WEBVTT - Rerouting Trade, Private Equity Test 0:00:02.520 --> 0:00:14.720 Bloomberg Audio Studios, podcasts, radio news. 0:00:20.800 --> 0:00:23.520 This is Wall Street Week. I'm David Weston bringing you 0:00:23.560 --> 0:00:26.680 stories of capitalism. The world is focused on the strait 0:00:26.680 --> 0:00:29.840 of hor moves. What about the other shipping choke points 0:00:29.880 --> 0:00:32.559 at risk? And what can be done before there is 0:00:32.600 --> 0:00:36.040 a crisis? Private equity has been the source of market 0:00:36.040 --> 0:00:39.319 beating returns four years, but now the spread has come 0:00:39.400 --> 0:00:42.080 down and getting your money out can be a problem. 0:00:42.600 --> 0:00:45.920 Cuba is facing yet another economic crisis, in no small 0:00:45.920 --> 0:00:49.080 part because of US sanctions. President Trump says he's going 0:00:49.120 --> 0:00:52.240 to make sure the country finally opens up its economic system. 0:00:52.640 --> 0:00:56.640 We've heard this story before. Could this time truly be different? 0:00:58.040 --> 0:01:00.960 But we start with the bond market, caught between fears 0:01:00.960 --> 0:01:04.520 of inflation and long term fiscal risks. Rick Reader is 0:01:04.560 --> 0:01:08.000 Black Reg's Chief investment Officer of Global Fixed Income and 0:01:08.120 --> 0:01:11.800 head of the Global Allocation Investment Team. Rick, we got 0:01:11.800 --> 0:01:15.880 CPI numbers this week, and there was good news in 0:01:15.920 --> 0:01:17.959 the fact that they're not going up. On the other hand, 0:01:18.000 --> 0:01:20.800 it's not two point zero the way we've been promised. 0:01:20.920 --> 0:01:22.400 So which is more important the good news of the 0:01:22.440 --> 0:01:22.880 bad news? 0:01:23.400 --> 0:01:25.920 Well, I will say markets have been more nervous about 0:01:25.920 --> 0:01:28.120 this number, and I would think there was a collective 0:01:28.160 --> 0:01:31.040 industry wide sigh of relief when this number came out, 0:01:31.080 --> 0:01:33.319 because it wasn't you know, this is one of those 0:01:33.400 --> 0:01:35.520 numbers it becomes in high then all of a sudden, 0:01:35.520 --> 0:01:38.440 now you put the FED in clear hiking mode and 0:01:38.520 --> 0:01:41.520 you know, starting to see consistent numbers that. So if 0:01:41.560 --> 0:01:44.160 you go back into the last ten numbers that we've 0:01:44.200 --> 0:01:46.480 gotten in core CPI, eight of the ten have been 0:01:46.600 --> 0:01:50.760 point two rounded or below that. So it's still a 0:01:50.760 --> 0:01:54.320 bit elevated relative to where the fed's long term objective is. 0:01:54.760 --> 0:01:56.960 But I think the markets felt pretty good about woo. 0:01:56.960 --> 0:01:59.040 We got through it and it wasn't that high. And 0:01:59.080 --> 0:02:01.240 then if you go through the comple in parts otherwise 0:02:01.240 --> 0:02:03.760 a number of pretty close to expectations in only almost 0:02:03.760 --> 0:02:07.400 every regard you are seeing still things like lodging away 0:02:07.400 --> 0:02:11.880 from home, hotel, airlines, you're seeing leisure experiences about the 0:02:11.880 --> 0:02:14.920 World Cup effect, and otherwise you're still seeing some pricing 0:02:14.960 --> 0:02:18.120 pressure around that. But overall it was it was it 0:02:18.160 --> 0:02:20.000 was an okay number, but yeah, we're not certainly not 0:02:20.080 --> 0:02:21.120 a target yet, So. 0:02:21.160 --> 0:02:22.760 Pull back a little bit and give us a longer 0:02:22.840 --> 0:02:26.120 term view over the years of how it's bounced around 0:02:26.400 --> 0:02:28.240 and where we are today compared to where we've been. 0:02:28.880 --> 0:02:30.720 So, I mean, the big deal for me is a 0:02:30.800 --> 0:02:34.800 fence mandate, is price stability. It's not two, but you'd 0:02:34.880 --> 0:02:37.240 like to get it. There is real efficacy around two 0:02:37.320 --> 0:02:41.080 percent is a normalized equilibrium for what an economy should 0:02:41.120 --> 0:02:42.720 run out. So you want to get to that number. 0:02:43.080 --> 0:02:44.760 We haven't gotten there in a long time. By the way, 0:02:44.840 --> 0:02:46.600 you can take the two decades before. It's pretty hard 0:02:46.600 --> 0:02:48.640 to get it as high as too. You're in the 0:02:48.639 --> 0:02:51.079 ballpark today and you know when you were running, certainly 0:02:51.120 --> 0:02:55.760 post COVID, you're running at numbers five six. That was scary. 0:02:56.240 --> 0:02:58.760 But if you look at inflation expectations today, think about 0:02:58.760 --> 0:03:01.880 where we've come from, it's pretty stable. Particularly when you've 0:03:01.880 --> 0:03:03.920 got an economy that's running with a lot of debt 0:03:03.919 --> 0:03:05.960 on it. That the thing you really can't have outen. 0:03:06.080 --> 0:03:08.519 You can't have a deflating dynamic because it enhances the 0:03:09.280 --> 0:03:12.519 true course of the debt. Today, I would argue it's 0:03:12.560 --> 0:03:14.200 the number we'd like to see a little bit lower, 0:03:14.400 --> 0:03:16.959 but it's certainly not daunting by any stretch relative to 0:03:16.960 --> 0:03:18.120 anything we've seen in history. 0:03:18.400 --> 0:03:20.120 So take COVID out of it for a moment. Go 0:03:20.200 --> 0:03:22.799 back to like twenty twenty four for example, where are 0:03:22.800 --> 0:03:24.119 we in core? What's the trend line? 0:03:24.200 --> 0:03:24.440 Yeah? 0:03:24.480 --> 0:03:26.480 So, you know, the thing I find interesting is that 0:03:26.600 --> 0:03:28.560 is Chairman Warsh has focused on the left side of 0:03:28.880 --> 0:03:30.760 the decimal place and the right And I think you 0:03:30.800 --> 0:03:33.080 have to take that to heart. Meaning if you're in 0:03:33.160 --> 0:03:36.680 and around the two's, you're okay. But when you actually 0:03:36.800 --> 0:03:39.280 zoom in closer with the markets than to focus on 0:03:39.320 --> 0:03:43.240 there's it's been this maniacal focus on the right side. 0:03:43.560 --> 0:03:45.560 And you know, since you know, certainly over the last 0:03:45.600 --> 0:03:47.720 year or so, the trend is pretty good and that 0:03:47.840 --> 0:03:50.720 it's coming down, but it moves around, and you know, 0:03:50.760 --> 0:03:53.120 the market's tent to focus on the tents of a 0:03:53.200 --> 0:03:54.760 percent in terms of these movements. By the way, I 0:03:54.760 --> 0:03:56.280 always get a kick of the first thing I saw 0:03:56.360 --> 0:03:58.960 this morning while Chairman Warsh talked about the left side 0:03:59.000 --> 0:04:01.280 of the decimal place, the number was it printed at 0:04:01.280 --> 0:04:04.440 point two one five four and people talking about their rounding. 0:04:04.520 --> 0:04:07.160 You think about, for a broad economy like this, does 0:04:07.200 --> 0:04:09.520 anybody really care about the point five other than the 0:04:09.520 --> 0:04:12.600 market participants do? So, you know, part of what when 0:04:12.640 --> 0:04:15.120 you zoom out and you say, Okay, that's a pretty 0:04:15.120 --> 0:04:17.120 good We're in a pretty good place. Would like to 0:04:17.120 --> 0:04:19.839 see a trend lower. For me, I actually think we 0:04:19.920 --> 0:04:22.040 are trending a bit lower. We think core PC by 0:04:22.080 --> 0:04:23.720 the end of the year is around two to eight. 0:04:24.120 --> 0:04:26.839 Next year we think gets to two five. And course 0:04:26.839 --> 0:04:30.279 CPI is running lower than that. Course CPI is running 0:04:30.279 --> 0:04:32.840 at one point six the last six months two point four. 0:04:33.320 --> 0:04:35.480 When you strip shelter out, it's actually running at about 0:04:35.480 --> 0:04:38.440 half that. So not bad. You know, I'm pretty relaxed 0:04:38.480 --> 0:04:40.480 about where we are. There are other things I worry about, 0:04:41.040 --> 0:04:42.640 but I but you know, I don't think that's going 0:04:42.680 --> 0:04:44.159 to be the thing that disrupts the markets. 0:04:44.680 --> 0:04:47.120 And in fairness to some of the commentators and analysts, 0:04:47.640 --> 0:04:50.560 I understand cher Warsh said we care about what's left 0:04:50.680 --> 0:04:54.039 the He also has said we're not done yet. I mean, 0:04:54.160 --> 0:04:56.000 if he really is just happy with the left side, 0:04:56.000 --> 0:04:57.720 and given the numbers you just gave us, he would 0:04:57.720 --> 0:04:59.560 say mission accomplished, job done. 0:05:00.160 --> 0:05:01.960 So I think there's a real nuance to that. I mean, 0:05:01.960 --> 0:05:04.279 I think the FED, what the FED needs to accomplish 0:05:04.400 --> 0:05:06.120 is get to that two percent number. But that two 0:05:06.160 --> 0:05:08.400 percent doesn't have to happen today. It doesn't have done 0:05:08.400 --> 0:05:11.120 it next week. It's that is a long run number, 0:05:11.440 --> 0:05:14.000 and I think, quite frankly, if you are any head 0:05:14.040 --> 0:05:17.560 of any monetary policy authority, you have to be committed 0:05:17.600 --> 0:05:20.200 to that two number. The long end of the eel curve. 0:05:20.880 --> 0:05:23.680 Every tick of it is dependent on how you articulate 0:05:23.839 --> 0:05:26.200 that thesis in terms of where you're trying to get to. 0:05:26.600 --> 0:05:28.400 It doesn't mean you have to raise rates to get there, 0:05:28.880 --> 0:05:31.000 and I think why these task forces are a very 0:05:31.000 --> 0:05:33.800 elegant way to get there. These are complex issues when 0:05:33.800 --> 0:05:36.560 people ask are you restrictive or not? While in housing 0:05:36.560 --> 0:05:40.480 you're not. You're clearly restrictive. You have a dormant housing market. 0:05:40.920 --> 0:05:42.640 Then you look but then you look at the amount 0:05:42.640 --> 0:05:45.479 of spend on cap X like that's you were not 0:05:45.520 --> 0:05:47.320 restricted to that. But you think about what would you 0:05:47.360 --> 0:05:50.160 have to move rates for the big hyperscalers not to 0:05:50.160 --> 0:05:53.640 spend on an AI. You'd have to raise eight hundreds 0:05:53.640 --> 0:05:56.360 of base once before to get your IRR to a level. 0:05:56.360 --> 0:05:59.440 It did make sense, So I think he is committed 0:05:59.440 --> 0:06:00.800 to it. I think think he's going to think about 0:06:00.800 --> 0:06:02.640 the tools. You have, the balance sheet, you have, the 0:06:02.680 --> 0:06:04.960 money supply you have a lot of things, a lot 0:06:05.000 --> 0:06:08.240 of tools at your disposal. Raising the overnight funds rate, 0:06:08.600 --> 0:06:10.800 in my mind, is not terribly effective way to bring 0:06:10.839 --> 0:06:12.919 that number down. And I think I think if you 0:06:12.960 --> 0:06:15.400 really think about a sophisticated way, which I think they will, 0:06:16.279 --> 0:06:18.200 what are the tools, how do we get there, and 0:06:18.240 --> 0:06:20.240 what's the timeframe to try and achieve it. 0:06:20.760 --> 0:06:22.880 So you say, the long end of the curve really 0:06:22.920 --> 0:06:26.520 needs to believe the Fed monetary authorities. If you look 0:06:26.520 --> 0:06:29.200 at what happened with a thirty year yield during and 0:06:29.240 --> 0:06:31.880 after that, news conferences cedit they were not buying it. 0:06:31.920 --> 0:06:33.800 It went up to the highest level's once since two 0:06:33.800 --> 0:06:35.120 thousand and seven or something. 0:06:35.240 --> 0:06:37.320 So I think it did right. I think there are 0:06:37.320 --> 0:06:39.520 a couple of things to think about there. One, you know, 0:06:39.560 --> 0:06:42.039 he didn't say hike, and I think the markets the 0:06:42.080 --> 0:06:43.920 back end of the curve was like, we could get 0:06:43.960 --> 0:06:46.839 a hike here, which would obviously show maybe a stronger 0:06:46.880 --> 0:06:49.680 near term commitment to inflation. So there was a little 0:06:49.680 --> 0:06:51.720 bit of that. Second thing that I think proved it 0:06:51.720 --> 0:06:54.599 to be a bit untethered. Was this idea of gosh, 0:06:54.640 --> 0:06:57.000 we didn't hear a lot of the metrics markets want 0:06:57.040 --> 0:06:59.839 to hear the reaction function and how are you going 0:06:59.920 --> 0:07:02.080 to interpret data and then how you react to it. 0:07:02.360 --> 0:07:04.240 I don't think you need more forward guidance. I think 0:07:04.240 --> 0:07:06.719 actually pulling back on forward guidance a good idea. I 0:07:06.760 --> 0:07:09.040 don't agree with the ethos that people have put out 0:07:09.040 --> 0:07:12.360 there that less forward guidance needs more volatility. Actually, if 0:07:12.360 --> 0:07:14.040 you go back to twenty one twenty two, there was 0:07:14.080 --> 0:07:17.240 a lot of forward guidance. It wasn't right as long 0:07:17.280 --> 0:07:20.440 as the markets understand and can interpret, here are the 0:07:20.480 --> 0:07:23.640 metrics you're looking at. Here's what your reaction function is 0:07:23.680 --> 0:07:25.800 going to be to the data. And I think it's 0:07:25.880 --> 0:07:30.000 quite sincere when sheer War says, let the markets determine 0:07:30.000 --> 0:07:32.680 where should you be and then they could react, And 0:07:32.720 --> 0:07:35.120 that's a good piece of data for the FED. So anyway, 0:07:35.120 --> 0:07:38.080 I think that's really important going forward. But I think 0:07:38.080 --> 0:07:39.600 the long end of the yield curve is a very 0:07:39.600 --> 0:07:42.600 important thing. How you manage that, and you know, oftentimes 0:07:42.600 --> 0:07:45.160 I think you need to use the balance sheet to 0:07:45.280 --> 0:07:47.440 actually keep the long end down and we'll see how 0:07:47.440 --> 0:07:47.920 that goes. 0:07:48.400 --> 0:07:50.240 The markets certainly react to what they think is go 0:07:50.280 --> 0:07:54.120 on the monetary policy. Are they also taking account fiscal 0:07:54.120 --> 0:07:57.280 policy and how big a risk is it that actually 0:07:57.280 --> 0:07:58.920 we will be able to pay all these debts back 0:07:58.960 --> 0:08:01.720 if you look at the term for example, how big 0:08:01.760 --> 0:08:04.680 a factor is that and keep things above two to 0:08:04.760 --> 0:08:05.880 the right or the lesson. 0:08:05.680 --> 0:08:08.320 Desk one, David, I actually think you hit on exactly 0:08:08.400 --> 0:08:10.520 the right point in that. I actually don't think I 0:08:10.520 --> 0:08:13.240 think the markets will talk about on the day that 0:08:13.360 --> 0:08:15.000 may be the long end backed up and what does 0:08:15.000 --> 0:08:18.720 that mean for credibility. I think that was overstated and unfair. However, 0:08:19.360 --> 0:08:21.320 you do have something going on that we have not 0:08:21.360 --> 0:08:24.000 just in the US, you have fiscal burdens that are significant. 0:08:24.160 --> 0:08:26.440 And by the way, alongside of the amount of financing, 0:08:26.720 --> 0:08:29.320 this week there was six hundred and seventy three billion 0:08:29.400 --> 0:08:31.440 of US treasury debt you know, which I've talked it 0:08:31.600 --> 0:08:34.520 was like issuing Indonesia in a week. It's an awful 0:08:34.559 --> 0:08:37.280 lot of debt. Plus you have an immense amount of 0:08:37.320 --> 0:08:41.000 supply coming through that is AI related, so you're pushing 0:08:41.040 --> 0:08:43.520 into the system an awful lot of financing. To me, 0:08:44.280 --> 0:08:46.839 that's why real rates are pressing higher, is the cost 0:08:46.840 --> 0:08:50.559 of finance is going up driven by fiscal deficits around 0:08:50.600 --> 0:08:53.360 the world. Not just us, but also we've got to 0:08:53.360 --> 0:08:55.640 push a load of financing in the market, and the 0:08:55.679 --> 0:08:59.200 markets are saying, okay, these real rates are attractive, but boy, 0:08:59.240 --> 0:09:00.640 maybe they have to back up a bit more to 0:09:00.640 --> 0:09:02.920 get all this financing done. And that that, to me 0:09:03.040 --> 0:09:05.480 is is a big one. Give us a little more 0:09:05.480 --> 0:09:07.760 detail on how you are balancing your portfolio. And I 0:09:07.760 --> 0:09:09.240 took a look at some of the numbers and looked 0:09:09.240 --> 0:09:12.079 like high yield and securitize you got a fair amount 0:09:12.120 --> 0:09:13.960 of and then there's some other stuff. So my fixed 0:09:14.000 --> 0:09:16.439 income or further so bink is our big, big etf 0:09:16.800 --> 0:09:19.280 You know, bonds are very different than equities. In bonds, 0:09:19.720 --> 0:09:22.440 they my upside is they pay you back. So I know, 0:09:22.559 --> 0:09:24.439 I just got to create a portfolio of people that 0:09:24.559 --> 0:09:27.200 is as boring as possible, it's as stable as possible. 0:09:27.720 --> 0:09:30.720 What is incredible about today's environment. You can create almost 0:09:30.800 --> 0:09:33.160 a seven percent yield, So we're running about a sixt 0:09:33.160 --> 0:09:37.440 eighty yield at an average rating of as and by 0:09:37.440 --> 0:09:40.080 the way, with interest rate exos, that's under three years. 0:09:40.800 --> 0:09:43.680 That is I've lived much of my career never being 0:09:43.720 --> 0:09:46.040 close to decades for not being able to do that. 0:09:46.480 --> 0:09:48.520 So then what do I do with it high yield, 0:09:48.760 --> 0:09:51.720 merger market, some securitized assets. I own more Europe than 0:09:51.760 --> 0:09:54.480 the US, and I just try and keep the quality 0:09:54.520 --> 0:09:57.680 of portfolio in good shape and diversify it like crazy. 0:09:57.720 --> 0:10:00.959 And you know, today you don't have to stretch because 0:10:01.000 --> 0:10:03.400 these real rates are so high. A high yield should 0:10:03.400 --> 0:10:05.800 be trading one hundred and fifty two hundred base pints 0:10:05.880 --> 0:10:09.280 lower and yield. It's not because we have real rates 0:10:09.360 --> 0:10:11.640 high because of we have an inflation issue where we 0:10:11.679 --> 0:10:14.280 have these real rates that are that are you know, 0:10:14.320 --> 0:10:17.079 which make corporate investing pretty attractive today. 0:10:18.880 --> 0:10:21.560 Coming up, everyone is focused on the Strait of hor 0:10:21.600 --> 0:10:23.920 Moves and how to get it back open. But that's 0:10:23.960 --> 0:10:27.559 not the only global bottleneck for shipping key goods and commodities. 0:10:27.920 --> 0:10:41.520 What should we be doing about the others? This is 0:10:41.559 --> 0:10:44.520 a story about choke points. The closing of the Strait 0:10:44.520 --> 0:10:47.040 of hor Moves has reminded the world that, for all 0:10:47.080 --> 0:10:50.880 the flexibility of shipment by sea, geography creates a handful 0:10:50.880 --> 0:10:53.440 of points around the globe that can wreak havoc with 0:10:53.480 --> 0:10:56.160 commerce if they are cut off, which makes it all 0:10:56.200 --> 0:10:59.480 the more important that Mexico is undertaking a massive project 0:10:59.679 --> 0:11:01.840 to create an alternative to one of the world's most 0:11:01.840 --> 0:11:05.559 famous waterways. Bloomberg Simon Hampton has the story. 0:11:13.520 --> 0:11:17.440 In the Very Cruz region of Mexico, some twelve hundred 0:11:17.520 --> 0:11:20.760 miles north of the Panama Canal lies what's known as 0:11:20.760 --> 0:11:25.880 the inter Oceanic Corridor of the Isthmus of Tijwantpeck or Si. 0:11:26.679 --> 0:11:30.000 We're standing at the terminal for the train ship here 0:11:30.040 --> 0:11:33.240 at Pasaquaco. This is the only one in Latin America 0:11:34.000 --> 0:11:36.400 and it's become a very important service here. 0:11:37.200 --> 0:11:40.120 This port in Kuwatsicoelcos is one end of the so 0:11:40.240 --> 0:11:44.360 called Dry Canal cutting across Mexico, a combination of rail 0:11:44.480 --> 0:11:47.840 and road connecting the Pacific Ocean to the Gulf of Mexico. 0:11:48.120 --> 0:11:50.640 It doesn't have to change from the truck to the 0:11:50.800 --> 0:11:54.360 train and then add all these costs for operations. 0:11:54.440 --> 0:11:57.800 Alejandro of Aleskiez is the head of investment and commercial 0:11:57.840 --> 0:12:01.440 development for the CIIT. I've seen it described online as 0:12:01.640 --> 0:12:04.280 a competitor to the Panama Canal. Do you see it 0:12:04.320 --> 0:12:04.640 that way? 0:12:05.760 --> 0:12:08.400 Of course not? No, I mean the corridor is just 0:12:08.520 --> 0:12:13.080 an alternative. For some industries or for some companies, the 0:12:13.120 --> 0:12:16.280 corridor will be a better alternative at some point and 0:12:16.400 --> 0:12:18.160 some of the times you're going to use just the 0:12:18.240 --> 0:12:21.720 Panama Canal. At the beginning, it was offering service only 0:12:21.800 --> 0:12:26.680 for all the oil and derivative industry. But today, with 0:12:26.880 --> 0:12:30.600 the growth of the service here and at the south 0:12:30.600 --> 0:12:34.240 of Mexico, companies located at the very south of Mexico 0:12:34.320 --> 0:12:38.280 are considering to use also these service to get to 0:12:38.800 --> 0:12:40.480 Florida or even to. 0:12:40.600 --> 0:12:44.960 New York, and that need for alternatives is rising as 0:12:45.000 --> 0:12:48.240 supply chain choke points become a recurring feature in the 0:12:48.280 --> 0:12:51.440 world today. Oh much of the world focuses on the 0:12:51.480 --> 0:12:54.400 Strait of Hormuz. A recent report from the Council on 0:12:54.480 --> 0:12:58.840 Foreign Relations highlighted potential risk spots elsewhere, including in the 0:12:58.840 --> 0:13:02.040 Strait of Malacca, whereas much as forty percent of global 0:13:02.080 --> 0:13:06.760 seaborne trade transits annually, or the Taiwan Strait. We're around 0:13:06.760 --> 0:13:10.280 forty four percent of the global container fleet transits each year, 0:13:10.760 --> 0:13:14.480 and the Panama Canal, which handles about forty percent, have 0:13:14.559 --> 0:13:17.600 contained a trade between Asia and America's East Coast. 0:13:17.840 --> 0:13:21.320 We were used in an environment where choll points were 0:13:21.360 --> 0:13:25.400 considered i would say, secure of access, reasonably accessible, But 0:13:25.559 --> 0:13:28.040 now it seems to be more and more uncertain in 0:13:28.120 --> 0:13:28.880 certain areas. 0:13:29.800 --> 0:13:32.480 Jean Paul Rodriguez is a professor at Texas A and 0:13:32.600 --> 0:13:36.000 M University's Department of Maritime Business Administration. 0:13:36.360 --> 0:13:39.200 We often say that geography has a sense of humor, 0:13:39.400 --> 0:13:42.200 which means we have a world composed of seventy seventy 0:13:42.200 --> 0:13:45.760 five percent of ocean, but connecting these oceans can only 0:13:45.800 --> 0:13:49.559 be done through a very few strategic locations, such as 0:13:49.559 --> 0:13:53.160 the Panama Canal, the Swest Canal, the Strait of Ormuz, 0:13:53.640 --> 0:13:58.800 the Straight of Malacca, among others. When these strategicication gets disrupted, 0:13:58.800 --> 0:14:02.680 it creates significant you could say, Domino effect on international trade, 0:14:02.960 --> 0:14:07.800 either by limiting you could say, opportunities accessibilit to key 0:14:07.880 --> 0:14:12.479 resources and markets, or most of the time, imposing substantial 0:14:12.559 --> 0:14:17.400 deviations over long distances, which creates stress on global supply chains. 0:14:17.559 --> 0:14:21.520 I would say goes in cycles. For instance, in nearly seventies, 0:14:22.160 --> 0:14:25.120 the Swiss Canal was closed for close to a decade 0:14:25.560 --> 0:14:29.080 because of the conflicts between Israel and the neighboring Arab countries. 0:14:29.680 --> 0:14:33.400 So it story sometimes repeats itself a little bit. So 0:14:33.480 --> 0:14:36.640 there are events and then they abate, they go away, 0:14:36.800 --> 0:14:39.240 and then we go back to business. But this time 0:14:39.280 --> 0:14:42.200 it's a little bit more severe because of you could say, 0:14:42.200 --> 0:14:45.760 the projection of power that Iran is exerting on two 0:14:45.840 --> 0:14:48.240 key strategic locations, which are of course the Strait of 0:14:48.280 --> 0:14:51.880 Hormuz and the above and Mandad straight as well on 0:14:51.920 --> 0:14:54.000 the Red Sea. So this time is a little bit different. 0:14:54.000 --> 0:14:57.920 It's two strategic locations which are excessively important. There's not 0:14:58.080 --> 0:15:01.000 that much you can do outside the deviations. You go 0:15:01.120 --> 0:15:05.280 around if possible. Otherwise you try to find alternative routes, 0:15:05.280 --> 0:15:08.800 which tend to be overland route, and this what is 0:15:08.800 --> 0:15:13.160 currently happening in the Persian Gulf, with United Emirates Saudi 0:15:13.200 --> 0:15:18.240 Arabia contemplating and using their existing you could say, alternative 0:15:18.320 --> 0:15:22.400 routes overland through pipelines or for oil, and of course 0:15:22.520 --> 0:15:24.920 with roads or rail for containers. 0:15:25.240 --> 0:15:29.920 Increasingly, shipping companies are pursuing those alternative routes. Middle Eastern 0:15:29.920 --> 0:15:33.000 countries are pouring money into pipelines to bypass the Strait 0:15:33.000 --> 0:15:36.680 of Hormus, while melting polar ice helped the Chinese shipping 0:15:36.720 --> 0:15:39.640 company become the first to make regular service through the 0:15:39.760 --> 0:15:42.640 Arctic and devoid who the attacks in the Red Sea 0:15:43.560 --> 0:15:48.120 for Mexico see the Panama Canals twenty twenty three drought 0:15:48.400 --> 0:15:51.480 offered an early glimpse of the demand it could face. 0:15:51.960 --> 0:15:54.840 Let's look about twenty twenty three, when the Panama Canal 0:15:54.920 --> 0:15:57.920 had this trouble about the level of the Gatoon's lake. 0:15:58.440 --> 0:16:02.640 Three of the main shipping lines called us to us 0:16:02.760 --> 0:16:06.200 like are you ready to receive containers because they were 0:16:06.240 --> 0:16:09.400 like losing a lot of money. Unfortunately at that time, 0:16:09.520 --> 0:16:12.360 the trend was not ready when they called. 0:16:12.440 --> 0:16:14.240 But in those. 0:16:14.080 --> 0:16:19.360 Cases also the idea is to position the corridor as 0:16:19.400 --> 0:16:23.200 a high quality and a competitive alternative for the different 0:16:23.480 --> 0:16:27.400 of course disruptions that now we can see they are 0:16:27.400 --> 0:16:29.479 going to be like more more frequently. 0:16:30.080 --> 0:16:31.880 But I assume you also want to be more than 0:16:31.920 --> 0:16:34.760 just an emergency alternative for companies as well. 0:16:35.080 --> 0:16:39.000 Totally, totally, I mean, the fact is that the corridor 0:16:39.200 --> 0:16:42.520 was born with like a main idea cross cargo from 0:16:42.600 --> 0:16:45.160 one side to another and just used two ports. Today 0:16:45.560 --> 0:16:49.720 we grew we're considering four ports at the south of Mexico. 0:16:50.560 --> 0:16:53.400 Yet in a world where chokepoint disruptions can happen at 0:16:53.400 --> 0:16:57.040 a moment, notice, the presence of alternative roots is one thing. 0:16:57.440 --> 0:17:02.640 Identifying and implementing them is another that's with supply chain 0:17:02.720 --> 0:17:06.119 logistics firm EXEG. It comes in Brandon Daniels is the 0:17:06.119 --> 0:17:07.040 company's CEO. 0:17:07.520 --> 0:17:14.600 So here you've got aluminum which is inside of their components. 0:17:14.760 --> 0:17:20.359 So it says active shipment of aluminum extrusion billets. So 0:17:20.400 --> 0:17:23.320 it's not just saying, hey, aluminiums a risk, which is 0:17:23.359 --> 0:17:27.680 what everyone knows today, it's here's the exact part that 0:17:27.680 --> 0:17:31.359 that aluminum is going into and that you require in 0:17:31.480 --> 0:17:35.320 order to produce what you're manufacturing that is subject to 0:17:35.400 --> 0:17:37.120 a critical risk closure. 0:17:37.200 --> 0:17:39.240 So you're not going to get those ships through. You're 0:17:39.240 --> 0:17:42.280 not going to get those components through. The alternative corridors 0:17:42.320 --> 0:17:46.000 are not open to allowing you to reroute them today, 0:17:46.480 --> 0:17:50.840 and so what we're doing is then we're assessing and 0:17:51.080 --> 0:17:55.360 often these are customized or configured by how the customer 0:17:55.560 --> 0:18:00.439 thinks about the alternatives and thinks about risk. The volume 0:18:00.440 --> 0:18:05.800 of disruption has increased astronomically and it has laid bare 0:18:06.560 --> 0:18:08.720 the fragility of our supply chains. 0:18:09.160 --> 0:18:13.240 Over the last six years. The number one issue at 0:18:13.280 --> 0:18:17.400 every board is supply chain procurement. Is how are we 0:18:17.520 --> 0:18:22.280 going to navigate an increasingly volatile world, a world that 0:18:22.480 --> 0:18:27.240 we were made aware of through COVID, and so when 0:18:27.640 --> 0:18:31.600 we give you a problem, it's important that we contextualize 0:18:31.640 --> 0:18:36.120 that problem and then once they've prioritized it, we actually 0:18:36.119 --> 0:18:39.080 help them to determine the courses of action. Some of 0:18:39.080 --> 0:18:42.240 those will be courses of action to reroute goods five 0:18:42.320 --> 0:18:42.879 days out. 0:18:43.440 --> 0:18:46.280 So how quickly can a company going that you're working 0:18:46.320 --> 0:18:50.399 with go from identifying a risk to implementing a change 0:18:50.480 --> 0:18:51.600 in the supply chain. 0:18:51.800 --> 0:18:55.560 Once you're actually in the system, once that ERP is 0:18:55.600 --> 0:18:58.320 connected and we have your suppliers loaded in the system, 0:18:58.560 --> 0:19:02.280 you can literally see an issue in real time occurring, 0:19:02.720 --> 0:19:07.159 whether it's the issues with the hooties attacking vessels in 0:19:07.200 --> 0:19:11.119 the Red Sea, or it's a new party being added 0:19:11.160 --> 0:19:13.119 to the oh fact list. 0:19:13.880 --> 0:19:17.119 Disruptions are costly for business who The attacks in the 0:19:17.119 --> 0:19:20.600 Red Sea added an estimated one million dollars per voyage 0:19:20.720 --> 0:19:24.320 and drove up wartime insurance by nine hundred percent at 0:19:24.359 --> 0:19:29.000 its peak. It's hoped that alternative corridors like CIIT, combined 0:19:29.000 --> 0:19:33.520 with platforms like exeger, could help mitigate risk for global trade. 0:19:33.600 --> 0:19:40.080 As the supply chains redistribute. As the supply chains start 0:19:40.119 --> 0:19:46.520 to utilize these new manufacturing capabilities. As our terra regimes 0:19:46.920 --> 0:19:50.680 get put in place and enforced, we're going to see 0:19:51.200 --> 0:19:53.800 a period where there is going to be a premium 0:19:53.840 --> 0:19:56.400 on resilience, where there is going to be a premium 0:19:56.600 --> 0:19:59.360 on restructuring and reshoring. 0:19:59.240 --> 0:20:03.400 But even more resilience built in. Rodriguez says, the world's 0:20:03.440 --> 0:20:06.920 critical corridors will remain as critical as if. 0:20:07.400 --> 0:20:11.719 The fundamental reality is these passages cannot be effectively avoid 0:20:12.320 --> 0:20:16.520 They are shortcuts within global trade. They have been operational 0:20:16.560 --> 0:20:19.959 for many of them centuries, for Panama more than one 0:20:20.040 --> 0:20:23.240 hundred years again one hundred and fifty years or so. 0:20:23.240 --> 0:20:26.720 So they are there. And the issue, which is more 0:20:26.920 --> 0:20:29.439 i would say effective, or more of a good idea, 0:20:29.560 --> 0:20:33.879 is to keep them open. You cannot allow and that's 0:20:33.920 --> 0:20:38.120 what is tragic about the current circumstances. How did major 0:20:38.880 --> 0:20:43.920 players in Europe, the UK, France, Germany among others have 0:20:44.080 --> 0:20:49.360 allowed the world's most important shipping routes to be disrupted 0:20:49.760 --> 0:20:54.800 Very simplistically, the world economy, the global economy is i 0:20:54.840 --> 0:20:58.520 would say, leaning on the principle of freedom of navigation, 0:21:00.080 --> 0:21:04.280 US the world's shipping lanes and the world's strategic passages, 0:21:05.080 --> 0:21:07.480 and this has been I would say, a regime or 0:21:07.520 --> 0:21:09.960 a way of doing things that have been in place 0:21:10.000 --> 0:21:15.440 for quite a while. Currently this regime is being questioned, 0:21:15.480 --> 0:21:20.240