Host: There's a little bit of debate over Anton's own naval experience, but we can get into that. But Anton, you have some naval experience sort of.

Anton Pner: You're teeing it up for Margot to make fun of me now because I was just a reservist. So, I fully embrace the fact that I do not have grand military experience. Okay. I served. I was in the reserves. I put on the uniform. I wish you could still fit, but

Host: I heard you played a lot of tennis.

Anton Pner: I played tennis and rode to Spain, you know, on a NATO exercise. I'll have you know, Tracy, it was a it was a NATO military exercise and I don't think I was that

Host: your exercise was tennis

Host: for your exercise.

Anton Pner: By the way, I'd like to say that Perez de la Frontier was fantastic for wine and Sherry. So, you know,

Host: Joe, I want a t-shirt that says ruthless utility maximizer.

Anton Pner: Black gold.

Host: Let's talk about losers. Who cares?

Host: I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.

Anton Pner: Skulls Unlimited.

Host: Oo. What's the ticker for that?

Host: No, I think that like in a couple years the AI will do a really good job of making the Outlaws podcast.

Host: How do I get more popular and successful?

Anton Pner: One day that person will have the mandate of heaven. We do have

Host: the perfect guest. You're listening to Lots More, where we catch up with friends about what's going on right now. Because even when Odd Lots is over, there's always lots more. And we really do have the perfect guest.

Host: I feel a little bit stupid.

Host: Go on.

Host: But on Monday, obviously the

Host: Wait, you're just just now for the first time. No, I'm just kidding.

Host: Thanks, Joe. Thank you. Obviously, the war with Iran happened on the weekend and is still happening. And on Monday, I woke up and I was thinking about energy markets and, you know, geopolitics in the Middle East.

Host: And I was trying to think of someone who would be really good to talk about shipping.

Host: And I'm embarrassed to say it took me a full 24 hours to remember that we actually have marine chaos experts basically on speed dial at the moment. Well, it's perfect because we are experiencing marine chaos. Obviously, we're recording this March 4th. Yesterday, Trump posted on Truth Social talking about the US actually playing a role as sort of an an insurer of last resort because one of the things that we've been seeing is like setting aside the sort of logistical ability to get goods out of the region, get whatever out of the region. There's obviously the question of can you get insurance and we know that you know prices are soaring etc. you know, insurance costs getting too high could end trade flows regardless of the actual logistics on the ground and so

Margot Brock: well not just insurance premiums getting too high but insurance being pulled all together

Host: getting pulled all together. That's right. So they, you know, they are their own entity that's sort of like separate from national, you know, there's nations and then there's insurers and they have quite a bit of say over what moves and when and where. Well, all of this just confirms my long-running suspicion, as you know, that insurers actually control the world in a a very underappreciated way.

Host: We should talk to We need to insert like a sound effect here. Speed dial are marine chaos experts. They are, of course, Margot Brock and Anton Pner. They are the founders of Mercury Group, which specializes in dry cargo and global freight logistics. So, really the perfect people to talk to about this moment. Let's just talk about what you're seeing right now with the straight of Hormuz. You have a lot of clients who I assume have some presence there. Again, you guys sort of specialize in dry bulk, dry cargo, but you have a good handle on what's going on. What are you seeing and witnessing and living through at the moment?

Anton Pner: Sure. Yeah. It's always great for us to be on during marine chaos time, right? As I mentioned to Tracy yesterday, I think that's going to be new business cards for Margo and I marine chaos expert. So in addition certainly to kick things off right in addition to everyone knows uh oil and gas are flowing through straight at Hormuz and Persian Gulf which is the uh always the headline commodity sector that that everyone talks about in the region. You also have things like outbound fertilizers coming out of the region. You have outbound aluminum being produced by Emirates Global Aluminum and Quatalum and Alba aluminum Bahrain. You have inbound raw materials for the aluminum production. Luminina that goes into aluminum production, you know, that needs to flow in. You have containerized goods, right? You have inbound grains going into the Persian Gulf. So, there's a lot more than just oil and gas that's affected when there's a problem in the region. Right now, we're seeing, you know, our world that's heavy on metals, of course, is being affected by the inability for Gulf aluminum producers to be able to ship aluminum out, moving out of the Gulf. So that's already created a spike in global aluminum markets and there need there's a shift at the moment going on. I think Emirates Global Aluminum was the one that said they're going to start fulfilling orders with aluminum stock piles that they have in other parts of the world. So we're starting to see an effect on the markets that we're involved in. Of course overall diesel in the United States jumped significantly over the past couple of days. So, we're going to see that trickle down effect coming into the world of our inland logistics in North America, barge freight on the river system, truck freight, rail freight, where we're going to start seeing potentially start seeing fuel search charge uh clauses kick into effect as diesel starts to move up.

Host: Huh.

Host: And then so talk to us about the insurance components because there's the obvious Yeah. There's the sort of reality of moving goods and then there's the question of can you get these shipments insured. Well, can I just say I don't understand insurance where like you have a war risk insurance policy and then something happens and the insurers are like actually we're going to cancel all the war risk insurance.

Host: Yeah. Explain how this market works.

Margot Brock: Yeah. Well, war risk is an interesting component of your policy because depending upon where the policy is written and what the custom is, if it's a London policy, a US policy, you'll have different terms within your policy, but they all come with a short cancellation notice period on specifically the war risk component. And that cancellation term can be anywhere from say two to seven days I've heard depending upon whether it's written on London or a US policy or so forth. And uh that's what's happened. Everyone put out the notice immediately upon the war. And now this week is when all those cancellation dates are hitting. So after that cancellation date, you can reby war risk, but now you're going to buy at a significantly increased premium. So what I'm being told is the current market is that where traditionally your premium, which is assessed on the value, the declared value of your goods, that's what we're insuring against. So your policy in total inclusive of your war risk may be might be something around 0.05% of value. Now to carve out just the add-on for war risk they're seeing offers coming anywhere from 0.5 to 1.5

Host: 10x to 30x increase in that premium.

Margot Brock: Yeah. So that's if you choose to have war risk and then it you know that will push back into the rest of the conversation that says what ships are actually transiting in war risk areas at this point because we're seeing the pivot we're seeing and we're seeing that that market dropping off very steeply right now.

Host: Well, what types of goods would continue to flow logically or economically at these new levels? What is the pivot?

Anton Pner: Yeah, Joe. Joe, I think a good answer to that question right off the bat is let's take the cargos that have no choice. Okay. One of our our ocean freight team has a client and a ship currently loading in Saudi Arabia in the Gulf loading dry ball cargo. The ships in port it's loading the ships PNI club the insurance group that ensures the ship is issued the notification of the cancellation on the ships the ship side insurance right you've got two sides. You have the cargo insurance Marggo was talking about in some detail and then there's also the insurance on the ship,

Host: right?

Anton Pner: So, that ship is loading. It's received the notice that their existing war risk coverage under their ship's PNI uh protection and indemnity policy has been cancelled. They're going to need to renew it. The ship has to continue loading, has to eventually sail at some point, right? When she will, who knows? But there's no choice but to reup under the higher insurance premium. That ship is already in the Gulf. It's already loaded cargo. So you have the cargo the cargo interest the shipper who owns the dry bulk goods aboard the ship going to need to have all risk cargo insurance on their cargo. And then the ship owner also needs to renew their PNI policy covering the ship and there's no choice ship's there. So now it's going to be a I think one of the terms when catching up with our our ocean freight team earlier is a slugfest of who who's going to pay.

Host: Yeah.

Anton Pner: Margot and I old professor at New York Maritime College of Maritime Law and Insurance with Jeffrey Weiss would have always said everything we're going to talk about this semester falls under the category of who pays, right? Who's responsible to pay? Professor Weiss was famous for that that who pays phrase and it comes into play exactly these situations.

Host: So just on this point can I ask you to explain very simply I guess the ecosystem of insurance and shipping and this idea that you know you hear about things like the club insurers and then you have the reinsurers and there seem to be all these different layers. There's the insurer for the cargo, there's the insurer for the ship as you've laid out. And then there's this question of who's actually going to pay it because you have, I guess, a chain that exists between, you know, the charterers, the ship owners, the end buyers of the cargo. Can you just lay that out kind of very simply for us?

Anton Pner: Yeah, try. And of course, we're freight people, not insurance experts. and all going well. Without mentioning names, I'm I working on connecting Tracy and I discussed yesterday working on connecting somebody very key at one of the uh world leading PNI clubs to potentially

Host: Well, now now you've said it in public, so the pressure the pressure is on.

Anton Pner: Notice I'm not mentioning a gender or a name or anything that gives away anything other than that. So, we'll see. Fingers crossed that

Host: their pronouns are they them.

Anton Pner: Exactly. We've already uh you've already gendered the ships. Yeah. Which is Sorry, it's a tangent. I was just reading something about how you know it's very you know the English doesn't have gendered nouns with the exception of ships. Anyway, sorry. Keep going.

Anton Pner: Yeah, exactly. So, yeah, to make it to break it down very simply, right? The ship owner carries protection and indemnity insurance, hull insurance, those policies that cover the ship and its engines and so forth. the all of the physical attributes of the vessel and so forth. That's what the ship owner carries on it. Now, in a contract of carriage, whether it's a charter party or a bill of lighting, a liner bill of lighting, that has a limitation of liability to the cargo owner in that contracted carriage. Uh the US law is covered by the carriage of goods by seas act, COGSA, which typically carries a $500 per package or per ton limitation of liability. So the ship owner is only liable to a certain extent of value of the goods that the shipper is carrying on the ship. Now we flip over to the cargo owner side and the cargo owner knowing that the ship owner only has a certain limitation of liability. The cargo owner will go out with the right guidance will go will get all risks cargo insurance and that's to provide them the coverage for the value of the goods that they're carrying on board the ship over and above whatever the ship owner's limitation of liability is. when a when there's a casualty and a loss as a cargo owner, you want to be able to collect from your all-risk cargo insurance policy and let them fight it out with the ship owner, not be stuck in arbitration in London or in Singapore or New York fighting it out later on. And then there's another type of insurance too when you're chartering a ship as a ship as a cargo interest. You get charterers liability insurance is uh pretty uh common and that covers the shipper the cargo interest from other liability elements. Let's say the ship has a casualty and people are killed or hurt. There's going to be lawsuits filed against everyone involved in the ship and charter liability insurance covers the charter the cargo interest liability as it relates to in other damages or if the ship is damaged by their steodor loading the ship or discharging the ship. So other other things that can come into play there too. So I tried to lay it out as kind of clear as possible but I know it's convoluted.

Host: Yeah, there's a lot of moving parts.

Host: Yeah, there's a lot of moving parts. Talk to us about the announcement from Trump that the US could get involved and be some sort of play an insurance role here. What can that do? Is that and is that novel? Is that have is there any precedent for anything like that? Yeah, this you know this news just you know came out and the president will often say things that then need to be implemented by the bureaucrats right so the mechanics of it are always complicated there's precedent for US government agencies providing insurance the export import bank for example offers trade credit insurance like let's take that for example right as for protection indemnity PNI insurance on ships I'm sure uh although I don't have any specific specific instances, but I'm sure there's been precedent for that in history. So, I don't think that that's too much of a stretch for the government to necessarily come in and offer some kind of safety net for ships to be able to get PNI insurance. What may be more complicated is Navy having US Navy or Coast Guard escorting ships into this straight of Hormuz. That's not an easy task. That was done I think what it was in the 1980s when we ref flagged tankers on put American flags on them to protect them from the Iran Iraq war at the time we had navy ships escorting ships to the straight of Hormuz but that is a expensive proposition it's not perfect right missiles can and attacks can get through you're putting US Navy ships you're taking them out of circulation and out of deployment for other purposes and you're putting them very much in harm's way that approach approach to the straight of Hormuz navigationally speaking is delicate to say the least and it can be very exposing.

Host: What's it like actually sailing through the straight?

Anton Pner: I have not sailed through the straight. Margot has it either, right? Both of us were

Host: both of us stayed a lot shoride afterward. I sailed through the Panama Canal on a on a Navy tanker which was which really was a fun topic with Tom King and Paul Sweeney one morning when looked like we were going to take over Panama the day before. Oh yeah, of course.

Host: Well, okay. Actually, this reminds me just setting aside the insurance component, do people want to be moving stuff through the straight of Hormuz at the moment? I imagine if you're captaining or crewing a ship. I would love to captain a ship, by the way, but you wouldn't want to be in the straight at the moment, right? There are human considerations beyond just how am I going to get compensation for the cargo or a lost vessel. Obviously, it's a logistical nightmare to get through there. Safety is a concern, personnel. Um, this morning, a small container vessel, I think it was 1,800 TEUs, 20 foot units, was hit with, they're saying an unknown projectile, hit it above the water line, put the engine room on fire. They just abandoned ship. They took they pulled the whole crew off and abandoned ship. I mean, you don't even stay there to fight the fire. You just get out of there. So yeah, people don't want to be there. And if you are on the liquid side, petroleums, cruds, you have a harder time avoiding going through that region because of what it is, right? That's the source of a lot of our global oil. But other commodities, dry in large part, we can avoid it. So to Anton's comments, the aluminum sector has in large part shifted, deviated from that area for now. But in addition, ships are navigating away and it means a longer transit time, which means a more costly voyage, so it's less desirable. It does increase freight rates, but it's safer. Your goods are safer. And when you start adding on these new war risk premiums, if you're going to take them, I'd venture to guess it's still cheaper to take the long way around now.

Host: So, it's the kind of thing for certain liquids, there's no choice like there it has to flow through there. It sounds like for some of these other things, aluminum otherwise

Margot Brock: for now either there's going to be some long route or it's just that is not going to be a source. If we're talking about aluminum, there would just be less there would just be less aluminum in the world or some existing source of aluminum will ramp up their production,

Host: right? Like take Emirates global aluminum for example, Joe, that the United Arab Emirates have the luxury of having ports and the ability to potentially load ships on the Gulf of Oman side outside of the Persian Gulf. Right. As Margot said,

Host: yeah, longer route potentially not ideal. This is not where they typically load. One thing I haven't looked at is Emirates global aluminum shifting some of that aluminum loading to ports in the Gulf of Oman. So, we're going to take a look got to take a look at that. But, um, I wanted to say, you know, in Tracy's question about what a cruise, you know, captains of ships thinking on this, too. I'm going to take you back, Tracy, to a way to answer your question. Imagine two crazy people came up with a scheme to load a teddy bear in a container and then ship it into the Persian Gulf. Do you want to risk your life as a ship's crew? like for somebody's teddy bear, you know, stuck in the middle of a 20 foot container or getting off the ship and saying, "Yeah, I'm not risking my life for that." Right.

Margot Brock: I was going to say, as a side note though to that alternate plan on the Gulf of Oman, I was reading that they're reporting missiles and drones in the Gulf of Oman as well. So in addition to the straits of

Host: I find by the way listeners it's helpful to pull up a map during some of these conversations because yes you could see very clearly Oman has the benefit by and large I don't know exactly where their ports are on its coast but yes the straight of hormoods is less of an issue for them whereas for the UAE they're right in it. Yeah, unless the Houthis start up again, right? So, the H the Houthis have been an interesting one and Marggo and I were just talking about this ahead of the ahead of coming on. The Houthies have put the threat out there that they're going to restart attacks in the Red Sea and off the coast of Yemen and and potentially significantly deter from heading to the Suez Canal, but they haven't started any attacks yet. the threats out there already. You see container ships, container lines diverting ships to the Cape of Good Hope to around southern tip of Africa to avoid heading into the Red Sea in case the Houthies do start start up with missiles and attacks and boarding ships again. But they've as of at least 15 minutes ago before we get started this podcast, it's out there as a threat, but the Houthies haven't done anything yet. The threat in and of itself already causes reactions though, right?

Host: Yeah. I remember I think the big port in Oman is Salala and I only know this because I visited there once, but like it's pretty close to Yemen, right? Like I don't I don't think there have been any direct attacks, but certainly relatively close. This reminds me though, have you seen any early signs of people doing maybe insurance arbitrage where you know like certain flags or certain jurisdictions or entities are willing to run the hormuz in a way that I guess western companies just aren't at the moment or is it too soon for that and too uncertain?

Margot Brock: Yeah, I think too too soon for that Tracy. Not hormuz right. We did see on the Hormuz situation in the Persian Gulf. Haven't seen that happening. There's some ships moving through. So, it may be happening maybe with some of the very few ships that are moving through. But it maybe a good anecdote to kind of bring up here was when we were dealing with uh you know a year or plus or so ago when the Houthis were really really ramping up their attacks. There was a lot of chatter about the fact that the Chinese had uh essentially uh the Chinese easy pass toll transponder to get past the Houthi. So we're seeing talk at that time of working with Chinese ship operators and Chinese ship owners that were more competitive because they could still send their ships through the Red Sea and into the Suez Canal whereas more western operated vessels that could be tied to countries that were unfriendly to the Houthis had a really target on them. All right. So, so we're seeing some of that arbitrage a bit during the when the Houthies were in full swing. So,

Host: one of the impressions that I get with when we have incidents such as this is that there's a certain nonlinearity or that like things really compound over time that you know one day disruption is one thing, a two-day disruption is another thing, but by the time it gets to 10 days or two weeks or a month, then it really is it gets exponential. Like talk about talk to us about the risks and how they compound the longer the war goes on or the longer the disruptions are in this particular part of the world.

Host: Well, is that the risk to

Host: Yeah. Yeah. Global supply chain.

Host: Global supply chain is global supply chains for all of this stuff the longer this goes on.

Margot Brock: Well, I think we reflect back. We've lived it very recently in a nonwar situation in just what we saw during the aftermath of COVID when shipping just and I think we actually spoke then about this um shipping just grew out of control and we saw all the subsequent delays and that was really just because of system overuse, congestion and ultimately you know a bit of failure cuz Our system just wasn't big enough for as much as we were trying to ship during that period. That was when we had container ships and cargo ships stacked off the port of LA. We had clients with steel coming in where they said, "You could be on you could be on anchor for 4 to 6 weeks waiting for your birth. What do you want to do?" Then you start to have to look at the bottom line of your dollars and cents. And that's what we're going to see. Again, like anything, it just continues to back up, right? So, we have cargo on vessels that aren't getting where they need to be. If it does, it's at a significantly increased cost. Going forward, if you want to book your freight, the baseline, the start, the starting cost is going to be that much higher because of risk, because of increased sailing distances that you have to go. And once you start using up your assets for longer periods of time, supply and demand, now capacity starts to shrink. So, it really becomes quite the domino effect. And the longer it goes, the more out of whack our system gets, the prices go up. And that's where we can talk about the short term is the price of the of commodities. And that's where our jumping jumping off point is as we talk about oil and we're talking about aluminum and fertilizers and cements and all these raw materials or semi-finished goods. But down the line we all start to feel it as we did in postcoid

Host: because that effect does start to trickle into our retail as well.

Host: This is the you know this has the potential to be a disruption on the scale of co or like we talking about that ballpark if this goes on long enough.

Margot Brock: I think that's the wild card. How long does it go on for?

Host: Yeah. There's going to be winners and losers, right? In addition to the losers. Yeah. also always winners too, right? Going back to the Houthie mess, no one was more excited than ship fuel suppliers down in southern Africa, right? With all the ships moving uh moving through the area that needed to refuel in South African ports rather than in ports in the Red Sea and so forth. So, so supply chains shift and eventually start to set in. Is this going to your question, Joe, right? Is this going to be at the scale of what we saw with CO? boy. I hope not. I mean, CO would hit every every uh part of the world, every port in the world had problems and so forth. So, I think you would think it would take a quite a bit for it to get to that that stage. But we're but already as I mentioned earlier, right, with the price of diesel fuel in the US jumping, that's already going to start hitting transport of of local goods going from distribution centers to the p, you know, local public supermarket here in Florida. So, so it's going it's trickling down already. We're going to start seeing it. So, Margot and I are bracing for the fuel search charges coming up.

Host: Yeah. This also reminds me, I think even before recent events, we were starting to see freight rates pick up a little bit in the US and some people were talking about a potential turn in the cycle. I imagine higher oil prices will, you know, eat into some of the industry's profits. But before this week's events, did it feel like we were starting to see a little bit of a turn?

Anton Pner: Yeah, we just fairly recently working on 2026 barge barge contracts for particularly for northbound goods like steel metals that are part of our typical business. Margot was on the front lines on that and we didn't see much in the way of significant increases. Right, Margo? I think for

Host: Okay.

Margot Brock: Yeah.

Margot Brock: No, no routine increases. There was nothing terrible.

Host: Yeah, it seems like it's a lot on the Yeah, the trucking the freight.

Anton Pner: Yeah, truck freight has been

Host: Yeah. where things are more volatile. Trucking is so so reactive to the market.

Anton Pner: Much more liquid market, right, with thousands of small carriers and owner operators and so forth. And then, you know, rail freight, rail freight is the exact opposite of the truck freight market from liquidity to monopolies. Let's not call them monopolies actually. No, but we know in trucks that you have a down period and then thousands and thousands of owner operators will come out of the market and go out of business, etc. And so supply swings down and up in trucking in a way that would be unimaginable in something like

Margot Brock: Right. Exactly.

Anton Pner: for those reasons. Yeah.

Host: Yeah. So, I know we've we've said multiple times now that the wild card is really the length and how long this goes on for, but are there any, I guess, proactive steps that you're taking in your own business to prepare for further disruption?

Margot Brock: Good question.

Margot Brock: Because where we fit into the into the supply chain is that our clients are the traders. So, we're managing their supply chain. what protective actions or um course correctors they have in mind really will relate to their trading book which is going to probably be sourcing in alternate locations as needed if you can't get your commodity out of the Middle East or an affected region when we dial into domestic logistics here North American logistics we will see everything continue to flow and we don't expect as much a disruption of capacity. The disruption will be prices, but we'll still be moving moving things and we will still see truck, rail, barge, and you know, ocean freight will be more of the swing item here on what are the lanes where the freight is moving.

Host: Joe, did you ever hear about the story of the ships that were stuck in I think the Suez Canal for like years and years and years during the Six-Day War? No.

Host: So, the crews that were stuck on the ships like started their own postal service and like built their own little society, but I it's a very interesting story. I certainly hope nothing like that happens this time around.

Host: Lots more is produced by Dashel Bennett, Kerman Rodriguez, and Kale Brooks.

Host: Please rate, review, and subscribe to OddLots and lots more on your favorite podcast platforms. And for even more beyond lots more, go to bloomberg.com/odlocks and chat with fellow listeners in our Discord, discord.ggodlocks. And don't forget that Bloomberg subscribers can listen to all of our podcasts absolutely adree. All you have to do is find the Bloomberg channel on Apple Podcast and follow the instructions there. Thanks for listening.