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Episode 15: The Red Sea Crisis’ Impact on Freight with Christopher Chase of the Port of Los Angeles

Please note: the topics discussed in this episode are fast-changing. All information was accurate at the time of recording.

Brent – 00:00:01:

Welcome to Freight Nation: A Trucking Podcast, where we explore the fascinating world of trucking and freight management. We dive deep into the freight industry and uncover why the trucking industry is more crucial to our country now than ever before. Stay tuned to uncover the driving forces behind successful trucking businesses and hear from the hardworking truckers and leaders who keep the world moving. Let’s hit the road. All right, Freight Nation, welcome in to a special edition of Freight Nation, one that we’re talking about a current very, very important topic. So we like to do that on Freight Nation, or we going to like to call it kind of a Code Red. It kind of goes along with the theme of what’s going on on the other side of the world that affects transportation. One of the things that’s become really, really apparent to me as I’ve spent my couple of decades inside transportation is that with the advent of the internet and the way that that connects all kinds of people together, transportation of goods around the world has become flat. And what I mean by flat is that everybody’s connected. All of transportation is connected together. And the United States is the largest market for consumption in the world. And because we’re the leader when it comes to those things, we’re certainly very, very, very aware how the other marketplaces impact us directly more than others. And so because of what’s going on across the seas and the Red Sea, joining us today is Chris Chase. He’s Assistant Director of Marketing for the giant, incredibly important Port of LA. He’s also my good friend. We get to spend some time together each year at Bank of America conference. We’ve become friends, and I appreciate him. He’s one of these guys who gets to talk about ports, and he’s not boring at all, which is super great. So welcome in, Chris. Appreciate you joining us today.

Chris – 00:01:40:

Well, thank you so much. It’s a pleasure to be here. Glad to be able to do this. And yes, we’ve been kicking off these things for almost more than a decade now, I guess, at some of these events around the country. It’s always great to get a chance to be a part of this. And yeah, it’s amazing that talking about ports can be interesting, exciting. And as you said, we’re connected to so many things around the world. It does make life a little bit different and often interesting.

Brent – 00:02:03:

Yeah, well, no doubt. It seems to me, you know, most people, if you’re just a consumer inside of any country in the world, you don’t think much about how the goods get there, of course, until the pandemic. And then now everybody wants to know how the supply chain is doing. So it kind of makes us a little bit more front and center when it comes to people’s really learning about how we do what we do when it comes to logistics and transportation of goods around the world. And I know that your leadership at the Port of LA has been appreciated by everyone, and you are very vocal as being out and talking about what’s going on. And so tell the Freight Nation listeners a little bit about your background, how you got into it, because everybody wants to know, they always want to know, how did this person get to where they are today and their ability to be part of a really large organization. So tell a little bit about how you got into this part of the market and in transportation in general, and then how you got to the Port of LA.

Chris – 00:02:48:

Sure. Coming out of college, I wasn’t quite sure what I wanted to do. And I was looking around and I ended up making a connection to getting into working for a steamship line at the time as a junior salesperson. And I figured out early on that I liked the business to business selling aspects. I didn’t want to call people at home for their money. I decided that early on was not for me. But I certainly enjoyed the physical aspect of what we did. Planes, trains, automobiles, that was more exciting to me. So as luck would have it, I was able to, in the pre-internet days, to a large degree, use some connections and applied for a job at a shipping line and ended up getting an interview there, like I said, for an entry-level salesperson. And I ran with that for about five years. And I was looking to make a change, kind of tapped out what I wanted to do at a container line. And there wasn’t much mobility at that point. And talking with some people that I knew. They said there’s an opportunity going on at the port. And I didn’t actually, for someone who worked in the industry with ships, with all this stuff, I didn’t know a ton about what they did, but I kind of got in. Yeah, I knew the port itself. I mean, I knew our terminal. I knew they were the landlord, but not quite the breadth of services and activities they did. And so in the spring of 2001, so quite a few years ago, this job came up at the port. I kind of did some research into it, looked interesting. Somebody that I had met working there had gone to the port. And so he put in a good word for me to get at least onto the interview page. And I was able to get a job there. And hard to believe that 23 years, almost 23 years later, I’m still there. Not necessarily what I was planning on doing. I was actually working on going back to school and getting my MBA at the time. That was my plan. I said, this new job is interesting, a little more breadth, a little more exciting. So, okay, I’ll jump into that and go back to school later. Never did make it back to school. Never did get that part done, but I’ve been here at the Port, 23 years. It’s been a great experience. And I think the greatest thing that, at least as I’ve seen, and that appealed to me is that every day is a little bit different. And I don’t have to do the same thing every day. I can, but there is so many different aspects of what I work on. So, right, you know me from doing all this kind of good work, but I also work with the railroads. I work, with cargo owners. I work with shipping lines. I work with terminals, truckers. And then the other part of my job is I work for the cruise ship industry. So I’m the lead on our cruise business. It’s not a huge business for the port, but I’m the guy that does it. So that’s been a kind of a fun thing to do along the way. So that’s how I got involved in this. But the fact is that we have so many different things going on and we created this nexus of a port is where so many things get handed off. And that’s what makes life interesting and challenging at the same time. And that’s what keeps me coming back day after day.

Brent – 00:05:39:

Yeah, no doubt, man. That’s got to be fun. I know also you talked a little bit about how your focus is not just in one geographic area. Yours is of all the Americas connected together as well. And then because of the prominence of the Port of LA, you guys turn communication globally as well. So yeah, I can imagine your job is never boring. Now, big question, big question. You mentioned to me that you went to college in Boston, but you’re now in LA. So do you prefer the West Coast to the East Coast or which, or are you kind of like Hannah Montana, you get the best of both worlds?

Chris – 00:06:13:

Quite the connection there with Miss Montana. But nonetheless, I’m originally from the East Coast and I’ve been out here in California. I went to junior high and high school out here in Southern California and I went back East for college. And I came back at a time where it’s a little harder to get a job. So I moved back home for a few months and that’s when I got my job at the shipping line and got out, but it just happened to be that this is a place to be. If you’re in this business, this is a big part of it. And obviously it’s only second only to New York, but that’s a little different. It used to be, that’s where all the shipping lines are headquartered. Now they’re all over the place. It’s changed, but yeah, so I’m a little bit of both, have connections on both sides. And I actually like the fact that I don’t have one spot. I like the fact that it’s two because it gives me flexibility to do what I need to do. You take a little bit of fees and everything else to build your mindset.

Brent – 00:06:59:

Yeah, no doubt. No doubt. Well, all right. So we’re going to talk the bulk of this about what’s going on in the Red Sea and how that affects global transportation and how that is affecting domestic transportation in the United States. Before that, though, talk a little bit about the port and how you guys interact globally. What impact does that have on what we do here in the United States? So just from a global standpoint. And then if you wouldn’t mind, before we jump into the Red Sea thing, there was another boat. There was another situation that something was stuck sideways in a canal. And so this is people’s first visibility on, oh, there’s a problem with a canal. There’s a problem. So talk a little about those two things, and then we’re going to jump into what’s going on in the Red Sea.

Chris – 00:07:44:

Sure. Well, as the port, our customer base is worldwide, and that is a big part of it. And for most ports, their customer base is worldwide. And your customer base, I think, is part of this worldwide connection is many different things. I can tell you the head of our port right now is out in Asia meeting with manufacturers. He’s doing a tour of several different countries and areas. I think his target, they’re doing some bigger events with some folks. You know, so hundreds of suppliers potentially meeting with them, talking about what we do and how our connection is. And more importantly, too, how things are being changed from all the various different factors that are out there, which is no different than we’ve done at any time, because there’s always something new, different and changing, or there’s a problem somewhere in the world, and you’ve got to deal with it. Our main customer base, which is the shipping lines, mostly headquartered in either Asia or Europe. And then our terminal operators, a mixture of ownership all over the world again there. And then for us, and a lot of what I’ve worked on is the cargo owners. So name your favorite big box retailer, name your favorite supplier or maker of shirts, shorts, whatever. Those are the people that we are connected with because they’re the ones making the decisions how you route cargo. They’re the ones who are deciding collectively where I’m manufacturing, where I’m buying stuff from, or more importantly, we’re trying to do more and more of is where I’m sending things to. Get that American exporter. Back up and running, get them a better opportunity to make a profit and make themselves competitive worldwide. Those are kind of the areas that we jump into. But yeah, I tend to be more the guy doing stuff in the US. There are folks doing some more overseas. We all take turns, but I’m the glutton for punishment. So I travel domestically a lot more than the guys that do international.

Brent – 00:09:30:

I remember the first time I heard you talk, you talked about what was the major driving cause behind the backup at the Ports in California. And everyone was talking about, there’s just so many ships coming in. And you said, not the case. So I would love for you to talk for one second about what really was causing the continued long jam of ships coming in.

Chris – 00:09:54:

Well, we’ve seen it over the last couple of decades I’ve been here, when we’ve had issues along the way. And usually the easiest thing to do is, a ship is an easy spot to slow down a delay. You can hold a ship off shore, it’s a floating warehouse, and you’ve got to wait for things to clear up on the land side. It’s all about velocity. And velocity is what keeps us flowing. We have finite real estate. As a port, we have X amount. And if it gets too full, you can’t take things out then. So you got to keep it fluid. But if no one’s picking up cargo, or no one’s delivering cargo, you’ve got a problem. And that’s what was exasperated many times over during COVID versus some of our other issues, where we had a blockage in one of those pieces. But this one, it was blocked on multiple pieces. And that was just such the struggle to get out, was that I have tons of cargo being delivered. I’m not picking anything up, because my warehouse is shut down because COVID, or whatever. But that doesn’t mean I stopped ordering. It doesn’t mean there’s three or four weeks worth of cargo on its way as we speak. And you multiply that out by tens of thousands of suppliers or shippers, and you just have this constant flow. And if you don’t take it out of the terminals, it backs up. And often, whether it be railroads, your warehouses, I mean, they’d have the same problem. They have X amount of square footage. If they’re full and then nobody’s going out the other end of the door, you just got to push it back down the line. And honestly, the ship was the best place to do it, because it’s a ship, so it’s floating. And if it’s not in the port, it’s not moving. It basically sits, “for free”. Not quite, but you’re not paying storage charges as you’re floating in the ocean. You’re not taking up mainline track. You’re not blocking a roadway. You’re just sitting off there offshore, whether it be an anchor or floating. And that’s kind of where everything came together. And that’s a big challenge that we face. And that’s what we keep an eye on, especially now even more so, is focusing on that velocity. We knew it was always important, but it’s the velocity at a warehouse, the velocity of a truck moving from A to B, velocity of a rail. It has to keep moving. If it slows down, we’re okay. It just can’t stop. And that’s what probably caused the biggest problem in COVID, where some of the other disruptions weren’t quite as bad, is because multiple levels stopped. And then getting it back going again is, because it’s one thing if you stop and stop ordering. The difference was you stop and you kept ordering. And that is where the struggle came from. So that was a big part of all this. But you’re going back to some other previous canal questions. We had the one, gosh, it’s what, three years ago now, where the ship got blown sideways in the Suez. We’re talking the same part of the world. And the key there was, I mean, obviously, that was a very fixable direct problem. That was something broke. We can fix it. Took a little bit of work. But, you know, within a few days, I mean, I guess about a week or so, it was corrected. You’re seeing some issues with another Canal right now besides the Suez, which is Panama Canal, with some water issues. And we’ve seen that going on now for a good part of six months. That’s a bigger issue. You know, it’s not a direct fix like you had with the ship going sideways. Yeah, they had to dig it out. They had to dredge it. You fought as many tugboats as you could find to get it going, but they did it. And it was at the tipping point of people making decisions, at least at that point. Now we’ve got two canals with issues and people are needing to make decisions. And that is kind of the name of the game in international transportation worldwide, right? There’s always something and you’ve got to make a decision at some point. Is it a short-term problem? It’s a long-term problem. What are the pieces of that puzzle? But yeah, so it’s interesting. It’s interesting to see that we’ve had these two things pop up. This is definitely no one planned on the connecting lake in Panama having a drought of this magnitude. And then obviously geopolitical activities that we’re going to talk about here in a moment. There’s always a possibility. It’s just what’s new.

Brent – 00:13:48:

Right. Yeah. Well, for the Freight Nation, watchers and listeners, draw a picture on that area of the world, like a just verbal picture of that area of the world and its importance when it comes to the maritime trade shipping.

Chris – 00:14:04:

Well, for anybody who’s done this, right, the shortest line is a direct line between two locations. That is what this area of the world is. It is a zigzag course, don’t get me wrong, between peninsulas and between countries. It’s built into a canal, but you’re looking at the Red Sea and that is a relatively narrow body of water, but it does cut, I don’t have the exact mileage, but a lot of miles off in the neighborhood of probably three or 4,000, at least, if not more, I don’t have my math in front of me, but I can tell you in time, it’s 10 days to two weeks. Then it cuts off your transit time. But to give you an idea of how important it is, and I’m talking about containers because that’s what I know, that’s what I work on, and that’s what we do. It’s a huge impact on containers, but there’s for bulk shipping and for liquid bulk, you’re thinking oil tankers or chemical tankers, it affects all of them. But I can tell you this, from containerization, about 30% of the world’s trade moves to the Red Sea in terms of containers. So big number, that’s worldwide.

Brent – 00:15:05:

Do you happen to know that in a dollar amount?

Chris – 00:15:07:

I do not know that in a dollar amount. I would say a lot. Yeah, it’s government levels of money. It’s huge. Now, of that 30% of that volume that goes to the canal, the Red Sea, about 70% ends up in Europe. So this is a much bigger situation for Europe because that’s what they do. And that other 30%, more or less, is US East Coast from Asia and Western Asia volume. So that is what we’re dealing with here. And so the solution has been, and has been going on now for a few weeks, I guess more than a month now, is you go around Africa. And that’s what gets you that extra 10 days to two weeks. So if you get out in your Atlas or your Globe or your Google Maps, whatever you’re looking at and look at the lines, you have to go all the way around and up. Now today, that’s what’s happening. And in the worldwide market, it was an interesting situation, is that shipping lines are flush with cash. So usually what they do is they buy new ships, which they did. And they’re being delivered. And the volume has dropped significantly since the peak of COVID. The irony, of course, is now they’re taking those ships, filling them up, and sending them on that other journey. But you’re sucking up all the excess capacity. So it’s actually been okay for the shipping lines. You’re not running short of vessels. You’re just utilizing your excess capacity. But on a long-term basis in what we all do today is fuel is very important and time is important. And the fuel cost, obviously you’re adding 10 days to two weeks worth of fuel each direction onto your ship. And that all of a sudden starts adding up to some big bucks. And that’s probably the longer term impact is the fuel cost and the longer supply chains and how that affects the person who’s shipping it, the timeline on delivery, and of course, the cost in fuel and the time and everything else you’re working with. So that’s a big one. And that’s one of the big things that is unknown about this situation, which is if I knew this was going to last, like when the ship got stuck in the dam, I knew it was going to last a week, two weeks, a month. Okay, I can plan around that. This is undetermined. And that is, are we getting close to a tipping point when they have to make different decisions? There could be. That’s for the US East Coast. I mean, if you’re going to Europe, there’s really not another way you can go. And you got one way to go. So you got to build it in. So shipping costs and supply chain costs are going to go up. And in a time when it’s not quite as easy to do that anymore. And I think that’s a struggle that we’re all going to face. But for what we deal with and what we know is that that’s what’s going on today. And as you sit here today, which is interesting, is at the moment, we’re not aware of anybody making shipping decisions because of the Red Sea to send more cargo to the US West Coast. There are probably some baked in there, but I can’t identify one box or this section. What we’ve been told is that there’s people looking at this and saying, what does this mean long-term? A lot of the big customers or shippers have longer term contracts, but they expire in May, generally speaking. Not all of them. But it’s a big push in May. So right now, it doesn’t really affect them because they have a locked in rate. However, how may, if we’re still dealing with this, could that change? And there’s a chance that there’s something could change. I think it’s inevitable. I mean, you’re spending 3x on fuel, 4x on fuel, you got to make the money up somewhere and that’s how you do it. Today, though, as we’re speaking here in late January, we’re seeing a significant volume right now, but that’s primarily due to shipping for the Chinese New Year. The inventory levels that have been up for the last 18 months or so, a lot of this will work through. So the stuff that is moving, customers need certain cargo and that is moving heavy because they know they’re going to be off for a couple of weeks come Chinese New Year, which happens in early February. So we’re seeing volume since the first of the year, kind of coming out of the holiday season, arrivals here and then going up. Again, focusing on moving ahead. The interesting thing will be to see after we come out of Chinese New Year, what does the economy look like? What does that volume mean? And then what does the geopolitical stance look like? Could we see some changes? Absolutely.

Brent – 00:19:19:

Well, speaking of the geopolitical thing, I mean, so if you wouldn’t mind, just for the watchers and listeners today, if you wouldn’t mind, just describe the picture of why that’s going on there, if you wouldn’t mind, just from a top line standpoint.

Chris – 00:19:31:

Sure. So it’s all part of the bigger situation throughout the Middle East and specifically the October attacks and military actions taking place in Gaza and Israel. And out of that, the leadership in Yemen for this section is taking their position that anything heading that direction could be supporting Israel. And so we understand that that is what’s going on. And then they are using shore-to-ship missiles to shoot at various ships that are going by. And they have been successful in hitting a number of them, thus why the shipping lines have moved away. The majority of the shipping lines have moved their ships elsewhere because that is a terrible risk profile. You want to have safe seafarers, and it’s a war risk, and it’s a threat. And their ships, which are unarmed, generally speaking, at least the ones, the commercial ships we’re talking about, are being shot at with missiles from land-based into a very, like I said, relatively narrow body of water. So it’s a little easier to shoot at them. And then you have ships going through, and it’s a large number of ships tend to be in that area. Therefore, you know, things have had to change. And that’s why we’re seeing vessels overdoing.

Brent – 00:20:41:

And they’re large targets.

Chris – 00:20:42:

Yeah, it’s like shooting at the Empire State Building. It’s a pretty big target. I mean, that’s a rough estimate of the size.

Brent – 00:20:48:

Right. Oh, wow. So, also, it’s not like there’s a lot of these ships sitting around somewhere. These are very large vessels that are going on the water. There’s not five or six of them sitting in inventory in case one has a problem. We’re just going to ship another one down there. These are not transportation vessels that there’s a lot of them sitting around. So that creates a big issue. So, at first, I’m sure there was a, I’m sure this won’t last part of the situation, but it has. And so you mentioned that now it’s to the point where the shipping companies are making decisions on, we’re not going through there at all. I mean, how many of them made the decision that we’re not going through there at all? We’re just going around.

Chris – 00:21:26:

At the moment, to the best of my knowledge, all the major container lines have made that decision. I think their insurance providers might have helped them make that decision relatively quickly. But at the end of the day, they have cargo they want to have delivered. They don’t want that cargo damaged. They don’t want it late if they can help it. They need to keep their ships on time because they have a supply chain and a system that needs to keep running. And that is what we’re seeing. So that’s why they’ve made that decision. To your point, there’s not usually ships around. They had a few around this time. They filled those up or they filtered them in. But yeah, there’s not a lot of excess capacity. You don’t want these ships waiting around to see if the situation improves or if the naval vessels that are working in there can protect them. And the supply chain is not doable at the moment. So they’re going around. And like I said, that’s what we see today. That’s the information we’re getting. From the Port of LA’s point of view, from our business case, we don’t know if there’s anything that’s really come our direction. There might be a little bit, but cargo flows back and forth. There’s always a constant back and forth. Whatever a best decision is for whatever company, they have to make those adjustments. And we know that’s why it goes on. We like to point out that we are competitive and we have opportunities servicing arguably the second largest consumer market in the country after the New York, New Jersey area. So obviously, that’s a benefit and that we have connections to the rest of the country. And so we’re sending stuff to the Midwest. We don’t really do transcontinental as much anymore. We head out to Atlanta with some cargo. But you know, Memphis, Dallas, and Chicago, that’s where our cargo heads to. It’s not staying local. We’re within about 500 miles of the port. So those are kind of our zones, and that is an opportunity. But this is not an area in which we’re experts in deciding who goes where. We’re just saying that we’re competitive and you have to make a decision. Does that extra 10 days to two weeks change what your delivery cycle is for your store if you’re supplying to somebody else? You know, that’s where at some point decisions will have to be made. In some spots, you know, it’ll be fine going an extra 10 days or two weeks won’t make any bit of difference. So the cargo continue to move its best way. We have excess capacity at this point. So we’re ready to go for whatever is needed. We’re estimating 70, 75 percent capacity. At the moment. And there’s ability for us to ramp up for quite a bit more. So that’s a really good part for us. Also, sourcing makes a difference. So if you’re sourcing in India, it’s a different move than if you’re sourcing out of Shanghai. Shanghai to LA, much closer, you know, quicker connection. India tends to want to go to the East Coast. And if you can build in the extra time, it’s probably okay. So the source of where you’re manufacturing or you’re getting your raw materials from is the same way. Anyway, the same thing holds true for the folks that are exporting. If you have perishable, does that make a difference? And then there is an answer in there. We’re such a great producer of foods here in the US. And obviously, some of them are fresh and have a shelf life. You got to make those decisions. And if you’re adding a couple of weeks on, that’s actually a big deal. So these are all the things that are playing in. So there’s a lot of pieces that are moving right now. So giving definitive answers, while I’d like to, it’s very hard to say that. Because, you know, if you are moving frozen chicken versus importing a shoe, your outlook on all this is completely different. And I’m doing a very broad stroke with some of this along the way. But the answer is, it really depends on what your cargo is and what you need to do. And it just gets multiplied out because you’re not usually the only one importing shoes. You’re not the only one exporting chicken. So you have to figure out all those little different pieces of your puzzle. And then that can start making some transactional changes. And that’s what we’re looking to see and looking for gathering more and more information to see what’s going on. But I think the biggest thing is that you’re talking about the timeframe. As the import contracts tend to expire or change over around that April/May timeframe, the geopolitical scene then and what’s happening in terms of in that whole area of the Red Sea in the Middle East, that will make a difference on probably how people do this. And I think the other part of it is that we haven’t really talked about is the freight rates have gone up.

Brent – 00:25:35:

I’m going to ask you about the impact on that. In that area of the world and then when does it start to drift towards the United States? You said that 30% of that freight comes to the east coast of the United States and 70% goes to EU. So I’m sure it’s having an impact on EU costs. We understand of many things. And then when does it drift? So talk about that. That, of course, is on top of everyone’s mind as well.

Chris – 00:25:56:

Right. And, you know, I’m talking here about publicly printed spot rates. So, I mean, it’s a sample of the market. We had, let’s go back to, say, November 1st. It was about $1,500, $1,600 from Shanghai to the US West Coast. It was $1,000 to $1,100 more, so $2,500, $2,600 to go to the US East Coast from Shanghai. And because Shanghai is the biggest in the world in terms of container volumes, we always talk about Shanghai. And it’s also where they benchmark a lot of these rates. That has changed a bit. We’re in the low 2000s, 2300-ish range to the West Coast right now. So it’s gone up quite a bit. It’s come down a little bit in the last week or so, but the East Coast has gone up to, from what we understand, into the fives. And I think it’s come back a little bit. I haven’t seen the stuff for today, but into the fives.

Brent – 00:26:51:

200%- 300%.

Chris – 00:26:52:

Right. But the difference is in the past, it was usually somewhere between $1,000 and $1,500 difference between the West Coast and the East Coast. And that was kind of the standard run. Today, now you’re seeing that quite a bit larger. And that’s one of those question marks people have is that going to change things? And the short answer is, I don’t know, but that is a consideration that’s going to be played into executives and logistics directors and VPs around when someone says, yeah, you can get to point A for this amount and point B for this amount, which way do you want to go? And you have to look into all those factors. So I think that’s going to play into decision making over the next few months. But like I said, today, as we know today, they haven’t made those decisions yet. But honestly, a lot of people, you’re in the holiday seasons, they weren’t negotiating, wheeling, dealing. This is not an eye on the radar screen. But now that we’re back in the new year, it is. And we will see what happens. So we’re prepared for if things change. Ideally, of course, a lot of this issue gets solved geopolitically, because I don’t think it’s good for anybody to have to do this in the supply chain. And then more importantly, for the people on the ground, this is a pretty tough thing for many, many people. And obviously, destabilization is never good for anything that we want to do.

Brent – 00:28:15:

Right. So I’ve had lots of questions, Chris, I appreciate you addressing the one about the cost factor that goes into this. I’ve had many people ask me, has it changed the landscape for cost? Does it go when it comes to domestic truck transportation? And so far, we haven’t seen an impact yet. And what I’ve been telling everybody and what I hear from other experts in the market is if this continues on much longer, it inevitably will start to impact the rates for moving full truckload transportation in the United States. And so this is why I started off by saying it is very important for participants that move freight in the United States and then globally to know that everything is connected. So that’s interesting that your rates coming from Shanghai into the LA & Long Beach area have gone for $1,500, $2,000. I read that in the Wall Street Journal 10 days ago, but going into the East Coast, coming in the main thoroughfare on the East Coast is more than double that. And that’s up because I know that, so freight rates for full-triple transportation in the spot market where we are, came all the way back down to normal. Then they stayed at normal for the last 12 months. And what’s funny is most people in freight transportation and certainly in the consumer side, didn’t know there’s a spot market for containers as well, or for shipping. It’s all under contract, right? No, no, no, no. Just like any market, the late buyers don’t pay the best price. And so most people didn’t realize until they saw $20,000 container rates going back and forth. And that certainly helped the shipping companies have incredibly profitable years, just like trucking companies were. But when you look at this and you realize that everybody always wants someone that’s going to hit their pocketbook, that’s interesting to me. But to me, the more interesting thing is, when does it stop? And maybe it’s not a question that you can answer, but I’ll ask it anyways, is that we have military forces over there working with our fellow nations over there, our favorite nations over there to try to stop this. And is it making any difference? I have not looked deeply into it. Is it making any difference? Is it not making enough of a difference? And when does it stop?

Chris – 00:30:20:

Well, I mean, if you talk about the pricing that we’re currently seeing, it seems that it’s plateaued at the moment.

Brent – 00:30:25:

I guess, I mean, people shoot missiles at other people. Yeah, who knows, right? That’s not a fair question.

Chris – 00:30:29:

That’s not a fair question. And again, you got to get somebody from DoD or of State Department on the line for that one. I’m sure there’s many people who have prognosticated about it, but there’s a number of different scenarios I think of when it happens. You know, obviously the more international navies that are there will make an impact. But again, I’ve looked to insurance carriers as the deciding factor of when a lot of these ships go back because I have hundreds of millions of dollars worth of wholesale value goods, probably multiple billions in terms of retail level goods on these ships. I can’t afford it. I don’t want to lose it. I don’t want to pay that out. More importantly with the war risk stuff, that’s a challenge. And you know that if you go into a hostile area, they’re not going to pay out. Well, you don’t want to do that. So I’m not an insurance expert, but I know enough to know that that’s how these things work, especially in the shipping world, is if there’s a risk and you know it, you got to prepare for it. If there’s a way to get around it, you should. So I think that’s what we’re seeing.

Brent – 00:31:31:

Well, it’s going to be one of my questions to you. You’ve talked a lot about the different tactics and things like that, but what’s the best advice you’re giving to your customers, to your participants in this? What’s the best advice that you’re giving to them as far as mitigating this risk or mitigating the challenge that’s out there? The risk may not be exactly directed towards them specifically, but it’s all connected together. So what’s your advice on that?

Chris – 00:31:53:

Well, I mean, for us, it’s safety first, always safety first, like it is in all the industries, safety first. And then, you know, we get into things like, well, what is your goal? What is the need of your customer base? Or where do you need to get this cargo to? And maybe it is the best way. We’ve seen a lot of people do some consolidation and some interesting things to get through the issues in the current Panama Canal. But I think there’s enough capacity that that still makes the East Coast via the Panama Canal still doable. Just there’s not a lot of extra capacity. Going the long way around is not, we’ve done it in the past. And there were some situations a number of years ago, where they would go one direction to the Suez Canal, come home the long way. It’s been done before. It’s just a question of how long. And I think the difference in this one is the fuel pricing. Fuel pricing being what it is. Some of these things happened back in the days of fuel at $200 a ton. Now we’re talking fuel at, you know, somewhere between $500 to $700 a ton. It’s a different equation that you do that. I can tell you this. I know this in today’s environment. Shanghai to Los Angeles one way burns about $1.5 million worth of fuel on a typical ship or any kind of an average on our bigger ships. And that’s for a two week voyage from Shanghai to LA or LA to Shanghai, whichever way you’re going, but the same fuel work. So I’ve now doubled or tripled that. So I’m now paying $3 to $5 million worth of fuel, you know, that something has to give, or you have to look at those equations. So those are all those factors that go into it. And so that’s what we’re talking about is, you know, what needs to be done. But if your customer who’s paying the bill says, I want to take it to the East Coast. I’m going to take it to the East Coast for you. I mean, that’s the bit. But I think when there’s some options, you know, cargo has a sneaky way of finding the best way to move. And that’s what I think we’re seeing here is all these inputs we’ve been talking about go into that equation. You have time, you have speed, you have distance, you have risk, and you have the needs of whoever you’re providing that goods for. So, you know, the most expensive sale is the one that never happens, right? So if your store shelf’s empty, that’s a big problem. And I’ve even asked the question, does this attract air freight? And I said, well, you got to remember that air freight is very expensive, but very fast. But if I’m going from A to B, the biggest freighters can take a few containers worth of cargo. So if you have hundreds or thousands that you need to ship, that air freight gets very expensive very quickly. But if you need to get it on the store shelf, it might be an option for a couple here and there. You got to air freight it.

Brent – 00:34:29:

Somebody asked me the question, when the rails strike, there’s a potential for that. And they said, well, what can trucking do? And I went, nothing. It would be like me saying, if I was in the rail industry and trucking was going on strike and somebody’s saying to the rail people, what can you do? You can do nothing. It’s differently packaged. It’s just the reason why. Yes, we had a toilet paper shortage during the pandemic, but the shortage was that wasn’t in the right sizes. There was plenty of industrial. It wasn’t enough consumer. And so, because we all went home, you know, we didn’t need 3,000 yard rolls of toilet paper. So one of the things that is interesting about this is that people ask me all the time about the connectivity of watching the ports and watching the health of the United States economy. I watch y’all’s ports. I watch the Port of LA and the Port of Long Beach predominantly because I watch the ins and outs on what’s being offloaded because a lot of that gets loaded onto where a Class A trucks moves that container somewhere. Some of it goes by rail, some of it goes otherwise, but I watch it pretty directly. And what’s been interesting to me, you’ve been doing this 20 plus years, Chris, how do you see the actual freight markets becoming more connected?

Chris – 00:35:39:

Well, I mean, I’d say over the last 20 years, they’ve done a great job of being more connected. I think one of the things that’s maybe a little different over the last, say, even pre-COVID, seven, eight, nine years, is that you used to be able to draw a pretty cool line between import volumes to any of the US major ports, and then the health of the freight about a month after that, because of just processing and getting it through warehousing and translating, whatever you’re doing. I think one of the things that’s changed the last few years, it’s not quite as cool in the line. And the direct timeline is not there anymore. So I think that’s interesting. But it’s also maybe we’re so sophisticated that even these little changes in how you manage your inventory have that ripple effect down the line. I know that for us out here, we’ve seen definitely, anecdotally for many people, is that some of the holding times have grown over the last few years. There was a big push for just-in-time, which I think is why you can draw that quick line. Now, even pre-COVID a little bit, but now post-COVID is definitely, I better have some safety stock because the world’s a big place. And I think that’s why you’ve seen it. You know, as usual, we have all the antidotes, but I know, and I’ve worked with companies that have brought an air freighter in to Long Beach airport, and they’re driving a half dozen containers over there to air freight it to a factory or something, because if they don’t, this might cost them a million dollars. But if they stop the factory, it costs them a million dollars a day. So there’s all these little pieces, but interconnected means to me at this point that everybody is very aware of what an impact of a failure is. I think that’s the part that’s kept a lot of people going. And like you said earlier, if there’s a problem with the truck, can you switch all the rail and vice versa? You can shift some, and you’re basically playing emergency catch up most of the time, which is what a lot of people spend most of their careers doing. Is doing those kinds of emergency things. But again, like we were talking about at the beginning, it’s a system. So all the pieces are there. I mean, you look at, I would say, what are we about two thirds to more than 70% of our volume, it touches a Class A truck out of the port. And then that’s just for us. And then when we do load on dock, which is about a quarter of our volume, it hits a Class A truck somewhere else. So I always think sometimes the competition between trucks and rail is, it’s important. The truck’s going to touch it at some point. It’s just a question of length of haul, right? Is it a dredge move or is it a long haul? We always say, how do we get more cargo on rail? Because obviously the impacts environmentally and on roads and emissions and everything else is very significant. But at the end of the day, you got to move that cargo the way you need to move it. And could the rails handle 75% increase? Probably not very efficiently at the beginning, you know, given time, but neither could truckers. Truckers couldn’t handle another 75%. So you have to make those steps. And you have to be strategic about this. And I think that’s what you’re talking about. The interconnectivity is you got to know how the system works and your system has to be a percentage of rail, a percentage of truck, a percentage of air, whatever the case may be, or more importantly, like what we were talking about, what do I need to take to the West Coast? What do I take to the East coast? What do I do to the Northwest? What do I do to the Southwest? What do I do to the Atlantic? You know, so you’re giving all these things up because like you said, it is interconnected. It just, everybody is so tightly wound in this today. That has become so sophisticated over the last 20 years. You know, it used to be talking to somebody and they do it on a piece of paper and that covers our supply chain. Now we’ve got systems and we’re checking the tracking day in and day out. We’ve got to know where it is. And that’s changed a lot in those years because it is all interconnected because you have so many things going on. You don’t want to do that failure. And you know, people often call it very different ways of digitizing this. I mean, it’s still at the end of the day, at this point, we don’t print out a pair of pants in our homes yet. You know, that’s not the case. It’s not the case of how things work, right? So we got to get it at least at the moment, you got to get it in physical movement. And that’s, I think why this interconnectivity is so important, like you said, and it, it is a great thing for this business. And I think we’ve seen a lot of very, very positive things come out of it. But when you throw things like the red sea and the Panama Canal issues into it, it is still a fragile system. And there’s a lot of people spend a lot of time making it efficient and this throws a big old wrench into that. And then you got to make adjustments. But then you got to figure out the business. And you know, you got to figure out how to get it done. And that’s what we all could pay to do, right? Get it done. Just I got to be at that store shelf because if I miss that, that sale’s not coming back. And that’s a tough one.

Brent – 00:40:09:

We all learned that during the pandemic and manufacturers and shippers, their memory is long when it comes to not being able to get goods to market. And so that’s really the whole point about having this discussion about the Red Sea is how this affects the general economies in all of these other countries. You were talking about how 70% of this goes to the EU and there’s eight countries there that all work together, eight or nine countries that work together. And then where it goes to another marketplace and we’re all semi-connected in all this together. So when you think about the stress and pressure, Chris, that the pandemic put on everyone’s economy globally. And now we are at another situation where you have some bad actors are deciding to make it harder on everybody else. And this doesn’t just affect that little area of the world. It affects everybody all over the globe. It’s important for people to understand that. And so I appreciate you taking the time today to talk about that. I do have a quick personal question. What’s the biggest ship you ever sailed on?

Chris – 00:41:05:

Technically, the biggest one I ever sailed on was the Disney Wish because that was a cruise ship I was on last year. So that physically is the biggest one. And that’s the biggest one I’ve ever sailed on. So that’s the biggest ship I’ve ever been on. But actually, boots on the ground, you know, when we’ve had some of these big ships come in back in 2020, in June of 2020, we had a 22,000 ship, TU ship from MSC, which is the biggest ship we’ve had in the LA Harbor. And she’s called both LA And Long Beach. I didn’t sail on it, but I got my boots on it. I walked on the ship and had to hike up a whole lot of stairs to get up to the top. But that’s the biggest stuff we’ve seen here. So, yeah, I mean, the ships. What, 1,300 feet long? There’s some big stuff out there. That’s the exciting part of our day. But, yeah, the actual underway in the ocean, I’d say the Disney Wish is the biggest ship I’ve been on for actually sailing over the seas.

Brent – 00:41:54:

That is a really good one. Well, Chris, thank you so much for your time today. I really appreciate you taking the time from a global standpoint to kind of maybe put a little more light on the situation so people can understand it inside of transportation and out. And just really appreciate all that you do, to help and create a great, strong transportation environment in the United States. And what LA does for everybody is most people don’t realize the impact that LA has on the rest of the world from a standpoint of transportation. And I know we all appreciate it. So thank you for being here.

Chris – 00:42:20:

Well, thanks for having me. I was happy to do this kind of stuff.

Brent – 00:42:23:

Well, Freight Nation, that’s a wrap. This is a Code Red bringing you information on some of the hottest stuff in freight transportation. I hope this was a benefit to you. And as we like to say, don’t forget to work hard, to be kind, and stay humble. Thanks a lot, Freight Nation. We’ll catch you the next time. On behalf of the Truckstop team, thanks for listening to this episode of Freight Nation. To find out more about the show, head to truckstop.com/podcast. If you enjoyed this episode, make sure you hit subscribe so you don’t miss any future episodes. Until then, keep on trucking and exploring the open roads with Freight Nation: A Trucking Podcast.

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