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Intro: There's probably no country in the world where you can be like, Oh, my company is good. We import from Vietnam. We're not worried about the China tariffs. The moment they put tariffs on Mexico and Canada, I think that logic's got to go out the window and you should expect tariffs can come for any country.
Are you seeing one trend permeate across the customer base? It's usually about 20 times more expensive to ship a container from the West coast of the U S to Hawaii than it is from the West coast of the U S to China. It's just like. Totally backwards policy. What are like conspiracy theories about shipping or freight forwarding?
Well, some of them would probably get me killed. Actually, I have a great one.
Welcome to the Logan Bartlett Show. On this episode, what you're going to hear is a conversation I had with Ryan Peterson, CEO and co founder of Flexible. I am joined in this conversation by my friend, Zach Weinberg, and we discussed with Ryan, a number of the implications for tariffs that are happening today.
What that means for the average consumer, what the strategy might be behind these tariffs, how different businesses are implementing strategies to deal with the impact of tariffs. We also talk about The freight forwarding and shipping industry, including some of the laws that have led to some arcane [00:01:00] structures that exist today, as well as some of the mistakes he made and advice he would have for founders as they're thinking about growing their business.
A really fun conversation that you'll hear with Ryan now.
Logan: Ryan, well, thanks for doing this.
Ryan: My pleasure.
Logan: Maybe for people that, uh, are not familiar. Can you explain what, uh, what Flexport does?
Ryan: Yeah, well, Flexport's a technology platform for global logistics. We help it, we help companies manage their imports and exports and make it simple to ship anything, anywhere by any mode of transport. So it's, it's ambitious. It's global. We ship product to 147 countries last year, to and from, uh, by any mode.
So ocean freight, air freight, trucking, rail, uh, clear customs, get it delivered and manage that end to end process on one platform. So the data flows in parallel to the goods.
Logan: And so you've been at this for, for how long?
Ryan: Officially it's been my full time job running Flexport for 12 years. I actually, there was like a [00:02:00] four year period before that, where I was.
The only employee of Flexport, uh, we had no investors and no customers. So I get to count that part, but no one else at the company uses that those days.
Logan: Conrad has a funny line that like the, the line between founding a company and unemployed can be a little ambiguous in the early days of getting something going,
Ryan: Yeah,
Logan: I always think is funny.
Ryan: I was running another company at the time. So it was a kind of moonlighting working on Flexport while I was the CEO of my prior company.
Logan: Well, I think we're going to go back and do a lot of the early days stuff maybe here at the end, but, uh, I guess just cause it's so topical and you sit at such an interesting nexus of what's going on in the world. Um, can you maybe speak to a little bit about Tariffs and what your perspective is of, uh, to, to the extent you have any, uh, viewpoint into the strategy behind it, but then also the implications I think are probably far more interesting.
Ryan: It's a little hard to say what the, I think we all know, like their strategy, they try, they want to [00:03:00] remake America. I think like culturally, as much as economically, they'd like to see us be a manufacturing country again in tariffs are kind of, you have to have a carrot and a stick. If you want to make that happen, tariffs are the stick, make it.
Really expensive to bring something in from another country. Uh, and then there's gotta be some kind of carrot, which is probably deregulation and maybe some other incentives to try to make manufacturing attractive again, for, for American companies to do their production here. It's, um, super, obviously it's really hard to plan around.
Companies are getting hit with these duties and like there's cases, you know, like. If the duty hits while your products are on the water, like your financial forecast is way off. You predicted it was going to be this duty rate and now it's this other one and you got to kind of eat that. Um, if it hits everybody equally, then maybe it's just, you know, your competitors also have to pay the duty and everybody, the market just raises prices and, and, you know, you pass it through.
If you're [00:04:00] importing from a country that's got tariffs and your competitor's not, that's quite a disadvantage to be at. And then ultimately. The biggest challenge in all of this is planning like supply chains require some amount of time to set up and invest in and put your manufacturing and work with a factory in a certain country and set up the logistics network.
And so if you think that there are going to be changes, you kind of paralyzed. And I think that's a lot of what brands and companies are experiencing right now is they don't know. What the future is going to hold that. I mean, we do know there's probably going to be higher and higher tariffs on China, but then, you know, once they've started putting tariffs on Mexico and Canada, then it's kind of like all bets are off.
There's probably no country in the world where you could be like, Oh. My company's good. We import from Vietnam. We're not worried about the China tariffs. Like I used to hear that a lot throughout the last few years. The moment they put tariffs on Mexico and Canada, I think that's out. That logic's got to go out the window and you should expect tariffs can come for any country.
So that that's [00:05:00] making planning really, really difficult. Um, and that's the ultimate my advice. Nobody cares what I think really about tariffs, but cause I'm very anti tariff. It's bad for business, but, but my advice would be get it over with quickly. So people can get, you know, figure out what the new normal is and start planning.
Logan: yeah.
Logan: I mean, I guess I'm curious on the ground. Can you just take through like a literal example? Maybe you don't need to name any customer, but like what's going on today? I think long term, the goal would be all of this domestic theoretically. And so there, but we're at this moment in time in which there's, uh, some, some interesting things.
Yeah. Things going on at a very tactical level. I guess. Are there any interesting stories that you've heard or things you've seen from a customer base?
Ryan: Yeah. I mean, it's, it's a, it's a wild world out there. So these new duties are just hitting and companies are all of a sudden, like if you were duty free before, and a lot of categories were duty free and now have duties, it meant you really didn't put a lot of effort into figuring out what the valuation of the products was.
You know, you have to value the goods and there's all kinds of rules about [00:06:00] valuation that let, that can allow you to lower the value of the goods. For example, if you put a lot of capex into the factory, you can like depreciate, amortize that, whatever, and apply it across the shipments, the goods that are coming out of that factory and lower their value because you, you know, the portion that was made in that country is maybe less than shows up on the, the actual invoice, um, all kinds of other things, like if you imported goods into that country, Uh, you can, you can write that off.
There's these rules about that and nobody cared if it was duty free because it was all multiplied times zero. The moment you're multiplying it times 25%, you care a lot. So there's a lot of scrambles around that. Um, there's this huge program which we call the de minimis exemption. It means goods that are less than 800 per item.
When they're imported and sold directly to an end consumer, then it's duty free. And that still exists today. Like they canceled it and then they uncanceled it. Uh, and we're expecting it to get canceled again, at least for goods from China. My [00:07:00] prediction is by April 15th or so, the next month or so is when, when I would expect that to be gone, um, that 30 percent of all the Shopify merchants of all the top Shopify merchants caught top 100 are using this and importing goods, mostly from Mexico.
The goods are made in Asia somewhere, probably, but they're imported from into Mexico and then fulfilled one item at a time. So a lot of products you buy on a Shopify website, it's actually shipping from Mexico. That program will go away, at least if it's made in China. Now, the thing that caught everyone by surprise and set the whole, all, all those supply chains in a tailspin is that the Mexican government on December 19th banned the importation of those goods and shut down the program, which no one saw coming because it's like 30, I read 30, 000 jobs doing pick and pack and fulfillment work in Tijuana and on the Texas, you know, the Mexican border south of Texas.
Um, so that doesn't make sense for the Mexican [00:08:00] government to shut this down, but they did that at Flexport. We had to scrambles because we offer e commerce fulfillment, but in the United States, not in Mexico, we on, we doubled the revenue of that part of our business in the first 60 days of this year. Uh, and have been scrambling to like, be good because you're, you're importing all these goods that are not labeled correctly, you know, they're labeled for the Mexican fulfillment center, not for ours and just trying to keep these businesses above water.
Um, we had a lot of merchants that their sales went way down because they couldn't fulfill orders out of Mexico and weren't set up. So I think it's just like the first inning of this kind of disruption. If all of a sudden you're getting hit with duties that you didn't have before. A lot of business models won't survive.
Zach: When you see something like this, so let's just use the example of like tariff is on the value of the good. You've got a bunch of, let's call 'em shippers or sellers here that don't have like good infrastructure to, to actually value this. There's all these rules [00:09:00] and there's a gap, right? There's like a market gap, maybe temporary, maybe long term. How do you think about. whether to go after that as Flexport. And maybe we can use the like, value of good example like strategically. Is that something you go and say, Hey, there's an opportunity, let's go build. Do you look for things to buy? How do you play it?
Ryan: So we have a, a practice within Flexport called, uh, Trade Advisory. And it's, it's almost a bit of a consulting firm, although we've armed these people with great digital tools to like make them really good at gathering the data that's required and then checklists to go through it all. But they're, the team members in that are between 10 and 30 years of, actually one of them has 40 years of customs experience.
So they really know the insides and outs of the regulations. Um, so it's, it's been growing that team. Like we're. We're hiring on that team, trying to grow it really aggressively. We're relaxing our policy of like, you have to work in one of our offices because there's a lot of talent in that part of the world.
It's very niche and specialized and doesn't live where we [00:10:00] have an office. So we're letting people work from home, uh, if they're, you know, in that, in that bucket. Um, and just trying to grow like crazy that we, we did a webinar. We've done a bunch of webinars on customs topics. That used to be kind of boring.
And a few trade compliance professionals would come with 200 people. They've had over a thousand. One of them had 1700 people show up a thousand on the last week on duty on valuation on that exact topic that like a thousand people come to learn about it. So yeah, trying to, I think, raise awareness for Flexport, do more media, you know, appearances when there's a rule change or something, I'll go on television and talk about it.
So we find that all these disrupt, it makes our mission more important. It makes us. Kind of elevates our role and makes us, uh, more important for our customers. So it should, we should, we have, we see opportunity in it. We're not trying to celebrate it cause it's bad for our customers, but it's, um, we can find ways to make it good for our business.
Zach: So from a product standpoint, right now you go after it through this like consulting arm. How do you think about building actual [00:11:00] software and tooling for this? Because this is a little bit of like accounting software and some workflow
Ryan: Yeah. Well, we've been, we've been building tech for customs for, for a decade. I mean, we started as a customs brokerage when we did Y Combinator. In fact, my pitch was we're a customs brokerage and. We'll later expand into all these other things. Um, so we, is it doesn't really change that much because we're making all those investments anyways.
But like tech, for example, tech that we've built, that's now more and more useful is if you import something and then you later export it. And it doesn't have to be the same item, it just has to be something that's classified in the same way by customs. So it could be two different objects. You import some phones and you export some other phones.
Um, then you're owed a refund on the duty you paid on the way in. So we've built this AI based matching system to match your imports and your exports with each other. to generate, it's actually generating a 20 percent higher refund for people than before, you know, the tech that was industry standard that's out there that, um, [00:12:00] every year there's 6 billion that goes unclaimed.
And that number is probably going to go to nine or 12 or something because the duties have gone up so much. So things like that, that just become more important. Customs workflow. I think I heard you mentioned that we've got, we've got, uh, 40 engineers building tech for our customs brokerage. So, um, yeah, it's possible I increased budget for them, but honestly, they're the constraint hasn't really been budget.
It's how many people can you make productive in such a nuanced domain? Uh, for to learn, you have to learn the insides and outs of customs. I think we've shown over and over that people with experience, sometimes that experience is hopefully it's at Flexport just being here for many years, but it's hard to just rent people quickly on that.
Logan: I assume the answer is kind of it depends in some ways, but I'm curious your customers themselves right now, especially as we've started to go after Canada and Mexico. It's not. Just nearshoring that they could do it. It seems to be like actually reshoring and [00:13:00] trying to think about how do you get this stuff into the U.
S. Are they, are they just running all the different scenarios out and trying to figure out like just future proofing the business for any type of volatility that can exist? Are you seeing one trend permeate across the customer base? Or is it too early?
Ryan: It's a little too early with the Trump administration changes. We're only talking the last, you know, a couple of months that it's come down and these things take longer to plan. And frankly, the number one reaction I see right now is a bit of paralysis of people not wanting to make a decision until there's more clarity of, you know, is Vietnam going to get hit with terrorists.
Some other country, um, over the last eight years or so, there's definitely been a huge trend of moving manufacturing from China to Vietnam, Cambodia, Malaysia, Thailand, India, these are all those markets have seen massive growth. So, you know, that's what you would expect to continue to happen. Moving back to the US, it's gonna have to be more than just tariffs.
Um, they're probably [00:14:00] gonna have to devalue the dollar that it's got to be So much right now, the dollars are so strong that we can just import stuff and the amount of tariffs you would need to overcome that are just like probably higher than is what's really realistic. Um, so they have to really change the dynamics of the U.
S. Dollar so that it's just more expensive to buy things abroad and therefore and cheaper to make things here. I don't know if that's in the The makings or not, but that's that's probably the scale of policy change or, you know, macro change that would have to happen to really bring the U. S. Uh, to bring it back to the United States.
Ryan: It's just so much cheaper to manufacture another country.
Zach: I think you summed it up nicely, which is in order to bring back. Maybe a few thousand jobs per industry, you have to tax the entire American economy. So it's just like, uh, protectionism in reverse, basically. tax. It's just a tax, and It's, uh, something we will all pay as consumers to maybe [00:15:00] bring some extra jobs back in, uh, a few key industries.
But, out of curiosity, when you think about the goods that are coming in, do you have a sense of, like, what percentage of the stuff you're shipping are inputs other things that are manufactured eventually in the U. S. versus, like, finished goods that you're actually importing and sold here?
Ryan: Um, we're We have all kinds. I mean, I, I met with, I meet with manufacturing companies all the time where they're importing components and raw materials and things for their, for manufacturing processes. Um, but I, I mean, if you looked at Flexport's customer base and aggregate, it's more, it's more finished goods for sure.
Um, but man, the, the, The, the ones who are manufacturing are the ones that were, I'm pushing them hard to write, you know, letters to, right now there's an open one, the USTR, US Trade Representative Office has an open call for comment, uh, due March 24th, so we got a couple of weeks left, um, that on this policy that they're pushing [00:16:00] to tax, to put a big fine or a fee on Chinese ships that are arriving at U.
S. ports. Um, and that's the one where I'm like trying to find manufacturing companies and say, Hey, you guys, nobody cares about us, the forwarder, we, uh, and no one cares about the importers, but they care, they should care a lot that this is going to really harm American manufacturers having to pay. Like the, the big one that they put this, this law is crazy or this proposal, it would cap U.
S. exports. U. S. exports would have to go 15 percent of them on a U. S. made ship within seven years. And there are like, there are about 17 of these ships in the world, and they're all tiny. And it would cost you to ship on the U. S. made, U. S. crew ship, American flagged, uh, ship. It would cost to ship to, that's the way you, you can only ship to, uh, Hawaii, Alaska, Puerto Rico, Guam, U.
S. countries, U. S. territories. You can only ship on a U. S. made ship today from the U. S. mainland to those [00:17:00] places,
Zach: is, this is the, uh, the
Ryan: the Jones act. Yeah. So like if you want to ship a container to Hawaii, I haven't checked the rates late. We don't do lately. We don't do a lot of that shipping, but, um, it's usually about 20 times more expensive to ship a container from the West coast of the U S to Hawaii than it is from the West coast of the U S to China.
So just to say, I mean, putting that imposition on American exporters saying, Hey, you 15 percent of your exports must travel on a U S ship. It's just like totally backwards policy. We're trying to promote export growth, manufacturing, you're trying to promote manufacturing growth. The one thing we know from Asia that did this very successfully over the last 50, 60 years is they promoted exports.
They didn't allow just domestic protectionism. They said, Hey, you also have to export to the world. Hyundai, right? Samsung, the countries that got it wrong only threw up barriers to import and protected their manufacturers domestically, but didn't prove that their manufacturing could also be competitive on a global basis and [00:18:00] force them to go export because exports is the proof that you're actually making good products.
The world wants, you're not just coddling your industry and protecting it. So if we're putting up barriers to export, it's just like doing it completely wrong. You're trying to create a manufacturing base. You need to actually right. Make it globally competitive, not just ride off the fact that we have this great consumer base in the U.
S.
Zach: what, what defines whether a ship is U. S. made?
Ryan: Oh, it has to be made in an American shipyard. Um, and there are basically none left. We've shut them all down. You know, we used to have them here in the San Francisco Bay Area at Hunter's Point. You've seen those cranes down there. Those are abandoned, but that used to be a shipyard. Sausalito was making ships.
I mean, it's kind of crazy to think, right? If you go to Sausalito now, it's like a tourist town, but it used to be a ship building hub for the U S Navy
Zach: Walk me through so we have. No shipbuilding capacity, primarily because it's just extremely expensive for us to do this relative to others, dollar strong people make a lot of money. I'm sure there's union challenges
Ryan: and the environmental challenges to our coastlines that, you know, California coastal [00:19:00] commission, like good luck building a shipyard on the West coast.
Zach: you look at that, you know, how long would it take in your estimate for us to actually like shipbuilding as a core competitive globally competitive market? What are we talking about?
Ryan: I, I don't, I don't really, I don't really don't know. I, I, I mean, maybe you get someone like an Elon in here who's just like show, you know, they built the world's largest data center in 90 days or something. And maybe, maybe there's some thing that the whole industry is missing. I assume that that's true.
Uh, that, you know, the right kind of entrepreneurial founder energy could get in there and revamp the thing. Um, but, uh, yeah. status quo. If we're just like continuing the way we do it now, it's just infinity time. It'll never happen. Um, so you need, probably there's a policy environment. I think some of these things are good.
Like we should be making ships. Probably if we want to have national defense capabilities, we're, we're struggling. The U S Navy struggling to like replace its nuclear submarine fleet. I'm [00:20:00] like a lot of, um, a lot of stories out of that world. Like that, Oh, it's called the littoral combat ship. It was supposed to replace like some parts of the destroyer fleet just like bailed.
Um, so yeah, some of these things make sense, but, um, doing it to punish American exporters is just like, not the, not the way. Right.
Zach: If you were like the trade czar, you know, like you're right is now in charge of all like us trade policy. What's it? Yeah. What's the changes you would make, let's call it like regulatory changes you would make, that grow U. S. GDP the fastest? What's, what are you doing day one?
Ryan: Well, I actually think that the, um, reciprocal tariffs is a reasonable approach. Like I would try to go for more free trade, but if the, if you're doing free trade and the other guys, It's throwing up huge tariffs on you. Like that's just bad negotiating policy. So that, that, that seems to make sense. I think you can get people to actually lower tariff that may result in lower tariff, uh, on both sides because [00:21:00] do they really, you know, what, what matters to them more important like taxing the small amount of us imports are like accessing our markets.
I'm a, I'm a free trader. I unapologetic about thinking that more trade is good that humanity wants to. Trade with one another and growth will follow if you make it simple to do business. Um, but I was like, you know, the current leverage or the current thing that they're doing to trade policies. is not the thing.
I mean, it's the leverage that they're using to negotiate other things that they care about. And so it's like a little bit unfair to look at the trade policy in isolation and say, well, the guy's doing trade policy. He doesn't get it. He's like, he might get it, but this is important for national security.
And Migration drugs, like there's all kinds of other topics in the world besides trade, that they're using trade as a leverage because the American consumer market, there's nothing like it in the world. And all these countries depend on access to [00:22:00] our, to our market for their For their economies, you know, and a huge percentage of the world's developed, like the countries that successfully made it from developing to developed, did it on the backs of export led growth?
Well, not everybody can have an export surplus, like by definition, somebody's got to have the import deficit, right? And so, um, I'm not sure on a global basis, if that strategy just really works for everybody. Everywhere to, to, to be export led, but I don't think
Zach: you mentioned the Jones Act, do you go after our ports, building new ports? Like, if you could wave a magic
Ryan: both those things, I think, you know, one of the things, regardless, it's actually more of a domestic policy, but we, we barely use the Mississippi river network. We have the Mississippi river network and America's waterlands, inland water lands, waterways generally are, um, we have twice as many navigable rivers as the rest of the [00:23:00] world combined.
It's crazy. And we barely use it largely because of the Jones act and union contracts. That if you want to ship between two points in that network, I mean, you can, the Mississippi river connects everything. In the heartland, the central part of the United States, all the way up to the Great Lakes and then connects from there all the way, you know, through the, um, Lawrence, um, through the St.
Lawrence River. So you can connect everything, huge parts of this country, but under the Jones Act, it has to be on an American made ship, which are too expensive as we've been talking about. American crude, you, you can't just like bring in ships from other countries and allow them to navigate those waters.
I'd probably relax that. Uh, two is under the contract of the, um, of the ILA. That's the union on the, that represents the east coast, uh, ports, east and gulf coast, including Mississippi river. So if a container is loaded and then unloaded, they have to, they have this crazy, it's called a touch [00:24:00] fee. The very high Expensive charge every time you unload or load a container, so it makes that fee is so high that it makes, uh, river navigation non competitive with trucking,
Zach: Should we stick it all on trucks instead?
Ryan: but yeah, we do it all in trucks, but the physics of it.
I mean, the river barge network is so much cheaper than trucking.
Logan: What's the history of that? And maybe for people that don't know, we touched on it twice, but the Jones Act, can you just give like a little bit of a primer into, into that?
Ryan: I think you'd have to Google it. I think the Jones Act was 1930. It was definitely a kind of great depression. 1920. Okay. Yeah. So it was, it was a, um, it was designed to protect American industry, shipbuilding industry. Uh, no one really likes it other than the companies that do Jones Act shipping who love it.
Uh, obviously, uh, it gives them a nice barrier. Uh, there's been some talk that the U. S. military's pushed for it because it should protect American shipbuilders. And, you know, but it's, it's obviously not [00:25:00] working, uh, the shipbuilders are not competitive on a global basis and aren't able to make great, um, be competitive.
Yeah. So it hasn't worked there. Well.
Logan: the main policy implications of it are, are what, like,
Ryan: Well. The Jones Act specifically says that if you're doing transport between two domestic freight on the water, it has to be on an American made ship, crewed by Americans, uh, and crewed by American citizens. Yeah. Um, and so what is domestic freight? It could, is this inland freight moving in our waterways, which there's a lot of, uh, freight moving on the waterway, export of grain and oil.
And coal and things, those are actually using it, but containerized negligible, almost none. Um, so it's, so it's impacting that, but also anything going from, uh, the mainland U. S. up to Alaska, out to Hawaii, Puerto Rico, Guam, all these outlying territories, those, they [00:26:00] have to go on U. S. made ships. Uh, so, you know, you go, that's why I go at shipping from California to Hawaii costs like 20 times more than shipping from California to China.
And we don't make big ships. We only, the largest Jones Act ships, just to put it in context, or like call it 3000 TEUs, about 50, that's 1, 540 foot containers. Um, the biggest ships and those costs about 270 million to make. And for that same price, you could buy a 25, 000 TEU largest ship in the world if you went to Korea, Japan, or China.
Uh, so we're just not at all competitive.
Logan: I'm just doing some quick Googling as we're doing this, but it looks like it was originally a, uh, military consideration just to make
Ryan: Yeah.
Logan: the strong domestic shipping
Ryan: By the way, I'm friends with some companies that do Jones Act shipping, you know, so you're out there. Hey, sorry, I'm not
Logan: just said.
Zach: today,
Logan: Yeah.
Zach: to make sure we summarize this,
Ryan: it matters that much to the world, to be honest, like the Jones Act, whether you [00:27:00] have it or not, um, I'm much more interested in the ports, um, that the failure to automate U.
S. ports and both the East and West Coast unions have signed contracts that prevent further automation of the, of the American ports, just jacks up prices for everybody, right. Uh, and,
Zach: not just prices to your point. I mean, it almost seems like we've moved domestic shipping from ships to trucks because of what are two essentially like protectionist policies. The Jones Act being Protect the shipbuilders. So it's protect what a few companies harm the rest of America. And then we have union protectionism, which is to protect what, how many union jobs at the ports are there total?
Roughly 10, 000, 50,
Ryan: probably about a hundred thousand across both coasts in the Gulf Coast.
Zach: Protectionism for 100, 000 special people to harm. 340, 350 million Americans.
Ryan: Yeah. And that's what I think if you want to be, if you want [00:28:00] America to be competitive, let's, let's get really competitive logistic, you know, ports make our, but I'm not, I, the Trump administration has been very surprisingly very pro union. Um, at least
Zach: consistent. Yeah. It's like, we want to be competitive, but we also want to be protectionist. And those two
Ryan: there's a popular sentiment of being the man of the people and the unions. Um,
Zach: talk a little bit about the port automation? Like, let me give you a hypothetical and tell me why this doesn't work. Uh, let's say I find some land. I don't know, around Seattle, like on the Pacific Northwest and I want to build a brand new port and let's say I get through all the environmental issues and assume they don't exist for a few seconds and I want to build a fully automated port and I want to use tech from Singapore somewhere that's done this right, maybe the Netherlands. Why can't I do that? Like where, and in particular, I'm curious about the union play, but just in
Ryan: Yeah.
Zach: other barriers
Ryan: Um, well, the union, first off the union itself claims [00:29:00] every inch of the soil of the coastline. Uh, so they, it's not, they, they will stand outside and pick it and protest and put up lines and make it hard for truckers to come in and out of your port. Um, probably things get uglier than that, but let's not, we don't need to entertain hypotheticals, but there's a long history of violence.
in union action that could happen. So I think there's a implied kind of fear around that. Um, second is actually so the union, the way that it works that you have, um, this employers negotiate, uh, organization. Um, that's on the East Coast called the U. S. Maritime Alliance. And on the West Coast, it's called the Pacific Maritime Alliance.
And what that is, is sort of, well, it's the counterpart. You have the employers negotiate with the union. So all of the employers of union, like kind of almost unionized themselves, employers of unionized workers. So the port terminals, the ocean carriers, anyone employs these guys. That way you can actually [00:30:00] sit down and have a negotiation.
It's not a many, it's not a one to many negotiation union against all these different employers. It's one to one. Um, so for,
Zach: the employers here being the ports themselves,
Ryan: yeah, the ports or the ocean carriers, anyone who employs union labor, uh, those in that particular union. So the way that it works. is if you were to open a port, let's say you managed to overcome the the pickets or whatever, you ignore it, you fight through it, whatever, you keep the union workers out.
Um, if a ship calls at your port, it will not be allowed to call that company's ships will not be allowed to call at any of the other ports. That's part of the agreement that these employers have with the union that they, so you have to choose as an employer to say, okay, I'm going to run this port and I'm going to run ships to this port, but it means you will not be able to run ships to any other port that's in that [00:31:00] network.
So you probably couldn't get away with just opening one port. You'd need to open a bunch. So that you could say, Hey, we're effectively non union. We run this without them. We do it on our own. It's quite a barrier to entry. I mean, not, you know, ports are expensive enough to launch one.
Zach: Just, just to repeat it, because I want to make sure I get this. So I get through all the annoyance. I put the port on, uh, you know, Indian reservation. So I don't have to deal with like the United States and, and I'm ready to go. And a ship shows up. I'm ready to unload with my non union labor at like, probably one fifth the cost, and probably works harder and better. Uh, if you unload that ship, that ship and that shipping company will be banned at every other port in the United States.
Ryan: Yeah, exactly.
Logan: And that's not a legal thing. That's a, just a
Ryan: That's part of their contract. Now, there are legal things too. I mean, I think the government, the local, these ports are run by local, owned by local governments, and then they'll sublease it to you. [00:32:00] Uh, and they will not sublease it to you if you say, I'm going to come in here and run a non union port. The government themselves will just be like, no, that's not possible here.
Zach: so this is price fixing, just legalized in a sense. I mean it's like union side of it, if you will, but you know, imagine if it was like private port operators doing this to keep out the unions in the first place,
Ryan: Yeah,
Zach: they'd be going to jail.
Ryan: something like that. Yeah. So I think it holds America back a lot. I think, you know, these contracts are now signed for the next five, six years, six on the East, and I think five more years on the West Coast. Um, the world's changing so fast. From a technology landscape that maybe there's a company out there within five or six years, that's in a position to, to D to change the rules, uh, to change the game, whether they make their own ships, maybe it's one of these new junk, like this new ship building thing in America, Hey, we're going to make our own ships go end to end, run our own ports, ignore the current system, bite through, um, maybe [00:33:00] that, maybe that happens.
Maybe the automation. Uh, it's so good that they just turn it on one day.
Zach: It's just interesting to me, we talk about American exceptionalism and growth and reshoring industry, and then we talk about good union jobs, and we don't admit that those two are in direct conflict with each other, and one essentially prevents the other, at least at scale, is
Ryan: Yeah. But Trump administration has definitely, um, made it very clear that they're on the side of the unions and all of this. So I, I, and frankly, like, you know, the, the employers, the current port carriers, port operators, I don't think they hate it that much. Like. It's sort of a non proliferation treaty, like mutual, Hey, like if you, as long as I, the only reason to automate is your competitor is going to automate if you don't and you're going to lose.
But if everybody agrees, we won't automate, you're like,
Zach: No, everybody's in on it. Everybody wins except the consumer, except
Ryan: yeah, exactly. There's no one at that table representing the rest of us like going, Hey, you know, you guys have negotiated this thing with higher fees that you're going to pass through to us. Like you don't [00:34:00] care that much, but
Zach: it reminds me a lot, uh, not that we have to go there, but it reminds me a lot of healthcare where people talk about, you know, who benefits from higher prices and the reality is both the hospitals and docs as well as the insurance companies both benefit from higher prices because they have Bigger dollars to go after, and the insurance companies operate on fixed margin, and one really cares that your health insurance costs go up except
Ryan: yeah,
Zach: who has no leverage.
The
Ryan: yeah.
Zach: like, when you're in it, you win from it, but it hurts everyone else.
Ryan: Yeah. So I, I don't know. I have to be careful not to, we are in it. Maybe high prices is good for Flexport. I don't know. Uh, but we have to be careful to go, Hey, I don't want my interest to be misaligned from like those of the civilization. And if that ever happens, make sure that you choose civilization over your own personal life.
Zach: on much smaller volume is probably not a great thing for you.
Ryan: Exactly.
Logan: Yeah. Well, it's interesting to hear this stuff at, at, at like a very downstream level when we're dealing with all these pie in the sky, kind of big picture, uh, [00:35:00] things without seeing the ramifications just yet. I mean, we're seeing some of it flow through the market, but not actually to the end consumer.
And then seeing like a very tactical. Uh example of how these things manifest themselves and how it can be harmful to the consumer Um, I guess one question that you mentioned we're sort of at this paralysis state right now um At what point and what time horizon do customers actually think about, Okay, this is the new normal and we need to figure out how to make it work from a reshoring standpoint?
Is that like a six month thing or a six year thing?
Ryan: Probably more six months than six years. Um, they're, they're, they're, they're, they're thinking about it every day. I think they know that this is the new normal. It's just a big question of what this is. You know, it's like, that's kind of changing constantly. Um, but they're taking it very, very seriously.
It's a C level conversation now, like logistics and stuff used to not be the case. One of the, one of the things [00:36:00] I've loved about this industry is that we, you have massive budgets at people who are not even like, not C level, maybe not even vice president. You know, it's like the only, the only industry you'll find where like someone could have a billion dollar budget and be like six levels down from the CEO.
Uh, and, but now it's like actually the CEO is taking a much bigger interest. CFO is involved here where in the past they didn't get that involved. So, um, but it's just difficult. Like, you know, what do I mean by difficult? It's difficult to know where should you set your main, if you're going to move your manufacturing, which country should you put it in to?
You're going to probably have to change your prices. For consumers, for your goods, how much can you pass through? What should your new price be? Um, how do you allocate the costs of these things? Like, so, and really, it could get very tactical. Like, let's say your price for the first three months of this year is low, duties are high for the second three months of the year.
What's [00:37:00] your accounting team going to do? Do they smooth the price out throughout the year? Do they, do they care per unit? The ocean freight price has been all over the place. It's been very high because of the Red Sea. We haven't even talked about that, but there've been, um, kind of terrorist attacks on the Red Sea that have, all the container ships are going around.
That's raised the price of freight by about three X versus normal. How do you allocate that to individual items within the pro, you know? So
Zach: three X the price
Ryan: yeah,
Zach: just because of the distance.
Ryan: no, because, well, because of the constraint on supply and it's a supply and demand. So if you cut supply, the price, it's inelastic freight. You know, the price goes way down.
You don't ship more stuff and the price goes way up. You don't ship less stuff. You ship the same amount.
Zach: Yeah, but I'm just, I'm, I'm not shocked by the price going up. I'm shocked by the magnitude of it going up three X just to take a, I mean, it's not long roundabout obviously,
Ryan: Well, it's not the extra cost. It's, it's the extra, um, market price. You know, this is the price has gone three up the cost hasn't got the carriers make [00:38:00] a lot more money the um, It's about a 12 percent reduction in supply Uh takes about of the world's container shipping. Is that this taking that much longer to go around?
Zach: Oh, because they're all in route longer. And so
Ryan: Yeah
Zach: there's fewer empties available is what you're saying.
Ryan: Yeah, and the ships can per year carry 12 percent less cargo because they because of the longer journey they make fewer trips
Zach: a lot, like we're moving up three X because of a 12 percent supply reduction.
Ryan: Yeah. Very inelastic. I mean, just think about it. If you, if you're, let's say the price was to go to 1, you're going to ship 10 times more things. Like now you ship about the same amount as before you show as many as you could sell and vice versa.
Logan: What I'm taking from all of this is just when, when people are saying, oh, it's just the art of the deal and, uh, you know, this is negotiating leverage and all of that, the ripple effects of this uncertainty flowing through the economy and the supply chain, like it's not just a one off. Negotiating [00:39:00] consideration because we want stronger border control or whatever the consideration uh for for using this as leverage is it doesn't like evaporate and go back the other way once we call it off and say oh no never mind we were just kidding we got the deal done.
There's so many cascading considerations that end up just impacting the entire economy the entire supply chain all of that just hearing it it's it's pretty remarkable.
Ryan: Yeah. Businesses have to be super adaptive and like. In theory, it affects all your competitors equally. So you should, you know, whoever's agile, whoever's good at understanding what's happening and moving with good decisions quickly and get it done should, should have a competitive advantage. I mean, I don't think it's the end of the world for companies.
It's like, but it is. If your company is just like kind of bureaucratic and no one can make a decision and you know, you're all of a sudden you're hit with these new tariffs and no one in your company is capable of saying, well, let's go find a new factory and set it up in a different country or, uh, then those are the companies that are going to [00:40:00] suffer the worst.
Zach: Well, it's also, Logan, it's leverage for what? Like, what are we trying to accomplish? Because I was told,
Logan: I think it's the fentanyl coming in from Canada, Zach. I think that
Zach: I was told it was all the fentanyl, which like, when they talk about how much fentanyl they've seized, it's like one, one car's
Ryan: Well, the fentanyl thing is very interesting. So under USMCA, that's the replacement for NAFTA. What's the point of a free trade agreement if you can just impose tariffs? Like I thought we had a free trade agreement. Well, the answer to that is there's clauses in there. There's a clause that says any of the countries can impose a tariff for national security reasons.
Ryan: So
Zach: as an, as an excuse for
Ryan: It has to be national security. So if they want to do this, it can't be a trade negotiation. It can't be about anything other than national security. So they have to talk fentanyl because they've declared a national emergency around fentanyl at the border. So, and that may be more true for Mexico than Canada, presumably.
Right. But for, uh, but they're going to say it every time they discuss it in order for the tariff to be legal under [00:41:00] USMCA, they have to mention a national security issue. Um, and so may or may not be the actual thing that they care about.
Zach: Well, the duration is always the thing that confuses me, right? Which is like, if we're trying to use this for leverage in a negotiation, To get a deal, whatever said deal would be, are we not, we don't care about actually on shoring some of this stuff because like you need to have these tariffs on to your whole point for a pretty long time for people to believe they're going to be persistent and do giant cap acts.
Like you're going to build a billion dollar plant in the United States if the tariffs are gone in three months?
Ryan: Yeah.
Zach: Probably not. You want to know that they're there. which is it? Is it, is it leverage for, you know, fentanyl? Like what are we aiming for? And it seems extremely.
Ryan: Yeah, that's, uh, you know, that's what I would push the administration on. They don't care what I think about their duties, but I think they should care a lot what the impact on businesses. around the planning side of things. Like you've got an agenda, let's roll it out as quickly as you can [00:42:00] so we can get to what's next and people can start building against what their agenda is.
Uh, but right now where it's kind of dripping out and changing and they put it out and then unwind it, it's making it really hard for businesses to figure out what, what, what the administration wants them to do.
Zach: Maybe a totally different question, but I like the intricate details.
Zach: Like if somebody handed you a few billion dollar check, let's call it, you could go LBO some competitor or someone else in the stack in which you play, not yourself. Cause that seems cheap, but what, what, what do you buy? And why? Like what would you do differently if you owned it?
Ryan: I wish I would have had the money. It sold last week, uh, two weeks ago. The Trump forced the Chinese company that own, it's a Hong Kong based company that owned the ports in Panama, but they own 43 ports around the world. Beautiful asset, uh, sold for 22 billion. They had, they bought 51%. So whatever they needed.
Zach: Of just the Panama ports or the whole
Ryan: No, it was [00:43:00] 43 ports around the world. That would have been a cool thing to own. Uh, makes ports are just beautiful business. Make money,
Logan: who bought it
Ryan: Blackstone with MSC, which is the biggest ocean carrier in the world. Um, Swiss company, it's Italian.
Logan: maybe for people that like, why are ports such a beautiful bit? We sort of talked about some of the implications of it, but why is it such a
Ryan: Well, it's a natural monopoly in the sense of like actual nature. Like there's only, you know, Zach's hypothetical is like the reality is there are not other places that have deep water close to land. Like it is a geographically constrained subset of places that could be a port. Uh, and so at that point you are, you know, there's only a handful.
It's a natural oligopoly, let's say, maybe not a natural monopoly, but there's never going to be, you can't just open up a port. Remember the U. S. Army tried this last year in Gaza. We built like a crazy pier and like. two weeks later or something, the ocean washed it away. Like it's not, you need, there are certain places on the planet that are [00:44:00] made protective from this power of the ocean.
Ryan: Um, so yeah, it's, it's, and, and then, um, you know, I think that port automation is an important problem to work on. So it'd be kind of cool to be, have a front row seat and actually working on it rather than just talking about it from a distance.
Zach: Are there port automation companies you'd go and buy? Is there anyone out there that's
Ryan: I actually think it's better to go full stack here. Like I don't, I think that part of the reason it's so expensive and hard is that, um, If you go work with one of the existing port automation companies are gonna charge you like 2 billion or more to go do it. And like, actually, if you just brought in some AI folks and worked on the software layer, because the cranes, you don't need to replace the crane.
Like it should, you should be using the existing cranes and building a controller for it. I don't know. I'm, I'm removed from the problem. I don't work on this at all. But you asked me in a hypothetical world where I had a limited capital, what would I do? I think that would be fun.
Zach: Somehow the unions will show up [00:45:00] and protest whatever it
Ryan: For sure. For sure. You're out there unions. I'm not working on this. Don't, don't, don't worry.
Logan: are, uh, yeah, at risk, but otherwise you're, yeah, it would be fun.
Logan: Um, you guys just launched, uh, maybe, maybe talk about like big, big batch releases of product and what you guys just did, uh, how it relates to AI and all that stuff.
Ryan: Yeah. So, um, we just did a big tech launch where we packaged a whole bunch of stuff into one. We're doing this twice a year now where you do a big release of new tech. Um, that's the first for us. Like in the past, we were very, I wouldn't say we're incremental per se, but like the way we rolled out the tech felt a little incremental.
Like we launched this thing and that thing, even our marketing team would like often find out we'd built the thing because the tech team launched it rather than. Get ahead of things. So doing this big, um, doing things in a big launch, it actually comes from Steve Jobs. They used to do this. I got it. Brian Chesky, who's like a huge Steve Jobs fan.
They started doing it at Airbnb. He's the one that convinced me that this is a better way to, to do [00:46:00] launches. I think it has like three big benefits. One is. There's nothing like the power of a deadline. So if you don't have deadlines in your tech team, like then you need to create those. So people, and in a positive way too, you're like, Hey, you want to get your story told of what you've built, uh, and get, get it featured.
Like you need to have it done by this date. Um, two is it drove a huge amount of coordination between the people selling our products, the marketing and sales team and the tech org. Actually make these folks talk to each other and work together and get the story down, um, which I think is a, a sign of like organizational health that, that there's more like collaboration happening in that world.
Um, and then third, we did, it worked. We got a lot of buzz. TechCrunch wrote a positive article about Flexport, about any technology company. That's kind of amazing. Um, we got, we, we did it, uh, timed with this like big ocean, the biggest ocean freight industry conference. We launched it a week before that. So there was a lot of buzz.
That conference [00:47:00] last week about what we're doing with AI.
Ryan: Um, I, and then, yeah, I think that AI is going to, everyone talks about AI in all tech world. It's, uh, it is rightly so the big obsession. I think Flexport is going to be one of the biggest winners in all of this. Because we get, there's so much competition at the foundational model and the hyperscale, hyperscaler layer.
that we're just benefiting from lower and lower prices and better tech. But, um, you need data to fine tune it for our industry. Um, you need domain experience to figure out how to actually apply it, what problems to solve. We're a real end to end provider, meaning all the way from factory floor out to customer's doors.
And so we can kind of cherry pick anywhere on that chain. Like, where's a good use case for AI? It might many of these use cases are not worthy of starting a whole company around, but it solves a problem. It could be something real point specific, solves a problem on this one process. Um, so we get the benefit of that.
It's just kind of like cherry picking where we want to play, what's going to actually work. What's the [00:48:00] low hanging fruit? And then related to that is we're at scale where we have customers, thousands of them. So if we build an AI solution and AI product, like we bring it to market the next day. Whereas if you're just a pure AI company, you got to go out and beg enterprises, design a contract and give you their data and all, you know, it's like enterprise sales kind of sucks, but, uh, we already have the customers so we can just launch stuff.
Zach: Can you pick one? Like one feature you're super excited about and like walk us through it?
Ryan: Yeah, I mean, the simplest one is, um, the understand is we launched this, um, natural language reporting module. So like, you can just ask chatbot, ask questions of your supply chain and answer it with data. So with graphs and lists and charts, like, and you just talk to it super easy to use in plain English, generate a report about what have I shipped?
Like, actually, we were talking about the port strike earlier. So we've had this internally since last September. And that port strike was October. That was the first really tactical example [00:49:00] where we were able to just in one second, one minute, ask the question, Hey, what containers are going to get stuck in these ports if the port goes on strike next week and what containers do I have heading to these ports are currently at the port.
Um, and because we knew in advance about the port strike that armed our team. To start taking action that these containers are going to get stuck. Now you could have done that. We could do this before with queer, with SQL and, but it just takes longer and it's not, and you need, like, there's a smaller subset of people that are technical enough to go pull those reports.
And now you just like anybody can do it. So we've, we've made that customer facing now. before it was an internal tool. Um, that's probably the simplest thing for people to understand.
Zach: What did you use under the hood to actually
Ryan: It's it's using, um, opening. I think GPT four, but, um, we importantly, we didn't share customer data with GPT four. It's just using our schema.
So it's able to. It's just basically generating sequel. It understands how to query our our databases, [00:50:00] um, and generate the reports. But we have the customer data ourselves. And people trust Flexport with their data. That's how we work. Um, so being able, and like our competitors can't do this because their, their tech is super dated.
Most of them don't make their own tech. They buy, they treat it as like an IT cost center. They go buy SAS and they have like many, many, if you go to any major freight company, try to log in, you'll see like 14 different login pages for all the various apps and stuff. And so it reflected on the backend, like they can't build this unified reporting experience.
Like that, um,
Zach: thing you go after is like free, free your data team to not do SQL queries as a service basically
Ryan: yeah, it's the main for our own teams. Exactly. And we were having to, we have, um, our own team, we have a nice reporting module, so you don't need to be that technical, but still like these things are always a little bit tricky to use and you end up we're super customer obsessed [00:51:00] companies. So like, we'll just do the report for you if your team doesn't have the report they want.
And so of our customer facing team, they were probably spending 25 percent of their time. Generating reports for customers. So we're hoping that makes us way more efficient and gets better reports faster to the customer. So it should be just like a huge win win.
Zach: anything on the like invoice processing PDF stuff. I was, I assumed it was going to be there
Ryan: Uh, we've done that too. Yeah, we launched that. Um, we digitize 1. 7 million documents from shipping per year. PDFs, Excel files, uh, bills of lading, commercial invoices, all these different things that, um, and AI has gotten to where now it's so cheap that I'm not even sure I care that much if it gets cheaper.
more accuracy, but cheaper. It doesn't matter that much. It's, it's almost free. We'll probably today that's for our own documents that we're digitizing for you. Cause we're shipping stuff. We'll probably launch that as just a public utility that anyone can use to digitize logistics documents. [00:52:00] Get it into a database schema, a
Logan: data side, have you found I've heard on using the models themselves, it can be a little, um, finicky to actually query sequel in some ways, uh, and get that into natural language. It's one of the use cases. I've I've heard companies. It makes sense intuitively. But was there anything you guys did uniquely to make that work?
Well,
Ryan: ton of testing and fine tuning and training. It's still not 100%. It's probabilistic. So it's generating code sequel code, but it's generating code and that's probabilistic. So it may or may not work in each given instance. Um, but the sequel query is deterministic. So once you get it right, it creates a dashboard and the dashboard will continue continue to be accurate going forward.
So it requires training. It requires understanding. We felt like We got it to a level of accuracy that we were comfortable putting into the hands of customers with some strong labeling around this is in beta. Maybe even this is an alpha. I forget how they labeled it. [00:53:00] Um, but we're getting, it's getting better by the week.
Like literally, I mean, we, we started building this six months ago and it just keeps getting more and more accurate. So we're comfortable putting it out there. Um, and I, I assume that that just keeps improving.
Ryan: One of the things that we've built internally that I want to turn into an external product is digitization of contracts in freight.
The freight contracts come in these Excel files. With like thousands of thousands of rows and eight or 10 tabs and like a lot of if then statements and just huge amounts of business logic that aren't really clear in the document itself that someone who negotiated this, like talked about on the phone.
Uh, and so we've built that was taking us many days to digitize a contract and then when it would come in. Every two weeks, these contracts get refreshed with new rates. In many cases, it would take several days to process. Well, if you're losing several days on a two week validity contract, it's like terrible.[00:54:00]
Um, so we've got that down to a minute, like two hours once life for an engineer, a lifetime for the contract. Um, so as it refreshes, no, no additional engineering time. And then from there, it just, we'll just ingest that today is for Flexport contracts that we sign with ocean carriers and airlines and such.
Um, probably we'll give that out to customers. They, they really need this because your contract, then when you get a rate, you know, your accounting team needs to, when you get the invoice later, you got to do an audit and reconcile the three way match in accounting world to go, you know, this is what I was quoted.
This is what actually happened. And here's the invoice that I received and make sure those three things match each other. Um, and, uh, yeah, that'll be hugely popular when we start to push that. So I, I just think it's an infinite opportunity to apply AI. And that's probably true for any industry, like, the winners will be these companies that are at scale [00:55:00] in, in order to take advantage of it.
We have the data to fine tune things, the distribution, the domain experience to figure out how to apply this and where. But our Important, but, but are nimble enough with a modern enough tech stack to actually put it in talent base, actually put it to work. So it's, we feel like uniquely fortunate having spent the last decade getting to scale and being the only young company in our industry.
Zach: when you take a product like that, obviously using it internally for your own contracts. But at some point, clearly this is valuable between any two, maybe three in the future entities that are contracting.
Ryan: Yeah.
Zach: do you think about pricing? For something like this, if you're rolling it out, like, do you have a pricing team?
Do you do market research? What's the, do you have to approve the pricing? Who signs off?
Ryan: Yeah. I would probably approve it. We, my mental model is that if something has zero marginal cost. You're better off giving it to the world that close to that [00:56:00] and making people love you more and being more disruptive to the market, whereas something that has marginal cost. And I think a lot about the where does that cost come from?
Is it compute? Okay. You know, you price that in. And, uh, but, but if it's labor costs, I make everybody factor that times two, the cost itself. And then there's like this cultural overhead burden of having a, you know, a headcount that has to be managed. And, um, but we're always looking for ways that, you know, you're also, what is the value that I create here and how do you capture part of it?
So like in that particular product, um, the main thing is, yeah, digitizing the contract is one thing, but like, You're, what you're really trying to do is help people run a better freight audit process. And capture hundreds of millions, billions and billions of dollars gets wasted effectively through poor invoicing practices.
Um, and I'd like to build that as a full on service and then let's capture a percent of what [00:57:00] I saved you or got you a refund or something. Right? So
Zach: Is freight auditing typically done with an in house team or are there third party like
Ryan: there's big freight audit companies. They're pretty big companies that do this. Um, they tend to focus more on domestic, like trucking and parcel, uh, ocean freight is just so. Messy and nuanced that it's, I haven't seen anybody like productize anything useful there, but the biggest thing on Flexport's path to profitability, the biggest thing we did last year, well, the biggest thing was probably we reduced the size of our team, but the second close second was building out our better freight audit processes using tech like this, but also just like line by line, do not let people, you know, do not just pay bills.
Like everything needs to be reconciled, um, against what it was supposed to be.
Zach: That's what I love by the way, 12 years in and the most important thing you did is like automate freight auditing internally.
Ryan: Accounting, like credit boarding is kind of an accounting business to an extent that I wish I would have taken more [00:58:00] seriously early days because I had seen boring to me, but like every transaction, you've got 10 or 12 vendors sending you a bill and you need to make sure those map correctly to the transaction and which ones do you build through to the end customer and which ones do you fight?
And challenge and, you know, putting in the accounting audit process. Super important.
Zach: When, when you think about, you said you wish you did this earlier, maybe like a more macro question of. First five years, let's say like product strategy mistake you made that you regret and kind of lie. And then we can maybe do the flip of like the best one, or we can start with the positive and move to the negative,
Ryan: Start positive. Um, I think, you know, we started, I told you when I went through Y Combinator, the business Flexport was marketed. We were a customs brokerage built around modern tech stack. And I still think it's the crown jewels of Flexport's business model. Like this is the hub of data. therefore databases and technology, but it need expertise.[00:59:00]
That's kind of what's unique about Flexport. We're like tech plus human, uh, in ways that are, I think are really unique. Uh, and that the tech only solutions tend to fail. So customs was like the heart of it. We. Not very early, I wanted to just be customs only and be the best customs brokerage in the world.
And then someday we would expand to freight forwarding and other things. Year one, I would say all the brands that we would talk to about that were like, I don't want to separate my customs from my freight. And they forced us to become a freight forwarder.
Zach: Why?
Ryan: Um, we were talking to smaller customers and small customers tend not to break these apart.
Um, we were, if you were going to separate your customs from your freight, you would do it with like the best, most established, best reputation customs broker and not some like startup. Uh, so we had a brand problem and maybe an expertise. We hadn't built enough tech and expertise and brand for people to trust.
Now we have a lot of companies that do [01:00:00] just do customs with us and trust us for that. But early days that wasn't us. Um, but yeah, I think it was more of just like the types of customers we were going after were pretty small. They wanted it to be end to end, just seamless, not have to have a different company involved in the customs.
For each transaction. Um, so we, so we just did what the customer asked. So we became a freight forwarder and I would say that was really, really positive, but also led to a lot of our pain because it meant that we took on so much more surface area where teams had to suddenly be building across multi modes and geographies and couldn't just go like, Hey, we're U.
S. Only customs only. Um, and it spread our teams out. We ended up peanut butter in the tech teams across like. small numbers of people owning massive domains that they couldn't really solve.
Zach: do you view that as like a Company over decision if you don't make it like was that life or death if you go all the way back?
Logan: Yeah, could you have verticalized it or stayed there and gone up [01:01:00] to enterprise or something? Probably not, it sounds like.
Ryan: I think we maybe could have if we kept our burn low and just like really kept our heads down and found a way, but. Yeah. There's an alternative world where that would work. Uh, um, but we're just like, as a culture, we're just so customer like, dude, this customer wants us to do this. Like I, I, we have this idea of, um, sort of, you should, in the early days of a company, you should never get a no from customers.
You should get a yes. If, and the if statement might be effectively a no, cause you can't do the thing, but like, uh, we would just keep coming back. Our sales team was very entrepreneurial, including me. And we were just like, well, if we can do this, they'll buy it from us. And then we're like, let's. You know, 95 percent of the time you can't, but that 5 percent drives your product roadmap, drives your business evolution.
Um, and I think that pushed us really, really far, like we got a lot of customers, we grew really fast, but also we started accumulating tech debt of like doing things they weren't actually ready for doing things [01:02:00] manually, doing things, um, without, uh, just struggling to keep up with the customer experience side to where this is where I would actually get to the negative side of things, what mistakes that we made, we probably didn't focus enough on workflow automation, including that kind of accounting process stuff that I was talking about.
Yep. Um, until about 2019, we made that really, really 2018. We made that really a big, big focus area. So there was like five or six years there where we just like didn't build tech for efficiency, for, uh, for accounting economics, unit economics, and just driving costs, ownership, um, And that, that we, it probably would be a better company if we'd started that journey much, much, much sooner.
Zach: What did burn get to when you I assume part of this is just like burn stays high if you don't have efficiencies What did it actually get to where you got scared?
Ryan: Um, well, the burn got the worst under Dave Clark when I brought in a CEO who just really, and we had actually become [01:03:00] quite efficient, but he just like hired, we hired too many software engineers and grew the team too much and just kind of leaned into spending money for more growth. Um, I won't share how bad it got, but it was pretty bad.
We, uh, we're, we're now on track. Thanks to like some super hard work for the company. And so where we should, we should, if it's very hard to predict this world, as we talked about earlier, but our financial model has this ending the year, sort of close to a hundred million of EBIT, um, by the end of this end of 2025, but it was pretty ugly.
It was pretty grim for, uh, obviously the board kind of asked me to come back as CEO, and that's not how you plan things.
Logan: Was, was, um, was it a siren song of growth and just like it would take a step back to focus on the automation and instead you were just pushing forward, um, on the desire to go faster that sort of led to not building this out sooner?
Ryan: It was, yeah, I mean, I think it was definitely growth driven, like [01:04:00] focus on customers. Customers aren't asking you for that. They're asking these for these.
Logan: problem, not a customer
Ryan: Yeah. I was like more internally focused stuff. Um, we, it was ambitious CEO, me first, uh, wanting to do more things. So I'm constantly launching new businesses.
I think I'm a, I'm an entrepreneur at heart, but like, that's all I am and Flexport is a great platform for entrepreneurship. You just say to like constantly find new products that we can launch in. So we have an inventory financing, Flexport Capital. We've launched cargo insurance business. We've launched now fulfillment trucking, new geographies, like, uh, but
Logan: objects.
Ryan: yeah, I'm like, I'm not the, Personality wise, I don't like doing the same thing over and over again.
Uh, but logistics is like, literally that's your job is to do the same thing over and over again, a little bit better than the last time. Um, so some of that was definitely caused by me wanting to launch new stuff and build new things. And then some of it was just cultural [01:05:00] poor capital markets were booming.
We had a lot of money we got for a couple of years, really bad culture of if there's a problem, the answer would be like, Oh, well we need to hire someone to own that problem instead of like. Just freaking own the problem, you know, like go solve this problem. So way too much using hiring as the tool to solve problems.
Um, so we became overstaffed spending too much money that we really reverse. Now people are like, you're not allowed to, you know, we've, we've kept the team flat for a while. So, and we get more done with less people,
Logan: is there, is there like a framework, uh, if someone's listening and they're a CEO and they're earlier in the journey, is there anything that you've landed on of ways of making these decisions that you would impart to someone that's thinking about, Hey, do I hire a body for this?
Or do I actually take the time and really from a first principle standpoint, try to automate it into the product?
Ryan: every business is unique. So [01:06:00] it's hard for to give generic advice, but I do know every CEO thinks that they can raise that mega round and then not spend the money, not increase the burn that we just got to take the money while it's there. It's never happened once you'd be the first in the history of the world.
Uh, so you will. If you're raising too much money, that will lead to you spending too much money. It's just like inevitable. Um, so be careful how much money you raise and, and make sure like I, I, I've, I, I'm not, uh, I've not advisor to a lot of companies, but some of my friends and stuff. And Well, only a few ever listen to anything I say anyways.
Like, so, uh, you know, great CEO sort of think they know what to do and that's what makes them great. So good, more power to them. But a few have listened to me, right? I recommend when you raise a round of capital, you should impose a 90 day hiring freeze on your team. Cause your team is going to react the wrong way and go, look at all this money.
Now we can finally go hire. Hey, what are you talking about? Like, you know, we just raised all this money. That's what it's for. Go to hire. And there's some, you need to like kind of overweight that [01:07:00] culturally to go make sure that your energy is still like, no, we're going to solve our problems. Not some, not the money.
Um, so, but no one ever has the discipline to do that pretty much. It's, it's cultural as much as anything. Um, I think the other thing that happened with Flex4 is we got, we got quite big. I fell in this trap of, I'd never been a CEO. I've never, you know, like I've been an entrepreneur all my life, but I'd never like run a big company until I created one.
Um, and, or even worked in a big company. So there was a lot of, a lot of the advice I got, and I think this has largely changed in the dynamic in the world, but a lot of the advice I was getting from like, whether that's board members or other investors or other, People that I would talk to is like, you need to hire a great leader.
When you have a problem in an area, like it's because you don't have the right leader, go hire an awesome executive, put them in charge of that, and they'll solve the problem for you. And, and like, don't micromanage, don't get too involved in, you know, like don't get in their [01:08:00] way, let them run things. Um, I think that's completely wrong.
I think you should aim to promote almost entirely from within. Uh, and you should run that. Like you should, as the CEO do tons of skip levels, be way more involved in everything, make more of the decisions, make sure your executives are making decisions. Um, I had this idea that like we would be this bottoms up culture where everybody could just make their own decisions and not have to have the tops down from the exec.
That was really bad. Like you got it. The leader needs to be involved in everything. I probably know this time as CEO, which I've been back for 18 months and I was only stepped out for. Really a little bit less than a year. Um, I probably know 10 times more employees at the company than I did before. Uh, like I'm just like way more in the weeds on everything, what's happening.
I define the product roadmap largely myself. I'm just setting the team's goals myself, way less bottoms up. And people like it more actually, because [01:09:00] the only reason you don't like micromanagement is if your boss is an idiot, but if your boss is like in tune with what's happening and helping you make good decisions, like nobody dislikes that.
So those are all like hard one lessons, man.
Zach: Maybe the last question only because I I'm it's like a fascinating industry What are like conspiracy theories about shipping or freight forwarding things? We're like You know, I wonder if that's true, are actually true.
Ryan: Yeah, well, some of them would probably get me killed and I'm not going to share what those would be on such a public forum. Um, the, uh, the one that I, well, first off, what's the origin of the term conspiracy theory? Do you guys know the origin of the term?
Logan: Oh man. This is like my favorite. Well, it was around in the late 1800s. It's been around for a while, but the popular popularization of it was the JFK assassination,
Ryan: The idea that, uh, the idea that, um, believing in a [01:10:00] conspiracy makes you crazy only comes about because of JFK.
Logan: post JFK, the
Ryan: They had to frame anyone who believed there was more than one shooter as a crazy person.
Logan: Gosh, Ryan, this is like my sweet spot. I want to do a JFK assassination podcast is what I, what one topic I'm going to do this on,
Ryan: Well, we have to do it live from, uh, from Dallas. Uh,
Logan: go down. Oh my gosh. I
Ryan: I think we could do outdoor just sitting right there on Dealey Plaza, the grassy knoll.
Logan: There's a guy, Jefferson Morley, who's agreed to come on. He has a, he has a blog called JFK facts that I'm
Ryan: Okay. Oh, check it out.
Logan: to come on and I have this whole
Ryan: What's his, what's his aesthetic? What's this guy look like?
Logan: He's exactly what you'd expect a guy named Jefferson Morley to look like. He's a, uh, he's a, uh, probably it was a Washington post reporter in the nineties that got into it after the, uh, after JFK, the movie came out, which led to the first round of releases of the JFK
Ryan: Hmm.
Logan: files.
Uh, so he was covering it then, but interesting. So, so [01:11:00] Zach as a, uh, as a new been to the JFK assassination conspiracy, basically, uh, after. People started to get wind, I think it was in 1967, of the Zapruder film, and it was pretty clear that, that there was something else going on in the official narrative that came out of the Warren Commission report on the JFK assassination.
It didn't actually hold up. Uh, there was a memo disseminated internally from the CIA about talking points of how to discredit people that, uh, believes the grassy knoll and the two shooters or three shooters or whatever it was theory. And so the original like popularization of conspiracy theory actually came out of the CIA trying to disprove something that is seemingly is true
Ryan: Well. Yeah, because associating conspiracy theorists with insane people comes from that because, you know, there's conspiracies all over the world. I have a conspiracy with my executive, conspiracy is just a group of people that are operating in private. Like I have a conspiracy with my executive team to do all kinds of stuff.
I don't tell everyone what we're [01:12:00] doing, right? It doesn't make us crazy. Uh, now the, we will change to some shipping related conspiracy in a second, but the, uh, the official CIA historian came out a few years ago and said that the CIA did not cooperate with the Warren commission fully. So now, the official story is that there was a consp If you don't believe there was a conspiracy to cover it up, then you are the consp you are the crazy person.
Logan: you know, it's funny is like, it's, it's, the official account has been, so it was repudiated in 1976 where they went back and looked at, based on those recruiter pri official release to the public, they went back and, uh, opened. Commission. I think it was called the, um, it was something about assassination commission
Ryan: Yeah.
Logan: into MLK, RFK and JFK and they basically concluded that more probably than not, there was more than one shooter.
They also concluded that like, it's factually that the CIA did not cooperate,
Ryan: they admit that.
Logan: Yeah, it's, it's admitted and it's just like but at the end of the day, everyone goes back to the, like the textbook Warren commission, 1962, [01:13:00] 63 report on all of this.
Ryan: My dad's the only one who I know who still believes in the official story, but
Logan: there are some people, it's like not quite as mainstream. It was, ironically enough, it was like more well known that it wasn't officially the way it happened in like the late seventies than it is today.
Ryan: Hmm.
Logan: through these bouts of history where Zapruder film comes out, public gets aware. Then there's a commission on it, and then everyone's aware.
Then people forget.
Ryan: Yeah.
Logan: movie comes out, everyone's aware, and then it goes back the other way. So.
Ryan: So, okay, so shipping
Zach: for Redpoint LPs. This is the level of diligence that Logan and team do.
Logan: Yes, I, I literally have a dossier, uh, that makes me seem like a very crazy person internally because
Ryan: Great.
Logan: conversation with so many people and I come off like a raving lunatic every single time. So I had to just document all of it, uh, just so anyone that's interested, I just hand it to them and I'm like, just take time and go
Ryan: Yeah, yeah. Well, there's a, uh, a plug. I'll tell [01:14:00] you, uh, if you're in Dallas, you got to go to Dallas, investigate for yourself, go in person, right? You can't manage through layers of, you got to go in front lines. So you go down to Dealey Plaza and there's a guy, it's a very overweight gentleman. Wearing sweatpants who will be there every day, uh, with this like rainbow umbrella that he sits under and he sells magazines about what really happened.
You give him 20 bucks, he'll take you on a tour of the plaza and show you where the other shooters were hiding and what mafias they were affiliated with and everything. So I recommend going. Do Dallas, uh,
Logan: affiliation stuff is just like, it's, it's, it's so crazy.
Zach: where you're like, you weren't like, yeah, I've been four times. I know him, actually.
Logan: This is, it's funny is, uh, this came up, so we had to redo our website and, uh, they asked, like, what's a conspiracy theory you believe in? And I was like, this is, I've been waiting 37 years of my life for this moment, this question to get asked of me, so.[01:15:00]
Ryan: Okay, so shipping related ones, um, actually I have a great one that, um, the Panama canal is only operating at two thirds capacity for the last couple of years. And when you ask, the official story for why is there's a drought and the Panama Canal runs on freshwater. A lot of people don't know this. The Suez Canal runs on saltwater.
There's no locks. It's just the Mediterranean and the Red Sea are connected at sea level and you just go right through. The Panama Canal is freshwater. So you have to go through locks. You go up a hill. And then back down the other side. So it requires the country of Panama to have a lot of fresh water.
You actually travel through this big lake in the middle of the country that's fed by all the rivers of Panama. And in 2015 or 16, I forget, they, they widened the Panama Canal to handle wider ships. And several, a couple of years later, [01:16:00] we're told there's a drought and we don't have enough water to operate at full capacity.
And so, uh, the big, we can't, we can only run it about two thirds of its theoretical capacity and they're blaming it on this drought. So I found the timing of this to be quite suspect right after they widened the canal, you widen it, more fresh water is going to flow out. Uh, and right after is when they stopped being able to operate it.
So I started doing my own research on the drought in Panama. And if you Google Panama canal drought or Panama drought, 100 percent of the articles about the drought, the source is the Panama canal authority. Which is like, since one of these guys, the source of weather data and what's happening with the rain.
So I found a couple of guys who have their own little home weather stations. I'm still, I haven't done enough work. I'm pretty busy, but I'm going to keep researching this. In fact, I'm taking my team down to Panama, uh, in June. I'm planning to, uh, do some more homework while we're there. Uh, but I found a couple of [01:17:00] guys with their own home weather stations.
You know, those little devices you can buy that measure the rain. And there's been no drought discernible at all. In fact, we've had record rainfall in the country, at least on these guys houses, uh, for the last few years. And so I'm, I'm pretty convinced that they're so embarrassed by their engineering failure of widening the canal without adequately accounting for how much water they would need, that they're blaming climate change and drought for what's actually an engineering failure and that the Panama Canal, uh, should be operating if, if they just designed it properly.
So we'll see, we'll see. I don't have enough evidence yet, a couple of backyard weather stations trying to
Zach: like, economic reason to run under capacity,
Ryan: No, no, they need to run more ships through there and make more money.
Logan: This is going to be the longest drought of all time. It's just at some point it has to come clean. I
Ryan: you keep blaming climate change forever, so
Zach: just surprised that you have to go [01:18:00] find some dude's local house, like, measuring
Ryan: been busy, man. I haven't put that much effort into this. I'm sure there's some other better source. If you're out there and you know how to get Panama rain data, send it, send it to me. I want to see it, right? But
Logan: umbrella and sweatpants sitting next to the Panama Canal that you can go
Ryan: whenever I Google it, it keeps coming back to the Panama Canal as the source. I'm like, no, I'm trying to find other sources of data about this. So, uh
Zach: the new test of the next gen OpenAI models, whether they can figure this out
Ryan: Uh, I assume they're getting polluted by the same sources. I need to get, yeah, like Climate Corp or whoever, we got to find out who has got good rain data on, on Panama. I'm sure it's out there.
Logan: Well, Ryan, thanks for doing this. This is fun.
Ryan: Yeah. My pleasure. Thanks for having me [01:19:00] on.