WEBVTT - Attacks in the Red Sea Are Reconfiguring Global Trade Again 0:00:10.160 --> 0:00:14.120 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.200 --> 0:00:16.560 I'm Jill Wisenthal and I'm Tracy Alloway. 0:00:16.640 --> 0:00:20.159 Tracy, it's time to return to our favorite topic of 0:00:20.200 --> 0:00:21.040 supply chains and. 0:00:21.079 --> 0:00:24.800 Free There's no escape. No, you can't escape the supply chain. Yes, 0:00:24.840 --> 0:00:28.360 you're absolutely right. We had I feel like a relatively 0:00:28.600 --> 0:00:32.640 quiet year in twenty twenty three in terms of disruptions, 0:00:32.920 --> 0:00:37.120 but towards the end of the year, yes, and now 0:00:37.200 --> 0:00:41.839 into twenty twenty four, supply chain disruptions are back. They're everywhere, 0:00:41.920 --> 0:00:43.080 everyone's talking about them. 0:00:43.120 --> 0:00:47.720 There is indeed a new acute source of supply chain stress, 0:00:47.840 --> 0:00:50.920 and that, of course, are the attacks from the rebels 0:00:50.920 --> 0:00:55.640 and Yemen the Hoo, the rebels disrupting trade through the 0:00:55.680 --> 0:00:58.840 Red Sea. We're beginning to see the return of those 0:00:59.000 --> 0:01:02.240 maps where this is where the ships were a month ago, 0:01:02.240 --> 0:01:04.639 and this is what the shipping lanes look like today, 0:01:05.040 --> 0:01:08.119 not unlike what was it in the Suez two years ago. 0:01:08.200 --> 0:01:11.920 But yes, supply chain disruptions at least at some level 0:01:11.959 --> 0:01:12.440 are back. 0:01:12.280 --> 0:01:12.720 A little bit. 0:01:12.840 --> 0:01:14.840 Yeah, you know it's bad when people are breaking out 0:01:14.920 --> 0:01:17.720 the maps with the ships and also the container rate charts. 0:01:17.760 --> 0:01:19.279 Yes, container rate charts those. 0:01:19.120 --> 0:01:21.600 Are making the rounds again, so we've seen some container 0:01:21.680 --> 0:01:23.839 rates start to jump, and we can get more into 0:01:23.840 --> 0:01:26.520 that in a few minutes. For the record, Joe, yes, 0:01:26.720 --> 0:01:30.000 I am not shipping anything at the moment, nothing from 0:01:30.080 --> 0:01:33.960 China to Europe, so I am unaffected by this particular 0:01:34.040 --> 0:01:35.119 development so far. 0:01:35.200 --> 0:01:37.720 It's only a matter of time. Also, our listeners should 0:01:37.760 --> 0:01:40.280 know that every time we're in public and people come 0:01:40.440 --> 0:01:42.959 to us, one of the first questions they always ask 0:01:43.080 --> 0:01:45.479 Tracy is usually about that, like do you have any 0:01:45.560 --> 0:01:48.760 furniture stuck at a container ship somewhere? It's either that 0:01:49.000 --> 0:01:52.160 or questions about the coal and Tracy's basement yea fifty. 0:01:52.280 --> 0:01:52.480 Yeah. 0:01:52.520 --> 0:01:54.840 Sometimes I feel like my life is actually a logistics 0:01:54.880 --> 0:01:58.120 company and it's just dealing with commodities like coal and 0:01:58.200 --> 0:01:59.680 lumber and moving furniture. 0:02:00.040 --> 0:02:02.760 Yeah, and we talked to Brad Jacobs recently and we 0:02:02.800 --> 0:02:05.520 talked all about your building supply needsphere House. 0:02:05.680 --> 0:02:10.280 But even before the Red Sea developments, we actually wanted 0:02:10.320 --> 0:02:14.639 to do another Shipping slash Freight episode because if you 0:02:14.720 --> 0:02:18.000 remember this time last year, we did quite a few episodes. 0:02:18.040 --> 0:02:22.920 I think about the coming difficulties challenges blood Bath, who's 0:02:23.000 --> 0:02:27.840 your preferred noun there coming to freight and shipping, And 0:02:27.880 --> 0:02:31.720 the idea was that after the big boom during the pandemic, 0:02:31.840 --> 0:02:36.920 when container rates, trucking rates, basically everything exploded and became very, 0:02:37.040 --> 0:02:39.600 very profitable, that we were now going to see the 0:02:39.639 --> 0:02:42.400 sort of downturn. And I think that has come to fruition. 0:02:42.560 --> 0:02:45.679 I think twenty twenty three was an extremely bad year 0:02:46.200 --> 0:02:48.400 for a lot of shippers and truckers. But we're going 0:02:48.440 --> 0:02:50.800 to get into that as well, because in addition to 0:02:50.800 --> 0:02:53.720 the disruptions, we're at this sort of like weird moment 0:02:53.760 --> 0:02:56.040 in time where we're waiting to see whether or not 0:02:56.080 --> 0:02:56.960 there's a recovery. 0:02:57.520 --> 0:03:00.960 Yeah, you know, it's funny even with out disruptions. As 0:03:01.000 --> 0:03:02.720 you mentioned, No, One of the first things that we 0:03:02.840 --> 0:03:06.640 learned when we started getting interested in this topic is 0:03:06.680 --> 0:03:10.640 that freight trucking in particular is like hyper cyclical. So 0:03:10.680 --> 0:03:12.760 you had this already pretty crazy cycle for the US 0:03:12.840 --> 0:03:16.520 economy between twenty twenty and twenty twenty three or maybe now, 0:03:16.760 --> 0:03:19.400 and it was even crazier for freight. You know, another 0:03:19.480 --> 0:03:22.200 thing that happened last year or two is we saw 0:03:22.600 --> 0:03:26.840 the demise to varying degrees of various freight tech companies 0:03:27.320 --> 0:03:30.520 because like ourselves, we got interested in freight. I think 0:03:30.520 --> 0:03:32.320 a lot of vcs did, and you see a lot 0:03:32.320 --> 0:03:34.040 of there must be a way to, like, you know, 0:03:34.160 --> 0:03:37.200 solve all of these problems with software and AI, and 0:03:37.280 --> 0:03:39.680 I think a lot of these problems continue to persist. 0:03:39.880 --> 0:03:41.840 So there's just a lot of freight stuff we got 0:03:41.840 --> 0:03:42.440 to catch up on. 0:03:42.640 --> 0:03:43.720 Yep, let's do it. Well. 0:03:43.760 --> 0:03:47.400 I'm very excited because a multi time guest, I think 0:03:47.440 --> 0:03:49.680 the first guest we had who talked about trucking, we 0:03:49.720 --> 0:03:52.200 have them back and in studio we're gonna be speaking 0:03:52.200 --> 0:03:55.440 with Craig Fuller, founder and CEO of Freightwave. So Craig, 0:03:55.480 --> 0:03:58.320 thank you so much for coming back on odd lots. 0:03:58.400 --> 0:03:59.760 Joe Tracy, great to be here again. 0:04:00.000 --> 0:04:02.360 It really is a lot to talk about. But why 0:04:02.360 --> 0:04:06.480 don't we start off with the disruptions in the Red Sea. 0:04:06.560 --> 0:04:09.720 What do you characterize, as you see it, the situation 0:04:09.800 --> 0:04:10.160 right now? 0:04:10.200 --> 0:04:13.760 So I think there's the short term, you know, anxiety 0:04:13.800 --> 0:04:16.520 that exists in terms of the safety of the cruise, 0:04:17.080 --> 0:04:20.520 the dependability of the global supply chain. Yeah, it's a 0:04:20.560 --> 0:04:22.800 lot of short term concern, but I think the bigger 0:04:22.880 --> 0:04:25.400 story is going to play out over the next couple 0:04:25.400 --> 0:04:28.360 of years. Is we're now reaching a point in history 0:04:28.400 --> 0:04:33.200 where global trade and global shipping is no longer as 0:04:33.320 --> 0:04:36.640 dependable or as predictable as it has been really since 0:04:36.680 --> 0:04:40.000 the post Cold War period. Civilian ships are being fired 0:04:40.080 --> 0:04:43.560 upon and this is an unusual development that we haven't 0:04:43.600 --> 0:04:45.560 seen for really many decades. Wow. 0:04:46.360 --> 0:04:50.240 So walk us through the importance of the Red Sea route, Like, 0:04:50.360 --> 0:04:54.400 what kind of ships are actually going up and down? Yeah? 0:04:54.400 --> 0:04:56.719 Where are they going? What are they carrying? My understanding is, 0:04:56.760 --> 0:04:59.560 you know, there's containers, there's also tankers, so. 0:04:59.560 --> 0:05:01.360 A lot of oil and gas. Obviously, being in the 0:05:01.400 --> 0:05:04.760 Middle East, it has a lot of exposure to oil 0:05:04.800 --> 0:05:07.680 and gas and the derivative products that come out of 0:05:07.680 --> 0:05:10.159 that portion of the world. But it's also one of 0:05:10.200 --> 0:05:13.160 the major trade lanes for container flows. And so think 0:05:13.200 --> 0:05:16.240 of what moves in container. It's largely manufactured in consumer 0:05:16.279 --> 0:05:19.440 goods that are largely dependent upon containers. A lot of 0:05:19.440 --> 0:05:23.080 these products are coming from Asia and particularly China into Europe. 0:05:23.600 --> 0:05:26.120 Some products going to the United States East Coast, but 0:05:26.240 --> 0:05:28.640 the predominance of the products that move through the Suez 0:05:29.160 --> 0:05:33.800 in the container freight is largely related to products out 0:05:33.839 --> 0:05:36.200 of Asia. Going to Europe for European consumption. 0:05:36.800 --> 0:05:40.880 What other routes are available for that kind of trade. 0:05:40.560 --> 0:05:43.000 Well, you have to go around South Africa, and so 0:05:43.160 --> 0:05:49.240 you're really adding thousands of miles of additional distance when 0:05:49.360 --> 0:05:51.640 you aren't able to cut through the shortcut that is 0:05:51.640 --> 0:05:54.520 the Suez. I mean, Suez Canal has caught out an 0:05:54.640 --> 0:05:59.960 enormous amount of distance that geographically the ships have historic 0:06:00.240 --> 0:06:02.560 had to go around. With the Siuez, it was able 0:06:02.560 --> 0:06:06.480 to sort of expedite trade flow from Asia and particularly 0:06:06.520 --> 0:06:09.880 to Europe. We do benefit from it in North America, 0:06:10.040 --> 0:06:12.880 but a much smaller percent of the freight that we 0:06:12.960 --> 0:06:16.239 depend on in the United States is dependent upon the Suez. 0:06:16.440 --> 0:06:20.719 What is the historical role of the US Navy in 0:06:20.839 --> 0:06:25.000 sort of securing or protecting these some of these routes, 0:06:25.440 --> 0:06:28.680 and what do we see from US defense officials now 0:06:28.800 --> 0:06:30.120 the sort of acute moment. 0:06:29.960 --> 0:06:33.160 You know, there's a lot of conversation in geopolitical circles 0:06:33.240 --> 0:06:37.440 about whether the Navy's role has changed or shifted or 0:06:38.000 --> 0:06:41.680 is no longer effective in the role that it was 0:06:41.800 --> 0:06:44.839 believed to be played for the last really since World 0:06:44.880 --> 0:06:46.320 War Two. So, if you think about it, the United 0:06:46.360 --> 0:06:49.880 States has the largest navy in the world. It's also 0:06:50.760 --> 0:06:53.520 one of the only bluewater navies that can go anywhere 0:06:53.760 --> 0:06:56.640 to find any place on the planet. And that's really 0:06:56.640 --> 0:06:57.360 the call of fan. 0:06:57.360 --> 0:06:58.719 So what does it mean blue water. 0:06:59.000 --> 0:07:01.080 It means that they can go into deep oceans that 0:07:01.160 --> 0:07:03.960 can be anywhere. Basically the name there's no place on 0:07:04.000 --> 0:07:06.760 the on the planet that the Navy and the Marines 0:07:06.800 --> 0:07:09.960 can't actually reach. And so the whole purpose of that 0:07:10.200 --> 0:07:12.400 is to protect trade lanes. Yeah, that that is the 0:07:12.800 --> 0:07:15.280 one of the primary calls of the US Navy is 0:07:15.720 --> 0:07:19.200 its roles to protect commerce uh and ensure global trade 0:07:19.240 --> 0:07:23.640 and really the world and China has mostly benefited from that, 0:07:24.120 --> 0:07:28.600 the US Navy's role of protecting sea from things like 0:07:28.640 --> 0:07:32.240 pirates and state sponsors that want to attack global trade. 0:07:32.840 --> 0:07:36.080 And the question now is in a post you know, 0:07:36.120 --> 0:07:38.880 we're now in this sort of new generation of trade, 0:07:39.240 --> 0:07:42.960 what does it mean there's a lot more protectionism that 0:07:43.040 --> 0:07:46.560 happens with US policy and really to be able to 0:07:46.560 --> 0:07:50.280 defend the you know, the role of the US Navy 0:07:50.360 --> 0:07:53.520 being able to protect all aspects of it. With geopolitical 0:07:53.520 --> 0:07:56.520 tensions in East Asia means that we may not have 0:07:56.560 --> 0:08:00.440 the resources to actually protect all aspects of trade the 0:08:00.440 --> 0:08:01.920 way that we did at one point in time. 0:08:02.320 --> 0:08:05.840 Just real quickly, you said this is a sort of novel. 0:08:05.960 --> 0:08:09.040 I mean pirates and pirate attacks, and you mentioned them. 0:08:09.360 --> 0:08:12.960 There's somewhat common, they're in the news. But what's different 0:08:13.040 --> 0:08:16.520 about this is that it's missiles being fired. These are 0:08:16.560 --> 0:08:18.920 these are It's not pirates, they're not trying to steal 0:08:19.080 --> 0:08:23.560 the cargo. This is these are military attacks on private corporations. 0:08:23.600 --> 0:08:29.560 These are military techniques. Techniques we've seen helicopters actually land 0:08:29.800 --> 0:08:33.680 on tops of ships and actually take take cruise hostage. 0:08:33.679 --> 0:08:35.320 By the way, a helicopter it looks like a squat. 0:08:35.320 --> 0:08:37.800 You probably have seen the video of floating around where 0:08:37.880 --> 0:08:40.880 it looks like a swat video where they're flying in 0:08:41.080 --> 0:08:43.560 and they're basically taking over a ship through use of 0:08:43.559 --> 0:08:46.920 a helicopter. We're seeing situations where as you mentioned, they're 0:08:47.000 --> 0:08:52.120 using missile technology, military grade technologies, which is an unusual development. 0:08:52.280 --> 0:08:55.760 And then with the proliferation of drones, you now have 0:08:56.000 --> 0:09:00.840 a low cost way to actually avoid some of the 0:09:00.880 --> 0:09:03.880 defenses that are set up to protect these ships that 0:09:03.920 --> 0:09:06.800 they're able to reach them without obstruction, and I think 0:09:06.840 --> 0:09:10.120 that has changed the game is now terrorist. And look, 0:09:10.160 --> 0:09:13.400 we can argue whether these are truly state sponsored or not, 0:09:14.160 --> 0:09:15.920 but at the end of the day, they have access 0:09:15.920 --> 0:09:19.880 to military grade technology and they are using this to 0:09:19.960 --> 0:09:23.840 attack civilian vessels and their goal is to disrupt global trade. 0:09:24.160 --> 0:09:25.920 This was going to be my next question, which is, 0:09:26.040 --> 0:09:29.040 you know, even if the Navy said, like, yes, absolutely, 0:09:29.080 --> 0:09:30.840 we're going to go in, We're going to protect all 0:09:30.840 --> 0:09:34.600 the ships, Like, how much can they actually do in 0:09:34.640 --> 0:09:37.480 the face of that kind of threat, which you know 0:09:37.760 --> 0:09:41.439 has new technology that they're clearly using, but is also 0:09:41.960 --> 0:09:45.360 very very flexible in terms of what it can do. 0:09:46.040 --> 0:09:48.720 I think the question is at what cost? Yeah, because 0:09:48.960 --> 0:09:52.200 I think the US has the capabilities to largely defend 0:09:52.920 --> 0:09:56.040 every ship or the ships that we have decided to defend, 0:09:56.160 --> 0:09:58.079 But at what cost. I when you're looking at a missile, 0:09:58.559 --> 0:10:01.400 you know, anti missile technol these a million dollars, We're 0:10:01.440 --> 0:10:04.320 firing these these defense missiles off at a million dollars apiece, 0:10:04.640 --> 0:10:06.679 and you're fighting a drone that cost a couple of 0:10:06.720 --> 0:10:09.160 thousand dollars. I mean, at some point there is a 0:10:09.240 --> 0:10:13.200 mass attacks on US consumers and the US economy for 0:10:13.400 --> 0:10:15.640 US to do this, And the question is for what 0:10:15.800 --> 0:10:19.000 is our appetite to continue to fund this type of 0:10:19.040 --> 0:10:22.720 defense technology when the United States is not the primary 0:10:22.760 --> 0:10:25.359 beneficiary of that type of trade. 0:10:25.480 --> 0:10:28.400 And on a similar note, I'm always curious about the 0:10:28.440 --> 0:10:32.200 decision making process to you know, not go through a 0:10:32.200 --> 0:10:34.520 certain route. So MASK said it wasn't going to go 0:10:34.520 --> 0:10:37.760 through the Red Sea anymore after dismissile was fired. What 0:10:37.840 --> 0:10:40.280 are the factors that go into making that type of decision. 0:10:40.440 --> 0:10:43.480 And then if the Navy were to say, you know, 0:10:43.520 --> 0:10:46.640 tomorrow that we're going to escort all of these ships, 0:10:46.880 --> 0:10:51.200 would that completely address their concerns? Would they be like, Okay, yes, 0:10:51.360 --> 0:10:52.880 we're going to resume this route. 0:10:53.000 --> 0:10:55.120 You know, it's a great question because I don't know 0:10:55.160 --> 0:10:59.559 that the US with all of our other geopolitical commitments, 0:10:59.600 --> 0:11:02.640 particularly around China and what's happened around Taiwan. I mean, 0:11:02.640 --> 0:11:06.160 the Chinese want our navies in the Middle East. That's 0:11:06.160 --> 0:11:09.480 where they want them because they enables them to have 0:11:09.480 --> 0:11:13.160 an enormous amount of power over East Asia. They want 0:11:13.440 --> 0:11:16.040 us moving our assets and being distracted in the Middle East, 0:11:16.080 --> 0:11:20.680 so they actually win geopolitically in terms of their power 0:11:20.800 --> 0:11:23.920 over the region by moving forcing us to be distracted 0:11:23.920 --> 0:11:26.040 in the Middle East. But I don't know that we 0:11:26.120 --> 0:11:29.319 have all the resources to defend every single ship from 0:11:29.320 --> 0:11:32.760 these attacks. And ultimately, what the container lines have to 0:11:32.840 --> 0:11:35.640 really think about is what's the cost of a ship. 0:11:35.679 --> 0:11:38.040 You're talking hundreds of millions of dollars? What's the cost 0:11:38.080 --> 0:11:41.520 of a cargo again measured in probably billions of dollars 0:11:41.520 --> 0:11:44.840 when we took a look at a twenty thousand TEU ship. 0:11:45.280 --> 0:11:47.680 And then you have the insurance companies which are saying, hey, 0:11:47.679 --> 0:11:51.200 we're not going to ensure these ships that go through 0:11:51.200 --> 0:11:54.800 these channels, and that means that ultimately Marisk and others 0:11:54.840 --> 0:11:58.600 have to look at alternative routes. They will obviously protect 0:11:58.600 --> 0:12:02.320 their crews. The cruise do understand that, you know, the 0:12:02.400 --> 0:12:06.240 nature of their jobs is on occasion they put themselves 0:12:06.280 --> 0:12:08.679 in harm's way. And we've seen that with you know, 0:12:08.720 --> 0:12:11.640 the movie with Tom Hanks plays. 0:12:11.400 --> 0:12:14.120 As the Captain Phillips. 0:12:14.120 --> 0:12:16.640 Captain Phillips, you know, it was a true story. So 0:12:16.679 --> 0:12:20.040 these things do happen with pirates. But we're talking about 0:12:20.040 --> 0:12:23.280 military grade technology and we're talking about an escalation, and 0:12:23.559 --> 0:12:26.880 because of it, I think the insurance companies have said, hey, 0:12:26.960 --> 0:12:29.520 we're not willing to ensure these ships that go through 0:12:29.520 --> 0:12:32.800 these contested channels, and I think they container lines also 0:12:32.960 --> 0:12:35.120 don't want to put their crews at risk. They don't 0:12:35.120 --> 0:12:37.240 want to put their you know, substantial investments at risk, 0:12:37.400 --> 0:12:42.440 and also politically and optically putting cruise in harm's way 0:12:42.640 --> 0:12:45.640 if something were catastrophic to happen would be very I 0:12:45.679 --> 0:12:49.679 think demonstrative to these brands and these these organizations that 0:12:50.280 --> 0:12:52.440 really want to stay out of the spotlight. 0:12:52.920 --> 0:12:56.520 So Joe mentioned the maps of the ships, and again, 0:12:57.000 --> 0:12:59.480 you know something's going on in the world when when 0:12:59.480 --> 0:13:02.520 people start breaking out those maps showing the ships diverting. 0:13:02.720 --> 0:13:04.560 But I thought it was interesting. So if you look 0:13:04.600 --> 0:13:07.440 at a map of the Red Sea, the container ships 0:13:07.520 --> 0:13:11.079 are moving, but they're still tankers. What are the decisions 0:13:11.080 --> 0:13:14.480 being made by the tankers that are different to the 0:13:14.520 --> 0:13:15.400 container lines. 0:13:16.480 --> 0:13:19.160 The tankers have been largely unobstructed, So a lot of 0:13:19.160 --> 0:13:22.880 the attacks that we've seen have actually been on civilian 0:13:23.120 --> 0:13:27.719 container vessels and other types of cargo vessels, not on 0:13:28.040 --> 0:13:30.240 bulk tankers. And a lot of that has to do 0:13:30.360 --> 0:13:33.880 with the economic interests of the different countries that are 0:13:33.880 --> 0:13:36.560 in the region. You know, these are countries that largely 0:13:36.559 --> 0:13:40.560 depend on oil and gas exports and the derivative commodities 0:13:40.600 --> 0:13:42.719 that come out of those to fund their economies. I 0:13:42.720 --> 0:13:44.719 don't think that it's in their interest to do that. 0:13:45.200 --> 0:13:49.480 And then also China is dependent upon energy supplies from 0:13:49.480 --> 0:13:52.160 the Middle East, and you know, I don't think that 0:13:52.320 --> 0:13:55.440 the rebels want to invite the Chinese into this conflict, 0:13:55.480 --> 0:13:57.760 and that would certainly do it if they felt like 0:13:57.800 --> 0:14:01.760 their energy supplies, which they are to deed upon, we're obstructed. 0:14:01.800 --> 0:14:04.040 So I think what we're seeing is this is largely 0:14:04.080 --> 0:14:06.920 a container story, and it's really the West that is 0:14:06.960 --> 0:14:10.520 consuming these products, mostly Europe, but certainly the United States 0:14:10.600 --> 0:14:12.800 to a degree, and I think that's where we're seeing 0:14:12.880 --> 0:14:13.680 a lot of the pressure. 0:14:13.760 --> 0:14:16.480 I think it's like they've enacted sanctions on Europe. 0:14:17.120 --> 0:14:19.760 Well, they're certainly obstructing it. And you could argue their 0:14:19.760 --> 0:14:23.160 acting sanctions because their goal is to obstruct trade and 0:14:23.240 --> 0:14:26.120 to cut off the flow of product and really create 0:14:26.200 --> 0:14:29.440 pain on consumers and businesses that depend upon these containers. 0:14:29.920 --> 0:14:33.280 There's so many directions we could take this conversation in 0:14:33.760 --> 0:14:37.040 so many questions, but you know, I find this framing 0:14:37.120 --> 0:14:41.480 to be very interesting that you know, arguably we don't 0:14:41.880 --> 0:14:44.040 we is in the US don't get a ton of 0:14:44.080 --> 0:14:46.960 benefit from the resources that we invest in patrolling those 0:14:47.080 --> 0:14:49.720 that a lot of the benefit goes to China. China 0:14:50.000 --> 0:14:52.880 benefits in theory by the sort of distraction to the 0:14:52.960 --> 0:14:57.000 US Navy pulling assets out of East Asia and towards 0:14:57.120 --> 0:15:01.280 the Middle East. China itself obviously has expanded it's navy 0:15:01.560 --> 0:15:03.720 quite a bit in recent years, and the estimates it's 0:15:03.760 --> 0:15:06.720 going to continue to do so. Do people at some 0:15:06.960 --> 0:15:12.080 point is the expectation that China itself will play a 0:15:12.160 --> 0:15:16.200 more active role in patrolling the region or is that 0:15:16.240 --> 0:15:19.400 in the US interest for China to grow, you know, 0:15:19.480 --> 0:15:21.600 sort of police more parts of the world. 0:15:21.840 --> 0:15:23.840 It's a great question, and I think it's one that's 0:15:23.880 --> 0:15:26.920 probably on the minds of folks that playing these war 0:15:27.000 --> 0:15:29.520 games that it is out is why, you know, one 0:15:29.560 --> 0:15:31.800 of the big questions is if China is a big loser, 0:15:31.840 --> 0:15:33.960 and you could argue why it would lose is that 0:15:34.040 --> 0:15:38.760 if global trade gets obstructed, particularly manufacture goods, which China's 0:15:38.800 --> 0:15:42.280 economy is largely dependent upon, if it gets obstructed, then 0:15:42.360 --> 0:15:44.280 China may be the biggest loser in this. And the 0:15:44.360 --> 0:15:47.520 question is why are they standing down when you talk 0:15:47.600 --> 0:15:50.880 to military experts that are far more versed in this 0:15:51.160 --> 0:15:53.800 topic than I am. What they have told me is 0:15:53.800 --> 0:15:57.800 that China wants the United States to be focused in 0:15:57.880 --> 0:16:01.760 terms of military focus on the Middle East and get 0:16:01.840 --> 0:16:05.200 stuck there, if you will, pulling its attention away from Asia. 0:16:05.320 --> 0:16:08.000 So you know, if you look at the Chinese construct 0:16:08.160 --> 0:16:11.240 and look at she she has. You know, for years, 0:16:11.360 --> 0:16:14.400 China was focused on economic growth at all cost, and 0:16:14.440 --> 0:16:17.000 they were willing to sort of put all of their 0:16:17.080 --> 0:16:20.720 other interests beside to allow their economy to thrive and 0:16:20.800 --> 0:16:24.480 ultimately provide some level of prosperity to their people. We 0:16:24.560 --> 0:16:26.680 have seen in the last really the last five years, 0:16:26.680 --> 0:16:29.200 that's no longer the case, and the orientation of China 0:16:29.360 --> 0:16:32.760 is more politically driven and more power driven, and it 0:16:32.800 --> 0:16:37.000 suggests that China's goal is to create enough havoc on 0:16:38.160 --> 0:16:41.080 the United States and its allies that we are sort 0:16:41.080 --> 0:16:43.560 of forced into these situations. And there's a playbook for this. 0:16:43.640 --> 0:16:46.680 I mean mean, we've seen some of the world's conflicts 0:16:46.720 --> 0:16:50.479 of the last hundred years have been caused by American 0:16:50.560 --> 0:16:54.680 allies and going out to protect its allies getting involved 0:16:54.720 --> 0:16:59.680 in these military conflicts that really don't directly impact our 0:16:59.720 --> 0:17:03.000 goal strategic goals, and so it is an interesting play 0:17:03.040 --> 0:17:05.600 and it's an interesting card. I think the question is 0:17:05.800 --> 0:17:09.280 why does this impact China most importantly? And I think 0:17:09.280 --> 0:17:12.920 from a supply chain question, supply chain professionals are focused 0:17:12.960 --> 0:17:15.800 on mitigating risk. These are jobs that are all in 0:17:15.880 --> 0:17:19.440 risk management. That's ultimately what a supply chain professional does. 0:17:19.600 --> 0:17:22.600 It thinks about cost and it thinks about risk management. 0:17:22.800 --> 0:17:25.200 And for the last couple of years, they had been 0:17:25.240 --> 0:17:29.600 fending off an enormous amount of risks in their supply chain. 0:17:29.920 --> 0:17:32.960 And as Tracy mentioned in twenty twenty three, we sort 0:17:32.960 --> 0:17:36.160 of had a level of room to breathe because all 0:17:36.160 --> 0:17:40.320 of those COVID related disruptions were largely dissipated. We're now 0:17:40.359 --> 0:17:43.000 in a sort of a new generation of issues that 0:17:43.040 --> 0:17:46.920 are quite different than what we saw during COVID. And now, 0:17:46.960 --> 0:17:50.480 as a supply chain professional that's already dealing with questions 0:17:50.480 --> 0:17:54.240 about China's orientation to its economy, to its commitment to manufacturing, 0:17:54.240 --> 0:17:57.560 to its commitment to exports, the question then becomes, I 0:17:57.680 --> 0:18:01.720 now have to calculate this geopolitical risk or military risk 0:18:01.880 --> 0:18:05.080 that did not exist before. I used to as a 0:18:05.080 --> 0:18:08.160 professional be able to depend on trade out of China 0:18:08.200 --> 0:18:11.639 that was unobstructed to if I have dependencies in Europe 0:18:11.680 --> 0:18:13.879 or have customers in Europe, I could largely depend on 0:18:13.920 --> 0:18:17.040 the su AS as a dependable trade lane, knowing that 0:18:17.160 --> 0:18:19.919 it was not going to get obstructed. And now I 0:18:19.960 --> 0:18:22.720 have new sets of risks that exist that did not 0:18:22.800 --> 0:18:24.879 exist before. I mean, the reality is the ships can 0:18:24.920 --> 0:18:28.359 go around South Africa. They can make it. It adds time, 0:18:28.600 --> 0:18:31.240 we're talking, you know, a couple of weeks potentially, it 0:18:31.320 --> 0:18:33.320 adds a lot of cost to it. But there are 0:18:33.440 --> 0:18:36.800 ways that products can still flow, but it increases the 0:18:36.840 --> 0:18:39.960 cost to do so and increases the lead times required. 0:18:40.359 --> 0:18:43.400 And I think supply chain professionals are going to start 0:18:43.400 --> 0:18:46.080 making different calculations of where the source products that they 0:18:46.080 --> 0:18:48.000 don't have to contend with that issue. 0:18:48.160 --> 0:18:50.240 So one of the things that came out of the 0:18:50.400 --> 0:18:55.240 pandemic related supply chain disruptions was this idea of reshoring, 0:18:55.600 --> 0:18:59.200 building more resilient supply chains. Everyone was going to sort 0:18:59.240 --> 0:19:02.399 of reach their operations to make sure that they didn't 0:19:02.480 --> 0:19:06.040 have to worry about the types of disruptions or congestions 0:19:06.320 --> 0:19:09.320 that we had between twenty twenty and call it twenty 0:19:09.359 --> 0:19:12.000 twenty two. So I guess my first question is one, 0:19:12.200 --> 0:19:15.960 did that actually happen? And then secondly, given this new 0:19:16.119 --> 0:19:19.840 bout of disruption, this new geopolitical risk, as you put it, 0:19:20.240 --> 0:19:23.359 are we going to see the same types of decisions 0:19:23.400 --> 0:19:25.600 being made the idea that well, we really need to 0:19:25.600 --> 0:19:29.280 think of alternatives to sourcing things from China or transporting 0:19:29.320 --> 0:19:30.880 things along that route. 0:19:31.040 --> 0:19:33.800 It is happening, but let's just keep in mind. Moving 0:19:33.840 --> 0:19:36.280 a supply chain is not an overnight decision. This stuff 0:19:36.359 --> 0:19:40.800 takes decades, potentially more advanced products which have more advanced dependabilities. 0:19:40.800 --> 0:19:43.879 Because I can't just uproot my supply chain. I have 0:19:43.960 --> 0:19:46.399 to think about my supplier supply chains. If I have 0:19:47.080 --> 0:19:50.600 machinery or equipment that is very specialized, I have to 0:19:50.640 --> 0:19:53.879 think about all the technicians that can support that equipment. 0:19:53.960 --> 0:19:56.760 So I can't just uproot my supply chain. It has 0:19:56.800 --> 0:19:59.399 to be a gradual process. But we have seen that 0:19:59.480 --> 0:20:02.880 take place. Some of this is supported by government funding 0:20:03.000 --> 0:20:06.200 with the Inflation Reduction Act and the Build Back Better 0:20:06.240 --> 0:20:11.120 Plan by Biden. Is actually encouraging domestic manufacturing, probably most 0:20:11.240 --> 0:20:15.000 obvious in the semiconductor area and in the electric vehicle area. 0:20:15.320 --> 0:20:19.680 We're seeing substantial amount of industrial expansion in those parts 0:20:19.720 --> 0:20:23.719 of the economy, and so we are seeing the early 0:20:24.040 --> 0:20:31.000 stages of domestic remanufacturing and near shoring, and so it 0:20:31.040 --> 0:20:35.400 is certainly happening across all aspects and all product classes. 0:20:35.800 --> 0:20:38.600 And the reason is that China. You know, even when 0:20:38.600 --> 0:20:42.760 Donald Trump was attacking global trade, most supply chain professionals 0:20:42.840 --> 0:20:45.199 took that as at tax. They thought of it as 0:20:45.200 --> 0:20:48.159 an economic I'll pay the tax, it's still cheaper. I 0:20:48.200 --> 0:20:51.480 don't have to make tough decisions. The US and China 0:20:51.520 --> 0:20:54.680 are never going to sever trade ties. But what we've 0:20:54.720 --> 0:20:59.760 seen is when she shut down his economy during COVID, 0:21:00.040 --> 0:21:03.600 the late stages of COVID, that really changed the calculus 0:21:03.640 --> 0:21:06.840 for Western decision makers that realize that China was no 0:21:06.920 --> 0:21:12.200 longer going to do things to promote exports at all 0:21:12.320 --> 0:21:16.840 costs and was willing to do things that could destroy 0:21:16.920 --> 0:21:20.920 parts of its economy just to gain and maintain control. 0:21:21.040 --> 0:21:24.719 And I think that calculation scared a lot of executives. 0:21:25.040 --> 0:21:27.960 And then you look at the geopolitical tensions with Russia 0:21:28.080 --> 0:21:30.159 and the Ukraine, and you look at the fact that 0:21:30.200 --> 0:21:32.520 there is seems to be an inevitable course to some 0:21:32.720 --> 0:21:35.760