Flexport's CEO on Amazon & Shopify, Red Sea Shipping Problems, and Inflation — With Ryan Petersen

Ryan Petersen is the Founder and Co-CEO of Flexport, a supply chain technology company. He joins Big Technology Podcast to discuss whether his company is competing with Amazon, his perspective on Amazon culture, and why ex-Amazon leader Dave Clark didn't work out as CEO. We also discuss the Houthis attacks in the Red Sea's impact on global shipping, de-globalization, cargo theft, and inflation. Tune in for a wide ranging, deep conversation about the state of logistics and the world economy. Learn more about your ad choices. Visit megaphone.fm/adchoices

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

• 0:00Alex Kantrowitz?

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• 0:43Alex Kantrowitz?

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• 1:03Alex Kantrowitz?

  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, nuanced conversation of the tech world and beyond. Ryan Peterson is here. He's the CEO 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.

• 1:47Alex Kantrowitz?

  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 seems like it's going to become a big part of your mix. You know, you don't give away, I think it's 13% of your company, unless you're planning to go big on logistics. 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. Merchant products in front of people. And not only that, you just raised another 200 plus million dollars from Shopify a couple of months ago.

• 2:27Alex Kantrowitz?

  So also I'd point to you being Amazon's upstart and pretty interesting competitor on the logistics front. What do you have to say to that?

• 2:38Speaker 01

  Well, I haven't really thought of it that way in terms of competing with Amazon. We enable brands to thrive. I think we want to live in a world where any brand, because 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. Shopify really is the best for that, to let you run your own website, own your brand presence, have customers come to you and your website rather than going on to a marketplace like Amazon. 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. They were never going to run our marketplace.

• 3:14Alex Kantrowitz?

  Perhaps, like if you take the Shopify flexport combination, right? Storefront logistics versus the marketplace logistics that Amazon offers. That's the only competitor in the market for them.

• 3:28Speaker 01

  Well, I think we partner with Amazon a lot too. I mean, we probably like almost 10% of our deliveries go to Amazon. I think we want to be, today you can't do, 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. I think brands want to be able to sell through Amazon. Amazon's incredibly powerful for our customers that use it to drive demand. They want to be able to sell through their own website too. And so we'd like to be more agnostic that like, hey, we're providing neutral infrastructure to ship things, regardless whether you're selling on Amazon, Walmart, Target, Costco, Shopify, wherever else. So yeah, I mean, there's an element of competition there. Logistics is pretty interesting.

• 4:10Speaker 01

  Everybody kind of competes with each other while also cooperating. With each other, it's a strange world, you know, for 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. 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?

• 4:39Alex Kantrowitz?

  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 in a certain amount of channels that are out there to be bought. Like that is, it is zero sum, isn't it?

• 4:57Speaker 01

  Man, I never think of it that way. Zero sum. I don't know that it's fixed, like the number of packets. 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 a 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.

• 5:20Alex Kantrowitz?

  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 for, where to sell your products to. Let's say you sell, 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 Allbirds 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, the, the, the stores to get them their products on time. And in fact, I think Shopify acknowledges this because they've recently started allowing some of

• 6:02Alex Kantrowitz?

  these stores to, to allow their customers to buy, to buy products that have been fulfilled by Amazon with that FBA product. 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?

• 6:34Speaker 01

  Yeah, well, 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 e-comm site, 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 strictly better proposition, other than the fact that we don't own amazon.com and have all the demand that that drives. So, you know, but we're upstream of Amazon. We can distribute to FBA, distribute to Walmart, and keep that single pool of inventory and then replenish out to the edges, to these other, to these other networks. So, yeah, I mean, look, I'm not afraid of competition.

• 7:17Speaker 01

  We'd rather avoid it because it's not that important. The main thing is what can you do for these customers? We think 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.

• 7:37Alex Kantrowitz?

  Yep. 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.

• 7:50Speaker 01

  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?

• 7:58Alex Kantrowitz?

  Totally. So Shopify owns 17% of Flexport now, according to reports that I've seen?

• 8:04Speaker 01

  Something like that, yeah. Might be slightly, yes, 17, 18%.

• 8:08Alex Kantrowitz?

  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. So talk a little bit about why Shopify has become such a natural partner to you.

• 8:28Speaker 01

  Physical world logistics is really hard. And they Shopify recognize that and recognize that that we we're a great partner for them. Because that's what we do all day is physical world plus tag. And it's a it's a there's also a recognition that came around during the pandemic of what a disadvantaged small business was that in in when there are supply chain logistics crunches? That the 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.

• 9:13Speaker 01

  That, um, yeah, that 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. 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 in their partnering with someone like Flexport that through the aggregation of scale across our customer base brings that brings that scale and that expertise. Where we're, you know, we're the third largest American freight forwarding company, top 10 globally. And so we have collectively the capacity to help help these companies access good competitive price,

• 9:58Speaker 01

  access to capacity.

• 10:01Speaker 01

  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 have tech to be able to manage this like we've built. And so being able to bring that into small business sector is very, I think Shopify saw the promise for that and what it can do for their customer base.

• 10:20Alex Kantrowitz?

  Do you could talk about a potential merger? Like, it seems like it would be a natural combination of the two companies.

• 10:29Speaker 01

  Never talked too seriously about it. I mean, frankly, I told them like, I didn't think we'd it would work. My view of these things is like the company, Flex4 sells a lot to build. Like a huge amount of our values, our potential, things that we have to go and do. And what I've seen most M and A, it's very hard for the company to keep building the thing. And they can, 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, we really want to be an independent company. I think, you know, a social network for, for global trade. If you want to call ourselves that.

• 11:13Speaker 01

  It's a pretty big and valuable idea. Like if you, there's, it could definitely be an independent company. The largest freight forwarders in the world are worth 30 to 50 billion dollars, depending on the year of what Wall Street's have, Wall Street's valuing them. 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 all the business that we're building, trade finance, insurance. So when 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.

• 11:50Alex Kantrowitz?

  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 and 20,000 dollars per container. If you're a freight forwarder, right, helping those get from point A to point B, like you can definitely make a good margin on the numbers like that. But it seems like now that the containers have returned to around the $2,000, like back pre-COVID rate, the potential for the business, a lot of people say is smaller.

• 12:20Speaker 01

  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,

• 12:30Speaker 01

  led by Andrew and Horowitz and Founder Fund, actually, but Shopify wrote the biggest check in the round. 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. Made the round kind of hard to get done. Like investors are not used to seeing people projected declining revenue. It's like every, I've done a fair amount of investing in my, in private companies and every investor deck projections are always 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 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.

• 13:13Speaker 01

  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. A lot of extra ships have been, are being deployed. So, yeah, we built our business to be successful based on the long run trend of freight, not, not on any temporary spikes.

• 13:33Alex Kantrowitz?

  Right. Now, that being said, like during COVID, I mean, this is, this kind of coincides with the Dave Clark story. So you bring in Dave Clark from Amazon to be the CEO and I think, well, at the time you told me that you realized that Flexport is like 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, Flexport ended up laying off 20% of the company in time. Why, why the doubling the infrastructure and did the company basically overextend on that? Like,

• 14:18Alex Kantrowitz?

  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, back down to two.

• 14:26Speaker 01

  I don't know what the, I don't know how to think about doubling infrastructure per se. I mean, we made the acquisition of Shopify. 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. I don't think any of that's related to the price of shipping. We, we did, you know, objectively we overhired because then we ended up letting people go. We, we hired a lot of our engineering team. We grew our engineering team really fast. And I think we lost sight of the customer to some extent and recognizing that.

• 15:00Speaker 01

  The freight forwarding is, it's really about customer relationships to a degree that I don't think, it's very different from e-comm 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. 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. Several customers a day is my goal. And, and that has to run all the way through the leadership.

• 15:46Speaker 01

  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. 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.

• 16:11Speaker 01

  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, 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. And so I think that, that's where we started, our growth started to slow down while our costs were going up. And 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 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 time to get back to our roots and go focus on customer obsession and run, run a leaner business.

• 16:53Speaker 01

  I think we actually, with fewer engineers now, we're shipping technology faster too, because we're more focused and more like, yeah, if you, there's, there's real value in just like doing fewer things, but doing them.

• 17:06Alex Kantrowitz?

  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 is. Yes, of course, it's a little different than e-commerce, but if customer obsession is the North Star in Amazon and now Flexport 2, right, it's sort of, is it surprising to you that it just didn't translate?

• 17:32Speaker 01

  A little bit. I would say it's quite different being obsessed with consumers and obsessed with businesses. Amazon is famously very customer obsessed 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. Amazon does not treat the seller on their platform as a tier one customer. Their job is to help the customer at the end of the day. And I think it's a different thing to take care of businesses. Be to be like how you behave towards serving customers that are businesses is going to be different fundamentally, a different set of behaviors, et cetera.

• 18:07Alex Kantrowitz?

  Something that I heard recently, so you did flood the zone with Amazon folks coming into the company. And something that I heard recently was that Amazon's culture basically can take an average performer and turn them into a superstar inside Amazon, right? Which is all about becoming more efficient, eliminating errors and making sure that if you do make a mistake, that that'll never happen again. 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 world, different industry. I'm kind of curious if you've had any time to think about that and what do you think?

• 18:47Alex Kantrowitz?

  What do you think is, what do you think is between Amazon employees and being able to thrive elsewhere? 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 a mixed results?

• 19:02Speaker 01

  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.

• 19:12Speaker 01

  So don't have anything negative to say about them. I think 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 a set of metrics and then understand if we're not achieving them, 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. 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 it. Maybe people just need to work harder to remember them all. But that, you know, to me, it's still one of the best, I still think it's like the best company in the world, probably. And so, and, and full of great people.

• 19:55Speaker 01

  There've been, there've 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 Plexport.

• 20:05Alex Kantrowitz?

  I'm sure you've 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.

• 20:15Speaker 01

  Yeah, I do. I think, you know, by the way, they have a really hard business, like running these sites, these fulfillment centers. We're, we're running some ourselves now too, and just recognizing, yeah, 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.

• 20:38Speaker 01

  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 grow with the company, to get career advancement. Ideally, connect them to the brands that they're shipping for. I think that's something that Plexport'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 compete, but also to help legacy companies. You know, the e-comm. 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.

• 21:18Speaker 01

  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. 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. It's like the, of, they get a lot of heat in the press. But if you talk to people that work there, they tend to actually like Amazon.

• 21:51Alex Kantrowitz?

  So I want to talk to you about the Houthis and the Red Sea. So over the fall and into the winter, the Houthis in Yemen have basically disrupted trade through the Red Sea and leading to massive disruptions. And you've had like a real front row seat to that, looking at, I mean, the graphs that you've tweeted and your, your technology. You can really see what's going on there. So 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?

• 22:23Speaker 01

  Yeah, no, that's not, that's not right. I mean, we're, all the container ships are still routing around the Red Sea. Not 90, more than 90% are routing around. You're seeing prices come, start to come down a little bit. There's this initial chaos that sets in when any kind of situation like this happens. And chaos creates high costs is a simple way to put it. Now, where did that cost come from? First off, going the long way around the southern tip of Africa does, it takes about 20% longer, more fuel, a lot of complexity there. But, but, 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.

• 23:04Speaker 01

  Each of those containers has a journey of its own. It might be connecting to a different ship at a port. We call that a transshipment. 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, a 20% longer journey reduces the supply, effective supply by 20%.

• 23:34Speaker 01

  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 between December and now. Yeah. 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 a thousand bucks to ship a container from Asia to Europe before, until about mid-December, I guess, no, early December. Now it's kind of five to $7,000, depending on the origin and destination ports that are involved. 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

• 24:17Speaker 01

  that this will be temporary. Not that the ships are gonna, the ships will continue to route around for the foreseeable future until, really likely until there's a resolution in Gaza. This is highly, it's definitely a sign of the spreading of that conflict from being a very local or regional, but to a global conflict, or at least a conflict with global implications.

• 24:44Speaker 01

  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, the CEO of Maersk, which is one of the two or three largest container shipping lines in the world, said this on his earnings call last week or the week before, that, 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.

• 25:28Speaker 01

  A container worth of goods from Asia to Europe for a thousand bucks is just like so unfathomably cheap.

• 25:33Alex Kantrowitz?

  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.

• 25:40Speaker 01

  What did I say? Did I say?

• 25:41Alex Kantrowitz?

  You said for container ships, Suez transits are now down to just 7% share. Oh, from 66%. Oh, it's not that at all and just 7%, it's that it's used to be 66% of shipping now it's 7%. So that's a massive drop.

• 25:57Speaker 01

  Exactly. Massive drop. Basically, the container ships are not going through there. The couple of companies still continue to transit, especially it's CMA, which is the French container shipping line. And they're being 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. I don't know how I feel about it.

• 26:19Alex Kantrowitz?

  I did want to ask you about that. I wrote that one down as well. So you put a picture up and you said, you know, this French Navy, the French Navy just posted these photos as they escort a French container ship through the Red Sea before the American-led order that 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?

• 26:59Speaker 01

  Well, I think, I think people take for granted how remarkable the time that we live in 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 thousand bucks. It's like such a great value. It's so cheap. And it's easy to take these things for granted and forget how much they depend on peace.

• 27:20Speaker 01

  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 that 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 three or 400 years ago. And pirates were much more common, rival navies bleeding into pirates, you know, and so 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,

• 28:03Speaker 01

  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. 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 a, 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, more global trade.

• 28:31Alex Kantrowitz?

  Yeah, the last time you were on the show, you made a very strong pitch for globalization. So, but 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?

• 28:47Speaker 01

  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, the Suez being one, the Black Sea is another important one where, and Ukraine war has effectively really reduced the amount of trade on the Black Sea, which is less container trade, but more grain and commodities trade coming out of-

• 29:09Alex Kantrowitz?

  Because it's not coming out of Ukraine? Or?

• 29:11Speaker 01

  Yeah, it's been, Ukraine and the Black Sea in general has become, well, it'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, that's been heavily impacted. You've got the Panama Canal impacted

• 29:30Speaker 01

  right now by a drought and only operating at about two thirds capacity. They say it's a drought. I sort of think they, they've screwed up the engineering for it.

• 29:41Speaker 01

  There is a drought, but they probably should have factored that in when they widened it. Droughts happen, you know, it's not, I don't think it's that historic of a drought. And so the Panama Canal is only operating at about two thirds capacity. You've got, yeah, these kind of major choke points that are under, under a lot of distress right now. And even, even the, you know, the ships sailing around the tip of Africa, avoiding the Red Sea is going to be interesting to follow that. One is that like, South Africa is not really set up to service these, this quantity of ships to provide them with refuel, with fuel and other services. And then that southern tip of Africa is an extremely treacherous stretch of ocean.

• 30:26Speaker 01

  And so I think we're going to see, it's calm right now. It's summertime down there right now. Their summer is our winter, but as we head into their winter, that's when they get the bad storms. So our summertime is going to be monitoring if these ships are still routing around. We'll see how that, if that impacts them. I'm not a, I'm not an expert on, on the impact of storms on ships, but I, what I've heard is that it's not, 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.

• 30:57Alex Kantrowitz?

  I mean, someone's going to make a killing in South Africa, finding that fuel and getting it to ships, don't you think?

• 31:02Speaker 01

  Capitalism finds a way. I assume that's right. I assume people are, you know, they're always routing around problems and problem is an opportunity.

• 31:10Alex Kantrowitz?

  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, 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?

• 31:30Speaker 01

  As you know, I'm not, I don't get any access to any sort of intel at all whatsoever.

• 31:35Alex Kantrowitz?

  As a person?

• 31:36Speaker 01

  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, with missiles. So it seems, it seems tough. Now, I'm also not going to advocate here that we should send in ground troops. That's not been popular when we've done that.

• 31:58Speaker 01

  So 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 was 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. 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 a legitimate operation of war in their mind. But I think if you shoot missiles at civilian ships that have nothing to do with anything, that's an act of terrorism. So.

• 32:33Alex Kantrowitz?

  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.

• 32:42Speaker 01

  Well, they've got a bunch of guys hijacked. There's still 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 they just like, keep on going.

• 32:57Alex Kantrowitz?

  Drunk on. Yeah.

• 32:58Speaker 01

  Yeah. Um, you know, it's kind of remarkable that they haven't sunk the ships, that they haven't done more damage.

• 33:04Alex Kantrowitz?

  It would just really suck if like that was your couch that got hit by the Houthi missile, you know?

• 33:09Speaker 01

  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.

• 33:18Alex Kantrowitz?

  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 they, what's their reaction to this?

• 33:28Speaker 01

  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 container ships, like the first thing they did was turn off their satellite transponders so that it would be harder for the terrorists to attack them, to find them. So like the moment you need the chat tracking the most is when the tracking stops working. So we had to update our tech to like factor in ships that have gone dark, that have turned off their transponders and, and feed that into the algorithm. We had to detect ships that are far away from that region that, but that can be detected as having So you know, because you're going to divert all the way out towards the Strait of Malacca,

• 34:12Speaker 01

  out towards 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'd head south across the Indian Ocean. 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, explaining to customers, not only that, but the huge increase in freight prices. 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 they're not happy about it.

• 34:52Speaker 01

  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 and dealing with all of that. So it's a lot of pain to sort all this out and communicate up and down the stack and figure out problems where, you know, all of a sudden, your data and 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 of, 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. We saw this, you know,

• 35:36Speaker 01

  it's like if it's going around, it might not even call a lot of the services that would call in the Mediterranean are not calling anymore. The ships are just skipping the Mediterranean and going straight to Rotterdam, for example. Or like we have one customer manufacturers in Jordan on the Red Sea and lost huge amount of service providing container services to the port of Akaba, which is Jordan's port on the Red Sea. Just the ships aren't going there anymore. And it's been a struggle to get them access to capacity reliably. And now it's it becomes very competitive. 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.

• 36:21Alex Kantrowitz?

  So how did you track the ships if they turned off their satellite transponders? You have like someone like turn on like the find my friend iPhone situation?

• 36:30Speaker 01

  No, I mean, it is a great question. First off, the very fact of them turning it off, you know, when it was last sighted. So you get a sense for that. But a lot of what we do and what distinguishes Flight Sport from a pure play technology company is that we see ourselves as a ultimately a customer solutions company, like a logistics service provider. And so we'll call the carrier, 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. 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 was currently uncertain when we will update you as soon as we have an update on this thing. So, but yeah, I do think it was an opportunity for us to distinguish ourselves from tech

• 37:15Speaker 01

  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 getting paid thousands of dollars to deliver these containers. We need to make sure that our data is right. And so we can spend more money on the tracking side.

• 37:36Alex Kantrowitz?

  You shared another statistic that surprised me recently that cargo thefts went up 57% in 2023, like that is a huge jump. What happened there?

• 37:44Speaker 01

  Yeah, totally. Really, and I think that's just a US figure, right? I haven't seen the global number for that. I'm pretty sure that's a US figure. Huge amount of rail thefts that we've been experiencing as an industry, especially in the Southwest, New Mexico, there's like, apparently there's one place like 100 miles west of Albuquerque, New Mexico, where 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.

• 38:15Alex Kantrowitz?

  So they open up the container while the train is stopped, grab some stuff and get out of there?

• 38:20Speaker 01

  Yeah, totally. Climb on. We busted one up. We, we, our head of physical security used to be an FBI agent, 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. Ninety-six percent of that, 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 today, but we provided them a lot of intel and information about the TVs and they managed to track them down and recover the, recover the TVs. But there's been a lot of that. I don't know. Also, you know, fifty-seven percent increase is a huge amount, but I don't know how, what the baseline, I don't know how to think about it. It's still a tiny

• 39:03Speaker 01

  percent of freight that got stolen. But, but yeah, we're definitely living in interesting times where some of these states are just not really that focused on, on theft. You saw a lot of this in LA too, where they were just like stealing off the railroad in Los Angeles proper. And you probably saw those pictures like, just like littered Amazon packages along the side of the freeway and stuff.

• 39:29Alex Kantrowitz?

  Exactly.

• 39:29Speaker 01

  Yeah.

• 39:30Alex Kantrowitz?

  So do you think it's desperate times? Do you think it's lax security? I mean, what do you think the catalyst is? Cause yes, okay, maybe the baseline is low, but to see it jump like that, I wonder what's behind it.

• 39:43Speaker 01

  Definitely. I think that if you don't arrest people who are doing this and put them in jail, they will learn the lesson that they could keep doing it. And we've gotten, you know, at least the Californias, that in LA in particular, their DA just doesn't really believe in prosecuting petty crime. He's kind of famously on record for that. 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. So I think that's part of it. I think that there's, there's not an appetite for whatever reason politically to go take this much more seriously. It wouldn't be that hard to solve, especially like you've got tracking devices on a lot of these things. It'd be pretty easy to put tracking devices on the objects and then

• 40:26Speaker 01

  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. They, they, they, whenever they study it, they find out that it's a small number of people, just repeat offenders.

• 40:40Alex Kantrowitz?

  Yeah. So you have an airplane behind you. For those who are listening, there's a Flexport model plane behind Ryan's left shoulder. What do you make of what's happening with Boeing lately? And would their problems make you wary of working with them? You tweeted a picture of or a video of a Boeing cargo plane, I think, on fire in Florida. Obviously, this stuff matters to you. Airfreight is not as crucial as sea, but it's important, important enough that I'm looking at a plane, not a boat behind you. So what's your take on what's going on?

• 41:16Speaker 01

  Yeah, we have, we have three Boeing 747s in the Flexport fleet. They're not really our planes. They're run by Atlas Air. We, they paint them with our logo because we've signed long-term contracts to commit to buying capacity from them. 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. 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, Boeing is like one of the great American companies and it's, I hate to see them lose capacity, lose market share to Airbus. As, as an American, I like to see Boeing, our companies thrive, but I don't have any privileged access. And the, I don't think the 747 has had any issues.

• 41:59Speaker 01

  We, the, we're, we're, it seems to be the 737 Max that has more issues.

• 42:07Alex Kantrowitz?

  Right. So you don't have any hesitancy working with them again, is what you're saying? Like if you're gonna get another plane in the fleet?

• 42:14Speaker 01

  Boeing 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 plane, although the 777 is a, is a good rival for it. But those, they still have a big lead in, in cargo planes, for whatever reason.

• 42:31Alex Kantrowitz?

  So 747 notwithstanding, Boeing, the manufacturer?

• 42:36Alex Kantrowitz?

  No nerves?

• 42:39Speaker 01

  Uh, no, I'm, I'm, I still trust that I still, I still think airfa- air travel in general is remarkably safe from what the statistics show. So even, I mean, even the one with the door blown out, nobody died.

• 42:52Alex Kantrowitz?

  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 gonna come towards landing here, um, no pun intended, uh, inflation is, 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 $20,000 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

• 43:35Alex Kantrowitz?

  shipping lanes or our logistics kind of straightened out and the prices stopped rising as fast. So 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?

• 43:52Speaker 01

  Yeah, that it's pretty clear that it did have an impact. I mean, you 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 or $300,000, you're getting, yeah, most of, almost 10, like almost all of inflation for goods can be explained from that alone. Um, and so that coming back down has been, and it's not just that the price goes up, it's just that it creates scarcity and the scarcity then, you know,

• 44:34Speaker 01

  you get to supply and demand and the pricing, if you're the only person that managed to import some, uh, you know, certain widgets, 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.

• 44:56Speaker 01

  I've mentioned here that the price of freight, especially as you're up, but even US prices are up 3X over where they were in December for ocean freight, back to like $4,000 or $5,000 a container.

• 45:07Speaker 01

  That, this will be interesting, actually. First off, I don't think it's going to last. I think, as I said before, I think by the end of the year, you'll see prices going back to being very cheap again. But even if they were to last, the cargo is 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 then that creates scarcity. So it's, one is a 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 lasts. Brands will have to pass that through, but we're not seeing scarcity. That the goods are flowing, they take longer, but they flow. You're not having these like huge, huge delays.

• 45:48Speaker 01

  And like manufacturing supply chains, 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 had to shut down their lines because they couldn't get the components in.

• 46:09Speaker 01

  And so that'll, you know, that leads to, that will lead to inflation fundamentally, if it lasts. But hopefully, hopefully inflation stays low. It's a real tax on the world. It's really, really tough for, for any business to make plans when the 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 those higher prices to their customers.

• 46:36Alex Kantrowitz?

  So every company has this, you know, now big claim around AI and how they're changing their businesses with AI. A lot of them are using like old versions of AI, like machine learning, and that's now part of like 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?

• 47:05Speaker 01

  We are, yeah, we've actually using OpenAI's APIs as well as a company called Adept, which their CEO used to be the head of engineering for OpenAI. 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 in our workflow system that we build ourselves, then those tasks are simple enough that this generative AI can complete these tasks. And that, I think if you just told OpenAI, I'm sure that if you said, hey, ship this container from here to here, it would hallucinate, it wouldn't do anything useful.

• 47:48Speaker 01

  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, these contracts in Excel format with like 20,000 rows and tabs and all these if then subject to charges. And actually, AI is quite good at doing the simple things like this and putting that into your database in a structured way. So it's saving us a lot of money, time, being more accurate than humans. We're finding major progress. I think 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 doesn't all have to be, but we're finding our team, we have members of our team who

• 48:31Speaker 01

  are not hype, they're not subject to hype, very, you know, realistic, living in 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 be a complete game changer for our industry. 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 and L, for your competitive position to be cheaper than everybody else, et cetera. 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.

• 49:13Speaker 01

  Like we've been at this for a long time, have 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 in terms of the physical processing of container shipments, we were not, we were not making massive progress until pretty recently, thanks to this, thanks to OpenAI.

• 49:32Alex Kantrowitz?

  Wow, so 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.

• 49:42Speaker 01

  Yeah, well, like it'll take a spreadsheet, which is like I was saying, it's just like massively complex spreadsheet and put it into a database accurately, like more accurately than humans doing data entry. And these spreadsheets change every week, every few weeks. It's not, it's, they're not generated by a database on the other side. They're humans entering spreadsheet. And so you can write code that parses this thing, but the code, the code's always breaking because whatever it changes format, the code has to be rewritten. 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.

• 50:20Alex Kantrowitz?

  Wow, that's pretty cool. I haven't heard of a use case like that before. It's very interesting.

• 50:24Speaker 01

  We're suddenly very optimistic, but we'll see, we'll see. I mean, it's easy to get optimistic. Let's see, check back in a year. I'll tell you if it actually comes true. But 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.

• 50:39Alex Kantrowitz?

  Well, yeah, I'd love to speak with them. Maybe it could be a fun story for big technology. So I'll follow up after this. 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, 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, FBA, Ship with Amazon. And they're like, oh, there, this is a, you know, collision course 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

• 51:23Alex Kantrowitz?

  not so much of a direct competition as what I anticipated. Does that sound, you're smiling?

• 51:28Speaker 01

  I hope to be great partners with Amazon. 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's definitely opportunity for positive some there.

• 51:46Alex Kantrowitz?

  No, it's good to talk about it. Really, it really is. And so glad you made the time. So great to get a chance to speak with you again, Ryan, and I hope that you come back.

• 51:54Speaker 01

  Great. My pleasure. Great to talk to you. And I'll talk to you soon.

• 51:58Alex Kantrowitz?

  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.

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