Technology, Travel, And The Supply Chain

I love this part of the market because it's changing. Boy, it seems not just on a daily basis, but maybe an hourly basis. You really got to stay on your toes. Mark Gibson. I know Mark Gibson absolutely is on top of this space. Mark Gibson's a u S Tech Media Telecommunications leader for KPMG. Mark, There's a lot to talk

about when we talk about tech and tech trends. I want to start with cybersecurity because this is something that we hear companies talk about ramping up their spending to protect their networks every single year, yet we still see hacks and ransomware. How do you think about this space? What are you telling your clients, what are you hearing from your clients. Yeah, Paul, thanks for the chance to

be with you today. Great to be here. And cybersecurity is certainly an emerging risk that is accelerated up the

up the risk factors for tech companies, no doubt. Um, it's interesting we have We've been surveying and talking with execs that our clients in the tech sector for years and its cybersecurity has always been in the top list of risk, but you know, somewhere near somewhere near the bottom, and it's just sort of sat there and through the pandemic, and I think through the last eighteen months or so, we've really seen and accelerate to the top where most

of the exacts we're speaking to in the tech sector are viewing that as one of the top business risks. And I think it's unique to tech because like all sectors, all of the companies in the tech sector have to worry about attacks within their own walls and within their own data. But it's also a reputational thing for tech companies because they're responsible for a lot of the products and solutions that are out being sold out in the market that are other companies are relying on to to

protect against these cyber attacks. So it really is both a business and a reputational risk for a lot of a lot of the tech companies. Technology is such a broad term and when you speak to any investment bank around Wall Street, they say all their clients are transforming to digital economy. And what does that even mean? I mean, to be relevant in this new economy? What technologies do you think are really going to move the needle for

the big corporations? Yeah, Shivani, it's a great question because you know, the disphrase digital transformation has been out there everywhere and it means a lot of things to a lot of people. And we we surveyed some tech exacts globally. We do that quite often, and we abolutely really interesting results this year where UM most of the responses of what are the transformational technologies that are going to drive the sector going forward? They were new things at the

top of that list. It was things like artificial intelligence and IoT and robotic process automation. And it was much different from what we've seen in the past around transformation. And I think what it tells us is UM, before the pandemic, most companies view digital transformation as a way to drive costs out of their business you know, sort of grow the bottom line, update their processes, get their get their systems into the cloud, things like that, take

back in cost out. But what we're seeing now through the reasults of these type of technologies are really focused on growing market share in the top line and enhancing customer loyalty and things like that that are much more

competitive advantages. And so I think a lot of the tech companies are viewing these, uh, these newer emerging transformational technologies as a way to really generate new insights, attack the data security issue that we talked about previously, and really drive you know, competitive advantage in the market to be a winner going forward. So it is really emerging, but it's a great, uh, it's a great emerging question.

So one of the technologies that seems to have just exploded this year and maybe even just in the last six months is crypto, and it just seems like that's where all the cool kids are going now, to bitcoin, to crypto. They're not going on to the trading desk Morgan Stanley to trade the long bond, They're going out

and doing crypto stuff. What do you tell clients about that? Yeah, I think everybody's looking at that it's certainly become something that seemed to be UM out of the mainstream for a number of years, and a lot of clients were we're we're looking at that, but viewing it as something they deal with in the future. And I think it has made its way onto the agenda now for discussion UM.

You know, blockchain is certainly an important topic for the tech sector UM and that's uh integrated some way with crypto UM and I think we're seeing more and more companies investigating how do you lean into that, how do you accept payment? How do you transact business using those alternative payment means? And so it's got it's made its way onto the agenda, I think for the clients that we talked to you, and I think the we still maybe we'll wait to see exactly how how it's you

buy a lot going forward? All right, Mark, we'll talk about that one in the future because it's here to stay. It seems like Mark Gibson, u S t MT leader for KPMG giving us the latest on trends in all things text well, all reports that we're hearing over the past few days is despite the only cron variant and the challenges there people are traveling. You know, it's Christmas and people are heading out and getting on planes and

driving and going back and forth for the holidays. Let's chick in what's really going on with the airlines with that whole industry. Peter McNally, Global lead for Industrials, Materials and Energy at Third Bridge. Peter, what do you think holiday travel is gonna look like for these airlines? Uh, it seems like people are heading to the airports and

flying out. Yeah. Well, good to be with you. The You know, it's undeniable that people do want to travel, and we've seen it, you know this year, as people got vaccinated, they booked flights and they wanted to travel, the airlines themselves ran into some trouble and dealing with the demand because it was less predictable than in the past. Um, people are booking much closer to their travel dates than

in the past. But the difference we've seen Thanksgiving and now coming into Christmas is that the airlines know when those dates are UM and they can staff and get the aircraft in the right places at the right time. Whereas you know, through the summer in the fall, as like the delta variant emerged and then receded. It was a lot harder for the airline to do planning. So over the last few weeks, you know, we've seen better performance out of the airlines and demand is on the rise,

you know. And first of all, I must say I was also a buck Now graduate too, so you know, you must really know what you're talking about. So you know, here's the thing. A lot of things are being canceled that would have spurred a lot of global travel. That is, things like Davos or things. I guess there's a lot of private planes, but but still it bought a lot of people flying around the world. The JP Morgan conference events are being canceled. How does that shape what the

beginning of the next year starts to look like. Sure, well, the way we're looking at it at third bridges to markets, we've got the domestic market which is basically in a full recovery, but the international market, even by midsummer next year, we still expected to be off. It's off levels like it's not going to be until in all likelihood that UH international air travel does make that full recovery, whereas the domestic market a lot more leisure domestic business is

still different. UH, leisure, domestic travel has come back and has come back strong, and things like delaying returned to office or conferences being canceled. That's more impacting the business market. So um, you know, it is really important to segment um the different types of travelers that that you're seeing when looking at the airlines. All right, A car larry to kind of the airline industry is the oil business. Energy. It's a big cost for these airlines. We've seen oil here.

We've got w t a Coude oil and fifty cents. I mean, this seems to be supply seems to be fixed and oil seems to be moving simply on where demand or perceived demand is going to be. How are you thinking about that? And when you look at your companies, Well, the first thing to think about, you know, oil, is that inventories are extremely low. We've really flipped the script

from where we were eighteen months ago. And this really has to do with OPEC, and OPEC has managed supply lower um and inventories have come down, so that has led to this recovery in the oil price. That said, for the first time in a year and a half. When we look ahead to the first quarter, we actually see inventories rising for you for crude oil, and to

US that's likely to cap prices. UM. There is a significant amount of under investment that has gone it, you know, gone on over the last few years in the sector that will have long term implications. But over the next six months for US, it's kind of hard to see oil prices running away with inventories on on the rise. And this has to do with OPEC has steadily been in greasing production UM and the US has also increased. But we think that in particular is a lot of

low hanging fruit in terms of supply. At the same time, you know, look, the demand recovery is underway. Jet fuel is still off, but diesel has been very strong. Gasoline is picked up. So that's that's the dynamic we've seen it in oil prices. But regardless, you know, the cost of oil for airlines is definitely higher than it was a year ago UM, and this is leading to a situation while revenues we think in do recover higher fuel costs. Is one of the reasons why profitability won't get back

to twenty nineteen levels just yet for the year. Now, what does this all mean for the consumer at the end. If you want a flight apparently to the UK near term, you're paying a thousand bucks. You know, you're it's expensive to fly right now. So what is the direction of travel so to speak here for for pricing. Well, there's there's limited capacity right now going you know, to the

to the international destinations. Right. It was only November eight when the US opened up to thirty three uh countries that had been had been closed before, and the airlines are just moving capacity into you know, serving those markets. Whereas like if you want to go to Florida, right, this is where all the airlines have been competing to

get that leisure traveler. Um. So it's a lot more seven thirty seven but three twenties and three that are targeted of that, but there's fewer seven and eight three fifties in position to carry people to these international markets. And that's why you're seeing this dispersion in what it costs to travel. Hey, Peter, thanks so much for the update. Really appreciate you taking the time. Peter McNally, he's a global lead for industrials, Materials and Energy and the firm's

name is Third Bridge. So getting an update there on some some airlines and some travel and some energy there. Well, I have to admit that when I was getting my MBA at Duke University's Fucal School of Business, where are um our next guest actually had some studies there, I have to admit I didn't pay much attention to the operations, management and logistics classes I know, and that was a mistake, because those are the folks that are, uh, you know,

really at the center of attention right here. Mike Powa, CEO of DHL Express America's joint US Mike supply Chain, I'd probably say a three or four times a day. It's an excuse for basically everything UH in my world. Give us a sense of kind of where we are right now and managing these challenges with the supply chain, and kind of how do you think it's going to

play out over the coming six months. Day. Thank you Paul and Chanelli, thanks for having us, and by the way, go Blue Devils as you know UM and hopefully we can do something nice for Coach k on his way out. UH. But back to supply chain first and foremost, I'd have to say that we are really pleased with where we're at. UH as we kind of start to wrap up this peak season. UM. And I don't know what you call peak season these days, because we've been in peak season

since last May. But we've had a strong peak season. Our volumes have been up. We started planning for what we call the super Bowl of peak season back in June of this year, going out and hiring two thousand two additional UH individuals just alone here in the US. UM. But so far, knock on wood and we're in the last what we would call the last week, last couple of days of the hurdle. We've performed quite well and I can speak to that as we go through this.

You know, it's interesting. We've been talking to retailer after retailer, and the ones that are winning say they have just gotten their inventory management right. But I want to be also clear because you have someone like Cathy Wood who says the biggest risk to businesses are the fact that people have over ordered and that's going to come to bite them next year. I'm wondering, what is a delicate balance here at this very tricky time when it comes

to the world of managing your supply chains. Yeah, well that's that's a good concept. That's UH. I talked about this about nine months ago and I called it four oh fear of running out UM, and a lot of retailers, a lot of our customers went from just in time to just in case. So it speaks exactly to the point you're referencing to. But we've also seen a big shift UH in supply chain. So a lot of what used to go maritime or ocean, or a lot of what used to go freight forwarding has moved over into

our space of time definite international. And that's because we have a fixed air network and you know, we're not

unique in that sense. Our competitors are there. Some of us planned ahead of others and created that capacity from that perspective, So yes, I would say there is a bit of that that is going on UM, and it may not be too bad, to be honest with you, because I think they will have the inventory that's appropriate and needed as you moved into the next peak season, which will be the run up to Chinese New Year,

which is you know, late January of next year. Mike, when you I guess, just based on your internal analysis and your discussion with your customers, what's your best estimate of when the global supply chain will. I'm not sure what the right term is, but but just normalize a little bit more, UM, because it's been you know, a good twelve plus months here. Absolutely, everything that we are seeing, every analysis we've done, every conversation we've had, every session

we've attended, indicates late or even early. Absolutely, so we don't see any change in twenty two. Uh. And especially with the variant and the explosiveness that we have seen and you've seen it. I'm living here in South Florida right now. We're up to a hundred and eight thousand new cases just Monday alone of this week in South Florida. All the testing sites are up. We are out of at home testing kits at least here in South Florida. That's what I can speak to, UM. And I don't

see this changing in twenty two. So we're headed for another uh, you know, pandemic year in twenty two where we thought it would be an endemic. Hopefully at some point it will change. But again, no change in capacity in twenty two uh. And we think we're well positioned. We went ahead in twenty nineteen and purchased fourteen triple seven YE bodies from Boeing. We then put in another order for eight uh and we continue and we added one new aircraft every week from June of this year

to the end of the year. I'm curious, and we only really have thirty seconds year. Can you do this in a way that's greener. We are working on that through sustainable aviation fuel, which we started in Europe and

in the United States. We kicked it off in San Francisco, uh and now we're looking to kick it off in other markets, but absolutely from that perspective, and we will launch the first twelve fixed wing electric aircraft in the United States through a partnership with Aviation at a Western Washington. So stay tuned for that. All right, Hey, Mike, thanks so much for joining us. Really appreciated getting the update on the supply chain. I didn't necessarily like the timing

that Michael suggesting. Late Mike Para, CEO for DHL Express America's um again talking about supply chain challenges remaining uh well into tree. So again we'll have to see how that plays out going forward. Certainly a challenge for the global economy. All right, So infrastructure, we got that infrastructure

built through bridges, tunnels, all that kind of stuff. The Gateway project, for example, new train tracks underneath the Hudson River, which we so desperately need, which has been my pet project. Looks like that's even gonna get funded. So this is a great time to talk to our next guest and

Fan Dazi, chief executive officer for Richie Brothers. Richie Brothers trades on the n y S E r b A. It's a global asset management company that sells industrial equipment and trucks through live and online auctions and distributes through other channels as well. So a really cool company. I didn't even know this existed until we spoke earlier. Um, and thanks towards for joining us here. It looks like we're gonna get a lot of infrastructure. What's it like

out there in the used equipment business? Are people scrambling trying to get stuff to build stuff with? Yeah, Paul, so they're trying, but the supply chain it doesn't seem to be cooperating with us. So the way that used equipment works, uh, is that you know, people replace used equipment typically with new equipment, and if there's a lag and new equipment, they can't dispose of their used equipment. So what's happening is very little supply in the uthed

equipment market. It is, however, resulting in an incredible price environment for sellers. Oftentimes these days, because people are scrambling, as you said, for the infrastructure bill, they're busier than they've ever been before. Some used assets are actually selling above their original acquisition costs, unheard of unprecedents that has

never happened before. You know, I'm kind of wondering here how long this lasts for and the investments that people are going to need to make to get through all of this uncertainty. Yeah, so that that is the question. That is the question, how long does it last? You know? When this started UH, So I joined Richie Brothers January of UH. Similarly, when I started looking at the company, hadn't heard of it. It's incredible, UH, an incredible marketplace

for global use industrial equipment UM around the globe. So I started in UH. And you know, the first inkling we had that there was going to be a supply chain issue kind of came towards the end of the year from the O E. M S. And originally it manifested like a chip shortage. You know, hey, chip shortages UH and then it went to containers and shipping containers and labor and gluts and you know, uh and and the question on everybody's minds is when does it end?

And so we know it's not now, if anything, is getting worse now because the supply chain still remains difficult, and the demand because of the infrastructure bill and just making people busier than they've ever been before. We're anticipating on time this year, but looking like towards the back end, uh, not the first half for sure, So give us a sense. And I mean, you know, it's all tied together the new equipment that used equipment market. What are the caterpillars

and the deers and all those other manufacturers. What are they saying about their production schedules and how they'll be able to supply the market. Yeah, we're watching those very very closely, and they are experiencing the very the very problems that I alluded to. So we're kind of listening to their public filings, obviously meeting with dealers as well as corporate players in the space to understand what folks

are feeling. And the reality is that, uh, you know, the demand from their dealers are higher than anything the companies can supply how they've chosen to kind of balance that is more fulfilled the demand on the retail side, so for retail sales and kind of uh you know, where they're feeling the brunt of the pause is on their rental fleets, which are aging. Uh and uh don't

have a replacement cycle that's coming up. The nice thing for Richie Brothers with that is, uh, you know, as equipment continues to age, it for sure he'll need to be disposed of. Uh. And you know that's where we come in. The question is not if, it is when and we are waiting patiently for that day. You know, this idea that equipment demand is really being driven by infrastructure projects, how does that play out on the ground.

What does it look like? Oh yeah, exactly. So the interesting thing is was how busy everybody has been the infrastructure money hasn't actually started to blow. So I think we're seeing the tip of the iceberg here. I think do covid um Infrastructure construction has been being an essential service, so we've kind of seen that steadily rise. Obviously people working from home, uh, so kind of construction on the rise,

and and you know home improvement, those types of things. Uh. And now how right on the heels of that is going to be this infrastructure of money that's going to be desperately needed flooding in um and the supply chain will for sure catch up. The question is when what piece of equipment or or type of equipment is most in demand or which one is experiencing that, you know,

supply demand mismatcher, you're really having some problems, picket. And it's there anything transportation to construction, to crane to mining, right, It's it's actually interesting. So I'm you know, I I've seen from the car space over a decade between Ford Motor Company and Chrysler uh and so kind of Uh. You know, in this industry about two years, we've never

seen anything like this before. That across the board. The manufacturers, we see it with the car manufacturers as well, are just experiencing, you know, never before seeing disruptions and their supply chain. You know, we're hearing from some manufacturers that at this point there only taking orders for they will not be able to fulfill anything else. In Again, what that means for sellers is incredible time for to sell. The prices are sky highs. So you know, our last

guest was a duke grad. But Anne is uh War an m b A and systems engineering, and I'm wondering and how important is this for the future, for more people to be building in operations and engineering skills into their own work. Yeah, you know, thank you for that question.

I am a huge STEM fan, so uh as you As you noted, I have a Masters and engineer, bachelor's and engineering and Masters and engineering before my m b A. Uh you know, I firmly believe that every company today is in fact the technology company, and for the leaders of tomorrow to be fluent in the language of technology is just invaluable, even if you're not coding. Uh you know, uh, heaven forbid eye code off my coding skills from two

decades back. But the fact that I can speak that language just is such an incredible skill set and a shortcut actually for the organization so that you know, they don't constantly have to wait for me to catch up. So for anybody listening, I believe STEM is the future. I have um two children, a boy and a girl. He is actually majoring in engineering right now, which she's thinking something in STEM, either science or engineering, and I couldn't be happier yep. Likewise, all right, and thank you

so much for joining us. Always love chatting with you and getting your perspective really interesting and Fan Dazzi, chief executive officer of Richie Brothers. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. On Fall Sweeney, I'm on Twitter at pt Sweeney Before the podcast, you can always hatches worldwide at Bloomberg Gradient