Is The U.S. Losing Trump's Trade War? — Flexport CEO Ryan Petersen

Channel: Alex Kantrowitz

Published at: 2025-07-11

YouTube video id: 2mV9qXU5URw

Source: https://www.youtube.com/watch?v=2mV9qXU5URw

Has Trump's wave of tariffs or the
threat of them changed the global supply
chain at all? And are big tech companies
like Amazon and Apple in any different
position today than they were before the
inauguration? We're joined today to talk
about it all by Ryan Peterson. He's the
CEO of Flexport and he's here with us in
studio to cover this all once again.
It's great to have you on the show,
Ryan. Yeah,
my pleasure.
So, talk a little bit about what's
happened. We're months past Liberation
Day. It's kind of funny to even be
talking about it because it's one of
those news events that started with this
big promise of massive tariffs and then
subsequent pauses. Um, you have an
unbelievable view as the CEO of Flexport
because you can see how cargo and
shipping is moving around uh the globe.
Um, is anything fundamentally different
today uh than it was before Liberation
Day?
Yeah. Well, if you're a brand that's
importing goods, especially from China,
your tariffs are higher. Um, we've had a
30% tariffs are currently 30% plus
whatever was pre-existing. So, uh,
that's a pretty big deal. I mean, the
cost went up 30%, but it's way better
than immediately after Liberation Day.
Remember, they ratcheted it up to 145%.
And it stayed at 145. This is on
Chinese-made goods coming to the US. It
was at 145 for five weeks. And so during
that fiveweek period, the the volume of
cargo from China to the US dropped by
60%.
Just a massive decline. And that's a big
part of likely a big part of why they
ratcheted back to 30 was it was sort of
this was a decoupling rate. That was a
rate at which these economies would
decouple in a very non-graceful
unplanned kind of potentially
catastrophic way. Now since the
tariffs got relaxed back down to 30%.
We've had a 80% increase in volume from
China to the US above the pre-tariff
levels. See, that's like the classic
bull whip effect. You had a huge decline
and now this surge. Now it's it's
starting to come back down a little bit
regression to the mean, but we're still
well above the original volume levels
because we've got that fiveweek period
where it was down so much that needs to
be made up for by more cargo coming in.
So some of these things, the net result
has been much higher freight prices.
there's not enough car, not enough ships
to move that all those all that cargo.
So, it price gets bid up.
Very similar to co
a little bit similar. It's kind of like
a micro micro COVID. The difference I
think the big difference with COVID is
that people were buying way more stuff
whereas in this period because they were
at home there was a lot of stimulus.
There was a shift from goods onto
services back in or sorry from services
onto goods back in COVID that we're not
there's none of that. So it's like yeah
your costs went up your supply chain
disruption is there without the silver
lining of like well at least people are
buying more stuff. So if you're in a
brand's position it doesn't feel like co
really
um I guess the other big
so you get the higher cost without the
higher
interest
before you move to the other thing.
Yeah the during co like actually right
after co or maybe mid it was about
$20,000 to bring a container in from
China to the United States. Uh it's gone
back down. It went back down to around 1
and a half 2,000 when things normalized.
What is it now?
Um I didn't check this week. I've been
traveling but it's probably 5,000 or so
from China.
So not something that we're going to
immediately see in higher consumer
prices.
It was at two a couple months ago before
the tariffs hit and it's gone up. It has
gone up quite a bit. Um,
but yeah, I think that the the the
tariffs are and the shortages if if any
from that fiveweek period of no shipping
be more likely to contribute to tariffs
or to inflation than
the tariffs themselves.
Um, yeah. Or than the freight prices.
The um but I think all of this gets
relatively smooth out. I mean 30% from
China. It's set to go back to 54%.
Um on August 18th, I want to say 18th is
the 90-day is because it's just a pause
on the China stuff. So you had a pause
of um 90 days from April 8th for rest of
China. You had 90-day pause till July
8th and then a 90-day pause for China
that ends in uh August 18th. And that's
when the tariffs will go back up if not
if no deal is worked out by those dates.
So, um those things could be very
disruptive and lead to inflation. But
current level 30% it feels like brands
will mostly absorb that and and not pass
it. They'll pass it through a little
bit, but it's remember this is 30% on
the cost,
right? What they pay for the goods
and not what we pay. And I think that
typically a company will mark up what
they get from China by what? Three
times. three times is a reasonable
assumption. So that math says, okay, you
might see a 10% increase in your price
some things from China. It's not
nothing. Um it would probably feel that
some of that will get absorbed likely
with factories discounting things in
order to stay competitive. Um possible
currency move. I think this is what the
Trump administration would like to have
happen. Uh well, they'll spend no matter
what happens, they'll make it they'll
make it seem like that's what they
wanted. Uh if you listen to them
accomplished.
Yeah. Yeah. Yeah. So if you know if the
currency if China devalues their
currency they go cool we didn't hurt
inflation
but of course if they devalue their
currency it makes us it makes our
exports even less competitive they'll be
it'll be harder for them to buy our
stuff. Uh so it makes it easy for them
either way it spin either way they can
spin it and say well if they devalue
great no inflation. If they if they um
let their currency appreciate then we'll
say hey look now they're buying more
stuff. Uh,
do you think we were at a good
equilibrium beforehand or do you think
that some action was needed to to be
taken?
Um, I think the problem is very real
that the Trump administration is
addressing of imbalanced trade and
so talk through that. Yeah. Explain
explain exactly why they were upset.
Well, I think you want I I try to
operate from this principle. I I forgot
where I heard this. I think Charlie
Bunger perhaps was uh the first person
to share this was like um you don't want
to get in any argument with anybody
unless you feel like you can make their
point of view better than they can. So I
try to avoid arguments unless I feel
reasonably like I could make their
argument. So from steel manning it or
taking the their side the Trump
administration's position on this is
they've got three or four very valid
points. I think first off um the United
States manufacturing base like if we
don't manufacture right now China
produces 40% of the world's uh
manufacturing output. US post World War
II we were at 47%. So they're close to
the level of economic kind of from a
production standpoint dominance that the
United States enjoyed when we were the
single basically the hegeimmonic
superpower.
What's the US's percentage of
manufacturing?
I think we're down to like 16 or
something. I forget that exact stat, but
it's it's pretty it's and it's falling
really fast. Um, so that's valid in a
from a national security standpoint. If
you can't produce things, you can't, you
know, you can't produce cars, you can't
produce tanks. Um, your car in a in a
war, your car fac your car car factories
become your tank factories. And on down
the line for a huge range of things,
pharmaceuticals, healthcare, like a lot
of stuff. If we're dependent, then we're
less secure. So, I think that's valid.
Um two is if you look at currency and
leaving aside China but so just look at
Vietnam for example where Vietnam has
had this manufacturing boom for the last
5 years about 20 30% growth annually
each year their currency is the
Vietnamese dong and it's pegged to the
dollar it hasn't appreciated at all and
in any kind of a free market economic
system that much that many more dollars
flowing into the economy that much
foreign direct investment in and and um
purchasing of their goods, you would
have an appreciation of the dog. It
would it would go up and that would help
to self-regulate the trade between these
countries and it would make so they're
clearly you know they are literally
pegging their currency to the dollar
which means they're manipulating their
currency to give them an their
manufacturers an advantage.
So can you can you outline that? So if
it's kept artificially low
makes their stuff cheap and so we buy
more of it. Okay.
Um and it makes them buy less of our
stuff because they can't afford our
stuff.
Um so that's that's reasonable. I think
that's valid. Um it's then at the end of
the day it's industrial policy. These
are government policies designed to help
their manufacturers and at the expense
of our manufacturers. Um that the
another one would be sort of
environmental
regulations are way more lax in these
countries than ours. We're putting all
kinds of environmental controls on our
manufacturing and permitting and whether
it's carbon emissions, especially in
Europe, but um all sorts of
environmental regulations that they
don't have. And so that's that's hurting
ourselves. We they'll they can point to
um suppression of organized labor
movements or even just like cultural
things. I mean China you work six days a
week. It's cultural and is a government.
I don't know. In Korea it used to be the
national law. You had to work six days a
week. That's that's putting them putting
them at a real advantage from a
production standpoint. Then um you can
also look at uh
our uh my mom is actually a biochemist
that helps companies with food safety
regulations. So she's duped in this of
in Europe um they don't allow
genetically modified foods for
scientific health and safety reasons.
But the Trump administration US
government stance has always been well
these are kind of pseudocience fake
science. Our argument from our
scientists is hey these foods are safe
and you're just doing it actually to
protect your farmers to protect your
production processes et I I I'm a fan of
that. I don't really want to go to
France and just see like all these nice
farms wiped out. I want to go there on
vacation, enjoy my enjoy the scenery of
the quaint little farming village. Uh
but I get the point. Um so you can make
a long list of things. Now the question
is is is now from a tar from the Trump
administration's perspective tariffs are
the best easiest weapon maybe that's too
strong of a word but easiest tool in the
toolkit to use to combat this. So, it's
not necessarily, yes, it is also true
that their tariff rates on US goods are
higher than our tariffs on theirs, but
it's actually all these non-tariff
barriers to trade that make it that give
their manufacturers an advantage over US
manufacturers and tariffs just happen to
be the easiest way to respond to that
because it's simple and straightforward.
So then the question is, is this
effective? You know, you have to judge
outcomes not by their intentions or the
problem is real. I can state those
things. question is, do tariffs, putting
up tariff barriers actually increase
American manufacturing
or leave it the same or decrease it? And
what we've seen over the last few weeks
is it's going to decrease American
manufacturing.
Wait, why?
Um because you have a huge number if
because these supply chains are very
globally interconnected. And so for
example, US if you're manufacturing for
export well you have to import the goods
and pay duties on the components and
then uh you your product is now more
expensive to produce and if you instead
produce that those goods in Mexico that
didn't have the tariffs on Chinese goods
you wouldn't your cost would be lower
not just your labor cost but you would
have to pay the tariffs. So anybody
who's exporting this is really hurting
them. Uh you're adding a lot of
complexity. people are moving goods all
around. So, you're actually, you know,
at the end of the day, United States um
labor cost is just not going to be
competitive for a large range of
products. And so, yeah, okay, maybe it's
hard to read the Trump administration's
intentions
um in this, but the result is we're not
giving the market enough clarity of what
the tariffs will be when. And so, if you
did want to move back to the US, you're
kind of paralyzed right now because the
environment is changing. so fast. We're,
you know, Latin America's got a 10% duty
rate. Uh,
is that going to go up or down? We don't
know. If you thought it was going to
stay,
probably, you know, you want to just set
up in Mexico for your plant, but if it's
going to go up a lot, then maybe you set
it in the US, but we don't know what's
it could change any day now, any week.
And so, you don't have the certainty
that you need to make investments in the
United States. Uh, and you'd follow that
up with like maybe it's just inherent in
the US system that it's difficult to
give people such in s such certainty
because will Trump win them? Will the
Republicans win the midterm? There's
this Supreme Court case that's going to
get worked through. Does he even have
the power?
The tariffs legal?
Are the tariffs legal? Constitution
makes very clear that the tariffs are in
control of the Congress, not presidency.
And then he was able to implement them
because he has emergency powers to
tackle fentinel. Is that sort of the
argument that they have? Um they use
that for some of the tariffs. So they
used that fentanel emergency for China
for China, for Mexico, Canada. Okay.
Um and the rest that one's not being
challenged actually, at least that's not
the lawsuit that they lost. Um
the rest they used just a national
security argument in general that trade
deficits were a national emergency.
Okay.
Uh and therefore they could just apply
it blanket on everyone. That's the one
that they lost the court case and it's
going to going to work its way to the
Supreme Court over the next six months
or so or some timeline. So it's very
interesting what you're saying is that
there were there are companies that
manufacture in the US maybe US producers
but they have to import some of their
components from abroad and they can't
there's no American manufacturer that's
going to produce let's say some you know
certain type of nut for a a air
conditioner right let's talk about an
industry we do well we love air
conditioning maybe that's you know one
one of the great American industries so
you could end up seeing those air
conditioner manufacturers move to Mexico
because they won't have to pay the
import duties on those nuts and bolts
that they use for their unit.
Yeah. And especially if they're selling
that if they're exporting it to the rest
of the world. Uh because they're, you
know, when they if they were just for
the US, you now you'd have to import it
from Mexico and still pay the duty. So
it doesn't save you much. But um if
you're selling to Latin America, you're
selling to Europe, you don't want to
bring stuff to the US because you'll
have to pay this duty on the components
uh and jack your price up. Um there's
also a lot of exemptions in the system.
So like we I work with a customer one of
our customers makes bicycles in the US
and under the current setup bicycles can
be imported duty-free but bicycle
components cannot.
Uh so they've decided after a decade of
manufacturing in the US that they now
have to produce overseas because they
can import the finished goods and not
pay duty but if they import the
components they have to pay duty. So, I
mean, I' I've seen a dozen examples in
the last few months of companies that or
were producing in the US and decided to
stop.
That's crazy.
And I've seen nobody who said, "Oh,
okay. As a result of this, I'm going to
set up a plant in the US." There's some
headlines, you know, he gets people to
come to the White House and talk about
it. And I I'm not saying those people
aren't real, but I haven't met with
them. And all the ones I'm meeting with
are like, "And it's just totally
derailing my business."
But I would think that it would lead
more to come to the United States
because you talk about uncertainty.
Well, the certainty is that if you
manufacture in the United States and you
sell the United States, you have zero.
If you can get all of your sub
components made in the US, that's true.
It's just that these manufacturers are
all ecosystem driven. There's like
subcomponents and it's very hard to
replace them. You know, it's very sticky
and electronics in southern China, it's
like you drive down the street, you can
find every component you want. You don't
have to make everything yourself. You're
assembling things. Um
but yeah, I mean
we have to judge policies by their
outcome, not their intention. I think
that's the thing that sure everybody
seems to get wrong in DC all the time.
They got good intentions and then
actually they screw things up. And this
is economies are not really meant to be
centrally planned. That said,
I I made the case why there's some very
legitimate thing problems in in the US
trading system that need to be
addressed. So kudos to trying to solve
them. But I just think the way that it's
being done is just very abrupt and not
not giving companies enough time to
plan. If if you were to instead go, hey,
this is where tariffs are going to go
on a multi-year time horizon and like
it's going to go up every quarter by
this much, start moving and like give
people just more clarity of where where
things are going to go. I think
businesses could adapt to that way
better and set things up in the right
direction. But
yeah, no, it's interesting. I was going
to ask you like have you seen actual
movement of capital, you know, one
country to the other? And I I'm actually
surprised to hear you not say that
there's any that's coming into the US at
least from among your customers.
Not amongst our customers. I haven't
seen any influence in the US, but I'm
seeing a ton of movement out of China.
That's the one thing that was very clear
in all the directives is like, hey,
tariffs on China are here to stay.
Okay.
They're much higher than the rest of the
world. Um that's a long-term trend. Also
just on labor costs, like Chinese labor,
you're not in China anymore for cheap
labor. Like you're there because they're
the best at manufacturing things. Um,
which is really interesting story over
the last 20 years that they became the
highest quality manufacturer,
right?
Not just not they're not the cheap labor
anymore. So it's but brands are now
exploring rapidly. Okay, I need to set
up in Southeast Asia. Vietnam's growing
like crazy. Thailand big winner.
Malaysia, India. But it's hard for them
to pull the trigger on long-term
investments.
I think I think crazy to pull the
trigger on a long-term investment until
you have more clarity of like what where
do duty rates land on rest of world. Can
they get some longer term view? Can they
settle down and just be like, "Yep, this
is the new normal instead of at least
give me two, three years until the end
of the Trump administration so we can
plan uh what that looks like." If it's
changing every couple weeks, it's a
little crazy to absorb the pain and then
if you have to move your supply chain
twice, it'll be a nightmare.
That's right. Is it when in these other
countries in Southeast Asia, you
mentioned Thailand, U, Vietnam, is it
local manufacturers that these companies
are working with or is it Chinese
manufacturers?
Mostly Chinese manufacturers.
So talk about that. This is a very
important point. Yeah, it's mostly
Chinese companies setting up um setting
up an entity in the country, hiring uh
many cases actually getting the workers
have to learn Chinese, the Vietnamese
workers,
really
Chinese managers um they give them some
period of time to learn Chinese if they
want to keep their job. Um that's uh and
and Chinese companies have been setting
up factories all over the world to do
this. Can I just say that if your goal
is to have this national security side
of this which is you don't want your
manufacturing to be controlled by a
single country aka China
and so therefore therefore you put up
this big trade barrier with China but
you still have Chinese companies running
your operations in Vietnam or Thailand
aren't you just as susceptible to those
national security risks
for sure and it's uh you know our legal
systems are difficult to work around
that because customs has a legal
definition of what's made in Vietnam and
it doesn't you know the company's
Vietnamese as Vietnamese entity
uh the work is done in Vietnam we have
this thing called substantial
transformation because actually it's not
just that it's that all the
subcomponents are made in China too
they're shipping them down to Vietnam
and applying enough value whether
other components that are made in
Vietnam plus the labor costs uh it's
called substantial transformation so
there's like a legal definition of what
means what makes in Vietnam on a product
um
is they're doing the bare minimum. You
know, it's still largely a Chinese
product being assembled in Vietnam. So,
yeah, I think that's very very valid if
like if you really solved your problem,
not really. I've had this galaxy brain
idea that maybe Apple to sort of deal
with some of the blowback they're
getting from the Trump administration uh
for moving their production from China
to India and not the US that they would
just send the boxes to the US for like
some final assembled in the US stamp.
But it has to be more than that. But
hearing what you're saying it has to be
talk about this
value,
right?
Um
can't they argue that it's valuable?
It's a branding value for them to say
this is finished in America and
therefore
I'm not I'm not a customs expert but our
team has many customs experts on it that
explain it and it's it's a hard it's a
relatively high threshold to clear to
become made in but you know even the
Indian iPhones and whatever is so like
most of the components are coming from
from China
okay
um but of course right the semiconductor
is coming from Taiwan these are very
global there's parts that are made in
America I think this
um and the IP and the ownership It's
some of these rules are really like
antiquated relative to the complexity of
the glo modern global economy and you
look at um even the customs we it's
called the um harmonized schedule. This
is how class goods are classified to
determine their duty rate. Every good
has one and only one HS code, harmonized
schedule code. And that says, okay, uh,
you know, your shoes if has a different
code if it's like rubber soul versus
leather, you know, all the different
things. Well, there's like one 80. If
you actually go look at this code, you
can see how old it is. I mean, it's
going back to the 1800s or whatever. I
mean really it got formalized with the
World Trade Organization in the 60s and
70s and 80s but um there's like the
electronics code is like this thin
and the clothing code is like that thick
because the time that this was invented
like clothing you know you have every
type of variation and then all of
electronics is like tiny little set of
variations
uh it creates I don't know
oversimplifications
that that go into it of like and also
really interesting opport opportunities
like people trying to claim that this is
computers are exempted right now,
right?
There's a computer in everything. So,
everybody in the world claim that this
is actually a computer. It's not a
watch, it's a computer. And then you
get, you know, how do you get
u I've seen a lot of different people
trying to play these games and for good
reason. You know, you if you can get 0%
duty instead of 30%.
And do customs agents go along with
that? Like that watch is a computer?
Uh you have to go through
like a garment has to be a computer,
right? There's a process that you go
through to get what's called a binding
ruling from customs.
So you can get them to rule on your
product and say yes I it is this uh so
yeah that's what a big actually flexport
has a business that's completely
backlogged right now
trade advisory where we have consultants
that are experts in all these things. I
mean I'm really at the chauffeur
knowledge level here just sharing you
what I I'm driving the I'm the chauffeur
driving the experts around and listening
to what I hear them say. I'm not an
expert on on all the ins and outs of
customs regs, but uh I know enough to be
dangerous.
There's another component to this,
another game that companies are playing
where they're faking the cost of the
goods that come in and trying to enter
some other arrangement with the factory.
Like you pay like uh let's say you have
a $1,000 uh air conditioner just to keep
going. It's expensive one. Um that's
what you're paying to, you know, that's
your cost of the unit. Um, some now now
some companies are playing games like
sell it to me for $100 the actual
machine, but I'll pay you a $900 per
unit like service fee or consulting fee.
Um, it is a felony to break customs law
and you should really work with
I'm not doing this.
I know I know it's not you, but this is
a message all you should be careful what
you do. Um it's a there's a lot of games
you can play and they're not it's not a
good idea unless you make sure you have
good legal advice about these types of
things because customs will come after
you. Um it's a felony.
And are there a lot of people sitting in
US prisons for customs felonies?
It's their num the DOJ has said it's
their number two area of white collar
crime that they are investigating. Their
number two priority. Number one is
healthcare fraud and number two is
customs fraud. And wow. And that's an
announcement they made a couple months
ago that this is their so expect
enforcement's at an all-time high.
They're ratching it up. Uh and yeah, I
think you don't want to don't want to
mess around. These guys have guns.
Yeah. So this this is something that
happened alongside the tariff levies.
Um
so and there are there are legal ways to
reduce your valuation of your goods.
What are the legal ways? Well, um you
can get if you if there's US goods that
are inside of that, you can deduct that
portion. You have to go through all the
right paperwork processes and show it.
Um you can what's it called? An assist
if you do capex into the factory or
you've gotten some of the R&D
uh for it. Again, I'm not a I'm not an
expert, but it's a our Flexport team has
a lot of expertise in this and it's
called this general practice is called
trade advisory. Uh, so Flexport has a
trade advisory group that helps people
with this, but there are other lawyers
and some of it's in law firms, other
logistics companies and customs brokers
have this practice that can help
brands do this. You want to make sure
you're partnering with somebody good who
can just like, you know, you can make
some case that it's a lot like
representing yourself in a court of law.
Like, yeah, you could do that, but like
maybe it's good to get a lawyer if
there's any kind of gray area in what
you're involved in. And it's kind of
like that.
Totally. All right, folks. In case it's
not clear, Ryan runs Flexport. We should
have done a deeper introduction, but you
bet. This is I think your fourth or
fifth time on the show. It's tech-
enabled freight forwarding. Um, so you
believe in the global system. Uh,
because well, I guess maybe
philosophically, but also that's your
business just by, you know, definition.
You're into that idea. I want to ask you
just like we've talked about this a
couple of times but again it gets to
this question of if you do the design
like the US does a lot of the design of
products at home and the manufacturing
abroad and then they ship it globally
are you getting a good deal if that is
your economy
general? Yeah, I mean we it's done
really well for us. Um, and if you look
at the profit pools, like Nike designs
their stuff in America, markets it,
brands it, it's produced, I think
largely in Vietnam and other parts of
Southeast, other parts of Asia, probably
all over the world these days. um you
know the amount that they pay for the
shoes. I don't have any inside knowledge
on Nike but you can there's public
reports on this stuff like the vast
majority of the profit in the shoe is
actually accumulating to the brand to
the design to the to the shareholders um
and
just pretty clear like a system that's
led to a lot of prosperity in the United
States
and and globally frankly. Um, I think
that the my big problem with the way
that this is all addressed is it's a a
lot of zero sum, negative sum mindset
conversation. We're like in trade both
sides win by definition. That's why
we're doing trade. And um it's
like we shouldn't lose sight of that.
The fact that both parties are made
better off when you do a trade and free
market um economics. Now
that that where it becomes complex is
when you go wait but if their government
is intervening in the market then
shouldn't our government intervene in
the market? That's kind of the Trump
administration's perspective here is
like hey you know I listed all those
ways that their governments may be
intervening so it's not a free market
and therefore do we want our government
to come and be free market or come and
be put our thumb on the scale and help
American companies win more? Uh I I just
think it's a bit naive. Like you know
the reality is
let's say
what we want is cheap stuff. Like as a
buyer as a human being you like you want
to have more things that are cheap and
affordable. Like it really pissed me off
when Trump said like oh you know you
only need two dolls instead of 20 dolls
or whatever. Easy for you to say but
like my daughter she wants more dolls. I
promise you.
Um, and
if you have to spend more stuff on that
because it's made in America, the if I
have, if the dolls are made in America
and I got to spend, I can only buy two
of them and I got to spend more of my
income on that, I have less money to
spend on other stuff which will go to
other people in America like it's or you
know, I'm going to be buying other now
I'm buying less things. It's a very
simplistic kind of like it's very hard.
It's a complex adaptive system, the
economy. It's a very complex ecosystem
of u moving parts and second order
effects that are really hard for a
central planner to ever figure out. We
the Austrian school of economics is
correct. Like we should not screw with
this that much. Like
the one I just want to do one quick
follow up to that then then we'll go to
break. I mean we've talked about capital
so factories, manufacturers, we've
talked about shipping, we've talked
about uh trade and stock, but like the
other side of that is is labor and our
system's capitalism. I'm pro capitalism,
right? I'm sure you are as well. And but
I think like part of that is the the two
of the gains will go to the the gains
will go to the people who own the
capital. But the other side of that is
there they also need a labor force in
some way to help make the things. And
when you've separated in some ways the
capital becomes less about the factory,
more about the idea and the labor is
elsewhere then that divide leads to some
unhealthy dynamics in a society. Does
does that what do you think about that?
That's what Karl Marx said.
Well, I mean I'm not suggesting
communism is the right way to solve
capitalism itself is a marxidian term.
It comes from KL Marx as the inventor of
the term capitalism. And you know, you
talk about free markets where people are
free to buy and sell what they want
because it makes them better off if they
do that. That's like labor. What is
labor? I mean, we're we're all part of
labor. This idea that cap I don't know.
I've never met a capitalist. All the
people I know who have a lot of money
also work really hard. They're also like
involved in labor. Um this this like
very odd distinction like what am I a
capitalist or am I a worker because I
work harder than anybody I know. Am I a
capitalist?
I think well I don't know much money.
Yeah. You're probably going to beat me
in this argument.
No, but I I just want to just talk it
through. I think look I think you are
you can work really hard but if you own
the capital then you're going to end up
getting much further ahead than somebody
that comes in for a paycheck and is pure
labor labor like of course if you own if
you own the capital you're also working
but
yeah I don't know
I don't know I think that we also take
the first you know people who own the
company they're the last ones to get
paid too I mean
when companies lose money
the uh
well the bigger the risk the bigger the
risk we still get paid and the owner
doesn't get anything, right? And so
there's there's some degree of like,
well, you get paid last, not first. Uh,
and yeah, you take more risk.
Now
I So yeah, I think
I I I personally I just think that we'll
be better off if the government
intervenes less in the economy. Now
there are certain reasons why there's
good reasons for the government to
intervene and provide just a a sense of
justice or like real justice enforcing
laws
uh safety defense.
There's a lot of public goods where that
are underprovided by a free market. Like
these are all valid reasons. We need a
government. I'm not I'm not like some
anarchist by any means. Um, but
it really is very very tempting
to ask the government to come and make
our lives better and they almost always
screw it up,
right?
And like there it's a very funny to see
now the Republicans are the ones
it's a different position for them.
It's very different.
And by the way, my suggestion is not
like government has to fix this. It's
more just like we're in a very You are
somebody who sees this more than most.
So we're in a very unique system where
you I think that that Marx is I I
haven't read Markx in detail, but I
think his argument was capital takes
advantage of the labor. What I'm saying
is we now have this global system and
you're talking about how it's it's
advancing, right? Where you have capital
in one area, labor in one area. So I
mean where where does and labor will
always be the thing that gives the
employment to the masses, you would
think
by definition, if you want to use that.
Yes. Um,
so then what happens to the people? I I
don't think this is like this is like an
accusatory question. It's just like
something that's kind of fun to explore
with you because you have a position.
I don't know. I I just think the economy
is so much more complex than people want
to give it, you know, a simple answer
that we know. I mean, we know that for
sure now. The tariffs have illuminated
that.
Yeah. And that's the problem with all
attempts to intervene is that you
usually make it worse.
Okay. All right. We're going to talk
about some intervention on the other
side of this break which uh starts with
the closing of the dimminimous loophole
and maybe the end or the u dissolution
of the power of Timu and Shien and how
Amazon is going to handle all that.
We'll be back right after this. And
we're back here on Big Technology
Podcast with Ryan Peterson, CEO of
Flexport. Ryan, I I you know, we've
talked for quite some time about trade
and global global regulation and some
fun stuff about capitalism and labor
before the break. Uh which I don't
regret. I'm glad we did that. But I want
to talk to you uh now about like some of
the real breadandbut tech issues, which
is that this dimminimous loophole which
allowed Shien and Timu to ship
uh to US customers a sizable amount of
merchandise without duties. uh that
loophole is gone and I'm curious if you
can share a little bit about how that
has uh changed things in terms of the
way that Americans buy.
Yeah. So the dimminimous loophole
said I don't like calling it a loophole.
It was just a part of the it was just in
the it's in law. It's in the
regulations. It was passed by Congress.
Um, it said that it goods less than $800
are not subject to customs duties or and
they can be done with a very informal
customs entry where you don't need to
provide as much data about who made the
goods and a few other data points that
aren't required. Um, but the main thing
was the duties. So in that is now gone
away. Now what the what happened the way
that companies took advantage of that
program was they shipped either direct
from China or other countries into the
US. So you'd order from the the big
famous brands on this were T-Mu and
Sheen, but Amazon, Walmart, a bunch of
other companies were doing this in at
scale. You'd buy the goods, they would
fly them over in bulk. So you're doing
like air freight in bulk, clear the
goods through customs one at a time, so
there's no duty, and each individual
item is less than $800. Uh, and then
deliver it to your house. So you'd get
slightly slower shipping than if it was
coming from an Amazon FC uh fulfillment
center, but much lower cost because of
the duty avoidance. So that's the that's
like the famous case was shipping from
China. But actually what a lot of people
don't realize is a huge percentage of
the world's apparel of the American
apparel brands had set up fulfillment in
Mexico and Canada to do the same thing.
only they would do ocean freight from
wherever the goods are made,
deliver to Mexico, deliver to Canada,
and then fulfill one item at a time from
Mexico and Canada. So, that's gone away
for Chinese-made goods effective on May
2nd. They shut that down. Uh, it is
imminently, we don't know when, going to
go away for goods from everywhere else
in the world. And the immediate result
is a huge surge of needing to put
fulfillment wanting to put fulfillment
back in the United States. Um there's no
reason to fulfill from Tijana. It's
pretty far. You're shipping to New York
from Tijana. You're better off having a
fulfillment center in the middle of the
country or have one, you know, on each
on each coast. Um so that's been a big
drive. That'll actually that will that
is resulting in more jobs in the United
States.
Aha, we found them.
Good job. Like if you're measuring a
policy based on its actual outcome
instead of its intention, that was a
good one
uh for that for its own intentions.
Uh I'm I'm anti-tariff in all their
forms, anti- taxes. So I think I I like
the old you want to ship.
I like the old exemption like hey less
taxes. I'm not I'm not celebrating more
taxes, but and a lot of our customers
were using this or now would put in a
bad place. Um met with companies cost
them like 10 million more per year.
How well now they have to pay duties.
They weren't before
they were but they were doing 10 million
of how is it going to cost them 10
million
well because it's 30% duty versus zero
right easily on a reasonable size
company easily get you to $10 million.
Okay. Um
and uh it's fine level playing field. It
was kind of a crazy weird rule that
you almost said loophole.
Yeah. I tempted to call it a loophole.
Um it was a it was a strange setup that
like on some level it's like creating
it's actually a very good illustration
of like the market will find a way.
People are creative. It's my lesson for
all of our customers too. It's like hey
you're in the same level playing field.
The rules are changing but they're
changing for you and all of your
competitors at the same time. And so you
got whoever's the most creative
makes the best decisions can find a way
to win when there's a lot of change like
what we're seeing right now in tariffs.
And like the dimminimous thing is an
example of that like 10 years a
see if I can remember my stats on this.
It went from a 100,000 packages a day to
four million packages a day in the last
decade clearing under dimminimus now to
70% of that was China. So now, you know,
we're d we're we've eliminated 70% of
that in the last month.
Does she do Shien and Timu survive?
Well, they're very big global companies
first off. So, yes. Um, and they're
already finding ways, you know, they
have to pay duties, but they're just
back to being a level playing field. So,
I think they're you're going to see them
one, produce in other countries, and
two, just pay the duty and continue to
compete. Their goods are not that
expensive. They have a low cost of
production. So they they'll have a
they're they're going to be well
positioned actually um because they're
better at producing things in Asia than
American brands are.
So
what about Amazon? I mean I heard you
recently say that 60% of Amazon sellers
are in China.
Yeah.
I heard is Amazon exposed?
Very much so.
So talk about that.
Um
yeah, it's it you know I lived in China
20 years ago and and sold things and I
was actually an early Amazon seller. Um,
oh, third party.
Yeah, I was one of the first because I
remember the day that they announced the
very beginning with the day that they
allowed third party sellers. I was like,
I thought it was the most amazing thing
in the world. I could go add products to
the Amazon catalog and it would just
show up as
Were you selling your motorcycles
through it?
Uh, and furniture actually.
Okay.
Um, I don't think we sold motorcycles in
there, but furniture. We've sold a lot
of on eBay motors for the motorcycles.
That was still that's I think that's
still bigger than Amazon for for that
category. Um, but I remember thinking
like even back then these f these
Chinese factories, they make all the
products. They don't really need me
except they don't know how to do
marketing and especially not online
marketing. But the moment they figure
that out,
I'm making all this margin and they
don't need me anymore. And you know,
fast forward, there's a famous email in
2015. I don't know how famous it is, but
there's a an email internal Amazon email
that's got surfaced recently, probably
through a lawsuit or something. I'm not
sure why this email is public about the
how incredible the growth of their
Amazon of their Chinese seller ecosystem
is uh and that they're going to lean
hard into allowing Chinese sellers to
reach that they the Chinese sellers have
realized that Amazon is the conduit to
reach the American consumer with no
middleman and that Amazon needs to lean
go all in on making that possible back
in 2015 and it's just dramatically
accelerated since then. Um, so they've
got some exposure, one from terrorists,
but two, just like political exposure.
It's a kind of a bad look, uh, if you're
in the Trump administration to see these
guys who are just like really helping
Chinese sellers at the expense of their
American
sellers. And they were very explicit
like, hey, our American sellers are not
going to like this, so let's keep the
let's not make a big scene about it, but
we're definitely going to help the
Chinese sellers compete. Um, and yeah,
it's a it's become very difficult for a
US brand to compete on there because you
the Chinese are going to be better at
producing stuff in China than you are.
And if they're uh just as good at
selling online, they win, right? Like
you don't have a you don't have a great
competitive position.
But Trump hasn't said anything about
Andy Jasse or Bezos. He's been focusing
on Tim Cook. So you think there's like a
real political vulnerability there?
Yeah. I mean, remember they put the
tariffs in? Oh, they they Amazon said
they were going to list the tariffs as
part of the price and he he called them
uh oh, he used a really bad word. We
should pull it up, but it was like uh I
think he called him an unpatriotic
company or something like that. Maybe
treasonous. I think he called him
treasonous, which by the way, I thought
was a mistake. They should have said,
"Yeah, we're showing you the tariffs so
that you know you should buy goods made
in America, then you'll have no tariff
on those goods." They could have framed
it. They could have spun it a lot
better, but instead they just backed off
immediately.
Yeah. Well, apparently it was something
I spoke with the company as something
that was like floated internally but was
never gonna but that could just be spin.
I don't know.
Um,
it was it was serious enough that it
made its way out to the press. So,
but they have exposure here. I think u I
don't know political exposure, economic
exposure, probably some of both. Um,
but they also just on the on the flip
side for the dimminimus thing in
particular, I think Amazon's better off
with dimminimus not existing because
dimminimus is shipping direct from China
to the US consumer.
It skips their fulfillment network,
right?
Which is where they put all the capex
and huge competitive differentiator. The
fact that you can ship that they have
fulfillment centers everywhere and ship
so fast and so cheaply. And so it takes
away if you're shipping from China. I
mean that's what let Teimu get to 25% of
Amazon scale in 5 years was that they
and they skip all that fulfillment
center infrastructure. So it's
dimminimous going away is probably good
for Amazon and Walmart.
So where's the vulnerability then?
Uh just in broad broader tariffs
concepts and broader if the US is going
to crack down on
um like the one that is getting
circulated right now is a crackdown.
We'll see if that's how this comes
through. not familiar enough with how
the sausage gets made in Washington, but
there's um some bills circulating to uh
ban foreign importers of record. So, a
foreign importer of record is what these
Chinese sellers are that are selling on
Amazon. They don't have a US legal
entity.
You you don't have to be an American
company or even a foreignowned company
with an LLC in the United States to
import goods into the United States. you
can import goods as a foreign company
with no legal status in the United
States other than what's called a
foreign importer of record or a
non-resident importer.
Mh.
Um there's a wide there's a huge demand
amongst the Amazon seller community, the
American companies to ban this practice
because what ends up happening, the
reason they really hate it is that one
of these companies if it's a Chinese
company or it doesn't have to be
Chinese, it could be from anywhere in
the world that can do this. you import
goods into the US. If you declare the
valuation instead of let's say it's
$100,000 worth of goods, but you say
it's only worth 10,000,
um you you've cut your duty by 90%.
Gives you a huge competitive advantage
in selling it
and you can't go to uh trade prison.
And when you get caught, CBP, Customs
Border Protection, is not sending agents
to China to arrest the people. Um, and
in fact, it's probably going to be one
of the things that's going to be
demanded in a good in a well-crafted
deal with China and other countries is
you must extradite people who commit
customs fraud in the United States.
Well, one is there's this bill, and I
don't know if it can be done by
executive order or not, but I know it
could be done by Congress, and there's a
bill circulating um se probably several
bills to to shut this down. It's
bipartisan support, I think, to not
allow foreign importers of record. Um,
but likely also it's a, hey, you have to
allow US customs some kind of
jurisdiction or an extradition program
to get when people commit customs fraud
in the United States from your country,
you've got to turn them over to us.
And so if they were to shut that down
and 60% of all Amazon sellers are in
that program, Yeah. that would that
would be painful for them.
That would be rough.
Yeah.
Yeah. So it probably just like Apple,
they've overleveraged on China. Amazon
potentially. I don't know. I'm I'm like
I love I think China is incredible place
to do business and like
I I wasn't saying I wasn't arguing with
that. It was more just like politically
politically economically you have to be
careful that you don't put your whole
business in politically or economically.
That's I think that's fair to say. Yeah.
Yeah. A couple of kind of wild ones to
ask you as we as we close. I have uh
some some let's say off the beaten path
questions. So, you bought uh Shopify
logistics. Uh I just want to know how
soon you think logistics and fulfillment
will be done with like 100% robots.
Oh,
yeah. You know, I I
I'm not close enough to the thing. It's
it's a ways out. The the current
technologies that I've seen aren't
there.
Okay.
um humans are just so dextrous and
intelligent and not that expensive that
like you know it's a very high bar to
clear for these robots because humans
are really good at the job. Um and if
you were to if let's just say invert the
problem and say okay I have made you
this humanoid robot that has all the
characteristics of a human IQ is a
hundred you know problem solving
abilities of a human dexterity of a
human. It can run around and use its
brain and pick anything and bring it and
it's only $20 an hour. You don't have to
buy the robot. I'll just rent it to you
for 20 bucks an hour. you'd be like,
"Where do I take 500 of them and run us
a fulfillment center?" And you're like,
"Oh, that's what we have right now." Um,
and it's so it's a very high bar to
clear for these fulfillment center
robots. In fact, the mo the big case for
them is less on the humanoid side. It's
more density. Humanoid actually doesn't
solve a lot of problems because you
don't get more density out of your
warehouse. You you want real estate
density. You want to be able to stack
the goods all the way to the ceiling,
jam them in. So, it's more the the form
factor is not going to be humanoid most
likely in a fulfillment environment.
It's what already exists is like Auto
Store is the a leader in this and um
Symbotic is a really interesting
company, public company. It's it's it's
really about generating more density and
lowering the error rate. Humans make
more mistakes than these systems in
theory. Um, so some of that's here now,
but I think before there's no, at least
at Flexport, we're still we have minimal
robots in our fulfillment centers. We
were mostly people,
okay,
doing the job. And I don't want to spend
the capex. And the other problem is if
the if the technology is improving as
fast as they say, then I definitely
don't want to buy it. I'll wait till
next year and the year after and the
year after. And so that becomes an
interesting problem of like how do you
figure out when's the right moment to I
don't want to spend it. So probably it's
a financing. There's also financial
engineering and financial models that
have to be developed here where you're
renting me the robot. Maybe that's the
benefit of humanoid though by the way is
like upgrade cycles could be easier. You
just replace one at a time instead of
having to I don't want to buy a $100
million system for my building, you
know,
right? I mean maybe you have like a
humanoid that like has like these baked
in stilts so it can like go up to like
50 feet and then just come back down and
you can stack things.
What do you say?
Yeah. robot forklifts. There's a lot of,
you know, vacuum tubes. I don't know.
There's a million. There's the Symbotic
one. If you can go to symbotic.com and
check out, I think they have some of the
stuff on their website. Some really
cool, that's a public company. And um
backed by SoftBank is make making a lot
of investments in uh robotic systems for
warehouses. So, I'm with a big investor
of ours. I'm kind of close to some of
this stuff and seeing it.
Soft Bank is
SoftBank is a big investor in it and
they're on my board. So, I'm They show
me stuff all the time, but they haven't
yet sold me a system. So, we'll see. I
see. Well, maybe one day. Do you think
do you believe in their investment in
open AI?
Uh I don't know. I don't know the
economics of it and the terms of what
valuation and stuff, but I do believe in
open AI. I mean, it's incredible.
Okay.
Not just one's a big investor. Well, a
small investor by OpenAI scale in that
as well. So,
you also you're using AI to um help
smooth out your the fulfillment process
within Flexport. We spoke about it
briefly a couple times ago, but your
teams are using uh AI systems to take in
a lot of the documents and shipping
which come in unstructured, make sense
of the data, put them in your system.
We I mean we use huge amounts of it and
increasing we have a big advantage. I
think if you look at
what's required to win in AI to apply AI
like we don't have any advantage in
developing the AI there's smarter people
in AI by far that don't work at flexport
than that do but in in terms of
distribution deployment training of
models understanding where to apply what
problems can you solve and then being
practically practical to to apply those
I I think we just have a huge advantage
if if you look at freight logistics end
to end from factory to your customer's
door and all the steps that have to take
it place to move the cargo and get it
delivered.
Um,
we're the only company in the top
hundred by volume that was founded after
the web browser was invented.
Okay.
And the scale matters because it gives
you data to train your models, the
domain experience to figure out like
what problems actually I need to solve.
Um, there's some real nuance here that
if you're just an AI person, you would
never know that this problem exists
because you don't experience it. And
then third is the distribution. Like
when we solve a problem,
the next day it's it's available for
thousands of enterprise customers to
use. I don't have to beg people for
contracts to get access to their data or
to beg them to give me money to use my
model. It's just like constant uh rapid
pace of deployment. So we have a big
advantage over our competition in
forwarding. And then similarly a big
advantage over AIdriven startups because
I'm paranoid that like okay I can sit
here and go yeah we're the only one in
the top hundred freight forwarders in
the world founded after Netscape was
invented in 94 but I'm paranoid that
there's some kid out there going yeah
we're the only freight forwarder founded
after chat GPT was invented in November
of 2022.
Uh but that person that small startup of
which there are several many perhaps um
they don't have our data to fine-tune
the models. M
or our distribution to go live. They're
having to make AI in a vacuum and then
beg people to use it and sign a license,
you know, security contract, all this
stuff that needs to happen. Like we just
launched product and it goes live the
next day for our customer base.
This might be too in the weeds, but are
you buying off the shelf or open source
and customizing it?
Some of everything. I mean, we've we've
got partnerships with Open AI,
Anthropic, Google we've used for many
years.
Google's still the best in a lot of
things. Um, Google has a product called
O tools.
It's not generative AI. It's just like
deep deep learning, machine learning,
but it's O stands for operations
research.
So, it's the best for routing
algorithms, planning systems, for
logistics. It's like really amazing. Um,
so we use that.
Uh, some startups that are really
cutting edge on voice.
What do you use the voice for?
We use voice to call truck drivers.
Oh, right. Right. Right. We have about
400.
This is experimental or this is out the
door now.
Five.
We're making four or 5,000 phone calls a
day.
And this is what assigns truck drivers
to certain things and give
truck driver. So we have 400,000 truck
drivers on the mobile app,
right?
Um but we only have 200,000 loads a
year.
Okay.
I've got too many truck drivers.
Okay.
They're not going to open the app if
there's only a load every two years,
right? The simple math. Like they they
won't engage. And I So what we'll do is
call if we think we have a load that
they would like, we call them.
AI voice.
Yeah. AI voice. and it understands and
assigns
it has a full-on conversation explaining
all kinds. I mean it's really good and
it gets better every few months and
cheaper. It's that the price of that's
come down about 90% in the last year and
it's becoming quite commodified. So we
use vendor but there's two or three
other vendors that are 95% as good and
there's there's an arms race there that
we're benefiting from in a lot of this
stuff.
Um so AI voice we're also going to use
it for more and more things. is calling
to make appointments at terminals or
warehouses.
Calling to check statuses, collect data.
Um
e email
um data collection. A lot of what we do
a lot of un in fact the the the core
export technology engine for workflow is
is workflow engine. It's for moving
freight around the world. You need
taking unstructured data like this is
done by humans at our competitors and
even in parts of flexport where you're
like smart person understands the
process. You give them an unstructured
problem. You say hey move this from here
to here. They know what to do. They
figure it out. And what flexport's done
over the last decade is break that into
simple tasks that are so simple that
anybody could break that apart into a
simple form, a web form. Uh you could
argue that maybe we've spent a decade
building simple tasks that we didn't
need to that you could just
give it to AI
give it to AI and let it do the complex
thing. What we're finding right now is
that it can't but it can do the simple
tasks right
so we set ourselves up beautifully for
it but as the AI keeps compounding
acceleration you may get to escape
velocity you're like I don't need the
workflow engine at all I can just run go
do it all on its own. So, we'll see.
We're saying stay paranoid about it.
Staying as close to as we can so that
when that when when those breakthroughs
happen, we're the first ones to benefit.
That's wild. Okay. I just want to keep
in mind time. We're at the top of the
hour. Do I have time for two more
questions? Okay.
All right. So, I want to ask you about
your trip to the Panama Canal. Uh you
went down there. Apparently, there's
been a drought impacting the canal's
ability to
over process loads, but talk a little
bit about what you saw and and the
impact of this drought on the canal's
ability to operate. Yeah, the drought
the the the thing is that droughts are
pretty regular occurrence. Um with the
El Nino phenomenon, you'll have rainy
years and then dry years. So 2023 was
quite a dry year and that led to 2024
not having enough water in the canal to
operate at full capacity. Um
so that led to only about twothirds the
number of ships trans transiting the
canal as were theoretically capable of
transiting which led to huge bottlenecks
and delays. One point you had a 21 delay
21day delay
of ships waiting to clear the canal. It
only takes 22 days to go around.
What a coincidence by the way. How did
you manage to keep your delay? Well
probably
under the wire. No, that's probably just
people say, "Oh, if you have to make me
wait 23 days, I'll go around." So, it's
a natural natural governing effect
there.
The market's working things out
probably. Um, so yeah, there was
drought. The Panama Canal, I mean, if
you're ever I I meet people who went to
Panama and didn't go to the canal. I'm
like, "What are you doing?" Like, it's
work. I went all the way there just to
see the canal and I would do it again.
Um, fascinating. One of the most amazing
engineering feats in human history,
which is not really easily appreciated
until you get it get you see it. Um cuz
it's not it's not a sea level canal.
That's the reason rainwater matters.
It's a it's a freshwater canal. The sea
the Suez is a seawater canal. Suez came
first. The same guy who built the Suez
tried to build a a sea level canal
through Panama and failed. Um and it's
an impossible task because it's a
rainforest and it's a mountainous
rainforest. So you're at a sea level
canal, you're going to get whitewater
rivers and waterfalls and mudslides,
every all the waters flowing into your
canal and then turning into a white
water river racing to the sea.
Like it it the the the
geology, the it would be an inc we just
don't have the the the energy levels,
the resource levels to make a sea level
canal through Panama.
And they certainly did in the 1800s and
they were attempting this. So what they
did instead, the Americans came over
about 10 years after that failed and
instead of trying to build a sea level
canal, we just damned the biggest river
in Central America called the Chagress
River and made a huge lake.
And the canal is actually just an
enormous lake and then a very short
canal that takes you up to the lake
level with locks.
I had no idea.
And you actually just sail right across
the top of the country on this lake.
That's crazy.
It's really crazy. You see it, you're
like, "Oh my goodness, how did they we
would never attempt such a thing today."
Like, we're just gonna And first of all,
they had to overthrow. It was part of
Colombia. Colombia didn't want They were
negotiating too hard, and Teddy
Roosevelt just said, "No, we're taking
this away, creating a new country." And
sent battleships down there to take it
from them.
Okay. Legitimately crazy.
Yeah. We just wouldn't do this kind of
stuff anymore at all, much less like put
a giant dam on top of your country. And
so, it was
I I hope not. We never say never given
the way things are tracking. It was good
for the world, the Panama Canal. But
yeah, incredible place to go visit and
see it firsthand. And um but that that
drought um what's interesting is that
there was a drought,
but the droughts are rel are relatively
common. You could look at the rainfall
pattern and every six to eight to 10
years there's a year with like very low
rainfall. El Nino or L' N, I forget the
difference between the two, but it's all
part of the same effect on the Pacific,
the warming and cooling of the Pacific
Ocean. And so, uh, the 2023 drought was
real, but it was entirely predictable.
And what happened is in 2016, they
expanded the canal. They were very
worried that China was going to build a
canal through Nicaragua and and and
their monopoly on transiting between the
Atlantic and the Pacific. That the
Panameanian government was very worried
about this. And so, they raced through
to make a wider canal so that bigger,
wider ships could make it through. Well,
if you make a wider canal in a
freshwater canal, more fresh water is
going to flow out of your lake and the
lake levels are going to drop and you
need more rain to operate the same to to
operate it. And so when the drought hit,
the system just didn't have enough water
in it,
but it's relatively predictable.
Like it's it's entirely predictable
because actually 2014 you had lower rain
than 2023.
There have been many instances of lower
rain. So if you were, you know, you're
doing your engineering, you go, "Oh,
okay. Let's let's look at the lowest
rain that we've had in the last, I don't
know, what do you want, 50 years, 100
years, but building it up to that level
may have just been prohibitively
expensive." And so we might just live in
a world where every six years your canal
is not operating at full capacity.
Wow, that's crazy. What a cool visit. I
have to go down there. I
I recommend it. It's also just a great
country, a lot of history, uh some cool
beaches, nature.
Yeah, my my wife has been she loved it.
So, I I have to make my way down. Okay.
Last last thing for you. Uh Tom Lee was
on recently, the uh investment
strategist, and was talking through like
the uh Black Swan events we've had over
the past 5 years. He's been like,
"There's been one every year for the
past 5 years." And then he listed off a
bunch including like COVID, the bullhip
uh that we had to the shipping uh fees
that we talked about earlier that it
became there was so much demand and so
little supply of ships that all of a
sudden you had inflation because it was
$20,000 a container. And then uh we
talked about the liberation day as
another one. And I was like, Tom, it's
interesting that like supply chain is a
is a constant through all of this.
Yeah. Well, and don't forget, I'm sure
you guys talked about it, but Ukraine
war, right? And the planes couldn't fly
over Russia anymore. That's been a huge
logistics
impact. And we were talking also Gaza
and the Houthi shooting.
Cut off container ships are not going
through the Red Sea for the last 18
months,
right?
Uh Yep. And you can go Trump himself was
kind of a black swan the first time
around and put all these tariffs in.
Mhm.
Um in fact, you go further back in 2016,
we had the cheapest ocean freight in
human history.
It was actually a glut of capacity. It
was the opposite problem as now, but one
of the the Korean ocean carrier,
Hanjene, went bankrupt that year. Since
I started Flexport, has been one of
these black swans. They're just like
crazy. We like it. Uh I mean, our
customers, it sucks for the customers,
but it it it's part of why we like
working in logistics. It's like never
the same thing, always learning, always
on your toes. I can read the newspaper
every day and have some perspective of
like, oh, actually,
yeah. I mean, it's why it's always fun.
Our conversations are always fun because
you just have this visibility into the
global economy that few do because of
what you do.
Yeah. Someone asked me recently if I was
stressed out and I was like, "Yeah,
that's how I like it. I want to be
stressed."
Yeah.
Okay. And then the last thing is um I
was with Dwares Patel Oh, a couple weeks
ago.
I love him.
He's great. And we were talking about
his podcast.
Oh, he's awesome. Yeah. We were talking
about what uh oh he was he actually made
this point about um I was talking to him
about which models are going to be
better. He goes well you have
electronics like some electronics are
better than others like sometimes there
are companies that are both making TVs
but one will just be better at it. He
goes I don't know why and I said I think
it's probably supply chain.
I'm curious if you think that's the case
that companies that do a better job
managing the supply chain getting the
right parts uh are the ones that are
going to be outperforming the others.
Yeah. I definitely I mean it was the
supply chain is a pretty broad
definition. I mean is ultimately can
encompass designing your product,
producing the product, making the
product so kind of almost by definition
but even in the logistics piece
definitely see companies that are have
too many people can't get their can't
get out of each other's way too many
silos between departments and fighting
of like there's a lot of people have to
come together to run a supply chain. the
the designer of the product, the
merchandiser who's like figuring out how
many of each product to buy and how
they're going to sell it and position
it. Uh you've got your production
sourcing, which factories are we going
to work with, the production quality
assurance, you have the logistics, you
have trade compliance, you have finance,
I mean I just listed six or seven, the
marketing, you have like a lot of
departments and some of these some
companies get, I think, too big where
there's too many people and can't get
along. um a lot of problems with data
sharing that we try to address. I mean
our our goal at Flexware we get all
these users to use our platform. So
we're not just for the logistics team.
We all those other people have some skin
in the game of figure out what's
happening and want access to the data
and uh want want to see what's going on.
So, um, but you know, even figuring out
what your profit, what price should you
charge if a lot of companies will, um,
not have good enough data about their
cost down to the individual item level
because there's all these like the
freight costs, the customs costs, the
freight cost very different if it's
ocean versus air,
right?
And um, and you'll see a lot of
decisions made without good data about
this stuff. So those can, you know, make
the product too expensive. You're doing
too much air freight. Should be doing
ocean.
Um,
all of this goes into the the equation
of what makes a good business. And then
and then if you're profitable, you can
reinvest the profits and make your
products even better. And if you're not,
you can't reinvest.
Operational confidence. That's what it
comes down to.
100%.
Ryan, always great to have you on the
show. Thank you so much for coming on.
Yeah, my pleasure.
Super fun. And folks who want to learn
more about Flexport, the website's
flexport.com. It is flexport.com. Check
us out. We have a If you want to learn
more about trade and everything that's
keep on top of the tariffs. We we run a
free series of webinars every two weeks.
Great webinar.
Say with the latest stuff, what's going
on try to stay on top of this for you.
And folks, Ryan's a great follow on X.
You can follow him at typesfast. T Y Ps
f a s. Apparently you are very fast
typers.
Uh the domain was the handle was
available. I don't know if I'm that
fast. There was one one moment where I
think you demonstrated your fast typing
skills, but anyway, we'll we'll save
that to the next show. All right, Ryan,
thanks again for coming on. Thanks
everybody for listening. We'll be back
on Friday to break down the week's news.
Until then, we'll see you next time on
Big Technology Podcast.