Hello listeners, this is the risky planner podcast. Thanks for tuning in. Hey Albert, hey Nate, how you doing? Man? What's Good? Good. Yeah, it feels, it feels like it's been a long time, because it has, it truly has. You've been traveling. I have, I'm a world traveler these days. I'm in the jet set. Remember the jet set? People used to talk about jet setters, jet setters, I know. Yeah, you're a Jet Set. Global travel, the the it's a very interesting global scene, as we'll talk about, boy howdy, yeah, as we'll talk about, and again, it's always, you know, with the you know, the context is always capital projects, but you know, it's nice to see you again. Welcome back to frigid Canada. Yeah, thank you. Yeah, that was, that was all anybody wanted to talk to me about, by the way, whether to remove, remove the veil of mystery? Yeah, it was weather. I was, I was in Dubai for the past couple weeks, yeah, working on some secret squirrel stuff that I can't talk about yet. But yeah, so two things I was asked are, like, what's the project? Can't talk about that. Okay, how's the weather? Well, I don't talk about that, but you try to talk about the weather. Canadians love to talk about the weather. They do, which is why, when you go to a place like Dubai, where there is no weather, that conversation gets real dull, real fast, right? Because, you know, it's like, what's the temperature? Well, you remember yesterday? It's a lot like that, yeah, well, it's the right temperature in Dubai. Let's just say the right to it's the right people. You people in your warm weather, love, I love the heat, man, I love the heat. You know, like living it, living in DC. Make it clear. Yeah, you just, you make me sick. Yeah, I know whether people, I know he physically ill. I know so well, you're gonna go see though, right swamp, right? Drain the Swamp. Oh, man. Anyways, so we're gonna talk about, we're gonna talk about some, some Trump stuff about time, right? But I just wanted to bring attention to my new mug that, yeah, look at you. I'm very jealous of your nuclear Nate, but then also on the backside. I don't know if you saw this, but no, I did not. Yeah, it's me driving. Hold that still for a second. Okay, hold on. Can you see it? What does this button do? Says 10 year old Nate Habermeyer, yeah, thanks, safe. This is, uh, it's all safe. Safe made this for our secrets, our late Secret Santa, that was actually in February, but he made it so thank you. So it was, that's a very it was incredible. It makes me wonder what Nate heard your Nate, what safe would make for me on my mug. I'm a little I'm dreading that now, actually, well, we could guess, but um, anyways, let's, let's, let's talk about this. And today, you know, we're talking about Trump tariffs and capital projects, and then within that, it's like risk and supply chain. But I think it's mostly the supply chain, you know, Trump just announced yesterday the 25% tariffs and steel and aluminum on everybody. So, you know, we're going to talk about, what does that all mean for capital projects? And, you know, do canish, you know, you were just in Dubai, yep, you know, we're busy in Canada, the US, you know, there's lots of places that are going to be impacted. And, yeah, I'm looking forward to the discussion. Yeah, for sure, you know this. I think the more interesting part of this discussion is how we got to the tariffs being about steel and aluminum, instead of, you know, just kind of blanket tariffs targeted at places like, you know, just for example, Canada, yeah, which you know, was, was all the rage just a few weeks ago, this will, you know, date this podcast, by the time it comes out. But you know now we're talking about steel and aluminum, which, if you think, oh my goodness, well, everything's made of steel and aluminum. Yeah, you're, you're right, but these tariffs maybe are a little bit, you know, less impactful on the project landscape than you might think, unless you happen to be building something out of steel and aluminum in the United States specifically. So anyway, I don't want to have the meeting before we have the meeting, so kick us off, my dude. Yeah, let's do it. I guess you know, with everything that's going on, and you know when, when you know folks are in the US, like they're building something like, what's at stake for capital projects. Maybe we can just, you know, to your point, just before this, put it into context and sort of lay out what's at stake. Yeah, for sure now, because this may come out, you know, in a in a few weeks to a month after all of this is relevant, immediate, newsy talking points, I'm. Going to start with a quick reminder of kind of how we got to here and some of the things that happened. Because, you know, right towards the beginning of his of his second term, Trump announced blanket tariffs of 25% against all incoming goods from Mexico and Canada. The leaders of both nations did a little bit of a hand wavy, kind of pointing at things they were already doing, and saying, like, Hey, we're gonna continue doing this. And for some reason, Donald Trump was like, great, no more tariffs for months. Okay, so that went away. But the really interesting thing that happened wasn't that high level leadership conversation, although it is kind of funny to imagine, you know, like if you walked over to your neighbor's house and said, like, Hey, can you stop making noise in the middle of the night? And they said, We promise to look into maybe stopping making noise in the middle of the night. And remember that, that, you know, letter I sent you last month saying basically exactly this, well, I'm gonna do that. And then you go home and you're like, mission accomplished. So that's kind of funny on its own, but to me, the really interesting thing that happened was like two things happened immediately. One is both governments, Mexico and Canada announced retaliatory tariffs that were very specifically targeted at things that would hurt Trump supporters the most. It was a very specific, targeted retaliation that was planned. Of course, didn't happen because the tariffs didn't happen. But the second thing most definitely did happen, and that was that all of a sudden, out of the clear blue sky, there was this massive push to buy Canadian and keep things interior. It was, I imagine it was intense, right? Like, they're super intense, like bourbon, like liquor, like the LCBO, like, you know, here we're gonna, you know, give it away, like the we're in Canada. But, yeah, it was booing at NHL games. There was a whole kind of, like, ground swell of emotion, big wave. And it was, it sort of took two forms, like one being anti American, which, you know, understandable. And second was pro Canadian, which feels like it shouldn't need a looming financial crisis to make few people feel pro Canadian about, you know, stuff. But hey, whatever, I'll take it if I can get it, take it. But it did. It did kind of shift, you know, to kind of put it back to capital projects a little bit. It made people doing project planning, you know, planning for early procurement, for example, start thinking about, well, you know, in the face of these retaliatory tariffs, where are we going to source materials from that would be impacted by them, okay? And also, theoretically, higher prices would make other countries buy less stuff from us, right? So if we are framing houses and things with with softwood lumber, then we now have a glut of supply on the Canadian market for all the stuff that isn't going to get bought by the US market, you know, to do the same work. So, you know, I don't know if you remember, but 10 ish years ago, there was a real big push to make large structures out of mass timber using, like, cross laminated timber techniques, and even just like, you know, big beams, like that sort of thing, we worked on a few projects actually Nate that had cross laminated mass timber structural components, because there was all this, you know, Push to use. We might see that again, yeah, there's a cool, there's a big, I know it's popular in Scandinavia that, that part of the world, and we have a an office building down, sort of by the water in Toronto, that was, is built from that. And that went up, I think probably nine, eight or nine years ago. That was started, but, yeah, it's fully operational now. But I know what you're talking about. Watching it be constructed was pretty interesting. It's neat. And, like, generally speaking, the interiors of those spaces, you know, it's almost like going back to masonry construction, except instead of stone, it's wood, because you get all these, like, big vaulted spaces and arches and stuff, and in a lot of these places, like we, one of our clients, recently completed, meaning, like, in the last couple years, a new office building that features mass timber structural framing, and a lot of interior spaces are covered in timber cladding. And it's beautiful, like it has this really warm sense about it. And every, every time I catch up with those guys, and they're on, you know, teams calls with their their backgrounds turned off as I am now, yep, you don't get this. You don't get white, you know, painted background. You get this lovely, you know, textured, golden color all around. And it's just, it's just nice. So I would love to see that come back. Yeah, unlike the, unlike the cabin, you know, with the 1970s laminate, I'm into that too, though, I gotta say it's true. I like it too. It's, it's a nice, sort of warm feeling. So that you and I can both be broadly described. Does young grandpas? Yeah, I don't want to. I don't want to ignore the fact that, like you and I, we are two Americans who became Canadians, talking about the Trump and the tariffs and the capital projects. So, I mean, we've got a wealth of should I can I call it wealth of experience, or maybe it's just like lack of more skin in the game, weird than your average. Although you know that foreign, the foreigner in income, like tax, there's a bill now to help us on our taxes. I refuse to engage in this conversation at the risk I may encrypt. Yeah, let's, let's keep on moving, actually. So let's so lumber is a good I think you gave some great context and background. Now let's pivot to now, you know, our friends down south running projects that where their structural components are now just blanket 25% more expensive. Yeah, exactly, yeah. So, I mean, that's kind of all there is to say. I mean, one of the things that was a big I love how I said, that's all there is to say. And then immediately started talking. Yeah, exactly. That's me in a nutshell. But the last round of terrorist people spend a lot of time talking about how it impacted the auto industry. Right now, all that material moves back and forth across the border multiple times. Well, you'll never guess what cars are made of steel and aluminum. Oh, yeah, just kidding, I wouldn't have guessed that they're not made of cross laminated timber that, yeah, that's, that's a big So, what is it? But what does it mean for, you know, there's construction, there's, there's infrastructure, you know, there's ports you know, that are looking to, you know, there's maintenance that needs to happen. All that is, like, that's steel, right? There's steel and there's aluminum. For these projects. Like, what does that mean from, like, put yourself in your, you know, cost scheduler, kind of, you know, role, like, what does that mean for the capital projects that are here's the tariffs. Now, I need to keep going, and we have deadlines to hit. So if you have, if you have an active project where you've locked in pricing for your you know, basic material components like steel and aluminum, right? You're probably thinking, ooh, dodged a bullet right now, yep, yep, and that feeling will persist right up until your contractors slap you with change orders. So you know, two possibilities are, either that happens or it doesn't right. So if you're if you're on a project that already has locked in procurements, you might get, you might have an unpleasant few months of arguing with your suppliers about whether you need to absorb the cost of the tariffs, or whether they do, yeah, and if you do, then your project is going to go massively over budget. And if they do, then then your suppliers run the risk of becoming insolvent and not being able to supply you anymore. So contractor insolvency is a huge, huge risk at project, program, enterprise levels, and where we might be in a position where that risk is going to materialize a few times in the next few years if these tariffs continue, because that's the other thing, right? Is like this is creating an air of uncertainty around material pricing. Yep, it's not like we are certain it will be 25% more expensive. It's we are uncertain whether these tariffs will survive another week. So if we're going to see sort of this, this contractor, you know, owner, operator, struggle over, who absorbs which costs, how is that going to impact capex going forward. Well, it's going to constrain it, of course. I mean, you have to either set more money aside for the materials themselves, or you have to set more money aside to mitigate risks that those materials will either be unavailable or more expensive. So you know, capex generally is all about planning. You meaning long term planning. So you might have a CapEx forecast that goes out 510, years. And in most cases, that's that's underpinning a forecast that goes out 1520, 25 years. You know at the organizational level that this is the the timeframe on which large organizations that do major projects think so. You know the only, the only real way to guarantee that you have no impact from from this kind of situation, is to own your own verticals Right? Like to be vertically integrated and stand up your own processing and keep it in country, keep it in house, so I don't again, like, back to my earlier comment. You can't just decide that tomorrow you're going to make all your own steel, right? Like, that's a lot of potential work that would need to happen. And, yeah, there's the on that subject. If you are an organization that makes cars, you know your core business is not doing basic money. Material production or mining, you know, so and also, it's not clear whether these tariffs apply to finished product only or intermediate product or raw materials, right? Because, like, what if I'm processing my ore just over the border? You know, does is, does the aluminum tear out tariff affect bauxite? Yep, I don't know. Maybe it does. Well, there goes the collar again. Look at that. So if you've locked in prices for your materials, then you're gonna be impacted later with change orders. Potentially, what stage of planning is most impacted by this kind of uncertainty? Let's just say it's, we're uncertain, right? We don't know what it's going to cost. So I think it's two is, it's like, your medium and your long term, okay, your short term stuff, like, you're going to get locked into a an unpleasant conversation with your suppliers about change. You were probably going to do that anyway. It would just be about something else. Medium term, like, if you've got, you know, a front burner capital project that's going through an early stage gate approval process. And, you know, you just got your budget approved at, you know, value x and and you have a significant chunk of material purchasing in there. Value X is now some factor of x. You don't know what that is, so you're going to have to go back to the drawing board, redo your estimates and go get approval for some higher number, and you know that project will last however long it lasts. What do you mean by redoing your estimates, like, what walk me through that process? Sure. So if you are doing a, say, a bottom up cost estimate to justify, like, a pre execution stage gate. Okay, so first off, I use a lot of jargon just there. So I'll do a little bit of quick explaining, sure, all that stuff. No, I've been in the business long enough I know. I know. I've been here for like two weeks. I know. Yeah, Nate Saul, I know what that means. I know what that means. Our listeners don't know. Yes, please, please. So, okay, first off, let me start with stage gating. Okay, so stage gating is based on the concept of front end loading, where you're supposed to do as much work as early as you can to reduce uncertainty and minimize downstream risk. Okay, so if you are, say, going to build a giant building, then you try to do as much of your design up front as you can to, you know, get quantities pulled together for things like your structural steel, so that you can then kick that over to an estimator. Okay, now the the stage gating part of that process is it's like a set of controls that are effectively quality assurance checks, but but are also like, can we afford this project as an organization type of checks. So project teams will put all of their information together from whatever stage they just are trying to exit. Say it's like a I mentioned earlier, a pre execution stage. So I've got a bunch of my design done. I have, you know, key contracts lined up. I maybe have even already been out to tender for those contracts, so I know how much those contracts are going to cost more or less, and I've got all kinds of information that I didn't have earlier, that I can now say with confidence, my project is going to cost this much and take, you know, however long to complete. Okay, so you take all that stuff, you package it up, you bring it to your your gatekeepers, who are probably like a steering committee, or some executive leadership, or some combination of those two things, and there's going to be some financial controllers you know, that have a seat at the table to talk about how this impacts the company's future and how whether their spend profile can support it, and all that kind of stuff. So you have that conversation. Then, if you're if you've done a good job preparing your project for approval, then it'll get approved, and then you go get to build it. Okay, so that's what a Stage Gate is. Now, one of the things that you bring to that stage gating meeting is an estimate. Okay, so I said earlier, a bottom up estimate. So if you've got a bunch of design data ready to go, then that means that you have quantities that are within some band of reasonable uncertainty pretty well nailed down. So if you, if you know, you need 1000 tons of steel for your project, and you know, maybe it's plus or minus 15 20% for, you know, whatever kinds of stuff may happen during the build, then you plan on 1200 Okay, tons. And you, you know, throw that over the fence to your estimators, who will look in their big book of costs. And I say that a little bit facetiously, because there are a jillion of those right, lots of different databases of recent costs, for basic materials, for rates of placement by workers, by, you know, for the total installed cost of things, just depending on how detailed and granular you want to go. There's an estimating manual for you. So a good example of that would be like, RS means, okay, so RS means sells its own estimate product where you can, you know, do what's called an on screen takeoff or or a material takeoff, where you look at drawings and point at it and say, Oh, that's. Much steel, and that's that much steel, and that's this much steel, and then it goes into what's called a bill of quantities, or a bill of materials, and then you price it using something like RS means, and you can do all that in house with their software. Okay, so why am I saying all this? Because the pricing that you know was published most recently in RS means, definitely does not include a 25% or an allowance for us tariffs at 25% on steel. So whatever estimate you just took to your bosses to say, let me do my project. It's wrong now, right? So you got to go redo it, and you may not be able to redo it with any kind of confidence, because, you know, the fine folks at Rs means won't have had a bunch of recent historical data to draw from, so you'll just be kind of pulling numbers out of thin air based on where you think things are going to be supplied from, and what kinds of tariffs are going to be, you know, applicable, right? So it's, it's, it's just uncertainty, layered uncertainty. Yeah, exactly. I was going to say, nobody knows. And it's not like you can just take a blanket 25% and throw it in there. I mean that that hold like, that's going to be variable depending. It would be a massive overstatement, right? Or statement mature contracting environments are going to include, you know, materials from lots of different places, yeah. Okay. So if you're asking your steel supplier, like, hey, I need 1200 tons of steel. Like, you don't care where it comes from. They give you a price and they manage it. Like they want to make money too. So they're going to look for the best deal and they're going to supply this whatever meets quality at whatever the lowest price point they can manage is going to be, and that's going to look different for them. So, like, they need to do their planning differently too. Okay, since you bring up industries, I want to go down that rabbit hole. And let's look at, you know, specifically, energy, where we do a lot of work, you know, there's higher costs for turbines, battery storage, grid infrastructure, you know, I mean, just ton, there's lots of, lots of areas of unpredictability, what kind of like, what like? What's going on inside, you know, the PMO for like, an energy company right now? What are they thinking? Well, if you are a large energy because every energy supplier, regardless of whether they're state owned or private, or where they are in the world, is bracing for a massive increase in energy demand because of things like AI and big data more generally. And you know the fact that you can't if you're shopping for software, it's SaaS, right? Like there's, there's almost no on prem solutions left for your average everyday, you know, computerized tasks. So, I mean, everything's happening in a data center, which means you got to build those data centers, which means you've got to supply them with electricity, which means that you've got to do and meanwhile, a lot of those, I mean, in the US, they are, but in a lot of places, those green energy slash emissions targets haven't gone anywhere. Nope. So if you want to build a new grid capacity, you need to build it using green technologies. Light. You know, you mentioned battery storage, you got to do some peak shaving and energy storage stuff if you're using renewables, then, you know, the big complaint about those is that, you know, the wind doesn't work when the wind's not blowing and the sun doesn't work when the sun's not shining. Well, that's what energy storage solutions are for. Yeah, right. And every last link in that chain gets more expensive if basic raw materials get more expensive. And like all those solar panels, are housed in aluminum, you know, all of those wind turbines, I think, are supported by structural steel, especially like the offshore ones. Like offshore wind's kind of a big deal again. So those are sitting on giant concrete pedestals with big steel structures sticking out of them, like, this is serious stuff. Yeah, business, yeah. In another podcast, we talk about data centers, and we talk about, we also talked about data centers and a blog and sort of managing that project. They're not going to slow down right, like the pace of software, as you mentioned, like SaaS and with AI, it's not slowing down. So the demand for energy will be there. The demand for construction is going to be there. It's just everything's gonna get more expensive. It seems it is. And like you were talking about energy companies, a big chunk of that is transmission, right? So energy transmission, like, you know, think about the the gigantic high voltage power lines in your neighborhood. Hopefully you don't have any in your neighborhood, but around your neighborhood, and you're, you're imagining a bunch of big structures made of steel. Open them, yeah, you know, so, and you got to build more of those if you want to take all that extra capacity out to where it's going to be used. So that's all. And some of those, some of the the transmission wires are steel too, right? So what about, what about natural resources? This seems like a pretty you. A decent opportunity, I guess, like, or maybe not, I don't know, but what like, if you're, if you're, if you're in the or, you know, the business of extraction and or, and you know other, you know, resources that contribute to aluminum and steel, like, what? How is your business looking? Well, I imagine, not, not great. I mean, you know, we were talking earlier about pivoting to the extent possible to different materials, like, you know, the whole buy Canadian push. If that extends to structural components, then we're going to see another set of government grants for, you know, companies that are using cross laminated timber and mass timber generally, to build structural components. I mean, you can't necessarily do that for everything, but you could do it for a data center. Okay? So, you know, if you are in the business of producing the basic, you know, minerals and other materials that are required to produce steel and aluminum, then you're about to look at a 25% price hike that does not translate to your bottom line, like you don't get to keep that. That's not yours. It's a tax, yeah, so, you know, it's just a big old slap in the face in a lot of ways. I want to, I want to end with, I know I asked you for a piece of advice. I actually want to ask a multi part, or actually several questions. What is your piece of advice for, you know, the estimator? What's your piece of advice for somebody at the enterprise level, looking at the entire portfolio? Yeah, so the I'll start with the second one. First. Okay, because when you're looking, when you're looking when you're talking about enterprise planning, you're talking about risk and how to kind of rein in uncertainty and put some guardrails on it, I think that you've got to be thinking about, what does a de risked version of your capital project landscape look like? We may actually see projects getting canceled, as opposed to having them cost more, you know, or have them get deferred to the, you know, dim and Misty, uncertain future wherein there is no tariff on steel, or, you know, we may see shift towards the creation of internal capacity where tariffs wouldn't affect them. And that's another thing that I'm curious to see. If that happens, I don't imagine it will. Because, you know, I mentioned earlier, these tariff threats are momentary. It seems, you know, they come and they go. So you know, if you're planning on a 510, 15 year basis, and this might vanish in a puff of smoke next week, you know you don't make 15 year decisions that are, you know, subject to board approval and investor facing based on something that might not even exist in two weeks, like by Canadian stuff, right? Like that. You know, keeping things internal, keeping things or deep breathing exercises might help. So they say, do a little breath work. What about the, what about the? What about the front lines? You know, the estimator, or actually, the, you know, the director of projects, that's sort of leading the execution. What's your advice for them? I mean, there's, well, first off, if you are an estimator, you're taking a lot of information from other parts of your project team, and that's, that's based on strategic direction, you know, so things like, we're making our building mostly from steel. That's a strategic choice based on steel versus, you know, whatever other material pricing you might build it out of. Like, you know, I'm using mass timber as an example. So, so project leaders need to keep their options open and start thinking about other ways that they could accomplish the same goals without running afoul of new price increases that may or may not materialize. You know, take advantage of the glut of supply and softwood lumber and see what you can do. You know, make a beautiful, warm tone data center that no one will ever see the inside of. I But that's an interesting point, though. In all seriousness, I mean, maybe you know necessity being the mother of invention like this is going to unlock or unleash, you know, new innovation and in construction and infrastructure and energy and who knows? Yeah, so good. Maybe there's a similar line in, but we'll see. Maybe, I mean, one of the things that I meant to bring up earlier, and so thank you for the reminder. Is since last we recorded deep seek happened? Yeah, okay, so, and by the way, again, for context, deep seek is a is a Chinese large language model that is an order of magnitude or more more efficient than things like chat, GPT or co pilot or Gemini, the sort of quote, unquote American models are pretty power hungry, whereas the deep sea one is pretty efficient in terms of compute and power and GPU requirements. And I've seen videos of people getting a deep seek implementation running on a Raspberry Pi and a consumer grade video card, right. And. That's pretty amazing. So that means that, you know, if you are trying to build out capacity, you now have options other than just build giant data center full of top end Nvidia cards. Speaking of Nvidia, they lost something like $600 billion in market cap as a result of the the deep secret judgments. It was a big drop. So huge drop. And because the the US stock market is underpinned basically entirely by Nvidia, there was a pretty generalized, you know, stock market contraction that came along with that, something like a trillion dollars of value just vanished overnight. It did. So, you know, obviously creative solutions are, are necessary in the case of something like that. Yeah, it remains to be seen. Anyways. Thank you, Albert. That was really interesting. Yeah, thank you, Nate. It's good to be good to be back saddle, so to speak. Yeah, thanks everybody for listening. We'll talk to you soon. Hey everybody, it's Albert here. Thanks for tuning in to the risky planner podcast. We hope today's conversation was informative and above all else, inspires you to excellence in what you do. If you like today's episode, don't forget to rate, subscribe and leave a review. It helps us reach more listeners just like you. I'd also like to thank Thompson, Igbo, egbo for letting us use his excellent music on our show. If you like what you hear, check him out@egbomusic.com that's E, G, B, O music.com talk at you later you.