Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.
Speaker 2: I'm Jill Wisenthal and I'm Tracy Alloway. Tracy, we can't
Speaker 2: get enough of trying to understand the immediate impact that
Speaker 2: the new tariff announcement they are having basically to like
Speaker 2: every business in the world, but certainly any business that
Speaker 2: touches goods and certainly any business that touches goods that
Speaker 2: at some point across a border, which at some point
Speaker 2: is all of them.
Speaker 3: I like the implication that we're just going to do
Speaker 3: episodes on every single business in the world. That's what
Speaker 3: we're saying, right, are we Yeah, I think we are.
Speaker 3: We're deep in the process of doing that already. So
Speaker 3: here's an episode with another business.
Speaker 2: Well, so yesterday in our episode, our first of the
Speaker 2: multiple emergency tariff episodes, were like, we just got to
Speaker 2: go down the list and talk to all the supply
Speaker 2: chain specialists that we talked to a few years ago
Speaker 2: over the last several years, and so we're just gonna
Speaker 2: do that. And we have another guest today who I
Speaker 2: think we talked to about a year ago, maybe a
Speaker 2: little less. We're going to be speaking with Matt Silver.
Speaker 2: He is the co founder and CEO of Cargato, which
Speaker 2: is a freight brokerage that really specializes in US Mexico lanes.
Speaker 2: North America. Knows a lot about North America trucking, cross
Speaker 2: border trucking, et cetera. And given the world of tariffs,
Speaker 2: you know, suddenly things like knowing about the world of
Speaker 2: cross border trucking.
Speaker 3: You know. The last time we spoke to him, I
Speaker 3: think the episode was titled like how shippers are responding
Speaker 3: to a US Mexico trade boom?
Speaker 2: Oh yeah, so I guess we'll I guess we're going
Speaker 2: to check in on whether.
Speaker 3: That you check in on the Mexico trade boom?
Speaker 2: Matt, Is there a US Mexico trade boom happening right
Speaker 2: now on April seventh and twenty twenty twenty five.
Speaker 4: Well, first of all, trade for Q one is up
Speaker 4: your overear Mexico, so it is definitely still going in
Speaker 4: the right direction. One thing to clarify, We're not a brokerage,
Speaker 4: we're a software business. But yeah, so we work with
Speaker 4: freight brokers and trucking companies that are moving across border freight.
Speaker 4: So we hear it from everybody involved in the process,
Speaker 4: and there's definitely anxiety and concern over how these tariffs
Speaker 4: are going to impact trade with Mexico and Canada. The
Speaker 4: thing is, like the news that we heard this week
Speaker 4: revolved around basically every country besides Mexico and Canada and
Speaker 4: the USMCA got some sort of a reprieve, if you will,
Speaker 4: but they were still hit by tariffs over the last
Speaker 4: couple of months. And so the companies, like the automakers
Speaker 4: that are producing cars throughout North America, they're not getting
Speaker 4: hit the same way the companies that are bringing their
Speaker 4: cars in from overseas, from Europe or Asia. And so
Speaker 4: you know, the trucking companies that are moving this freight,
Speaker 4: they're going to continue to move the freight that they
Speaker 4: can still move that's consistently shipping. But they understand that
Speaker 4: things might get a little bit rocky as all these
Speaker 4: discussions get worked through, and so they're gonna stand strong
Speaker 4: and I guess ultimately and wait and see what happens
Speaker 4: with the market, right.
Speaker 3: I mean, I think even if Mexico was exempted from
Speaker 3: the reciprocal tariffs that were announced last week, and I
Speaker 3: should just mention we're recording this on April seventh. Lots
Speaker 3: of things could still change, but even if they were exempt,
Speaker 3: I mean, the direction of travel seems fairly clear at
Speaker 3: this point. Give us a reminder of why US Mexico
Speaker 3: trade had been on a sort of upwards trend line
Speaker 3: because a lot of people were saying, well, this is actual,
Speaker 3: genuine trade between the US and Mexico, and then other
Speaker 3: people would say, well, this is China re routing some
Speaker 3: stuff through Mexico in order to get further away from
Speaker 3: the Trump administration's first round of tariffs back in circa
Speaker 3: twenty eighteen.
Speaker 4: Yeah, so going back to twenty eighteen, that's on Trump
Speaker 4: updated NAFTA to the USMCA, and that encouraged more manufacturing
Speaker 4: to happen in North America on less overseas. And so
Speaker 4: you've got the pandemic that scared everybody and thinking that
Speaker 4: it's not such a great idea to rely on China
Speaker 4: for manufacturing. Couple that with the general relations that the
Speaker 4: US and China have had for the last decade or so,
Speaker 4: which has been contentious and it's not super friendly. Then
Speaker 4: you've got the latest round and everything even up to
Speaker 4: the last few hours when Trump said that if China
Speaker 4: goes through with the increased tariffs that they announced. I
Speaker 4: think he said ninety percent would be placed on all
Speaker 4: goods coming from China, and so things are only escalating.
Speaker 4: And between the fact that Mexico is primarily on the
Speaker 4: same or similar time zones as the United States, it's
Speaker 4: only a few hours to get there, whereas it's I
Speaker 4: think fourteen or fifteen hours to get to China. And
Speaker 4: then the culture and language barriers are a lot simpler
Speaker 4: and easier to get through with Mexico than it is
Speaker 4: with overseas. And so there are a lot of reasons
Speaker 4: why companies already do manufacture in Mexico and why they're
Speaker 4: going to continue to do that. Yes, there's Chinese investment
Speaker 4: in Mexico, but it's not as heavy as people make
Speaker 4: it out. To me. It's just you start to hear
Speaker 4: it more because everyone's going, well, here's how China's reacting
Speaker 4: to this trade war. They're investing in countries nearby like Mexico.
Speaker 4: But I still think we'll see more American companies investing
Speaker 4: in Mexico than we will Chinese.
Speaker 2: Time zones in language two of the great non tariff
Speaker 2: trade barriers that affect our world. All right, why don't
Speaker 2: we applause here give us the status of the terriffs,
Speaker 2: because it seemed like Trumpe was like, really, you know
Speaker 2: for a while, like talking about blowing up the USMCA.
Speaker 2: Right now on April seventh, what is the status of
Speaker 2: what's newly being tariffed, what isn't in the cross border
Speaker 2: US Mexico trade.
Speaker 4: So you hear about the big separator being what qualifies
Speaker 4: under the USMCA. I think most agricultural products still qualify
Speaker 4: under that, and so we're not seeing an impact on
Speaker 4: most of those goods, although the US for a long
Speaker 4: time said tariffs on sugar, Mexico has had it on
Speaker 4: some dairy products. Like the irony right now is like
Speaker 4: the RFK movement talks about trying to reduce the reliance
Speaker 4: on highfritose corn syrup, and like the biggest counter to
Speaker 4: that would be sugar, which we could buy from Mexico.
Speaker 4: And so on one side, like you've got goods that
Speaker 4: fall under the USMCA that have those requirements. So like
Speaker 4: take a car, for example, if seventy five percent of
Speaker 4: the value of the car came from Mexico, the US
Speaker 4: or Canada, it falls under the USMCA, and it's qualified.
Speaker 4: The difference now, though, is that the parts that are
Speaker 4: not falling under the USMCA will get taxed right now
Speaker 4: at that twenty five percent rate. And so if let's
Speaker 4: say on a forty thousand dollars car, ten percent of
Speaker 4: that car, so about four thousand dollars worth of value
Speaker 4: is coming from overseas that could still have tariffs applied
Speaker 4: to it. And if it's twenty five percent tariff, then
Speaker 4: it'd be twenty five percent on that four thousand dollars,
Speaker 4: So about one thousand dollars would get added to the
Speaker 4: forty thousand dollars car, and so they're only taxing that piece.
Speaker 3: Who actually does those calculations though, because that seems seems
Speaker 3: like a lot of paperwork to break cars down by
Speaker 3: like components and where those components are made.
Speaker 4: It's the customs broker. Oh wow, and there's yeah, I
Speaker 4: mean there's there's a startup called guy Dynamics that's also
Speaker 4: doing that using AI, and so companies are able to
Speaker 4: use them for that stuff now too. But like it's
Speaker 4: very specific, like if you're using something made of steel
Speaker 4: versus aluminum versus and other raw material even if it's
Speaker 4: a screw, it's still it depends on what it's made
Speaker 4: out of, and it depends on the size of it
Speaker 4: and all that other stuff. So like they're very specific.
Speaker 4: It's called harmonized tariff codes that are assigned to each
Speaker 4: good and then there's a potential tax related to that
Speaker 4: along with requirements very specific.
Speaker 2: Okay, so let's say I'm some company and you know,
Speaker 2: I don't know what the future is of US Mexico trade.
Speaker 2: Some things are getting tariffed now that weren't so much
Speaker 2: like what am I passing along and what am I eating?
Speaker 4: So it depends on what if so the who is
Speaker 4: a land Rover Jaguar the name of their brand is
Speaker 4: now like they announced that all their cars coming in
Speaker 4: from overseas are pausing for a moment until they figure
Speaker 4: out exactly how to manage this. And historically even cars
Speaker 4: like that that were coming from Europe were still or Asia.
Speaker 4: We're still getting grandfathered in under kind of almost like
Speaker 4: a side letter to the USMCA. And so some of
Speaker 4: those companies were able to get by and now all
Speaker 4: of a suddeny're getting hit with these terriffs, and so
Speaker 4: they don't want to go turn around to their customers
Speaker 4: and raise prices. They know it's not a good look,
Speaker 4: and so rather than raising prices, they're saying, hey, hang
Speaker 4: on a second, we're not going to put more cards
Speaker 4: on the lot. We're going to stop shipping for a
Speaker 4: moment until we figure this out, and they're you know,
Speaker 4: over the next call it five to ten days. As
Speaker 4: like the US and the EU navigate and negotiate, and
Speaker 4: I think I just saw recently that that conversation is starting,
Speaker 4: and you'll see similar with a lot of other countries
Speaker 4: or trade organizations that ideally that'll get back to some
Speaker 4: level of a more balanced trade agreement where there's ideally
Speaker 4: no tariffs in either direction. And so those companies that
Speaker 4: are getting affected by it, they just have to wait.
Speaker 4: And I think a lot of them are just waiting,
Speaker 4: and they're okay with less inventory for the time being
Speaker 4: and keeping the prices the same because those cars already landed,
Speaker 4: rather than trying to charge more to the consumer or
Speaker 4: eat that cost.
Speaker 3: So if we were to assume that maybe things don't
Speaker 3: change from what's been declared, like let's just assume that
Speaker 3: we don't see a bunch of deals like Trump is
Speaker 3: advocating for and these tariffs were stuck with them for
Speaker 3: a while. How would you expect some of your clients
Speaker 3: to actually react and maybe reorient their businesses for this
Speaker 3: new reality. What would they do?
Speaker 4: Our customers are logistics companies, and I think what you're
Speaker 4: thinking about is more on the manufacturer side, which is
Speaker 4: their customers. And so I'll put myself in the shoes
Speaker 4: of a logistics company that's working with manufacturer. My first
Speaker 4: thought is like, let's build some consistency around the freight
Speaker 4: that you're moving, because if you have to move that freight,
Speaker 4: one of the levers that you have is how much
Speaker 4: you're spending on moving it. So if you're getting an
Speaker 4: increase in the taxes and duties that you're paying on
Speaker 4: your goods, then I would be looking at ways to
Speaker 4: reduce my costs, which would be relying more on a
Speaker 4: logistics company or a third party logistics provider that can
Speaker 4: help kind of spread that price risk and the operational risk,
Speaker 4: and they can take that on with more volume. So
Speaker 4: you think about how more density builds over time with
Speaker 4: more freight moving in an individual lane, well, all of
Speaker 4: that that's going to drive ideally a better price control
Speaker 4: and so for a shipper thinking about their freight moving
Speaker 4: across the border, I might rely more on a logistics
Speaker 4: company to try to navigate that and reduce my cost
Speaker 4: of actually procuring different trucking companies and potentially be able
Speaker 4: to scale that business up by outsourcing more of that.
Speaker 4: And so if I'm a shipper, that's how I'm thinking
Speaker 4: about it. If I'm a trucking company, from what I
Speaker 4: understand is right now, trucking companies are not running out
Speaker 4: and buying more trucks. They want to see what's going
Speaker 4: to happen right now. They're waiting, they're not panicking, they're
Speaker 4: not picking up and switching how their business operates. So
Speaker 4: like I was in Canada recently and I met with
Speaker 4: a handful of trucking companies that move freight from Mexico
Speaker 4: to Canada and vice versa, and they told me, you know,
Speaker 4: look like there's definitely anxiety here. Like there's this much
Speaker 4: outrage that I heard from every trucking company and burger
Speaker 4: that I met with in Canada a few weeks ago,
Speaker 4: that I've seen on social media about everything going on
Speaker 4: right now in politics. And so most of those trucking
Speaker 4: companies are saying like, hey, we're going to stay calm,
Speaker 4: We're going to focus on supporting what we can support.
Speaker 4: We know some customers might not be shipping right now
Speaker 4: if they're freight is getting taxed heavily, and so we
Speaker 4: have to find freight elsewhere. But for the time being,
Speaker 4: we're going to stand strong. We're going to wait and see,
Speaker 4: because we don't think this is how it's going to
Speaker 4: stay long term. And so they're of a more long
Speaker 4: term mindset of waiting and seeing what happens, rather than
Speaker 4: panicking and trying to switch what they're doing or shutting
Speaker 4: something down or slowing down their fleet. They might just
Speaker 4: not grow as much right now, but they're not going
Speaker 4: to stop their trucks.
Speaker 2: But it sounds like no matter who you're talking about.
Speaker 2: And it's funny because look in the financial markets, one
Speaker 2: gets the sense that there is a widespread belief that
Speaker 2: the CURL rules can't stay in place, like this can't
Speaker 2: be the ultimate status quo, and no one really wants
Speaker 2: to accept that the new tariff schedules are really the
Speaker 2: whole thing. And I think there's a widespread belief that
Speaker 2: if somehow you at a crystal ball and these were
Speaker 2: the permanent tariffs for years to come, the markets would
Speaker 2: go a lot lower. It sounds like actually from you
Speaker 2: that that's kind of the same in industry, whether we're
Speaker 2: talking about manufacturers or whether we're talking about truckers. Yeah, okay,
Speaker 2: so pausing, We're not gonna move new inventory in right now.
Speaker 2: We're not going to change our business model. But at
Speaker 2: the moment still the sort of widespread belief that this
Speaker 2: can't be the final set of rules.
Speaker 4: Correct, And like, keep in mind that, you know, the
Speaker 4: big market that everybody talks about is the US market
Speaker 4: when it comes to freight. And obviously ocean freight's going
Speaker 4: to slow down. We're already hearing about that on both
Speaker 4: social and from customers directly that they're seeing volume coming
Speaker 4: in through the port slowdown. And then two that freight
Speaker 4: comes into the port, it goes to a warehouse at
Speaker 4: some point, it gets repackaged or labeled and then packaged
Speaker 4: and palatized. It goes on a truck after that. And
Speaker 4: so what people in you know, the US market would
Speaker 4: say is considered domestic freight moving from like Los Angeles
Speaker 4: to Dallas. That freight very well is going on a
Speaker 4: truck and it is considered a domestic shipment at that point,
Speaker 4: but it's really part of an international move and so
Speaker 4: if international freight slows down coming in over the ocean,
Speaker 4: that is ultimately going to impact over the road throughout
Speaker 4: the US. And so I don't think we're going to
Speaker 4: see a spike in rates by any means. I think
Speaker 4: we might see some weird fluctuation over the next couple
Speaker 4: months as these things settle, but I think overall the
Speaker 4: market's going to be a little bit slower for freight
Speaker 4: in general, not just for cross border or international.
Speaker 3: I mean, on this note, one of the things we
Speaker 3: learned from the twenty twenty pandemic and the supply chain
Speaker 3: disruptions after that, one of the things we really internalized
Speaker 3: is just how cyclical the trucking business actually is and
Speaker 3: how you do tend to get these boom bust cycles.
Speaker 3: And it feels like the more sort of one off
Speaker 3: shocks we have to the system, the worse that cyclicality
Speaker 3: kind of gets. How bad should we assume things are
Speaker 3: going to get if this tariff uncertainty sticks around for
Speaker 3: a while.
Speaker 4: I think it really depends on what happens with China
Speaker 4: all the other countries like it all has an effect, right,
Speaker 4: Like if you think about what happened during the pandemic
Speaker 4: when all of a sudden there's a shortage with semiconductor
Speaker 4: chips and what that did to everything. Like all of
Speaker 4: a sudden, cars were not rolling off of lines because
Speaker 4: of how many chips are going to a car, And
Speaker 4: so the whole ecosystem is really tied in more than
Speaker 4: you'd think. But China is really the big one that
Speaker 4: it's all going to depend on, right Like if we
Speaker 4: come out of this with significant tariffs from both sides
Speaker 4: on China, yeah, and from China to the US, then like, yeah,
Speaker 4: it's going to slow things down if things go to
Speaker 4: a new normal. But to me, normal still means that
Speaker 4: supply chains don't have to be completely redone in a
Speaker 4: really quick fashion. Then I think the market should pick
Speaker 4: back up and there should be excitement from the new
Speaker 4: agreements in place where people might start buying again. People
Speaker 4: are not obviously happy about their bank accounts right now.
Speaker 2: Yeah, obviously not. No. I mean like this is sort
Speaker 2: of the big one because if some of these levels
Speaker 2: that are being discussed, and again we're talking about this
Speaker 2: April seventh, two thirty five pm Eastern time. If some
Speaker 2: of these levels for China tariffs remain in place, I mean,
Speaker 2: people are talking about the end of US China trading,
Speaker 2: which is the sort of the defining economic relationship of
Speaker 2: the entire world. Matt Silver, thank you so much for
Speaker 2: coming back on oddlocks.
Speaker 4: Absolutely thanks for having me.
Speaker 2: It really feels tracy, even with all of the market volatility.
Speaker 2: I love catching up with Matt. By the way, it
Speaker 2: really feels though, with all the market volatility that we've seen,
Speaker 2: with all the selling, like no one just believes that
Speaker 2: this could be the the new normal right now.
Speaker 4: Everyone's like waiting.
Speaker 2: It's like, Oh, we're gonna see what happens with negotiations.
Speaker 2: I'm like, what negotiations? But you know, there's got to
Speaker 2: be something, right, Everyone assumes there must be some deal
Speaker 2: to be cut.
Speaker 3: Yeah. Well, I mean ostensibly that's the whole point of
Speaker 3: this process, right, It's to use leverage to strike deals.
Speaker 3: But in the meantime we're all sort of grappling with
Speaker 3: all this uncertainty of what's going to happen. But I
Speaker 3: thought that was really interesting, good to catch up with Matt.
Speaker 3: I did think his emphasis on the importance of China
Speaker 3: is a really big deal, and you've said it very
Speaker 3: well at the end as well, like the world's two
Speaker 3: largest economies, there's a real chance that they're basically decoupling
Speaker 3: from each other, which seems like it could reverberate around
Speaker 3: supply chains and industries around the world. So again, no
Speaker 3: matter what happens, you know, if the US strikes a
Speaker 3: deal with I don't know, like some small Pacific island
Speaker 3: or something like, maybe it doesn't really matter because the
Speaker 3: US China relationship is much much bigger and weighs much
Speaker 3: much much more heavily on the global economy.
Speaker 2: Yeah, it seems like the big one. And so it's like,
Speaker 2: even if you're talking about US versus Mexico trail aid,
Speaker 2: the future of US and Mexico trade is contingent to
Speaker 2: some there still China of US China trade because A
Speaker 2: there's a question of well, can Chinese good to get
Speaker 2: through Mexico and then to the US, which happens to
Speaker 2: some extent. And then B if you're really shut off
Speaker 2: from China, how much actual actual capital I investment do
Speaker 2: you then make it in North America? And how much
Speaker 2: you make in Mexico versus the United States. Many big questions,
Speaker 2: But like investors, it sounds like the world of shippers
Speaker 2: and carriers are also in a certain kind of light
Speaker 2: and see mode.
Speaker 3: Yeah, And I mean the other big thing happening here
Speaker 3: is the difference between now versus twenty eighteen is you
Speaker 3: don't have those outlet countries necessarily, right, So you can't
Speaker 3: just re route stuff into Vietnam or into Mexico away
Speaker 3: from China like that is no longer an option. So
Speaker 3: that seems to make it much much more complicated as well.
Speaker 3: Shall we leave it there?
Speaker 4: Let's leave it there.
Speaker 3: This has been another episode of the Authoughts podcast. I'm
Speaker 3: Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Jill Wasn't the You can follow me at
Speaker 2: the Stalwart. Follow Matt Silver, He's at Matt Silver. Follow
Speaker 2: our producers Carmen Rodriguez at Kerman armand dash Ol Bennett
Speaker 2: at Dashbod and Kelbrooks at Kelbrooks. From our Odd Lots content.
Speaker 2: Go to Bloomberg dot com slash odd Lots, where we
Speaker 2: have all of our episodes in a daily newsletter and
Speaker 2: you can chat about all of these topics. Twenty four
Speaker 2: to seven in our discord discord, dot gg, slash.
Speaker 3: Od lots and if you enjoy odd Lots, if you
Speaker 3: like it when we go back and talk to some
Speaker 3: of our supply chain and logistics contacts, then please leave
Speaker 3: us a positive review on your favorite podcast platform. And remember,
Speaker 3: if you are a Bloomberg subscriber, you can listen to
Speaker 3: all of our episodes absolutely ad free. All you need
Speaker 3: to do is find the Bloomberg channel on Apple Podcasts
Speaker 3: and follow the instructions there. Thanks for listening.