Trade War Scorecard: What's Changing, Who's Winning, What's Next — With Ryan Petersen

Ryan Petersen is the CEO of Flexport. Petersen joins Big Technology to discuss how the latest round of tariffs and trade-war maneuvers are rewiring supply chains worldwide. Tune in to hear him unpack everything from 145 % “Liberation Day” duties and $5 K containers to the death of the de minimis loophole and what it means for Amazon, Temu, and Shein. We also cover the Panama Canal drought, AI that robocalls 400 K truckers, warehouse-robot reality checks, and why customs fraud just became the DOJ’s No. 2 white-collar priority. Hit play for a rapid-fire scorecard on what’s changing, who’s winning, and what’s next in global trade. --- Enjoying Big Technology Podcast? Please rate us five stars ⭐⭐⭐⭐⭐ in your podcast app of choice. Want a discount for Big Technology on Substack + Discord? Here’s 25% off for the first year: https://www.bigtechnology.com/subscribe?coupon=0843016b Questions? Feedback? Write to: [email protected] 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?

  This episode is brought to you by Genesis. What does it actually take to put Agentic AI to work across an entire enterprise? I recently spoke with Genesis chairman and CEO Tony Bates about why orchestration is emerging as a competitive advantage in customer experience and what companies need to get right in the AI era. Then I sat down with Adam Mitchell, head of enterprise business solutions at Voya Financial, to go inside a large-scale Agentic CX transformation, including the business decisions, trade-offs, and lessons along the way. You can watch both conversations now on my YouTube channel today. It's never been more challenging to get frontier compute. How do you know where to look, who to trust, or how much to pay?

• 0:43Alex Kantrowitz?

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• 1:03Alex Kantrowitz?

  Has Trump's wave of tariffs, or the threat of them, changed the global supply chain at all? And are big tech companies like Amazon and Apple in any different position today than they were before the inauguration? We're joined today to talk about it all by Ryan Peterson. He's the CEO of Flexport, and he's here with us in studio to cover this all. Once again, it's great to have you on the show, Ryan.

• 1:25Speaker 01

  My pleasure.

• 1:26Alex Kantrowitz?

  So, talk a little bit about what's happened. We're months past Liberation Day. It's kind of funny to even be talking about it because it's one of those news events that started with this big promise of massive tariffs and then subsequent pauses.

• 1:42Alex Kantrowitz?

  You have an unbelievable view as the CEO of Flexport because you can see how cargo and shipping is moving around the globe. Is anything fundamentally different today than it was before Liberation Day?

• 1:57Speaker 01

  Yeah, well, if you're a brand that's importing goods, especially from China, your tariffs are higher. We've had a 30% tariffs are currently 30% plus whatever was pre-existing, so. That's a pretty big deal. I mean, it's cost one of thirty percent, but it's way better than immediately after Liberation Day. Remember, they ratcheted it up to one hundred and forty five percent, and it stayed at one forty five. This is on Chinese made goods coming to the US. It was at one forty five for five weeks. And so during that five week period, the the volume of cargo from China to the US dropped by sixty percent. Just a massive decline. And that's a big part of, likely a big part of why they ratcheted it back to thirty, was it was sort of, this was a decoupling rate. That was a rate at which these economies would decouple

• 2:42Speaker 01

  in a very non graceful, unplanned, kind of potentially catastrophic way. Now, since the tariffs got relaxed back down to thirty percent, we've had a eighty percent increase in volume from China to the US above the pre tariff levels. See, that's like the classic bullwhip effect. You had a huge decline, and now this surge. Now, it's starting to come back down a little bit, regression to the mean, but we're still well above the original volume levels because we've got that five week period where it was down so much that needs to be made up for by more cargo coming in. So some of these things, their net result has been much higher freight prices. There's not enough cargo, not enough ships to move that, all those, all that cargo, so price gets bid up.

• 3:27Alex Kantrowitz?

  Very similar to COVID.

• 3:29Speaker 01

  A little bit similar. It's kind of like a micro, micro COVID. The difference, I think the big difference with COVID is that people were buying way more stuff. Whereas in this period, because they were at home, there was a lot of stimulus, there was a shift from goods onto services back in, or sorry, from services onto goods back in COVID, that we're not, there's none of that. So it's like, yeah, your costs went up, your supply chain disruption is there without the silver lining of like, well, at least people are buying more stuff. So if you're in a brand's position, it doesn't feel like COVID really. I guess the other big thing is-

• 4:00Alex Kantrowitz?

  So you get the higher cost without the higher interest. Before you move to the other thing, the during COVID, like actually right after COVID, or maybe mid, it was about twenty thousand dollars to bring a container in from China to the United States. It's gone back down, it went back down to around one and a half, two thousand?

• 4:19Speaker 01

  Yeah.

• 4:20Alex Kantrowitz?

  When things normalized, what is it now?

• 4:22Speaker 01

  Um, I didn't check this week. I've been traveling, but it's probably five thousand or so from China to the US.

• 4:26Alex Kantrowitz?

  So not something that we're going to immediately see in higher consumer prices?

• 4:30Speaker 01

  It was at two a couple of months ago, before the tariffs hit.

• 4:33Alex Kantrowitz?

  Two and a half times.

• 4:34Speaker 01

  It has gone up quite a bit.

• 4:37Speaker 01

  But yeah, I think that the tariffs are and the shortages, if any, from that five-week period of no shipping, be more likely to contribute to tariffs, to inflation than

• 4:49Alex Kantrowitz?

  The tariffs themselves.

• 4:50Speaker 01

  Yeah, or than the freight prices. But I think all of this gets relatively smoothed out. I mean, 30% from China, it's set to go back to 54% on August 18th. I want to say 18th is the 90-day, because it's just a pause on the China stuff. So you had a pause of 90 days from April 8th for rest of China. You had 90-day pause till July 8th, and then a 90-day pause for China that ends in August 18th. And that's when the tariffs will go back up if no deal is worked out by those dates. So those things could be very disruptive and lead to inflation.

• 5:34Speaker 01

  But current level 30%, it feels like brands will mostly absorb that and not pass it. They'll pass it through a little bit, but it's, remember, this is 30% on the cost.

• 5:43Alex Kantrowitz?

  Right, what they pay.

• 5:45Speaker 01

  What they pay.

• 5:46Alex Kantrowitz?

  And not what we pay. And I think that typically a company will mark up what they get from China by, what, three times?

• 5:52Speaker 01

  Three times is a reasonable assumption. So that math says, okay, you might see a 10% increase in your price of things from China. It's not nothing. It would probably feel that. Some of that will get absorbed likely with factories discounting things in order to stay competitive. Possible currency move, I think this is what the Trump administration would like to have happen. Well, they'll spend, no matter what happens, they'll make it seem like that's what they wanted, if you listen to them.

• 6:19Alex Kantrowitz?

  Mission accomplished.

• 6:20Speaker 01

  Yeah, yeah, yeah. So if the currency, if China devalues their currency, they go, cool, we didn't hurt inflation. But of course, if they devalue their currency, it makes us, it makes our exports even less competitive. They'll be, it'll be harder for them to buy our stuff. So it makes it easy for them. Either way, it's, either way, they can spin it and say, well, if they devalue, great, no inflation. If they, if they let their currency appreciate, then we'll say, hey, look, now they're buying more stuff. So.

• 6:46Alex Kantrowitz?

  Do you think we were at a good equilibrium beforehand? Or do you think that some action was needed to, to be taken?

• 6:53Speaker 01

  I think the problem is very real that the Trump administration is addressing of imbalanced trade and.

• 7:00Alex Kantrowitz?

  So talk through that.

• 7:01Speaker 01

  Yeah.

• 7:01Alex Kantrowitz?

  Explain, explain exactly why they were upset.

• 7:02Speaker 01

  Well, I think you want, I, I try to operate from this principle. I, I forget where I heard this. I think Charlie Munger perhaps is the first person to share this was like, you don't want to get in any argument with anybody unless you feel like you can make their point of view better than they can. So I try to avoid arguments unless I feel reasonably like I could make their argument. So from steel manning it or taking their side, the Trump administration's position on this is they've got three or four very valid points. I think first off, the United States manufacturing base, like if we don't manufacture, right now China produces 40% of the world's manufacturing output. US post

• 7:42Speaker 01

  World War II, we were at 47%. So they're close to the level of economic, kind of from a production standpoint dominance that the United States enjoyed when we were the single, basically the hegemonic superpower.

• 7:54Alex Kantrowitz?

  What's the US's percentage of manufacturing?

• 7:56Speaker 01

  I think we're down to like 16 or something. I forget that exact stat, but it's, it's pretty, it's, and it's falling really fast. So that's valid. And from a national security standpoint, if you can't produce things, you can't, you know, you can't produce cars, you can't produce tanks. Your car, in a, in a war, your car, your car factories become your tank factories and on down the line for a huge range of things, pharmaceuticals, healthcare, like a lot of stuff. If we're dependent, then we're less secure. So I think that's valid. Two is if you look at currency and leaving aside China, but so just look at Vietnam, for example, where Vietnam has had this manufacturing boom for the last five years, about 20, 30% growth annually each year.

• 8:42Speaker 01

  Their currency is the Vietnamese dong and it's pegged to the dollar. It hasn't appreciated it at all. And in any kind of a free market economic system, that much, that many more dollars flowing into the economy, that much foreign direct investment and, and purchasing of their goods, you would have an appreciation of the dong. It would, it would go up and that would help to self-regulate the trade between these countries and it would make. So they're clearly, you know, they are literally pegging their currency to the dollar, which means they're manipulating their currency to give them and their manufacturers an advantage.

• 9:12Alex Kantrowitz?

  So can you, can you outline that? So if it's kept artificially low?

• 9:16Speaker 01

  Makes their stuff cheap and so we buy more of it.

• 9:18Alex Kantrowitz?

  Okay.

• 9:18Speaker 01

  And it makes them buy less of our stuff because they can't afford our stuff. So that's, that's reasonable. I think that's valid. It's then, at the end of the day, it's industrial policy. These are government policies designed to help their manufacturers and at the expense of our manufacturers. The, the, another one would be sort of environmental regulations are way more lax in these countries than ours. We're putting all kinds of environmental controls on our manufacturing and permitting and whether it's carbon emissions, especially in Europe, but all sorts of environmental regulations that they don't have. And so that's, that's hurting ourselves. They'll, they can point to suppression of organized labor movements or even just like cultural things. I mean, China, you work six days

• 10:03Speaker 01

  a week. It's cultural and is a government, I don't know. In Korea, it used to be national law. You had to work six days a week. That's, that's putting them, putting them at a real advantage from a production standpoint. Then you can also look at our, my mom is actually a biochemist that helps companies with food safety regulations. So she's super deep in this of in Europe, they don't allow genetically modified foods for scientific health and safety reasons. But the Trump administration, the US government's stance has always been, well, these are kind of pseudoscience, fake science. Our argument from our scientists is, hey, these foods are safe. And you're just doing it actually to protect your farmers,

• 10:46Speaker 01

  to protect your production processes, etc. I mean, I, I, I'm, I'm a fan of that. I don't really want to go to France and just see like all these nice farms wiped out. I want to go there on vacation, enjoy my, enjoy the scenery of the quaint little farming village. But I get the point. So you make a long list of things. Now, the question is, is, is now from a, from the Trump administration's perspective, tariffs are the best.

• 11:12Speaker 01

  Easiest weapon, maybe that's too strong of a word, but easiest tool in the toolkit to use to combat this. So it's not necessarily, yes, it is also true that their tariff rates on US goods are higher than our tariffs on theirs, but it's actually all these non-tariff barriers to trade that make it, that give their manufacturers an advantage over US manufacturers. And tariffs just happen to be the easiest way to respond to that because it's simple and straightforward. So then the question is, is this effective? You know, you have to judge outcomes, not by their intentions. The problem is real. I can state those things. Question is, do tariffs, putting up tariff barriers actually increase American manufacturing or leave it the same or decrease it? And what we've seen over the last few weeks is

• 11:56Speaker 01

  it's going to decrease American manufacturing. Wait, why?

• 12:01Speaker 01

  Because you have a huge number, if, because these supply chains are very globally interconnected. And so for example, US, if you're manufacturing for export, well, you have to import the goods and pay duties on the components. And then your product is now more expensive to produce. And if you instead produce that, those goods in Mexico that didn't have the tariffs on Chinese goods, you wouldn't, your cost would be lower. Not just the labor cost, but you wouldn't have to pay the tariff. So anybody who's exporting, this is really hurting them. You're adding a lot of complexity. People are moving goods all around. So you're actually, you know, at the end of the day, United States labor cost is just not going to be competitive

• 12:44Speaker 01

  for a large range of products. And so, yeah, okay, maybe, maybe, it's hard to read the Trump administration's intentions in this, but the result is we're not giving the market enough clarity of what the tariffs will be when. And so if you did want to move back to the US, you're kind of paralyzed right now because the environment's changing so fast. We're, you know, Latin America's got a 10% duty rate. Is that going to go up or down? We don't know. If you thought it was going to stay. Probably, you know, you want to just set up in Mexico for your plant. But if it's going to go up a lot, then maybe you set it in the US. But we don't know what's, it could change any day now, any week.

• 13:28Speaker 01

  And so you don't have the certainty that you need to make investments in the United States. And you'd follow that up with like, maybe it's just inherent in the US system. It's difficult to give people such uncertainty, such certainty because will Trump win them? Will the Republicans win the midterm? There's this Supreme Court case that's going to get worked through. Does he even have the power?

• 13:47Alex Kantrowitz?

  The tariffs legal?

• 13:48Speaker 01

  Are the tariffs legal? The Constitution makes very clear that the tariffs are in control of the Congress, not the presidency.

• 13:55Alex Kantrowitz?

  And that he was able to implement them because he has emergency powers to tackle fentanyl? Is that sort of the argument that they have?

• 14:01Speaker 01

  They use that for some of the tariffs. So they use that fentanyl emergency.

• 14:04Alex Kantrowitz?

  For China?

• 14:05Speaker 01

  For China, for Mexico, Canada.

• 14:08Alex Kantrowitz?

  Okay. And the rest?

• 14:09Speaker 01

  That one's not being challenged, actually.

• 14:11Alex Kantrowitz?

  Okay.

• 14:11Speaker 01

  That's not the lawsuit that they lost. The rest, they used, just a national security argument in general, that trade deficits were a national emergency.

• 14:19Alex Kantrowitz?

  Okay.

• 14:20Speaker 01

  And therefore they could just apply a blanket on everyone. That's the one that they lost the court case and it's going to get, going to work its way to the Supreme Court over the next six months or so. Or some timeline.

• 14:29Alex Kantrowitz?

  So it's very interesting what you're saying is that there were, there are companies that manufacture in the US, maybe US producers, but they have to import some of their components from abroad. And they can't, there's no American manufacturer that's going to produce, let's say some, you know, certain type of nut for a air conditioner, right? Let's talk about an industry we do well. We love air conditioning. Maybe that's, you know, one of, one of the great American industries. So you could end up seeing those air conditioner manufacturers move to Mexico because they won't have to pay the import duties on those nuts and bolts that they use for their unit.

• 15:02Speaker 01

  Yeah, and especially if they're selling that, if they're exporting it to the rest of the world. Because there, you know, if, when, if they were just for the US, you'd now you'd have to import it from Mexico and still pay the duty. So it doesn't save you much. But if you're selling to Latin America, you're selling to Europe, you don't want to bring stuff to the US because you'll have to pay this duty on the components and jack your price up. There's also a lot of exemptions in the system. So like, we, I work with a customer, one of our customers makes bicycles in the US. And under the current setup, bicycles can be imported duty free, but bicycle components cannot.

• 15:39Speaker 01

  So they've decided after a decade of manufacturing in the US that they now have to produce overseas because they can import the finished goods and not pay duty, but if they import the components, they have to pay duties. So I mean, I've seen a dozen examples in the last few months of companies that were producing in the US and decided to stop.

• 15:56Alex Kantrowitz?

  That's crazy.

• 15:57Speaker 01

  And I've seen nobody who said, oh, okay, as a result of this, I'm going to set up a plant in the US. There's some headlines, you know, he gets people to come to the White House and talk about it. And I'm not saying those people aren't real, but I haven't met with them. And all the ones I've met with are like, Ed, this is totally derailing my business.

• 16:12Alex Kantrowitz?

  But I would think that it would lead more to come to the United States because you talk about uncertainty. Well, the certainty is that if you manufacture in the United States and you sell to the United States, you have zero.

• 16:23Speaker 01

  If you can get all of your subcomponents made in the US, that's true. It's just that these manufacturers are all ecosystem driven. There's like subcomponents and it's very hard to replace them. You know, it's very sticky and electronics in southern China, it's like you drive down the street, you can find every component you want. You don't have to make everything yourself. You're assembling things. But yeah, I mean, we have to judge policies by their outcome, not their intention. I think that's the thing that everybody seems to get wrong in DC all the time. They got good intentions and then actually they screw things up. And economies are not really meant to be centrally planned. That said, I made the case why there's some very legitimate things, problems in the US trading

• 17:05Speaker 01

  system that need to be addressed. So kudos to trying to solve them. But I just think the way that it's being done is just very abrupt and not giving companies enough time to plan. If you were to instead go, hey, this is where tariffs are going to go on a multi-year time horizon, and like, it's going to go up every quarter by this much, start moving and like, give people just more clarity of where things are going to go. I think... Businesses could adapt to that way better and set things up in the right direction.

• 17:35Alex Kantrowitz?

  Yeah, no, it's interesting. I was gonna ask you, like, have you seen actual movement of capital? You know, one country to the other. And I I'm actually surprised to hear you not say that there's any that's come into the US, at least from among your customers.

• 17:48Speaker 01

  Not amongst our customers. I haven't seen any flow into the US, but I'm seeing a ton of movement out of China. That's the one thing that was very clear in all the directives is like, hey, tariffs on China are here to stay.

• 17:57Alex Kantrowitz?

  Okay.

• 17:57Speaker 01

  They're much higher than the rest of the world.

• 18:01Speaker 01

  That's a long-term trend. Also, just on labor costs, like Chinese labor, you're not in China anymore for cheap labor. Like, you're there because they're the best at manufacturing things.

• 18:11Speaker 01

  Which is really interesting story over the last 20 years, that they became the highest quality manufacturer.

• 18:16Alex Kantrowitz?

  Right.

• 18:16Speaker 01

  Not just that, not they're not the cheap labor anymore. So it's but brands are now exploring rapidly. Okay, I need to set up in Southeast Asia. Vietnam's growing like crazy. Thailand, big winner. All Asia, India. But it's hard for them to pull the trigger on long-term investments. I think I think crazy to pull the trigger on a long-term investment until you have more clarity of like, what, where do duty rates land on rest of world? Can they get some longer-term view? Can they settle down and just be like, yep, this is the new normal instead of at least give me two, three years until the end of the Trump administration so we can plan what that looks like if it's changing every couple of weeks.

• 18:59Speaker 01

  It's a little crazy to absorb the pain. And then if you have to move your supply chain twice, it'll be a nightmare.

• 19:06Alex Kantrowitz?

  That's right. Is it, in these other countries in Southeast Asia, you mentioned Thailand, Vietnam. Is it local manufacturers that these companies are working with? Or is it Chinese manufacturers?

• 19:19Speaker 01

  Mostly Chinese manufacturers.

• 19:21Alex Kantrowitz?

  So talk about that. This is a very important point.

• 19:23Speaker 01

  Yeah, it's mostly Chinese companies setting up, setting up an entity in the country, hiring. Many cases, actually, getting the workers have to learn Chinese, Vietnamese workers.

• 19:33Alex Kantrowitz?

  Really?

• 19:34Speaker 01

  Chinese managers. They give them some period of time to learn Chinese if they want to keep their job.

• 19:41Speaker 01

  That's and and Chinese companies have been setting up factories all over the world to do this.

• 19:46Alex Kantrowitz?

  Can I just say that if your goal is to have this national security side of this, which is you don't want your manufacturing to be controlled by a single country, AKA China. And so therefore, therefore, you put up this big trade barrier with China, but you still have Chinese companies running your operations in Vietnam or Thailand. Aren't you just as susceptible to those national security risks?

• 20:11Speaker 01

  For sure. And it's, you know, our legal systems are difficult to work around that because customs has a legal definition of what's made in Vietnam, and it doesn't. You know, company is Vietnamese, is Vietnamese entity. The work is done in Vietnam. We have this thing called substantial transformation because actually it's not just that. It's that all the subcomponents are made in China, too. They're shipping them down to Vietnam. And applying enough value through other components that are made in Vietnam, plus the labor costs. It's called substantial transformation. So there's like a legal definition of what means what makes made in Vietnam on a product.

• 20:45Speaker 01

  It was they're doing the bare minimum, you know, it's still largely a Chinese product being assembled in Vietnam. So yeah, I think that's very, very valid of like, if you really solved your problem, not really.

• 20:57Alex Kantrowitz?

  I've had this galaxy brain idea that maybe Apple to sort of deal with some of the blowback they're getting from the Trump administration. For moving their production from China to India and not the US, that they would just send the boxes to the US for like some final assembled in the US stamp. But it has to be more than that. By hearing what you're saying, it has to be.

• 21:18Speaker 01

  It's about the percentage of value.

• 21:20Alex Kantrowitz?

  Right.

• 21:22Alex Kantrowitz?

  Can't they argue that it's valuable, it's a branding value for them to say this is finished in America and therefore?

• 21:27Speaker 01

  I'm not, I'm not a customs expert, but our team has many customs experts on it that explain it. And it's, it's a hard, it's a relatively high threshold to clear to become made in. But, you know, even the Indian iPhones and whatever, it's still like, most of the components are coming from China.

• 21:42Alex Kantrowitz?

  Okay.

• 21:43Speaker 01

  Though, of course, right, this semiconductor is coming from Taiwan. These are very global. There's parts that are made in America. I think this.

• 21:51Speaker 01

  And the IP and the ownership, it's. Some of these rules are really like antiquated relative to the complexity of the modern global economy and you look at even the customs, it's called the harmonized schedule. This is how goods are classified to determine their duty rate. Every good has one and only one HS code, harmonized schedule code. And that says, okay, you know, your shoes has a different code. If it's like rubber sole versus leather, you know, all the different things. Well, there's like 180. If you actually go look at this code, you can see how old it is. I mean, it's going back to the 1800s or whatever.

• 22:33Speaker 01

  I mean, it really got formalized with the World Trade Organization in the 60s and 70s and 80s. But there's like, the electronics code is like this thin and the clothing code is like that thick. Because at the time that this was invented, like clothing, you know, you have every type of variation and then all of electronics is like tiny little set of variations. It creates, I don't know, oversimplifications that go into it of like, and also really interesting opportunities, like people trying to claim that this is, computers are exempted right now.

• 23:07Alex Kantrowitz?

  Right.

• 23:08Speaker 01

  There's a computer in everything. So everybody in the world is trying to claim that this is actually a computer. It's not a watch, it's a computer. And then you get, you know, how do you get, I've seen a lot of different people trying to play these games and for good reason, you know, if you can get 0% duty instead of 30%.

• 23:22Alex Kantrowitz?

  And do customs agents go along with that? Like that watch is a computer?

• 23:25Speaker 01

  You have to go through.

• 23:27Alex Kantrowitz?

  Like your garment has to be a computer, right?

• 23:29Speaker 01

  There's a process that you go through to get what's called a binding ruling from customs. So you can get them to rule on your product and say, yes, I, it is this. So yeah, that's what, a big, actually Flexport has a business that's completely backlogged right now. To try to help this. Trade advisory where we have consultants that are experts in all these things. I mean, I'm really at the chauffeur knowledge level here and just sharing you what I'm driving the, I'm the chauffeur driving the experts around and listening to what I hear them say. I'm not an expert on, on all the ins and outs of customs regs, but I know enough to be dangerous.

• 24:02Alex Kantrowitz?

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• 24:46Alex Kantrowitz?

  Head to AVpoint.com to see how enterprises deploy AI with confidence. Learn more at AVPT.co/bigtechnologypodcast. That's AVPT.co/bigtechnologypodcast. There's another component to this, another game that companies are playing where they're faking the cost of the goods that come in and trying to enter some other arrangement with the factory. Like you pay like, uh, let's say you have a thousand dollar, uh, air conditioner just to keep going. It's expensive one. That's what you're paying to, you know, that's your cost of the unit.

• 25:27Alex Kantrowitz?

  Some now, now some companies are playing games like sell it to me for a hundred dollars, the actual machine, but I'll pay you a $900 per unit, like service fee or consulting fee.

• 25:40Speaker 01

  It is a felony to break customs law and you should really work with.

• 25:44Alex Kantrowitz?

  I'm not doing this.

• 25:45Speaker 01

  I know, I know, I know it's not you, but this is a message to all the. Be careful what you do. It's a, there's a lot of games you can play and they're not, it's not a good idea unless you make sure you have good legal advice about these types of things because customs will come after you. It's a felony.

• 25:59Alex Kantrowitz?

  And are there a lot of people sitting in US prisons for customs felonies?

• 26:04Speaker 01

  It's their, no, the DOJ has said it's their number two area of white collar crime that they are investigating. Their number two priority, number one is healthcare fraud and number two is customs fraud.

• 26:14Alex Kantrowitz?

  Wow.

• 26:15Speaker 01

  And that's the announcement they made a couple of months ago that this is their, so expect it. Enforcement's at an all time high, they're ratcheting it up.

• 26:23Speaker 01

  And yeah, I think you don't want to, don't want to mess around. These guys have guns.

• 26:27Alex Kantrowitz?

  Yeah. So this, this is something that happened alongside the tariff levies.

• 26:30Speaker 01

  Yeah, and they're gonna jack up enforcement.

• 26:34Speaker 01

  So, and there are, there are legal ways to reduce your valuation of your goods.

• 26:39Alex Kantrowitz?

  What are the legal ways?

• 26:41Speaker 01

  Well, you can get, if you, if there's a US come goods that are inside of that, you can deduct that portion. You have to go through all the right paperwork processes and show it. You can, what's it called, an assist if you do CapEx into the factory or you've got some of the R and D. For it, again, I'm not a, I'm not an expert, but it's a, our Flexport team has a lot of expertise in this. It's called, this general practice is called trade advisory. So Flexport has a trade advisory group that helps people with this, but there are other lawyers and some of it's in law firms. Other logistics companies and customs brokers have this practice that can help brands do this.

• 27:19Speaker 01

  You want to make sure you're partnering with somebody good who can, it's like, you know, you can make some case that it's a lot like representing yourself in a court of law. Like, yeah, you could do that, but like, maybe it's good to get a lawyer if there's any kind of gray area in what you're involved in. And it's kind of like that.

• 27:33Alex Kantrowitz?

  Totally. All right, folks, in case it's not clear, Ryan runs Flexport. We should have done a deeper introduction, but you've been, this is I think your fourth or fifth time on the show. It's tech-enabled freight forwarding. So you believe in the global system because, well, I guess maybe philosophically, but also that's your business. Just by, you know, definition, you're into that idea. I want to ask you, just like, we've talked about this a couple of times, but again, it gets to this question of if you do the design, like the US does a lot of the design of products at home. And then manufacturing abroad and then they ship it. Globally, are you getting a good deal if that is your economy?

• 28:12Speaker 01

  General, yeah, I mean, it's done really well for us. And if you look at the profit pools, like Nike designs their stuff in America, markets it, brands it, it's produced, I think largely in Vietnam and other parts, Southeast, other parts of Asia, probably all over the world these days. But, you know, the amount that they pay for the shoes, I don't have any inside knowledge on Nike, but you can, there's public reports on this stuff, like the vast majority of the profit on the shoe is actually accumulating to the brand, to the design, to the shareholders. And

• 28:49Speaker 01

  just pretty clear, like a system that's led to a lot of prosperity in the United States and globally, frankly. I think that my big problem with the way that this is all addressed is it's a lot of zero sum, negative sum mindset conversation where like in trade, both sides win by definition. That's why we're doing trade. And it's just like, we shouldn't lose sight of that. The fact that both parties are made better off when you do a trade in free market economics. Now, that where it becomes complex is when you go, wait, but if their government is intervening in the market, then shouldn't our government intervene in the market? That's kind of the Trump administration's

• 29:32Speaker 01

  perspective here is like, hey, you know, I listed all those ways that their governments may be intervening. So it's not a free market. And therefore, do we want our government to come and be free market? Or come and be, put our thumb on the scale and help American companies win more? I, I just think it's a bit naive. Like, you know, the reality is, let's say, What we want is cheap stuff. Like as a buyer, as a human being, you like, you want to have more things that are cheap and affordable. Like, it really pissed me off when Trump said like, oh, you know, you only need two dolls instead of $20 or whatever.

• 30:10Alex Kantrowitz?

  It really got your blood boiling.

• 30:12Speaker 01

  But like, my daughter, she wants more dolls, I promise you.

• 30:15Alex Kantrowitz?

  Yeah.

• 30:16Speaker 01

  Um, and i- if you have to spend more stuff on that, because it's made in America, the, if I have, if the dolls are made in America and I gotta spend, I can only buy two of them. And I gotta spend more of my income on that. I have less money to spend on other stuff, which will go to other people in America. Like, it's, you know, I'm gonna be buying other, now I'm buying less things. It's a very simplistic kind of like, it's very hard, it's a complex adaptive system, the economy. It's a very complex ecosystem of moving parts and second order effects that are really hard for a central planner to ever figure out. We, the Austrian School of Economics is correct. Like, we should not screw with this that much.

• 30:58Alex Kantrowitz?

  The one, I, I just want to do one quick follow up to that, then, then we'll go to break. I mean, we've talked about capital, so factories, manufacturers, we've talked about shipping, we've talked about trade and stock. But like, the other side of that is, is labor. And our system's capitalism, I'm pro-capitalism, right? Sure you are as well. And, but I think like, part of that is, the, the, two of the gains will go to the, the gains will go to the people who own the capital. But the other side of that is, they're, they also needed a labor force in some way to help make the things. And when you've separated in some ways, the capital becomes less about the factory, more about the idea. And the labor is elsewhere, then that divide leads to some unhealthy dynamics in a society.

• 31:42Alex Kantrowitz?

  Does, does that, what do you think about that?

• 31:44Speaker 01

  That's what Karl Marx said.

• 31:45Alex Kantrowitz?

  Well, I mean, I'm not suggesting communism is the right way to solve this.

• 31:49Speaker 01

  Capitalism itself is a Marxian term, it comes from Karl Marx, is the inventor of the term capitalism. Uh, and, you know, you talk about free markets, where people are free to buy and sell what they want, because it makes them better off if they do that. That's like, labor, what is labor? I mean, we're, we're all part of labor. This idea that cap, I, I don't know, I've never met a capitalist. All the people I know who have a lot of money also work really hard. They're also like, involved in labor. Um, this, this like, very odd distinction, like, what am I, a capitalist or am I a worker? Because I work harder than anybody I know. Am I a capitalist?

• 32:24Alex Kantrowitz?

  I think, well.

• 32:24Speaker 01

  I don't have much money.

• 32:26Alex Kantrowitz?

  You're probably gonna beat me in this argument.

• 32:28Speaker 01

  I know, it's okay.

• 32:29Alex Kantrowitz?

  But I just wanted to just talk it through. I think, look, I think you are, you can work really hard. But if you own the capital, then you're gonna end up getting much further ahead than somebody that comes in for a paycheck and is pure labor, labor. Like, of course, if you own, if you own the capital, you're also working, but.

• 32:50Speaker 01

  Yeah.

• 32:51Alex Kantrowitz?

  I don't know.

• 32:51Speaker 01

  I don't know, I think we also take the first, you know, people who own the company, they're the last ones to get paid too. I mean, when companies lose money, the.

• 33:00Alex Kantrowitz?

  The bigger the risk, the bigger the reward.

• 33:01Speaker 01

  The employees will get paid and the owner doesn't get anything, right? And so there's, there's some degree of like, oh, you get paid last, not first. Uh, and yeah, you take more risk. Uh, now, I, so yeah, I think.

• 33:17Speaker 01

  I, I, I personally, I just think that we'll be better off if the government intervenes less in the economy. Now, there are certain reasons why, there's good reasons for the government to intervene and provide ju- uh, uh, a sense of justice or like real justice, enforcing laws, uh, safety, defense. There's a lot of public goods where, that are under provided by a free market. Like, these are all valid reasons. We need a government. I'm not, I'm not like some anarchist by any means. Um, but it really is very, very tempting to ask the government to come and make our lives better. And they almost always screw it up.

• 33:57Alex Kantrowitz?

  Right.

• 33:57Speaker 01

  And like, it's very funny to see now the Republicans are the ones.

• 34:01Alex Kantrowitz?

  That's a different position for them.

• 34:03Speaker 01

  It's very different.

• 34:04Alex Kantrowitz?

  And by the way, my, my suggestion is not like government has to fix this. It's more just like, we're in a very, you are somebody who sees this more than most. It's that we're in a very unique system where you, I think that, that Marx is, I, I haven't read Marx in detail, but I think his argument was capital takes advantage of labor. What I'm saying is, we now have this global system and you're talking about how it's, it's advancing, right? Where you have. Capital in one area, labor in one area. So, I mean, where, where does, and labor will always be the thing that gives the employment to the masses, you would think.

• 34:39Speaker 01

  By definition, if you want to use that.

• 34:40Alex Kantrowitz?

  Yes. So then what happens to the people? I don't, I don't think this is like, this is like an accusatory question. It's just like, something that's kind of fun to explore with you because you have a position.

• 34:51Speaker 01

  I don't know. I, I just think the economy is so much more complex than people want to give a, you know, a simple answer.

• 34:57Alex Kantrowitz?

  That, that we know. I mean, we know that for sure now. The tariffs have illuminated that.

• 35:01Speaker 01

  Yeah. And that's the problem with all attempts to intervene is that usually make it worse.

• 35:05Alex Kantrowitz?

  Okay. All right. We're going to talk about some intervention on the other side of this break, which starts with the closing of the de minimis loophole and maybe the end or the dissolution of the power of Timu and Shein and how Amazon is going to handle all that. We'll be back right after this. And we're back here on Big Technology Podcast with Ryan Peterson, CEO of Flexport. Ryan, I, I, you know, we've talked for quite some time about trade and global, global regulation and some fun stuff about capitalism and labor before the break, which I don't regret. I'm glad we did that. But I want to talk to you now about like some of the real bread and butter tech issues, which is that this de

• 35:47Alex Kantrowitz?

  minimis loophole, which allowed Shein and Timu to ship to US customers a sizable amount of merchandise without duties, that loophole is gone. And I'm curious if you can share a little bit about how that has changed things in terms of the way that Americans buy.

• 36:06Speaker 01

  Yeah. So the de minimis loophole said, I don't like calling it a loophole. It was just part of the, it was just in the

• 36:13Alex Kantrowitz?

  A law.

• 36:13Speaker 01

  It's in law. It's in the regulations. It was passed by Congress. It said that goods less than $800 are not subject to customs duties or, and it can be done with a very informal customs entry where you don't need to provide as much data about who made the goods and a few other data points that aren't required. But the main thing was the duties. So in that is now going away. Now, what happened? The way that companies took advantage of that program was they shipped either direct from China or other countries into the US. So you'd order from the big famous brands on this, or Tmoo and Shein, but Amazon, Walmart, a bunch of other companies were doing this at scale. You'd buy the goods, they would fly them over in bulk. So you're doing like air freight in

• 36:56Speaker 01

  bulk, clear the goods through customs one at a time. So there's no duty and each individual item is less than $800 and then deliver it to your house. So you'd get slightly slower shipping than if it was coming from an Amazon FC fulfillment center, but much lower cost because of the duty avoidance. So that's like the famous case was shipping from China. But actually, what a lot of people don't realize is a huge percentage of the world's apparel, of the American apparel brands had set up fulfillment in Mexico and Canada to do the same thing, only they would do ocean freight from wherever the goods are made, deliver to Mexico, deliver to Canada, and then fulfill one item at a time from Mexico and Canada.

• 37:38Speaker 01

  So that's gone away for Chinese made goods. Effective on May 2nd, they shut that down. It is imminently, we don't know when, going to go away for goods from everywhere else in the world. And the immediate result is a huge surge of needing to put fulfillment, wanting to put fulfillment back in the United States. There's no reason to fulfill from Tijuana. It's pretty far. You're shipping to New York from Tijuana. You're better off having a fulfillment center in the middle of the country or have one, you know, on each coast. So that's been a big drive. That will, that is resulting in more jobs in the United States.

• 38:19Alex Kantrowitz?

  Ah, we found them.

• 38:20Speaker 01

  Good job. Like if you're measuring a policy based on its actual outcome instead of its intention, that was a good one for that, for its own intentions. I'm anti tariff in all their forms, anti taxes. So I think, I like the old.

• 38:34Alex Kantrowitz?

  You want to ship.

• 38:34Speaker 01

  I like the old exemption. It's like, hey, less taxes. I'm not celebrating more taxes. But and a lot of our customers were using this or now are put in a bad place with companies, cost them like 10 million more per year.

• 38:46Alex Kantrowitz?

  How?

• 38:47Speaker 01

  Well, now they have to pay duties. They weren't before.

• 38:49Alex Kantrowitz?

  They were, but they were doing 10 million of. How is it gonna cost them 10 million?

• 38:54Speaker 01

  Well, cuz it's 30% duty versus zero.

• 38:57Alex Kantrowitz?

  Right, okay.

• 38:58Speaker 01

  Easily, at a reasonable sized company, easily get you to 10 million dollars.

• 39:01Alex Kantrowitz?

  Okay.

• 39:01Speaker 01

  Um, and it's fine, level playing field, it was kind of a crazy weird rule that.

• 39:08Alex Kantrowitz?

  You almost said loophole.

• 39:09Speaker 01

  Yeah, I attempted to call it a loophole. Um, it was, it was a strange setup that like, on some level, it's like, creating, it, it's actually a very good illustration of like, the market will find a way. People are creative. It's my lesson for all of our customers too. It's like, hey, you're in the same level playing field. The rules are changing, but they're changing for you and all of your competitors at the same time. And so you got, whoever's the most creative, makes the best decisions, can find a way to win when there's a lot of change, like what we're seeing right now in tariffs. And like, the de minimis thing is an example of that, like 10 years, it went from, see if I can remember my stats on this. It went from 100,000

• 39:52Speaker 01

  packages a day to 4 million packages a day in the last decade, clearing under de minimis. Now to 70% of that was China. So now, you know, we're, we've eliminated 70% of that in the last month.

• 40:08Alex Kantrowitz?

  Does Xi, do Xi and Timu survive?

• 40:11Speaker 01

  Well, they're very big global companies, first off. So, yes. Um, and they're already finding ways, you know, they have to pay duties, but they're just back to being a level playing field. So I think you're gonna see them, one, produce in other countries, and two, just pay the duty and continue to compete. Their goods are not that expensive. They have a low cost of production, so they, they'll have, they're, they're gonna be well positioned, actually. Um, because they're better at producing things in Asia than American brands are. So.

• 40:41Alex Kantrowitz?

  What about Amazon? I mean, I heard you recently say that 60% of Amazon sellers are in China.

• 40:46Speaker 01

  Yeah.

• 40:47Alex Kantrowitz?

  Is, is Amazon exposed?

• 40:49Speaker 01

  Very much so.

• 40:50Alex Kantrowitz?

  So talk about that.

• 40:53Speaker 01

  Yeah, it's it. You know, I lived in China 20 years ago and sold things and I was actually an early Amazon seller.

• 40:59Alex Kantrowitz?

  Oh, third party?

• 41:01Speaker 01

  Yeah, I was one of the first because I remember the day that they announced with the day that they allowed third-party sellers, I was like, I thought it was the most amazing thing in the world. I could go add products to the Amazon catalog and it would just show up.

• 41:10Alex Kantrowitz?

  Were you selling your motorcycles through it?

• 41:12Speaker 01

  Uh, furniture, actually.

• 41:14Alex Kantrowitz?

  Okay.

• 41:16Speaker 01

  I don't think we sold motorcycles, but furniture. We've sold a lot on eBay Motors for the motorcycles. That was still, I think that's still bigger than Amazon for that category. But I remember thinking, like, even back then, these Chinese factories, they make all the products. They don't really need me, except they don't know how to do marketing, and especially not online marketing. But the moment they figure that out, I'm making all this margin and they don't need me anymore. And, you know, fast forward, there's a famous email in 2015, I don't know how famous it is, but it's an email, internal Amazon email that's got surfaced recently, probably through a lawsuit or something. I'm not sure why this email's public about their, how incredible the growth of their Amazon, of their Chinese seller ecosystem is. And that they're gonna lean hard into allowing Chinese sellers to

• 42:01Speaker 01

  reach, that they, the Chinese sellers have realized that Amazon is the conduit to reach the American consumer with no middleman, and that Amazon is a go-all-in on making that possible back in 2015. And it's just dramatically accelerated since then. So, they've got some exposure, one from terrorists, but two, just like, political exposure. It's a kind of a bad look if you're in the Trump administration to see these guys who are just like, really helping Chinese sellers at the expense of their American sellers. And they were very explicit, like, hey, our American sellers are not gonna like this, so let's keep the, let's not make a big scene about it, but we're definitely gonna help the Chinese sellers

• 42:40Speaker 01

  compete. And, yeah, it's become very difficult for a US brand to compete on there because the Chinese are gonna be better at producing stuff in China than you are. And if they're just as good at selling online, they win. Right? Like, you don't have a, you don't have a great competitive position.

• 43:02Alex Kantrowitz?

  But Trump hasn't said anything about Andy Jesse or Bezos. He's been focusing on Tim Cook. So you think there's like a real political vulnerability there?

• 43:08Speaker 01

  Yeah, I mean, remember they put the tariffs in, oh, they, Amazon said they were gonna list the tariffs as part of the price, and he called them, oh, he used a really bad word, we should pull it up, but it was like,

• 43:21Speaker 01

  I think he called him an unpatriotic company or something like that.

• 43:23Alex Kantrowitz?

  He did attack Bezos.

• 43:24Speaker 01

  Treasonous, I think he called him treasonous, which by the way, I thought was a mistake. They should have said, yeah, we're showing you the tariffs. So that you know, you should buy goods made in America, then you'll have no tariff on those goods. They could have framed it, they could have spun it a lot better, but instead they just backed off immediately.

• 43:37Alex Kantrowitz?

  Yeah, well, apparently it was something, I spoke to the company as something that was like floated internally, but was never gonna, but that could just be spin. I don't know. It was, it was serious enough that it made its way out to the press, so.

• 43:49Speaker 01

  But they have exposure here, I think, I don't know, political exposure, economic exposure, probably some of both.

• 43:58Speaker 01

  But they also just, on the, on the flip side, for the de minimis thing in particular, I think Amazon's better off with de minimis not existing. Because de minimis is shipping direct from China to the US consumer. It skips their fulfillment network.

• 44:12Alex Kantrowitz?

  Right.

• 44:13Speaker 01

  Which is where they put all the CapEx and huge competitive differentiator, the fact that you can ship, that they have fulfillment centers everywhere and ship so fast and so cheaply. And so it takes away, if you're shipping from China, I mean, that's what let Timu get to 25% of Amazon's scale in five years is that they skip all that fulfillment center infrastructure. So it's, de minimis going away is probably good for Amazon and Walmart.

• 44:36Alex Kantrowitz?

  So where's the vulnerability then?

• 44:38Speaker 01

  Uh, just in broad, broader tariffs concepts and broader if the US is gonna crack down on, like the one that is getting circulated right now is a crackdown. We'll see if that's, how this comes through, I'm not familiar enough with how the sausage gets made in Washington, but there's some bills circulating to ban foreign importers of record. So a foreign importer of record is what these Chinese sellers are, they're selling on Amazon. They don't have a US legal entity.

• 45:08Alex Kantrowitz?

  Okay.

• 45:09Speaker 01

  You, you don't have to be an American company or even a foreign owned company with an LLC in the United States to import goods into the United States. You can import goods as a foreign company with no legal status in the United States, other than what's called a foreign importer of record or a non-resident importer. There's a wide, there's a huge demand amongst the Amazon seller community, the American companies, to ban this practice. Because what ends up happening, the reason they really hate it, is that one of these companies, if it's a Chinese company, or it doesn't have to be Chinese, it could be from anywhere in the world that can do this. You import goods into the US. If you declare the valuation instead of, let's say it's a hundred thousand dollars

• 45:50Speaker 01

  worth of goods, but you say it's only worth 10,000. You've cut your duty by 90%. Gives you a huge competitive advantage in selling it.

• 45:59Alex Kantrowitz?

  And you can't go to a trade prison.

• 46:01Speaker 01

  And when you get caught, CBP, Customs Support Protection, is not sending agents to China to arrest the people. And in fact, it's probably going to be one of the things that's going to be demanded in a good, in a well-crafted deal with China and other countries is you must extradite people who commit customs fraud in the United States. Well, one is there's this bill, and I don't know if it can be done by executive order or not, but I know it could be done by Congress, and there's a bill circulating, probably several bills to shut this down. It's bipartisan support, I think, to not allow foreign importers of record. But likely also, it's a, hey, you have to allow US Customs some kind of jurisdiction

• 46:43Speaker 01

  or an extradition program to get, when people commit customs fraud in the United States from your country, you've got to turn them over to us. And so if they were to shut that down, and 60% of all Amazon sellers are in that program, yeah, that would, that would be painful for them.

• 46:58Alex Kantrowitz?

  That would be rough.

• 46:58Speaker 01

  Yeah.

• 46:59Alex Kantrowitz?

  Yeah. So probably, just like Apple, they've over-leveraged on China, Amazon.

• 47:04Speaker 01

  Potentially, I don't know. I'm like, I love, I think China's incredible place to do business.

• 47:11Alex Kantrowitz?

  I wasn't saying, I wasn't arguing with that. It was more just like,

• 47:14Speaker 01

  Politically, perhaps.

• 47:15Alex Kantrowitz?

  Politically, economically, you have to be careful that you don't put your whole business in a politically or economically vulnerable area.

• 47:21Speaker 01

  I think that's fair to say, yeah.

• 47:22Alex Kantrowitz?

  Yeah. A couple of kind of wild ones to ask you as we, as we close. I have some, some, let's say, off the beaten path questions. So you bought Shopify Logistics. I just want to know how soon you think logistics and fulfillment will be done with like 100% robots?

• 47:43Speaker 01

  Yeah, you know, I,

• 47:45Speaker 02

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• 48:15Speaker 01

  I'm not close enough to the thing. It's a ways out. The current technologies that I've seen aren't there. Okay.

• 48:24Speaker 01

  Humans are just so dexterous and intelligent and not that expensive. That, like, you know, it's a very high bar to clear for these robots. Because humans are really good at the job. And if you were to, if, let's just say, invert the problem and say, okay, I have made you this humanoid robot that has all the characteristics of a human. His IQ is 100, you know, problem-solving abilities of a human, dexterity of a human. It can run around and use its brain and pick anything and bring it. And it's only $20 an hour. You don't have to buy the robot. I'll just rent it to you for 20 bucks an hour. You'd be like, cool, I'll take 500 of them and run us a fulfillment center. That's true. You're like, oh, that's what we have right now.

• 49:08Speaker 01

  And it's, so it's a very high bar to clear for these fulfillment center robots. In fact, the big case for them is less on the humanoid side. It's more density. Humanoid actually doesn't solve a lot of problems because you don't get more density out of your warehouse. You want real estate density. You want to be able to stack the goods all the way to the ceiling, jam them in. So it's more, the form factor is not going to be humanoid, most likely, in a fulfillment environment. It's, what already exists is like AutoStore is a leader in this. And Symbiotic is a really interesting company, a public company. It's, it's really about generating more density and lowering the error rate. Humans make more mistakes than these systems, in theory.

• 49:52Speaker 01

  So some of that's here now, but I think before there's no, at least at Flexport, we're so, we have minimal robots in our fulfillment centers. We're mostly people. Okay. Doing the job. And I don't want to spend the CapEx. And the other problem is if the, if the technology is improving as fast as they say, then I definitely don't want to buy it. I'll wait till next year and the year after and the year after. And so that becomes an interesting problem of like, how do you figure out when's the right moment? I don't want to spend it. So probably it's a financial, it's also financial engineering and financial models that have to be developed here where you're renting me the robot. Maybe that's the benefit of humanoid, though, by the way, is like, upgrade cycles could be easier. You just replace one at a time instead of having to, I don't want to buy a hundred million dollar system for my building, you know?

• 50:34Alex Kantrowitz?

  Right. I mean, maybe you have like a humanoid that like, has like these baked in stilts. So it can like, go up to like 50 feet and then just come back down and you can stack things. What do you say?

• 50:46Speaker 01

  Yeah, robot forklifts. There's a lot of, you know, vacuum tubes. I don't know. The symbiotic one, if you go to symbiotic.com and check out, I think they have some of the stuff on their website. Some really cool. That's a public company and back by SoftBank is making a lot of investments in robotic systems for warehouses. So I'm, we're their big investor of ours. I'm kind of close to some of this stuff and seeing it.

• 51:09Alex Kantrowitz?

  SoftBank is?

• 51:10Speaker 01

  SoftBank is a big investor in it and they're on my board. So I'm, they show me stuff all the time, but they haven't yet sold me a system. So we'll see.

• 51:16Alex Kantrowitz?

  I see. Well, maybe one day. Do you think, do you believe in their investment in OpenAI?

• 51:20Speaker 01

  Uh, yeah, I don't know. I don't know the economics of it, the terms of what valuation and stuff, but I do believe in OpenAI. I mean, it's incredible.

• 51:28Alex Kantrowitz?

  Okay.

• 51:29Speaker 01

  Not just funds a big investor in it, well, a small investor by OpenAI scale in that as well. So.

• 51:33Alex Kantrowitz?

  You also, you're using AI to help smooth out your, the fulfillment process within Flexport. We spoke about it briefly a couple of times ago, but your teams are using AI systems to take in a lot of the documents and shipping which come in unstructured, make sense of the data, put them in your system?

• 51:53Speaker 01

  We, I mean, we use huge amounts of it and increasing, we have a big advantage. I think if you look at what's required to win in AI, to apply AI, like, we don't have any advantage in developing the AI. There's smarter people in AI by far that don't work at Flexport than that do. But in terms of distribution, deployment, training of models, understanding where to apply, what problems can you solve? And then being practically, practical to apply those, I think we just have a huge advantage. If, if you look at freight logistics end to end from factory to your customer's door and all the steps that have to take it place to move their cargo and get it delivered.

• 52:34Speaker 01

  We're the only company in the top hundred by volume that was founded after the web browser was invented.

• 52:42Alex Kantrowitz?

  Okay.

• 52:43Speaker 01

  And the scale matters because it gives you data to train your models. The domain experience to figure out like what problems actually I need to solve. Um, there's some real nuance here that if you're just an AI person, you would never know that this problem exists. Cause you don't experience it. And then third is the distribution. Like when we solve a problem. The next day it's it's available for thousands of enterprise customers to use. I don't have to beg people for contracts to get access to their data or to beg them to give me money to use my model. It's just like constant, uh, rapid pace of deployment. So we have a big advantage over our competition in forwarding. And then similarly, a big advantage over AI driven startups.

• 53:25Speaker 01

  Cause I'm paranoid though, like, okay, I can sit here and go, yeah, we're the only one in the top hundred freight forwarders in the world founded after Netscape was invented in 94. But I'm paranoid that there's some kid out there going, yeah, we're the only freight forwarder founded after ChatGPT was invented in November of 2022. Uh, but that person, that small startup of which there are several, many perhaps. Um, they don't have our data to fine tune the models. Or our distribution to go live, they're having to make AI in a vacuum and then beg people to use it. And sign a license, you know, security contract, all this stuff that needs to happen. Like we just launched product and it goes live the next day for our customer base.

• 54:09Alex Kantrowitz?

  This might be two in the weeds, but are you buying off the shelf or open source and customizing it?

• 54:12Speaker 01

  Some of everything. I mean, we've got partnerships with OpenAI, Introp, eh, Google, we've used for many years. Google's still the best in a lot of things. Um, Google has a product called OR Tools. It's not generative AI, it's just like deep, deep learning, machine learning. But it's OR stands for operations research. So it's the best for routing algorithms, planning systems for logistics. It's like really amazing. Um, so we use that.

• 54:39Speaker 01

  Some startups that are really cutting edge on voice.

• 54:44Alex Kantrowitz?

  What do you use the voice for?

• 54:45Speaker 01

  We use voice to call truck drivers.

• 54:48Alex Kantrowitz?

  Oh, right, right.

• 54:49Speaker 01

  So we have about four.

• 54:49Alex Kantrowitz?

  This is experimental or this is out the door now?

• 54:51Speaker 01

  No, it's live. We're making four or 5,000 phone calls a day.

• 54:53Alex Kantrowitz?

  And this is what assigns truck drivers to certain things and gives them opportunities for jobs.

• 54:57Speaker 01

  So we have 400,000 truck drivers on the mobile app.

• 54:59Alex Kantrowitz?

  Right.

• 54:59Speaker 01

  But we only have 200,000 loads a year.

• 55:02Alex Kantrowitz?

  Okay.

• 55:02Speaker 01

  I've got too many truck drivers.

• 55:03Alex Kantrowitz?

  Okay.

• 55:04Speaker 01

  They're not going to open the app if there's only a load every two years, right? The simple math, they won't engage. So what we'll do is call, if we think we have a load that they would like, we call them.

• 55:14Alex Kantrowitz?

  AI voice.

• 55:15Speaker 01

  Yeah.

• 55:16Alex Kantrowitz?

  And it understands and assigns.

• 55:17Speaker 01

  It has a full-on conversation explaining all kinds. I mean, it's really good and it gets better every few months and cheaper. It's that the price of that's come down about 90% in the last year and it's becoming quite commodified. So we use vendor, but there's two or three other vendors that are 95% as good. And there's an arms race there that we're benefiting from in a lot of this stuff. So AI voice, we're also going to use it for more and more things, calling to make appointments at terminals or warehouses, calling to check statuses, collect data.

• 55:49Speaker 01

  Email.

• 55:52Speaker 01

  Email data collection, a lot of what we do, a lot of. In fact, the core Flexport technology engine for workflow is workflow engine. It's for moving freight around the world. You need taking unstructured data like this is done by humans at our competitors and even in parts of Flexport where you're like, smart person, understands the process. You give them an unstructured problem, you say, hey, move this from here to here. They know what to do. They figure it out. And what Flexport's done over the last decade is break that into simple tasks that are so simple that anybody could break that apart into a simple form, a web form. You could argue that maybe we've spent a decade building simple tasks that we didn't need to, that you could just.

• 56:33Alex Kantrowitz?

  Give it to AI.

• 56:34Speaker 01

  Give it to AI and let it do the complex thing. What we're finding right now is that it can't, but it can do the simple tasks.

• 56:39Alex Kantrowitz?

  Right.

• 56:40Speaker 01

  So we're setting ourselves up beautifully for it. But as the AI keeps compounding acceleration, you may get to escape velocity. You're like, I don't need the workflow engine at all. I could just run. Go do it all on its own. So we'll see. We're saying paranoid about it, staying as close as we can. So that when it when and when those breakthroughs happen, we're the first ones to benefit.

• 56:57Alex Kantrowitz?

  That's wild. Okay. I just want to keep in mind in time. We're at the top of the hour. Do I have time for two more questions?

• 57:01Speaker 01

  Yeah, I'm good.

• 57:01Alex Kantrowitz?

  Okay. All right. So I want to ask you about your trip to the Panama Canal. You went down there. Apparently, there's been a drought impacting the canal's ability to

• 57:11Speaker 01

  It's over now.

• 57:12Alex Kantrowitz?

  Process loads, but talk a little bit about what you saw and and the impact of this drought on the canal's ability.

• 57:17Speaker 01

  Yeah, the drought, the the thing is that droughts are pretty regular occurrence with the El Nino phenomenon. You'll have rainy years and then dry years. So 2023 was quite a dry year, and that led to 2024 not having enough water in the canal to operate at full capacity.

• 57:35Speaker 01

  So that led to only about two thirds of the number of ships trans transiting the canal as were theoretically capable of transiting, which led to huge bottlenecks and delays. One point you had a 21 delay, 21 day delay.

• 57:51Alex Kantrowitz?

  That's crazy.

• 57:51Speaker 01

  Of ships waiting to clear the canal. It only takes 22 days to go around. Quite a coincidence, by the way. How did you manage to keep your delay? Well, probably.

• 57:59Alex Kantrowitz?

  Just under the wire.

• 58:01Speaker 01

  No, it's probably just people. I say, oh, you have to make me wait 23 days. I'll go around. So it's a national, natural governing effect there.

• 58:07Alex Kantrowitz?

  Markets working things out.

• 58:08Speaker 01

  Probably. So, yeah, there was drought. The Panama Canal, I mean, if you're ever, I meet people who went to Panama and didn't go to the canal. I'm like, what were you doing? Like, it's where I went all the way there just to see the canal, and I would do it again. Fascinating. One of the most amazing engineering feats in human history, which is not really easily appreciated until you get it, you see it, because it's not, it's not a sea level canal. That's the reason rainwater matters. It's a, it's a freshwater canal. The Suez is a seawater canal. Suez came first. The same guy who built the Suez tried to build a sea level canal through Panama and failed. And it's an impossible task because it's a rainforest and it's a mountainous rainforest.

• 58:53Speaker 01

  So you're at a sea level canal, you're going to get whitewater rivers and waterfalls and mudslides, every, all the water's flowing into your canal and then turning into a whitewater river racing to the sea. Like it, the

• 59:08Speaker 01

  The geology, the, it would be, we just don't have the, the, the energy levels, the resource levels to make a sea level canal through Panama.

• 59:16Alex Kantrowitz?

  Mm hmm.

• 59:16Speaker 01

  And they certainly did in the 1800s and they were attempting this. So what they did instead, the Americans came over about 10 years after that failed. And instead of trying to build a sea level canal, we just dammed the biggest river in Central America called the Chagres River and made a huge lake. And the canal is actually just an enormous lake and then a very short canal that takes you up to the lake level with locks.

• 59:39Alex Kantrowitz?

  Wow, I had no idea.

• 59:40Speaker 01

  And you actually just sail right across the top of the country on this lake.

• 59:43Alex Kantrowitz?

  That's crazy.

• 59:44Speaker 01

  It's really crazy. You see it, you're like, oh my goodness, how did they, we would never attempt such a thing today. Like, we're just gonna, first of all, they had to overthrow, it was part of Colombia. Colombia didn't want, they were negotiating too hard and Teddy Roosevelt just said, no, we're taking this away, creating a new country and sent battleships down there to take it from them.

• 1:00:02Alex Kantrowitz?

  Okay, legitimately crazy.

• 1:00:03Speaker 01

  Yeah, we just wouldn't do this kind of stuff anymore at all, much less like put a giant dam on top of your country and so.

• 1:00:10Alex Kantrowitz?

  I, I hope not. We never say never, given the way that things are tracking.

• 1:00:14Speaker 01

  It was good for the world, the Panama Canal, but yeah, incredible place to go visit and see it firsthand and, um, but that, that drought, um, what's interesting is that there was a drought, but the droughts are relatively common. You could look at the rainfall pattern and every six to eight to 10 years, there's a year with like very low rainfall, El Nino or La Nino, I forget the difference between the two, but it's all part of the same effect on the Pacific, the warming and cooling of the Pacific Ocean. And so, uh, the 2023 drought was real, but it was entirely predictable. And what happened is in 2016, they expanded the canal. They were very worried that China was going to build a canal through Nicaragua and, and

• 1:00:56Speaker 01

  their monopoly on transiting between Atlantic and the Pacific. The, the Panamanian government was very worried about this. And so they raced through to make a wider canal so that bigger, wider ships could make it through. Well, if you make a wider canal in a freshwater canal, more fresh water is going to flow out of your lake and the lake levels are going to drop and you need more rain to operate the, to operate it. And so when the drought hit, the system just didn't have enough water in it. It's relatively predictable. Like, it's entirely predictable because actually 2014, you had lower rain than 2023. There have been many instances of lower rain. So if you were, you know, you're doing your engineering, you go, oh, okay, let's, let's look at the lowest rain that we've had in the last, I don't know,

• 1:01:41Speaker 01

  what do you want, 50 years, 100 years? But building it up to that level may have just been prohibitively expensive. And so we might just live in a world where every six years, your canal is not operating at full capacity.

• 1:01:54Alex Kantrowitz?

  Wow. That's crazy. What a cool visit. I have to go down there.

• 1:01:56Speaker 01

  I recommend it. It's also just a great country. A lot of history, some cool beaches, nature.

• 1:02:02Alex Kantrowitz?

  Yeah, my, my wife has been. She loved it. So I had, I have to make my way down. Okay. Last, last thing for you. Tom Lee was on recently, the investment strategist. And we're talking through like the black swan events we've had over the past five years. He's been like, there's been one every year for the past five years. And then he listed off a bunch, including like COVID, the bull whip that we had to the shipping fees that we talked about earlier, that it became, there was so much demand and so little supply of ships that all of a sudden you had inflation because it was $20,000 a container. And then we talked about the liberation day as another one. And I was like, Tom, it's interesting that like, supply chain is a, is a constant through all of this.

• 1:02:43Speaker 01

  Yeah. When, don't forget, I'm sure you guys talked about it, but Ukraine war.

• 1:02:46Alex Kantrowitz?

  Right.

• 1:02:47Speaker 01

  And the planes couldn't fly over Russia anymore. That's been a huge logistics impact.

• 1:02:50Alex Kantrowitz?

  Right. And we were talking also Gaza and the Houthis shooting.

• 1:02:52Speaker 01

  And the Houthis have cut off boats. Container ships are not going through the Red Sea for the last 18 months.

• 1:02:56Alex Kantrowitz?

  Right.

• 1:02:57Speaker 01

  Uh, yep. And you can go, Trump himself was kind of a black swan the first time around and put all these tariffs in. Um, in fact, you go further back in 2016, we had the cheapest ocean freight in human history. Uh, it was actually a glut of capacity. It was the opposite problem as now, but one of the, the Korean ocean carrier, Hanjin, went bankrupt that year. Since I started Flexport, it's been one of these black swans that are just like crazy. We like it. I mean, our customers, it sucks for the customers, but it's part of why we like working in logistics. It's like never the same thing, always learning, always on your toes. I can read the newspaper every day and have some perspective of like, oh, actually.

• 1:03:34Alex Kantrowitz?

  Yeah. I mean, it's why it's always fun. Our conversations are always fun because you just have this visibility into the global economy that a few do because of what you do.

• 1:03:42Speaker 01

  Yeah. Someone asked me recently if I was stressed out and I was like, yeah, that's how I like it. I don't want to be stressed.

• 1:03:47Alex Kantrowitz?

  Yeah.

• 1:03:49Alex Kantrowitz?

  Okay. And then the last thing is, I was with Dvarkesh Patel.

• 1:03:53Speaker 01

  Oh, yeah.

• 1:03:53Alex Kantrowitz?

  A couple of weeks ago.

• 1:03:54Speaker 01

  I love him.

• 1:03:55Alex Kantrowitz?

  He's great. And we were talking about.

• 1:03:57Speaker 01

  I love this podcast.

• 1:03:58Alex Kantrowitz?

  Oh, he's awesome. Yeah. We were talking about what, oh, he was, he actually made this point about, I was talking to him about which models are going to be better. He goes, well, you have electronics, like some electronics are better than others. Like sometimes there are companies that are both making TVs, but one will just be better at it. He goes, I don't know why. And I said, I think it's probably supply chain. I'm curious if you think that's the case, that companies that do a better job managing the supply chain, getting the right parts are the ones that are going to be outperforming the others.

• 1:04:28Speaker 01

  Yeah, definitely. I mean, it was. The supply chain is a pretty broad definition. I mean, it's ultimately can encompass designing your product, producing the product, making the product, so kind of almost by definition. But even in the logistics piece, definitely see companies that are, have too many people, can't get their, can't get out of each other's way, too many silos between departments and fighting of like, there's a lot of people have to come together to run a supply chain. The designer of the product, the merchandiser, who's like figuring out how many of each product to buy and how they're going to sell it and position it. You've got your production sourcing, which factories are we going to work with, the production quality assurance, you have logistics, you have trade compliance, you have finance.

• 1:05:10Speaker 01

  I mean, I just listed six or seven to marketing. You have like a lot of departments and some of these, some companies get, I think, too big where there's too many people and can't get along. A lot of problems with data sharing that we try to address. I mean, our goal at Flexport, we get all these users to use our platform. So we're not just for the logistics team. All those other people have some skin in the game of figuring out what's happening and want access to the data and want to see what's going on. But even figuring out what price should you charge? If a lot of companies will not have good enough data about their costs down to the individual item level, because there's all these, like the freight costs, the customs costs, the freight cost is very different if it's ocean versus air.

• 1:05:55Alex Kantrowitz?

  Right.

• 1:05:56Speaker 01

  And you see a lot of decisions made without good data about this stuff. So those can make the product too expensive. You're doing too much air freight, should be doing ocean.

• 1:06:10Speaker 01

  All of this goes into the equation of what makes a good business. And then if you're profitable, you can reinvest the profits and make your products even better. And if you're not, you can't reinvest.

• 1:06:20Alex Kantrowitz?

  Operational competence. That's what it comes down to.

• 1:06:22Speaker 01

  Hundred percent.

• 1:06:23Alex Kantrowitz?

  Ryan, always great to have you on the show. Thank you so much for coming on.

• 1:06:25Speaker 01

  Yeah, my pleasure.

• 1:06:26Alex Kantrowitz?

  Super fun. And folks who want to learn more about Flexport, the website's flexport.com.

• 1:06:30Speaker 01

  It is, flexport.com. Check us out. If you want to learn more about trade and everything that's keep on top of the tariffs, we run a free series of webinars every two weeks.

• 1:06:40Alex Kantrowitz?

  Great webinars.

• 1:06:40Speaker 01

  Say what the latest stuff, what's going on. Try to stay on top of this for you.

• 1:06:44Alex Kantrowitz?

  And folks, Ryan's a great follow on X. You can follow him at typesfast, T Y P E S F A S T. Apparently you are very fast typer.

• 1:06:54Speaker 01

  The domain was, the handle was available. I don't know if I'm that fast.

• 1:06:57Alex Kantrowitz?

  There was one moment where I think you demonstrated your fast typing skills. But anyway, we'll say that to the next show. All right, Ryan, thanks again for coming on. Thanks, everybody, for listening. We'll be back on Friday to break down the week's news. Until then, we'll see you next time on Big Technology Podcast.

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