Is it Flexport + Shopify vs. Amazon? — With Ryan Petersen

Channel: Alex Kantrowitz

Published at: 2024-03-06

YouTube video id: AFg6GEAAcWg

Source: https://www.youtube.com/watch?v=AFg6GEAAcWg

the CEO of flexport is here to talk
about his company's challenge to Amazon
shipping through the Red Sea and the
state of inflation along with plenty
more all that coming up right after this
welcome to Big technology podcast a show
for cool-headed nuance conversation of
the tech world and Beyond Ryan Peterson
is here he's the CEO and he's the and
the founder of flexport which is a
Supply Chain management and Logistics
technology company we have so much to
talk about a lot of interesting news
since we spoke last including the exit
of Ryan and the return of Ryan we'll get
to that in a moment but first I want to
welcome Ryan to the show Ryan welcome
hey thanks for having me on thanks for
being here over the past few months it's
really crystallized to me that you're
competing with Amazon now like
beforehand it was like okay you're doing
supply chain and Logistics and you're
already giving me a weird face I'm
excited to hear you sort of take on this
argument and now you have acquired
shopify's Logistics business and this
seem like it's going to become a big
part of your mix you know you don't give
away I think it was 133% of your company
unless you're planning to go big on
legistics and for Amazon you know as
much as we talk about the selection in
their stores it's the logistics that's
made a huge difference in terms of their
ability to get um Merchant products in
front of people and not only that you
just raised another $200 plus million
dollar from Shopify a couple months ago
so also sign point to you being Amazon's
you know upstart and and and pretty
interesting competitor on the logistics
front what do you have to say to
that well I I haven't really thought of
it that way in terms of competing with
Amazon we enable Brands to thrive I
think that I think we want to live in a
world where any any brand you know
customers can buy from Brands and not
have to buy everything from the same
Marketplace so maybe in that sense you
could say it's like we're allowing
Brands to own their own destiny create
you know Shopify really um is the best
for that to let you run your own website
have have own your brand presence have
customers come to you in your website
rather than going on onto a Marketplace
like Amazon um and but you need to have
good Logistics to do that so I think to
that extent perhaps you could say we're
competing with Amazon the end day we're
never going to run our Marketplace it's
obvious like that because because if you
take the Shopify flexport combination
right storefront Logistics versus the
you know Marketplace Logistics that
Amazon offers that's the only competitor
in the market for them yeah I think
you'll see us partner well I think we
partner with Amazon a lot too I mean we
we probably like almost 10% of our
deliveries go to Amazon um I think we
want to be today you can't do um we
can't do Prime fulfilled from our sites
but I don't think there's any reason
that we couldn't do that someday um I
think Brands want to be able to sell
through Amazon Amazon's incredibly
powerful for our customers that use it
um to drive demand uh they want to be
able to sell through their own website
too and so we we'd like to be more
agnostic that like Hey we're providing
neutral infrastructure to ship things uh
regardless whether you're selling Amazon
Walmart Target Costco Shopify wherever
else uh so yeah I mean there's an
element of competition there logistic is
pretty interesting everybody kind of
competes with each other while also uh
cooperating with each other it's it's a
strange world you know for um where for
example like we we partner with all the
major ocean carriers but some of them
also own Freight forwarders that compete
with us and like the ocean carriers the
ones that own the ships uh we're more
comfortable with that and I don't yeah
you could say we compete with them but
it's not it's not really that important
of what we're doing it's like how do you
solve problems for the End customer at
the end of the day well I mean maybe I I
don't know I mean you're you're the CEO
and you're seeing these things but I
think you might be underestimating this
like it does seem to me like there's a
certain amount of packages that are out
there to be shipped and shipped and a
certain amount of channels that are out
there to be bought like that is it is
zero sum isn't
it man I never think of it that way Zero
Sum I don't know that it's fixed like
the number of pack it's a very
interesting philosophical question I
guess like we think that you can help
Brands grow and it doesn't have to be
Zero Sum that they can do more volume
more demand maybe at the end of the day
no I don't believe fundamentally that
the economy is zero sum I think that's a
really important
distinction so let's just okay I won't
beat a dead horse on this but I do want
to talk about it so let's say you're
you're a brand you're deciding where to
go where to sell your products to let's
say you you sell sneakers right so you
could have and you're you're you know
maybe you're a boutique maker of
sneakers you're all birds in the first
year so you could sell through Amazon
but a lot of these companies have had
trouble with knockoffs and stuff like
that or you could sell through Shopify
the problem with Shopify has always been
people don't when they're on those
independent storefronts they don't trust
those people that the the stores to get
them their products on time and in fact
I mean you would I think Shopify
acknowledges this because they've
recently started allowing some of these
stores to to allow uh their customers to
to buy products that have been fulfilled
by Amazon with that FBA MH product right
and so I
mean you know so if you're thinking
about like how to get the stuff to
people how to make people trust a brand
like a brand you know can either decide
go through Amazon go through go through
their independent shop it's usually
going to be that one pair of sneakers
that someone's going to buy and they
have to find the decision where they're
comfortable with so how does this stuff
really work in conjunction where like
you can have one Thrive and the other
Thrive yeah well the the benefit of
using flexport in that situation is that
you can have a single pool of inventory
that you can fulfill whether it's your
sale on Amazon your sale on your Shopify
website your sale on Walmart Target or
any other Ecom site uh as well as over
15 physical retailers so we can
distribute out into those so if you want
to say we compete with Amazon I think
we're a a strictly better proposition uh
other than the fact that we don't own
amazon.com and have all the demand that
that drives so you know but we Upstream
of Amazon we can distribute to FBA
distribute to Walmart uh and and keep
that single pool of inventory and then
replenish out uh to the edges to these
other to these other networks so yeah I
mean look I'm not afraid of comp ition
we rather avoid it because it's not that
important the main thing is what can you
do for these customers we think we we
have a really valuable proposition that
lets them move the goods also all the
way from factories wherever they're made
in over 100 countries deliver into this
network of fulfillment centers and
onward like onward to the to the final
customer and give you a true end to end
platform y so if I'm a merchant I'm
basically keeping track of my inventory
within flexport software and can
basically distribute it to flexport
fulfillment Amazon fulfillment keep
track of it and then have it sent out to
customers and get it replenished so as
you sell as you start to sell through
those stocks figure out okay when should
you order more goods and place those
orders out to the factory Network that
you have on flexport totally so Shopify
owns 177% of flexport now according to
reports that I've seen something like
that yeah might be slightly yeah 17 18%
yeah right so talk a little bit I mean
okay we talked a lot about the semantics
of competition but what makes you and
Shopify such an interesting partnership
is again that Logistics part where you
get to help those smaller companies
fulfill their orders to people um so
talk a little bit about why Shopify has
become such a natural partner to you and
what they're to get out of it because
they've struggled with this part
physical world Logistics is really hard
um and I think Shopify recognized that
and recognized that that we we're a
great partner for them
um because that's what we do all day
it's Physical World Plus Tech and um
it's a it's a there's also recogniz
recognition that came around during the
pandemic of what a disadvantaged small
business was that in in when there
supply chain Logistics crunches that the
Capa when there's not enough capacity in
the market big companies tend to be much
better at securing that capacity and and
it was a real disadvantage for Shopify
Merchants if they can't get access to
space on ships on access to space on
planes or fulfillment center capacity
that um yeah that if if you're not able
to access that then you're in some level
not you're not competitive and we saw
that a lot during the pandemic during
when there was just not enough space
that the biggest companies in the world
would then go lock up the space uh if
they had to pay extra they'd pay extra
um throw their weight around and and get
it done and so I think Shopify
recognized that there was uh their
brands were at a disadvantage and they
partnering with someone like flexport
that through the aggregation of scale
across our customer base brings that um
brings that scale and that expertise
where we're you know we're the third
largest American Freight forwarding
company top 10 globally um and so we
have collectively the capacity to help
help these companies access good co
competitive price access capacity um and
with World leading technology to you
know so sort of bring technology that
very few even the biggest companies in
the world really don't um have Tech to
be able to manage this like we've built
um and so being able to bring that into
small business sector is very I think
shop saw the promise for that and what
it can do for their customer base did
you talk about a potential merger like
it seems like it would be a natural
combination of the two
companies um we never talked too
seriously about I mean I frankly I told
them like I didn't think we'd it would
work my view of these things is like the
company flexport sells a lot to build
like a huge amount of our values our
potential things that we have to go into
do and what I've seen most m&a it's very
hard for the company to keep building
the thing PE you know the founders and
some of the early key a lot of the key
people kind of tend to move on and you
know so I was pretty upfront about that
we never got we never discussed like I
think I brought it up proactively that I
didn't think it would be a good idea
that we we really want to be an
independent company I think um you know
a social network for for global trade if
you want to call ourselves that uh it's
a pretty big and valuable idea like if
there's it can definitely be an
independent company the largest freight
forwarders in the world are worth 30 to
50 billion dollars depending on the the
year of what wall Street's have Wall
Street's valuing them um and and the
biggest one has three or 4% market share
and that's just in Freight forwarding
that doesn't include things that we're
doing in fulfillment now with the
acquisition of shop Logistics doesn't
include um all the business that we're
building trade Finance insurance so once
you look at like the aggregate of all of
that it could be a massive massive
company so we rather yeah we're not
really we're not interested in being
acquired now talking about the size of
the company is interesting because there
was this moment like in the sort of
thick of covid where shipping rates were
getting you know in the range of$ 15 to
$20,000 per container if you're a
freight forwarder right helping those
get from point A to pointb like you can
definitely uh make a good margin on
numbers like that but but it seems like
now that the containers have returned to
around a $2,000 like back preo rate um
the potential for the business a lot of
people say is smaller so what do you say
to what do you say to that oh I mean we
always knew the price was going to come
back down it was a very temporary
phenomenon um the and there you know the
reality is your price goes up but so
does your cost you have to pay extra for
the containers there's no iron law that
says you get to keep a percent of the
higher number um and
yeah I mean I think we we built our
business to be agnostic to what the
price of shipping is it's out of your
control it's going to go up and down but
we you know even we raised a round from
Shopify and others um led by entries in
horror wits and Founders fund actually
but Shopify wrote the biggest check in
the round um and we were very open with
the investors at that time in the
funding round like hey our you know we
made projections that our Revenue would
come down umh made the round kind of
hard to get done real like investors are
not used to seeing people project to
declining Revenue it's like every i'
I've done a fair amount of investing in
my uh in private companies and every
investor deck projections are up and to
the right you know and so we but we're
we're realistic about it I don't think
we ever believed that the price of
shipping was going to stay uh at those
very high levels even now actually the
price of shipping is went way all the
way back down and now it's up again to
thanks to the Red Sea disruptions which
we'll talk about yeah but we're modeling
that as very temporary I think the price
of shipping is going to come back down
to historical norms and even below that
there's a lot of excess capacity for of
ocean Freight in the market um a lot of
extra ships have been are being deployed
um so yeah we build our business to be
successful based on the long run trend
of freight not not on any temporary
spikes right now that being said like
during covid um I mean this is this kind
of coincides with the Dave Clark story
so you bring in Dave Clark from Amazon
uh to be the CEO and I think well at the
time you told me
that you realize that flexport is like
uh a business that really needs
efficiencies and you're more of a big
idea guy and you want growth and so with
Dave coming in from my understanding he
like doubled infrastructure so I'm just
curious to hear your perspective if it
was always clear that the price was
going to come down I mean Flex Porton
ended up laying off 20% of the company
uh in time uh why why the doubling the
infrastructure if I'm getting that right
um and did the company basically
overextend on that like it's surprising
to me that the company would overextend
that way if the calculation was that
those $20,000 rates were going to come
down to back down to
two yeah um well I don't know what the
for I don't know how to think about
doubling infrastructure per se I mean we
made the acquisition of shop so I guess
on some level you could say that we we
acquired all this physical
infrastructure because we do run our own
fulfillment centers now we've got four
million square foot facilities and that
was an investment we did with Dave um I
don't think any of that's related to the
price of shipping we we did you know
objectively we over hired because then
we ended up letting people go um we we
hired a lot at our engineering team we
grew our engineering team really fast uh
and I think we lost sight of the
customer to some extent and recognizing
that the freight forwarding is it's
really about customer relationships uh
to a degree that I don't
think it's it's very different from Ecom
in that sense like e-commerce every
transaction is relatively standard I
mean you're shipping a box it's got to
get to the customer there's not a lot of
customization that can occur um in
Global Logistics and B2B Freight
forwarding in
particular every customer every business
is really unique and different and it
requires one is a lot of customer
relationships from the top like
Executives the job of the CEO is to talk
to customers all day uh several
customers a day is is my goal um and and
that R has to run all the way through
the leadership and then and that's just
from a cultural standpoint you got to
lead from the front on that but two is
each customer is pretty unique like the
types of businesses we serve are so
different from one another and what
they're trying to do with their supply
chain is really different and it there's
more people in there it's not going to
be this fully automated transaction um
much as we would like that and as much
as we've invested to automate things
like we have to live in reality that
it's a long ways from that um and I
think
that's those are probably the areas that
we drifted away was like not leadership
not spending enough time with customers
and not um not being open to this idea
that hey like customers don't want to
just see a web form they want to talk to
people they want to have a person that
they can pick up the phone and call it
not an 800 number not a call center uh
and so I think that that's where we
started our growth started to slow down
um while our costs were going up and not
I don't mean our growth in Revenue
that's inevitable but our volume growth
like you know there's no reason you
can't grow volume
um through any cycle and so at the end
of the day the board decided the board
of which I'm a member we decided that it
was uh time to get back to our roots and
go focus on customer Obsession and run
run a leaner business uh I think we
actually with fewer Engineers now we're
shipping technology faster too because
we're more focused uh and more like yeah
if there's there's real value in just
like doing fewer things but doing them
better but those two words that you
mentioned customer Obsession I mean it's
the number one leadership principle
inside Amazon which is where not only
Dave Clark came from right but a lot of
flexport leadership that was under him
at the time it's yes of course it's a
little different than uh than e-commerce
but if customer obsession is the
Northstar and Amazon and now flexport 2
right it sort of is it surprising to you
that it just didn't translate a little
bit the I I would say it's quite
different being obsessed with consumers
and obsessed with businesses um Amazon
you know is famously very customer
obsessed with when it comes to I mean it
is one of their core leadership
principles but go ask one of their
Merchants if they treat them with that
level of obsession uh Amazon does not
treat the seller on their platform as a
tier one customer their job is to help
the C the consumer at the end of the day
um and uh I think it's a different thing
to take care of businesses B2B like how
you behave towards serving customers
that are businesses is going to be
different fundamentally different set of
behaviors Etc so um yeah lesson lesson
that's quite interesting is like how
unique Flex Sports culture was in that
is in that regard was and is to be
really obsessed with helping businesses
run a Better Business solve problems
have someone to pick up the phone you
know what one of the what does this mean
like at the end of the day we organized
ourselves so that each customer is
served by the same group of people all
the time that' actually manage all their
Freight door too um and we drifted away
from that and then we've gone back to it
since I came back we went in pursuit of
efficiency we made it so that operators
would just do the same task across every
customer shipments and get really
efficient at that task uh it turned out
to lead to bad customer results and so
we've gone back to one operator doing
all the tasks on a single shipment and
always working for that the customer
always working with that same group of
operators um because it turns out that
all the inefficiency and Logistics comes
from mistakes so if you can get the
quality right by owning that customer
relationship really caring about that
customer Custer knowing their business
in depth understanding their their Sops
their standard operating procedures like
yeah they're documented and they're
structured in the system but just
knowing them because you're innately
familiar with this customer so you can
make decisions on their behalf if it's a
weekend or you know you can't get a hold
of them you know what they would do you
just do it for them um that level of it
seems less efficient because the person
isn't just doing the same task over and
over again like a automat like a robot
just doing the same thing really
efficiently but actually you get more
efficiency because there's fewer
mistakes there's there's um yeah it's
it's a little bit more like Toyota
production system where the same
operator will follow a a task follow a
part down the line instead of uh just
doing in the American system sort of
just do one thing and then hand it off
to the next and stamp it out um it's um
that yeah getting back to our roots in
that sense as well and how we organize
ourselves we did a big reorg when right
when I came back right yeah so do you
think then having some time outside the
company made you realize that you are
more of this like operational and
efficiency CEO than you thought or going
to be go um I think I I realized that a
lot more also I have a lot more
confidence in in the team like realizing
that we' built like pretty awesome
culture and pretty awesome leaders
across the company that grew with us and
have tapped a lot of them promoted folks
from within um I think you know you grow
as fast as we grow we were one of the
fastest growing companies in the world U
for like a decade and you start to
always feel like well growth growth is
really hard and it's very hard for
people to keep up with that level of
growth and you you kind of bring in
Executives to support at every level
managers all the way up to in my case
the CEO um and recognizing when that
doesn't work as it often doesn't that
your existing team is pretty great uh
and should tap into them more and lean
on them more trust them more and yeah a
lot of lot of lessons learned from you
know it's been
been pretty eye opening um also just
focusing on cost we we we had a um yeah
we raised a lot of money we have we
still have a really strong balance
sheet um but it's there to allow us to
kind of navigate any storm that might
happen in the capital markets in the
freight markets it's not meant to be
invested all in one year or two years or
something to go you know we we we we
went really aggressively and hiring
engineers and we ended up backing off
from that and saying hey let's take our
time
we've got there's we don't have like a
lot of direct competition you can point
to Amazon but I think we're
fundamentally different companies and
within the space I mean really because
Amazon does not do Global Freight
forwarding for Brands unless they're
shipping the product and selling it on
Amazon um and so we just a of different
we don't compete with them in that in
that regard um there's some overlap
certainly in the Fulfillment P piece but
in the uh Global Freight forwarding
piece they don't provide Freight
forwarding Services unless you're
delivering it to an Amazon facility and
by the way if you are they don't even
prioritize you against other people who
are delivering to evon's facilities so
um that we have time like we don't feel
like oh if we don't build this
technology this year we you know it's
we're doomed like our road mapap is very
exciting but we we can Pace it we can
build it over the next few
years something that I heard recently so
you you did Flood The Zone with Amazon
folks uh coming into the company and
something that I heard recently was that
Amazon's culture basically can take an
average performer and and turn them into
a superstar inside Amazon right which is
all about becoming more efficient
eliminating errors uh and you know
making sure that if you do make a
mistake that that'll never happen again
um but then oftentimes Amazon employees
will struggle in a different company
because it's just a different like you
said different problem set different
environment different different world
different industry um I'm kind of
curious if you've had any time to think
about that and you know what do you
think what do you think
is um what do you think is between
Amazon employees and being able to to
thrive elsewhere and and and I'm curious
like if you have any meditations on
Amazon culture now that you've been so
close to it in a way that you know sort
of had mixed results um well we've hired
awesome people from Amazon we've had we
have had a few people that didn't work
out but you know look at our team it's
like a lot of people with great
experience from Amazon um so I don't
have anything negative to say about them
I I think uh I I really like some of
their operating principles that we've
and we continue to use like the
narrative six pager really focus on
input metrics like have have a set of
metrics and then understand if we're not
achieving them what what are we doing
about it and have really good operating
rhythms to check in on that I think
leading with the principle leadership
principles they're really strong um my
opinion there's too many of them so
people can't remember them that well but
they're all pretty good so I can't
criticize and maybe people just need to
work harder to remember them all um but
that I you know to me it's still one of
the best I still think it's like the
best company in the world probably uh
and
so um and and full of great people there
have been there have been cases where
people didn't work out but I think
there's a lot of cases where people from
Amazon went on to do really big
important important work so including
here at
flexport okay I'm not asking you to
trash Amazon by the way I'm just you
know I think you probably have thought
buy too much stuff on their website for
me to trash them uh pretty impressive
company I just ordered some uh ordered
little notebooks yesterday and they were
at my door this morning when I woke up
so no definitely I mean like my goal is
really just to be like you've I'm sure
You' thought more and been more immersed
in Amazon culture than most CEOs in the
world
so I thought maybe you'd have some
interesting Reflections on it looks like
you did yeah I I do I think you know by
the way they have a really hard business
like running these sites these
fulfillment centers we're running some
ourselves now too and just recognizing
it's hard you know it's to drive
efficiency out of one of those things
and like
how do you get thousands of people to do
kind of a it's not the most exciting job
so you have to create a lot of career
opportunity for
people not the most exciting job meaning
picking picking items off the warehouse
and delivering it you have to really get
them connected with you know what does
this mean for them and their families
their ability to grow to to grow with
the company to to get career advancement
ideally connect them to the brands that
they're shipping for I think that's
something that flexport's pretty good at
is getting people to recognize like hey
we're working on behalf not just like
new brands which is very always very
exciting and easy to inspire people hey
you're helping this brand this
entrepreneur this team realize their
dreams and and and compete but also to
help Legacy companies you know the
Ecom Ecom is really wiped out like a lot
of companies that couldn't make the
transition a lot of retailers have gone
bankrupt and failed I think we have that
opportunity it does inspire our team to
say hey we you know it's sad if you look
at the list of bankruptcies in the last
five or six years of iconic brands that
we grew up with that have gone bankrupt
because they didn't make success
successfully make the transition to re
Ecom um that's we we we take great pride
in you know helping Legacy Brands to
make that transition and make it easier
for them so I think there's a lot of
reasons to get inspired but you have to
lean into that and I think Amazon's done
a pretty good job his like the of they
get a lot of heat in the Press but if
you talk to people who work there they
tend to actually really like
Amazon about half to right I mean like
half wash out like right away and the
half that stays like
yeah that might be the case in most
businesses I don't know I mean I think
they get a lot more scrutiny because
they are so big and
successful possible um okay let's not
let's move on uh so I want to talk to
you about uh the houthis and the Red Sea
so over the fall and into the winter the
houthis and Yemen have basically
disrupted um trade through the Red Sea
and leading to to massive disruptions
and you've had like a real front row
seat to that looking at you mean the
graphs that you've tweeted and your your
technology you can really see what's
going on there so um can you just talk a
little bit about the state of shipping
in the Red Sea right now I think it's
basically returning to normal is that a
crazy statement yeah no that's not
that's not right I mean we all the
containerships are still routing around
the Red Sea 90 more than 90% are routing
around you're seeing prices come start
to come down a little bit um there's
this initial chaos that sets in when um
any kind of situation like this
happens and Chaos creates high costs um
is a simple way to put it now where did
that cost come from first off going the
long way around the um southern tip of
Africa does it takes about 20% longer
more fuel a lot of complexity there but
but um but actually a big piece of it is
all the replanning that happens so if
you think about like every ship has like
10,000 containers on it each of those
containers has a journey of its own
might be connecting to a different ship
at a port uh we call that a trans
shipment it certainly is getting cleared
through customs and picked up by a
trucker those all have to get replanned
everything that's a huge amount of kind
of overhead that brand that that the
shipping companies have to absorb and
they and then it's just supply and
demand you know you a 20% longer Journey
reduces the supply effective Supply by
20% and the demand hasn't changed so
you've got the you know you reduce
Supply in a market the price can go to
the moon so we saw the price of shipping
from Asia to Europe went up up about
five times um between December and now
yeah um so is it what can you tell us
like in dollar terms what that is yeah I
mean it had gotten very cheap it was it
was only costing like thousand bucks to
ship a container from Asia to Europe uh
before until about mid December I guess
no early December uh now it's kind of5
to 7,000 depending on the origin ports
that are involved um and that'll I we
are seeing so definitely not back to
normal the prices are very high there's
there's a couple of things that are it
there's there's some signs that this
will be temporary not that the ships are
going to the ships will continue to
Route Around for the forseeable future
until really likely until there's a
resolution um in
Gaza This is highly it's definitely a a
sign of the spreading of that conflict
from being a very local
or Regional to a global conflict um or
at least a conflict with global
implications um so the ships are going
to continue to Route Around however
there's so much extra capacity of ocean
container shipping that's already been
deployed and that it's getting deployed
throughout the balance of this year that
you're going to see the price of freight
come back down that's my prediction but
that's also the prediction of the um the
CEO of M which is one of the two or
three largest container Shipping Lines
in the world said this on his ear
earnings call last week or the week
before that um that there's a lot of
excess capacity and that the price of
shipping will come back down so I think
Brands out there can it is painful at
the moment but I think we should start
to see by Q3 that prices normalize and
get back to where we were before which
was very historically low price of
shipping I mean the idea that you can
ship a container worth of goods from
Asia to EUR for a thousand bucks is just
like so unfathomably cheap it's a great
value
me saying that it had gotten back to
normal was me misreading one of your
tweets but luckily I wrote it down so we
can talk about it what did I say did I
say it was he said for containers ships
sua's transits are now down to just 7%
share uh oh from 66% oh it's not that
fall in just 7 7% it it it's that it's
used to be 66% of shipping now it's 7%
so that's the that's a massive drop
exactly massive drob basically
containerships are not going through
there the um couple of companies still
continue to Transit especially it's uh
CMA which is the French container
shipping line um and they're being like
escorted by the French navy it's a very
interesting phenomenon actually where
the French navy is kind of protecting
French ships but not other people's
ships uh I don't know how I feel about
it I did want to ask you about that I
wrote that one down as well so you uh
put a picture up and you said uh you
know this French the French navy just
posted these photos as they escort a
French container ship through the Red
Sea before the American Le order that
follow followed World War II this is how
trade was done with each Nation
protecting its own ships is this the
future of globalization
so I don't I don't think that the
conflict in Gaza is the end of
globalization but we have been breaking
apart I think as a global Society you
could say so is that what you're talking
about like do you think that if we
continue down the road that we're going
that we're going to have the need for
this well I think um I think people take
for granted how remarkable the time that
we live in is is how it's so easy for
anybody to trade anywhere ships can go
anywhere it's so cheap I mean the idea
you can ship from China to Europe for a
th000 bucks it's like such a great value
it's so cheap um and it's easy to take
these things for granted and forget how
much they depend on
peace you know civilization is
ultimately built on peace and if it
breaks it's very fragile much more
fragile than we realize and yeah I don't
know you know I'm not like a historian
so I don't know how accurate my
statement is but but I do know
ships used to have cannons on them like
trading Merchant ships had cannons and
kind of it was a much more of a
free-for-all through or 400 years ago um
and Pirates were much more common rival
navies bleeding into Pirates you know
and so I I think um yeah it's a what is
is it what what should we expect from
the future of globalization I think you
know we would like to see peace and
prosperity but have to remember that it
depends on often depends on military
force and I don't think that the world
wants the United States to be the
world's Global policeman um we get a bad
rep when we do that and yet if you don't
do it you know you get things like this
where well someone if no one does it
then you're just going to have less
Prosperity so it's it's a really
difficult question one I'm not really
qualified to answer I'm quite biased I'd
like to see more prosperity and more
global
trade yeah the last time you were on the
show you made a very strong pitch for
globalization so but we it has been
about a year and a half since that
happened and I'm curious looking around
the state of the world do you think that
we're in more danger now than we were
before of
splintering oh unquestionably yeah I
mean I think you know you look at all
the there's a there's a handful of major
choke points driven by geography uh the
Sue as being one uh the the Black Sea is
another important one where and Ukraine
war has effectively really reduced the
amount of TR on the Black Sea Which is
less container trade but more grain and
uh Commodities trade coming out of out
of because it's not coming out of
Ukraine or yeah it's be when Ukraine and
the Black Sea in general has become um
what's difficult for insurance companies
to it's very hard to sail a ship into a
war zone to get insurance for that and
so that's been right um that that's been
heavily impacted you've got the uh
Panama Canal
impacted U right now by a
drought and only operating at about 2/3
capacity they say it's a drought I I
sort of think they they've screwed up
the engineering for it uh there is a
drought but they probably should have
factored that in when they widened it um
droughts happen you know it's not I
don't think it's that historic of a
drought um and so the Panama Canal is
only operating at about two-thirds
capacity um you've got yeah these kind
of major choke points that are under
under a lot of distress right now and
even even the the you know the ship
sailing around the tip of Africa
avoiding the Red Sea it's going to be
interesting to follow that one is that
like South Africa is not really set up
to service these kind this quantity of
ships to provide them with refuel uh
with fuel um and other services and then
that southern tip of Africa is extremely
treacherous stretch of ocean and so I
think we're going to see it's calm right
now it's summertime down there right now
their summer as our winter but um as we
head into their winter that's when they
get the bad storms so our summertime
it's going to be monitoring if these
ships are still routing around we'll see
how that uh if that impacts them I'm not
a I'm not an expert on on the impact of
storms on ships but I I I what I've
heard is that it's not a not a pleasant
place to be and they they may have to
load the ships more lightly not not fill
them as full to avoid ships containers
falling off the side I mean someone's
going to make a killing in South Africa
finding that fuel and getting it to
ships don't you think C capital finds a
way I assume that's right I assume
people are you know always routing
around problems and and problem is an
opportunity did the US make the right
decision in Striking the houthis in
Yemen to try to ease some of the attacks
they've had I mean you just also put out
a stat that they had like attacked one
ship in a week now maybe that's because
there are far less ships there uh but
obviously like the US had the intent to
open up these shipping lanes and hit
them what do you think of the decision
to strike I I you know I'm not I I don't
get any access to any sort of Intel at
all whatsoever as a person yeah well as
as a
person you know like does it does it
solve a problem I don't know that you
can stop terrorism with uh with
missiles um so it seems it seems tough
now I'm also not going to advocate here
that we should send in ground troops uh
that's not been popular when we've done
that so I'm I'm fortunate not to be in a
position where I have to make such
decisions or answer the hypothetical
question if I was in a position because
I like I'm not I'm not qualified I don't
have any military experience or any
understanding of how to how to fight
terrorism uh it's a really hard problem
but I do I do think fundamentally it is
Terrorism once you start shooting
missiles at civilian ships I know that
they're claiming it's not terrorism that
this is legitimate that this is
legitimate
operation um of war in their mind but I
think if you shoot missiles at civilians
ships that have nothing to do with
anything then that's an act of terrorism
so oh no doubt I mean people have been
talking about how like this is a
peaceful protest because they I don't
think they've killed anybody yet which
to me is the one of the most insane
statements I've heard well they've got a
bunch of guys hijacked they're still uh
the crew of that Galaxy leader that yeah
they're still they're still in captivity
so that's yeah that's kind of crazy but
it's also remarkable how robust these
ships are they keep getting hit with
missiles and then just like keep on
going trucking on yeah yeah um you know
it's kind of remarkable that they
haven't sunk the ships um that they
haven't done more damage it would just
really suck if like that was your couch
that got hit by the hoofy missile you
know did have containers on some of
these ships and uh yeah it's it's uh
never a dull day in our industry having
to notify customers like oh your ship
was hit by a missile right now talk a
little bit about the reaction that
you've heard from people in the industry
like in your group chats and phone calls
are are they what's their reaction to
this
um what's the vibe well it's you know
it's it's very difficult I mean we had
to spend nights and weekends kind of
updating our technology our our Tech
relies on satellite data to track the
ships and a lot of these um container
ships like the first thing they did was
turn off their satellite transponders so
that it would be harder for uh the
terrorist to attack them to find them so
like the moment you need the tracking
the most is when the tracking stops
working so we had to update our attch to
like factor in ships that have gone dark
that have turned off their transponders
um and and feed that into the algorithm
um we had to detect um ships that are
far away from that region that but that
can be detected as having diverted um so
you know because you're going to divert
all the way out towards the straight of
Mala out towards um Indonesia like when
you come out that's that's near
Singapore you come out there and if you
were going through the Suez you'd go one
way if you're going around the Cape of
Good Hope You' head south across the
Indian Ocean uh and so had to build new
tech that would like identify ships that
are rerouting so that was the first
reaction was like a lot of scrambling to
help figure out what is happening which
ships are affected which containers
which customers need to be notified
ultimately um explaining to
customers not only that but huge
increase in Freight prices uh we we're
sort of stuck in the middle when the
when our costs go up we have to pass
that through to the customer and not
happy about it and they're often kind of
it became a bit of a free-for-all where
everybody's now scrambling to find
cheaper pricing or you know well less
less expensive pricing um and dealing
with all of that so it's a lot of pain
to sort all this out um and and
communicate up and down the stack and
figure out problems where you know all
of a sudden your data in accuracy if you
don't update it and you tell the
customer oh yeah your cargo is going to
arrive on this date
it's like completely wrong right wrong
by weeks instead you know you're often
it's very hard problem sometimes you're
off by a day or two here and there but
like to be off by two weeks or maybe the
container is going to a whole different
port um we saw this you know it's like
if it's going around it might not even
call a lot of the um services that would
call in the Mediterranean are not
calling anymore the ships are just
skipping the Mediterranean and going
straight to roddam for example or like
we have one customer manufacturers in
Jordan on the Red Sea and
um lost huge amount of service providing
um container services to the port of
akaba which is Jordans port on the Red
Sea uh just the the ships aren't going
there anymore um and it's been a
struggle to get them access to capacity
reliably and now it's it becomes very
compet I mean it's always a very
competitive industry but all of a sudden
every relationship is up for grabs who's
going to be better at getting them a new
service if it's they're they're going to
find someone if it's not us it's going
to be a competitor so so how did you
track the uh ships if they turned off
their satellite transponders you have
like someone like turn on like the find
my friend IPhone situation or uh no I
mean is a great question first off the
very fact of them turning it off you
know when when it was last sited so you
get a sense for that um but a lot of
what we do and what distinguishes
flexport from a pure play technology
company is that we see ourselves as a
ultimately a customer Solutions company
like a logistic service provider and so
we'll call the Carrier
uh we'll email with them we'll get
updates and we'll have humans humans
manually update okay this is the new
route for this C and and and some of it
was actually just better to have no data
than bad data so we would update as well
just saying hey it's currently uncertain
and we will update you as soon as we
have an update on this thing so um but
yeah I do think it was an opportunity
for us to distinguish ourselves from
tech only tracking and visibility
Services because they their business
model doesn't allow them if you're only
getting paid a couple bucks per
container the business model doesn't
really allow a lot of human manual
updates whereas for us we're we're
getting paid thousands of dollars to to
to lier these containers we need to make
sure that our data is right um and so we
can spend more money on on the tracking
side you Shar another statistic that
surprised me recently that cargo thefts
went up 57% in 2023 like that is a huge
jump what happened there yeah yeah
totally um really and I I I think that's
just a US figure right I haven't seen um
the global number for that I'm pretty
sure that's us figure um huge amount of
rail thefts um that we've been
experiencing as an industry uh
especially in the
southwest New Mexico there's like
apparently there's one place like 100
miles west of Albuquerque New Mexico
where the the trains have to stop for
hours and hours and these kind of like
marauding gangs have been going into the
containers and just stealing stuff um so
they open up the container while the
train has stopped grab some stuff and
get out of there yeah totally climb on
um we busted one up we we our head of
physical security used to be an FBI
agent and so he's got great
relationships with law enforcement and
we we helped law enforcement do a raid
we actually recovered one of our
customers 96% of they um they make TVs
and all these TVs got stolen and we
partnered with local law enforcement
down there I mean I don't want to
exaggerate our role like the police did
it but uh we provided them a lot of
Intel and information about the TVs and
um they managed to track them down and
recover the cover the TVs but there's
been a lot of that um I don't know also
you know 57% increase is a huge amount
but I don't know how what the Baseline I
don't know how to think about is it's
still a tiny percent of freight that get
stolen but um but yeah we're we're
definitely living in interesting times
where some of these states are just not
really that focused
on on theft um you saw a lot of this in
La too where they were just like
stealing off the railroad uh in Los
Angeles is proper and I you probably saw
those pictures like just like littered
Amazon packages along the side of the
Railway and stuff exactly yeah so so do
you think it's desperate times do you
think it's lack security I what do you
think the catalyst is cuz yes okay maybe
the Baseline is low but to see it jump
like that I wonder what's behind
it
um
well definitely I think that if you
don't arrest people who are doing this
and put them in jail that will learn the
lesson that they could keep doing it uh
and we've gotten you know at least the
California's um the an LA in particular
their da just doesn't really believe in
Prosecuting petty crime uh he's kind of
famous on record for that uh he used to
be San Francisco's da so we know him
well I live in San Francisco can't
believe La hired San Francisco's da um
so I I think that's part of it I think
that
uh there's there's not an appetite for
whatever reason politically to go take
this much more seriously um it wouldn't
be that hard to solve especially like
you've got tracking devices on a lot of
these things it' be pretty easy to put
tracking devices on the objects and then
figure out where they where they're
going and you know raid them it tends
this kind of crime tends to be a small
number of people actually doing it um
they they they whenever they study it
they find out that's a small number of
people just repeat
offenders yeah so you have an airplane
behind you for those who are listening
there's a flexport model plane uh behind
Ryan's left
shoulder what do you make of what's
happening with boing lately and would
would their problems make you wary of
working with them you tweeted a picture
of or an video of a Boeing cargo plane I
think on fire in Florida um obviously
this stuff matters to you Air Freight is
not as crucial as C but it's important
important enough that I'm looking at a
plane not a a boat behind you so what's
your take on what's going on with boing
we have we have three Boeing 747s in the
flexport fleet they're not really our
planes they're run by Atlas Air we uh
they paint them with our logo because we
we've signed long-term contracts to
commit to buying capacity from them um I
don't know I'm not I'm not in a position
to like have any inside info on what's
going on with Boeing uh I I read about
it like other people in the Press but I
don't know I don't know how much to
depend on on that it is it is sad to see
I mean a Bo's like one of the Great
American companies and it's um hate to
see them lose capacity lose SP market
share to airb as as an American I like
to see Bo our companies Thrive but I
don't have any privileged access and the
I don't think the 747s had any issues we
we the we're we're
um it seems to be uh the 737 Max that
has more issues right so you don't have
any hesitancy working with them again is
what you're saying like if you're going
to get another plane in the fleet Bo 747
I wish they would they stopped making it
the hesitancy I wish they would keep
making more 747s it's been it's
certainly the best cargo plan although
the Triple 7 um is a is a good rival for
it but those they they still have a big
lead in in uh in cargo planes for
whatever reason so 747 you not
withstanding Boeing the
manufacturer no
nerves uh no I'm I'm I I still trust I I
still think airfare air air travel in
general is remarkably safe from what the
statistics show so even I mean even the
one with the door blowing out nobody
died so yeah I mean it would have been
brutal to be sitting at the window seat
luckily there was nobody there but uh
okay so so inflation as we as we're
we're going to come towards Landing here
um no pun intended uh inflation is seems
to really be under control um and there
was a big debate about whether this was
something that was just built into the
system at this point or transitory and
waiting for like the shipping situation
to clear out so those $220,000
containers would be $2,000 and then
therefore prices would return to normal
at least stop Rising for a while now the
transitory inflation camp where they
were discredited for a while but uh
we've had the shipping lanes or our
Logistics kind of straighten out and the
prices stopped Rising as fast so um as
crazy as it is to say it do you think
that inflation slowing down has had uh
anything to do with the supply chain
sorting itself into order and where do
you anticipate us going from
here yeah that it's pretty clear that it
did have an impact I mean even just
looking at the price of a $20,000
shipping containers it's like about um I
think retail price on average rule of
thumb there's sort of like $200,000
worth of goods in a container I mean
obviously it varies completely based on
what's in there but rule of thumb on an
average basis like 200,000 so if the
price goes up $20,000 it's like a huge
increase in price of everything right um
two to
$300,000 you're getting yeah most almost
10 like almost all of inflation for
goods can be explained from that alone
um so that coming back down has been and
it's not just that the price goes up
it's just it creates scarcity and the
scarcity then you know you get to supply
and demand and and the pricing if you're
the only person that managed to import
some uh you know certain w it's like
you've got pricing power now and you can
charge people a lot for that um so
definitely it was a huge Factor the
easing of supply chain congestion has
has led to uh to a reduction in
inflation I mentioned here that the
price of freight especially Asia Europe
but even us prices are up 3x over where
they were in December for ocean Freight
back to like four or $5,000 in container
um that this would be interesting
actually first off I don't think it's
going to last I think you know as I said
before I think by the end of the year
you'll see prices com back to being very
cheap again but even if they were to
last the cargo's flowing which is quite
different than during the pandemic where
the cargo was congested and there was
huge delays and we weren't able to
access products and and and then that
creates scarcity so it's one is high
high price of freight but the other is
scarce goods and both of those can
contribute to inflation so we're seeing
higher prices of freight right now we'll
see if that last Brands will have to
pass that through but we're not seeing
scarcity um that the goods are flowing
they take longer but they flow you're
not having these like huge huge delays
and um and like manufacturing Supply
chains if if you're lacking some
component you shut down the whole line
we saw this in Europe
recently where both Tesla and Volvo
announced that they were shutting down
their manufacturing lines for a few
weeks I think they've reopened by now
but they they had to shut down their
lines because they couldn't get the
components in um and so that'll you know
that leads to that will lead to
inflation fundamentally it'll if it
lasts so I think
I we'll see I I think supply chain was a
big part of it I'm not capable I don't
know that anyone is I think you should
be skeptical of anyone who can claims
that that they know what what percent of
inflation was driven by supply side
Supply Chain versus huge amount of money
Printing and um and and other kinds of
crazy behaviors that came around during
the pandemic of people just uh spending
money like crazy but um
hopefully hopefully inflation stays low
it's a real tax on the world it's um
really really tough for for any business
to make plans when their prices are
going up all the time their components
and they're having to increase prices to
their customers you find out who has a
good business who has pricing power to
pass through uh those higher prices to
their
customers oh yeah definitely all right
well some hopeful notes on that front uh
let's talk quickly about AI so every
company has this you know now big claim
around AI and how they're changing their
businesses with AI um a lot of them are
using like old versions of AI like
machine learning and that's now part of
like the the press releases that they
can optimize but they've been doing it
forever is there anything about
generative AI that's exciting for you as
something running a business that has a
lot to do with efficiency of course some
relationships but you know can you build
on top of like a GPT model and do
anything that you couldn't have done
beforehand we are yeah we we we've
actually using um open AI
apis as well as a company called Adept
uh which their CEO used to be the head
of engineering for open AI um and so
they but we're using these the thing
that's working for us is that the fact
that we've taken you know a complex
transaction like shipping a container
from door to door and broken it down
into a series of small discrete tasks uh
in our workflow system that we build
ourselves then those tasks are simple
enough that this generative AI can
complete these tasks um and
that I think if you just told open AI
I'm sure that if you just said hey ship
this container from here to here it it
would hallucinate it wouldn't do
anything useful um but when you say hey
extract this data from this website and
put it into this data format into this
database or parse this carrier contract
we get these container uh these
contracts in Excel format with like
20,000 rows and tabs and all these if
then subject to charges uh and actually
AI is quite good at doing the simple
things like this and putting that into
your database and a structured way so
it's saving us a lot of money time being
more accurate than humans uh we're
finding major progress I think our our
team is not all of this is going to be
generative AI to your point some of it's
like more traditional ml some of it's
just like structured coding it's it
doesn't all have to be but we're finding
our team we have members of our team who
are not hype they're not subject to Hype
uh very you know realistic living and
reality types of engineering leaders who
are really believe that we're on the
verge of some breakthroughs within our
own business of automating like 20% of
the tasks that our humans have to do
every year which if if
true would would be a complete game
changer for our industry um if you can
reduce your labor physical labor cost by
20% or the human aspects of the business
of freight forwarding total game changer
for the p&l for your competitive
position to be cheaper than everybody
else Etc so feeling very optimistic
about it which like I think if you asked
me two years ago where are you with
automation I would have been had to tell
you like man it's much harder than I
thought like if we've been at this for a
long time had not made super we've made
huge strides on customer experience on
what we can do for customers on way we
can manage data but terms of the
physical processing of container
shipments we were not we were not making
massive progress until pretty recently
thanks to this um thanks to open AI wow
so it it's like an agent model in a way
where like it will like go spreadsheet
to spreadsheet and change data and like
write different takeaways and things
like that yeah well like it'll take a
spreadsheet which is like I was saying
is just like massively complex
spreadsheet and put it into a database
uh accurately like more accurately than
humans doing data entry um damn and
these spreadsheets change every week
every few weeks it's not it's they're
they're not generated by a database on
the other side they're humans entering
spreadsheet uh and so you can write code
that parses this thing but the code the
code's always breaking uh because
whatever it changes
format the code has to be Rewritten uh
whereas the llm models are able to parse
this stuff without having to get
Rewritten every time even if the
structure of the table changes wow
that's pretty cool I haven't heard of a
use case like that before it's very
interesting yeah we're suddenly very
optimistic about it we'll see we'll see
I mean it's easy to get optimistic let's
see check back in in a year I'll tell
you if it actually comes true but the
the the people who are talking to me
about this from our engineering team are
not usually subject to a lot of hype so
I'm feeling good about it well yeah I'd
love to speak with them maybe it could
be a fun story for uh big technology so
I'll follow up after this um definitely
want to get you out of here like one of
the cool things about doing the show is
like sometimes you come in with an
assumption and you talk to the people
doing the stuff and you learn that it
might not be exactly what you thought
and I think you've done that a handful
of times today um especially like just
talking quickly about the Amazon thing
like I had someone bring up to me like
you look at Amazon they have Amazon
business Amazon Freight buy with prime
Supply Chain by Amazon Amazon FBA ship
with Amazon and they're like oh there
this is a you know Collision Course with
with flexport but it's interesting to
hear your perspective on it they're more
of a closed platform you sit a layer
behind and you can work with them so
maybe it's not so much of a direct
competition that's what I anticipated
does that sound you're smile I I hope to
be great partners with Amazon we we want
to make it really easy for merchants to
get products and we think Merchants are
going to want to sell on Amazon we want
to make that really easy for those
Merchants to get products to Amazon and
to customers who are buying through
Amazon so hopefully it's not just a zero
sum game as you were saying before I
think there there's definitely
opportunity for positive sum here no
it's good to talk about it really it
really is and um so glad you made the
time so great to uh get a chance to
speak with you again Ryan and I hope
that you come back great my pleasure
great to talk to you and we'll talk to
you soon sounds great all right
everybody thanks for listening we'll be
back on Friday breaking down the news
and we'll see you next time on big
technology podcast