really is, man. And you don't hate the game, Don't hate the player, they got to do what they got to do to keep their shareholders happy. And I know nobody wants to hear that. But that's just what it is. And as a consumer of those companies, from a professional sense, I'm just being realistic. You know? So it is what it is, man.
Doug Draper 30:45
Yeah, I agree. I thought when you were counting off, right, there's three and then you draw.
Pete Mento 30:50
That's always gonna happen. They're
Doug Draper 30:52
not I was like, hey, we need a black mark. And there. I'm glad that didn't happen.
Pete Mento 30:56
Oh, no, no, that P ended five, six years ago. You know, there's two people that watch this damn show. We can't We can't act that
Doug Draper 31:04
way. Yeah, yeah. Plus, we don't want to teach
Pete Mento 31:07
Kenan any curse words or bad things he might use in his fifth grade classroom and getting knocked down school
Doug Draper 31:16
grid. Well, yeah, we're that's
Pete Mento 31:19
gonna do it for us this week on another exciting episode of global trade this week, brought to you by CAP logistics. We Thank you always for watching and listening. Those numbers just keep ticking up. It's terrifying to think so many of you actually watch us talk about these things. Thank you again to Keenan back in the booth, who, between having his muddy buddies chex mix, and you know, catching up on his was a Roblox ism with a call game on his iPad. He manages to make sure the show just keeps on running. And we do love him for that and the folks at CAP logistics. Thank you, God for always bringing it bringing the heat here on global trade this week. And we'll see you all next week. Take care. Absolutely.
Doug Draper 31:58
Look forward to it. Thank you.