WEBVTT - Lots More on What America's Busiest Port is Seeing from the Trade Tariffs

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Joe, did you know you can buy a container gantry

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<v Speaker 2>crane on Ali Baba?

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<v Speaker 3>Oh?

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<v Speaker 4>I think I saw that. How much is it?

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<v Speaker 2>They have different price points as you might imagine, but

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<v Speaker 2>I'm looking at one right now that's thirty seven thousand

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<v Speaker 2>to twenty eight thousand. Ooh, and it's customizable. You can

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<v Speaker 2>change the color.

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<v Speaker 4>Some of those prices for like industrial equipment on Olive

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<v Speaker 4>Bob are so cheap that like, I cannot believe they're real.

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<v Speaker 2>I think they are.

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<v Speaker 4>Real, which is sort of the scary part, or at

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<v Speaker 4>least in terms of from the perspective of an American

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<v Speaker 4>industrial perspective. I think in many cases they are actually real,

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<v Speaker 4>but I still can't believe what's theoretically available. I did

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<v Speaker 4>a dead list.

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<v Speaker 2>I'm both the most popular trader and most successful trader

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<v Speaker 2>at Citadel that is going viral, uh barges.

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<v Speaker 4>This isn't after School Special, except.

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<v Speaker 2>I've decided I'm going to base my entire personality going

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<v Speaker 2>forward on campaigning for a strategic pork reserve in the US.

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<v Speaker 1>Black goals.

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<v Speaker 2>These are the important questions that robots taking over the world.

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<v Speaker 4>No, I think that like in a couple of years,

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<v Speaker 4>the AI will do a really good job of making

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<v Speaker 4>the Odd Lots podcast. One day that person will have

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<v Speaker 4>the mandate of Heaven.

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<v Speaker 2>How do I get more popular and successful?

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<v Speaker 1>We do have.

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<v Speaker 2>You're listening to lots More, where we catch up with

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<v Speaker 2>friends about what's going on right now, because.

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<v Speaker 4>Even when the Odd Lots is over, there's always lots More.

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<v Speaker 2>And we really do have the perfect guest. I'm very curious,

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<v Speaker 2>why would you need a gantry crane in a specific color?

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<v Speaker 2>Like is branding very important for these things?

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<v Speaker 4>I don't know, you know who might know?

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<v Speaker 1>Oh?

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<v Speaker 2>Yes, So we have with us Jean Soroka, the executive

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<v Speaker 2>director of the Port of la which is the busiest

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<v Speaker 2>port in the US. Welcome back to the show.

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<v Speaker 3>Gene, Tracy, Joe.

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<v Speaker 1>Good to be here.

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<v Speaker 2>So one of the reasons we wanted to talk to

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<v Speaker 2>you is, obviously there's a lot of confusion about what's

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<v Speaker 2>going on with trade policy right now. And you know,

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<v Speaker 2>we talked on the show about the potential for empty

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<v Speaker 2>shelves in America if goods aren't coming in any longer,

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<v Speaker 2>and so I really wanted to go kind of directly

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<v Speaker 2>to the source and figure out exactly what is going

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<v Speaker 2>on in terms of imports right now, so we thought

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<v Speaker 2>you are the perfect person to catch up with.

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<v Speaker 3>Your timing is impeccable because over the last seven days

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<v Speaker 3>here at the largest port in the Western Hemisphere, we've

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<v Speaker 3>averaged five container ships a day. Normally at this time

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<v Speaker 3>of year, it would be about ten to twelve ships

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<v Speaker 3>in port every single day. Right Subsequently, job openings for

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<v Speaker 3>our dock workers are down almost fifty percent over the

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<v Speaker 3>last several weeks.

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<v Speaker 2>So this is really interesting because you know, on the

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<v Speaker 2>one hand, we've had the delay in tariffs, the ninety

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<v Speaker 2>day delay, and who knows what's going to happen after that,

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<v Speaker 2>So you expected to see a drop in traffic in

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<v Speaker 2>April and early May. But on the other hand, you

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<v Speaker 2>could see some front loading of traffic going into the

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<v Speaker 2>port as people try to get ahead of the new deadline.

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<v Speaker 2>But that's not what you're seeing right now.

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<v Speaker 3>No, not at all. And the thing of this is

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<v Speaker 3>tracy that thirty percent tariffs is simply an average, and

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<v Speaker 3>that's still really high. A lot of American importers simply

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<v Speaker 3>slammed on the brakes when they saw the one hundred

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<v Speaker 3>and forty five percent and after the Geneva meetings it

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<v Speaker 3>was said that they dropped down to thirty percent. That

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<v Speaker 3>wasn't met with a lot of enthusiasm in the import community.

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<v Speaker 3>So you've still got some cargo coming in. Folks went

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<v Speaker 3>back and scooped up what had been manufactured. Others let

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<v Speaker 3>orders complete that cycle before shipping out. But what I'm

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<v Speaker 3>not saying are a lot of new orders because ninety

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<v Speaker 3>days is a short period of time in our business.

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<v Speaker 3>That's traditionally how long it takes for an importer to

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<v Speaker 3>put that paperwork into a factory in Asia, make the product,

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<v Speaker 3>and simp we get it ready to ship to the

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<v Speaker 3>United States. We're a long way from there.

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<v Speaker 4>That's really interesting because in a lot of the conversations

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<v Speaker 4>that we've had, you know, they're long cycle orders, right.

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<v Speaker 4>So you know, you talk about retailers and they're thinking

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<v Speaker 4>about October, or they're thinking about Halloween, or maybe they're

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<v Speaker 4>thinking about Thanksgiving, or maybe they're thinking pretty soon they're

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<v Speaker 4>going to be thinking about Christmas. I guess from that perspective,

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<v Speaker 4>a ninety day window for some retailers, it must be

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<v Speaker 4>a pretty big risk. If you're a big retailer, maybe

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<v Speaker 4>you can like take the risk that like, yeah, you know,

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<v Speaker 4>they'll probably extend it again, et cetera. But I guess,

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<v Speaker 4>you know, for smaller ones, like that's probably not enough

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<v Speaker 4>certainty that they're not going to end up with a

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<v Speaker 4>bunch of goods that they have to pay a huge

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<v Speaker 4>bill on at the end.

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<v Speaker 3>That's right, Joe. And the majority of the companies that

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<v Speaker 3>import through the Port of Los Angeles are small to

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<v Speaker 3>middle sized business.

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<v Speaker 4>Well wait, I didn't know that. Explain that form.

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<v Speaker 3>Yeah, yeah, we got one hundred and twenty five thousand

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<v Speaker 3>companies that call LA's Port home for all their imports.

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<v Speaker 3>And we know the big box retailers, the whole home

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<v Speaker 3>improvement stores. An equal amount of cargo comes in as

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<v Speaker 3>parts for American factories. But of those one hundred and

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<v Speaker 3>twenty five thousand importing companies, the great majority are those

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<v Speaker 3>smaller to mid size, even family businesses. They didn't have

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<v Speaker 3>the wherewithal in some cases to be able to frontload inventory,

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<v Speaker 3>push carrying costs out, or get extra warehousing. So they're

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<v Speaker 3>still having to make the choice right now to buy

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<v Speaker 3>at these extraordinarily high levels. And I call thirty percent extraordinarily.

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<v Speaker 1>High, because if they do.

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<v Speaker 3>Bring those products in they're likely not going to be

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<v Speaker 3>able to pass on those costs to their customers because

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<v Speaker 3>they become uncompetitive with the big guys.

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<v Speaker 2>This is something that we hear over and over again

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<v Speaker 2>in the tariff discussions, which is, you know, for the

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<v Speaker 2>big guys, they have certain levers to pull, as you

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<v Speaker 2>point out, they can frontload some of their orders because

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<v Speaker 2>they have to capital the cash to get through that,

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<v Speaker 2>or they could try to negotiate prices with their suppliers

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<v Speaker 2>things like that. But the smaller guys seem to really

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<v Speaker 2>struggle here.

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<v Speaker 3>That's exactly right, and what we're hearing on the ground.

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<v Speaker 3>There's a part supplier for the big three automotive companies

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<v Speaker 3>in Detroit that's right up the freeway from us here

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<v Speaker 3>at the port, and they're telling me that their effective

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<v Speaker 3>terrif rate is fifty seven and a half percent on

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<v Speaker 3>these auto parts that go to the plants. Now here's

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<v Speaker 3>the dilemma. If they slow down too much or stop

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<v Speaker 3>buying because fifty seven and a half percent is too much,

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<v Speaker 3>they run the risk of shutting a factory line down

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<v Speaker 3>back in Detroit. If that happens, it costs the auto

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<v Speaker 3>manufacturer between two and four million dollars an hour in

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<v Speaker 3>lost sales, wages and cost structure.

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<v Speaker 1>It's unbelievable.

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<v Speaker 4>Actually, we sort of curious about Port of Los Angeles

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<v Speaker 4>corporate structure. You mention the dock worker job listings are

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<v Speaker 4>current lead down, what is the structure, who employs them,

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<v Speaker 4>who's putting up those listings. If someone is a dock worker,

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<v Speaker 4>what company are they working for? And what company is

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<v Speaker 4>and what are those companies' relationship to your entity? The

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<v Speaker 4>Port of Los Angeles.

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<v Speaker 3>Jo the dock workers the International Longshore and Warehouse Union

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<v Speaker 3>fifteen thousand strong members here at the twin ports of

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<v Speaker 3>Los Angeles and Long Beach are hired by the Pacific

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<v Speaker 3>Maritime Association. Okay, that's a representative group covering seventy five

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<v Speaker 3>companies in our industry. Think of the shipping lines, the

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<v Speaker 3>marine terminal operators, and the maintenance and repair companies. So

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<v Speaker 3>each one of these terminals, every morning and every evening

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<v Speaker 3>wants to bring on the dock workers to work at

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<v Speaker 3>their facility. Here at the Port of Los Angeles, we're

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<v Speaker 3>a city entity, the Port Authority, if you will. Our

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<v Speaker 3>job is that of a real estate company to lease

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<v Speaker 3>out property to these international and national trading interests to

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<v Speaker 3>promote trade through this eight way.

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<v Speaker 2>So on this note, I mean, one of the things

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<v Speaker 2>I wanted to ask you about is how you personally

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<v Speaker 2>at the Port of la are actually dealing with forecasting

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<v Speaker 2>and coming up with your business plans for the rest

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<v Speaker 2>of the year, because it just seems, I mean, it

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<v Speaker 2>seems almost impossible at this point. You don't know what's

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<v Speaker 2>going to happen with the deadline, and then on top

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<v Speaker 2>of that, you're not really sure what's going to happen

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<v Speaker 2>with shipping because maybe people front load and traffic goes up,

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<v Speaker 2>although it doesn't sound like that's happening, or maybe traffic

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<v Speaker 2>goes down because people are just nervous. It seems really,

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<v Speaker 2>really difficult to make any sort of plan right now.

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<v Speaker 3>To your point, Tracy's, traditional forecasting is super difficult right now.

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<v Speaker 3>But because we have a great information system, deep relationships

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<v Speaker 3>in Asia, and contacts that span nearly four decades in

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<v Speaker 3>this industry, we're able to predict quite a bit. For example,

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<v Speaker 3>last month in May, seventeen vessels were canceled that eliminated

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<v Speaker 3>two hundred and twenty five thousand container units coming our

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<v Speaker 3>wayp off was so great that the first time in memory,

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<v Speaker 3>I can remember that the month of May had lower

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<v Speaker 3>cargo volume than did the month of April, down sixteen percent,

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<v Speaker 3>when we otherwise should be going up toward peak season.

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<v Speaker 3>The month of June, we'll have an additional ten vessel

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<v Speaker 3>sailings canceled, so I can work from that kind of

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<v Speaker 3>parameter right now. But we're in the midst of our

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<v Speaker 3>budgeting season here in the City of Los Angeles. We're

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<v Speaker 3>trying to make sure that we have everything lined up,

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<v Speaker 3>from proper staffing and training of the workforce all the

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<v Speaker 3>way to how we're going to carry out these infrastructure projects, digitalization, cybersecurity,

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<v Speaker 3>as well as our investment and the sustainability programs that

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<v Speaker 3>we have. Fortunately, we've got a very strong financial policy

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<v Speaker 3>for the last ten years, so we'll be able to

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<v Speaker 3>continue our investment through cycle. But the forecasting end of

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<v Speaker 3>this is really sketchy.

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<v Speaker 4>So obviously, the first of our time we talked to

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<v Speaker 4>was in twenty twenty one, I think, you know, during

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<v Speaker 4>the peak of when everyone was focused on the log

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<v Speaker 4>jam at the so there was so much stuff coming

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<v Speaker 4>in and there was all of this talk about, oh,

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<v Speaker 4>there's this big traffic jam and backup et cetera. When

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<v Speaker 4>the Turffs first got announced and then there was some

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<v Speaker 4>talk of rolling back, some people were worried that we

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<v Speaker 4>get a similar sort of phenomenon where maybe because of

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<v Speaker 4>the pull ahead, et cetera, that we get another pile

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<v Speaker 4>up that hasn't happened. But let's just say it did.

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<v Speaker 4>Let's say something happened and there were a surge of

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<v Speaker 4>orders tomorrow, et cetera. Based on the experience of twenty

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<v Speaker 4>twenty one and the stress of the twenty twenty one

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<v Speaker 4>has anything changed fundamentally at the port such that a

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<v Speaker 4>sudden spike of imports that were sustained. There are best

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<v Speaker 4>practices that would be able to be put in place

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<v Speaker 4>today to avoid that sort of bottleneck the same way, like,

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<v Speaker 4>has anything changed or learned that could ameliorate an event

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<v Speaker 4>like that in the future, Absolutely, Joe, And the first

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<v Speaker 4>thing we did was an inward look. What could we

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<v Speaker 4>learn do better replicate from best practices elsewhere? And what

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<v Speaker 4>we found was that we all started working closer together.

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<v Speaker 4>We looked at what the root causes were. And again

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<v Speaker 4>it's not this simple, but it's about the velocity. It's

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<v Speaker 4>about how fast we can unload a ship and get

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<v Speaker 4>the cargo on and off the port property quickly. That's

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<v Speaker 4>what we didn't have in twenty twenty one when those

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<v Speaker 4>one hundred and nine ships were lined up. So what's

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<v Speaker 4>changed in terms of your potential velocity today? Why should

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<v Speaker 4>people think that it could be higher?

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<v Speaker 3>Well, it's much better. And I'll give you this example.

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<v Speaker 3>During twenty twenty one, the average container that was to

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<v Speaker 3>leave the port by truck sat for eleven days. Today

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<v Speaker 3>that average container is sitting for three days. And that's

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<v Speaker 3>been a trend for some time now, and I'm not

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<v Speaker 3>just talking months. The average box that was going out

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<v Speaker 3>by rail during that time period was thirteen and a

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<v Speaker 3>half days. Right now it's just shy of four and

0:11:43.440 --> 0:11:46.080
<v Speaker 3>a half days. So we made a concerted effort to

0:11:46.160 --> 0:11:49.760
<v Speaker 3>work with rail and trucking firms, importers and exporters to

0:11:49.840 --> 0:11:52.760
<v Speaker 3>show them the value of speed when it comes to

0:11:52.800 --> 0:11:56.400
<v Speaker 3>containers resting at any one time at our port. And

0:11:56.440 --> 0:12:00.120
<v Speaker 3>it's been just a piece of work to continue to

0:12:00.200 --> 0:12:03.400
<v Speaker 3>move forward with meaning that we can work the next

0:12:03.400 --> 0:12:06.840
<v Speaker 3>ship faster, we can put more cargo through here, hire

0:12:06.960 --> 0:12:10.320
<v Speaker 3>more dock workers and truckers to handle that volume, and

0:12:10.360 --> 0:12:13.680
<v Speaker 3>it's grown exponentially. The last point here is that because

0:12:13.720 --> 0:12:16.880
<v Speaker 3>we started seeing front loading of cargo last summertime, we

0:12:16.960 --> 0:12:21.719
<v Speaker 3>went ten consecutive peak season like months from July through

0:12:21.800 --> 0:12:24.400
<v Speaker 3>April and not one ship was backed up. We moved

0:12:24.400 --> 0:12:27.000
<v Speaker 3>more cargo during that time than we did at the

0:12:27.040 --> 0:12:28.880
<v Speaker 3>height of twenty one or twenty two.

0:12:29.720 --> 0:12:33.360
<v Speaker 2>How many cranes for containers did you purchase off Ali

0:12:33.360 --> 0:12:34.240
<v Speaker 2>Baba at that time.

0:12:35.120 --> 0:12:39.240
<v Speaker 3>Unfortunately, based on the opening back and forth between you

0:12:39.400 --> 0:12:42.760
<v Speaker 3>and Joe Tracy, I have never seen a gantry crane

0:12:43.080 --> 0:12:46.239
<v Speaker 3>in twenty five to thirty five thousand dollars sale.

0:12:46.000 --> 0:12:48.920
<v Speaker 2>Prece It is a little suspicious, isn't it.

0:12:49.000 --> 0:12:51.760
<v Speaker 3>They do come in different colors because companies have logos,

0:12:51.800 --> 0:12:55.560
<v Speaker 3>they've got color schemes. Branding is really important in this business.

0:12:55.720 --> 0:12:58.319
<v Speaker 3>But the average gantry crane on the ground right now,

0:12:58.360 --> 0:13:00.880
<v Speaker 3>and we have eighty six of them twelve million bucks

0:13:00.920 --> 0:13:01.160
<v Speaker 3>a fee.

0:13:01.960 --> 0:13:04.440
<v Speaker 4>These are must be little toy versions, Bowie. Why is

0:13:04.440 --> 0:13:06.560
<v Speaker 4>branding important? I'm looking at every picture I have of

0:13:06.600 --> 0:13:08.480
<v Speaker 4>the port of Los Angeles. They all look like the

0:13:08.600 --> 0:13:11.280
<v Speaker 4>sort of very satisfying aquamarine or like a blue or

0:13:11.320 --> 0:13:14.160
<v Speaker 4>something like that. Why is branding important in the logistics

0:13:14.160 --> 0:13:14.880
<v Speaker 4>shipping business.

0:13:15.080 --> 0:13:18.400
<v Speaker 3>Well, just like it would be in clothing or footwear

0:13:18.559 --> 0:13:22.480
<v Speaker 3>or for your favorite sports team, it really identifies the

0:13:22.520 --> 0:13:26.360
<v Speaker 3>company APMT, headquartered in the Hague with their parent company

0:13:26.440 --> 0:13:29.120
<v Speaker 3>Mursky and Copenhagen is a light we would call it

0:13:29.160 --> 0:13:34.080
<v Speaker 3>a Carolina blue phoenix owned by CMACGM and Marseille France

0:13:34.200 --> 0:13:38.000
<v Speaker 3>is red, white and blue, mirroring that French flag. And

0:13:38.000 --> 0:13:40.920
<v Speaker 3>then we go over to Evergreen based in Taiwan and

0:13:41.000 --> 0:13:44.760
<v Speaker 3>as you could imagine, green gantry cranes, green containers. So

0:13:44.800 --> 0:13:47.840
<v Speaker 3>that branding across an industry of maybe ten major players

0:13:48.200 --> 0:13:50.920
<v Speaker 3>really identifies. As you see a box moving on a

0:13:51.000 --> 0:13:54.040
<v Speaker 3>train off a ship of the truck through your city,

0:13:54.280 --> 0:13:55.200
<v Speaker 3>you know who they are.

0:13:55.600 --> 0:13:58.000
<v Speaker 2>Yeah, I have to say I have a little miniature

0:13:58.160 --> 0:14:02.240
<v Speaker 2>Evergreen container on it's actually it's a clean xbox.

0:14:02.360 --> 0:14:03.320
<v Speaker 3>I guess the green.

0:14:03.600 --> 0:14:07.199
<v Speaker 2>Yeah, and it's a very bright green ever Green's colors. Okay.

0:14:07.240 --> 0:14:09.000
<v Speaker 2>So one of the things we've been talking about on

0:14:09.040 --> 0:14:12.440
<v Speaker 2>the show is this idea that if imports into the

0:14:12.559 --> 0:14:16.520
<v Speaker 2>US are slowing down, eventually you might see some shortages

0:14:16.760 --> 0:14:19.840
<v Speaker 2>or at least lack of options at stores. Let's put

0:14:19.840 --> 0:14:23.160
<v Speaker 2>it that way. When would you expect the slow down

0:14:23.280 --> 0:14:27.920
<v Speaker 2>in containers shipping to actually hit the shelves and affect

0:14:27.920 --> 0:14:29.440
<v Speaker 2>the American consumer.

0:14:29.280 --> 0:14:32.840
<v Speaker 3>Later this summer tracy. And this is why when we've

0:14:32.880 --> 0:14:38.880
<v Speaker 3>seen sixty different announcements on trade policy and tariff since January,

0:14:39.160 --> 0:14:41.880
<v Speaker 3>even the most seasoned professional is having a difficult time

0:14:41.960 --> 0:14:44.360
<v Speaker 3>keeping up with this. But I think one thing is

0:14:44.440 --> 0:14:48.680
<v Speaker 3>consistent that with high tariff levels and increasing prices to

0:14:48.760 --> 0:14:52.160
<v Speaker 3>the buyer, folks just slammed on the brakes, hit the

0:14:52.200 --> 0:14:56.240
<v Speaker 3>pause button on business and hiring capital investments and said,

0:14:56.280 --> 0:14:58.840
<v Speaker 3>let's see how this thing shakes out, because there could

0:14:58.920 --> 0:15:01.960
<v Speaker 3>be new information that out in two hours, two days,

0:15:02.120 --> 0:15:04.800
<v Speaker 3>or maybe even two weeks. Not sure how this is

0:15:04.840 --> 0:15:07.000
<v Speaker 3>all going to end, So I'm going to buy the

0:15:07.040 --> 0:15:10.400
<v Speaker 3>bare necessities. And we're seeing that now with these single

0:15:10.720 --> 0:15:14.200
<v Speaker 3>digit container ship volumes at the Port of Los Angeles

0:15:14.280 --> 0:15:18.680
<v Speaker 3>on a daily basis, So likely we'll see fewer selections

0:15:18.720 --> 0:15:23.000
<v Speaker 3>on store shelves and online buying platforms and higher prices.

0:15:23.240 --> 0:15:27.160
<v Speaker 3>Fulfillment rates will also look different. If a blue, red,

0:15:27.280 --> 0:15:30.560
<v Speaker 3>and white shirt option are not moving at high levels,

0:15:30.560 --> 0:15:32.480
<v Speaker 3>you're not going to see them replenished, just a top

0:15:32.520 --> 0:15:36.000
<v Speaker 3>off inventory, but you likely will see the item that's

0:15:36.080 --> 0:15:39.720
<v Speaker 3>selling get a backfill, and that just looks different from

0:15:39.760 --> 0:15:43.160
<v Speaker 3>a supply chain perspective right now. The month of May

0:15:43.200 --> 0:15:46.600
<v Speaker 3>that just closed would normally see a flurry of purchase

0:15:46.680 --> 0:15:49.720
<v Speaker 3>orders over to Asia factories getting ready for the year

0:15:49.840 --> 0:15:53.120
<v Speaker 3>end and Christmas holiday seasons. We're not seeing that at

0:15:53.120 --> 0:15:53.560
<v Speaker 3>this point.

0:15:54.760 --> 0:15:57.040
<v Speaker 2>All right, Well, Gene, thank you so much for coming

0:15:57.040 --> 0:16:00.000
<v Speaker 2>back on and giving us an update on what you're seeing.

0:16:00.080 --> 0:16:01.720
<v Speaker 2>It was really good to get your perspective.

0:16:02.000 --> 0:16:04.360
<v Speaker 3>Tracy Joe great bey with you again. Thank you face

0:16:04.440 --> 0:16:05.080
<v Speaker 3>Gene Joe.

0:16:05.160 --> 0:16:06.640
<v Speaker 2>What color should my crane be?

0:16:09.080 --> 0:16:11.080
<v Speaker 4>Some nice yellow or something?

0:16:11.720 --> 0:16:14.200
<v Speaker 2>No, not yellow, bright red, pink.

0:16:14.240 --> 0:16:14.960
<v Speaker 1>Pink, pink.

0:16:15.080 --> 0:16:16.440
<v Speaker 4>I wonder pink crane.

0:16:16.160 --> 0:16:17.080
<v Speaker 1>That would be deciding.

0:16:17.080 --> 0:16:19.040
<v Speaker 4>I think that'd color and logistics very much.

0:16:19.120 --> 0:16:19.840
<v Speaker 3>Yeah, I agree to you.

0:16:24.440 --> 0:16:27.560
<v Speaker 4>Lots More is produced by Carmen Rodriguez and Dashel Bennett,

0:16:27.560 --> 0:16:29.760
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0:16:30.160 --> 0:16:33.320
<v Speaker 2>Our sound engineer is Blake Maples. Sage Bauman is the

0:16:33.320 --> 0:16:34.720
<v Speaker 2>head of Bloomberg Podcasts.

0:16:35.200 --> 0:16:38.520
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