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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
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Speaker 2: The Trump administration seeking to curb crude volatility, saying the
Speaker 2: US Navy willissis and escorting tankers through the stratiformers quote
Speaker 2: soon as a runds new Supreme Issues, Supreme Leader issues
Speaker 2: of statements, saying the crucial waterway should remain closed. Gene Soroka,
Speaker 2: the executive director of the Port of Los Angeles, joins
Speaker 2: us now for more. Gene, welcome to the program. Can
Speaker 2: we start with the operational consequences here and can you
Speaker 2: talk us through a picture of what you see the
Speaker 2: transit times that have had to be extended now because
Speaker 2: of the difficulties getting through that very tight straight offor moods.
Speaker 3: What's going on now, Well, good morning, John, not much.
Speaker 4: There are thousands of vessels that are stuck in the
Speaker 4: Arabian Gulf and just to the east outside of the
Speaker 4: Strait of Horror moves about one hundred and fourteen hundred
Speaker 4: and fifteen container ships, balance bulkers, tankers, and those energy
Speaker 4: ships that you've talked about in the previous segment. The
Speaker 4: companies do not have an interest right now, nor is
Speaker 4: there enough money for insurance to transit those ships through
Speaker 4: the strait. Risking the life and limb of crew is
Speaker 4: just not an option for the private sector companies today.
Speaker 2: So Gene, you're saying that for many they're just doing
Speaker 2: a hands off approach and have canceled a lot of transits.
Speaker 3: That's right on the container side, John.
Speaker 4: The Middle East and especially those countries in the Gulf,
Speaker 4: think of the United Arab Emirates, Bahrain, Kuwait, Iraq. They're
Speaker 4: consuming public much like we are here in the United States.
Speaker 4: So exports from Asia of furniture, footwear, clothing, electronics, and
Speaker 4: appliances have all but halted. Those factories in Asia are
Speaker 4: trying to segment that product, move it to the side
Speaker 4: so they can continue servicing us here in the United States,
Speaker 4: Latin America, European Continent, and the UK. It's a matter
Speaker 4: of time to see if that starts coming up the
Speaker 4: works at ports through Asia. But so far supply chains
Speaker 4: moving here to the United States are smooth. Yet the
Speaker 4: cost of the fuel has doubled over the last ten days.
Speaker 5: Has that affected Gene anything about the number of ships,
Speaker 5: the number of the scope of demand that you've seen
Speaker 5: at the port of Los Angeles, just based on the
Speaker 5: fuel costs alone.
Speaker 4: Not so much right now, Lisa. But we're watching this
Speaker 4: very closely. The cargo moving today following Lunar New Year's
Speaker 4: in our traditional slack season, so the flow of goods
Speaker 4: will be a little bit slow until we hit the
Speaker 4: middle of April. Then we'll start seeing spring and summer
Speaker 4: fashion arrive.
Speaker 3: But the fuel component right now is.
Speaker 4: About twenty five percent of the overall freight cost, almost
Speaker 4: double or much higher than it normally is. Yet it's
Speaker 4: not impeding purchase orders. From what I hear out of
Speaker 4: retailers and manufacturers alike. Those pos in Asia are remaining solid.
Speaker 4: We're not seeing a drove of cancelations how much.
Speaker 5: You also seeing supply chains start to regionalize in a
Speaker 5: more concrete way. I mean, we've been talking about this
Speaker 5: for a significant period of time. People trying to localize
Speaker 5: where they get things to avoid some of these disruptions.
Speaker 4: Is that accelerating, Yeah, it's interesting depending on hubs of production.
Speaker 4: Think of the automotive industry here in the United States
Speaker 4: with their tiered suppliers, as they're all within one hundred
Speaker 4: or two hundred mile radius of those oem plants. Folks
Speaker 4: are looking at scenario building around supply chains, whether it's tariffs,
Speaker 4: cost Now this war in the Middle East that's impacting
Speaker 4: the fuel costs across the board in a variety of areas.
Speaker 4: Not only do we see it at the pump here
Speaker 4: up sixty cents over the last two weeks, but that
Speaker 4: bunker fuel for the big container ships, cruise ships, and
Speaker 4: airline tickets have risen substantially over this period of time,
Speaker 4: adding to that fuel adjustment factor. On the manufacturing side,
Speaker 4: these supply chains can't move that quickly, and they've been
Speaker 4: designed in ways to allow for some adaptation, and that's
Speaker 4: why we typically see closed loop services in the Middle East.
Speaker 4: Those ships that are coming from Asia will offload the cargo,
Speaker 4: pick up a small amount of exports and a lot
Speaker 4: of empty containers, and head straight back to Asia. Here
Speaker 4: in the Transpacific trade, we don't see a lot of
Speaker 4: interdependence of crews, assets, or those vessels themselves. So the
Speaker 4: supply chain folks across the board are continuing to look
Speaker 4: for ways to refine. Yet it the inertia is not
Speaker 4: going to happen that quickly.
Speaker 6: Jane, you lived through a lot of crisises. You also
Speaker 6: worked in the Middle East. There was the pandemic, there
Speaker 6: was the Red Sea at one point shut for about
Speaker 6: six months essentially. On top of that, we recently had
Speaker 6: a lot of issues regarding tariffs. What does this remind
Speaker 6: you of the.
Speaker 4: Most, probably, Anne Marie accommodation of all of those. When
Speaker 4: I lived and worked in the Middle East, we were
Speaker 4: going through the Second Iraqi War, and while there was
Speaker 4: a lot of cargo flowing in to support the troops
Speaker 4: that were on the ground and help rebuild Iraq, there
Speaker 4: was always this fear of the Strait of Horror Moves
Speaker 4: being closed and that twenty one mile gateway that allows
Speaker 4: cargo product ag doll aluminum and of course the energy
Speaker 4: products going through there. That was a fear for many,
Speaker 4: many decades, and now we're seeing what it really looks
Speaker 4: like the price of these energy products is on an
Speaker 4: international level. So even though the United States now is
Speaker 4: a net exporter of energy, we're still feeling it right
Speaker 4: here at home. This is how important that geography is.
Speaker 4: And while it's only about eight to twelve percent of
Speaker 4: container shipping volume and assets worldwide, it's going to have
Speaker 4: knock on effects if this lasts longer than some experts
Speaker 4: had originally predicted. So it's adding all these pieces together
Speaker 4: and it's that continued unknown. What CEOs and executives are
Speaker 4: telling me and Marie is their planning horizons have shrunk
Speaker 4: two months, if not less than that right now, trying
Speaker 4: to understand how best they can move tactically because longer
Speaker 4: range strategy is very difficult at this point in time.
Speaker 6: Given your contacts around the world, have you heard of
Speaker 6: any companies asking the US directly for that naval escort?
Speaker 3: No, I have it.
Speaker 4: We just had last week the large Transpacific Maritime conference
Speaker 4: here in southern California that was by the S and
Speaker 4: P Global and Journal e Commerce groups over forty four
Speaker 4: hundred delegates, many of the shipping line executives, and as
Speaker 4: we started trying to plan or scenario build just a
Speaker 4: little bit follow on conversations this week, no one has
Speaker 4: raised their hands saying they want to start.
Speaker 3: Pushing through again.
Speaker 4: The safety of those crews is omnipresent in their thoughts,
Speaker 4: and then the risk of those assets containers. You're not
Speaker 4: going to be able to recoup that if anything disastrous happened, ever,
Speaker 4: and you're going to have to live with it. There's
Speaker 4: also this risk, a war risk insurance premium that's been
Speaker 4: levied by a number of carriers about three thousand dollars
Speaker 4: per container for any cargo that would be transiting in
Speaker 4: that region. And it's simply an outcome of the fact
Speaker 4: that they can't get insurance for the vessels or cargo
Speaker 4: or the protection of the crew. So to be at
Speaker 4: a standstill now, we'll continue for some time until we
Speaker 4: have some level of surety that that region will be
Speaker 4: safe again.
Speaker 3: Stay with us Multilemberg.
Speaker 2: Savannah's coming up off to this, the retired Lieutenant General
Speaker 2: Robert Walsh of Academy Securities, writing restoring normal shipping could
Speaker 2: take weeks if a significant number of naval minds are deployed.
Speaker 2: Lieutenant General Welsh joins us. Now for more, Lieutenant General,
Speaker 2: welcome back to the program, Sir. I want to give
Speaker 2: to you just the quote that we heard from the
Speaker 2: Supreme Leader, supposedly a quote from the Supreme Leader yesterday.
Speaker 2: The leader of the straight ofform mers must certainly continue
Speaker 2: to be used. Studies have been conducted on opening other
Speaker 2: fronts where the enemy has little experience and would be
Speaker 2: highly vulnerable. Now we're going to get to the ram
Speaker 2: of speculation, Lieutenant General, But what do you suppose the
Speaker 2: Supreme Leader is addressing there?
Speaker 7: Well, I think what the'se trying to say, And first off,
Speaker 7: thanks Jonathan for having me this morning. But I think
Speaker 7: what he's trying to say is, you know, they're trying
Speaker 7: to work against our strength. They're using asymmetric warfare. You know,
Speaker 7: it's one of the things the Chinese philosopher Son Sou said,
Speaker 7: don't work against an enemy strength, work against their weaknesses.
Speaker 7: And this is one of the those areas where they
Speaker 7: can work asymmetrically. And Iran feels like they want to
Speaker 7: get leverage whenever they go into whatever negotiations may be.
Speaker 7: This could go long term, and he wants to have
Speaker 7: that leverage, and he's going to get against our One
Speaker 7: of our key problems is trying to keep the straits
Speaker 7: over Moose open.
Speaker 6: Well, yesterday the Treasury Secretary said that his belief is
Speaker 6: that as soon as it is militarily possible, the US Navy,
Speaker 6: perhaps with an international coalition, will be escorting vessels through.
Speaker 6: Can you walk us through what this even looks like.
Speaker 3: Yeah, sure, am Marie. That's great.
Speaker 7: I think the one point you hit on was an
Speaker 7: international coalition trying to bring partners together to open the
Speaker 7: straights up, because this is an international problem. So the
Speaker 7: more the US can always leverage international problems, problems like this,
Speaker 7: the better off it's going to be. And we've got
Speaker 7: a lot of international partners that have a lot of
Speaker 7: capabilities in this. I think you can see right now
Speaker 7: that the US has a great ability right now to
Speaker 7: suppress Aroan's missile drone capabilities to kind of maintain air
Speaker 7: superiority over that. And now the real question would be
Speaker 7: would around start delay minds in there, because that's another
Speaker 7: opportunity they've got to choke off the straits of Hormuse.
Speaker 7: That's another asymmetric capability that if you look at the
Speaker 7: way the US Navy operates, they would rather just like
Speaker 7: we've seen the first parts of the air campaign, it's
Speaker 7: like they would rather stand off than stand in. When
Speaker 7: you start putting, you know, warships into contested areas like
Speaker 7: contested lottorals like we have in the Gulf in the
Speaker 7: Straits there, they would like to set the conditions first.
Speaker 7: And that's why I think you're seeing time before the
Speaker 7: escorts start to happen, setting those conditions right before we
Speaker 7: start conducting the operations.
Speaker 6: Well besides the UK Navy, who's signing up for this
Speaker 6: international coalition, I.
Speaker 7: Think that would be something that have to be worked
Speaker 7: with the international partners like Saudi Arabia. I think the UAE,
Speaker 7: we've had the French in there in Australia have mind
Speaker 7: color measures capabilities. They would be the ones and I
Speaker 7: think you'd have a better chance at performing that once
Speaker 7: the conditions are set where it's safe to go in
Speaker 7: to conduct escort and mind clearing operations, because these would
Speaker 7: really be more looked at by the International Committee as
Speaker 7: defensive operations and not offensive operations, and why you'd have
Speaker 7: a better chance of getting a coalition with those partners.
Speaker 5: Lieten in general, do you think that still there is
Speaker 5: the possibility of ground troops going into Iran, particularly to
Speaker 5: get the industry radium still there at least?
Speaker 3: That's a really hard question to say.
Speaker 7: I certainly don't see large ground forces going in there.
Speaker 7: There could be significant operations that would go into key
Speaker 7: sites like you just mentioned for nuclear capabilities, very dangerous operations.
Speaker 7: We have the capabilities to do it. Again, those conditions
Speaker 7: would have to be set for those forces to go in.
Speaker 7: But at the end of the day, I don't see
Speaker 7: any risk that the US wants to take by putting large
Speaker 7: ground forces in and putting them at risk into some
Speaker 7: type of long extended campaign.
Speaker 2: Lieutenant General, do you think you can end up in
Speaker 2: a long extended campaign even if you don't want to.
Speaker 7: I think this warfare change as it goes on, and
Speaker 7: what we're starting to see from the Iranians is even
Speaker 7: with the massive power the US has along with the
Speaker 7: Israelis bringing all this power to bear and taking down,
Speaker 7: you know, the missile capabilities somewhat the drone capabilities, we're
Speaker 7: seeing those numbers drop way down. We've seen them destroyed
Speaker 7: pretty much the entire navy of Iran. But at the
Speaker 7: same time, like I said, the Ranians have looked at
Speaker 7: this problem just as the US has looked at it
Speaker 7: for a very long time. They understand the strengths of
Speaker 7: what the US does, how the US comes to war,
Speaker 7: and what they have worked against is those weaknesses, and
Speaker 7: a weakness they see here is that regime is willing
Speaker 7: to hang on for a long long time. And then
Speaker 7: that's what we see as regimes like this are not
Speaker 7: willing to give up power. They're willing to entrench themselves
Speaker 7: for a long time. And what they're seeing is by
Speaker 7: using this asymmetric threats by firing the drones in particular
Speaker 7: the missiles also you know, at our allies and partners,
Speaker 7: and threatening the straits to keep them closed. That's an
Speaker 7: asymmetric way where they've got leverage, and they're going to
Speaker 7: use that as best they can to get in negotiations
Speaker 7: where they've got leverage to try to get the things
Speaker 7: they want coming out of it as the war comes
Speaker 7: to an end.
Speaker 3: When that comes to an end, stay with us.
Speaker 2: More Bloomberg surveillance coming up after this. Rachel's of the
Speaker 2: sense for a new American security right In the following
Speaker 2: traders will assume the US will continue such measures as
Speaker 2: long as Homer's is shut, and will be skeptical of
Speaker 2: post war pressure on Russia due to a widening gap
Speaker 2: between the US and the EU. Rachel joins us now
Speaker 2: for more. Rachel, welcome to the program. Thanks for having
Speaker 2: How much for mess are we in right now?
Speaker 8: I think we're in quite a mess and the issue
Speaker 8: now is I mean, the most charitable read on the
Speaker 8: decision last night was that Russian oil prices were already
Speaker 8: high and that if this lifting, if the sanctions easing
Speaker 8: didn't happen, that China would be getting all of all
Speaker 8: of the game. The challenges here that it's not enough barrels,
Speaker 8: and that at the end of the day, it's not
Speaker 8: clear that we're getting closer to the end of the
Speaker 8: war and reopening hormones, and at the end of the day,
Speaker 8: for the energy markets, that's what needs to happen, and
Speaker 8: it means but this uncertainty means that even US producers
Speaker 8: here can't really benefit because they don't want to start
Speaker 8: investing more in the risk that there's demand destruction ahead
Speaker 8: or that suddenly the war is over. And this fifty
Speaker 8: million barrels is back on the market. So you know,
Speaker 8: here in the US, we don't have lots of surplus
Speaker 8: capacity that we can flood the market with.
Speaker 1: So I think it's it's a very difficult situation.
Speaker 2: I'm sure you've seen the research coming out of the banks.
Speaker 2: This was Goldman deadly. Oil price is likely to exceed
Speaker 2: the two thousand and eight peak. It flows through the strain,
Speaker 2: remain to press through March. What's the day on the
Speaker 2: calendar that you're focused on.
Speaker 1: Yeah, I mean, I think right now it's hard. Everybody
Speaker 1: has their model.
Speaker 8: It's hard to think about where the prices go because
Speaker 8: at a certain point it's more symbolic than actually based
Speaker 8: on market models. But I am really watching, you know
Speaker 8: where we are in early April, right, that's when the
Speaker 8: physical supply risks of you know, sort of really mount,
Speaker 8: right because a number of energy producers, especially Ron but
Speaker 8: also Saudi Arabia they front loaded, they sent more vessels
Speaker 8: out and and that's so that's when I think, you know,
Speaker 8: things would start to bite. That's also when we'll be watching,
Speaker 8: are have these additional barrels from the G seven from
Speaker 8: the IA, you know, stockpile release are they coming to market.
Speaker 8: And I'm watching as much not just crude oil, but
Speaker 8: product markets, diesel, jet fuel, and also the cascading effects
Speaker 8: that we're seeing in Asia of chemical plants shutting down
Speaker 8: and the like. So I think if we're not at
Speaker 8: a point where they're ceilings are reopened towards the end
Speaker 8: of the month, we'll be in a well even more
Speaker 8: difficult situation.
Speaker 1: When does demand destruction kick in.
Speaker 8: I think we're starting to see it already, maybe more
Speaker 8: so in Asia. We're seeing mandated moves across Southeast Asia
Speaker 8: to reduce demand, when we're seeing it even in Europe.
Speaker 8: I think on the power side, the gas natural gas
Speaker 8: spiked even more quickly than oil just once the kateries
Speaker 8: started to shut in production and we saw TTF spike up.
Speaker 8: Was that last week and now we're sort of seeing
Speaker 8: it flat in part because at those prices, people.
Speaker 1: Don't want to buy, and that's going to kick in.
Speaker 8: Especially later this year, when normally producers would be injecting
Speaker 8: more fuel.
Speaker 1: It's at storage time.
Speaker 8: So I think we'll start seeing some switches to coal
Speaker 8: where that can happen. We'll start seeing some rationing, and
Speaker 8: you know here in the United States. We're a bit
Speaker 8: more sheltered on on especially the natural gas side, because
Speaker 8: we can't export a lot more capacity than we're already doing.
Speaker 8: But still we're already at a point where electricity prices
Speaker 8: we're a salient political issue in the midterms.
Speaker 1: There were a big issue in the.
Speaker 8: Off year elections last year, and so now we're looking
Speaker 8: at prices of the pump being more expensive as well
Speaker 8: as electricity bills.
Speaker 5: Well, I guess the key question for economists has been
Speaker 5: when does this end up suppressing growth in a material way?
Speaker 5: And most people seem to say not until it goes
Speaker 5: on for months.
Speaker 1: Or a longer period of time.
Speaker 5: And then I think of that spring break and how
Speaker 5: a number of people are saying, I'm not going to
Speaker 5: fly anywhere because the prices have gone up forty percent,
Speaker 5: thirty percent and it's not worth it. I mean, are
Speaker 5: we already seeing that start to trickle in on the
Speaker 5: margins in the US or is that mostly an Asia
Speaker 5: story a Europe story for now?
Speaker 1: I think it's mostly an Asia Europe story.
Speaker 8: I guess it depends how quickly how short term people
Speaker 8: buy their spring break tickets. I often sometimes I travel
Speaker 8: short term, but a lot of times. You know, I
Speaker 8: have I have some trips booked out through the spring.
Speaker 8: I'd be more worried about how people are going to
Speaker 8: travel and drive this summer.
Speaker 1: People are making those decisions.
Speaker 8: We're seeing airlines in Asia and elsewhere start to put
Speaker 8: on fuel surcharges.
Speaker 1: So those dynamics now here in the US. I think.
Speaker 8: You know, we've seen the drivers of growth be largely
Speaker 8: around AI and AI roll out imports have been driven
Speaker 8: by AI.
Speaker 1: Some of that will continue, but.
Speaker 8: That's where I start to worry about. You know, memory
Speaker 8: ship prices we're already going up, and now they're helium shortages.
Speaker 1: Helium's used in semiconductors.
Speaker 8: Taiwan is one of the countries that is quite high
Speaker 8: on a pain point schedule level, however you measure it
Speaker 8: not having a lot of reserves and the like, and
Speaker 8: then other countries like India.
Speaker 1: My senses in the US.
Speaker 8: The worry is more, are we going to be in
Speaker 8: some version of a growth slow down?
Speaker 1: And you know, the dread it.
Speaker 8: I'm not ready to call at stake inflation yet, but
Speaker 8: you know, we were seeing prices of other goods start
Speaker 8: to go up, especially you know, healthcare and the like
Speaker 8: and so I do think this puts the FED in
Speaker 8: a tricky you know, in a tricky position. That being said,
Speaker 8: the right thing to do from just a commodity shock
Speaker 8: like this is probably to look through it. But this
Speaker 8: is an economy where we're not adding jobs really right,
Speaker 8: and where prices are going up, and so I think
Speaker 8: globally this is more of a risk to growth rather
Speaker 8: than sign of some sort of recession. But you know,
Speaker 8: there's also a risk that investments slowed down as well,
Speaker 8: a long term investments infrastructure projects, both in the Golf region,
Speaker 8: but also questions internationally.
Speaker 6: Two months ago and ten days the United States captured
Speaker 6: Nicholas Maduro, we have seen companies like Chevron say they're
Speaker 6: going to expand production. Could that be a lever this
Speaker 6: administration leans more into given what's going on in the region.
Speaker 8: Yeah, I think it will reinforce their priority on that.
Speaker 8: We've seen a brow of different administration officials in Caracas,
Speaker 8: their investor trips I think going on this month, you know,
Speaker 8: and we've seen Venezuela and production go basically back up
Speaker 8: to where it was in the fall of last year,
Speaker 8: maybe getting close to where we were at the beginning
Speaker 8: of the second Trump administration one and change million barrels
Speaker 8: a day. The challenge is it's not easy to bring
Speaker 8: a lot of more supply online quickly, so it's more Again,
Speaker 8: we're back to this medium term question of is the
Speaker 8: demand going to be there a year from now, five
Speaker 8: years from now. So I think we'll see producers already
Speaker 8: present adding, you know, in the neighborhood of a few
Speaker 8: hundred thousand barrels a day. Every barrel helps to be clear,
Speaker 8: But I don't think we're going to see the kind
Speaker 8: of investment that takes.
Speaker 1: Us to, you know, that helps us fill this gap.
Speaker 1: This is ten millisian barrels a.
Speaker 8: Day gap of things that either are not going through
Speaker 8: the strait of hormones or can't be diverted through other pipelines.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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