The Red Sea Global Shipping Crisis & CEOs Warn of AI "Hiroshima"

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0:28Good morning for your daily show. I'm Neil Freiman. And I'm Toby Howell. Today, hootie attacks on commercial ships are disrupting supply chains just when things were finally smoothing out. Then people aren't going out as much on weeknights anymore, and entertainment companies are deep in their promotional bag trying to figure out how to reverse the trend. It's Friday, January 19th. Let's ride.

0:56meteorologists in southwest florida are warning of falling iguanas this weekend as the coldest air of the season moves in toby as a longtime resident of southwest florida please help us northerners understand what falling iguanas means i don't think my mind can comprehend it yeah so this is a real thing iguanas are cold-blooded animals so when the weather gets too chilly they kind of enter a state of suspended animation which can cause them to fall from their home in trees this is known as cold stunning and it's it's a natural response to cold and not necessarily harmful to the iguanas it is harmful however to humans if you're unlucky enough to be walking under one of these when they fall they are big and spiky they can grow up to five feet long have you seen this happen i've seen i've never actually seen one fall from a tree but i have seen them laying on their backs they have their legs all akimbo they look not well but it's a natural response and their body kind of shuts down to protect vital organs it is crazy though every once in a while a headline will come out like florida man injured by falling iguana when they come down on you they they're pretty big i'm staying away staying away before we jump into the show today we have a quick word from our sponsor veem veem actually has more in common with falling iguanas than you might think.

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2:52Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs. Like a good neighbor, State Farm is there. Well, the world had normal supply chains for, oh, three months, but now they are out of whack yet again as the Iran-backed Houthi rebels of Yemen are now attacking commercial ships on a daily basis in the Red Sea, a critical marine highway for goods traveling from Asia to Europe through the Suez Canal. The Houthis began their attacks months ago targeting Israeli ships in retaliation for Israel's campaign in Gaza, but has since widened their net to go after U.S.

3:33and British ships as well and with greater frequency. The U.S. and allies have responded with airstrikes on Houthi targets in Yemen, but the damage to supply chains is already becoming evident. Many shipping companies are avoiding the Red Sea entirely and transiting the Cape of Good Hope in Africa, adding millions in costs in up to 10 days to the voyage. Tesla and Volvo said they would have to pause production at their plants in Germany because they can't get their parts in time. Ikea and even Crocs warned of delays in getting their product. Toby, one leading ocean supply chain firm said that disruptions to shipping from the Houthi rebel attacks are already more damaging to trade than early in the COVID pandemic.

4:14It is interesting, though, because it's not all bad. If you look at what shipments are actually going through this body of water, most crude oil shipments from the Middle East to the U.S. already go via the Cape of Good Hope. So it's not like U.S. oil shipments are as disrupted as you might think. But I will say that this is very impactful to Asia and Europe trade. So it's not the U.S. maybe is scazing through and their U.S. energy is scazing through without as much damage. But other Asia and Europe trade is massively disrupted? Yeah. So we have not seen super major impacts on the global economy just yet.

4:52I mean, one thing you always want to look for when supply chains get disrupted is the price of oil. And so actually, the barrel of Brent crude costs$78 this week, which is down from$85 a barrel the day before Hamas attacked Israel in October. So that's because there has been this huge production boom in U.S. oil reserves. And the world, in reaction to the Russia-Ukraine war, has kind of boosted their capacity in many ways, not just in energy, but around the world in terms of the amount of capacity we have to ship things. So there does seem to be excess supply in the market, which is blunting the impacts of what's been going on in the Red Sea.

5:33But experts say the longer this goes on, the more it ramps up, and it seems like it's going to because the U.S. and Britain have been attacking with airstrikes in Yemen, and Yemen, the Houthis have vowed to only ramp it up. So if this thing escalates, if it goes longer, then we might start seeing some more tangible impacts, at least here in the States. I do just want to zoom out for a second and talk about trade choke points in general, because they're enough to keep you up late at night. Just 21.5 % of global trade does not pass through one of 13 choke points around the world. And choke points are defined as anything that are basically small passages and heavily trafficked passages that can experience disruptions.

6:13And let's just talk about the South China Sea alone. That carries the trade equivalent of 5 % of global GDP, which would make it the fourth largest economy in the world. And that has a lot of geopolitical instability there as well. So even though we're focusing on this Red Sea area right now, if you zoom out to the broader geopolitical instability we've talked about, these choke points are under threat. It is kind of wild that all of these, you know, our global trade system relies on these very narrow straits in certain areas that are prone to instability. And I think that's why the U.S. considers itself the steward of global free commerce.

6:52And that's why it's launched this initiative with a bunch of its allies called Operation Prosperity Guardian, which is a great name. And it says, look, we have to we in our globalized world, the shipment of goods, the ability of ships to pass through certain waters unimpeded is critical to the prosperity of everyone. And that's why, you know, it's made a certain controversial decision to go after the Houthis. I mean, you know, everyone has a varying opinion on whether we should be doing that. But, you know, it clearly views itself as this guardian of prosperity around the world. And when these choke points get bottled up, then the U.S.

7:28comes with its, you know, massive fleet. Yeah. And remember, it's not just geopolitics either. The drought plaguing Central America has left the Panama Canal with dangerously low water levels. So it's not just these the rebels that were scared about. It is just the fact that some of these choke points have weather, inclement weather that can affect global trade. And the Panama Canal is one of those. Or ships get stuck. I mean, one of the major choke points in the world is the Suez Canal. And when Ever Given got stuck there in 2021, it cost$10 billion a day in trade. Staggering. So at the beginning of this week, people listening to the pod heard us talk about the World Economic Forum Summit kicking off in the ski resort town of Davos, Switzerland.

8:12This is the mother of all conferences bringing together a smattering of political and business leaders to wax poetic about the future. And wax poetic they did. We're going to run through some of the most notable quotes, speeches, and soundbites from the last week of proceedings because there was some tea. Up first, Salesforce CEO Mark Benioff sounded off on AI safety saying, quote, We don't want to have a Hiroshima moment. We've seen technology go really wrong. We don't want to see an AI Hiroshima. Neil, AI safety was a big theme at this year's conference, and Salesforce does have skin in the game after launching its own generative AI.

8:48What do we think of Benioff's take here? It was very interesting, the juxtaposition, because Benioff went on the stage to this panel, warned of AI. And he also said that the training data has been stolen from publishers, which has been one of the biggest legal fights around. Who comes up next after Benioff is Sam Altman. Sam Altman, the CEO of OpenAI, has a completely contrasting vision of what Benioff said and says, look, we don't even need that training data. Of course, he defended what OpenAI has been doing. Of course, now they're locked in a major lawsuit with the New York Times. So them kind of going back to back was a very interesting dichotomy.

9:29Meanwhile, those two also go back a few months because remember when the OpenAI saga happened and all the employees defected because Sam Altman got booted, who offered all of them jobs? Mark Benioff at Salesforce kind of swooped in very publicly and said, all you open AI people come to me. So I think these two kind of have a little rocky relationship. Yeah, he was literally DMing people. But Sam Altman also had some more quotes. He was on stage and said that AI was, quote, good at some things, but not good at a life and death situation. And since ChatGPT first came out, people have found ways to make themselves more productive using generative AI, but also understand, quote, what not to use it for.

10:12So he really was getting to the heart of the matter. If the AI safety is the heart of the matter, he's saying like, yeah, listen, we know it's not good at life or death situations, but it is really good at augmenting worker productivity, which has always been his vision for it. One speech I want to highlight is the Argentine president, Javier Mille, who just was elected, and he considers himself an anarcho-capitalist and has pitched this very radical change for Argentina, which is suffering through a lot of economic hardship. In his speech, this guy went full Ricky Gervais on everyone at Davos.

10:48He basically told them that the Western world is in danger because more governments are embracing what he quoted socialism, which leads to poverty. And he invoked what happened in Argentina, where they had more leftist governments that were more interventionist. And so he was like this very fierce defender of capitalism at a conference that maybe focuses on more collectivist ideas. And he got a warm applause. And this was kind of his coming out event on the world stage. Yeah, no, he certainly used his time wisely. He kind of commanded the mic. And this speech was passed around a lot. If we want to talk about geopolitics a little bit, Chinese Premier probably said it best when he described the fact that there's a, quote, trust deficit among nations right now.

11:35There's just so much skittishness around this year of elections, especially on the U.S. front. And that was also a major theme that we saw at Davos. And before we leave Davos, we have to just mention that Boeing had another little snafu after its Alaska incident. So Secretary of State Antony Blinken was trying to leave on a modified 737. This is not the 737 Max whose door plug got blown out. But any Boeing headline is going to kind of ruffle or kind of raise some eyebrows. And there was a malfunction on his plane and he wasn't able to leave on time. Boeing's just it's the world's biggest like economic conferences.

12:13Boeing can't avoid ricochet. Eventually he did get home. OK, moving on. People may share a lot of the same DNA with monkeys. but apparently we do not want to share the same space. Residents in the southwest Georgia city of Bainbridge are pushing back against a plan to build a$400 million monkey breeding facility that would ultimately hold up to 30 ,000 long-tailed macaques. The company behind the complex, Safer Human Medicine, plans to sell these monkeys to universities and pharmaceutical companies for medical research. The company says it's critical for the U.S. to have a domestic supply of monkeys for medical trials, arguing that primates have been key to developing medicines that save human lives like the COVID vaccines.

12:54But local residents and animal rights activists say, OK, sure, just not in my backyard. They say they're worried about monkeys spreading disease in the community and causing an ecological catastrophe. Plus, even as a local booster of the project admitted, there are just going to be a lot of monkeys. There's no question. You didn't finish the quote, though. So this Bainbridge city official justified it saying, we got more cows in the country than we got people to it. We got more chickens in the country than we have people to it. But obviously monkeys are a whole different story here. There's a couple of different moralities that we have to grapple with here.

13:29You might be totally against monkey testing in the first place, but whether you like it or not, monkeys are used in these laboratory tests and they have been helpful in developing life-saving products. And then given that fact, there's also a robust black market for monkey trading that has emerged. It's led to these long-tailed macaques to go from vulnerable to endangered. So if this testing is going to happen, would we rather it come from a monkey bred in captivity or smuggled in the wild? I don't know what the correct answer is here. What was fascinating to me is that we've seen the U.S. want to boost production in certain industries because of geopolitical tensions, as we've talked about.

14:06You know, when COVID happened, a lot of countries shut their borders. And we realized, at least in industries like semiconductors or other critical industries, that, hey, we need to make our own stuff because when blank hits the fan, we need to be able to make our own stuff. And it seems like this happens with monkeys, too, because when COVID happened, China, which supplies a lot of our monkeys for medical testing, said, no, we're like, we're not sending you anymore. And we realized we didn't have enough. And we needed to test a lot of medicines, obviously, during COVID. We didn't have a lot of monkeys.

14:35So I think there's a little bit of urgency to breed our own monkeys like you made in America monkeys so that we can use these. And proponents of this say this is like this is a human life saving mission that we're on. The monkey industry is a huge business. You mentioned that China shut down its exports. They accounted for about 60 percent of the research monkeys imported to the U.S. annually. When they shut it down, the spike in price of these primates is astronomical. One monkey will run you about$30 ,000 this year. That's up from around$2 ,500 pre-pandemic. So you see why this black market emerged around this incredibly lucrative process.

15:17So it is just so bizarre, though. If you are a Bainbridge, Georgia resident, you're like, a what facility in my backyard? 30 ,000 monkeys? It's crazy. And this is not just in Bainbridge, Georgia. another company that breeds monkeys, is also locked in a fierce land battle with residents of Texas County because they want to have a monkey breeding facility as well that houses up to 43 ,000 monkeys. So these monkey facilities are kind of running into local opposition, as we've seen with many other local land uses, like maybe warehouses or semiconductor factories or all of these particular uses of land that residents view will reduce their property values.

16:00And when that comes into play, they're going to fight tooth and nail to not have it. All right, enough monkey business. Let's take a quick break.

16:10Raise the rudders. Raise the sails. Raise the sails. Captain, an unidentified ship is approaching. Over. Roger. Wait. Is that an enterprise sails solution? Reach sales professionals, not professional sailors. With LinkedIn ads, you can target the right people by industry, job title, and more. Start converting your B2B audience today. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started today at linkedin.com slash campaign. Terms and conditions apply. Tonight on NBC, Jimmy Fallon and Bozema St. John host the highly anticipated new competition show. I hired 10 creatives from all walks of life.

16:49They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On Brand with Jimmy Fallon. Series premiere tonight on NBC. Let's hit the people with a little Stock of the Week, dog of the week action where neil and i choose one stock that lovingly lets you have the last bite of an entree and one stock that went to the bathroom in the middle of the day and never came back i won the pre-show game of butter knife flinging so i'm up first and my stock of the week is blackrock now you might be thinking blackrock boring but really i'm just using this as a way to circle back and check in on how the bitcoin etfs are doing a week and a half after their launch And so far, BlackRock is doing the best.

17:43Its ETF crossed$1 billion in investor inflows, making it the first in the group of nine new ETFs to surpass the milestone. Investors deposited$371 million into the fund on Wednesday of this week alone, which is an extremely solid number. Already, we're seeing the big boys lap up most of the investor interest. BlackRock and Fidelity have received 68 % of all inflows across the nine new ETFs, which is not surprising. Neil, these are exactly the two names you'd expect to see on top of the inflows chart. And as a whole, I think these institutions have to be pleased with the investor enthusiasm they've seen so far.

18:20Totally. This is brand names just winning out. Fidelity and BlackRock just dominating the market. They are already huge ETF providers. BlackRock has$10 trillion under management, has 400 ETFs. It is a leader in ETFs. So as soon as they launched the Bitcoin one, I think investors, anybody who's like, well, I have nine of them to choose from. Where am I going to go? They go to the safe option with BlackRock or Fidelity. And the big loser so far is Grayscale. Remember, Grayscale's Bitcoin trust was created all the way back in 2013. It had over$28 billion in assets under management when it converted to an ETF last week.

18:56But it's seen around$1.6 billion in outflows since trading started. So a lot of these people, now that there's more options on the market, are taking their money out of Grayscale, the OG, and putting it into these more trusted brand names. Grayscale also has the highest fees of any. Yeah, the fee battle is interesting. Although, you might say that the lower fees, the more inflows, but the lowest fees title goes to Franklin Templeton with its 0.19 management fee. But despite its industry low fee, it's received less than 2 % of the inflows. So it's not all fees. It doesn't all come down to fees.

19:29Well, with a name like Franklin Templeton. I mean, are we in like the 16th century in England? I just want to put the$1 billion in context. The largest ETFs in the world, the ones that track the S &P 500, have nearly$500 billion under management. So they're getting there. They're a long way to go. All right. My dog of the week is Spirit Airlines, which has lost nearly two thirds of its value in the last five days. Remember, earlier this week, a judge blocked JetBlue's acquisition of Spirit, saying that Spirit needed to be kept around to keep competition alive in the airline industry. But in keeping Spirit from being sucked up by JetBlue, the judge might have got the exact opposite of what he wanted and condemned Spirit to death.

20:07Spirit's finances are not in good shape, with roughly$1.1 billion in debt due next year. And reports swirled yesterday that it could consider restructuring, including filing for bankruptcy. The company pushed back, saying it was not pursuing anything like that. But investors are clearly not optimistic. They saw this JetBlue merger as a life raft for a struggling company. But that life raft has just been pulled away, and now it's treading water. It's so ironic that the government literally set out to preserve cheap airfare, and they might end up killing the biggest provider of cheap airfare. Spirit does have options at their disposal.

20:39Earlier this month, it completed some transactions where it sold a bunch of planes and then leased them back, allowing it to pay down$465 million in debt. It's really these debt payments looming that could end up sending the company into bankruptcy. But they haven't made money for three years. Right. It's tough out there right now. Even as the travel industry has kind of recovered and started booming again, Spirit, for one reason or another, just through this debt load, honestly, has struggled for the past three years. And it has this external shock because there's a Pratt & Whitney engine recall that is somehow hitting Spirit the worst out of any airline.

21:13So it's going to have to ground 40 of its planes as they go through this recall. And that's obviously not going to help things at all. Okay, we are learning that just because you built a fortune in tech does not mean you can make it in the tough-as-nails news business. Billionaires who bought news publications in recent years have not been able to turn their magic billionaire sauce into financial success, the New York Times reported. And their newspapers are losing hella money. Biotech billionaire Dr. Patrick Soon-Shiong has the most pressing challenges right now. The entrepreneur bought the Los Angeles Times for$500 million in 2018, but the paper is on track to lose up to$40 million this year, and employees are bracing for a major round of layoffs after a highly respected editor quit last week.

21:59A Soon-Shiong spokesperson admitted that there was a significant gap between revenue and expenses and that eventually he wouldn't be able to keep funding the LA Times with his own money. This guy has reportedly put in$300 million of his own cash on top of the$500 million he originally paid. And things aren't going much better for Jeff Bezos, who bought The Washington Post, and Salesforce CEO Mark Benioff, who bought Time Magazine. As the saying about the news business goes, if you want to make a small fortune, start with a large one. Same thing for owning a boat, by the way. Honestly, these new billionaire owners are usually met with a sort of cautious optimism from the employees because they think they can bring in some of that business.

22:39I acumen you called it some billionaire magic sauce and turn around these struggling businesses but being a billionaire doesn't insulate you from all of the problems that are hitting traditional media right now and it's not a good long-term business strategy to have a benevolent owner that is covering expenses year after year it just can't no matter how much they want or want to respect like the sanctity of the newsroom it's just not a long-term business option so you you're seeing like these staggering figures of money lost truly staggering so let's look at the washington Post. They are on track to lose.

23:12Last year, I'm sorry, we already have this. They lost$100 million that post-Trump, they're having a huge post-Trump slump. And I'm sure they're not so, you know, whatever their political views on Trump are, they're probably a little relieved to have him back because it's good for business because they are just hemorrhaging money. Time Magazine lost $20 million in 2023. Mark Benioff said, yeah, everything's good over here. But I mean, at least on paper, it doesn't look like they are. Yeah. CNN has this new CEO who's kind of wants to turn that brand around. And he has a quote saying only legacy media organizations use the word digital.

23:47He said, just kind of pointing fun at the fact that they think they need this digital transformation when so many people don't even consider like you wouldn't hear a tech CEO saying we need to have a digital transformation. You just live in a digital age. So he's just kind of showing that it's so obvious at this point that traditional media is behind the curve and they need to adapt to the current times. I want to give kudos to one billionaire in my home state, John Henry. He bought the Boston Globe for$70 million in 2013. And that company, Boston Globe, has been profitable for multiple years.

24:19Shout out to John Henry. And, you know, these billionaires need their kudos every once in a while. I know. I can't believe I just did that. All right. Let's wrap up this Friday episode with a story about how Americans are ditching weeknight excursions for one reason or another. Coming out of the pandemic, lots of entertainment venues like bowling alleys or Topgolf saw a boom in weeknight traffic. People have been cooped up for a long time, and we're just happy to go out and spend on any day that ends in Y. It let companies jack up prices without a second thought, and the so-called entertainment space enjoyed record profits.

24:52But now consumers are pulling back a little, and it's led businesses to bring back a flurry of discounts and deals to try to win customers back. Dave & Buster's brought back It's All You Can Eat Wings offer on Mondays and Thursdays, which side note, Neil, we're hitting that up ASAP next week. Bolero now offers unlimited late night bowling during the week, which we won't be hitting up because we don't sleep enough as it is. But the moral of the story is people are becoming a little more cash conscious, so we're pulling back on weeknight fun. Are these promotions and deals enough to pull people back out, Neil?