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PODCAST transript — john min’s insights

Ben Dean: [00:29:38]

So we’re talking about the state of logistics here. I think Dr. Min’s comments regarding the overall state of the economy, kind of going from Q4 of 2023 through the next quarter of 2025 is a really good place for us to really couch what’s going on. What I want to start with here is a clip, interestingly, and when we were talking about bullwhips, Dr. Rogers talked about that car analogy of oversteering and trying to whip it back in the other direction. So I want to start here because Dr. Min’s talking about looking at the U.S. economy over the last three or four quarters, and the next two to three quarters, in terms of the speed of that car. So let’s take a listen. Dr. Min, let’s do a layman’s kind of point of view on the economic cycle, especially over the last six months, seven months, kind of getting us into August of this year. What’s 2024 look like from a macroeconomics point of view? Where are we at?

John Min: [00:30:37]

If we’re having this conversation about six months ago, beginning of January, let’s say this year, a lot of people thought U.S. economy was going to slow down rapidly. As a result, people were expecting, especially investors, they were expecting interest rates six times this year. And just in response to inflation coming down, but more importantly, slow down in the economy. But the amazing thing is, we have to give a lot of credit to the U.S. consumers. I mean, U.S. consumer spending drives 68, 69 percent of GDP. And what’s amazing thing, American consumers are still buying. Now it’s getting to the point that it’s getting a little tiring because the savings rate has declined to 3.5%. Usually we’re 6% pre COVID, 3.5%. Credit cards have been maxed out. We have a record credit card debt. And if we start going up slowly, but still, consumers are spending and main reason is because there’s a robust employment condition in the U.S. As long as people have jobs in the U.S. you get paycheck and you spend it. And that has been very, very good driver, I guess it’s a tailwind for the U.S. economy. So instead of U.S. economy going into a recession or slow down, the first quarter we grew about 1.8%, second quarter 2.8%. You combine it, we’re growing at about 2% rate this year. Now that’s a step down from last year, which was about 3.4%. Especially the fourth quarter. So in a layman’s terms, last year, second half, phenomenal. We were driving 70 miles an hour on highway cranking the music, feeling great. And now we’re going about 60 slowing down to 55, maybe 50 miles an hour. Our projection or forecast for the second half this year is consumers have used up all their excess savings from COVID. There’s no more checks coming from Uncle Sam. The savings rate is way down because they’re tapping into it. Debt level is up, interest rate has to come down, but I think it’s going to stay sticky. Maybe one interest rate cut this year around September. If that’s the case, I think the U.S. economy is going to slow down or the car is going to slow down to about 35, 40 miles an hour, which is not bad because Europe is going about 25 miles an hour. Japan is moving at about 15 miles an hour. Relatively, we still have the fastest car except for India, which is growing very rapidly, and China is slowing down. So we may actually, China may actually slow down toward the U.S. in the next year or two. So relatively, we’re gonna be fine. If you’re running a business, I think you will see a slowdown eroding of consumer demand, and it’s going to ripple through the supply chain, right? And I’m tracking the satellite feed of all these big container ships coming to U.S. ports real time. And number of ships, the delays, the waiting time is getting less and less and less. So when I see a slowdown on the front end, global trade side, it’s going to hit the main street in about six months down the road. So, if I’m making a forecast for six months out, it will be definitely slower than what we want today. And we’re already seeing it at the front part of the supply chain. There’s less ships, less containers coming and WTO just released their annual survey. It’s going to be slower than last year.

Ben Dean: [00:34:18]

I love the car example, by the way, I think that’s for logisticians. Gives us something that we can think around. And we’re in this interesting economic cycle, right? To your point about speed, where if we were still going 70 miles an hour, we were expecting to see the Fed as the kind of police on this, slowing us down through other methods. And now we’re not having that happen because the economy is resilient.

John Min: [00:34:46]

Exactly, keeping the interest rate high, trying to slow us down. But if we slow down too much, then Fed is going to tell us to put the foot on the accelerator, which means they’re cutting the interest rate.

Ben Dean: [00:34:58]

Adaptive cruise control. That’s what we’re looking for. So one of the clearest intersects here, Karl, between the overall economic picture and supply chain is around imports and exports, and there’s a lot of rhetoric in that space. Dr. Min and I tried to stay away from the politics too much, but you can hear in his comments that we’re about to play that there is definitely a more protectionist stance coming in the world of tariffs, and this is going to have both positive and negative impacts on import volumes. Let’s take a listen.

John Min: [00:35:32]

The Biden administration’s second wave of tariffs are kicking in next month. So solar panels, EDs, things like that. But it’s not going to be as dramatic as after the election. If you read the platforms of both Republican and Democrats, it won’t make any difference. We expect the tariffs to go up. How high? I don’t think it’s going to be up to 60 percent, as the former President Trump is suggesting. But he does want to impose 10 percent for all imports coming in. Right. So that’s one side. Harris administration, I don’t know what her view is, but we can sense that either administration is going to be less global in their orientation, more in sourcing, of friendly sourcing. So we do see a big boom of trade between Mexico and U.S. So if you’re in the logistics industry, I’m sure you felt it because we’re getting less imports coming from China. In fact, China is actually circumventing all these tariffs by shipping it to Mexico and they are shipping up to U.S. So we have worked with a lot of freight forwarders on the Texas, California border, and they are booming. Because we process their payments in Mexican peso and their volume is way up. They’re very busy. In fact, they are having a hard time finding enough workers. Especially drivers, right?

Ben Dean: [00:36:59]

What was really interesting there to me was this, you know, tariff protectionist stance that the U.S may be taking next year. We’re making a stronger stance in that direction. That doesn’t seem to be unique to the U.S. this year, seems to be a really heavy election cycle for the EU and other nations. Are you seeing that trend and what’s the impact of the export side of the equation?

John Min: [00:37:22]

From the economist point of view, looking at the data, China is experiencing deflation. The main reason is their demographics, the people are getting older, they spend less, there’s less domestic demand. And China was built on manufacturing capacity. And the only way they’re going to get themselves out of their slowdown in growth with the deflationary prices going down is export. So they’re exporting EVs, steels, pretty much everything. And they’re dumping it in these markets. So from an EU perspective, it’s 15% of the cars sold in the EU are made in China. It’s a Chinese EV car. So if you go to London, if you flag an Uber, it’s Chinese EV and they’re good. They’re really, really good and they’re cheap. Because of all this, you know, related factors you’re seeing everyone raising tariffs. At the end of the day from a macroeconomist point of view when the tariffs go up it’s really taxes on the consumers and the international business tends to slow down, which means less growth. So globally, at IMF and World Bank. They’re not too optimistic about overall global growth rate for next two to three years if these tariffs continue to go up at the various markets.

Ben Dean: [00:38:46]

Most of us in logistics are always looking at the data, but moreso like we’re going behind the data to understand if it’s accurate, timely, and can tell me something about what to do with my business. I had some of my preconceived notions here, Karl, upset by Dr. Min, because some of the traditional ways we look at economic data, historically, are becoming less accurate and less timely. So, specifically, the nominal reports on PPI, CPI, overall GDP, what we’re finding here is that they become less accurate over time. And they’re less valuable as a resource, frankly, when you’re looking out the rearview mirror three months, and you can’t even recognize that that data is a hundred percent accurate. Let’s hear what Dr. Min had to say.

John Min: [00:39:31]

So we are using less of the traditional economic reports coming out of BEA, Bureau of Economic Analysis, or the Bureau of Label Statistics, or the Commerce Department, for two reasons. Number one, they’re always looking back, right? 30 days, or three months. Another main reason is that those reports are getting less accurate, because the response rate to these surveys has dropped significantly after COVID. So, we’re getting to the point of, could we trust this data? There’s a lot of noise. So whenever economic report comes out, the following month there’s revision. And then the degree of revision adjustment that’s made is getting bigger and bigger, which indicates that the quality of data we’re getting is not as good as it used to be. And if you just go to one of these government agency websites, I mean, they’re upfront about it. Response rate for the unemployment, response rate for the GDP is way below the typical percentage terms we’re used to. I still use the official data. But I want to triangulate that by getting a private real time data. And if it triangulates, then I have a pretty good picture of what’s happening. I have a couple of friends working for hedge funds, and one particular hedge fund is buying up malls at huge discounts around the U.S. In order to assess the valuation of the mall, they’re using a satellite to see how much people actually go in and out real time. And they’re tracking it. And now, they empower them with AI. So they can take out the holiday effects, seasonal effects, and they say, based on traffic monitoring for the past 30 days, and then they also figure out what type of cars are parked to see what type of demographics. It’s all done at the satellite level. Now, when China shut down, I utilized a company out of New Jersey. They were providing satellite feed of real traffic in China. And that’s my best source of data as to whether the Chinese economy has collapsed. It’s not. And one of the reasons why there is increasing use of these real time data point of sale data. I call it the API integrated, that’s the Application Programming Interface. So different companies’ data can be all integrated into one database, and you can use AI to cut and paste different ways to see where the economy is happening, real time.

Ben Dean: [00:42:15]

I think that our listeners are really going to value things that they can look at as predictive indicators. And we’re talking with Dr. Rogers about the LMI, which is obviously a great index for determining where sentiment and the logistics industry is headed. But Dr. Min’s looking at some very different data points in order to predict where supply chain is headed. And with things like AI and satellite tracking, that is changing very quickly. So I think it’s really important for our listeners to hear how he’s looking at advanced indicators of demand and supply.

John Min: [00:42:46]

I think that one of the best indicators is just go to Google, type in GDP now. It’s the real time indicator of where the U.S. economy is. And what Atlanta Fed does is, it takes all the indicators that’s coming out real time, then put it in the model, then crunch their best estimate of what the U.S. economy is. And it has been very accurate for the past two and a half years. It’s the real time data because, you know, when you get the GDP numbers, it’s a lagging report. It’s looking back. I want to know what’s happening now. Right. So if you want to know what’s happening now, you should be looking at the Atlanta Fed GDP now. There is an opportunity insight. There’s a consortium of various universities like MIT is involved, Harvard is involved. Some of the credit card companies are involved and they share data. They harmonize it and they show you real time data on consumer spending based on your credit card and ATM charges. So we’re tracking all that. The bottom line is though, unless stock market comes down a bit and unless unemployment rate goes up, so less people are working, I think the U.S. economy will continue to grow about 2%, which is very remarkable.

Ben Dean: [00:44:06]

And I did wanna include this last clip from Dr. Min. Because I’ve heard this throughout our interviews through the first season, in that the pace of change within logistics is faster than it’s ever been. So we as logistics leaders need to be faster, more nimble, and be looking at the right leading indicators to be able to respond quickly and not three months from now.

John Min: [00:44:27]

All business folks need to be able to pivot on a fly because things are changing rapidly. Again, six months ago, we thought the U.S. economy is maybe going into a recession. Six rate cuts. Three months later, turned out to be three rate cuts and maybe soft landing. Now only one. So every three months the story or the landscape is changing. So I do feel a lot of empathy for those folks who are planning ahead, trying to figure out warehousing, the logistics and all that, because things are changing every three months. So, pay attention and be able to pivot on a short notice.

Karl Siebrecht: [00:45:08]

That was fascinating. Hey Ben, great job steering that conversation with Dr. Min. I have to say, after listening to that, I’m kind of jealous I didn’t get to speak with him. That was really great.

Ben Dean: [00:45:19]

Well, I’m sure you’ll get your chance. We’re going to be talking to him more and frankly, I’m just excited, not just for the season, but for this holiday and peak, because I’m hearing optimism from our guests for the first time in a long time, right? Like you’ve got Zac saying we are calling the end of the freight recession and the biggest thing I heard from Dr. Min was that we’ve got a soft landing coming with maybe one to two interest rate cuts, but we’re back to normalcy by mid next year. So there’s some light out there at the end of the tunnel. What else did you hear from him?

Karl Siebrecht: [00:45:51]

That’s what I was just going to say, you know, what really jumped out at me was the way he talked about the connection, the very direct connection, between supply chain and the broader economy. In particular when he talked about his, specifically he has a model that connects the price of containers to the CPI. And when I reflect back on what Dr. Rogers reminded us, most of us already know this, is that logistics, the spend on logistics, is somewhere around eight, nine percent of the GDP of this economy, which is equal to the size of the GDP overall of Mexico. You know, of course that makes sense when there’s so much activity. Bound up in one part of the economy, particularly now that we’re in the services based economy, and lesser until we get lots more reshoring. It just stands to reason and makes total sense that what happens in supply chain will drive what happens in the macro economy and vice versa. What happens in the macro economy will impact greatly what happens in supply chain. So super fascinating, in particular, just how poignantly he put a point on that.

Ben Dean: [00:47:02]

Absolutely. Well, excited for the next episode here.

Karl Siebrecht: [00:47:06]

We’ve got a lot more episodes teed up to come, some great topics. I’m really looking forward to it. Ben, we’ll have you back here next time and for the rest of the season. And until then, let’s keep the conversation going.

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