WEBVTT - Fastenal CEO on US Manufacturing, Emerging Tech, Leadership Challenges

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>You're listening to Bloomberg BusinessWeek with Carol Masser and Tim

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<v Speaker 2>Stenoveek on Bloomberg Radio.

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<v Speaker 1>So something we've already touched upon, and this is this

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<v Speaker 1>letter from sixty CEOs of Minnesota based companies. More than sixty,

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<v Speaker 1>i should say, have called for an immediate de escalation

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<v Speaker 1>of tensions between state, local, and federal authorities as the

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<v Speaker 1>state is reeling from another fatal shooting of an American

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<v Speaker 1>by immigration agents. The chief executive officers of companies. They

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<v Speaker 1>include Target, Best Buy, Landa Lakes, Cargil, General Mills, United

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<v Speaker 1>Health Group, as well as professional sports teams including the

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<v Speaker 1>Minnesota Vikings, among the signatories of the letter that was

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<v Speaker 1>shared yesterday Sunday by the Minnesota Chamber of Commerce. We're

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<v Speaker 1>laying that out for those who are watching on streaming

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<v Speaker 1>and TV just to get to the crux of it though.

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<v Speaker 1>The open letter says, we are calling for an immediate

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<v Speaker 1>de escalation of tensions and for state, local, and federal

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<v Speaker 1>officials to work together to find real solutions. This is

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<v Speaker 1>why Tom Homan is headed to Minnesota.

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<v Speaker 2>Our next guest is head of a company in the

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<v Speaker 2>Great State of Minnesota. We're talking about fasten Now recently

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<v Speaker 2>report earnings, the stock selling off on the day of

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<v Speaker 2>the report, but rallying the day after, the most in

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<v Speaker 2>nine months. That trade reaction had us scratching our heads.

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<v Speaker 2>So we're grateful Carol to have back with us to

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<v Speaker 2>talk about the release of the outlook. The CEO of

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<v Speaker 2>the close to fifty billion dollar market cap company fasten Ow,

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<v Speaker 2>Dan Flornes, is back with us.

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<v Speaker 1>Yeah, so delighted. Let's get to it. Dan, good to

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<v Speaker 1>have you here. Happy New Year. We do love talking

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<v Speaker 1>with you. We feel like we get a great read

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<v Speaker 1>the US economy, the manufacturing world. You've seen a lot

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<v Speaker 1>in your career, and we want to get to all

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<v Speaker 1>of this. But I really do feel like we'd be

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<v Speaker 1>remiss to not ask you about what's going on in

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<v Speaker 1>your home state. And I feel like those who are

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<v Speaker 1>listening might be curious if you were asked to sign

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<v Speaker 1>this letter of CEOs who want a de escalation of

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<v Speaker 1>what's happening in Minneapolis specifically, So can you Were you

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<v Speaker 1>aware that this letter was happening or were you asked

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<v Speaker 1>to sign it?

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<v Speaker 3>Was? First off, Happy New Year, and thanks for allowing

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<v Speaker 3>me to participate today.

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<v Speaker 4>I was not aware of it. We're outstate Minnesota.

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<v Speaker 3>We're about two and a half hours from the Minneapolis

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<v Speaker 3>Saint Paul market, and so it's not uncommon. It's a

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<v Speaker 3>pretty tight knit group up in the Twin Cities, and.

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<v Speaker 4>Was not aware of it going out with that.

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<v Speaker 3>Sid was not surprised by going out and it seemed

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<v Speaker 3>to be pretty common sense of Hey, that's style down

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<v Speaker 3>the heat.

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<v Speaker 1>So would you have signed it though, if asked, Yeah,

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<v Speaker 1>I would sign that. What's We talked so much about

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<v Speaker 1>leadership at this time, and I am curious what you

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<v Speaker 1>see as the responsibility of leaders in the United States

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<v Speaker 1>when we see situations happening where it feels like and

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<v Speaker 1>again I don't want to get political. I don't want

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<v Speaker 1>to take sides, but it does feel like Americans are

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<v Speaker 1>being with some would say is targeted unfairly.

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<v Speaker 3>Yeah, you know, I think as a leader, one of

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<v Speaker 3>our one of our tasks are.

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<v Speaker 4>To create some calm in the air. You know.

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<v Speaker 3>I think back a few years ago when when COVID

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<v Speaker 3>was going on, it seemed like every everybody, every day

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<v Speaker 3>turned everything into a political thing. And sometimes it's the

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<v Speaker 3>case of you know, if you're around a bunch of

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<v Speaker 3>people that that are high at risk in the case

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<v Speaker 3>of COVID, put a mask on if you're If you're not,

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<v Speaker 3>and you don't want to be there, then go someplace else.

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<v Speaker 3>You know, same thing here. Let's try to dial the

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<v Speaker 3>heat down and focus on what we're trying to accomplish,

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<v Speaker 3>not how we can see who can be the most

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<v Speaker 3>boisterous in the in the market of throwing ideas out

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<v Speaker 3>and that that's not both sides of the of the fence, Dan.

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<v Speaker 2>One thing that we're trying to figure out is getting

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<v Speaker 2>a good read on the economy, and you guys have

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<v Speaker 2>such a great read on it, given that you touched

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<v Speaker 2>so many sectors. I mean, if you're using nuts, bolts, screws, anchors, rivets,

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<v Speaker 2>any kind of fastener, industrial janitorial safety supplies, you guys

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<v Speaker 2>do it. On earnings, you mentioned the broader market conditions

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<v Speaker 2>remained mixed. What exactly did you mean by that when

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<v Speaker 2>you say mixed? What's the good? What's the bad?

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<v Speaker 4>Well mixed?

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<v Speaker 3>From the standpoint, we focus a lot on the Personing

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<v Speaker 3>Manager's Index, Okay, published by the ISM, and that's been

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<v Speaker 3>sub fifty for thirty six of the last thirty eight months,

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<v Speaker 3>so from the standpoint of the economy has not given

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<v Speaker 3>us any lift.

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<v Speaker 4>We are getting good traction in the marketplace.

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<v Speaker 3>And we finished out the last half of twenty twenty

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<v Speaker 3>five with double digit growth. That's really an exercise of

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<v Speaker 3>taking market share more than the wind is to our backs.

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<v Speaker 1>And I know we've talked about this too, Dan with

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<v Speaker 1>you about being in a prolonged downturn in the industrial economy.

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<v Speaker 1>Any green shoots that you were seeing or signs of

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<v Speaker 1>an inflection and a and if so, I'm just curious

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<v Speaker 1>what markets might you be optimistic and which are maybe

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<v Speaker 1>running weaker than you anticipated, and maybe we'll continue to

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<v Speaker 1>this year.

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<v Speaker 3>Yeah, this is a little bit an anecdotal answer, so

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<v Speaker 3>I apologize for that. We're seeing in some of the

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<v Speaker 3>published data some industrial production numbers improving late in the year.

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<v Speaker 3>We aren't seeing that directly in our business, But for

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<v Speaker 3>us November December is a seasonally week period, so that

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<v Speaker 3>doesn't surprise me that we won't see it. So don't

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<v Speaker 3>know if there's some green shoots there. I can tell

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<v Speaker 3>you this from my travel if it's a business that's

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<v Speaker 3>linked to certain industries and data center is an example

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<v Speaker 3>from a recent trip I had on the East Coast

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<v Speaker 3>where I was visiting a mechanical contractor and their business

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<v Speaker 3>was on fire and seventy percent of their activity was

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<v Speaker 3>around data centers.

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<v Speaker 1>So that's the good part, right, and that that's the

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<v Speaker 1>good part that story. We keep hearing about the AI

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<v Speaker 1>build out, the data center build that you saw it firsthand.

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<v Speaker 1>It's real, it's.

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<v Speaker 4>Real, it's real.

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<v Speaker 3>In fact, I spent a big chunk of my time

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<v Speaker 3>having conversations with our district leaders. We have about two

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<v Speaker 3>hundred and forty district managers. They each run about a

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<v Speaker 3>thirty five million dollar business. You had them all up,

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<v Speaker 3>that's an eight billion dollar fastenal. So I had a

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<v Speaker 3>conversation with our team in Atlanta this morning, one of

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<v Speaker 3>our district managers, and most of his discussion was about

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<v Speaker 3>business pickup. He's seeing his market because of data centers.

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<v Speaker 4>Now.

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<v Speaker 3>Atlanta is unique in that it's one of a handful

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<v Speaker 3>that are really being impacted by that build up.

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<v Speaker 2>What is the pricing power, Dan that the company has

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<v Speaker 2>right now? Because historically during periods of inflation, you've been

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<v Speaker 2>able to be pretty aggressive with price increases, I think

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<v Speaker 2>people would argue you weren't as aggressive as you could

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<v Speaker 2>have been in twenty twenty five. What's the barrier to

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<v Speaker 2>pushing price more aggressively.

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<v Speaker 3>Well, you know, the one barrier is the size of

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<v Speaker 3>the customer, the nature of the pro how much of

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<v Speaker 3>it is production centered versus maintenance centered. And because when

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<v Speaker 3>it's production centered business, you have customers buying a very

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<v Speaker 3>large volume of nurow band of skews, and their price

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<v Speaker 3>sensitivity is different than if it's MRO and they're buying,

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<v Speaker 3>you know, one hundred dollars of this and one hundred

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<v Speaker 3>dollars of that.

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<v Speaker 1>You know. One of the things I want to ask

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<v Speaker 1>you to there was a story on my read in

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<v Speaker 1>this morning Dan in terms of Volkswagen saying that they're

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<v Speaker 1>going to their head plans for a possible out factory

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<v Speaker 1>in the United States. They're not progressing due to President

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<v Speaker 1>Donald Trump's tariffs and unsuccessful talks for local incentives. So

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<v Speaker 1>we have certainly seen an administration that talks about all

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<v Speaker 1>the investment money coming into the US, and I think

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<v Speaker 1>we here at Bloomberg continue to try and figure out

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<v Speaker 1>how much of this is actually going to play out.

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<v Speaker 1>You can say you're going to invest, and then there's

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<v Speaker 1>the reality of actually building facilities. First of all, ty Reffs.

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<v Speaker 1>And I know we've talked about this with you in

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<v Speaker 1>the past, and forgive me if I'm repeating, but you're

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<v Speaker 1>thinking about outsourcing. How have tariffs changed that, especially when

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<v Speaker 1>it comes to fasteners, I think primarily sourced from China

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<v Speaker 1>and Asia. So I'm just curious how many of it's

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<v Speaker 1>been shifting for you.

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<v Speaker 3>Yeah, so you are absolutely correct, Most of the fasters

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<v Speaker 3>in this country, in North America in general come from

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<v Speaker 3>Northern Asia, China primarily obviously huge impacts. And for us,

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<v Speaker 3>what it's meant is over about for about the last

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<v Speaker 3>six years, seven years, we've been actively expanding our ability

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<v Speaker 3>to import fasters because there's still.

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<v Speaker 4>Not a lot of domestic production.

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<v Speaker 3>And so when I think back to twenty eighteen, our

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<v Speaker 3>primary sourcing entity was based in Shanghai with a secondary

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<v Speaker 3>location in southern Taiwan. Today we have personnel in Bangkok,

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<v Speaker 3>we have personnel in India, and that's where all of

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<v Speaker 3>our growth and movement of sourcing personnel has occurred over

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<v Speaker 3>the last seven eight years to just broaden our ability

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<v Speaker 3>to be a little more agile and where you source from,

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<v Speaker 3>depending on the geography, it's going.

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<v Speaker 2>Into So that's on the sourcing side, But what about

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<v Speaker 2>on your customer side and about customers moving manufacturing back

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<v Speaker 2>to the US. Are you seeing that happen or hearing

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<v Speaker 2>discussions of that.

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<v Speaker 3>Yeah, I guess you know, anecdotally, Yes, I can't say

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<v Speaker 3>that we've seen a tremendous influx. What I would say

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<v Speaker 3>is I hear less about stuff leaving than maybe I

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<v Speaker 3>would have, you know, ten years ago or five years ago.

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<v Speaker 3>And that in itself is a win from the standpoint

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<v Speaker 3>of production. But you know, a lot of it is

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<v Speaker 3>folks are getting closer to where the end customer is

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<v Speaker 3>for a lot of our customers. And so when I

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<v Speaker 3>see customers expanding production facilities in North America, and I'll

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<v Speaker 3>say more broadly than North America rather than just the

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<v Speaker 3>United States, you you need the service more efficiently the

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<v Speaker 3>local market.

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<v Speaker 1>Which makes sense, which we've seen that trend right happening.

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<v Speaker 1>I feel like over time, Hey, Dan, you mentioned about

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<v Speaker 1>maybe less companies leaving the US. Speaking of leaving, you

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<v Speaker 1>are stepping down as CEO come July. You've been CEO

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<v Speaker 1>since twenty sixteen. You were CFO before that. Going back

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<v Speaker 1>to two thousand and two, you've been there a long time,

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<v Speaker 1>and I know last time you were on, I asked

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<v Speaker 1>you a question about this cycle, and I was not

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<v Speaker 1>very kind. I got yelled at by my team because

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<v Speaker 1>I think I gave you twenty seconds, but I want

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<v Speaker 1>to we do get yelled at.

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<v Speaker 2>You get twenty five seconds.

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<v Speaker 1>Now, No, no, no, you've got almost two minutes. How

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<v Speaker 1>do you describe this cycle, because it's it feels unusual.

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<v Speaker 3>Well, it's unusual in that, you know, you hear about everything,

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<v Speaker 3>Whereas in years past there was so much of this

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<v Speaker 3>political stuff that went on, but most of it, if

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<v Speaker 3>you weren't in the midst of it, you were oblivious

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<v Speaker 3>to and you just you just you went around about

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<v Speaker 3>your life. Now everybody hears about everything when it happens,

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<v Speaker 3>So that's just a lot more noise on the flip side.

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<v Speaker 3>What's what's really different is I mentioned on that conversation

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<v Speaker 3>with the team in Atlanta this morning, we were talking

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<v Speaker 3>about data centers and one of the people on the calls,

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<v Speaker 3>he leads our business in the southern US. He said, Hey, Dan,

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<v Speaker 3>I'm gonna flip your something, and he punched in a

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<v Speaker 3>bunch of questions and he came back with a twenty

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<v Speaker 3>nine page report on the data center industry in the

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<v Speaker 3>United States, and so I read through a bunch of it.

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<v Speaker 4>It's it's actually pretty accurate and pretty good.

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<v Speaker 3>I mean, there's stuff in that I could pick apart,

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<v Speaker 3>but it's pretty good.

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<v Speaker 1>Yeah, I know, well, you know, Okay.

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<v Speaker 2>Now, so Dan still had to do the reading though

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<v Speaker 2>it didn't read the report for him.

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<v Speaker 4>So I probably would have, but I'm old school, I guess.

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<v Speaker 1>Is that just quickly, I know, this is truly like

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<v Speaker 1>thirty seconds. Is that the most transformed of changed you

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<v Speaker 1>think we'll see over the next decade is just the

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<v Speaker 1>continued impact of AI and things like CHATCHYPT and everything

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<v Speaker 1>else connected. Just your quick thought on that, Yeah.

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<v Speaker 3>Because I mean, when I think of our business, we're

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<v Speaker 3>selling tens of thousands of different parts to customers every day,

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<v Speaker 3>and the ability to improve the visibility for folks sourcing

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<v Speaker 3>all that stuff is an incredible efficiency tool.

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<v Speaker 1>All right, Dan, come back soon, especially before you leave

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<v Speaker 1>in the summer. Dan, faston, Dan, Thank you,