Is Covid Level Shipping Back? Let's discuss

Instagram- @jeffdavis_bridgestone
YouTube- JeffDavis_Bridgestone
Twitter- @bridgestonecap
https://www.youtube.com/@ChainReaction-vh7rm
www.bridgestoneinvest.com

Transcript

Jeff: 0:00

Hello, hello, hello, and welcome to Chain Reaction. Really appreciate you tuning in again. There is just so much going on right now in the world of supply chain, the world of logistics with this Red Sea crisis and things are changing. Things are getting back to pre COVID levels Getting very dynamic with the delays that we're seeing with prices getting crazy. I have seen China to Europe to UK prices shoot up to 12, 000. a 40. we're, we're really getting up the pandemic level prices. We can see that Tesla, Berlin, they shut it down. And let's dive into what do the shipping bosses say in terms of moving forward. And in terms of leaving for the rest of the year, because just in Q4, Q3, It's financially good for the, for the carriers for masks and CMA and CGM and all the others. This actually means that you are pulling out capacity from the market, in a time where the demand is not very strong. So you actually see the fight rates increase like you the beginning. They are exploding at the moment, not comparable to the last couple of years, but they are increasing significantly, and they will be increasing more than whatever the cost will be to sail around Africa. looking at it financially, this is actually good for the carriers, and they will be able to cover the extra costs. I want to look at the consumers here because you've been very clear on what this means for the companies, but can you also outline, and I'm aware that you're covering MERS specifically, but could you just outline perhaps for us what could this mean for consumers all over the world? The first and foremost, this will mean a longer exit times. It will mean that the reliability of the carriers will decrease again, and you will not be able to predict when your goods will arrive. That's the first thing. The next thing is obviously that the freight rates have increased, and as you mentioned, it could push the inflation up Depending obviously off how long this will go on. first and foremost, this would mean longer transit times, worsening of reliability, but also potential increase in prices. I'd also like to ask you about the outlook, because obviously during the pandemic we saw severe interferences with how do you see the months ahead, even these latest tensions in the Middle East, what does this mean for the outlook for companies such as MERS? It's very easy and also good to compare with what we saw back in Easter 2021, where the Suez Canal was blocked. This, in essence, is the same thing happening here. However, there are some differences. Back in 2021 and 22, the supply chains were already damaged. There were bottlenecks all over the world. The freight rates have already increased. There was strong demand, and there were not enough ships on the waters. Now, the situation is turned around. There are too many ships on the ocean. There is not much demand. There are no bottlenecks. And the five ways were initially much, much slower. So the carriers will be able to handle this much better than they did back in 2021. But there is a key difference here. And the key difference is that if you look at the, the Swiss channel and how, how the the you know, the solution to the Swiss blockage was that we need to remove. The, the ship, it was a very easy solution. When you look at this, it's much harder to see what is the actual solution to this and how long will it take. So this could potentially take much, much longer, already has taken much longer. The process of Swiss took around six days and this could potentially take weeks or potentially months. And the, the, the, the, the potential damage to the supply chain is significant. Yeah. Good morning to you. It's the biggest loser here, Asia and I, and I just asked that because you have both the Panama Canal struggling because of, you know, a record breaking, lack of rain in that area. So not easy to pass through there. These guys know what they're talking about. These are very good questions pertaining to all of that. Discussed. Consumers, yes, the shipping companies themselves, but not Asia. I mean, they struggle the most by the sea of it. Yeah, you're right, but I don't want to pick the biggest loser here. Some more, some less, but all over the world you will be able to feel the impacts of this event. I also want to point to the Red Sea and the countries in that area. They are now in a blind spot. For the logistics companies, it will be very hard for those for those countries to get their goods. Obviously, you're right. China will also suffer, but Europe will also suffer. In the near future, we will see potential bottlenecks both in, in Europe, but also Money, money lost to those regions? Because of this conflict season going into the weeks before that. So, so we're looking into a situation here where, where we would get stronger demand, but also lower capacity and that will increase prices further. I felt that was really getting better and better. So often we see that the mainstream media doesn't know our business. They don't know supply chain. They don't know logistics. Those questions were spot on. They were really hitting on a lot of different aspects to our business that most mainstream media. does not know. And I appreciated those questions. They even got into the Panama Canal situation that is affecting trade. However, as of this week, that Seems to be relieving, there should be relief through the Panama Canal for supply chain and importers and carriers. Moving on, I want to talk about one of the most important, but most underrated economic factors. I also talk about this on my other channel, Bridgestone, which is a private equity company, the economy cannot be understated when it comes to Supply chain when it comes to shipping, when it comes to procurement and when it comes to real estate. I'm a board member of an organization called Institute for Supply Management. It is the Houston chapter. It is a nationwide organization. Every month the ISM produces the production manufacturing index. Here is a copy of this month's PMI. the PMI comes out every month from ISM. Today, let's go over the Houston PMI and discuss how to read it and the important indicators. The PMI indicates sales and new orders, expanding production, expanding employment, contracting prices, paid lead times, finished. Good. What's interesting is this comes for this is the December report, What did we just review? What did we just hear from CNBC about reports from ocean carrier leaders and his speculation. And I agree lead times will increase. this specific report covers. professionals in the supply chain industry, procurement in the Houston metro area. directly affecting so many people listening to this YouTube and, and podcast, but Houston overall is 51. 4. This baseline of 45 is where is the determination of, are we in a recession or not a recession? 45 is that break even. So we are at 51. Here's the individual determining factors that supply chain leaders in the Houston market from the companies that are surveyed. just for some some background on this Houston's GDP is around 500 to 520 billion. And the the overall GDP of the respondents here covers about 20 percent of that. while it's not over encompassing, it doesn't cover all. this is a very good insight. So nationwide. I don't have that report in front of me, but it is available through ISM. Small plug. If you would like access, please go to ism. org or you can contact me and I'll of course navigate you. It is a non profit and it is extremely valuable. Please please join. Sales new orders are up. They are trending upwards. Production is falling. Purchases are falling and the prices paid are moving higher. So interesting here is the inventory. is falling faster. So on numerous in interviews that I did last year, and I'll actually research that and put that into the comment section and the link. I talked about how high the inventory levels were at that time, right? And this is during COVID and Right after COVID, the U S retailers and everybody, all these companies went on this buying spree, causing lead times to expand prices to inflate that coupled with lead times from the carriers everybody, their inventories immediately shrunk, but We had to build up this inventory. There was just so much uncertainty right after COVID. And then people went back to work and the buying just kind of has, has normalized, well, we're just, you know, what we're seeing now is companies are going to allow inventory to, to reduce I'm working with. More than two companies now who are focusing on a just in time model. So here's where we're at, what happened here, right? I think everybody knows what happened right here in 2020. But this is we're at 2015 recession. And again, this is not the economy. This is not a this is not a chart of the economy. This is the monthly report of the Houston PMI, and it is an indicator of respondents of the these questions where purchase managers and supply chain managers are asked these questions. And so as supply chain managers and purchasing managers are asked these indicators of inventory levels, lead times, the prices you've paid, your purchases, your employment, it is compiled. And a score is given and created, and it creates the PMI. As the Houston economy goes, so does the U. S., and I think this is a very good indicator of where the U. S. sits on an economic basis. So, oil and gas exploration. Overall, they're the headwinds are going away. Flat pricing expectations in the first half of 2024. Labor is a headwind in a, in a presentation given at ISM labor continues to be a challenge across the country. That's just a fact. Construction demand is strong. That is not going to, that is not across the country. Construction seems to be down shipping disruptions in the Red Sea are increasing delivery times. So lead times are increasing. So we're with the air passenger totals are right at 2019 levels. So this is pre covid levels. Again, if you are looking for this report and you would like to see it, of course, reach out to me. I try to provide snippets of this report to my customers. it is very valuable input and an indicator of where we sit as a city and also as a country and what we can forecast. Supply chain managers give this input. And they collaborate as well, right? If they think they're seeing increases, but they, they don't think they should be seeing increases on certain prices, wanted to cover that overall. We're not hitting recessionary levels. seem to be increasing and employment is strong. So take that for what you will. It is just data. I don't have an opinion on if it's good or it's bad. It does seem like we are relatively flat in terms of an economic situation. Not great is the out the situation in the Red Sea. The shipping crisis does seem to be worsening and there's no end in sight. So we do hope that there becomes an improvement. Let's go into this. Tesla is now shutting down as the Red Sea shipping crisis deepens. Tesla, The EV maker says it's running short of parts due to the chaos in global shipping sparked by attacks in the Red Sea. Exactly. The Houthi militants have been targeting vessels there for weeks. They say it's in support of Palestinian Islamist group Hamas in its conflict with Israel. Major shipping firms have had to put vessels on safer but much longer routes as a result, delaying deliveries. Container giant Maersk says it expects the rerouting to persist for the foreseeable future. Now Tesla is the first major firm to disclose an interruption to output. It says production in Berlin will stop from January 29th to February 11th. Analysts say Tesla relies heavily on batteries from China, which are shipped through the Red Sea. They say other automakers seem sure to face disruption, given the dependence on parts from Asia. For Tesla, it all adds to difficulties as it fights a labor dispute with a Swedish union that has led to sympathy strikes across the Nordic region, including at a Norwegian parts supplier. On Thursday, the firm didn't give any detail on how many components were missing or how it would restore production. So credit to Reuters for that credit to CNBC for the first article. That is your news for the day. Thank you to everybody for tuning in. Stay tuned for the next one. I appreciate you tuning in. Please like and share, subscribe. This is Chain Reaction, Jeff Davis. If you need any help, if you want that ISM report, I almost forgot. I would like to invite everybody to the ISM Houston Business Expo, which Is coming up on February 13th at the Houston City Center. The Supplier Expo, February 13th, Norse Conference Center. It is right at 816 Town and Country Boulevard. Right of the beltway and I 10. We're looking for sponsors. But if you just want to attend and come check it out, come see all of the suppliers that are going to be there. We have a significant amount of diverse procurement and supply chain professionals that are members and member organizations. As I mentioned earlier ISM companies represent around 20 percent of Houston's 500 billion GDP. Member companies are such as Academy, FMC, SABIC, Samsung, HEB, Exxon, Ernst Young. Over a hundred more. There is a significant presence. You should want to be there and network and grow your network. Come join us. Come get a table. A table is 600. Your ROI can be immediate. So if you want to join, let me know, drop a line in the comments, message me. It is very easy to get in touch with me. I am not difficult to get in touch with. So everybody thanks so much. I'm out.