Odd Lots - Why Tracy Can't Ship a Teddy Bear from Hong Kong to the U.S. Right Now

Episode Date: June 14, 2021

By this point, you're aware that shipping anything internationally is pretty tough right now. It turns out, it's getting worse. Earlier in the year, Tracy tried shipping a teddy bear from Hong Kong to the U.S. on a vessel, but, for a variety of reasons, it ended up not working out. At least she tried. Right now, she wouldn't even be able to try because international shipping has gotten that much more messed up. So what's behind this logistical nightmare? On this episode, we speak with Mercury Group CEO Anton Posner and President Margo Brock for a granular deep dive into the state of shipping and why it's so hard for Tracy (and even shippers with higher dollar value goods for sale) to get space on a vessel right now.See omnystudio.com/listener for privacy information.

Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Allaway. And I'm Joe Wisenthal. Joe, do you remember that time I bought an actual barrel of oil? Or I tried to. Yeah, I thought about that. And, you know, it's cool. We used to sit right next to each other. I mean, now we're on the opposite sides of the world. But that was fun. We didn't appreciate it. That was great. We actually got to work next to each other. And I remember you bought some oil and you kept it on your desk for a while. Yeah. Well, I didn't really want to leave it. in my apartment because I heard and learned that crude oil evaporates into the air and it's not very safe. So obviously I took it to the office and I put it on the desk that was right next

to you. But the whole point of that. I survived. Yeah. The whole point of that actually, you know, I heard that the little thing of oil fully evaporated after a few years. It's totally gone now. It's kind of crazy. Oh, man. Wait, where did it go? Into the air. Oh, someone else at Bloomberg took it And then it evaporated. So I'm sure it's in the trash now. Anyway, okay, that was a very strange tangent. Okay, the point of doing that story to actually try to buy a barrel of oil was to show exactly what was going on in a key commodities market in crude oil, of course, at a really interesting time. This was when we had some interesting patterns in the market, the contango structure, where in theory you could buy oil. and sit on it and forward sell it to someone else, and you could pocket the difference and make some money just by buying oil and then storing it for a while. Do you remember that? I do. That was,

right, that was like the whole point. It wasn't just that you wanted to learn how to transfer oil, but there was like a carry trade or a contango trade or something going on. So, you know, I've taken an interest this year in logistics and transport and the shipping chaos that we've seen. We've done a number of episodes at this point on the, the gridlock in global shipping. Yeah, this is the topic de jour. I mean, I think there are many topics, but, you know, all the interesting stories this year have not been really in anything related to liquid markets or anything classically macro,

but in micro, how does shipping work, how does home building work, how does sawmills work, anything sort of like real on-the-ground economy is where it's at in 2021. That's right. I'm so glad you said micro because we are going to be going very, very micro in this episode. So in the spirit of actually buying a barrel of oil or some oil, earlier this year around January, I set out to actually ship something via a container from Hong Kong to the west coast of the U.S. Did I tell you about that? You brought it up on our interview with the Flexport CEO.

That's right. Yes. But we didn't really get into what happened. I don't even know. Did you ship it? I don't even know it had. Yeah. Okay. So spoiler alert, we didn't ship it in the end. It turns out that the gridlock in global shipping is so extreme that I couldn't make this work. And we tried for about four or five months. And I just kept getting bumped from ship to ship to ship. So I gave up eventually. I'm sorry, but I know that like all these ships are packed. However, I refuse to believe that there wasn't space for a teddy bear on one ship. I mean, come on. Well, we're going to get into exactly what happened. We're going to go super micro, very granular, and talk about what it is actually like to try to ship something via container from the east to the west at the moment. And I think it's going to be a really enjoyable conversation in the spirit of, you know, Gonzo financial journalism. Great. Let's do it. All right. So our guests on this episode are two people that were very, very, very, very. helpful to me in trying to arrange this experiment. They spent an enormous amount of their time on this,

and I feel really bad that we couldn't make it work. But we're going to be speaking with Anton Posner. He's the chief executive officer at the Mercury Group and Margot Brock. She's a president at Mercury Group as well. So Anton and Margo, thank you so much for coming on. Thank you for having us. Happy to be here. Yeah, great to be on. So, Anton, I sort of, I set it up a little bit there, but I'm trying to remember now how we actually met and embarked on this whole experiment. But shipping a single container that is mostly empty, and, you know, we settled on putting a teddy bear in it because it was easy to procure and kind of fun. But that is not what you do day in and day out at Mercury Group. Is that right?

Right. We very, very rarely are putting one teddy bear in a 20-foot container. It's almost never happens, right? So you specialize in bulk freight, right? Correct, right? So I'll give you a little background. So Mercury Group, our vast majority of our business is bulk and break bulk freight and supply chain management. We're commodity people, industrial commodity people.

So our cargo that we're typically dealing with is aluminum and steel and, copper and copper concentrates and alumina, which is a raw material for aluminum, aluminum production, organic soybean meal in bulk coming in from moving in containers transfer to bulk, moving up the Mississippi River system, for example. So a vast majority of what we do is on the bulk side, which is just as, and that, that will get into it further, but that industry and that part of the supply chain sector is just as crazy. these days as what the container world is seeing. So what do you walk us through a little bit of the differences?

I mean, we recently talked to Ryan Peterson, C.O. Flexport. And, you know, we sort of have this idea of like, you know, I guess I'm kind of feel like I can wrap my head around how consumer goods moving from Asia to the U.S. Got all kinds of messed up for many reasons during the crisis. What are the similarities and differences like that we see or this? just in general between sort of consumer goods movements versus bulk shipments. Sure. Yeah.

Bulk shipments for those that may not understand the actual practical difference of it is bulk. That includes me. Yeah. Gotcha. Yeah. So think about bulk and break bulk. I'll explain the difference between the two of them is the old-fashioned way of shipping where it's not in a, nothing moves in a container.

So dry bulk or bulk is thinking, think about it as commodities that are measured in tons or volume, right? Like soybeans, corn, iron ore, coal, things like that that are just that are basically poured into a ship's hole. That's bulk or what we call it or bulk or dry bulk as we call it. Break bulk is items that you can actually count. So steel coils, bundles of aluminum. sows, crates of windows we just looked at recently, which is an interesting story, looking to shift from containers to break bulk because of the misery in China at the moment. So if you're loading, I think you think about the old movies right on the waterfront of the

longshoremen on the west side of Manhattan, loading crates and nets full of cargo bags of cocoa, that's break bulk. If you can count it and you can count it, and you can, can count the number of pieces, then it's breakball. If you have to measure it in tons, then it's dribble, essentially. And that's, so these are goods that where it's just not practical or cost effective to work with container, with containers. So Margo and I both come from a diverse background. Margo and I both graduated from New York Maritime College in the Bronx. It came out as ships officers. neither one of us decided to go to sea as ships officers. We did our sea time as cadets.

And I always say, I decided I have no salt in my veins. I'm ready to stay shoreside. And I'm better navigating a cocktail party in London during London Metal Exchange week than I am at navigating a ship to get to London. So we went into both of us went into shoreside business of shipping, worked a few jobs together. but we both started in the container side of the business, working in various container lines. Margo, and I'll pass it over to you to some background on what you did out of school.

Very much on the container side of the business, working for a container steamship line. From there, I went to a trading company where we moved containerized freight, but we also handled break bulk, and that was cocoa beans. and I have eventually evolved into what we do now, which is much more rooted in industrial products of raw materials or semi-finished product. So we do have a decent background of looking at both sides of the shipping industry. And to Anton's point, it is all quite a mess right now. Yeah, there's a phrase I've been using that's probably not podcast friendly as to what's going on.

so I'll leave that out. But Joe, I want to get to that heart of the question, you're looking at the difference between the two. So very often when we're looking at moving freight, moving these industrial commodities, where we're evaluating do containers make sense, or is this going to make sense in bulk or breakball? Let's say that we had a trading company

that was looking to move copper cathodes from one of the copper producers like Freeport MacMaran or Rio Tinto. Kennecott Copper, right, in the Southwest U.S., and they wanted to move those copper cathodes to Korea. So we would evaluate whether or not it makes sense to stuff those copper cathodes into containers and ship them to Korea, or if the volume was significant enough, does it make sense to rail those copper cathodes to L.A. Long Beach and load them onto a brake bulk vessel, bulk vessel

to go to Korea. So that cost analysis is a big part of it. But in this day and age, it's not just the cost. It's also the ability to actually get equipment to make something happen, which leads me to that comment I made about the windows. We recently, one of our commercial people had a dialogue with a company that imports windows for consumer windows from China. and these windows are sitting in crates in northern China right now, just waiting. Same as the teddy bear. They're the same fate as the teddy bear, missing ship after ship after ship.

Massive delays, right? This is the reason why everything is there's a shortage. So they had us look at taking those crates and loading them onto a brake bulk vessel out of the port of Tangin in China to shift into the east coast to the U.S. and then we could truck them from there. They, right now on that particular one, they didn't end up going for it. The cost was fairly expensive, and the transit time was not fantastic in that particular case. But curious to see if they circle back to us after a few more weeks of waiting for container availability. So we shall see.

We're certainly getting phone calls from people that we've never gotten phone calls from before. Well, so that's a pretty good segue into the teddy bear project or experiment. But we started talking back in January when things were already pretty rough. But it seemed doable, the idea of sending a container from Hong Kong to, I think we're, were we aiming for L.A.? Yeah, I think that's right. Yeah, we were looking for L.A. Long Beach. We chose we chose the port that we knew was going to be potentially the most. miserable while we wanted that we wanted that teddy bear to have some good at anchor time off

the California coast to have the real experience that's right that's right so remind me what was the the cost quote around that time in January when we first started talking the all in cost for the local truck including the local local handling in Hong Kong and through to a warehouse to to to crack open the container, take the teddy bear out, but I think it was around $7,000 at that point for that, and we knew that that was starting to skyrocket, right? It was heading up. We dealt with one cost increase while we were waiting for the teddy bear to get his space

button. Yeah, I think it went up by 500. Is that right? Yeah, I think it went up by 500 bucks. But even at that starting point, that freight rate was much too high for what the lane is, which is a common lane when you're talking Asia to the United States West Coast. And it was that starting point was already so indicative of a skyrocketing market. It was already too high for where it should have been, say, a year earlier,

pre-pandemic. And to your point, it did just continue to go from there and it moved, the rate moved north and you still couldn't get your slot on a ship. we still couldn't get your container moving. So explain why you can't just buy your way onto it. I mean, you know, you mentioned the windows. And I mean, you know, this is again a big thing that we've been covering. Obviously, home builders in the United States, lumber is a problem, but you can't have a home without windows.

And so the windows are sitting in a factory in China and can't get here. Like, is there essentially, like, there is no price too high for what, what people need that those just essentially paying anything and that there's no way to like bid yourself onto these ships like explain maybe walk us through a little bit the process because in theory it seems like there should be some price where it's worth it to ship a teddy bear actually probably not but there really should be some price where it's worth it to ship windows at least because windows are crucial for the entire home so can you walk us through the math and the calculations a little bit whether it's on the home builder side or the factory side of why they just can't move the windows

there certainly becomes a point where it just doesn't make economic sense to ship. And that's why a lot of the cargo will sit. What happens when you end up with so much port congestion for loading, which is exactly what we're suffering now, is often the highest bidder will get the spot on the vessel. When you're looking at it, obviously everything boils down to a cost per metric ton for any trader or any business. and or cost per unit.

And where's that break even? Where does it become too expensive, where it becomes a money losing proposition to pay the number you have to pay to guarantee yourself a slot on the ship? So it's much like, you know, to compare it to the trucking industry in the United States,

anyone can quote you a freight rate, trucking or container freight, and the number looks great on paper. But when it boils down to it and they're looking at a steamship line is looking to load their ship and they have those 10 containers over there willing to pay $10,000 per container, your $5,000, your $7,000 freight rate container is not going to get the slot. Can I just ask a quick follow up then? What types of goods are crowding out the others such that, okay, let's say $10,000. what does it make sense to ship for $10,000 that it doesn't make sense? I guess does that question make sense? What are these high-value goods that are dominating the space on the ship?

Right. And it's not so much high value as much as you need high margin. You have to be able to absorb that. From the industrial product sector that we sit in, those margins are typically too small. So our typical client base is not going to be who gets the space on the ship. And we actually had a client trying to ship a specialized rebar out of China. It was test shipments coming into the U.S. We needed, and it was maybe 100 tons or 200 tons.

It was nothing tremendous, five to 10 containers. And we could not get the space on a ship for that because they weren't willing to pay up. So once you get to some of the higher sales point items or higher volume, items that you can, you know, get a lot into the container, your margins are going up. I don't know what that answer is specifically, but I'm going to say it's probably more merchandise freight. Because that's where you can push your costs into the price that's on the shelf. So when you're looking, you're looking at something that's produced in Asia and it's not produced

here or the production cost here to make, I don't know, a container of teddy bears. a container of clothing, whatever that product is, it's still so cheap to produce it in Asia, ship it here, bear the cost increase on the freight, and then get it to market. But for us, and when we're working with traders, that buy and sell point are already established when they're looking to load out of Asia, and often the trade just doesn't have enough room to bear the increased freight cost and still be profitable. Yeah. And often the industrial commodities that we're dealing with are produced here, copper, aluminum, steel, right? So there is a market, domestic market, to be able to

make the deal with that shift if they just can't, if imports just can't work. And I think something else to add to it also is, you know, take the window example, right, where we were looking to shift that to break bulk in that particular case. The ship operator put a number out that was fairly really high for that particular move. But they're just like any ship operator and the container ship operators are doing this also. They're going to allocate space to their regular contract clients. So that space is going to go to the to the producers that are shipping to Walmart and the target, right, on a regular, regular basis. So just it's human nature, right, essentially, and business nature in that respect. You take care of your, of your largest clients at that

point to give them the space that they need and the others will fall by the wayside. So my understanding to that point is there were really three things that were against us on the Teddy Bear project. Number one was Bloomberg, you know, contrary to property. belief was cost sensitive and every time we had a price hike I had to go back to the editor who approves our expenses and explain that, you know, freight costs were just out of control and that this thing that should cost a few thousand dollars was now closer to 7,000. And then secondly, we weren't doing this as a massive client. So we weren't Walmart, we weren't IKEA or someone like that. We were just a single container, not even a full size.

container, but half-sized, I think, 20-foot, which was also a problem because it's harder to get those onto a ship. So I guess my question is, like, were we sort of doomed from the start in the current environment? Yeah, I wouldn't say we were doomed from the start, but it became apparent that the doom was coming, right, after waiting for the time that we did. For sure, there was going to be, there was going to be delays, but the delays were building and compounding, right, as we got further to the point where today, if we tried to do that today, we would say, forget it. Let's not even touch it. You see what's happening right over the border from Hong Kong in Shenzhen at the port of Yantan. They have now a COVID outbreak that's causing some delays

massive congestion. Ship owners, the container ship operators are now avoiding the antenna and the congestion is starting to roll over into other local ports in the Pearl River Delta. So if we tried to make that happen right now, I think we might even see container lines saying, you know, forget it. Let's look at it next year, right, at this point. So, yeah, it was getting worse.

by the day and looking today, it's exponentially more of a problem right now based on what's happening locally there. So yeah, right next to Hong Kong is a complete and utter transportation congestion disaster at the moment. You know, but when we started talking about this back in January, and maybe it's really quite parallel to this COVID world that we lived in the last year, plus where, you know, you see the difficulty for many months ahead and everyone's talking about it and we know it, be it COVID, be it shipping. But, you know, we're always kind of hopeful and the talking points have been on everything, but, you know, maybe in six months out, it's better or whatever that time frame is. So when we were talking in January, we knew it was bad

and we knew it wasn't getting great anytime soon. But the projection at that point for when possibly recovery would start coming and normalization to these shipping lanes would resume in the containerized market was a much rosier picture than what reality has been. So for Anton to be correct in saying we wouldn't even think about this today because since January it's done nothing but stay horrible, this prospect of trying to ship in containers. But back in January, we, the conversation was talking about normalcy or moving towards normalcy by this point in the year. It just hasn't happened. It's not getting better yet.

So this is really, just to be clear, A, it's as worst today. We're recording this June 9th. It'll be out pretty soon. It's as worse today as it's been all year. There's no sign that it's getting better and still the trajectory is going the wrong way in your view. Why is that? Why has it, why have we not seen any normalization? And what is, what is the current outlook look like right now?

I would say that, you know, what we're still experiencing, is that the volumes just haven't slowed. So there's definitely a shortage of space on ships. There's just, you know, so many ships and so many slots to fill. And you can see articles now that the orders into shipyards for new vessels is absolutely increased and it is a reaction to what is happening now. Ship owners are seeing the opportunities to build ships. One statistic on that one, Borga, just to jump over second, as is just reading the new container ship orders into shipyards for the first five months of 2021, the amount is double

the entire numbers of new ship orders for container ships of all of 2019 and 2020. So just the first five months. So that kind of goes to that housing market that I mentioned, Joe, right, is the inventory, right, issue. So sorry. But that cure is reactionary, but it's not a, it's a long-term goal to, you know, this is a big book of shipbuilding that is now on the table. It doesn't resolve it today. And what we can't resolve is that we are still ordering a ton of online goods from, you know, that are all sourcing. out of Asia. There is this residual congestion that is very, very difficult to overcome. And then a lot of the congestion is also due to the massive size of these vessels that are trying to get into these ports.

And there just simply isn't enough physical space at these ports to accommodate the volume of containers that are going to come off a ship and what is potentially going to try and reload to a ship at any point. So that also continues to keep it a slow, a slow cleanup at the ports to try and get all this material through because they got to push out the loaded containers to make space for the next vessel to offload. But the railroad can't take them out fast enough. And until they're out, we can't get the next ship in. So it's really quite the domino effect, which means the ships are not getting back to Asia to pick up the next round of loaded cargo. So what's the resolve? What's the timeline? I don't know what that is. I don't even know what people are realistically expecting at this

point. We are seeing, there was actually an email that came through our inbox yesterday to myself and Anton from someone we know that we know we do break bulk work with them. But they have one of their colleagues trying to put together freight for a six-month term containerized running through the end of the year and asking us for help if we can direct them to anyone who will put a contract in place for them, which is never going to happen. As you know, Tracy, we couldn't we couldn't maintain a price for your one container of a teddy bear. The prices are skyrocketing. What's what container line today is going to say, yes, I will take your brand new contract for six months to ship at a guaranteed rate in this total mess of a market. Yeah, guarantee you space, guarantee you a rate.

The market just continues to be quite a mess. Should we do a whole other episode guys on infrastructure too? Because Margot touched on it the size of these container ships. When we first got out of school and I went to work for, used to be Neptune Orient lines. now it's American President lines. I was working in Port Newark, working ships that were five, six thousand T.EU. Container ships.

Those are T.U means 20 foot equivalent units. So that means that that ship could hold five or six thousand, 20 foot containers. Right now, and that was like kind of a ship on a little bit of a larger size, a medium size at that point.

That ship, they ever given that got stuck in the Suez Canal, was what, 20,000 TUs? I mean, massive. So imagine that ship calling in a port that hasn't been sufficiently upgraded to deal with not only the actual ship operations, right? But as Margot said also, too, though, just the flow of the containers off the ship, out the door, off the dock onto trucks and the flow backflow of empty containers coming back to those ports. Some ports in the United States have significantly upgraded in some areas they've made large improvements to deal with these very large container ships, but nowhere nearly enough. So it certainly leads into the infrastructure discussion, right?

So we're seeing the I-40 bridge right in Memphis falling apart, and it stopped up. the barge traffic on the Mississippi River for days because of chunks of a bridge falling in truck. Not only that, but trucks couldn't, I can't transit over it. So we're seeing, we're seeing everything collide. Anton, no chunks fell off the bridge. You're right. It was a chunk.

It was a crack in the steel. They said it was a crack. It was a crack you could see daylight through. It was kind of massive. You're right. Sorry. Nothing fell into the river. Either way, I don't want to be on a tugboat going under it.

Put it that way. Joe, I was just thinking, like, maybe the solution to all our problems is infrastructure spending, right? Like, it's not, it might not actually be inflationary. It might solve the inflation problem if we could upgrade the ports. That's the argument, right? Even mainstream economists make this argument that, like, you know, you don't have to, you know, it pays for itself if it reduces the cost of everything by making everything cheaper, by making everything more available. So I have at least like a dozen questions that I want to ask, but I'm trying to focus it. So I guess like my main question is when you're talking to your clients now, what sort of preparations are they making for the future and how creative are they being when it comes to actually transporting stuff?

Because for instance, we talked about maybe trying to ship the teddy bear out of China. Eventually we decided against that because Bloomberg doesn't actually have an export license and I didn't want to get my entire. or company in trouble for the purposes of, you know, a stunt journalism article. But is that the kind of stuff you're seeing now? Like, are people just going to lengths or to roots that they wouldn't normally do? Yeah. We're seeing, we're seeing all of the above, right? Some clients that, that are adjusting well and understand what's going on and working on a practical ways to to deal with it, to set expectations properly with their, with their customers. And then there's others, right, that are like the deer in the headlights, right? That, that, what do you mean? Why can't

this happen? This has always been, this, this has always worked. Why not now? And so the education process of what's going on where I'm spending a lot of time sending articles out to clients to show them what's what's happening in the market and explaining what others are, what others are seeing and how it's not just a unique situation to, not a unique issue with their particular situation. So speaking of infrastructure and the degradation of the infrastructure or the fact that the infrastructure hasn't come up. And Anton, you kind of hinted at it briefly, but you mentioned housing. And one of the biggest themes that we talk about on the show was essentially been the supply side degradation to capacity, industrial, residential, et cetera, during the 10 years,

basically, between the 11 years, between the end of the great financial crisis and the sort of COVID and how much we're paying for that now. And so I'm curious, like, sort of like your perspective on that from the, from the transport perspective, I think we've talked about it a little bit, but how much did we essentially pay the price for a very, a big bare market in global? global trade and the way that that discourages fresh investment. Yeah, for sure. It's, you know, in doing this for, Margaret, what I've been doing this about 30 years now, right? And so we've seen we have a good historical overview of how things have been flowing. Let's take the river system, right? And this is something that a lot of the listeners may not be too familiar with because it's not

in day-to-day, in the day-to-day news, right? But enormous amounts. of commodities and cargoes move up and down the river system, the Mississippi River, ships coming into New Orleans, loading out export grains and other commodities from barges to direct to ship for export, and then inbound ships going into the New Orleans area, the Mississippi River, and transferring their cargoes direct from ships into barges to move up the river, going up the Mississippi River all the way as far as St. Paul, Minnesota, as far as Chicago on the Illinois River, and then moving up the Ohio River as far as Pittsburgh, you can get to Tulsa, Oklahoma, via the river system going up the Mississippi River and then making the left onto the Arkansas River,

essentially, right? So it's just this enormous marine highway, right, that runs the runs through the heart of the United States. Now, we have seen. seen just growing a list of problems with the locks and dams throughout the river system. The U.S. Army Corps of Engineers maintains those. They're reliant on the federal budget to pay for those upgrades. And so we're seeing now some infrastructure upgrades happening. Locks and dams being shut down in order to affect those repair work that's needed. because there are some real crumbling situations in these locks and dams.

So the tugs and barges that are moving throughout the river system are reliant on moving through this system of locks and dams in order to transit. So this is an infrastructure area that has just been so neglected over the years, but it's so much a part of vital commerce for the United States. So coal, iron ore, going to making steel, grain, all the agricultural commodities that move on barges and moving. It's such a cost-effective way. The cost to move goods on barges compared to rail freight or truck freight is just exponentially lower because you can take one tugboat and put with that one tugboat, it can push a, you, unit of 30 barges at a time along the mainline rivers. So going from New Orleans up to Cairo, Illinois, for example, which is a main transit point, you'll have a line tugboat, a large tugboat pushing 30 barges in each of those barges as carrying, let's say, about

16,700 tons in those in each barge. So one tugboat pushing 30 barges at 1600 tons each on average, you could imagine the efficiency in that, the fuel efficiency, right, compared to an over-the-road truck or even compared to rail freight. So that cost is low. So this infrastructure on the river system, the neglect that's been there, we're now starting to pay the price for that. We're seeing more and more delays. The barge lines that operate on the river system are passing along those costs to the shippers to the cargo interests like never before, right? And Bargo, some examples, right? Margo's dealing with barge line invoices day to day and seeing what our clients are seeing. Well, it is an ongoing problem. And there is, you know, there's a couple of different

cost points that it hits and it is the cost incurred for the wait time that is born or passed on to the cargo owner. But there's also a delay in getting to market. So, you know, we had we have barges that are trying to get up the Cumberland right now to get into Nashville. And those barges are suffering because of locks that are down with intermittent openings that you really have to hustle to try and get your barge scheduled on one of those openings. It's kind of like trying to get a container onto a ship in Asia. It's pulling some strings and talking to some friends at the barge lines to say, can you get a couple of my client's barges through? but there's limited space. So now we have a cost of carry born by, or not born by, but suffered for the cargo owner. So they're paying additional fees. Then they're, they have cost of

carry. And they have a commercial tender that they're trying to not default on. It's very stressful to the market. It's not just that river. And at any point, you can look at the barge lines, weekly updates as to what is up and coming. And while I'm dealing with the Cumberland currently for one client, I'm also, yesterday I was sending emails to two other clients for cargo that they have scheduled up the Arkansas River this summer, which will also be closed for a period of time, August into September. It is just a moving target at this point on where the next closure will be last year it was Chicago for a couple of months. You couldn't get in and out of Chicago by barge. And the river system, as Anton has mentioned, is really quite this super highway within

middle America that most of us don't know about. And, you know, Anton and I only have an education in it for what we do. But until we started doing this, I did not grow up understanding how much of the United States, how much of our trade relies on our river system. So it is really critical to us. Tracy, I think we definitely now have to do another episode. Seriously, like I had never like in all the conversations, I think, I was kind of aware, you know, like grains, other things,

but the degree to which A, it's so crucial still and B, so structurally degraded and congested right now, I had not appreciated that at all. So now we're adding that to the list of supply chain logistics infrastructure stories episodes that we have to do. I think we need to charter like a tugboat up in Mississippi, right? That'll be our next odd thoughts event. I'm ready to take that on, Tracy. I want to throw another curable at you, right?

Throw in a situation, throw in the climate change issue to into where you have, you know, affecting the river system, right, an ice melt that, the spring ice melt that then goes into the river system in the Mississippi River up north and creates, creates problems for us all the way down river to New Orleans because of high river conditions, right? You have ships coming in that need to have standby tugboats just to keep them in place because while they're working the ships, because of just extreme high river flows at that point. So, I wouldn't even take a stab at how climate change is affecting that, has been affecting that, and will continue to affect and make that worse.

But you could add a whole other element into the story of transportation. So our little part of the world of business is becoming all the more interesting these days, I think. Absolutely. I mean, it definitely sounds like it. But, okay, so a big question for you, given your expertise and given your very, unique vantage point where you're looking at global shipping, you're looking at what a big, a lot of big commodities players are doing, you're looking at things that are going up and down U.S. rivers. I know you're not economist per se, but you're very aware of the inflation

discussion at the moment. How much are these logistic snarls, these transport issues, playing into pure commodity prices just from your sort of, with your shipping hat on? Oh, yeah, I mean, there's no question, right? The cost, the commodity price costs are a direct correlation to what's happening in the world of freight and transportation. Absolutely. We're seeing prices. We're working, let's take an example right now of one of our clients, a steel trader that's looking to bring in template coil from the far east into the states. and that timplate coil is used for making cans, right? Cans and for consumer goods, right? So we're trying to put a freight contract together for them right now

for multiple shipments of a few thousand tons each of these tin plate coils. And the discussion, right, that they're having with their end customer that's going to be using this deal is the how to price the cost of the steel with the freight fluctuation. So, you know, we're very used to seeing fuel surcharges, right, which are directly correlated to to a base benchmark fuel price, maybe the price of diesel at Baton Rouge, right, for barge freight or the U.S. Department of Commerce, right, for base diesel prices for truck fuel surcharges. So now starting to see commercial contracts with on these, on these types of commodities that, that have allowances for freight adjustments on there.

So not just fuel adjustments, but also for freight adjustments to take into consideration that the container price for maybe in July, maybe $10,000, but in August it may be $15,000. So that cost needs to be passed on. So we're not in a commercial role in this respect, right? So we could talk a little bit to what we're seeing and how our clients are deal. with that freight uncertainty, if that kind of helps answer the question, I think. Oh, totally, yeah. Absolutely.

Yeah. Steel, aluminum, right, copper, everything is getting, getting hit. So those prices are just flowing, flowing through. And eventually it's flowing through to what's on the shelves, right? So one of the themes, again, that we have is that, you know, obviously some players, maybe shippers are in a position to make a lot of money right now with this incredible demand. But does everyone still think this is like a sugar high or transitory or that it's only a matter of time before the bottom falls out again and we return to something like normal? Or will,

is this a kind of boom that would cause companies in this space to invest more and expand capacity in some way, something that leads to sort of durable changes in how the industry does business? let's remember that question a year from now right and look back because the cycle is is just like the housing you know housing which it was a great episode by the way guys i like i really like that the ship owners as we as we said right the ship owners now are putting in these orders into the shipyards to build build sure enough just like drunken sailors of the past right the money goes flowing out and uh it will only be a matter of time before they're looking at too many ships and they're killing each other for the for the freight when that's going to happen i won't i yeah that that that that's above my

above my uh above my uh of economic intelligence i think but it is sick it is cyclical right aunton i mean it's it it the shipping community seems to hang their hat really on a supply and demand but you're building a ship the reaction time you're just it's just not that that quick, right? So it's great on this high to then throw your money into new equipment, new vessels, which is wonderful, but you know, you're not going to get it for a couple of years. And where's the market then? Let me throw an example out at you, right, too, 2014 sticks in my head, barge freight market, 2014. But it was an unusually heavy grain season. Green season is the harvest time when the grain producers and trading companies are moving grain southbound from the harvest areas in the states down to the New Orleans area for export.

So typically that's a time when barge freight market just moves upward in general. So let's say that barge freight per ton from New Orleans to Chicago, northbound, is running in the mid-teens per short ton on a on a typical year basis. In 2014, that grain season, those rates, it was such a shortage of barges and such a surge of southbound grain that the barge lines were much more happy to move their barges empty northbound just to keep them in place in position for the grain. So we saw barge rates to Chicago in the $40, the mid-40s per tonne. Instead of 15, try 45, right? Fast forward from 20. 2014 to 2015, there was no grain season. It was a bust, right?

So how many new barges were built by barge lines after that boom grain season, right? I'm not sure. I don't know that statistic. But we see this cycle, just this cycle constantly of the ocean freight market, the bulk ocean freight market moving. But what's unusual about right now, and I think everyone would agree, is we haven't seen this across-the-board global surge the way we're seeing it now. It seems it seems far more broad, right? Sure, I can relate that 2014 green season situation, but that was isolated to the barge freight market. And we've seen truck driver shortages. That's been building for years. As Morgan and I were

talking this morning, that's not a new story. I've been, I've had that slide up on every presentation. I've given it at a steel and aluminum conference over the past few years about the shortage in truck drivers. So that was coming. We have a trucking episode coming up, so we already have that one in play. So two things here, like really drilling down into the nature of the shipping industry. So number one, is there something about shipping that makes it inherently cyclical? And is there a reason overall that we get these big booms and bus? And then secondly, to something that Margot was talking about, earlier, why can't you lock in a rate for, you know, later in the year? Like, why can I not book space on a ship that's due to go out in December at some sort of pre-agreed rate? Why is it so

difficult when, you know, I assume other types of business, other industries, you are able to lock in some sort of forward agreement so that you can have certainty and an outlook on what you're supposed to be doing. But shipping seems to be very different. So I guess my question is, why is the shipping industry so different? Well, if we're going to look at containers, if you lock in today, it goes back to us trying to get a container with a teddy bear for $7,000 on a vessel. You didn't get a slot because there was someone else probably willing to pay $8,000 and your freight got bumped. So the shipping market is like all others, and it really reacts to support. supply and demand, which is the production of vessels because money is flowing. Eventually, we will have

too much capacity and freight rates will be so, so low because there's ships everywhere with empty slots that we can load onto. So I could get someone to lock in a rate and say, sure, China to Long Beach. We're going to do that for $5,000. We're going to book it. But do you get a guaranteed slot. And are you guaranteed to load on a vessel? Probably not. So right now, where the market is, and to what Anton spoke to earlier, you need to be the Walmarts and the Nikes and the big players, the IKEA's of the world, to have those guaranteed slots at your contracted rate. But the rest of us that don't have that contract in place, nor that annual guaranteed volume. to ship, that's who's living in the free-for-all. And that's what, that's what the market has

been as a free-for-all. Well, I remember, like, when we were talking to Ryan Peterson, the Flexport CEO, and I was actually, I'm glad you brought that up, and I wanted to, like, he was saying that, like, the shipping industry is still sort of like, it really helps to, like, if you just know a random guy in Denmark. And, like, or like, it helps to, like, know someone at marriage. Relationships, relationships, relationships. And we've probably named, like, Lars or something like. bad and so like that like if you really need to get your windows shipped out of china like you got to call up large and so i'm curious like is it because the industry so so concentrated that it hasn't had the need to create a more competitive booking process is it a simple technological fix like

why not sort of like upgraded a bit such that people can just sort of have a more dynamic auction for uh for a space yeah there's not a lot uh not a lot transparency in that that that dynamic auction type situation been tried in many different many different ways right platforms to be able to uh take a bulk ship it's just talk about bulk shipping for a second right there's been many different uh attempts by technology companies or technologically focused people in the shipping industry to put together a more uh open auction transparent platform exchange it exchange to some extend right for for actual booking freight but it always seems to revert back to the uh or back to the old old fashion of uh right knowing the right guy in Copenhagen type thing which is kind of you know

what keeps us in business right to some extent as a third party intermediary right which is what we what we are right or a logistics management company right our our value we don't own ships we don't own barges we don't own rail cars right so so there's a value in having expertise and knowing where to go for that. So, yeah, there's been a natural right resistance to that. Well, it's, and Anton, it's expertise and relationships. Yeah, exactly. I tell you, just another thing, too, on the bulk freight, looking back,

let's take that steel coming out of the Far East that I mentioned. In that particular case, we're working to get a three shipment contract. together, right, for October, December, and February to move, to move that steel. We're seeing resistance from ship operators for offering that far out, and the ones that have are pricing it quite significantly higher, right? They're taking certainly a big premium on that. You have a situation, too, on the bulk side, and this is a little bit, this is where it differs from the container side, bulk ship operators, and I'm using the term operators rather than owners here, are often not the actual owners of the ship. They operate as a ship operator, but they take the

ships that they're using on time charter. Essentially, they're renting those ships, they chartering those ships. So we have a situation at the moment where the handy size market, which is a handy size market rate for ships and handy size of these ships that are running in the 25, 35, 35, 40,000 ton capacity range, right? These ships were going in the market at the very beginning of the year in January, maybe about $10,000 a day to time charter one of those ships. They're now in the $30,000, $35,000 a day in the Pacific market. So if you're a ship operator, let's say you're your ABC shipping and you priced moving steel from the far east to the U.S. Gulf at let's say $65 a ton, but you based that $65 a ton rate that you gave to the steel mill, you based that rate on a $10,000 a day ship, being able to get a ship at $10,000 a day. And now you have to go out and perform under that contract, right?

You agree to $65 to that steel. Now you've got to go charter in a ship at $30,000 a day. That $65 doesn't make economic sense anymore. And we're seeing some very, very serious problems and delays with ship operators that are not performing at the moment because of because of this, right? And this is where this type of market situations happened in the past, right? But it's where it separates the professionals and the ship operating side from the amateurs, the ones that prepared ahead of time that had ships on sufficient long enough time charter periods to perform under their contracts versus the cowboys that book that $65 with the mill,

but hoped that the market didn't anticipate the market jump. like this, and that now can't perform and are leaving cargoes behind strewn about the Far East, which is one of the situations we're dealing with at the moment, too. All right. Anton and Margo, thank you so much. Really appreciate your time on the podcast and also your months of hard work trying to get the shipment out of Hong Kong and all your patience with us doing the paperwork. So thank you so much. Thanks, everyone. That was fun. Hold on to that teddy bearer, Tracy, because when I get to Hong Kong next time to visit, I will personally carry it back to the States.

Okay. Yeah, we'll get really creative with our transport solutions. All right. Thank you. That was great. So, Joe, you can probably tell I very much enjoyed that conversation. It was nice to get more of a breakdown between the container shipping world versus bulk, because I hadn't considered that. It was also interesting to hear about what's going on in U.S. rivers, because that was definitely something I hadn't considered both. before. Yeah, I hadn't thought about that at all before, but I

also, and I feel like each time I love these series because I feel like, you know, we started with Mark Levinson, with the box, which, you know, look a really big picture at shipping. We keep getting more granular and it keeps

turning over new leaves. Obviously, we got to talk about the canals and the river systems and how important they still are. But I feel like both of them, Antona, Margo just had so many sort of like specific insights, specific details about what makes the situation so tricky. That was super helpful. Absolutely. And I should do this before I forget, but I just want to give a big shout out slash thank you to some of the Bloomberg staff that helped with the Teddy Bear project. In particular, Dylan Rico and Coco live from our supply chain

office in Hong Kong who very patiently answered all these questions about how to like secure a teddy bear, a single teddy bear in a crate and worked on organizing, you know, the transport within Hong Kong as well. So she was amazing. Of course, the guy who approves my expense accounts as well, which is Redo. So thank you Redo for allowing us to spend thousands of dollars on this, even though we didn't actually do it in the end. there you go well uh let's try again in uh let's try again in the year hopefully there will be some stability and they'll find they'll find some space for you on a ship how much do you think a tugboat costs up the mississippi i don't know do you know the answer no oh i thought you like i thought you were

like going to give me like a trivia question or something like that no no i'm just wondering all right we got let's let's get to work on booking that episode okay all right uh shall we leave it Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Allaway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart.

Follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening.