Wars, Piracy and Global Shipping

Plus: EV startups are running dangerously low on cash with no financial chargers in sight. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

December 20, 2023

SPONSORED BY CME GROUP

Good morning. Artificial Christmas trees have been around since the Germans introduced a goose-feather hack in the 1880s, but the question has seemingly never been resolved: real tree or fake tree? Purists will argue a genuine evergreen is the only way to go, but most folks prefer plastic. More than 75% of Americans said they'll be trimming an artificial tree this season, according to a survey from the American Christmas Tree Association. This year, the US imported nearly 450 million fake trees, and has been chopping down fewer and fewer pines, firs, and spruces for the past half-century. But who needs all the extra plastic? Sorry, that was the Grinch speaking. Your tree looks fabulous.

INDUSTRIALS Maersk Reroutes Ships Amid Middle East Conflict Photo by Venti Views via Unsplash Truth may be the first casualty of war, but commerce is a close second.  On Tuesday, shipping giant Maersk announced all vessels due to sail through the Red Seas will be rerouted around Africa via the Cape of Good Hope following attacks from Yemeni rebels. It's a spillover effect of the ongoing Israel-Hamas violence and just the latest crisis roiling the shipping industry and global supply chains. Shipping Out Voyages from Asia to Europe typically take 30 to 40 days, with courses taken across the Red Sea before passing through the Suez Canal, according to Michael Aldwell, executive vice president of Swiss logistics group Kuehne+Nagel, who spoke with the Financial Times. The vitally important waterway accounts for roughly 30% of all global container traffic, and is crucial for transporting both goods and crude oil. Since the outbreak of violence in Israel and Palestine on October 7, more than 10 attacks on shipping vessels have been carried out by Iran-backed and Palestine-aligned Houthi rebels in Yemen, who claim to only target ships linked to Israel. It's been enough to turn the entire shipping ecosystem on its head. Circling around the southern tip of Africa to avoid the Red Sea altogether will likely take up to four weeks of transport time, Aldwell projected. Goods makers, retailers like Ikea, and energy industry analysts have already warned that rerouting around Africa could significantly disrupt supply chains and — you'll never guess — further stoke inflation. Still, Maersk isn't alone in taking a cautious approach: Evergreen Marine, a Taiwan-based shipper, on Tuesday announced it will "suspend navigation through the Red Sea until further notice." On Monday, German shipper Hapag-Lloyd also rerouted all its ships around the Cape of Good Hope. In total, the container shipping firms that have paused or suspended sailing in the Red Sea typically account for about 95% of all traffic through the Suez Canal, according to Clarkson Research Services data reported by Bloomberg. "The attacks we have seen on commercial vessels in the area are alarming and pose a significant threat to the safety and security of seafarers," Maersk said in a statement. "This decision was taken to ensure the safety of our crews, vessels and customers' cargo onboard." Overboard: War isn't the only maritime mess: The Indian navy is shadowing a bulk shipping carrier in the nearby Arabian Sea that is suspected to be the victim of a hijacking by Somali pirates, fueling concerns that the region could see a spike in piracy. Piling on is Planet Earth – a drought in Central America has hit the Panama Canal hard. The waterway is now the driest it has been since 1950, according to the canal authority, significantly slowing the flow of goods. Written by Brian Boyle

SPONSORED BY CME GROUP The Breadcrumbs of a Banking Crisis When volatility strikes during normal trading hours, equity markets can give investors a real-time pulse on investor sentiment and capital allocation trends. But what about after hours? Amidst tumultuous periods like the banking collapse in March of 2023, or Russia's invasion of Ukraine, market participants looking for a way to manage their risk or take advantage of emerging opportunities turned to equity options. In response to the retail banking crisis, more than 686,000 E-mini S&P 500 options contracts were traded during non-U.S. hours, as investors reacted to — and hedged against — banking's implosion. Learn about how investors are protecting themselves before the markets open with these free resources.

ELECTRIC VEHICLES Some EV Startups Are Seeing Their Cash Running on Empty A flat EV world is fine if you're Tesla, but it's murder on startups.  An analysis from The Wall Street Journal found that many of the EV and battery startups flush with investor cash and confidence just a few short years ago are now struggling to keep the lights on. EV Headwinds Even with industry-wide challenges like supply-chain issues and slowing EV adoption rates, Tesla has still sold more than 4 million cars and is one of the top 10 largest companies in the world by market cap. The journey has been somewhat different for other startups hoping to recreate Tesla's juggernaut success.  At least 18 publicly traded EV and battery startups are at risk of running out of cash by the end of 2024, the WSJ found. The majority of startups that went public between 2020 and 2022 did so via special-purpose acquisition companies, which can access public markets faster than IPOs but also tend to be more opaque, riskier, and underperform. The stocks of 43 companies that the WSJ evaluated are down an average of more than 80% from their market debut. That quick rise and fall is being felt across the sector, as many EV startups look to reduce costs and raise new capital: It's even tougher today at scandal-hog Nikola, an Arizona-based semi-truck maker whose founder Trevor Milton was just sentenced to four years in jail for defrauding investors. When it went public in June 2020, Nikola was trading at $66, but now it's under $1.  Automakers like Rivian and Lucid — both of which produce vehicles with price tags above the average American's salary — have enough cash on hand to make it past 2024, but they're still facing low sales. For others, the race is already run: Lordstown Motors, Proterra, and Electric Last Mile Solutions all filed for bankruptcy in the past two years. Rethinking EVs: The big guys are feeling some pressure, too, that's why so many major automakers are tempering their EV efforts. Ford recently delayed $12 billion in EV investments, GM is waiting to start selling multiple electric models, and Stellantic has yet to begin selling any all-electric vehicles in the US. The silver lining is that hybrid cars are having a moment — more than two decades after Larry David made them his car of choice in season two of Curb Your Enthusiasm.  Written by Griffin Kelly

BIG TECH VR Headsets Sales Are Way, Way Down Could the metaverse be approaching its heat-death? Data compiled by research firm Circana for CNBC shows that sales of virtual-reality headsets, consumers' conduit to the metaverse, plummeted 40% between November 2022 and November 2023. Although Meta has taken its foot off the gas slightly with its metaverse messaging, it's still shoveling billions of dollars toward the platform — and Apple is preparing to sell its own VR headset next year. So Big Tech is all in, even if consumers aren't.   All Work And No Play At the beginning of this year, Meta's strategy for its metaverse products seemed to be simple: make them more fun for kids. To get more tweens and teens plugged in, the company lowered the age gate on its VR social platform Horizon Worlds in April. Unfortunately, Horizon Worlds didn't prove to be as socially sticky as Facebook once was, and in September the company's messaging changed: The metaverse wasn't about amusement anymore, it was a serious place for serious professionals. Now the results are in, and it seems neither strategy drove new consumers into the metaverse. So Zuck must have hit the gym hard and now he or someone on his team has cooked up some shiny new toys could inject some life back into the market, however short-lived: Meta released its newest headset the Quest 3 in October, and Circana's data showed a 42% spike in sales after the headset went on sale. Whether those are new consumers coming into the fold, or hardcore VR fans who want the latest headset, is unknown but key to Meta growing its audience for metaverse services. The buzz is likely to grow again next year as Apple is due to start selling its Apple Vision Pro headset — although its price tag could put a slight damper on proceedings. After a bruising year for the American consumer, the number of people who are willing to shell out $3,500 for a VR headset could be ever-so-slightly lower than in normal times, if those exist.  Taking a Pass: Meta recently struck up a relationship with a powerful ally. Last week Microsoft-owned Xbox announced its wildly popular Game Pass subscription service is now available on the Quest 3. Meta is lacking in must-have apps for its hardware, and Xbox has a big fat catalog of popular games. It's a virtually perfect solution.  Written by Isobel Asher Hamilton

Extra Upside Unpaused and unhappy: Roughly 9 millions Americans defaulted on student loans since payments restarted in October. Time to pay up: US Bank will pay $36 million after blocking out-of-work consumers from accessing unemployment benefits during pandemic. We're Entering An Election Year, Which Means We Want One Thing From Our News: The Facts. And for that, we trust 1440. Their daily email newsletter is edited to be as unbiased as humanly possible, and is triple-checked (by hand!) to ensure that you're getting the straight truth about everything happening in politics, business, sports, and beyond. Join 3 million other Americans and subscribe to 1440's daily email newsletter right here.* * Partner

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