Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 2: I'm Joe Wisenthal and I'm Tracy Alloway.
Speaker 1: Tracy, I think we have to talk more about the
Speaker 1: disruptions in the Red Sea. We sort of hit on
Speaker 1: them briefly with Craig Fuller a couple of weeks ago,
Speaker 1: but they've escalated. They're not going away. There's been a
Speaker 1: military response, but so far the tension and strikes continued,
Speaker 1: ongoing and becoming a bigger issue.
Speaker 3: Yeah.
Speaker 2: I think there have been dozens of attacks at this point,
Speaker 2: and there have been people who are having to make
Speaker 2: hard decisions about whether or not to continue going through
Speaker 2: the Suez Canal, which is, of course this waterway that
Speaker 2: is incredibly important for global trade. Just before we came
Speaker 2: on the show, I was reading a figure saying something
Speaker 2: like the Suez Canal handles twelve to fifteen percent of
Speaker 2: global trade at least in twenty twenty three. So when
Speaker 2: we say a chunk of global trade has been affected,
Speaker 2: we do actually mean a significant chunk.
Speaker 1: A significant chunk, and we've all seen I guess those
Speaker 1: maps of ships being rerouted around the southern coast of Africa,
Speaker 1: the Horn of Africa. My understanding. I think there's been
Speaker 1: reports that started is just container ships, but it's been
Speaker 1: affecting other things. So it's starting to perhaps affect the
Speaker 1: oil trade and so forth. And look, maybe the attacks
Speaker 1: will go away, maybe they can be stopped. I don't know,
Speaker 1: but I mean I do think, you know, it's pretty
Speaker 1: striking that a fairly small military group is able to
Speaker 1: create such a big disruption, and there is no obvious
Speaker 1: solution from the biggest military power in the world, that
Speaker 1: being the US obviously.
Speaker 2: Right, and there is this overarching question of whether or
Speaker 2: not the US should be involved. And I think we're
Speaker 2: seeing some other governments, notably in Europe, start to make
Speaker 2: more noise about this as well. So yes, there is
Speaker 2: a sort of political aspect to this as well.
Speaker 1: Well, let's get right into it. We really do have
Speaker 1: the perfect guest we are going to be speaking with,
Speaker 1: sale Mercagliano. He is a maritime historian at Campbell University.
Speaker 1: He is the host of the YouTube show What's going
Speaker 1: On with Shipping and sometimes he has been a tracker
Speaker 1: Tracy of your own Furniture. The last time I think
Speaker 1: the only time we've spoken to him in the past
Speaker 1: was when your furniture was stuck. What was the ship,
Speaker 1: the ever Forward, the.
Speaker 2: One I think it was the ever Forward.
Speaker 1: When your furniture was stuck on the ever Forward, I
Speaker 1: guess that was in twenty twenty one. Returned to sail
Speaker 1: and now, of course this is so much more severe disruption.
Speaker 1: We're going to have sail back so sale. Thank you
Speaker 1: so much for coming back on odd locks.
Speaker 3: Thank you for having me.
Speaker 1: Let's just start really big picture with how extraordinary and
Speaker 1: unusual is the scale of this disruption happening right now.
Speaker 4: You're looking at about eleven percent of the world's trade
Speaker 4: ghost through this vital maritime choke point, the Bob al Mandeb.
Speaker 4: This is the Gate of Tears. This is the very
Speaker 4: southern end of the Red Sea. This is the connection
Speaker 4: between Europe and Asia. But it's much more than that.
Speaker 4: You're looking at trade that goes not just between those
Speaker 4: two areas, but actually kind of like a hub and
Speaker 4: spoke system kind of radiates out around the planet. And
Speaker 4: this attack by the Huthi, which started off very small scale.
Speaker 4: You saw a helicopter assault onto a ship the Galaxy
Speaker 4: Leader back on November nineteenth, has now escalated and what
Speaker 4: we've seen is not just container ships that have started
Speaker 4: to divert around, but now liquefied natural gas carriers, liquified
Speaker 4: petroleum gas carriers, tankers and even bulk vessels are now
Speaker 4: moving around. And as you mentioned, this adds thirty five
Speaker 4: hundred miles.
Speaker 3: But the biggest thing is it.
Speaker 4: Creates massive delays and disruptions. And for the Huthi, which
Speaker 4: are a small player, you know, one part in a
Speaker 4: three way civil war in Yemen, they have created more
Speaker 4: eruption of global trade. Then you almost have to go
Speaker 4: back to the World Wars to find something similar to this.
Speaker 2: So sal you mentioned that the Hooties have sort of
Speaker 2: expanded their repertoire of attacks I suppose to now include
Speaker 2: LNG and bulk vessels and things like that. What is
Speaker 2: their strategy here and how has it evolved over time?
Speaker 2: Because we have seen an escalation since November, but there
Speaker 2: were sort of isolated attacks happening before then. So what
Speaker 2: is changing here?
Speaker 4: Yeah, so initially they were focusing on ships connected to Israel. I. Mean,
Speaker 4: the root of this issue is the houthis kind of
Speaker 4: solidarity with the Palestinians and Hamas in the Gaza strip.
Speaker 4: And then again it goes all the way back to
Speaker 4: the Israel Hamas issue. So, but we've seen the Houthis
Speaker 4: attack ships prior to this, go back to twenty sixteen,
Speaker 4: twenty seventeen. We saw attacks on UAE vessels, we saw
Speaker 4: an attack on a Saudi frigate, we even saw an
Speaker 4: attack on a US Navy destroyer. But this effort recently
Speaker 4: is focusing on Israeli owned Israeli flagships. So we saw
Speaker 4: ships of zim and other Israeli companies immediately divert But
Speaker 4: then the hoothy expanded. They started targeting vessels they said
Speaker 4: was connected to Israel either through their ownership. So for example,
Speaker 4: Mediterranean Shipping Company, what the largest container liner in the world,
Speaker 4: they started targeting their ships because the owner's wife of
Speaker 4: Mediterranean Shipping Company has dual citizenships Switzerland and Israel. And
Speaker 4: then we saw attacks that really had no connection at
Speaker 4: all to Israel, but they would try to make those attacks.
Speaker 4: And what these attacks are doing aren't really so much
Speaker 4: damaging vessels. We've seen ships hit and we had a
Speaker 4: very dramatic one just the other day with a ship
Speaker 4: called the Marlon Lwanda, which caught fire. But what they're
Speaker 4: doing is raising the cost to sail through this area
Speaker 4: by escalating war risk insurance. And we saw that very
Speaker 4: similar thing happened in the Red Sea between Russia and Ukraine.
Speaker 4: But by escalating war risk insurance, the added insurance you
Speaker 4: need to sail through an area, you make very expensive
Speaker 4: ships such as container ships, which have a value of
Speaker 4: between a quarter to a half a billion dollars cost
Speaker 4: prohibitive to sail through. We saw the war risks, for example,
Speaker 4: jump from point zero two percent the value of the
Speaker 4: ship up to one percent. And when you start doing
Speaker 4: the math on value of vessels, the very expensive vessels
Speaker 4: find it more costly economical to sail around Africa.
Speaker 1: Wait wait, let's uh, this is interesting. How is war
Speaker 1: risk insurance assessed? And when you say like one percent,
Speaker 1: is that per per trip?
Speaker 3: Like?
Speaker 1: How did those talk to us a little bit more
Speaker 1: about these deals and the math there?
Speaker 3: Sure?
Speaker 4: So, shipping insurance is done by a group of companies
Speaker 4: called clubs, and they get together and literally there's a
Speaker 4: committee in London that puts together areas of warrist They
Speaker 4: identify the areas that there are confrontations and basically whether
Speaker 4: or not you need this added insurance kind of like
Speaker 4: flood insurance for your house. If you don't have it
Speaker 4: in your house is damaged by a flood, your normal
Speaker 4: insurance wouldn't cover it. So they identified the area in
Speaker 4: and around the Red Sea as a potential war risk,
Speaker 4: initially down to a point zero two percent, but as
Speaker 4: the Hoothy attacked and then increase their level attacks, they
Speaker 4: have ratcheted up that war risk. We're seeing right now,
Speaker 4: for example up in the on the Black Sea, that
Speaker 4: war risk is right around one point twenty five percent.
Speaker 4: That's come down from about three percent. And so this
Speaker 4: committee will assess that. And if you want to sail
Speaker 4: through these regions, and they specify latitude and longitude and
Speaker 4: the distance you pay it for that one time voyage.
Speaker 4: So if you let's assume you have a ship of
Speaker 4: one hundred million dollars both the value of the ship
Speaker 4: and the cargo, then you have to pay a million
Speaker 4: dollars to go through there. And now you start weighing
Speaker 4: that against well, it's about a half a million to
Speaker 4: go through the Suez, but it's going to cost me
Speaker 4: over a million dollars in extra fuel to go around.
Speaker 4: What's the benefit here for doing it? And what we
Speaker 4: saw is on the higher end ships, the container ships,
Speaker 4: the LNG and LPG carriers.
Speaker 3: Then they were.
Speaker 4: Weighing, It's like, Okay, it's much more economical and safer
Speaker 4: for me to go around Africa than to take this risk.
Speaker 2: This is something that I wanted to ask, actually, But
Speaker 2: who makes the ultimate decision on what route to take?
Speaker 2: Because as I sit here and I sort of imagine
Speaker 2: all the different actors involved in one journey, any one
Speaker 2: of them would make sense, Like the captain could make
Speaker 2: the decision, the shipping company, maybe the insurer is ultimately
Speaker 2: the limiting factor by virtue of the costs that you
Speaker 2: just laid out. Maybe governments decide that it's just too
Speaker 2: dangerous to go this route. It could be anyone. So
Speaker 2: who's the sort of big decision maker in all of this?
Speaker 4: I mean, ultimately it comes down to the company, and
Speaker 4: the company will make those decisions of where to go.
Speaker 4: They'll consult with the insurance companies to see what kind
Speaker 4: of war risk insurance they can get, what kind of
Speaker 4: policy they can get, what deal they can get. Some
Speaker 4: insurance companies may not want to underwrite a vessel because
Speaker 4: it's too dangerous or they view it as you know,
Speaker 4: So we had this ship that got hit, the Marlon Lwanda,
Speaker 4: and that ship probably paid a million dollars in war
Speaker 4: risk insurance. We don't know for sure, but probably based
Speaker 4: on the value of the ship and the cargo. But
Speaker 4: the damage inflicted on the vessel was well over a
Speaker 4: million dollars And so if you're an insurance company, you
Speaker 4: get away. Am I getting enough premiums in from the
Speaker 4: other companies to continue to assess this and you know,
Speaker 4: registry comes into this. Maybe a national registry will sit
Speaker 4: there and say we don't want our ships to come
Speaker 4: through this area, and some companies will take the risk.
Speaker 4: We seen large container companies CMA CGM, for example, which
Speaker 4: is a French based container company. They have run some
Speaker 4: ships through there. They did that while paying a very
Speaker 4: high war risk insurance. But they think that the offset
Speaker 4: was the US Navy and the Royal Navy were there
Speaker 4: protecting them, and then they got the additional escort of
Speaker 4: French vessels riding right alongside of them taking them through
Speaker 4: this area. And the reason they're doing that is because
Speaker 4: in economics they saw the redeployment of containers from Europe
Speaker 4: to Asia of being such high value that it offset
Speaker 4: the potential downside of it.
Speaker 3: So there's a.
Speaker 4: Lot of factors that are going into this. But what
Speaker 4: we're seeing now is because of those attacks and the
Speaker 4: escalation of the attacks and the severity of the attacks,
Speaker 4: more and more ships are now shifting away. We've seen
Speaker 4: a reduction in the total number of ships going through
Speaker 4: the Suez Canal about thirty percent downward, but where we're
Speaker 4: seeing in terms of tonnage, it's almost fifty to sixty percent.
Speaker 4: So the very large vessels, very expensive vessels, you're making
Speaker 4: that diversion around.
Speaker 1: Let's get into the military component. You mentioned the French Navy,
Speaker 1: the escorts. What are the different strategies that whether it's
Speaker 1: the French the US military have taken in trying to
Speaker 1: protect the ships. Is it all like they sort of
Speaker 1: one for one escorts, Like, how does that work?
Speaker 4: Well, that was a big issue. How are you going
Speaker 4: to do this? Are you going to do Tom Hanks
Speaker 4: and Greyhound and run these escorts through and tell you truth,
Speaker 4: the militaries don't like this mission. It's not a very glamorous,
Speaker 4: sexy mission, but it's one that's really essential and it
Speaker 4: really was bread and butter for the US Navy for
Speaker 4: years literally the founding. So what the Navy decided and
Speaker 4: when they initiated Operation what they called Prosperity Guardian, was
Speaker 4: to take their very sophisticated destroyers. These are the arly
Speaker 4: Burk class destroyers supplemented by Royal Navy type forty five destroyers,
Speaker 4: and what they have done is basically set up a
Speaker 4: series of fence posts between Yemen and the main shipping channel.
Speaker 4: And these destroyers are there to catch the missiles that
Speaker 4: fly overhead, and so they're shooting down drones and these
Speaker 4: anti ship either cruise means missiles, or what's really amazing
Speaker 4: about this is ballistic missiles. Something we have not seen
Speaker 4: before is these missiles that fly a very high trajectory
Speaker 4: and come down. There's a lot of debate whether or
Speaker 4: not you can even hit a ship with a ballistic missile.
Speaker 4: So these destroyers, the US and the British are providing
Speaker 4: these gatekeepers. And then you have other navies, the French Navy,
Speaker 4: the Italian Navy, and most interesting of all, I would
Speaker 4: argue that the Indian Navy which has come out in
Speaker 4: big force to provide kind of direct escorts. And the
Speaker 4: problem you have is it's very defensive they're reacting to
Speaker 4: the situation that we saw military strikes take place. And
Speaker 4: the commander of the naval forces out there, Vice Adimal
Speaker 4: Brad Cooper, is very clear in differentiating the two. There's
Speaker 4: a defensive operation and then there's the offensive operation, and
Speaker 4: the offensive operation was trying to eliminate the potential for
Speaker 4: the Houthis to launch attacks. The problem is, the Houthis
Speaker 4: have been subject to attack for over a decade by
Speaker 4: the Saudis, and even these naval launched from the Carrier
Speaker 4: Eisenhower and from support bases ashore haven't been able to
Speaker 4: eliminate the threat of the Hoothies.
Speaker 2: What's it like going through the Suez Canal right now?
Speaker 2: Because one of the reasons we wanted to talk to
Speaker 2: you is, you know, you are speaking to people within
Speaker 2: the trade. I imagine they are telling you some very
Speaker 2: interesting and exciting stories right now, which would be very
Speaker 2: different to what going through the Suez Canal has historically been.
Speaker 4: Like.
Speaker 2: I remember reading this one book about global shipping. What
Speaker 2: was it called, I think ninety Percent of Everything something
Speaker 2: like that, and the author wanted to write about shipping
Speaker 2: and she wanted to do a sort of first person narrative.
Speaker 2: So she went on a container ship that went through
Speaker 2: the Suez Canal, and from what I remember, it was
Speaker 2: really boring, literally dry as dust. Nothing happened, there's really
Speaker 2: not that much to see, but it was still a
Speaker 2: good book. But I think things must be different right now.
Speaker 4: Yeah, that was Rose George's book, an excellent book on it.
Speaker 4: It's usually pretty rude, but this is also the area
Speaker 4: where we saw Somali piracy. And so right now, when
Speaker 4: you come out of the Suez Canal and you're heading southbound,
Speaker 4: you're heading for.
Speaker 3: The Indian Ocean.
Speaker 4: You'll get to a point about midway down the Red
Speaker 4: Sea around the port of Jetta and Port Sudan, where
Speaker 4: you'll stop and meet an offshore vessel. And what ships
Speaker 4: are doing right now are taking on board security detachments.
Speaker 4: These are private security detachments. They come on board and
Speaker 4: they will ride the ship out until you're about off
Speaker 4: the coast of Oman, and then those crews will get
Speaker 4: off onto another supply boat and then they'll probably board
Speaker 4: another vessel and go the other way. And those crews
Speaker 4: do that for about two to three months. And these
Speaker 4: security detachments provide guards against small boats, kind of against drones,
Speaker 4: but they're really geared more to the smaller boat threat.
Speaker 4: And right now what you're seeing is is you get
Speaker 4: down to the very southern end of the Red Sea.
Speaker 4: The southern Red Sea is like a funnel when you
Speaker 4: get down to what's called the bob El Mendab and
Speaker 4: you're sailing literally right along the coast of Yemen within
Speaker 4: sight of the coast of Yemen and men places. It's
Speaker 4: about one hundred and some miles long, about one hundred
Speaker 4: fifty miles long, and it's kind of a.
Speaker 3: Shooting gallery right now.
Speaker 4: What we've seen happen escalating since December is the Huthi
Speaker 4: would take shots at vessels and it's very hard to hide.
Speaker 4: Even if you turn off your ais. This is the
Speaker 4: transponder ships have, you are clearly visible. And plus there
Speaker 4: are vessels in the area that we believe are spotting,
Speaker 4: either Iranian vessels or yemen vessels that are spotting. And
Speaker 4: lots of times these attacks take place and you're getting
Speaker 4: calls from navy vessels on open channels to evade or
Speaker 4: turn around. So, for example, on January ninth, which was
Speaker 4: probably the largest battle we've seen, the US pushed through
Speaker 4: four US flag vessels. They came down through the region
Speaker 4: they had been holding north of the area. They were
Speaker 4: told to go ahead and sail through. They didn't have
Speaker 4: a direct escort. They were sailing under the protection of
Speaker 4: the US Navy. But while they were sailing down when
Speaker 4: the strike started, they received word from the British nation
Speaker 4: that they needed to increase speed and escalate. And talking
Speaker 4: with the crews on these ships, a couple of things came.
Speaker 3: Through very clearly.
Speaker 4: Number one, it was three hours of really excitement. I
Speaker 4: won't say the words they were using, but there was
Speaker 4: a lot of stuff lying and they used some very
Speaker 4: good salty terms to explain it.
Speaker 3: But they also wanted to thank the Navy crews.
Speaker 4: They said they would have not gotten through that without
Speaker 4: the effort of the US Navy and the other navies
Speaker 4: that were there.
Speaker 3: But there were issues.
Speaker 4: For example, in the US ships there was no secure communication.
Speaker 4: There was actually an instance on one ship where the
Speaker 4: Navy tried to call them on a satellite phone on
Speaker 4: board the ship, but the ship had a series of
Speaker 4: satellite phones and they called the wrong number.
Speaker 3: So communication wasn't great.
Speaker 4: And so again this is not a mission that's very
Speaker 4: high up in terms of the US Navy and other navies.
Speaker 4: So practicing it doesn't really take a lot of time,
Speaker 4: and it's kind of showing right now.
Speaker 1: Oh so these things like not having the right phone
Speaker 1: number or not knowing like this is just a function
Speaker 1: of this is sort of this is not something that's
Speaker 1: been in practice, not something that's anticipated. Were this to persist,
Speaker 1: these things would presumably get smoothed over.
Speaker 4: Well, I don't want to say the Navy doesn't practice,
Speaker 4: because they actually have organizations within their their structure that
Speaker 4: does this. The problem is it's very low priority. You know,
Speaker 4: it doesn't get the attention and probably the resources it deserves.
Speaker 4: And there's also the perception that this was going to
Speaker 4: go away pretty quick, that you know, we're going to
Speaker 4: do a show of force, We're going to strike the
Speaker 4: Houthi and that should clear it up. And what we've
Speaker 4: seen is the Houthi are very kind of being tenacious here.
Speaker 4: They keep shooting one missile and while the Navy will
Speaker 4: make the point, well, they're not shooting twenty two missiles
Speaker 4: like they did on January ninth. If that one missile
Speaker 4: hits a ship, it's going to deter other vessels from
Speaker 4: going through.
Speaker 1: Do you hear anything from the actual the people working
Speaker 1: on the ship or the captains about reluctance to work
Speaker 1: on ships that are taking this route. Has there been
Speaker 1: any concern from just sort of the pure safety of like, Okay,
Speaker 1: maybe the company deems it worthwhile to continue to take
Speaker 1: this route, but the safety of the crew.
Speaker 4: Well, one of the things that the crews will say
Speaker 4: is they're fine going through. They know that there's risks
Speaker 4: involved in shipping in every day. What they want is
Speaker 4: to be compensated, you know, I mean again, ships crews
Speaker 4: are doing this and one of the things you saw
Speaker 4: early on is a lot of the foreign crews, for example,
Speaker 4: through their agreements, were able to get additional not just money,
Speaker 4: but you know, what they really wanted was, Hey, if
Speaker 4: something happens to me, I'm going to have insurance and
Speaker 4: I'm going to be covered by this, and you know,
Speaker 4: if I'm hurt, and worse, if I'm killed, you know,
Speaker 4: I want to make sure my family at home. Ironically,
Speaker 4: the place I heard the most issues with was on
Speaker 4: US ships, where US ships have to deal, for example,
Speaker 4: with multiple different unions, and different unions had different agreements
Speaker 4: in place, and there was actually an issue recently where
Speaker 4: two ships had to go through and they actually got
Speaker 4: turned around, two US flag ships. First time I've heard
Speaker 4: that in a long time, that US ships were denied passage,
Speaker 4: but some of those crew were not yet given the agreement.
Speaker 4: Now the company has since worked out those agreements, but
Speaker 4: for the crew going through, they kind of like that
Speaker 4: in place before they get shot at.
Speaker 2: So we have seen shipping rates go up recently, but
Speaker 2: my impression is that a lot of the shipping rates
Speaker 2: or you know, the shipping rate is sort of pre agreed,
Speaker 2: contractually agreed some time ago, and yet we have seen
Speaker 2: this increase in costs. You described how the wartime insurance
Speaker 2: rate goes up. It seems fairly quickly. You have captains
Speaker 2: that are presumably wanting additional compensation for taking on this risk.
Speaker 2: How quickly and how much could shipping rates actually rise
Speaker 2: from here?
Speaker 4: So you know what we saw during the height of
Speaker 4: the supply chain crisis. You see all those charts, that
Speaker 4: was the spot right, that's the rate you pay if
Speaker 4: you don't have a long term commitment in place. Most
Speaker 4: shipping most containers, for example, are on long term t
Speaker 4: charters and so those you know, about seventy percent of
Speaker 4: the cargo it's moved is on long term. But ironically,
Speaker 4: the route between Europe and Asia was up for renegotiation
Speaker 4: as of January first, so right when this was taking place,
Speaker 4: we saw that happen. But even if you have a
Speaker 4: long term shipping route agreement, there are charges that can
Speaker 4: be imposed on top of that, search charges for extra
Speaker 4: fuel for port stays, and so a lot of company,
Speaker 4: you know, a lot of companies that were shipping goods
Speaker 4: all of a sudden started getting notices is like, well,
Speaker 4: my container's going to be one thousand dollars more than
Speaker 4: I thought it was going to be. Well, that's because
Speaker 4: the company sat there and said, well fuel, I had
Speaker 4: to stop in South Africa and by really expensive fuel.
Speaker 4: Plus we're not going to the port initially we were
Speaker 4: going to drop your container off in. So we got
Speaker 4: to drop it off in a subport and it's got
Speaker 4: to be moved over there. And so we saw the
Speaker 4: prices begin to escalate because the shipping companies tend to
Speaker 4: pass that cost on. And what you're seeing now is
Speaker 4: even the long term rates are seeing readjustments because of that.
Speaker 4: Plus the shipping companies have to re adjust their schedules,
Speaker 4: you know, if you had a container ship that was
Speaker 4: going through the Suez and stopping in the Med, that's
Speaker 4: not happening now. And now you're seeing ships stop at
Speaker 4: other terminals, dumping their containers and reshuffling them. So the
Speaker 4: ports at the entrance to the Med, Tangier and al
Speaker 4: Jacayers is getting a lot of business because you have
Speaker 4: to reshuffle containers. And so now the freight rates are
Speaker 4: changing that if you look at the freight rate charts
Speaker 4: right now, they kind of peaked and they've kind of
Speaker 4: dipped down and now they're starting to stabilize at this point.
Speaker 4: But we're also seeing impacts in other ways. So for example,
Speaker 4: the US freight rates get negotiated by May first, but
Speaker 4: we're seeing freight rates increase to the United States. Why
Speaker 4: because a couple of factors. If you're shipping containers from
Speaker 4: Asia to Europe, I mean to Asia to North America,
Speaker 4: for example, well you may be shipping it.
Speaker 3: You know, I don't want to go to LA and Long.
Speaker 4: Beach anymore because of the issues with LA and Long
Speaker 4: Beach that happened a couple of years ago. So I'm
Speaker 4: going to put my containers on these new Neo Panama ships.
Speaker 4: They go through the big lane of the Panama Canal
Speaker 4: that open in twenty sixteen. But like we don't have
Speaker 4: enough choke point issues Panama Canals. At low water levels,
Speaker 4: we've seen a two thirds reduction in the number of
Speaker 4: ships going through there. So now you've got this fully
Speaker 4: loaded Panamac Neo Panamac ship. It arrives on the Pacific
Speaker 4: side of the Panama Canal and they can't get through
Speaker 4: because it draws too much water. Now I got to
Speaker 4: take three thousand boxes off rail them across Panama and
Speaker 4: meet them on the other side.
Speaker 3: That's a cost I didn't plan on.
Speaker 4: That ship comes to the United States offloads, but instead
Speaker 4: of going back the way it came because it doesn't
Speaker 4: want to take a passage through the Panama Canal, It's
Speaker 4: now going to head back to Asia through the Mediterranean
Speaker 4: and the Suez Canal. But wait a minute, the HOOTHI
Speaker 4: are there. Now I got to head around Africa, and
Speaker 4: so what you're seeing is a lot of surcharges and
Speaker 4: extra charges and most importantly, delays in the movement of
Speaker 4: goods that were not planned on.
Speaker 1: I want to talk a little bit more about the
Speaker 1: military response, but I you know, I imagine We could
Speaker 1: do like a twenty episode series about the history and
Speaker 1: founding of the US Navy, but we are just doing
Speaker 1: you know, we have a thirty five minute podcast. Can
Speaker 1: you just zoom out? You know, I've heard that the
Speaker 1: US Navy is sort of originally created in part to
Speaker 1: you know, to secure shipping against pirates, et cetera. Can
Speaker 1: you talk a little bit about, you know, the history
Speaker 1: and just the expectations globally for what the Navy is
Speaker 1: expected to do anywhere when there is either a military
Speaker 1: threat or a piracy threat to world trade.
Speaker 4: Yeah, I mean two hundred and thirty years ago, this year,
Speaker 4: seventeen ninety four, the Navy will basically create itself with
Speaker 4: the Naval Act of that year, where they build six frigates,
Speaker 4: one of which is still in commission today US Constitution
Speaker 4: up in Boston. Those ships were built specifically because the
Speaker 4: state of Algiers had seized eleven American ships and we're
Speaker 4: holding them hostage for basically tribute for the agreement with
Speaker 4: the United States. So literally, the birth of the US
Speaker 4: Navy is founded on an anti piracy and defend commercial shipping. Now, ironically,
Speaker 4: those ships aren't built in time to fix it. What
Speaker 4: we go do is basically negotiate out a treaty without jeers,
Speaker 4: and they released the vessels and we have an agreement.
Speaker 4: But then fast forward a few years later, eighteen oh one,
Speaker 4: the Shaw of Tripoli announces war with the United States
Speaker 4: by having his men march down to the US consulate
Speaker 4: and Tripoli and chop down the flagpole. And for five
Speaker 4: years Thomas Jefferson has got a wage of war against
Speaker 4: the Barbary pirates. We try an overwhelming military force, it
Speaker 4: doesn't actually work. We try and overland military operations, which
Speaker 4: the Marines immortalized in There to the Shores of Tripoli
Speaker 4: in their hymn. But in truth, what we wind up
Speaker 4: doing is paying off the best shore are. We give
Speaker 4: him thirty thousand dollars and we get a deal.
Speaker 3: He releases some captured.
Speaker 4: Americans, including the crew of an American naval vessel, and
Speaker 4: we get peace. Fast forward one hundred years, German U
Speaker 4: boats start sinking American ships on the high seas, ten vessels,
Speaker 4: sixty four crew members killed. That's the reason Woodrow Wilson
Speaker 4: goes before Congress on April second, nineteen seventeen and wants
Speaker 4: a declaration of war, and so the US Navy has
Speaker 4: historically been a protector of trade, but usually it's a
Speaker 4: protector of US flag shipping. But that all changes after
Speaker 4: World War Two. After World War two, when the Germans
Speaker 4: and the Japanese are vanquished, the seas become this great
Speaker 4: open medium, this great blue ocean of commerce that takes place.
Speaker 4: And one of the things that we see happen beyond
Speaker 4: technological changes, supertankers and containerization, is we see the birth
Speaker 4: of open registries the Marshall Islands, Panama, Liberia, so that
Speaker 4: you can have lower shipping costs because those countries don't
Speaker 4: require a huge amount of overhead and taxes, and they
Speaker 4: don't require because they don't have to pay for navies
Speaker 4: because no one is threatening the ocean commerce. Now twenty
Speaker 4: twenty three, here come the Houthi and they are threatening
Speaker 4: ocean commerce. But you don't have the Panamanian, Liberian, Marshall
Speaker 4: Island navvies show up because they don't basically exist. It
Speaker 4: falls upon the US Navy, the Royal Navy, and these
Speaker 4: other navies to defend the commerce because we move commerce
Speaker 4: differently now. We don't move it on national ships, we
Speaker 4: move it on international ships.
Speaker 2: Do you think you could see more of a reordering,
Speaker 2: a shift, a wave from flags of convenience.
Speaker 4: I think the thing you may see is not so
Speaker 4: much that I would argue, because I think, you know,
Speaker 4: those ships are getting the protection that they need. I'm
Speaker 4: what I'm concerned about with the Houthi, and what they're
Speaker 4: doing is breaking up the idea of this international blue
Speaker 4: water where you can move goods freely. And what we
Speaker 4: start to see is something that Bruce Jones talks about
Speaker 4: in his great book To Rule the Waves, where we
Speaker 4: start seeing the breakdown and creation of regional shipping because
Speaker 4: people don't want to ship long distances, they want to
Speaker 4: ship local distances. We're seeing that right now, for example
Speaker 4: in the l ANDNG trade where you have three big
Speaker 4: players Australia Guitar and the United States. But now you know,
Speaker 4: we're really seeing that shift take place where the US
Speaker 4: is providing most of their LNG now to Europe vice
Speaker 4: Asia Guitars is not shipping to Europe as much. They're
Speaker 4: moving to provide their LNG to Asia. So my concern
Speaker 4: is that if we can't handle a threat like the Huthi,
Speaker 4: and again we've seen multiple issues happen in the supply
Speaker 4: chain Remember, the big difference you have now today than
Speaker 4: ever before is not just the volume of trade. We've
Speaker 4: gone from moving half a billion tons of cargo on
Speaker 4: the world's oceans in nineteen fifty to twenty two billion
Speaker 4: tons today. It's the velocity. And when you have something
Speaker 4: moving as fast and as large as that, all it
Speaker 4: takes is a little you know, sand pebble on the
Speaker 4: runway and you create a buff.
Speaker 1: So when you're thinking about comparing this crisis versus say,
Speaker 1: the Samali piracy that people talked a lot about a
Speaker 1: decade ago, how much more is it is? The basically,
Speaker 1: as you say, the increased velocity of world trade since then,
Speaker 1: I assume it's continued to grow basically magnifies the degree
Speaker 1: of disruption.
Speaker 4: Oh, I mean even since two thousand you've seen a
Speaker 4: massive increase. But the Somali piracy was very limited. Remember
Speaker 4: what Somali piracy was. It was an issue a sure
Speaker 4: drove the Somalis to see and then what they were
Speaker 4: doing was seizing vessels and holding them for ransom. It
Speaker 4: was basically ransomware, you know what they were doing. They
Speaker 4: would seize a vessel, bring in the Somali waters and
Speaker 4: wait for a bag of money to fall from the
Speaker 4: sky and then they would release the vessel and you
Speaker 4: could interdict that by moving ships further at sea. We
Speaker 4: saw navy patrols come up. And you know, the only
Speaker 4: time you saw the US Navy, for example, take direct
Speaker 4: action was when an American flag ship was captured, when
Speaker 4: Marisk Alabama was captured and Captain Phillips was taken. Then
Speaker 4: the US interseas because you have to save Tom Hanks.
Speaker 4: He's a national treasure. You can't allow him to fall
Speaker 4: into the hands of the Somalis. But what's different now
Speaker 4: is the Huthi aren't doing this for monetary reasons. They're
Speaker 4: doing it for ideological reasons, and they're able to affect
Speaker 4: the trade on an international level. The Somali piracy was
Speaker 4: a blip on the radar. It didn't really affect world
Speaker 4: trade at all. You didn't even see rates go up
Speaker 4: very much because of that. This is much different.
Speaker 1: You mentioned that the Indian Navy has gotten involved, which
Speaker 1: sort of raises the question in a few multipolar world
Speaker 1: arising other superpower powers, and the other big one is China,
Speaker 1: and of course they're a major beneficiary of the trade
Speaker 1: through this route, what is your expectation in the future,
Speaker 1: will there be more sort of regional shipping police forces
Speaker 1: to facto, Would you expect to see an expectation that
Speaker 1: other larger countries that benefit directly from this type of
Speaker 1: trade have more resources in the area.
Speaker 4: So I was very surprised, for example, that the US
Speaker 4: and other nations didn't put together some sort of un
Speaker 4: element here to go in and do this. You know,
Speaker 4: basically there was an argument that the US waited for
Speaker 4: a UN action to before they struck. The fear you
Speaker 4: have here is that nations will lack unilaterally. So talk
Speaker 4: about the Indians for a second. Indians are greatly impacted
Speaker 4: by this. India has seen a growth of trade to Europe.
Speaker 4: And you know, India trade to Europe goes right through
Speaker 4: the SEWAs Canal, and now if you've got to go
Speaker 4: around Africa, that's like three four times the distance for
Speaker 4: Indian trade to go. It's a massive change for them. Plus,
Speaker 4: Indian crews represent a big majority of the world's cruise
Speaker 4: out there, and one of the things we've seen is
Speaker 4: the Indian Navy come to the rescue of their crews.
Speaker 4: The ship that was just hit, the Marlin Wanda, had
Speaker 4: a largely Indian crew on board, and it was an
Speaker 4: Indian Navy destroyer that actually came on board, fought the
Speaker 4: fire and helped save the vessel. And you can see
Speaker 4: an issue where we saw during the piracy issue where
Speaker 4: India when they encountered pirates, did not really use a
Speaker 4: lot of restraint in their forests. They were pretty clear
Speaker 4: of using overt force to convince the Somali pirates not
Speaker 4: to mess with ships with Indians on board, and the
Speaker 4: fear is you can see that again. You also have
Speaker 4: the issue with China. China has a overseas squadron based
Speaker 4: down at Djibouti. We haven't seen much from them. They're
Speaker 4: escorting their vessels in and out, very low key, but
Speaker 4: you know, if there's an issue with a Chinese ship,
Speaker 4: will China intervene. We've already seen a couple of Chinese
Speaker 4: ships come under attack with no action by China. But
Speaker 4: the fear is that you'll see regional navies, especially navies
Speaker 4: that have a big impact on shipping one and I
Speaker 4: think it's the big player to watch right now. They're
Speaker 4: really interesting. They've come out in force after the attack
Speaker 4: on a ship in the Arabian Sea pretty close to
Speaker 4: Indian territorial waters.
Speaker 2: I just want to press on the US military point
Speaker 2: a little bit more because you did a fantastic job
Speaker 2: of laying out the historic importance of protecting trade to
Speaker 2: the US Navy. That was sort of the whole raison
Speaker 2: debtch in many respects. However, we have seen this sort
Speaker 2: of reluctance or at least a debate right now to
Speaker 2: engage further with what's going on in this US. Is
Speaker 2: that unwillingness on the part of the US to get
Speaker 2: involved in yet another thorny military conflict or is it
Speaker 2: I guess, inability in the sense that there are limits
Speaker 2: to what nation military forces can actually do against what
Speaker 2: is essentially guerrilla warfare.
Speaker 4: Yeah, this represents a historically, you know, common threat that
Speaker 4: the Navy has faced in the past, but not one recently,
Speaker 4: and so the Navy is not, I would argue, has
Speaker 4: not done a great job of articulating what they're doing
Speaker 4: in their mission. They haven't put a lot of press
Speaker 4: on this in many ways, so I don't think they're
Speaker 4: doing a great job in conveying exactly how important for
Speaker 4: most Americans they see this as a European Asian conflict.
Speaker 4: This is where the trade is it really, you know,
Speaker 4: they're not contextualizing how this impacts the United States. And
Speaker 4: my argument keep you know, I will keep saying, is
Speaker 4: it's going to It just takes time to work its
Speaker 4: way through the supply chain system. By the time you
Speaker 4: feel it, it's too late to react. And that's one
Speaker 4: of the issues here. I do think that the US
Speaker 4: Navy and the military in some ways are being hamstrung
Speaker 4: by the resources given to them. I think they were
Speaker 4: delayed in doing anything when the Carnie had this very visible,
Speaker 4: you know, intervention and save three ships back in early December.
Speaker 4: I think about December ninth, that should have been a
Speaker 4: key moment there. That should have been a moment of
Speaker 4: where a decision was made about whether or not to
Speaker 4: do a large scale protection. It took several you know,
Speaker 4: several weeks after that to really announce it and then
Speaker 4: to get it into full force. But this is a
Speaker 4: historic mission for US and other navies. And the other
Speaker 4: element is really the slow reaction the US has gotten
Speaker 4: from other allies. You've seen the British Navy, you've seen
Speaker 4: the French and the Italians, but not a lot of
Speaker 4: other navies coming in. I mean, the Indians are kind
Speaker 4: of doing this separately. You haven't seen Asian navies, the Japanese,
Speaker 4: the Koreans come in. This really should be a unified
Speaker 4: effort because this is an attack not on just American shipping,
Speaker 4: but on world shipping. And to me, this is the
Speaker 4: context of why this needs to be better articulated. And
Speaker 4: again the concept seems to be handed off to the military.
Speaker 4: Let the military solve this problem when the root cause
Speaker 4: of this problem goes back to what is happening in
Speaker 4: Israel and Gaza. And until you fix that situation, until
Speaker 4: you know, until there's Mideast peace, then you have a
Speaker 4: problem with the Huthi. And how do you exert pressure
Speaker 4: against the There was a story a few weeks ago
Speaker 4: about the shipping companies trying to buy off the Houthis.
Speaker 4: I don't think you buy off the hoothies because they're
Speaker 4: not in this for money. However, there is leverage that
Speaker 4: can be exerted, either through Iran or some other forces
Speaker 4: at play here that maybe you can convince them to
Speaker 4: push back on the Huthi, or talk to the Israelis
Speaker 4: and have them back off, and see if you can
Speaker 4: get the Huthi to kind of diminish it. But it's
Speaker 4: really hard to make that argument because you're seeing lives
Speaker 4: lost in Palestine, whereas in the Red Sea all we're
Speaker 4: seeing as of now is the loss of money.
Speaker 1: Well, I mean, I'm glad you mentioned that, because it
Speaker 1: struck me when you were giving your excellent two minute
Speaker 1: entire history of the US Navy that even when you
Speaker 1: mentioned some of the key moments, it was actually some
Speaker 1: sort of political resolution and not the show of might
Speaker 1: itself that solved it, including you know, the original pirates
Speaker 1: and the Shop Tripoli. It sounds like it's something other
Speaker 1: than the force which announced it. So ultimately it sounds
Speaker 1: like this is going to be a problem as long
Speaker 1: as the underlying tensions in the area, the ideological issues
Speaker 1: the ongoing war are there.
Speaker 4: Yeah, you know, the Navy just recently had their Surface
Speaker 4: Naval Association meeting, where I mean, there was a lot
Speaker 4: of congratulations on the role of the Navy destroyers, which
Speaker 4: have been doing a phenomenal job. Again, I talk to mariners,
Speaker 4: They love the Navy for what they're doing. The problem is,
Speaker 4: again you're not convincing the Huthi about this or the ships.
Speaker 4: It's the insurance companies and the insurance companies are going
Speaker 4: to use the line from dumb and dumber, you know,
Speaker 4: as long as there's a chance of them getting a hit.
Speaker 4: You know, that means that we're going to have higher
Speaker 4: war risk insurance and therefore it's going to make it
Speaker 4: cost prohibitive to go through what we're seeing, for example,
Speaker 4: up in the Red Sea right now with the rebirth
Speaker 4: of this new trade going into Ukraine after the death
Speaker 4: of the Black Sea Grain initiative, we're seeing ships going
Speaker 4: up and back to the Ukraine. And that's seeing an
Speaker 4: escalation or a de escalation in the war risk from
Speaker 4: three percent down to one point twenty five. But that's
Speaker 4: still high. But you're dealing with bulkships and smaller ones
Speaker 4: which the cost isn't as much. Plus you have the
Speaker 4: Ukrainians working with insurance companies to underwrite that. We don't
Speaker 4: see that right now, and that's another element that could
Speaker 4: be done. But again, to underwrite war risk insurance for ships,
Speaker 4: they have to be of your registry. The US isn't
Speaker 4: going to underwrite ships under the Marshall Islands under Liberia probably,
Speaker 4: although most of those ships can trace ownership back to
Speaker 4: Western companies in the US, Europe, or even East Asia.
Speaker 2: How long until the slow down? And I guess the
Speaker 2: additional complexity that you've been talking about, how long until
Speaker 2: that makes its way to US supply chains because so far,
Speaker 2: you know, most people are talking about this as a
Speaker 2: Europe or Asia specific problem, but as you point out,
Speaker 2: it just takes some time to reverberate.
Speaker 4: Well, I mean, you're seeing that right now in Europe.
Speaker 4: You've had a very kind of high visibility. Some manufacturers
Speaker 4: tests and a few others had to shut down production
Speaker 4: because they're waiting to get parts to them. And you're
Speaker 4: seeing the impact of that also in the fact that,
Speaker 4: well we'll just throw them on airplanes and send them over. Well,
Speaker 4: thirty three percent of the world's aviation fuel goes through
Speaker 4: the Suez Canal, and now it's being diverted, and so
Speaker 4: now even aviation has issues associated with it. It tends
Speaker 4: to be weeks and where we're going to see it
Speaker 4: is right after the beginning of February. Because what has
Speaker 4: happened here is a lot of empty containers, which is
Speaker 4: the most unsexy topic you can talk about as empty containers.
Speaker 4: Empty containers have not been repositioned backed to Asia in
Speaker 4: time to be reloaded and put on ships to leave
Speaker 4: Asia before the Chinese New Year, before the second week
Speaker 4: in February, which means that goods that should have been
Speaker 4: sailing across this week and next week aren't going to
Speaker 4: be there, which means now you're going to see them
Speaker 4: about a month later. So we're going to see some delays,
Speaker 4: and again we're not going to see shortages. We're not
Speaker 4: gonna have a great toilet paper run that we had
Speaker 4: during twenty twenty. But what you will see is a
Speaker 4: little bit of a spike in inflation in terms of
Speaker 4: transportation costs, a lot of disruptions. One of the things
Speaker 4: that we did learn from twenty twenty, and a lot
Speaker 4: of freight forwarders and smart people who went with companies
Speaker 4: that do this professionally did was diversify how their goods
Speaker 4: come in. So there was a lot of companies who
Speaker 4: saw what was happening with the HOUTHI and sat there
Speaker 4: and said, hang on, let me get my goods on
Speaker 4: a container ship, and I'll go into La and Long
Speaker 4: Beach right now, because even though I hate it, I'll
Speaker 4: go in there because I know they're going to arrive
Speaker 4: and I can get them in there and I'll pay
Speaker 4: the rail because rail is looking for cargo right now.
Speaker 4: So a lot of people began to make movements, but
Speaker 4: some didn't. And the ones who didn't see this coming
Speaker 4: ahead of time, they're the ones.
Speaker 3: Who are going to see that.
Speaker 4: We're already seeing backlogs of ships, for example, start to
Speaker 4: pile up off of Savannah and some of the East
Speaker 4: Coast ports.
Speaker 1: You mentioned that empty containers are not the sexiest topic,
Speaker 1: but I disagree. I think the very first episode Tracy
Speaker 1: and I ever did on supply chain disruptions at the
Speaker 1: end of twenty twenty was sort of related to this
Speaker 1: phenomenon of the ships coming from China to the US
Speaker 1: dropping off their stuff, not having anything to ship back,
Speaker 1: so they immediately turned around and then there were no
Speaker 1: more empty containers, and that was sort of the seeds.
Speaker 1: So it's a big deal, all right. I just have
Speaker 1: one last question, which is that you know, I'm a dad,
Speaker 1: and I'm well into my mid forties, and so by nature,
Speaker 1: I have this sudden impulse to read more military history books.
Speaker 1: What is a good book about the history of the
Speaker 1: Navy that I should read.
Speaker 4: Well, I would recommend Ian told six Frigates which it
Speaker 4: literally talks about the birth of those six frigates. I
Speaker 4: think Ian told does a great job. It is it
Speaker 4: is kind of must reading because it covers that early period,
Speaker 4: the birth of the US Navy. But it's also about
Speaker 4: trade because you learn about okay, I learned about that
Speaker 4: issue with Algiers, but then you learn about the French
Speaker 4: attacking our commerce in the Caribbean during what calls the
Speaker 4: Quasi Wore then the War of eighteen twelve, which is
Speaker 4: all about out commerce and the impressment of Americans because
Speaker 4: you know, the US wants to trade with everybody, because
Speaker 4: that's who we are, so we we we're trading with
Speaker 4: the British and the French during the French Revolution in
Speaker 4: the Napoleonic War. Thomas Jefferson tries to, you know, avoid
Speaker 4: this by passing something that the worst act ever passed
Speaker 4: in the history of the US, the Non Intercourse Act,
Speaker 4: which doesn't deal with what you think it does, but
Speaker 4: it deals with shipping and not trading with both Britain
Speaker 4: and France.
Speaker 3: So I love Ian Tol's book.
Speaker 4: I think he is one of the best. And then
Speaker 4: the last one I threw in there is one on
Speaker 4: us shipping that I think is really it's a wonky one.
Speaker 4: It's not a great read, but I think it's really
Speaker 4: an important one called The bandon Ocean, which talks about
Speaker 4: US maritime policy.
Speaker 2: I am conscious that we only have a few minutes left,
Speaker 2: so I just have one more question, what do you
Speaker 2: think of the Jones Act.
Speaker 4: No, somehow, somehow this is all going to be playing,
Speaker 4: going to be blamed on the Jones Act. And I
Speaker 4: just knew I wasn't gonna get out of a show
Speaker 4: with you guys as a masochist.
Speaker 2: No, that was a joke. We have been meaning to
Speaker 2: have you on for a Jones Act specific episode for
Speaker 2: literally years now. We got to get that done in
Speaker 2: twenty twenty four.
Speaker 1: Joe, we will definitely do a proper Jones Act episode
Speaker 1: one day.
Speaker 3: Well, I appreciate it.
Speaker 4: And actually you may hear about the Jones Act with
Speaker 4: this because there's diesel ships. Oh, you're bringing diesel out
Speaker 4: of Asia heading to Europe, are going to take longer
Speaker 4: to get there. There's gonna be a real big desire
Speaker 4: to pull diesel out of New England and send it
Speaker 4: the Cross. And if you start stealing diesel from New
Speaker 4: England to send to Europe. You're gonna have to get
Speaker 4: that diesel to New England some other way, and that's
Speaker 4: either by pipeline which is jammed, or those infamous Jones
Speaker 4: Act tankers.
Speaker 1: All right, Sale, thank you so much for coming on.
Speaker 1: That was great. We really will have to do a
Speaker 1: proper Jones Act episode. But this was an excellent context
Speaker 1: in details about the current crisis. So thank you so
Speaker 1: much for coming back on online.
Speaker 3: Can't be clear.
Speaker 4: John Conrad say, whatever you do, don't bring up the
Speaker 4: Jones he said, He said, don't bring it.
Speaker 3: Just try to get through it without that.
Speaker 2: Well, you stayed true to your promise. I brought it
Speaker 2: to you, you eveen, And I.
Speaker 3: Told John, I said, I said, there's no way it's
Speaker 3: coming off. There's no way they can bring it up.
Speaker 3: There's there's none. And then Tracy bring it up right
Speaker 3: at the air. That's funny. I can't tell you how
Speaker 3: it does. Laughing to the mic for a second.
Speaker 1: I love talking to So we got to make that
Speaker 1: Jones ch episode. That happens.
Speaker 2: I know. I feel bad that we keep touting it
Speaker 2: and it never happens.
Speaker 1: So funny because like we've never done it. The Jones
Speaker 1: comes up all that times, I almost feel like we're associated.
Speaker 1: It's like that. And Onion futures, we've never done an
Speaker 1: episode on that, even though we talk about them all
Speaker 1: the time.
Speaker 2: I think the problem is the stakes are now so
Speaker 2: high because we have you know, they have come up
Speaker 2: repeatedly for yours now and right. If we ever do
Speaker 2: an episode, we want to do it in a big way,
Speaker 2: or we want to do an event around it, and
Speaker 2: we just haven't been able to make that happen yet.
Speaker 2: But there are so many interesting things to pull out
Speaker 2: of that conversation with sal I thought his pinning of
Speaker 2: the time frame in which you might see some impact
Speaker 2: on us shipping. I thought that was really interesting to
Speaker 2: actually get a firm time period and the idea that well,
Speaker 2: things might be messed up because containers have been going
Speaker 2: empty again and Chinese New Year is coming up, so
Speaker 2: we'll definitely be watching that. And then I guess his
Speaker 2: explanation of just how the insurance actually works wartime insurance,
Speaker 2: and how quickly it seems some of those decisions are made.
Speaker 1: Yeah, I thought that was really interesting in this idea
Speaker 1: that like on each on each route, you buy the
Speaker 1: insurance and sometimes it's up to one percent, and eventually
Speaker 1: you know, it can jump to the point where just
Speaker 1: the math says, now between this it's too much and
Speaker 1: the added fuel costs of taking a much longer route
Speaker 1: are worth it. And how quickly that adjusts, and how
Speaker 1: there's this club of insurers and they're always setting I
Speaker 1: thought that was really interesting. I also did think it
Speaker 1: was really interesting that in his history of the Navy,
Speaker 1: like all of those sort of keep many of those
Speaker 1: key moments he described, like in the end, it was
Speaker 1: the political solution that ultimately took.
Speaker 2: Care of the problem, right, and not a military.
Speaker 1: Yeah, that ultimately you need to address the underlying diplomatic crisis.
Speaker 2: So peace in the Middle East.
Speaker 1: Right, we're not gonna well this also, I mean this
Speaker 1: broader phenomenon where the Huti's like this small military that
Speaker 1: Saudi for years attacked and wasn't able to eliminate their force.
Speaker 1: And this idea that he brought up that since World
Speaker 1: War Two there has been this generally stable expectation of
Speaker 1: global trade, but this idea that it could refragment, particularly
Speaker 1: small militaries are able to stand up to large militaries,
Speaker 1: is like a really interesting long term right.
Speaker 2: The regionalization of shipping. That was really interesting because again
Speaker 2: you think about shipping, obviously it's the sort of global industry,
Speaker 2: but it's global in very specific ways, including those flags
Speaker 2: of convenience where where you can sail under a Liberian
Speaker 2: flag or something like that because you enjoy the benefits
Speaker 2: of other governments that are going to protect strategically or
Speaker 2: commercially important waterways.
Speaker 1: Yeah, that was great. And you know, I think people
Speaker 1: talk about deglobalization or you know, bifurcation or whatever it is.
Speaker 1: But look, if you don't have this expectation any more
Speaker 1: of and maybe you know it's not dead or anything,
Speaker 1: but if this idea that it's getting easier and easier
Speaker 1: for small military forces to disrupt tray due to advances
Speaker 1: and weaponry and drones, et cetera like that, then that
Speaker 1: does seem like implicitly a force for deglobalization.
Speaker 2: Yeah, shall we leave it there.
Speaker 1: Let's leave it there.
Speaker 2: This has been another episode of the Odd Loots podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 1: And I'm Joe Wysn'tthal. You can follow me at The
Speaker 1: Stalwart follow sel Mrcagliano. His handle is Mercagliano s and
Speaker 1: check out his show What's going On with Shipping that's
Speaker 1: on YouTube. Follow our producers Carmen Rodriguez at Carman Arman
Speaker 1: Dashel Bennett at Dashbot and kel Brooks at Kelbrooks. Thank
Speaker 1: you to our producer Moses Ondam. For more Oddlogs content,
Speaker 1: go to Bloomberg dot com slash odd Lots. We have transcripts,
Speaker 1: blog and a newsletter and you can chat twenty four
Speaker 1: to seven with fellow listeners in the discord discord dot
Speaker 1: gg slash odd lots. We have a defense channel in there,
Speaker 1: we have a transportation channel, so there should be plenty
Speaker 1: of conversation about this episode.
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