Why Tracy Can't Ship a Teddy Bear from Hong Kong to the U.S. Right Now

each other. And I remember you bought some oil and you kept it on your desk for what Yeah, well, I didn't really want to leave it in my apartment because I'd heard and learned that crude oil evaporates into the air and it's not very safe. So obviously I took it to the office and I put it um on the desk that was right next to you. But the whole point of the whole point of that, actually, you know I heard that that um, the little thing of oil fully of operated. After a few years, it's

totally gone. Now it's kind of crazy. Oh man, wait where did it go into the air? Oh someone else at Bloomberg took it and then it evaporated, So I'm sure it's in the trash now anyway. Okay, that was a very um strange tangent. Okay, the point of doing that story, to actually try to buy a barrel of oil was to show exactly what was going on in a key commodities market in crude oil. Of course, at

a really interesting time. This is when we had um some interesting patterns in the market, the contango structure where in theory you could buy oil and sit on it and forward sell it to someone else and you could pocket the difference and make some money just by buying oil and then storing it for a while. Do you remember that, I do? That was right, That was like the whole point. It wasn't just that you wanted to learn how to transfer oil, but there was like a

carry trade or a contango traders. So, you know, I've taken an interest this year in logistics and transport and the shipping chaos that we've seen. We've done a number of episodes at this point on the gridlock in global shipping. Yeah, this is uh the topic de jour. I mean, I think there are many topics, but you know, it's all the interesting stories this year have not been really in anything related to uh, liquid markets or anything classically macro.

But in micro, how does shipping work, how does home building work, how does saw mills work? Anything is sort of like real on the ground economy is where it's that's right. I'm so glad you said micro because we are going to be going very very micro in this episode. So in the spirit of actually buying a barrel of oil or some oil, earlier this year, around January, I set out to actually ship something via container from Hong Kong to the west coast of the US. Did I

tell you about that. You brought it up on our interview with the Flexi Port and that was sort of but we didn't really get into what happened. I don't even know. Did you ship it? I don't even know what? Uh yeah, okay, so spoiler alert, we didn't ship it. In the end, it turns out that the gridlock in global shipping is so extreme that I couldn't make this work. And we tried for about four or five months, and I just kept getting bumped from ship to ship to ship.

So I gave up eventually. I'm sorry, but I know that like all these ships are packed. However, I refused to believe that there wasn't space for a Teddy Bear on one ship. I mean, come on, come on, Okay, we're going to get into exactly what happened. We're going to go super micro, very granular and talk about what it is actually like to try to ship something via container from the east to the west at the moment um, and I think it's going to be a really enjoyable

conversation in the spirit of you know, gonzo financial journalism. Great, let's do it all right. So our guests on this episode are two people that were very, very helpful to me in trying to arrange this experiment, and I spent an enormous amount of their time on this, and I feel really bad that we couldn't make it work. But we're gonna be speaking with Anton Posner, he's the chief executive officer at the Mercury Group, and Margot Brock, she's

a president at Mercury Group as well. So Anton and Margot, thank you so much for coming on, Thank you for having us. Happy to be here, great, great to be on. So uh, Anton, I sort of I set it up a little bit there, but I'm trying to remember now how we actually met and embarked on this whole experiment, but shipping a single container that is mostly empty, and you know, we settled on putting a teddy Bear in it because it was easy to procure and kind of fun. But that is not what you do day in and

day out at Mercury Group, is that, right? Right? We very very rarely are putting one teddy Bear and the container. It's almost almost never happens. Right. So you specialize in bulk freight, right, correct, right, So I'll give you a little back background. So Mercury Group are vast majority of our business is bulk and break bulk freight and supply

chain management. We're commodity people, industrial commodity people. So so our cargo that we're typically dealing with is aluminium and steel and copper and copper concentrates and alumina which is a material for aluminium aluminum production. Organic soybean meal in bulk coming in from moving in UH containers transferred to

bulk moving up the Mississippi River system for example. So so vast majority of what we do is on the bulk side, which is just as and that that it will get into it further, but that industry and that part of the supply chain sector is just as crazy these days as what the container world has seen. So what why do you walk us through a little bit

of the differences. I mean, we uh recently talked to Ryan Peterson, CEO Flexport, and you know, we sort of have this idea of like, you know, I guess I'm kind of feel like I can wrap my head around how consumer goods moving from Asia to the US got all kinds of messed up for many reasons during the crisis.

What are the similarities and differences like that we see or that just in general between sort of consumer goods movements versus uh bulk Shipman's sure both bulkshipman's for for those that may not may not understand the actual practical difference of it is that includes me about got yeah, so think about bulk in break bulk. It'll explain the

difference between two of them. Are the is the old fashioned way of shipping where it's not in a nothing moves in a container, So dry bulk or bulk is thinking think about it as commodities that are measured in tons or volume, right, like soybeans, corn, iron, ore, coal, things like that that are just that are basically poured into a ship's hole. That's bulk, or what we call or bulk or dry bulk as we call it. Break bulk is is items that you can actually count, so

steel coils, bundles of aluminum sows, crates of windows. We just looked at recently, which is an interesting story, looking to shift from containers to break bulk because of the misery in China at the moment. So so if you're looting, I think you think about the the old movies right on the waterfront of the the longshoreman on the west side of Manhattan loading crates, uh and and nets full of cargo bags of cocoa. That's break bulk. If you can count it, and you can count the number of pieces,

then it's break bulk. If if you have to measure it in tons, that it's dribal essentially. And that's so these are goods that where it's just not practical or cost effective to work with container with containers. And so Margaret and I both come from diverse background uh. Margaret I both graduated from New York Maritime College in the Bronx came out as ship's officers. Neither one of us decided to go to sea as as a ship's officers.

We did our see time as cadets and uh and and I always say, I decided I have no salt in my veins. I'm ready to gready to stay short side and I'm better navigating a cocktail party in London during London Medal Exchange week that I am navigating a ship to get to London. So so we went into both. Both of us went into shore side business of of shipping.

Worked a few jobs together, but we both started in the container side of the business, working in various retainer lines, Margot, and they'll pass it over to you to like background on, but you did that at school, very much on the container side of the business, working for a container steamship line.

From there, I went to a trading company where we moved containerized freight, but we also handled brake bulk UM and that was cocoa beans UM and I have eventually evolved into what we do now, which is much more rooted in industrial products of raw materials or semi finished product. So we do have a decent background of looking at both sides of the shipping industry. And you know, to Anton's point, it is all quite a mess, right now. Yeah,

there's a phrase I've been using. It's probably not podcast friendly as to what's going on, so I'll leave that out. But but Joe, I want to get to that that heart of the question that different you're looking at the difference between the two. So very often when we're looking at moving, moving freight, moving these industrial commodities, where we're evaluating do containers make sense or is this going to

make sense in bulk? For breakball, Let's say that we had a trading company that was looking to move copper cathodes from one of the copper producers like Freeport mcmaran or Rio tinto Kennicott Copper right uh in the southwest US, and they wanted to move those copper cathodes to Korea.

So we would evaluate whether or not it makes sense to stuff those copper cathodes into containers and ship them to Korea, or if the volume was significant enough, does it make sense to rail those copper cathodes to l a long beach and load them onto a breakbook vessel bulk vessel to go to Korea. So that cost analysis is a big part of it. But in this day

and age, it's not just the cost. It's also the ability to actually get equipment to make something happen, which leads leads me to that that that common I made about the windows. We recently one of our commercial people had a dialogue with a company that that imports some windows for consumer windows from China, and they're these windows are sitting in crates in northern China right now, just

waiting the same as the Teddy Bear. They're the same fate as the Teddy Bear, missing ship after ship after ship, massive delays. Right this is the reason why everything is there's a shortage. So they had us look at taking those crates and loading them onto a break bulk vessel out of the port of tan gin Uh in China to shift into east coast of the US, and then we could truck them from there. They right now, on that particular one, they did end up going for it.

The cost was fairly expensive in the transit time was not not fantastic in that particular case. But curious to see if they circle back to us after a few more weeks of waiting for waiting for a container availability, so we shall see. It's um. We're certainly getting phone calls from people that we've never gotten phone calls from before. Well, so that's a pretty good segue into the Teddy Bear

project or experiment. But we started talking back in January when things were already pretty rough, but it seemed doable. The idea of sending a container from Hong Kong to I think were we aiming for l A. Yeah, I think that's right. Yeah, we're looking for l A long beach. We wanted, we chose, We chose the port that we knew was going to be potentially the most miserable. Well, we wanted that. We wanted that Teddy Bear to have some good anchor at anchor time off off the California coast,

to have the real experience. That's right. So remind me what was the cost quote around that time in January

when we first started talking. The all in cost for the local truck include the local local handling in Hong Kong and through to a warehouse to crack open the container take Teddy Bear out long But you think it was around seven thousand dollars at that point for that, and we knew that that was starting the skyrocket, right, it was heating heading upward, and we dealt with one cost increase while we were waiting for the Teddy Better Gets it is the space Book. Yeah, I think it

went up by five hundred Is that right? Yeah, I think it went But even at that starting point, that freight rate was much too high for what the lane is, which is a common lane when you're talking Asia to the United States West coast, and it was that starting point was already so indicative of a skyrocketing market. It was already too high for where it should have been,

say a year earlier, pre pandemic. And to your point, it did just continue to go from there and it moved, the rate moved north, and you still couldn't get your slot on a ship. We still couldn't get your container moving. So explain why you can't just buy your way onto it. I mean, you know it's you mentioned the windows, and I be you know, this is again a big thing that we've been covering obviously homebuilders in the United States.

Lumber is a problem, like you can't have a home without windows, and so the windows are sitting in a factory in China and can't get here, Like is this is there? Essentially like there is no price too high? Um for what? When what people need that those just essentially paying anything, and that there's no way to like bid yourself onto these ships. Like explain, maybe walk us through a little bit the process, because the theory, it seems like there should be some price where it's worth

it to ship a teddy bear. Actually why not, But there really should be a some price where it's worth it to ship windows at least because windows are crucial for the entire home. So can you walk us through the math and the calculations a little bit, whether it's on the builders side or the factory side of why they just can't move the windows. There's certainly becomes a point where it just doesn't make economic sense to ship, and that's why a lot of the cargo will sit.

What happens when you end up with so much port congestion for loading, which is exactly what we're suffering now, is often the highest bidder will get, you know, the spot on the vessel when you're looking at it. Obviously, everything boils down to a cost per metric ton for any trader or any business, and or cost per unit. And where's that break even where does it become too expensive where it becomes a money losing proposition to pay the number you have to pay to guarantee yourself a

slot on the ship. So it's much like, you know, to compare it to the trucking industry in the United States. Anyone can quote you a freight rate trucking or a container freight and sat and the number looks great on paper, but when it boils down to it and they're looking at a steamship line is looking to load their ship, and they have those ten containers over there willing to

pay ten thous dollars per container. Your five thousand dollars, your seven thousand dollar freight rate container is not going to get the slop? Can I just ask a quick follow up? Then? What types of goods are crowding out the others such that Okay, let's say ten thousand dollars, What does it make sense to ship for ten thousand dollars that it doesn't make sense? I guess I does that question make sense? What are these high value goods

that are dominating the space on the ships? Right? And it's not it's not so much high value as much as you need high margin. You have to be able to absorb that from the industrial products sector that we sit in those margins are typically too small, so our typical client base is not going to be who gets the space on the ship. And we actually had a client trying to ship a specialized rebar out of China.

It was test shipments coming into the US. We needed and it was maybe a hundred tons or two hundred tons. It was nothing tremendous, five to ten containers, and we could not get the space on a ship for that because they weren't willing to pay up. So once you get to some of the higher sales point items or higher volume items that you can, you know, get a

lot into the container, your margins are going up. I don't know what that answer is specifically, but I'm going to say it's probably more merchandise freight because that's where you where you can push push your costs into the

price that's on the shelf. So when you're looking you're looking at something that's produced in Asia and it's not produced here or the production cost here to make I don't know a container of Teddy Bears, I don't know a container of of clothing would ever that product is it's still so cheap to produce it in Asia ship it here barely cost increase on the freight and then

get it to market. But for us, and when we're working with traders that buy and sell point are are already established when they're looking to load out of Asia, and often the trade just doesn't have enough room to

bear the increased freight cost and still be profitable. And often the industrial commodities that we're dealing with are produced here copper, aluminum, steel, right, So there is a market, domestic market to be able to make the deal at that shift if they just can't, if imports just can't work. And I think something else to add to add to it also is take the window example right where we

were looking to shift that to break Ball. In that particular case, the ship operator offer put put a number out that was fairly really high for that that particular move. But they're just like any ship operator and the container ship operators are doing this also, they're going to allocate space to their regular contract clients. So that space is going to go to the to the producers that are shipping to Walbart and a target right on a regular

regular basis. So just it's human nature, right essentially, in business nature in that respect, you take care of your of your largest clients at that point to give them the space that they need, and the others will fall by the wayside. So my understanding to that point is there were really three things that were against us on

the Teddy Bear project. Number one was Bloomberg, you know, contrary to popular belief, was cost sensitive, and every time we had a price hike, I had to go back to the editor who approves our expenses and explained that, you know, freight costs were just out of control and that this thing that should cost a few thousand dollars was now closer to seven thousand. And then secondly, we weren't doing this as a massive client, so we weren't Walmart,

we weren't Ikea or someone like that. We were just a single container, not even a full size container, but um half size I think twenty ft, which was also a problem because it's harder to get those onto a ship. So I guess my question is like, were we sort of doomed from the start in the current environment. Yeah, I wouldn't say we were doomed from the start, but it became apparent that the doom was coming right after

waiting for the for the time that we that we did. Uh, for sure, there was going to be there was going to be delays. But but the delays were building and compounding right as we got further to the point where today, if we tried to do that today, uh we would we would say forget it, let's let's not even touch it.

You see what's happening right right over the border from Hong Kong and Shenzen, at the part of Yen Tan, they have now a COVID outbreak that's causing some delays, massive congestion ship owners, the container container ship operators are now avoiding Yan Tan and and the and the congestion is starting to roll over into other local ports in the Pearl River delta. Uh So, if we tried to make that happen right now, I think we might even see container lines saying, you know, forget it, come let's

look at it next year. Right at this point, so so, yeah, it was getting worse by the day, and uh and looking looking today, it's exponentially more of a problem right now based on what's happening locally there. So yeah, right next to Hong Kong is a complete and utter transportation

congestion disaster at the moment. You know, but when we started talking about this back in January, and maybe it's really um quite parallel to this COVID world that we lived in the in the last year your plus, where you know, you you see the difficulty for many months ahead, and everyone's talking about it, and we know it be at COVID, be at shipping, but you know, we're always kind of hopeful, and the talking points have been on everything, but you know, maybe in six months out it's better

or whatever that time frame is. So when we were talking in January, we knew it was bad, and we knew it wasn't getting great anytime soon. But the projection at that point for when possibly recovery would start coming and normalization to these shipping lanes would resume in the containerized market was a much rosier picture then what reality

has been. So too for Anton to be correct in saying, we wouldn't even think about this today, because since January it's done nothing but stay horrible, this this prospect of trying to ship in containers. But back in January, we the conversation was talking about normalcy or you know, moving towards normalcy. By this point in the year, it just hasn't happened. It's not getting better yet. So this is really just to be clear, A it's its worst today.

We're recording this June nine that will be out pretty soon. It's its worst today as it's uh been all year. There's no sign that it's getting better, and still the trajectory is going the wrong way in your view, why is that? Why has it? Why have we not seen any normalization? And what is what is the current outlook look look like right now? I would say that you know, what we're still experience and experiencing rather is that the volumes just haven't slowed. So there's definitely a shortage of

space on ships. There's just you know, so many ships and so many slots to fill. And you can see articles now that the orders into shipyards for new vessels is absolutely increased and it is a reaction to what is happening now ship owner. Ship owners are seeing the

opportunities to build ships. One statistic on Allenburgo just to jump over secon as just reading the new container ship orders into shipyards for the first five months of one are the amount is double the entire numbers of new ship orders for container ships of all twenty money so just the first five months. So I kind of goes to the housing market that I mentioned Joe right does

the inventory right issue. So sorry, but that cure is reactionary, but it's not a it's a long term goal to you know, this is a big book of ship building that is now on the table. It doesn't resolve it today. And what we can't resolve is that we are still ordering a ton of online goods from you know that are all sourcing out of Asia. There is this residual

congestion that is very, very difficult to overcome. And then a lot of the congestion is also due to the massive size of these vessels that are trying to get into these ports, and there just simply isn't enough physical space at these ports to accommodate the volume of containers that are going to come off a ship and what is potentially going to try and reload to a ship

at any point. So that also continues to keep it a slow a slow clean up at the ports to try and get all this material through because they got to push out the loaded containers to make space for the next vessel to offload, but the railroad can't take them out fast enough and until they're out, we can't get the next ship in. So it's really quite the domino effect, which means the ships are not getting back to Asia to pick up the next round of loaded cargo.

So what's the resolve, what's the timeline? I don't know what that is. I don't even know what people are

realistically expecting at this point. We are seeing. Um, there was actually an email that came through our inbox yesterday to myself and Anton from someone we know that we know we do break ball work with them, but they have one of their colleagues trying to put together freight for a six month term containerized running through the end of the year, and asking us for help if we can direct them to anyone who will put a contract in place for them, which is never going to happen.

As you know, Tracy, we couldn't. We couldn't maintain a price for your one container of a Teddy Bear. The prices are skyrocketing. What's what container Line today is going to say? Yes, I will take your brand new contract for six months to ship at a guaranteed rate in this total mess of a market. Guarantee you space, guarantee you a rate the whole the market could just continues

to be to be quite a mess. Should we Should we do a whole another episode guys on infrastructure too, because you know, and Margot touched on it, the size of these container ships. When when we first got out of school and I went to work for used to be Neptune Orient Lines now it's American President lines uh I was working in Port Newark working ships. That word

five six thousand t EU container ships. Those are Tu means twenty ft equivalent units, So that means that that ship could hold five or six thousand twenty ft containers right now, and then that was a like kind of all the ship on the on a little bit of a larger size of medium size. At that point that ship they ever given that got stuck in the US

Canal was what twenty thousand ties I mean massive. The So imagine that ship calling in a port that hasn't been sufficiently upgraded to deal with not not only the actual ship operations right, but but the as Margot's said, also to just the flow of the containers off the ship out the door, out off the dock, conto trucks and the flow back back flow of empty containers coming

back to those ports. Some ports in the in the United States have have significantly upgraded in some areas they made large improvements to deal with these very large container ships, but nowhere nearly enough. So, uh, you know, it certainly

leads into the infrastructure discussion. Right. So we're seeing the I forty bridge right in Memphis fell falling apart, and it stopped up the barge traffic on the Mississippi River for days because of the chunks of bridge falling and truck mentally that the trucks couldn't can't transit over it. So we're seeing, we're seeing everything and note the no chunks fell off the bridge. You're right, it was a chunk. It was a crack in the steel said it was

a crack. It was a crack you could see daylight through. It was kind of massive right into the river. Either way, I don't want to be on a tugboat going under it. Put it that way, Joe. I was just thinking, like, maybe the solution um to all our problems is infrastructure spending. Right Like, it's not. It might not actually be inflationary.

It might solve the inflation problem if we could upgrade the ports that's the argument, right, And even instream economists make this argument that like, you know, you don't have to you know, it pays for itself if it reduces the cost of everything by making by making everything cheaper, by making everything more available. So I have at least like a dozen questions, um that I want to ask.

I'm trying to focus it. So I guess, like my main question is when you're talking to your clients now, what sort of preparations are they making for the future and how creative are they being when it comes to actually transporting stuff, Because for instance, we talked about maybe

trying to ship the Teddy Bear out of China. Um. Eventually we decided against that because Bloomberg doesn't actually have an export license and I didn't want to get my entire company in trouble for the purposes of, you know, a stunt journalism article. But is that the kind of stuff you're seeing now? Like are people just going to lengths or two roots that they wouldn't normally do? Yeah,

we're seeing we're seeing all all of the above. Right, Some clients that that that are are adjusting well and are understand what's going on and working on a practical ways to to deal with it, to to set expectations properly with their with their customers. And then there's others right that are like the deer in the headlights, right that that what do you mean, why can't this happen? Uh? This has always been this. Uh, this has always worked.

Why not now? And so the education process of what's going on where I'm spending a lot of time sending articles out to clients to show them what's what's happening in the market and explaining what others are, what others are seeing, and how it's not just a unique situation to not not a unique issue with their particular situation.

So speaking of infrastructure and the degradation of the infrastructure or the fact that the infrastructure hasn't come up and Anton you kind of handed at it briefly, but you mentioned how has ing And one of the biggest themes that we talked about on the on the show was essentially been the supply side degradation two capacity, industrial, um, residential, etcetera.

During the ten years basically between the eleven years between the end of the Great Financial Crisis and the start of COVID and how much we're paying for that now, and so I'm curious like sort of like your perspective on that from the from the transport perspective. I think we've talked about it a little bit, but how much did we essentially pay the price for a very big bear market in global trade and the way that that

discourages fresh investment? Yeah, for sure, it's you know, in doing this for Margaret, I've been doing this for thirty years now, right, and uh so we we we've seen a we have a good historical overview of how things have been flowing. Let's take take the river system, right, and and this is something that allot of the listeners may not be too familiar with because it's not in day today in the day to day news, right, but but enormous amounts of commodities and cargoes move up and

down the river system the Mississippi River. Ships coming into New Orleans loading out export greens and other commodities from barges to direct to ship for export, and then inbound ships going into into the New Orleans area the Mississippi River and transferring their cargoes direct from ships into barges to move up the river, going up the Mississippi River all the way as far as St. Paul, Minnesota, as far as Chicago on the Illinois River, and then moving

up the Ohio River as far as Pittsburgh. You can get to Tulsa, Oklahoma via via the river system, going up the Missippi River and then making a left onto the Arkansas River essentially right. So so it's just this enormous marine highway right that that runs the run through the heart of the United States. Now we have seen just growing list of problems with the locks and dams throughout the river system. The U. S. Army Corps of Engineers maintains those, they're reliant on the federal budget to

pay for those upgrades. And but so we're seeing now some some infrastructure upgrades happening, locks of dams being shut down in order to to affect those prepare repair work that's needed because there there are some real crumbling situations in these locks and dams. So the tugs and barges that are moving moving throughout the river system have reliant on moving through this system of locks and dams in order to transit. So the this is an infrastructure area

that has just been so neglected over the years. But it's so so much a part of vital commerce for the United States. So iron ore to go into making steel grain, all the agricultural commodities that move move on barges and moving it's such a cost effective way. The cost to move move goods on barges compared to rail freight or truck freight is just exponentially lower because you can take one tug boat and put with that one tug boat it can push a unit of thirty barges

at a time along the main line rivers. So going from New Orleans up to Cairo, Illinois, for example, which is a main transit point, you'll have a line tug boat, a large tug boat pushing thirty barges in each of those barges carrying let's say about sixte tons in those in each barge. So one tug boat pushing thirty barges at six tons each on average. You can imagine the efficiency in that the fuel efficiency right compared to an over over the road truck or even compared to rail throat.

So that cost is low. So this infrastructure on the river system, the neglect that that's been there, we're now starting to pay the price for that we're seeing more and more delays. The barge lines that operate on the river system are passing along those costs to the shippers. Did the cargo interests like never before? Right? And Bargo some examples. Right. Margo's dealing with the barge land voices

day to day and seeing what our clients are seeing. Well, it is a it is an ongoing problem and there is you know, there's a couple of different cost points that it hits, and it is the cost and curd for the weight time that is born or passed onto the cargo owner. But there's also a delay in getting

to market. So you know, we had some we have barges that are trying to get up the Cumberland right now to get into Nashville, and those barges are suffering because of locks that are down with intermittent openings that you really have to hustle to try and get your barge scheduled on one of those openings. It's kind of

like trying to get a container onto a ship in Asia. Um, it's pulling some strings and talking to some friends at the barge lines to say, can you get get a couple of my clients barges through but there's limited space. So now we have a cost of carry borne by or not born by, but uh suffered for the cargo owner, so they're paying additional fees. Then there they have cost of carry and they have a commercial tender that they're trying to not default on. It's it's very stressful to

the market. It's not just that river. And at any point you can look at the barge lines weekly updates as to what is up and coming. And while I'm dealing with the Cumberland currently for one client, I'm also yesterday I was sending emails to other clients for cargo that they have scheduled up the Arkansas River this summer, which will also be closed for a period of time August into September. It is it is um just a moving a moving target at this point on where the

next closure will be. Last year, it was Chicago for a couple of months that you couldn't get in and out of Chicago by barge. And the river system, as Anton has has mentioned, is really quite the super highway within Middle America that most of us don't know about. And you know, Anton and I only have an education in it for what we do, but until we started doing this. I I did not grow grow up understanding how much of the United States, how much of our

trade relies on our river system. So it is really critical to to us, Tracy. I think we definitely now have to do another episode. Seriously, Like I had never liked, you know, in all the conversations. I think I was kind of aware, you know, like grains other things, but the degree to which a it's so crucial still and be so structurally degraded and congested right now, I had

not appreciated that at all. So now we're adding that to the list of supply chain, logistics, infrastructure stories episodes that we have to do. I think we need to, uh, we need to charter like a tugboat up in Mississippi. Right, That'll be our next all thoughts event I'm ready to

take that on, Tracy. I want to I want to throw I want to throw another curve all at you, right, throw in situation, and throw in the climate change issue too into where you have uh, you know, affecting the of her system, right, and ice melt that that the spring ice ice melt that then goes into the river system in the Mississippi River up north and creates, uh creates problems for us all the way down river to

New Orleans because of high river conditions. Right, you have ships coming in that need to have stand by tugboats just to keep them in place because while they're working the ships because of just extreme high river high it's just high river flows at that point. So, um, I wouldn't even take take a stab at how climate change is going is affecting that, has been affecting that, and will continue to to affect and make that worse. But you could add a whole another element into the into

the story of transportation. So our little part of our little part of the world of business is becoming all the more interesting these days. I think absolutely. I mean, it definitely sounds like it. But Okay, so a big question for you, given your expertise and given your very unique vantage point where you're looking at global shipping, you're looking at what a big a lot of big commodities players are doing. You're looking at things that are going

up and down US rivers. I know you're not economists per se, but you're very aware of the inflation discussion at the moment. How much are these logistics snarls, these transport issues playing into pure commodity prices just from your sort of with your shipping hat on. Oh uh yeah, I mean there's no question, right the the cost the commodity price costs are our direct correlation to what's happening in the world of freight and transportation. Absolutely, you're seeing

prices we're working. Let's take, um, take an example right now of one of our one of our clients, a steel trader that's looking to bring in to play coil from the far East into the States, and that tim plate coil is used for making cans, right, cans and for consumer goods, right. So we're trying to put a freight contract together for them right now for multiple shipments

a few thousand tons each of these template coils. And the discussion right that they're having with the with the their end customer that's going to be using this steel is the how to price the cost of the steel with the freight fluctuation. Right. So you know, we're we're very used to seeing fuel search arges, right, which are directly correlated to a base benchmark fuel price, maybe the price of diesel at at rouge, right for for barge freight, or the U s Department of Commerce right for based

diesel prices for truck fuel search arges. So now starting to see UH, starting to see commercial contracts UH with on these com on these types of commodities that have allowances for flight, for freight adjustments on there, so not just fuel adjustments but also for freight adjustments to to take into consideration that the container price for maybe in July maybe ten tho dollars, but in August it may be fifteen dollars, so that cost needs to be passed

passed on. So we're not in a commercial role in this respect rate. So so we could talk talk a little bit to what we're seeing and how our clients are dealing with that freight uncertainty. If that kind of helps answer the question, I think, yeah, yeah, steal aluminum, right, copper, Everything is getting getting hit. So those those prices are just flowing flowing through and eventually it's flowing through to

what's on the shelves. Right. So one of the themes again that we have is that you know, obviously some players, maybe shippers are in a position to make a lot of money right now with this incredible demand, But does everyone still think this is like sugar high or as a tory, or that it's totally a matter of time before the bottom falls out again and we return to something like normal, or will is this a kind of boom that would cause companies in this space to invest

more and expand capacity in some way, something that leads or leads to sort of durable changes and how the industry does business. Let's remember that question a year from now, right and look back, because the cycle is is it just like the housing you know, housing, which it was a great episode, by the way, guys, I like, I really like that. The ship owners, as we said, right, the ship ship owners now are putting these orders into the shipyards to build, build, build, sure enough, just like

drunken sailors of the past. Right, the money goes flowing out and it will only be a matter of time before they're looking at too many ships and they're killing each other for the for the freight. When that's going to happen, I won't uh that that that's above above my level of economic intelligence, I think. But it is sick.

It is cyclical, right, downton. I mean it's it's the shipping community seems to hang their hat really on a supply and demand, but you're building a ship, the reaction time you just it's just not that quick, right, So so it's great on this high too. Then throw your money into new equipment, new vessels, which is wonderful, but you know you're not going to get it for a couple of years. And where's the market that. Let me throw an example out at your right to sticks in

my head. Barge freight market. Um, but it was an unusually heavy grain season. Grain season is the harvest time when the grain producers and trading companies are moving grain southbound from from the harvest areas in the States down to down to the New Orleans area for export. Right, So typically that's a time when in barge freight market just moves upward in general. So let's say that barge freight per ton from New Orleans to Chicago northbound is running in the mid teens per per short ton on

a on a typical year basis. In that green season, those rates, it was such a shortage of barges in such a such a surge of southbound green that the barge lines were much more happy to move their barges empty northbound just to keep them in place. In position for the green So we saw barge rates to Chicago in the mid forties per ton instead of set of fifteen,

try forty five. Right fast forward from there was no grain season, it was it was a bust, right, So how many new barges were built by barge lines after that boom grain season? Right, I'm not sure. I don't know that statistic. But we see this this cycle, just this cycle constantly of of the ocean freight market, the bulk ocean freight market moving. But what's unusual about right now, and they think everyone would agree, is we haven't seen this across the board global surge the way we're seeing

it now. It seems it seems far more broad. Right. Sure, I can relate that green season situation, but that was isolated to the barge freight market. And you know, we've seen truck drivers shortages. That's been building for years more. When I were talking this morning, that's not a new story. That's that's been I've been I've had that slide up on every presentation I've given it at a steal and Aluminum conference over the past few years about the shortage

and truck drivers. So so that was that was coming I have a trucking episode coming up, so we already have that one in play. So two things here like really drilling down into the nature of these shipping industry. So number one, is there something about shipping that makes

it inherently cyclical? And is there a reason overall that we get these big booms and bus And then secondly to something that Margot was talking about earlier, why can't you walk in a rate for you know, later in the year, Like, why can I not book space on a ship that's due to go out in December at

some sort of pre agreed rate. Why is it so difficult When you know, I assume other types of business, other industries, you are able to lock in um some sort of forward agreement so that you can have certainty and an outlook on on what you're supposed to be doing. So, but shipping seems to be very different. So I guess

my question is why is the shipping industry so different? Well, if we're going to look at containers, if you lock in today, it goes back to us trying to get a container with a Teddy Bear for seven thousand dollars on a vessel. You didn't get a slot because there was someone else probably willing to pay eight thousand dollars and your freight gut bumped. So the shipping market is like all others, and it really reacts to supply and demand,

which is the production of vessels. Because money is flowing. Eventually we will have too much capacity and freight rates will be so so low because there's ships everywhere with empty slots that we can load onto. So I could get someone to lock in a rate and say, sure, China's a long beach, we're going to do that for five thousand dollars. We're going to book it. But do you get a guaranteed slot and are you guaranteed to

load on a vessel? Probably not so right now where your market, where the market is, and to what Anton spoke to earlier, the you need to be the Walmarts and the Nikes and the big players, the i Keas of the world to have those garanteed slots at your contracted rate. But the rest of us that aren't don't have that contract in place, nor that annual guaranteed volume to ship. That's that's who's living in the free for all, and that's what that's what the market has been is

a free for all. I remember, like when we were talking to Ryan Peterson, the Flex Sports CEO, and and I and I was actually, I'm glad you brought that up.

And I wanted to like he was saying that, like the shipping industry is still sort of like it really helps to like if you just know a random guy in Denmark and like or like it helps to like know someone relationships, relationships, relationships probably named like Lars or something like that, and to like that, like if you really need to get your windows shipped out of China,

like you gotta call it Lars. And so I'm curious, like, is it because the industry so so concentrated that it hasn't had the need to create a more competitive booking process? Is it a simple technological fix, Like why not sort of like up it in a bed such that people can just sort of have a more dynamic auction for for first space. Yeah, there's not a lot, not a

lot of transparency in that respect. That dynamic auction type situation um been tried in many different many different ways, right platforms to be able to uh take a bulkship, it's just talk about bulkshipping for a second, right there's been many different uh attempts by technology companies are technologically focused people in the shipping industry to put together a more open auction, transparent platform exchange and exchange to some

extent right for for actual booking freight. But it always seems to revert back to the herror, back to the old old fashioned of right, knowing the right guy in Copenhagen type thing, which is kind of you know what keeps us in business, right to some extent as a third party intermediate right, which is what we what we are, right or logistics management company. Right, our our value. We don't own ships, we don't own barges, we don't own rail cars. Right, So so there's a value in having

expertise and knowing where to go for for that. That's so yeah, there's been a natural right resistance to the to that. Well, let's and anton its expertise and relationships.

M M yeah, exactly, I tell you it. Just another thing too on the bulk fright, looking backlistic that that steel coming out of out of the Far East I mentioned in that particular case, we're working to get a three three shipment contract together right for October December and February to move to move that steep, to move that steel. We're seeing resistance from ship operators for offering that far out, and the ones that have are pricing it quite significantly

higher right that they're taking certainly a big premium on that. Um, you have a situation to on the bulk side, and it's it's a little bit if this is where it differs from the container side. Bulk ship operators and I'm using the term operators rather than owners here are often not the actual owners of the ship. They operate as a as a as a ship ship operator, but they take the ships that they're using on time charter. Essentially

they're renting those ships, they're chartering those ships. So, um, we have a situation at the moment where the handy size market which is a handy size market rate for ships and handy size of these ships that are running in the twenty thousand ton capacity range. Right, these ships were going on the market at the very beginning of the year in January, and maybe you've got ten thousand dollars a day to time charter one of those ships. They're now in the thirty dollars to day in the

Pacific market. So, if you're a ship operator, let's say your your ABC Shipping, and you priced moving steel from the Far East to the US Gulf at let's say a sixty five dollars a ton. But you you based that sixty a ton rate that you gave to the steel mill. You based that rate on a ten tho dollar a day ship being able to get a ship at ten thousand dollars a day. And now you have to go out and perform under that contract. Right, you

agreed to sixty five dollars to that steel. Now you've got to go charter in a ship at thirty dollars a day. That sixty doesn't make economic sense anymore. And we're seeing some very very serious problems in delays with ship operators that that are not performing at the moment because of because of this. Right. And this is where

this type of market situation has happened in the past. Right, But it's where it separates the professionals and the ship operating side from the from the amateurs, the ones that prepared at a time, that had ships on sufficient long enough time charter periods to perform under their contracts, versus the cowboys that book that sixt with the mill but hoped that the market didn't didn't anticipate the market jumping like this and that now that now can't perform and

are leaving cargoes behind strewn about the Far East, which is one of the situations for dealing with at the moment too. All right, Aunton and Margot, thank you so much. Really appreciate your time on the podcast and also your months of hard work trying to get the shipment out of Hong Kong and all your patients with with the US doing the paperwork. So thank you so much. Thanks everyone. That was fun. Hold onto that. How do you barry Tracy, because when you get the Hong Kong next time to visit,

I will personally carry it back to the States. Okay, yeah, we'll get really creative with our transport situations. All right, thank you. That was great, So Joe, you can probably tell I very much enjoyed that conversation. It was nice to get more of a breakdown between the container shipping world versus bulk because I hadn't considered that. It was also interesting to hear about what's going on in US rivers because that was definitely something I hadn't considered before. Yeah,

I hadn't. I hadn't thought about that at all before. But I also and I feel like each time I love these series because I feel like, um, you know, we started with Mark Levinson with the Box, which you know, look at really big picture of shipping. We keep getting more granular and then keep and it keeps turning over new leaves. Obviously we've got to talk about the canals and the river systems and how important they still are,

but I feel like both of them. Antona Margo just had so many sort of like specific insights, specific details about what makes the situation so tricky that was super helpful. Absolutely, and um, I should do this before I forget. But I just want to give a big shout out slash thank you to some of the Bloomberg staff that helped

with the Teddy Bear project. UM, in particular dil en Rico and Coco Live from our supply chain office in Hong Kong, who very patiently answered all these questions about how to like secure a teddy Bear, a single teddy Bear in a crate UM and worked on organizing uh, you know, the the transport within Hong Kong as well, so she was amazing. Of course, um the guy who

approves my expense accounts as well, which is Reddo. So thank you DdO for allowing us to spend thousands of dollars on this um even though we didn't actually do it in the end. There you go. Well, let's try again, and let's let's try again in the year. Hopefully there will be some stability and they'll find they'll find some space for you on a ship. How much do you think a tugboat costs of the Mississippi? I don't know.

Do you know the answer? No? I think you like I thought you're like going to give you like a trivia question or something like that. All right, we got Let's let's get to work on booking that episode. Okay, all right, shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joey Isn't Though. You can follow me on Twitter at the Stalwart. Follow our producer on Twitter,

Laura Carlson. She's at Laura M. Carlson. Followed the Bloomberg head of podcast, Francesco Levi at Francesco Today and check out all of our podcasts at Bloomberg under the handle at podcasts. Thanks for listening to