Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Emerging Market Cargo Routes Reveal a New Trade Order
Transcript
- Lucas: So Luna, here's a question. What do a soybean shipment leaving Santos, Brazil, a container of iPhones coming out of Zhengzhou, and a tanker idling off the Saudi coast all have in common? Luna: I'm going to guess you're not just messing with me, so... they're all part of the same story. Trade rerouting. Lucas: Exactly. And it's the story that's been quietly driving a lot of the divergence we've been seeing in emerging market assets. I mean, look at the last five days. Brazil's ETF is up three and a half percent. China's is up over two. Meanwhile Korea's is down three and a half, Thailand's down three. That's not random. That's cargo moving in real time. Luna: So you're saying the shipping lanes are telling us more than the central banks right now. Lucas: I think they're telling us a different story, and one that's a lot more ground-level. When I talk to people in logistics, they say the route map of the world's container ships has changed more in the past three years than in the previous thirty. And that's showing up in trade data. Look, U.S. exports and imports both jumped in April. Exports up to roughly three point seven trillion, imports up to four point six trillion. But the real action is where those goods are coming from and going to. Luna: Right, because it's not just about volume, it's about direction. And I've seen reports of ships avoiding the Red Sea entirely, taking the long way around Africa. That adds weeks to a journey. Lucas: Weeks, and fuel costs, and insurance. But it also means that countries positioned along the alternative routes are suddenly getting a look-in. I'm thinking of places like Djibouti, or even the Saudi ports on the Red Sea, which are investing heavily in logistics infrastructure. Saudi Arabia's been building out its ports for years, but now they're actually becoming a serious transshipment hub. Luna: So the Red Sea disruption is creating winners, not just losers. Lucas: Exactly. And it's not just about avoiding danger. It's about tariff arbitrage. You've got companies rerouting goods through third countries to dodge tariffs. Vietnam is the classic example. Its port capacity has grown maybe thirty percent in the last five years, and it's not because Vietnam suddenly makes everything. It's because a lot of Chinese manufacturing is being funneled through there to avoid U.S. tariffs. Luna: Interesting. So when we see Vietnam's export numbers surge, we shouldn't just assume it's a new manufacturing powerhouse. It might be Chinese goods in disguise. Lucas: Partly. But the disguise is getting harder to pull off. Customs authorities are getting smarter about rules of origin. So what we're seeing now is not just transshipment, it's actual supply chain relocation. Factories moving, not just containers. And that's a much bigger deal for investors because it's sticky. Once a company builds a factory in Vietnam, it's not moving back to China next year. Luna: That's a good point. And it's not just Vietnam. I've been following what's happening in Mexico. It's become the top trading partner for the U.S. in some months. And that's a direct result of the trade war. Lucas: Yeah, Mexico's a huge one. And it shows up in the ETF flows. The Mexico ETF is up three point four percent in the last five days. That's not just noise. That's money moving into a market that's seen as a manufacturing proxy for the U.S. supply chain. Luna: But let's talk about the other side. Korea and Thailand are down. Is that just because they're more exposed to the tech cycle, or is there a shipping angle there too? Lucas: Both, honestly. Korea's exports are heavily weighted toward semiconductors and electronics, and those are facing both tariff pressure and a cyclical slowdown. But there's also a logistics angle. A lot of Korean goods ship through Chinese ports, and with the disruptions in the South China Sea, that's adding costs. Thailand's a bit different. It's more auto parts and processed food, and those are being squeezed by the global slowdown. But the point is, the shipping data can tell you which countries are on the right side of the rerouting. Luna: So if I'm an investor, how do I actually track this? I can't just watch the Baltic Dry Index and call it a day, right? Lucas: No, the Baltic Dry is too broad. It's mostly bulk commodities. What you want to look at is container shipping rates on specific routes. The Shanghai Containerized Freight Index, for example, will tell you the cost of moving a box from Shanghai to Los Angeles versus Shanghai to Rotterdam. When you see those rates diverge, it's a signal that trade is being rerouted. Luna: That makes sense. And it's a lot more actionable than watching central bank speeches. Lucas: Exactly. Central banks are looking at the same data we are, but they're reacting with a lag. The cargo is already moving. And that's why I think the recent divergence in emerging market ETFs is telling us something real. Brazil's up because it's a commodity exporter and agricultural shipments are booming. China's up because it's managing to reroute around tariffs, at least for now. But Korea and Thailand are down because they're stuck on the wrong side of the rerouting. Luna: Hmm, but is it that simple? I mean, China's exports are up, but the trade balance is still negative. The current account deficit is deepening. So is China really benefiting? Lucas: You're right to push back. The trade balance is the old way of measuring success. China's exports are up, but its imports are up even more, especially in energy and raw materials. So the net effect is a wider deficit. But that doesn't mean the rerouting isn't working. It's just that the benefits are showing up in volumes and market share, not in the trade balance. And for investors, what matters is which companies are gaining share. A company like Alibaba, which is heavily exposed to cross-border e-commerce, is seeing volumes surge even as the overall trade balance worsens. Luna: That's a helpful distinction. So it's not about the headline numbers, it's about the micro movements. Lucas: Precisely. And that's why I spend so much time looking at port data. You can see the actual steel boxes moving. For example, the Port of Santos in Brazil has been expanding for years, but now it's handling record volumes of soy and corn. And that's showing up in the stock price of logistics companies and even in the broader Brazilian market, which is up three and a half percent this week. Luna: So let's talk about the Panama Canal. That drought a couple of years ago really shook up shipping. Is that still having an impact? Lucas: Huge impact. The canal still hasn't fully recovered its capacity. Ships are having to book weeks in advance, and some are just going around the Horn of Africa or through the Suez. But the Suez has its own problems with the Red Sea. So there's this cascading effect where every major chokepoint is a little less reliable, which pushes shipping lines to find alternatives. And that's been a boon for places like the Gulf ports, which are seeing more transshipment traffic. Luna: And that's the Saudi story. They're betting big on becoming a logistics hub. Is that bet paying off? Lucas: It's starting to. The Red Sea ports are seeing a lot more traffic, and the Saudis are investing heavily in rail links and warehousing to support it. It's still early, but you can see the momentum in the data. The Kingdom is trying to diversify away from oil, and logistics is one of the pillars of their Vision 2030 plan. And the rerouting is giving them a tailwind. Luna: So if I want to get exposed to this theme, what should I look at? Port operators? Shipping companies? Or is there a simpler way? Lucas: There's no pure-play ETF for 'global trade rerouting' yet, but you can get there through a combination. Port operators like DP World, which is based in Dubai, or the Chinese port conglomerates. You could also look at logistics real estate, like warehouse REITs in strategic locations. But the simplest way is to pay attention to the countries that are benefiting. Vietnam, Mexico, Brazil, and even Saudi Arabia. Those are the places where the rerouting is creating genuine economic growth. Luna: That's a really useful framework. And it makes me think about the broader implication. We keep talking about decoupling, but this isn't really decoupling. It's rerouting. The trade is still happening, just along different paths. Lucas: That's the key insight. The world isn't deglobalizing. It's re-globalizing, but along new lines. And the countries that are positioned along those new lines are the ones that will see growth. The old map is obsolete. The new map is being drawn by shipping companies and port authorities, not by politicians. Luna: And that's a much more optimistic story than the 'trade war is killing globalization' narrative. Lucas: It is, but it's also more complex. And it's the kind of thing where having a guide helps. If this conversation has given you a new way to think about the economy, then we've done our job. And the way we keep doing this, ad-free, is through listener support. If today was useful to you, you can help us keep going by buying us a coffee at buy me a coffee dot com slash fexingo. Luna: Yeah, even a small contribution makes a difference. We put a lot of work into digging up these data points, and knowing that it's appreciated keeps us going. Lucas: So back to the map. The next time you see a headline about a trade deal or a tariff, I want you to think about the containers. Where are they going? And more importantly, where are they going to go next year? Because that's the signal that matters. Luna: And that's a great place to leave it. For now, keep your eyes on the ports, not just the politicians.