WEBVTT - Freightwaves CEO Craig Fuller Talks State of Freight Industry

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<v Speaker 1>Uncertainty over the Straighthorf horror moves is keeping pressure on

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<v Speaker 1>global shipping, with vessel traffics still below pre war levels.

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<v Speaker 1>Let's ask Craig Fuller, CEO of Freight Waves, a company

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<v Speaker 1>that provides real time data on freight demand, pricing and

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<v Speaker 1>capacity across.

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<v Speaker 2>The global logistics market.

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<v Speaker 1>Craig, I want to have a broader discussion with you,

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<v Speaker 1>But first, any developments around the straight of horm moves.

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<v Speaker 1>Have we reached the cap beyond which you know, hiring

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<v Speaker 1>a ship just isn't doable because there is no harm

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<v Speaker 1>war for the price to go.

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<v Speaker 3>No. I mean, ultimately, the logistics market is responding to

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<v Speaker 3>this higher prices for containers, higher prices for shipping. But

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<v Speaker 3>that's the great thing about logistics companies, as they respond

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<v Speaker 3>to these events, they price it accordingly. And we're seeing

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<v Speaker 3>freight rerouted to account for this disruption, which is just

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<v Speaker 3>one of many many disruptions that we've had over the

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<v Speaker 3>last you know, inevitably over the last decade.

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<v Speaker 2>What about insurance costs? Do they continue to rise?

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<v Speaker 1>Do we have any kind of fall off and insurance

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<v Speaker 1>costs even when we got the memorandum of understanding.

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<v Speaker 3>Well, I think Ultimately, a lot of the cost, the

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<v Speaker 3>insurance cost is priced into the current conditions. While there

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<v Speaker 3>are some attacks on civilian vessels, I think largely the

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<v Speaker 3>sort of kinetic conflict is we'll call it simmering a

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<v Speaker 3>little bit, but not explosive. And so ultimately, insurance companies

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<v Speaker 3>and ship owners understand the risks and that is priced

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<v Speaker 3>into the market currently.

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<v Speaker 1>Craig, I want your thoughts as well on this new

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<v Speaker 1>Arctic route that's being reported on today. So apparently a

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<v Speaker 1>China shipping company is going through the Arctic because polar

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<v Speaker 1>ice caps melting allow it to traverse from Asia to

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<v Speaker 1>Europe in twenty days as opposed to the regular forty

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<v Speaker 1>days it takes generally. Is this a route that could

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<v Speaker 1>take off and help other shipping companies avoid these dangerous

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<v Speaker 1>chow points.

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<v Speaker 3>Yeah. I mean this has been something that's been talked

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<v Speaker 3>about for at least the last decade. The fact that

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<v Speaker 3>the polarized caps are melting, which will provide new sea lanes.

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<v Speaker 3>Russia has has some break some ice breakers to be

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<v Speaker 3>able to clear the lanes. This is one of the

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<v Speaker 3>reasons that Donald Trump has wanted Greenland is because ultimately,

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<v Speaker 3>if you're coming across the Arctic, You're going to pass Greenland,

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<v Speaker 3>and it provides a much from a strategic standpoint, provides

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<v Speaker 3>a really interesting sort of outcome. But this is really

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<v Speaker 3>a continuation something that shouldn't be a surprise to anybody

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<v Speaker 3>because of something we've been watching and monitoring for the

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<v Speaker 3>past at least decade, and is certainly the dream of

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<v Speaker 3>the Chinese, the dream of the Russians to get access

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<v Speaker 3>to the North Atlantic because and the Arctic Ocean, because

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<v Speaker 3>ultimately this provides you know, avoids the bottleneck that is

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<v Speaker 3>in the Middle East and allows them to route more

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<v Speaker 3>direct traffic to North America.

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<v Speaker 1>Craig just more broadly, port volumes are surging. Ocean carrier

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<v Speaker 1>rates obviously have gone through the roof, and they're passing

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<v Speaker 1>on those costs. Energy sorry, charges have been very, very

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<v Speaker 1>widespread and are getting more widespread.

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<v Speaker 2>Truck manufacturing is tightening.

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<v Speaker 1>All of this is a negative for the consumer and

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<v Speaker 1>for those that are importing, but it's great news for

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<v Speaker 1>the freight industry. Right is the freight recession definitively a

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<v Speaker 1>thing of the past.

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<v Speaker 3>Oh, the freight recession has been over since November, and

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<v Speaker 3>everybody's celebrating because it's been a misable existence. Osha container

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<v Speaker 3>Lines they were out of a recession pretty quickly, they

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<v Speaker 3>had about eight month recession. But trucking has been was

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<v Speaker 3>in a recession really since twenty twenty two, and it

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<v Speaker 3>ended in November of this past year of twenty five,

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<v Speaker 3>and so everyone feels relief. I would dispute your comment

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<v Speaker 3>about it bad for the consumer, because ultimately, when freight's moving,

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<v Speaker 3>that is good for consumers. I mean, transportation cost is

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<v Speaker 3>about three percent of finished goods prices that consumers pay,

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<v Speaker 3>So even if we see a doubling of freight rates,

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<v Speaker 3>it's still a marginal impact for consumers in terms of inflation.

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<v Speaker 3>So ultimately things are moving. The industry is feeling incredibly bullish,

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<v Speaker 3>and we're seeing volumes pick up on the international container

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<v Speaker 3>market as well as in domestic trucking and rail. It's

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<v Speaker 3>up into the right for the freight industry, and I

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<v Speaker 3>think that sells us a lot about consumer activity, but

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<v Speaker 3>more importantly tells us a lot about industrial activity.

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<v Speaker 1>Just on that point, everything I just mentioned, do they

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<v Speaker 1>only add up to incremental costs for the consumer.

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<v Speaker 2>Is this not a significant inflation push at all?

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<v Speaker 3>Then it's not a huge impact to inflation. Ultimately retailers

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<v Speaker 3>will absorb those prices. The biggest risk to retailers and

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<v Speaker 3>really manufacturers is losing cells, so they will pay the

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<v Speaker 3>higher freight rates and ultimately eat it in some of

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<v Speaker 3>their margins. But look, we've seen in the past earnings,

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<v Speaker 3>this past earning cycle that corporate profits are at record highs,

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<v Speaker 3>so there is some ability for retailers and manufacturers to

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<v Speaker 3>absorb higher freight rates. Ultimately, they want to get their

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<v Speaker 3>products into the country, They want to get their products

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<v Speaker 3>moving to end consumers, so they'll pay the higher rates,

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<v Speaker 3>and ultimately consumers are going to see a marginal impact,

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<v Speaker 3>not anything to worry about. What we worry about more

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<v Speaker 3>about is demand the erosion, which right now we're seeing

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<v Speaker 3>the opposite. We're seeing, particularly the industrial side, things pick

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<v Speaker 3>up and consumer activity looks pretty strong consumer volumes, you

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<v Speaker 3>can look at the container lines. The reason the ports

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<v Speaker 3>are doing so well is because consumers are buying goods,

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<v Speaker 3>and retailers are feeling much more confident about consumer activity,

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<v Speaker 3>which I think is very strong. I wouldn't take any

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<v Speaker 3>of the higher freight rates as a concern. Remember we

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<v Speaker 3>were at twenty two thousand dollars in container prices, spot

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<v Speaker 3>prices back during the peak of COVID, and we're only

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<v Speaker 3>at seven thousand dollars right now, so there's a lot

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<v Speaker 3>of room to go before I think there'll be substantial inflation.

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<v Speaker 1>So give us an update then on the intra freight

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<v Speaker 1>carrier wars. Right, So we have FedEx freight down more

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<v Speaker 1>than four percent since it's spin off back in May,

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<v Speaker 1>partially because Amazon has entered the scene.

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<v Speaker 2>What's going on with terrain? Who's winning?

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<v Speaker 3>Yeah, I mean ultimately Amazon. I mean it's sort of

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<v Speaker 3>the worst kept secret Amazon was known to get into it.

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<v Speaker 3>FedEx spin it off when it spun off is really

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<v Speaker 3>a reflection of just how I mean, it's spun off

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<v Speaker 3>at a very high valuation. It's called off a bit

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<v Speaker 3>from where the original spin off was. There's been a

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<v Speaker 3>little bit of just I think investors have rallied the

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<v Speaker 3>transports for the last seven eight months and really calling

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<v Speaker 3>up here a little bit of profit taking. I think

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<v Speaker 3>everybody's wanting to see the second half and get confirmation

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<v Speaker 3>that things are continuing to be bullish and we're continuing

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<v Speaker 3>to see things ramp. That is, our channel checks have

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<v Speaker 3>shown that there's been a bit of modal shift. We're

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<v Speaker 3>seeing freight move off of trucking slightly into intermodal, which

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<v Speaker 3>is by rail, simply because there's been a lot of

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<v Speaker 3>movement in freight rates in trucking and so that we're

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<v Speaker 3>seeing things put onto the railroads. And right now the

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<v Speaker 3>spread between trucking rates and reil freight is thirty four

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<v Speaker 3>That isn't near an all time high, and therefore the

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<v Speaker 3>railroads are the primary beneficiaries, and companies like JB Hunt

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<v Speaker 3>Hub Group that are public are really picking up a

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<v Speaker 3>lot of share right now. Wow.

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<v Speaker 2>Interesting.

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<v Speaker 1>Finally, Craig, and we don't have much time left, but

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<v Speaker 1>you have advocated in the past for a domestic marine

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<v Speaker 1>industry right to ensure security and supply chains and so on.

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<v Speaker 1>Are you hearing anything about the administration potentially taking stakes

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<v Speaker 1>in any businesses surrounding supply chains, the network, marine industry,

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<v Speaker 1>trucking industry, or anything like that, any whisperings at all

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<v Speaker 1>in the community.

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<v Speaker 3>Well, I mean, look, I don't think the administration is

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<v Speaker 3>going to take any trucking investments. It's the most fragmented market.

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<v Speaker 3>But when we talk about maritime, there is certainly some

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<v Speaker 3>different bills executive orders that have tried to encourage maritime investment.

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<v Speaker 3>There was a story not too long ago about a

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<v Speaker 3>startup that's going to build ships, commercial ships that was

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<v Speaker 3>originally supposed to go in California, but they moved it

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<v Speaker 3>to Texas because of some issues with local immunis, power

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<v Speaker 3>holdies and some things that they were not willing to

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<v Speaker 3>do in California. Not a shock, and they moved it

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<v Speaker 3>to South Texas. So I do think there's a movement

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<v Speaker 3>and investment, and certainly administration has been very public about

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<v Speaker 3>wanting more marine investments. It is providing incentives, but these

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<v Speaker 3>you know, if we're going to build out a marine industry,

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<v Speaker 3>we're talking we need a lot of money, hundreds of

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<v Speaker 3>billions of dollars to really restore marine investments in the

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<v Speaker 3>United States, and this is going to take many years.

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<v Speaker 3>So a lot of the movement is very slow, it

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<v Speaker 3>feels like from my perspective, but it's certainly moving in

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<v Speaker 3>the right direction, but it's going to take a lot

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<v Speaker 3>more than where we see today.

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<v Speaker 1>All Right, Craig always a pleasure to talk to you.

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<v Speaker 1>That is Craig for our CEO of Freightways