Ep 133: Flexport CEO Ryan Petersen Breaks Down the Global Impact of Trump’s New Tariffs

As tariff drama continues to heat up, Ryan Petersen, CEO of Flexport (one of the hottest freight forwarders in the world) came on the show to unpack the impact. Ryan also dives deep into the hidden world of US shipping, opportunities for AI automation in logistics, reflections on building Flexport, and some supply chain conspiracy theories. (00:00) Intro (01:16) Flexport's Mission and Operations (02:28) Impact of Tariffs on Businesses (05:15) Navigating New Duties and Regulations (09:19) Flexport's Strategic Response (14:39) Challenges in U. S. Shipping Policies (28:21) Union Influence on Port Automation (40:35) National Security and Trade Negotiations (41:06) Tariffs and Business Planning Challenges (42:16) Investment Opportunities in Ports (44:02) Port Automation and AI Integration (45:09) Flexport's Big Tech Launch (47:02) AI's Role in Supply Chain Management (53:14) Digitizing Freight Contracts (58:18) Lessons from Flexport's Growth (01:09:13) Conspiracy Theories in Shipping Executive Producer: Rashad Assir Producer: Leah Clapper Mixing and editing: Justin Hrabovsky Check out Unsupervised Learning, Redpoint's AI Podcast: https://www.youtube.com/@UCUl-s_Vp-Kkk_XVyDylNwLA 🎥 Subscribe on YouTube: https://www.youtube.com/channel/UCugS0jD5IAdoqzjaNYzns7w?sub_confirmation=1 Follow on Socials 📸 Instagram - https://www.instagram.com/theloganbartlettshow 📱 X - https://twitter.com/loganbartshow 🎬 Clips on TikTok - https://www.tiktok.com/@theloganbartlettshow About the Show Logan Bartlett is a Software Investor at Redpoint Ventures - a Silicon Valley-based VC with $6B AUM and investments in Snowflake, DraftKings, Twilio, and Netflix. In each episode of The Logan Bartlett Show, we sit down with the people behind today’s most important startups and extract the tactics, lessons, and frameworks they’ve learned the hard way. Conversations span hiring to GTM, product, growth, fundraising and everything in between - collectively forming the ultimate playbook to make you a better CEO, investor or board member. Tap follow and enable notifications to stay ahead of the game.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:05Logan Bartlett?

  Welcome to the Logan Bartlett Show. On this episode, we agree here is a conversation I had with Ryan Peterson, CEO and co-founder of Flexport. I am joined in this conversation by my friend Zach Weinberg, and we discussed with Ryan a number of the implications for tariffs that are happening today, what that means for the average consumer, what the strategy might be behind these tariffs, how different businesses are implementing strategies to deal with the impact of tariffs. We also talk about the freight forwarding and shipping industry, including some of the laws that have led to some arcane structures that exist today, as well as some of the mistakes he made and advice he would have for founders as they're thinking about growing their business. A really fun conversation that you'll hear with Ryan now. Ryan, well, thanks for doing this.

• 0:50Speaker 01

  My pleasure.

• 0:51Logan Bartlett?

  Maybe for people that are not familiar, can you explain what Flexport does?

• 0:56Speaker 01

  Yeah, well, Flexport is a technology platform for global logistics. We help companies manage their imports and exports and make it simple to ship anything, anywhere, by any mode of transport. So it's ambitious, it's global. We shipped product to 147 countries last year, to and from, by any mode. So ocean freight, air freight, trucking, rail, clear customs, get it delivered and manage that end-to-end process on one platform. So the data flows in parallel to the goods.

• 1:26Logan Bartlett?

  And so you've been at this for how long?

• 1:28Speaker 01

  Officially, it's been my full-time job running Flexport for 12 years. Actually, there was like a four-year period before that where I was the only employee of Flexport. We had no investors and no customers, so I get to count that part, but no one else at the company uses those days.

• 1:45Logan Bartlett?

  Parker Conrad has a funny line that like, the line between founding a company and unemployed can be a little ambiguous in the early days of getting something going, which I always think is funny.

• 1:56Speaker 01

  I was running another company at the time, so it was kind of moonlighting, working on Flexport while I was the CEO of my prior company.

• 2:03Logan Bartlett?

  Well, I think we're going to go back and do a lot of the early days stuff maybe here at the end. But I guess just because it's so topical and you sit at such an interesting nexus of what's going on in the world, can you maybe speak to a little bit about tariffs and what your perspective is of, to the extent you have any viewpoint into the strategy behind it, but then also the implications I think are probably far more interesting?

• 2:29Speaker 01

  It's a little hard to say what the, I think we all know like their strategy, they want to remake America. I think like culturally as much as economically, they'd like to see us be a manufacturing country again. And tariffs are kind of, you have to have a carrot and a stick if you want to make that happen. Tariffs are the stick. Make it really expensive to bring something in from another country. And then there's got to be some kind of carrot, which is probably deregulation and maybe some other incentives to try to make manufacturing attractive again for, for American companies to do their production here. It's um, super, obviously, it's really hard to plan around. Companies are getting hit with these duties. And like, there's cases,

• 3:12Speaker 01

  you know, like, if the duty hits while your products are on the water, like, your financial forecast is way off. You predicted it was going to be this duty rate, and now it's this other one. And you gotta kind of eat that. If it hits everybody equally, then maybe it's just, you know, your competitors also have to pay the duty and everybody, the market just raises prices and, and, you know, you pass it through. If you're importing from a country that's got tariffs and your competitors not, that's quite a disadvantage to be at. And then ultimately, the biggest challenge in all of this is planning. Like, supply chains require some amount of time to set up and invest in and put your manufacturing and work with a factory in a certain country and set up the logistics network. And so,

• 3:54Speaker 01

  if you think that there are going to be changes, you kind of paralyzed. And I think that's a lot of what brands and companies are experiencing right now is they don't know what the future's going to hold. The, I mean, we do know there's probably going to be higher and higher tariffs on China. But then, you know, once they've started putting tariffs on Mexico and Canada, then it's kind of like all bets are off. There's probably no country in the world where you could be like, oh, my company's good. We import from Vietnam. We're not worried about the China tariffs. Like, I used to hear that a lot throughout the last few years. The moment they put tariffs on Mexico and Canada, I think that's out, that logic's got to go out the window and you should expect. Tariffs can come for any country. So that's making planning really, really difficult.

• 4:36Speaker 01

  Um, and that's the ultimate. My advice, nobody cares what I think really about tariffs, but because I'm very anti tariff. It's bad for business, but, but my advice would be getting it over with quickly. So people could get, you know, figure out what the new normal is and start planning.

• 4:49Logan Bartlett?

  Yeah. I mean, I guess I'm curious on the ground, can you just take through like a literal example? Maybe you don't need to name any customer, but like what's going on today? I think long-term the goal would be all of this semestic theoretically. And so there, but we're at this moment in time in which there's uh some, some interesting things going on at a very tactical level, I guess. Are there any interesting stories that you've heard or things you've seen from a customer base?

• 5:15Speaker 01

  Yeah. I mean, it's, it's a, it's a wild world out there. So these new duties are just hitting and companies are all of a sudden, like if you were duty free before and a lot of categories were duty free and now have duties, it meant you really didn't put a lot of effort into figuring out what the valuation of the products was. You know, you have to value the goods and there's all kinds of rules about valuation that let, that can allow you to lower the value of the goods. For example, if you put a lot of CapEx into the factory, you can like depreciate, amortize that, whatever, and apply it across the shipments, the goods that are coming out of that factory and lower their value. Cause you, you know, the, the portion that was made in that country is maybe less than shows up on the, the actual invoice. All kinds of other things, like if you imported goods into that country,

• 5:59Speaker 01

  you can, you can write that off. There's these rules about that and nobody cared if it was duty free because it was all multiplied times zero. The moment you're multiplying it times 25%, you care a lot. So there's a lot of scrambles around that. There's this huge program, which we call the de minimis exemption. It means goods that are less than $800 per item when they're imported and sold directly to an end consumer. Then it's duty free and that still exists today. Like they canceled it and then they un-canceled it and we're expecting it to get canceled again, at least for goods from China. My prediction is by April 15th or so, the next month or so is when, when I would expect that to be gone.

• 6:40Speaker 01

  That 30% of all the Shopify merchants, of all the top Shopify merchants called top 100, are using this and importing goods mostly from Mexico. The goods are made in Asia somewhere probably, but they're imported from into Mexico and then fulfilled one item at a time. So a lot of products you buy on a Shopify website is actually shipping from Mexico. That program will go away, at least if it's made in China. Now, the thing that caught everyone by surprise and set the whole, all those supply chains into a tailspin is that the Mexican government on December 19th banned the importation of those goods and shut down the program, which no one saw coming because it's like 30, I read

• 7:23Speaker 01

  30,000 jobs doing pick and pack and fulfillment work in Tijuana and on the Texas, you know, the Mexican border south of Texas. So it doesn't make sense for the Mexican government to shut this down, but they did. That at Flexport, we had to scramble because we offer e-commerce fulfillment, but in the United States, not in Mexico. We on, we doubled the revenue of that part of our business in the first 60 days of this year and have been scrambling to like be good because you're, you're importing all these goods that are not labeled correctly. You know, they're labeled for the Mexican fulfillment center, not for ours and just trying to keep these businesses above water. We had a lot of merchants, their sales went way down because they couldn't fulfill orders

• 8:08Speaker 01

  out of Mexico and weren't set up. So I think it's just like the first inning of this kind of disruption. If all of a sudden you're getting hit with duties that you didn't have before, a lot of business models won't survive.

• 8:20Speaker 02

  When you see something like this, so let's just use the example of like the tariff is on the value of the good. You've got a bunch of, let's call them shippers or sellers here that don't have like good infrastructure to, to actually value this. There's all these rules and there's a gap, right? There's like a market gap, maybe temporary, maybe long-term. How do you think about whether to go after that as Flexport? And maybe we can use the like value of good example, like strategically, is that something you go and say, hey, there's an opportunity? Let's go build. Do you look for things to buy? How do you play it?

• 8:54Speaker 01

  So we have a practice within Flexport called Trade Advisory. And it's, it's almost a bit of a consulting firm, although we've armed these people with great digital tools to like make them really good at gathering the data that's required. And then checklist to go through it all, but they're, the team members in that are between 10 and 30 years of, actually one of them has 40 years of customs experience. So they really know the insides and outs of the regulations. So it's, it's been growing that team like we're, we're hiring on that team, trying to grow it really aggressively. We're relaxing our policy of like, you have to work in one of our offices because there's a lot of talent in that part of the world. It's very niche and specialized and doesn't live where we have an office that we're letting people work from home. If they're, you know, in that, in that bucket.

• 9:40Speaker 01

  And just trying to grow like crazy, we did a webinar, we've done a bunch of webinars on customs topics. That used to be kind of boring and a few trade compliance professionals would come and 200 people, they've had over a thousand, one of them had 1,700 people show up.

• 9:56Speaker 01

  Thousand on, last week on duty, on valuation on that exact topic that like a thousand people come to learn about it. So yeah, trying to, I think, raise awareness for Flexport, do more media, you know, appearances when there's a rule change or something. I'll go on television and talk about it. So we find that all these disrupt, it makes our mission more important. It makes us kind of elevates our role and makes us more important for our customers. So it should, we should, we have, we see opportunity in it. We're not trying to celebrate it because it's bad for our customers, but it's, um, we can find ways to make it good for our business.

• 10:27Speaker 02

  So from a product standpoint, right now you go after it through this like consulting arm. How do you think about building actual software and tooling for this? Cause this is a little bit of like accounting software and some workflow stuff you have to solve.

• 10:40Speaker 01

  Well, we've been, we've been building tech for customs for, for a decade. And I mean, we started as a customs brokerage when we did Y Combinator. In fact, my pitch was we're a customs brokerage and will later expand into all these other things. So we, is it? It doesn't really change that much because we're making all those investments anyways. But like tech, for example, tech that we've built that's now more and more useful is if you import something and then you later export it. And it doesn't have to be the same item. It just has to be something that's classified in the same way by customs. So it could be two different objects. You import some phones and you export some other phones. Then you're owed a refund on the duty you paid on the way in. So we've built this AI based matching system to match your imports and your exports with each other to generate.

• 11:25Speaker 01

  It's actually generating a 20% higher refund for people than before. You know, the tech that was industry standard that's out there. That every year, there's six billion that goes unclaimed and that number is probably going to go to nine or 12 or something because the duties have gone up so much. So things like that, that just become more important. Customs workflow, I think I heard you mention that we've got, we've got 40 engineers building tech for our customs brokerage. So yeah, it's possible I increase budget for them. But honestly, the constraint hasn't really been budget. It's how many people can you make productive in such a nuanced domain for to learn, you have to learn the insides and outs of customs. I think we've shown over and over that people with experience, sometimes that experience

• 12:10Speaker 01

  is hopefully it's at Flexport, just being here for many years. But it's hard to just rant people quickly on that.

• 12:17Logan Bartlett?

  I assume the answer is kind of, it depends in some ways, but I'm curious, your customers themselves right now, especially as we've started to go after Canada and Mexico, it's not just near shoring that they could do. It seems to be like actually reshoring and trying to think about how do you get this stuff into the US? Are they, are they just running all the different scenarios out and trying to figure out like just future proofing the business for any type of volatility that can exist? Are you seeing one trend permeate across the customer base or is it too early?

• 12:52Speaker 01

  It's a little too early with the Trump administration changes. We're only talking the last, you know, a couple of months that it's come down and these things take longer to plan. And frankly, the number one reaction I see right now is a bit of paralysis of people not wanting to make a decision until there's more clarity of, you know, is Vietnam going to get hit with terrorists, is some other country?

• 13:12Speaker 01

  Over the last eight years or so, there's definitely been a huge trend of moving manufacturing from China to Vietnam, Cambodia, Malaysia, Thailand, India. These are all, those markets have seen massive growth. So, you know, that's what you would expect to continue to happen. Moving back to the US, it's gonna have to be more than just tariffs. They're probably gonna have to devalue the dollar. That it's gotta be so much, right now, the dollar is just so strong that we can just import stuff and the amount of tariffs you would need to overcome that are just like probably higher than is what's really realistic. So they have to really change the dynamics of the US dollar so that it's just more expensive to buy things

• 13:56Speaker 01

  abroad and therefore and cheaper to make things here. I don't know if that's in the makings or not, but that's, that's probably the scale of policy change or, you know, macro change that would have to happen to really bring the US, to bring it back to the United States. It's just so much cheaper to manufacture.

• 14:15Speaker 02

  I think you summed it up nicely, which is in order to bring back maybe a few thousand jobs per industry, you have to tax the entire American economy. So it's just like protectionism in reverse. Basically, it's another tax. It's just a tax and it's something we will all pay as consumers to maybe bring some extra jobs back in a few key industries. But out of curiosity, when you think about the goods that are coming in, do you have a sense of like what percentage of the stuff you're shipping are inputs to other things that are manufactured eventually in the US versus like finished goods that you're actually importing and sold here?

• 14:53Speaker 01

  We're, we have all kinds. I mean, I met with, I meet with manufacturing companies all the time where they're importing components and raw materials and things for their, for manufacturing processes. But I mean, if you looked at Flexport's customer base in aggregate, it's more, it's more finished goods for sure. But man, the, the, the ones who are manufacturing are the ones that were, I'm pushing them hard to write. You know, ladders to, right now, there's an open one. The USTR, US Trade Representative Office, has an open call for comment due March 24th, so we got a couple of weeks left, that on this policy that they're pushing to tax, to put a big fine or a fee on Chinese

• 15:38Speaker 01

  ships that are arriving at US ports. And that's the one where I'm like, trying to find manufacturing companies and say, hey, you guys, nobody cares about us, the forwarder, we, no one cares about the importers, but they care, they should care a lot that this is going to really harm American manufacturers, having to pay, like, the, the big one that they put, this, this law is crazy, or this proposal, it would cap US exports, US exports would have to go 15% of them on a US-made ship within seven years. And they're like, there are about 17 of these ships in the world, and they're all tiny. And it would cost you to ship on the US-made, US-crew ship, American-flagged ship, it would, the

• 16:20Speaker 01

  cost to ship to, that's the way you, you can only ship to Hawaii, Alaska, Puerto Rico, Guam, US countries, US territories, you can only ship on a US-made ship today, from the US mainland to those places. This is, this is the Jones Act there. Jones Act, yeah. So, like, if you want to ship a container to Hawaii, I haven't checked the rates lately, we don't, lately, we don't do a lot of that shipping, but it's usually about 20 times more expensive to ship a container from the West Coast of the US to Hawaii than it is from the West Coast of the US to China. So, just to say, I mean, putting that imposition on American exporters, saying, hey, you, 15% of your exports must travel on a US ship, it's just like, totally backwards policy. We're trying to promote

• 17:04Speaker 01

  export growth, manufacturing, you're trying to promote manufacturing growth. The one thing we know from Asia that did this very successfully over the last 50, 60 years, is they promoted exports. They didn't allow just domestic protectionism. They said, hey, you also have to export to the world Hyundai, right? Samsung, the countries that got it wrong only threw up barriers to import and protected their manufacturers domestically, but didn't prove that their manufacturing could also be competitive on a global basis and force them to go export because exports is the proof that you're actually making good products the world wants. You're not just coddling your industry and protecting it. So if we're putting up barriers to export, it's just like doing it completely wrong. You're trying to create a manufacturing base.

• 17:48Speaker 01

  You need to actually make it globally competitive, not just ride off the fact that we have this great consumer base in the US.

• 17:53Speaker 02

  What defines whether a ship is US made?

• 17:56Speaker 01

  Oh, it has to be made in American shipyard. And there are basically none left. We shut them all down. You know, we used to have them here in the San Francisco Bay area, Hunter's Point. You've seen those cranes down there. Those are abandoned, but that used to be a shipyard. Sausalito was making ships. I mean, it's kind of crazy to think, right? If you go to Sausalito now, it's like a tourist town, but it used to be a shipbuilding hub for the US Navy.

• 18:20Speaker 02

  Walk me through. So we have no shipbuilding capacity primarily because it's just extremely expensive for us to do this relative to others. Dollar strong, people make a lot of money. I'm sure there's union challenges as well.

• 18:31Speaker 01

  Environmental challenges to our coastlines, you know, California Coastal Commission, like good luck building a shipyard on the West Coast.

• 18:36Speaker 02

  Yeah. When you look at that, you know, how long would it take in your estimate for us to actually like reshore shipbuilding as a core competitive, globally competitive market? What are we talking about?

• 18:50Speaker 01

  I don't, I don't really, I don't really don't know. I mean, maybe you get someone like an Elon in here who's just like, show, you know, they built the world's largest data center in 90 days or something. And maybe, maybe there's some thing that the whole industry is missing. I assume that that's true, that, you know, the right kind of entrepreneurial founder energy could get in there and revamp the thing. But status quo, if we're just like continuing the way we do it now, it's just infinity time. It'll never happen. So you need, probably there's a policy environment. I think some of these things are good. Like we should be making ships probably if we want to have national defense. Capabilities, we're struggling, the US Navy is struggling to like, replace its nuclear submarine fleet.

• 19:34Speaker 01

  I'm like, a lot of, a lot of stories out of that world, like that, oh, it's called the littoral combat ship. It was supposed to replace like, some parts of the destroyer fleet, just like failed. So yeah, some of these things make sense, but doing it to punish American exporters is just like, not the, not the way, right?

• 19:56Speaker 02

  If you were like the trade czar, you know, like, Iran is now in charge of all like, US trade policy. What's, what's the changes you would make, let's call it like regulatory changes you would make? That grow US GDP the fastest. What's, what are you doing day one?

• 20:13Speaker 01

  Well, I actually think that the reciprocal tariffs is a reasonable approach. Like, I would try to go for more free trade, but if the, if you're doing free trade and the other guy's throwing up huge tariffs on you, like, that's just bad negotiating policy. So that, that, that seems to make sense. I think you can get people to actually lower tariff. That may result in lower tariff on both sides, because do they really, you know, what, what matters to them more? Importing, like taxing the small amount of US imports or like accessing our markets? I'm a, I'm a free trader, I, unapologetic about thinking that more trade is good, that humanity wants to trade with one another and growth will follow if you make it simple to do business.

• 20:55Speaker 01

  But I was like, you know, the current leverage or the current thing that they're doing to trade policies is, is not the thing. I mean, there, it's the, it's the leverage that they're using to negotiate other things that they care about. And so it's like, a little bit unfair to look at the trade policy in isolation and say, well, the guy's doing trade policy, doesn't get it. He's like, he might get it, but this is important for national security and. Migration, drugs, like there's all kinds of other topics in the world besides trade that they're using trade as a leverage because the American consumer market, there's nothing like it in the world. And all these countries depend on access to our, to our market for their,

• 21:36Speaker 01

  for their economies, you know, and the huge percentage of the world's developed, like the countries that successfully made it from developing to developed, did it on the backs of export led growth. Well, not everybody can have an export surplus. Like by definition, somebody's got to have the import deficit, right? And so I'm not sure on a global basis if that strategy just really works for everybody, everywhere to, to, to be export led.

• 22:05Speaker 02

  But you go after, you mentioned the Jones Act, do you go after automating our ports, building new ports? Like if you could wave a magic wand.

• 22:15Speaker 01

  Both those things. I think, you know, one of the things, regardless, it's actually more of a domestic policy, but we, we barely use the Mississippi River network. We have the Mississippi River network and America's waterlands, inland waterlands, waterways generally are, we have twice as many navigable rivers as the rest of the world combined. It's crazy. And we barely use it largely because of the Jones Act and union contracts, that if you want to ship between two points in that network, I mean, you can, the Mississippi River connects everything in, in the heartland, the central part of the United States, all the way up to the Great Lakes, and then connects from there all the way, you know, through the Lawrence,

• 23:00Speaker 01

  through the St. Lawrence River. So you can connect everything, huge parts of this country, but under the Jones Act, it has to be on an American made ship, which are too expensive as we've been talking about, American crude. You, you can't just like bring in ships from other countries and allow them to navigate those waters. I'd probably relax that. Two is under the contract of the, of the ILA, that's the union on the, that represents the East Coast. Ports, eastern Gulf Coast, including Mississippi River. So if a container is loaded and then unloaded, they have to, they have this crazy, it's called a touch fee, the very high expensive charge every time you unload or load a container. So it makes, that fee is so high that it makes

• 23:44Speaker 01

  river navigation non-competitive with trucking.

• 23:47Speaker 02

  Should we stick it all on trucks instead?

• 23:49Speaker 01

  But the, yeah, we do it all on trucks. But the physics of it, I mean, the river barge network is so much cheaper than trucking.

• 23:56Logan Bartlett?

  What's the history of that? And maybe for people that don't know, we touched on it twice, but the Jones Act, can you just give like a little bit of a primer into, into that?

• 24:04Speaker 01

  Think you'd have to Google. I think the Jones Act was 1930. It was definitely

• 24:08Logan Bartlett?

  1920 is what I just saw.

• 24:09Speaker 01

  1920. Okay. Yeah. So it was, it was, it was designed to protect American industry, shipbuilding industry. No one really likes it other than the companies that do Jones Act shipping who love it, obviously. Gives them a nice barrier. There's been some talk that the US military has pushed for it because it should protect American shipbuilders and, you know, but it's obviously not working. Shipbuilders are not competitive on a global basis and aren't able to make great, be competitive. Yeah. So it hasn't worked there.

• 24:43Logan Bartlett?

  And the main policy implications of it are, are what? Like?

• 24:47Speaker 01

  Well, the Jones Act specifically says that if you're doing transport between two domestic freight on the water, it has to be on an American made ship crewed by Americans.

• 25:00Speaker 02

  Crewed by Americans.

• 25:01Speaker 01

  Crewed by American citizens. Yeah. And so what is domestic freight? It could, is this inland freight moving in our waterways, which there's a lot of freight moving on the waterway, export of grain and oil and coal and things. Those are actually using it, but containerized negligible, almost none. So it's, so it's impacting that. But also anything going from the mainland US up to Alaska, out to Hawaii, Puerto Rico, Guam, all these outlying territories, those, they have to go on US-made ships. So, you know, that's why I go, shipping from California to Hawaii costs like 20 times more than shipping from California to China.

• 25:44Speaker 01

  And we don't make ships. We only, the largest Jones Act ships, just to put it in context, or like, call it 3,000 TEUs, about 15, that's 1,540 foot containers.

• 25:57Speaker 01

  The biggest ships, and those cost about $270 million to make. And for that same price, you could buy a 25,000 TEU largest ship in the world, if you went to Korea, Japan, or China. So we're just not at all competitive.

• 26:12Logan Bartlett?

  I'm just doing some quick Googling as we're doing this, but it looks like it was originally a military consideration, just to make sure we had the strong domestic shipping afterward.

• 26:21Speaker 01

  Well, I'm friends with some companies that do Jones Act shipping, you know, so you're out there, hey, sorry.

• 26:25Logan Bartlett?

  We were friends with them, not after what you just said.

• 26:27Speaker 02

  Not after today.

• 26:28Logan Bartlett?

  Just so to make sure we summarize this.

• 26:30Speaker 01

  I'm not convinced it matters that much to the world, to be honest, like the Jones Act, whether you have it or not. I'm much more interested in the ports that the failure to automate US ports and both the East and West Coast Unions have signed contracts that prevent further automation of the, of the American ports, just jacks up prices for everybody.

• 26:54Speaker 02

  Not just prices, to your point. I mean, it almost seems like we've moved domestic shipping from ships to trucks because of what are two, essentially like protectionist policies, the Jones Act being protect the shipbuilders, so it's protect what a few companies harm the rest of America. And then we have union protectionism, which is to protect what, how many union jobs at the ports are there total, roughly 10,000, 50,000?

• 27:21Speaker 01

  Probably about 100,000 across both coasts, in the Gulf Coast.

• 27:26Speaker 02

  Protectionism for 100,000 special people to harm 340, 350 million Americans.

• 27:32Speaker 01

  Yeah. And that's what I think, if you want to be, if you want America to be competitive, let's, let's get really competitive logistic, you know, ports make our, but I'm not, the Trump administration has been very, surprisingly very pro-union.

• 27:46Speaker 02

  It's not consistent. Yeah, it's like, we want to be competitive, but we also want to be protectionist and those two things.

• 27:52Speaker 01

  It's a populist sentiment of being the man of the people and the unions.

• 27:56Speaker 02

  Can you talk a little bit about the port automation? Like, let me give you a hypothetical and tell me why this doesn't work. Let's say I find some land, I don't know, around Seattle, like on the Pacific Northwest, and I want to build a brand new port. And let's say I get through all the environmental issues and assume they don't exist for two seconds. And I want to build a fully automated port, and I want to use, what, tech from Singapore, somewhere, it's done this right, maybe the Netherlands. Why can't I do that? Like, where, and in particular, I'm curious about the union play, but just in general, like, what other barriers?

• 28:32Speaker 01

  Well, the union, first off, the union itself claims every inch of the soil of the coastline. So they, it's not, they will stand outside and picket and protest and put up lines and make it hard for truckers to come in and out of your port. Probably, things get uglier than that, but let's not, we don't need to entertain hypotheticals, but there's a long history of violence in union action that could happen. So I think there's an implied kind of fear around that. Second is actually, so the union, the way that it works, you have this employers' organization. That's on the East Coast, called the U.S. Maritime Alliance.

• 29:15Speaker 01

  And on the West Coast, it's called the Pacific Maritime Alliance. And what that is, is sort of, well, it's the counterparty. You have the employers negotiate with the union. So all of the employers of union, like, kind of, almost unionize themselves, employers of unionized workers. So the port terminals, the ocean carriers, anyone employs these guys. That way, you can actually sit down and have a negotiation. It's not a many, it's not a one-to-many negotiation, union against all these different employers, it's one-to-one. So for-

• 29:43Speaker 02

  And the employers, the employers here being the ports themselves, typically.

• 29:46Speaker 01

  Yeah, the port, so the ocean carriers, anyone who employs union labor, those in that particular union. So the way that it works is if you were to open a port, let's say you managed to overcome the pickets or whatever, you ignore it, you fight through it, whatever, you keep the union workers out. If a ship calls at your port-

• 30:09Speaker 01

  It will not be allowed to call that company's ships will not be allowed to call at any of the other ports. That's part of the agreement that these employers have with the union that they

• 30:21Speaker 02

  They collude, they collude across.

• 30:23Speaker 01

  You have to choose as an employer to say, okay, I'm going to run this port and I'm going to run ships to this port, but it means you will not be able to run ships to any other port that's in that network. So you probably couldn't get away with just opening one port. You'd need to open a bunch so that you could say, hey, we're effectively non-union. We run this without them. We do it on our own. It's quite a barrier to entry. I mean, not, you know, ports are expensive enough to launch one.

• 30:51Speaker 02

  Just, just to repeat it, because I want to make sure I get this. So I get through all the annoyance. I put the port on, you know, Indian reservation. So I don't have to deal with like the United States and I'm ready to go. And a ship shows up that I'm ready to unload with my non-union labor at like probably one-fifth the cost and probably works harder and better. And if you unload that ship, that ship and that shipping company will be banned at every other port in the United States.

• 31:19Speaker 01

  Yeah, exactly.

• 31:21Logan Bartlett?

  And that's not a legal thing. That's a, just a collusion.

• 31:24Speaker 01

  That's part of their contract.

• 31:26Logan Bartlett?

  Yeah.

• 31:27Speaker 01

  Now, there are legal things too. I mean, I think the government, the local, these ports are run by local, owned by local governments and then they'll sublease it to you. And they will not sublease it to you if you say, I'm going to come in here and run a non-union port. The government themselves will just feel like, no, that's not possible here.

• 31:43Speaker 02

  So this is price fixing, just legalized in a sense. I mean, it's like union side of it, if you will. But, you know, imagine if it was like private port operators doing this to keep out the unions in the first place, they'd be, they'd be going to jail.

• 31:57Speaker 01

  Something like that. Yeah. So I think it holds America back a lot. I think, you know, these contracts are now signed for the next five, six years, six on the west east, and I think five more years on the west coast. The world's changing so fast from a technology landscape that maybe there's a company out there within five or six years that's in a position to To change the rules, to change the game, whether they make their own ships. Maybe it's one of these new joke, like this new shipbuilding thing in America. Hey, we're going to make our own ships go end to end, run our own ports, ignore the current system, bite through. Maybe that, maybe that happens. Maybe the automation is so good that they just turn it on one day.

• 32:41Speaker 02

  It's just interesting to me. We talk about American exceptionalism and growth and reshoring industry. And then we talk about good union jobs and we don't admit that those two are in direct conflict with each other. And one essentially prevents the other, at least at scale is what it seems.

• 32:57Speaker 01

  But Trump administration has definitely made it very clear that they're on the side of the unions in all of this. So I, and frankly, like, you know, the employers, the current port carriers, port operators, I don't think they hate it that much. Like, is there sort of a non proliferation treaty, like mutual, hey, like if, as long as I, the only reason to automate is your competitor is going to automate if you don't and you're going to lose. But if everybody agrees, we won't automate, you're like.

• 33:23Speaker 02

  No, everybody's in on it. Everybody wins, except the consumer.

• 33:26Speaker 01

  Exactly. There's no one at that table representing the rest of us, like going, hey, you know, you guys have negotiated this thing with higher fees that you're going to pass through to us. Like, you don't care that much.

• 33:35Speaker 02

  Yeah, it reminds me a lot, not that we have to go there, but it reminds me a lot of healthcare where people talk about, you know, who benefits from higher prices. And the reality is both the hospitals and docs, as well as the insurance companies, both benefit from higher prices because they have bigger dollars to go after and the insurance companies operate on fixed margin. And no one really cares that your health insurance costs go up, except the employer who has no leverage. The same idea, like when you're in it, you win from it, but it hurts everyone else.

• 34:02Speaker 01

  Yeah. So I, I don't know, I have to be careful not to, we are in it. Maybe high prices is good for flex work. I don't know. But we have to be careful to go, hey, I don't want my interests to be misaligned from like those of the. Civilization and if that ever happens, make sure that you choose civilization over your own.

• 34:20Speaker 02

  Well, high prices on much smaller volume is probably not a great thing for you.

• 34:24Speaker 01

  Exactly.

• 34:25Logan Bartlett?

  Yeah, well, it's interesting to hear this stuff at like a very downstream level. When we're dealing with all these pie in the sky kind of big picture things without seeing the ramifications just yet. I mean, we're seeing some of it flow through the market, but not actually to the end consumer and then seeing like a very tactical example of how these things manifest themselves and how it can be harmful to the consumer. I guess one question that you mentioned, we're sort of at this paralysis state right now.

• 34:58Logan Bartlett?

  At what point in what time horizon do you do customers actually think about? Okay, this is the new normal and we need to figure out how to make it work from a reshoring standpoint. Is that like a six month thing or a six year thing?

• 35:13Speaker 01

  Probably more six month than six years. They're, they're, they're, they're thinking about it every day. Think they know that this is the new normal. It's just a big question of what this is, you know? It's like, that's kind of changing constantly. But they're taking it very, very seriously. It's a C level conversation now, like logistics and stuff. It used to not be the case. One of the, one of the things I've loved about this industry is that we have massive budgets at people who are not even like not C level, maybe not even vice president. You know, it's like the only, the only industry you'll find where like someone could have a billion dollar budget and be like six levels down from the CEO.

• 35:54Speaker 01

  And but now it's like, actually, the CEO is taking a much bigger interest CFO is involved here. Where in the past they didn't get that involved. So,

• 36:04Speaker 01

  but it's just difficult, like, you know, what do I mean by difficult? It's difficult to know where should you set your main, if you're going to move your manufacturing, which country should you put it in? Two, you're going to probably have to change your prices for consumers, for your goods. How much can you pass through? What should your new price be?

• 36:21Speaker 01

  How do you allocate the costs of these things? Like, so really it could get very tactical. Like, let's say your price for the first three months of this year is low, duties are high for the second three months of the year.

• 36:34Speaker 01

  What's your accounting team going to do? Do they smooth the price out throughout the year? Do they, do they care per unit? The ocean freight price has been all over the place, been very high because of the Red Sea. We haven't even talked about that, but there've been kind of terrorist attacks on the Red Sea that have all the container ships are going around. That's raised the price of freight by about 3X versus normal. How do you allocate that to individual items within the, you know?

• 37:00Speaker 02

  Sorry, 3X the price?

• 37:02Speaker 01

  Yeah.

• 37:03Speaker 02

  Just because of the distance?

• 37:05Speaker 01

  No, because, well, because of the constraint on supply and it's a supply and demand. If you cut supply, it's inelastic freight. You know, the price goes way down, you don't ship more stuff and the price goes way up, you don't ship less stuff, you ship the same amount.

• 37:19Speaker 02

  Yeah, but I'm just, I'm not shocked by a price going up. I'm shocked by the magnitude of it going up 3X just to take a, I mean, it's that long roundabout, obviously, but...

• 37:27Speaker 01

  Well, it's not the extra cost, it's the extra market price. You know, this is the price that's gone 3X. The cost hasn't gone, the carriers are making a lot more money. The, it's about a 12% reduction in supply takes about of the world's container shipping. Is that, is taking that much longer to go around?

• 37:43Speaker 02

  Oh, because they're all in route longer. And so there's fewer, there's fewer empties available is what you're saying?

• 37:49Speaker 01

  Yeah. And the ships can per year carry 12% less cargo because they, because of the longer journey.

• 37:55Speaker 02

  And it's that in a lot, like we're moving up 3X because of a 12% supply reduction.

• 37:59Speaker 01

  Yeah, yeah. Very elastic. I mean, just think about it. If you're, let's say the price was to go to $1, you're going to ship 10 times more things? Like, no, you ship about the same amount as before. You ship as many as you could sell and vice versa.

• 38:12Logan Bartlett?

  What I'm taking from all of this is just when, when people are saying, oh, it's just the art of the deal and, you know, this is negotiating leverage and all of that. The ripple effects of this uncertainty flowing through the economy and the supply chain, like it's not just a one-off negotiating consideration because we want stronger border control or whatever the consideration for, for using this as leverage is, it doesn't like evaporate and go back the other way. Once we call it off and say, oh no, never mind, we were just kidding. We got the deal done. There's so many cascading considerations that end up just impacting the entire economy, the entire supply chain, all of that. Just

• 38:56Logan Bartlett?

  hearing it, it's, it's pretty remarkable.

• 38:58Speaker 01

  Yeah. Businesses have to be super adaptive and like... In theory, it affects all your competitors equally. So you should, you know, whoever's agile, whoever's good at understanding what's happening and moving with good decisions quickly, get it done, should have a competitive advantage. I mean, I don't think it's the end of the world for companies. It's like, but it is, if your company is just like, kind of bureaucratic and no one can make a decision and, you know, you're all of a sudden you're hit with these new tariffs and no one in your company is capable of saying, well, let's go find a new factory and set it up in a different country, or then those are the companies that are going to suffer the worst.

• 39:36Speaker 02

  Well, it's also, Logan, it's leverage for what? Like, what are we trying to accomplish? Because I was told.

• 39:41Speaker 01

  I think it's the fentanyl coming in from Canada.

• 39:43Speaker 02

  Fentanyl, yeah. First I was told it was all the fentanyl, which is like, when they talk about how much fentanyl they've seized, it's like one, one car's truck.

• 39:49Speaker 01

  Well, the fentanyl thing is very interesting. So, under USMCA, that's the replacement for NAFTA. What's the point of a free trade agreement if you can just impose tariffs? Like, I thought we had a free trade agreement. Well, the answer to that is, there's clauses in there, there's a clause that says you, any of the countries can impose a tariff for national security reasons.

• 40:09Speaker 02

  So you view it as an excuse for.

• 40:12Speaker 01

  It has to be national security. So if they want to do this, it can't be a trade negotiation. It can't be about anything other than national security. So they have to talk fentanyl, because they've declared a national emergency around fentanyl at the border. So, and that may be more true for Mexico than Canada, presumably, right? But for, but they're going to say it every time they discuss it. In order for the tariff to be legal under USMCA, they have to mention a national security issue. And so, may or may not be the actual thing that they care about.

• 40:41Speaker 02

  Well, the duration is always the thing that confuses me, right? Which is like, if we're trying to use this for leverage in a negotiation to get a deal, whatever said deal would be, then are we not, we don't care about actually onshoring some of this stuff? Because like, you need to have these tariffs on to your whole point for a pretty long time for people to believe they're going to be persistent and do giant cap acts. Like, you're going to build a billion dollar plant in the United States if the tariffs are gone in three months?

• 41:07Speaker 01

  Yeah.

• 41:07Speaker 02

  Probably not. You want to know that they're there. So which is it? Is it leverage for, you know, fentanyl? Is it reshore? Like, what are we aiming for? And it seems extremely unclear.

• 41:18Speaker 01

  Yeah, that's, you know, that's what I would push the administration on. They don't care what I think about their duties, but I think they should care a lot what the impact on businesses around the planning side of things. Like, you've got an agenda. Let's roll it out quickly as you can so we can get to what's next and people can start building against what their agenda is. But right now, where it's kind of dripping out and changing and they put it out and then unwind it, it's making it really hard for businesses to figure out what the administration wants them to do.

• 41:48Speaker 02

  Maybe totally different question, but I like the intricate details. Like, if somebody handed you like a few billion dollar check, let's call it, you could go LBO, some competitor or someone else in the stack in which you play, not yourself, because that seems cheap. But what do you buy and why? Like, what would you do differently if you owned it?

• 42:10Speaker 01

  I wish I would have had the money. It sold last week, two weeks ago, the Trump forced the Chinese company that owned, it's a Hong Kong based company that owned the ports in Panama, but they owned 43 ports around the world. Beautiful asset. Sold for 22 billion. They had, they bought 51%. So whatever, they needed.

• 42:31Speaker 02

  Of just the Panama ports or the whole company?

• 42:34Speaker 01

  No, it's 43 ports around the world. That would have been a cool thing to own. Ports are just beautiful business. Make money.

• 42:40Logan Bartlett?

  Who bought it?

• 42:41Speaker 01

  Blackstone with MSC, which is the biggest ocean carrier in the world. It's a Swiss company.

• 42:48Logan Bartlett?

  And maybe for people that like, why are ports such a beautiful? We sort of talked about some of the implications of it, but why is it such a beautiful?

• 42:54Speaker 01

  Well, it's a natural monopoly in the sense of like actual nature. Like, there's only, you know, Zach's hypothetical is like, the reality is there are not other places that have deep water, close to land. Like, it is a geographically constrained subset of places that could be a port. And so.

• 43:14Speaker 01

  At that point, you are, you know, there's only a handful. It's a natural oligopoly. Let's say maybe not a natural monopoly, but there's never going to be, you can't just open up a port. Remember the US Army tried this last year in Gaza. We built like a crazy pier and like two weeks later or something, the ocean washed it away. Like it's not, you need, there are certain places on the planet that are made protective from this power of the ocean. Um, so yeah, it's, it's, and then, um, you know, I think that port automation is an important problem to work on. So it'd be kind of cool to be, have a front row seat and actually working on it rather than just talking about it from a distance.

• 43:51Speaker 02

  Are there port automation companies you'd go and buy? Is there anyone out there that's interested?

• 43:55Speaker 01

  I actually think it's better to go full stack here. Like I thought, I think that part of the reason it's so expensive and hard is that,

• 44:03Speaker 01

  if you go work with one of the existing port automation companies, they're going to charge you like $2 billion or more to go do it. And then like actually, if you just brought in some AI folks and worked on the software layer, because the cranes, you don't need to replace the crane.

• 44:19Speaker 02

  Right.

• 44:19Speaker 01

  Like you should, you should be using the existing cranes and building a controller for it. I don't know. I'm, I'm removed from the problem. I don't work on this at all, but you asked me in a hypothetical world where I had a limited capital, what would I do? I think that would be fun.

• 44:32Speaker 02

  Somehow the unions will show up and protest whatever it is.

• 44:35Speaker 01

  For sure, for sure. You're out there, unions. I'm not working on this. Don't, don't worry.

• 44:39Logan Bartlett?

  Your kneecaps are, uh, yeah, at risk, but otherwise you're, yeah, it would be fun. You guys just launched, uh, maybe talk about like big, big batch releases of product and what you guys just did. Uh, how it relates to AI and all that stuff.

• 44:54Speaker 01

  Yeah. So, um, we just did a big tech launch where we packaged a whole bunch of stuff in the one, we're doing this twice a year now. Where you do a big release of new tech. That's the first for us. Like in the past, we were very, I wouldn't say we were incremental per se, but like the way we rolled out the tech felt a little incremental. Like, uh, we launched this thing and that thing. Even our marketing team would like often find out we had built the thing because the tech team launched it rather than get ahead of things. So doing this big, um, doing things in a big launch, it actually comes from Steve Jobs. They used to do this. I got it. Brian Chesky, who's like a huge Steve Jobs fan. They started doing it at Airbnb. He's the one that convinced me that this is a better way to, to do launches. I, I think it has like three big benefits. One is there's nothing like the power of a deadline.

• 45:39Speaker 01

  So if you don't have deadlines in your tech team, like. Then you need to create those. So people and in a positive way too. Like, hey, you want to get your story told of what you've built and get it featured. Like, you need to have it done by this date. Two is it drove a huge amount of coordination between the people selling our products, the marketing and sales team and the tech org to actually make these folks talk to each other and work together and get the story down, which I think is a sign of like organizational health, that there's more like collaboration happening in that world. And then third, we did, it worked. We got a lot of buzz. TechCrunch wrote a positive article about Flexport, about

• 46:22Speaker 01

  any technology company. That's kind of amazing. We got, we did it timed with this like big ocean, the biggest ocean freight industry conference. We launched it a week before that. So there was a lot of buzz at that conference last week about what we're doing with AI. And then, yeah, I think that AI is gonna, everyone talks about AI in all tech world. It's rightly so, the big obsession. I think Flexport is gonna be one of the biggest winners in all of this because we get, there's so much competition at the foundational model and the hyperscale, hyperscaler layer that we're just benefiting from lower and lower prices and better tech. But you need data to fine tune it for our industry. You need domain experience to figure out how to actually apply

• 47:05Speaker 01

  it, what problems to solve. We're a real end to end provider, meaning all the way from factory floor out to customers' doors. And so we can kind of cherry pick anywhere on that chain. Like, where's a good use case for AI? It might, many of these use cases are not worthy of starting a whole company around. But it solves a problem. It could be something real point specific, solves a problem on this one process. So we get the benefit of that. It's just kind of like cherry picking where we want to play, what's gonna actually work, what's the low hanging fruit. And then related to that is we're at scale where we have customers, thousands of them. So if we build an AI solution and AI product, like we bring it to market the next day.

• 47:46Speaker 01

  Whereas if you're just a pure AI company, you gotta go out and beg enterprises, design a contract and give you their data and all, you know, it's like enterprise sales kinda sucks. But we already have the customers, so we can just launch stuff.

• 48:00Speaker 02

  Can you pick one, like one feature you're super excited about and like walk us through it?

• 48:04Speaker 01

  Yeah, I mean, the simplest one is to understand is we launched this natural language reporting module. So like you can just ask chatbot, ask questions of your supply chain and answer it with data. So with graphs and lists and charts like, and you just talk to it, super easy to use in plain English, generate a report about what have I shipped? Like actually, we were talking about the port strike earlier. So we've had this internally since last September and that port strike was October. That was the first really tactical example where we were able to just in one second, one minute, ask a question, hey, what containers are gonna get stuck in these ports if the port goes on strike next week and what

• 48:45Speaker 01

  containers do I have heading to these ports or currently at the port? And because we knew in advance about the port strike, that armed our team to start taking action that these containers are gonna get stuck. Now, you could have done that. We could do this before with queer with SQL and but it just takes longer and it's not and you need like there's a smaller subset of people that are technical enough to go pull those reports. And now you're just like, anybody can do it. So we've, we've made that customer facing now before it was an internal tool. That's probably the simplest thing for people to understand.

• 49:17Speaker 02

  What did you use under the hood to actually?

• 49:19Speaker 01

  It's using OpenAI, I think GPT-4, but importantly, we didn't share customer data with GPT-4. It's just using our schema. So it's able to, it's just basically generating SQL and understands how to query our databases and generate the reports. But we have the customer data ourselves with, and people trust Flexport with their data. That's how we work. So being able and like our competitors can't do this because their, their tech is super dated. Most of them don't make their own tech. They buy. They treat it as like an IT cost center. They go buy SaaS and they have like many, many, if you go to any major freight company, try to log in, you'll see like 14 different login pages

• 50:04Speaker 01

  for all the various apps and stuff. And so it reflected on the backend, like they can't build this unified reporting experience like that.

• 50:13Speaker 02

  So the first, the first thing you go after is like free, free your data team to not do SQL queries as a service, basically.

• 50:20Speaker 01

  Yeah, it's the main, for our own teams, exactly. And we were having to, we have our own team, we have a nice reporting module. So you don't need to be that technical, but still, like these things are always a little bit tricky to use. And you end up, we're a super customer obsessed company. So like, we'll just do the report for you if your team doesn't have the report they want. And so of our customer facing team, they're probably spending 25% of their time generating reports for customers. So we're hoping that makes us way more efficient and gets better reports faster to the customer. So it should be just like a huge win-win.

• 50:52Speaker 02

  Anything on the like invoice processing PDF stuff? I was, I assumed it was going to be there.

• 50:58Speaker 01

  We've done that too. Yeah, we launched that. We digitized 1.7 million documents from shipping per year, PDFs, Excel files, bills of lading, commercial invoices, all these different things that, and AI has gotten to where now it's so cheap that I'm not even sure I care that much if it gets cheaper. More accuracy, but cheaper, it doesn't matter that much. It's, it's almost free. Well, probably today, that's for our own documents that we're digitizing for you because we're shipping stuff. We'll probably launch that as just a public cert utility that anyone can use to digitize logistics documents, get it into a database schema.

• 51:36Logan Bartlett?

  On the data side, have you found, I've heard on using the models themselves, it can be a little finicky to actually query SQL in some ways and get that into natural language. It's one of the use cases I've, I've heard companies, it makes sense intuitively, but was there anything you guys did uniquely to make that work well?

• 51:58Speaker 01

  A ton of testing and fine tuning and training. It's still not 100%. It's probabilistic. So it's generating code, SQL code, but it's generating code and that's probabilistic. So it may or may not work in each given instance. But the SQL query is deterministic. So once you get it right. It creates a dashboard and that dashboard will continue, continue to be accurate going forward. So it requires training, it requires understanding. We felt like we got it to a level of accuracy that we were comfortable putting into the hands of customers with some strong labeling around this is in beta. Maybe even this is in alpha, I forget how they labeled it.

• 52:35Speaker 01

  But we're, it's getting better by the week. Like literally, I mean, we started building this six months ago and it just keeps getting more and more accurate. So we're comfortable putting it out there.

• 52:46Speaker 01

  And I assume that that just keeps improving. One of the things that we've built internally that I want to turn into an external product is digitization of contracts in freight. The freight contracts is come in these Excel files with like thousands of thousands of rows and eight or 10 tabs and like a lot of if then statements and just huge amounts of business logic that aren't really clear in the document itself that someone who negotiated this like talked about on the phone. And so we've built, that was taking us many days to digitize a contract. And then when it would come in, every two weeks, these contracts get refreshed with new rates. In many cases, it would take several days to process.

• 53:29Speaker 01

  Well, if you're losing several days on a two week validity contract, it's like terrible. So we've got that down to minute, like two hours once life for an engineer, a lifetime for the contract. So as it refreshes, no additional engineering time. And then from there, it just will just ingest. That today is for Flexport contracts that we sign with ocean carriers and airlines and such. Probably will give that out to customers. They, they really need this because your contract, then when you get a rate, you know, your accounting team is, when you get the invoice later, you gotta do an audit and reconcile the three way match in accounting world to go, you know, this is what I was quoted, this is what actually happened.

• 54:15Speaker 01

  And here's the invoice that I received and make sure those three things match each other. And yeah, that'll be hugely popular when we start to push that. So I just infinite opportunity to apply AI. And it's probably true for any industry like the winners will be these companies that are at scale in order to take advantage of it. We have the data to fine tune things, the distribution, the domain experience to figure out how to apply this and where. But are important, but but are nimble enough with a modern enough tech stack to actually put it and talent based to actually put it to work. So it's, we feel like uniquely fortunate having spent the last decade getting to scale and being the only young company in our industry.

• 55:01Speaker 02

  When you take a product like that, obviously using it internally for your own contracts. But at some point, clearly this is valuable between any two, maybe three in the future entities that are contracting.

• 55:11Speaker 01

  Yeah.

• 55:12Speaker 02

  How do you think about pricing for something like this? If you're rolling it out, like, do you have a pricing team? Do you do market research? What's the, do you have to approve the pricing? Who signs off?

• 55:23Speaker 01

  Yeah, I would probably approve it. We, my mental model is that if something has zero marginal cost, you're better off giving it to the world that close to that and making people love you more and being more disruptive to the market. Whereas something that has marginal costs, and I think a lot about the, where does that cost come from? Is it compute? Okay, you know, price that in and but, but if it's labor cost, I make everybody factor that times two. The cost itself, and then there's like this cultural overhead burden of having a, you know, headcount that has to be managed and.

• 56:05Speaker 01

  But we're always looking for ways that, you know, you're also, what is the value that I create here and how do you capture part of it? So like in that particular product, the main thing is, yeah, digitizing the contract is one thing, but like you're, what you're really trying to do is help people run a better freight audit process and capture hundreds, million, billions and billions of dollars gets wasted effectively through poor invoicing practices.

• 56:29Speaker 01

  And I'd like to build that as a full on service and then let's capture a percent of what I saved you or got you a refund or something, right? So.

• 56:38Speaker 02

  Is freight auditing typically done with an in-house team or are there a third party like intermediaries?

• 56:42Speaker 01

  There's big freight audit companies, they're pretty big companies that do this. They tend to focus more on domestic like trucking and parcel. Ocean freight is just so messy and nuanced that it's, I haven't seen anybody like productize anything useful there, but the biggest thing on Flexport's path to profitability, the biggest thing we did last year, well, the biggest thing was probably we reduced the size of our team, but the second, close second was building out our better freight audit processes using tech like this, but also just like line by line, do not let people, you know, do not just pay bills, like everything needs to be reconciled against what it was supposed to be.

• 57:21Speaker 02

  That's what I love, by the way, 12 years in and the second most important thing you did is like automate freight auditing internally.

• 57:29Speaker 01

  Like accounting, like freight reporting is kind of an accounting business to an extent that I wish I would have taken more seriously early days because I had seen boring to me, but like every transaction, you've got 10 or 12 vendors sending you a bill and you need to make sure those map correctly to the transaction and which ones do you bill through to the end customer and which ones do you fight and challenge and, you know, putting in the accounting audit process, super important.

• 57:53Speaker 02

  When, when you think about, you, you said you wish you did this earlier, maybe like a more macro question of first five years, let's say, like worst product strategy mistake you made that you regret and kind of why, and then we can maybe do the flip of like the best one here, or we can start with the positive and move to the negative, whatever.

• 58:12Speaker 01

  Positive, um, I think, you know, we started, I told you, when I went through Y Combinator, the business Flexport was marketed, we were a customs brokerage built around modern tech stack and I still think it's the crown jewels of Flexport's business model, like this is the hub of data, therefore databases and technology, but it need expertise. That's kind of what's unique about Flexport, we're like tech plus human in ways that are, I think are really unique and that the tech only solutions tend to fail. So customs was like the heart of it. We got very early, I wanted to just be customs only and be the best customs brokerage in the world. And then someday we would expand to freight forwarding and other things.

• 58:56Speaker 01

  Year one, I would say all the brands that we would talk to about that were like, I don't want to separate my customs from my freight. And they forced us to become a freight forwarder.

• 59:06Speaker 02

  Why?

• 59:09Speaker 01

  We were talking to smaller customers and small customers tend not to break these apart. We were, if you were going to separate your customs from your freight, you would do it with like the best, most established, best reputation customs broker, not some like startup. So we had a brand problem and maybe an expertise, we hadn't built enough tech and expertise and brand for people to trust. Now we have a lot of companies that do, just do customs with us and trust us for that. But early days, that wasn't us. But I think it was more just like the types of customers we were going after were pretty small. They wanted it to be end to end, just seamless, not have to have a different company involved in the customs for each transaction.

• 59:50Speaker 02

  Did you feel like?

• 59:53Speaker 01

  So we became a freight forwarder. And I would say that was really, really positive, but also led to a lot of our pain. Cause it meant that we took on so much more surface area. Where teams had to suddenly be building across multi modes and geographies and couldn't just go like, hey, we're US only, customs only. And it spread our teams out. We did a peanut butter in the tech teams across like small numbers of people owning massive domains that they couldn't really solve.

• 1:00:22Speaker 02

  Do you view that as like a company over decision if you don't make it? Like was that life or death if you go all the way back?

• 1:00:31Logan Bartlett?

  Yeah. Could you have verticalized it or stayed there and gone up to enterprise or something? Probably not. It sounds like.

• 1:00:37Speaker 01

  I think we maybe could have if we kept our burn low and just like really kept our heads down and found a way. But yeah, there's an alternative world where that would work. Uh, I'm, but we're just like, as a culture, we're just so customer like. Dude, this customer wants us to do this thing like I, we had this idea of sort of you should, in the early days of a company, you should never get a no from customers. You should get a yes if. And the if statement might be effectively a no because you can't do the thing, but like,

• 1:01:06Speaker 01

  we would just keep coming back. Our sales team was very entrepreneurial, including me. And we were just like, well, if we can do this, they'll buy from us. And then we're like, let's, you know, 95% of the time you can't, but that 5% drives your product roadmap, drives your business evolution.

• 1:01:21Speaker 01

  And I think that pushed us really, really far. Like we got a lot of customers. We grew really fast, but also we started accumulating tech debt of like doing things we weren't actually ready for, doing things manually, doing things without, or just struggling to keep up with the customer experience side to where this is where I would actually get to the negative side of things, where mistakes that we made, we probably didn't focus enough on workflow automation, including that kind of accounting process stuff that I was talking about. Until about 2019, we made that really, really, 2018, we made that really a big, big focus area. So there's like five or six years there where we just like didn't build tech for efficiency, for,

• 1:02:06Speaker 01

  for accounting economics, unit economics, and just driving costs, ownership.

• 1:02:14Speaker 01

  And that, that we, it'd probably be a better company if we'd started that journey much, much, much sooner.

• 1:02:19Speaker 02

  What did burn get to when you, I assume part of this is just like burn stays high if you don't have efficiencies. What did it actually get to where you got scared?

• 1:02:28Speaker 01

  Uh, well, the burn got the worst under Dave Clark when I brought in a CEO who just really, we had actually become quite efficient, but he just like hired, we hired too many software engineers and grew the team too much and just kind of leaned into him. Spending money for more growth. I won't share how bad it got, but it was pretty bad. We we're now on track, thanks to like some super hard work for the company to where we should, we should, if it's very hard to predict this world, as we talked about earlier, but our financial model has us ending the year sort of close to 100 million of EBIT by the end of this, end of 2025. But it was pretty ugly. It was pretty grim for, obviously, the board kind of asked me to come back as CEO. And that's not how you plan things.

• 1:03:12Logan Bartlett?

  Was was was it a siren song of growth and just like it would take a step back to focus on the automation and instead you were just pushing forward on the desire to go faster? That sort of led to not building this out sooner?

• 1:03:30Speaker 01

  It was. Yeah, I mean, I think it was definitely growth driven, like focus on customers. Customers aren't asking you for that.

• 1:03:37Logan Bartlett?

  Yeah, that's a business problem, not a customer problem.

• 1:03:40Speaker 01

  Yeah, I was like more internally focused stuff. We it was ambitious CEO, me first, wanting to do more things. So I'm constantly launching new businesses. I think I'm a I'm an entrepreneur at heart, but like, that's all I am. And Flexport is a great platform for entrepreneurship. You say like constantly find new products that we can launch in. So we have an inventory financing, Flexport Capital, we've launched cargo insurance business, we've launched now fulfillment, trucking, new geographies, like.

• 1:04:12Logan Bartlett?

  Lot of shiny objects.

• 1:04:13Speaker 01

  Yeah, I'm like, I'm not the personality wise, I don't like doing the same thing over and over again. But logistics is like, literally, that's your job is to do the same thing over and over again, a little bit better than the last time. So some of that was definitely caused by me wanting to launch new stuff and build new things and then. Some of it was just cultural, poor, capital markets were booming. We had a lot of money. We got for a couple of years, really bad culture of if there's a problem, the answer would be like, oh, well, we need to hire someone to own that problem instead of like just freaking own the problem, you know, like go solve this problem. So way too much using hiring as the tool to solve problems.

• 1:04:56Speaker 01

  So we became overstaffed, spending too much money. That we've really reversed now. People are like, you know, I, you know, we've kept the team flat for a while. So, and we get more done with less.

• 1:05:08Logan Bartlett?

  In retrospect, is there, is there like a framework, if someone's listening and they're a CEO and they're earlier in the journey, is there anything that you've landed on of ways of making these decisions that you would impart to someone that's thinking about, hey, do I hire a body for this? Or do I actually take the time and really from a first principle standpoint, try to automate it into the product?

• 1:05:32Speaker 01

  Every business is unique. So hard for it to give generic advice, but I do know every CEO thinks that they can raise that mega round and then not spend the money, not increase the burn, that we just got to take the money while it's there. It's never happened once. You'd be the first in the history of the world. So you will, if you're raising too much money, that will lead to you spending too much money. It's just like inevitable. So be careful how much money you raise and make sure, like I, I've, I'm not, I've not advisor to a lot of companies, but some of my friends and stuff, and only a few ever listen to anything I say anyways. Like, so, you know, great CEOs sort of think they know what to do and that's what makes them great. So good, more

• 1:06:14Speaker 01

  power to them. But a few have listened to me, right? I recommend when you raise a round of capital, you should impose a 90 day hiring freeze on your team because your team is going to react the wrong way and go, look at all this money. Now we can finally go higher. Hey, what are you talking about? Like, you know, we just raised all this money. That's what it's for. Go to hire. And there's some, you need to like, kind of overweight that culturally to go make sure that your energy is still like, no, we're going to solve our problems, not some, not the money. So, but no one ever has the discipline to do that, pretty much. It's cultural as much as anything. I think the other thing that happened with Black Sports is we got, we got quite big. I fell into this trap of, I've never been a CEO. I've never, you know, like, I've been an entrepreneur all my life, but never like run a

• 1:06:59Speaker 01

  big company until I created one and or even worked in a big company. So there was a lot of, a lot of the advice I got, and I think this is largely changed in the dynamic in the world, but a lot of the advice I was getting from like, whether that's board members or other investors or other people that I would talk to is like, you need to hire a great leader. When you have a problem in an area like, it's because you don't have the right leader. Go hire an awesome executive, put them in charge of that and they'll solve the problem for you. And, and like, don't micromanage, don't get too involved in, you know, like, don't get in their way, let them run things. I think that's completely wrong. I think you should aim to promote almost entirely from within. And you should run

• 1:07:43Speaker 01

  that department yourself. Like you should, as the CEO, do tons of skip levels, be way more involved in everything, make more of the decisions, make sure your executives are making decisions. I had this idea that like, we would be this bottoms up culture where everybody could just make their own decisions and not have to have the tops down from the exec. And that was really bad. Like you got it. The leader needs to be involved in everything. I probably know this time as CEO, which I've been back for 18 months and I was only stepped out for really a little bit less than a year. I probably know 10 times more employees at the company than I did before. Like, I'm just like way more in the weeds on everything, what's happening. I define the product roadmap largely myself.

• 1:08:27Speaker 01

  I'm just setting the team's goals myself, not way less bottoms up. And people like it more actually, because the only reason you don't like micromanagement is if your boss is an idiot. But if your boss is like in tune with what's happening and helping you make good decisions, like, nobody dislikes that. So those are all like hard-won lessons, man.

• 1:08:48Speaker 02

  Maybe the last question, only because I, it's like a fascinating industry.

• 1:08:54Speaker 02

  What are like conspiracy theories about shipping or freight forwarding? Things where you're like, you know, I wonder if that's true, that are actually true.

• 1:09:05Speaker 01

  Yeah, well, some of them would probably get me killed and I'm not going to share what those would be on such a public forum. The, uh, the one that I, well, first off, what's the origin of the term conspiracy theory? Do you guys know the origin?

• 1:09:19Logan Bartlett?

  Oh, I do. Oh, man. This is like my favorite. Well, it was around in the late 1800s. It's been around for a while, but the popularization of it was the JFK assassination.

• 1:09:30Speaker 01

  The idea that, um, believing in a conspiracy makes you crazy only comes about because of JFK.

• 1:09:39Logan Bartlett?

  Post JFK, the CIA.

• 1:09:41Speaker 01

  I'd have to blame anyone who believed there was more than one shooter as a crazy person.

• 1:09:44Logan Bartlett?

  Gosh, Ryan, this is like my sweet spot. I want to do a JFK assassination podcast is what I, one topic I'm going to do this on, but post.

• 1:09:51Speaker 01

  We have to do it live from Dallas.

• 1:09:53Logan Bartlett?

  I'll go down. Oh, my gosh. I have a whole dossier.

• 1:09:56Speaker 01

  Outdoor, just sitting right there on Dealey Plaza, the Grassy Knoll.

• 1:10:00Logan Bartlett?

  There's a guy, Jefferson Morley, who's agreed to come on. He has a, he has a blog called JFK Facts that I'm a subscriber to. He's agreed to come on and I have this whole dossier.

• 1:10:10Speaker 01

  What's his aesthetic? What's this guy look like?

• 1:10:12Logan Bartlett?

  He's, he's exactly what you'd expect a guy named Jefferson Morley to look like. He's a, uh, he's a, uh, probably was a Washington Post reporter in the nineties that got into it after the, uh, after JFK, the movie came out, which led to the first round of releases of the JFK assassination files. Uh, so he was covering it then, but interesting. So, so Zach, as a, as a noob into the JFK assassination conspiracy, basically, uh, after people started to get wind, I think it was in 1967 of the Zapruder film, and it was pretty clear that, that there was something else going on in the official narrative that came out of the Warren Commission report on the JFK assassination. It didn't actually hold up. Uh, there was

• 1:10:57Logan Bartlett?

  a memo disseminated internally from the CIA about talking points of how to discredit people that, uh, believes the Grassy Knoll and the two shooters or three shooters or whatever it was theory. And so the original like popularization of conspiracy theory actually came out of the CIA trying to disprove something that seemingly is true by all.

• 1:11:19Speaker 01

  Yeah, because associating conspiracy theorists with insane people comes from that because, you know, there's like conspiracies all over the world. I have a conspiracy with my executive. Conspiracy is just a group of people that are operating in private. I have a conspiracy with my executive team to do all kinds of stuff. I don't tell everyone what we're doing, right? It doesn't make us crazy. Now, the, we will change to some shipping related conspiracy in a second, but the, the official CIA historian came out a few years ago and said that the CIA did not cooperate with the Warren Commission fully. So now, the official story is that there was a conspiracy. If you don't believe there was a conspiracy to cover it up, then you are the conspiracy, you are the crazy person.

• 1:11:56Logan Bartlett?

  You know, it's funny, it's like, it's, it's, the official account has been, so it was repudiated in 1976 where they went back and looked at, based on the Zapruder Film official release to the public, they went back and opened a commission, I think it was called the, it was something about assassination commission and they looked into MLK, RFK and JFK and they basically concluded that more probably than not, there was more than one shooter. They also concluded that like, it's factually that the CIA did not cooperate.

• 1:12:27Speaker 01

  Yeah, they admitted that.

• 1:12:28Logan Bartlett?

  Yeah, it's, it's admitted and it's just like factually, but at the end of the day, everyone goes back to like the textbook Warren Commission 1962, 63 report on all of this.

• 1:12:36Speaker 01

  My dad's the only one who I know who still believes in the official story, but.

• 1:12:40Logan Bartlett?

  There are some people, it's like not quite as mainstream. It was ironically enough, it was like more well-known that it wasn't officially the way it happened in like the late 70s than it is today. We go through these bouts of history where Zapruder Film comes out, public gets aware, then there's a commission on it and then everyone's aware, then people forget, then the JFK movie comes out, everyone's aware and then it goes back the other way. So.

• 1:13:03Speaker 02

  It's an advertisement for Red Point LPs. This is the level of diligence that Logan and team do.

• 1:13:10Logan Bartlett?

  Yes, I, I literally have a dossier that makes me seem like a very crazy person internally because I've had this conversation with so many people and I come off like a raving lunatic every single time. So I had to just document all of it, just so anyone that's interested, I just hand it to them. I'm like, just take time and go through all this. So.

• 1:13:30Speaker 01

  Yeah. Well, there's a, a plug, I'll tell you, if you're in Dallas, you gotta go Dallas, investigate for yourself. Go in person, right? You can't manage through layers of, you gotta go in front lines. So you go down to Dealey Plaza and there's a guy, he's a very overweight gentleman. Wearing sweatpants who will be there every day with this like rainbow umbrella that he sits under and he sells magazines about what really happened. You give him 20 bucks, he'll take you on a tour of the plaza and show you where the other shooters were hiding and what mafias they were affiliated with and everything. So I recommend going to Dallas.

• 1:14:09Logan Bartlett?

  The mafia affiliation stuff is just like, it's, it's

• 1:14:13Speaker 02

  Well, I'm just surprised where you're like, you weren't like, yeah, I've been four times. I know him.

• 1:14:19Logan Bartlett?

  This is, you know, it's funny is this came up. So we had to redo our website and they asked like, what's a conspiracy theory you believe in? And I was like, this is, I've been waiting 37 years of my life for this moment, this question to get asked of me. So.

• 1:14:34Speaker 01

  So, okay. So shipping related ones. Um, actually I have a great one that, um, so the Panama Canal is only operating at two thirds capacity for the last couple of years. And when you ask, the official story for why is there's a drought and the Panama Canal runs on freshwater. A lot, a lot of people don't know this. The Suez Canal runs on saltwater. There's no locks. It's just the Mediterranean and the Red Sea are connected at sea level and you just go right through. The Panama Canal is freshwater. So you have to go through locks, you go up a hill and then back down the other side. So it requires the country of Panama to have a lot of fresh water. You actually travel through this big lake in

• 1:15:18Speaker 01

  the middle of the country that's fed by all the rivers of Panama. And in 2015 or 16, I forget, they, they widened the Panama Canal to handle wider ships. And several, a couple of years later, we're told there's a drought and we don't have enough water to operate at full capacity. And so, uh, the big, we can't, we can only run it about two thirds of its theoretical capacity. And they're blaming it on this drought. So I found the timing of this to be quite suspect. Right after they widen the canal, you widen it, more fresh water is going to flow out. And right after is when they stopped being able

• 1:16:00Speaker 01

  to operate it. So I started doing my own research on the drought in Panama. And if you Google Panama Canal drought or Panama drought, 100% of the articles about the drought, the source is the Panama Canal Authority. Which like, since one of these guys the source of weather data and what's happening with with the rain. So I found a couple of guys who have their own little home weather stations. I'm still, I haven't done enough work. I'm pretty busy. I'm gonna keep researching this. In fact, I'm taking my team down to Panama in June. I'm planning to do some more homework while we're there. But I found a couple of guys with their own home weather stations. You know, those little devices you can buy that measure the rain. And there's been no drought discernible at all. In fact, we've had record rainfall in

• 1:16:43Speaker 01

  the country, at least on these guys' houses for the last few years. And so I'm, I'm pretty convinced that they're so embarrassed by their engineering failure of widening the canal without adequately counting for how much water they would need, that they're blaming climate change and drought for what's actually an engineering failure and that the Panama Canal should be operating if, if they just designed it properly. So we'll see. We'll see. I don't have enough evidence yet. Couple of backyard weather stations.

• 1:17:16Speaker 02

  There's no like economic reason to run under capacity, right?

• 1:17:20Speaker 01

  No, they need to run more ships through there and make more money.

• 1:17:23Logan Bartlett?

  This is gonna be the longest drought of all time. It's just, at some point, it has to come clean.

• 1:17:30Speaker 01

  Well, you keep blaming climate change forever. So.

• 1:17:32Speaker 02

  Yeah, I'm just surprised that you have to go find some dude's local, like measuring rain.

• 1:17:39Speaker 01

  I haven't put that much effort into this. I'm sure there's some other better sources. If you're out there and you know how to get Panama rain data, send it, send it to me. I wanna see it.

• 1:17:46Logan Bartlett?

  There's a guy, there's a guy with a rainbow umbrella and sweatpants sitting next to the Panama Canal that you can go see.

• 1:17:51Speaker 01

  Whenever I Google it, it keeps coming back to the Panama Canal is the source. I'm like, no, I'm trying to find other sources of data about this. So.

• 1:17:58Speaker 02

  This can be the new test of the next gen OpenAI models, whether they can figure this out just on research.

• 1:18:04Speaker 01

  I assume they're getting polluted by the same sources. I need to get, yeah, like Climate Corp or whoever. We gotta find out who has got good rain data on Panama. I'm sure it's out there.

• 1:18:14Logan Bartlett?

  Well, Ryan, thanks for doing this. This was fun.

• 1:18:17Speaker 01

  Yeah, my pleasure. Thanks for having me on.