Big Technology Podcast - Is A Healing Supply Chain Fixing Our Economy? — With Ryan Petersen

Episode Date: November 23, 2022

Ryan Petersen is the Founder and Co-CEO of Flexport, a supply chain technology company. He joins Big Technology Podcast to talk about how the supply chain is rounding into shape and whether that will help cure our inflation problem. Stay tuned for a discussion that starts in the weeds of shipping and moves into broader areas including consumerism, climate, and Amazon Culture.

LinkedIn Presents. Welcome to Big Technology Podcast, a show for cool-headed, nuanced conversation of the tech world and beyond. Our guest today, Ryan Peterson, might be the person with the best view into the core of our inflation problem and whether you're going to get your holiday gift on time. Peterson is the CEO of Flexport, the supply chain technology company that's valued at $8 billion, and he sees all the comings and goings of cargo, including the bottlenecks that caused the product delays and price increases that we've suffered in the past few months. When the supply chain works, our economy works. And so let's talk about whether the supply chain is rounding into shape and starting to work again and whether some relief is in sight or whether we're going to end up spending more time in this chaotic inflation-driven and terrible economic. cycle. Nobody better to talk about it than Ryan. Ryan, welcome to the show. Yeah, thanks

for having me on. Okay, Ryan, so we're seeing shipping rates at about a tenth of what they used to be during the height of this shipping crisis, which is really unbelievable that they've dropped so much and shipping times are down as well. Is it a coincidence that inflation is cooling off now that the supply chain is starting to write itself? Like, how linked are those two things? They're very, very, very linked. I'm not, you know, as far as like how the government officially measures it with CPI. I'm not exactly sure. Like, I can't say that, oh, last month's decline was actually tied to this as directly. But of course, mathematically, it has to be linked because the price of ship gets flowed through to you and the price of everything that you buy. And the price

of shipping went up so much, you know, when it was 15,000 or even, you know, at peak you saw some containers at $20,000 to ship a container from Asia to the U.S. That, that, the average container has about $100,000 worth of goods at wholesale price, meaning consumers pay $2,000 to $300,000 based on markup. So you're like $20,000 over $200,000, 10%. Now, that's just goods. There's all the kinds of other things in the economy, services, doesn't affect fuel, which isn't shipped that way, you know, many other things. But for the price of goods themselves, especially imported goods, which is most of our consumer goods get imported, you are talking about a really material impact on inflation. So on any one month or one quarter, I'm not sure how, you know,

how it's measured and how long it takes to flow through, whether that's really what's driving this down or if there's actually more declines in the future, but sort of mathematically it has to. Yeah, I remember before all this inflation started, there's a guy I know in shipping. I wouldn't even call him a source. I would just, you know, a guy I know and that works in shipping. And he was telling me that like he was like listen our business is amazing the shipping containers have gone from 2000 and now he was making 15 and it would eventually go up to 20,000 and he was you know responsible for finding freight and getting it on these containers and make a percentage so he's like you know people are suffering a lot of pain and people are making a lot of money you know as long as

that continues for sure and there was this sense there was this sense that it would like never get back to normal. So, but looking at that data that your head of ocean shared, it looks like it is getting back to normal. How did that happen? Yeah, well, I might take issue with that word normal because what we've seen over the last decade is sort of gyrations. You also have had these moments where shipping is incredibly cheap. So in 2016, the price to ship was only 600 bucks. And one of the major ocean carriers went bankrupt and created all kinds of problems of its own. So it's more, and you've had trade wars and, you know, new tariffs and things. So there's kind of always something new and volatile, but it has returned to sort of long-term historical averages, which I guess

is, you know, average can be deceived because it might actually be moments when it's much lower than the average, much higher, et cetera. But I think it's normalized to an extent, if we can use that word. What happened to get there was mostly that consumers, you know, the same trend that led to the spike, which was consumers when the pandemic hit and folks were locked down, whether voluntarily or their cities weren't allowing things to open up, people were not going out and not spending money on travel or restaurants, services, all the services industry, there was just this huge shift of spending from services over to codes. And people were pretty flush with cash.

They were flushed both, you know, people like to talk about the stimulus check, but probably more important was 40%. of houses in the United States were refinanced last year. Got a nice low interest rate, put a bunch of cash in the bank. You're like, what are you going to do? Well, you know, a lot of people are going to buy some cool stuff with all that cash. So a lot of expenditure, a lot of expenditure on goods flowed through from that. And those trends have now reversed.

People are traveling. Travel is booming, as you see. You go to any airport, the flights are all overbooked. A lot of this stuff is coming back and services, restaurants are doing, the ones that survive the pandemic are doing great right now. So that trend is just reversed. And so less goods, I think there was a 11% decline last month versus the year prior in terms of amount of volume entering the port of L.A.

And so less supply and demand imbalance and just like the price can collapse because it's relatively inelastic, meaning the price, you're not going to ship more stuff just because the price of shipping went down. like you're going to ship stuff based on like what are the economics of the product itself and are you making money as their demand for it if the price of shipping falls in half it doesn't mean you're going to ship like twice as much stuff you're going to ship about the same amount of stuff and similarly if the price of shipping goes way up you're still going to keep shipping stuff as long as it doesn't totally break your business and bankrupt you which if you have a decent business you could absorb that it wasn't pretty and it you know it was uncomfortable but um so that's where you get these price gyrations right and then the price ends up largely getting passed to the end consumer. So when I was talking to my guy in shipping, he was saying, okay, prices going up. And he said the retailers, they're paying that right now. And the prices are remaining the same.

There is no way that those prices can stay and that he expected that inflation was going to come next. And then that's what we've seen. We saw the inflation and now, you know, the pricing is coming down on a lot of products. And you have these retailers that are starting to, you know, discount. you know, all this discounting is a result of excess inventory that they stockpiled. So that's another good sign, don't you think? Yeah, exactly.

I mean, it all depends on where you sit, but people are overstocked. Yeah, I should have mentioned that. People ordered too much go. They thought the pandemic boom would never go away. Everybody wants to believe that the future is always brighter than the current. You know, when it comes to business, I've never seen someone make a business projection for their company that went like up and then went down. It's always like, oh, we're going to do a little better, a little better, a little better, And so when suddenly that does happen, you know, the most classic example for this is probably the e-commerce.

People just thought that the last 20 years, like every year more, a larger percentage of retail spending was done through e-commerce. And with COVID, that really, really spiked. And then people thought, okay, it'll just continue, it might continue at a lower, the trend line will continue from that high point. It'll never go back down. Like, that's pretty much what everybody thought. Shopify made that bad. Amazon's made that bad. And it actually has gone back down.

down. Yeah. Well, actually, I'm glad you brought on Facebook. That's like another big problem for these e-commerce guys. Apple changed like the privacy rules. And it's made Instagram ads not perform as well. And so a lot of these e-com businesses are really like built around the Instagram ad format. And I have like one friend whose entire product was chosen because this is the type of product that sells on Instagram. And when Instagram, when this ad stopped working because the Apple privacy changes, you can't retarget people, his whole business model just basically stopped working. So you see a lot of that too. Yeah, now you see this up close. Do you think that the Apple changes were made in, you know, it's particular in the name of privacy? Are they actually

helping people's privacy? I'm sort of cynical on these things. I think that they're trying to build their own ads business. And now you have to run ads on Apple instead of on all the platforms. Can your, and how about all the businesses that built them? I mean, I always think that there's this liability don't build your whole business base off of on on a on the back of the Facebook platform or even relying on one channel alone but I guess well I'm curious do you think the Apple you know is there a hope that Apple will be able to deliver that sort of economic benefit to to the smaller businesses that Facebook was in the past and is that is that fair I'm not close enough to like the ads the ads market and I

believe actually Apple of all the big tech companies is the most committed to privacy and like I think that's a good thing so I'm not I don't want to be overly critical of them, but, but I'm also a little bit cynical when I see there's an ads product from them. But I'm not, I'm not close enough. We, Flexport doesn't run ads on these platforms ourselves. Like, we're not, we're like more of a B2B marketing company. So. Yeah, Ryan, how did, how did all these companies make the mistake that these COVID conditions were going to last forever? We just had Roy Bahaup from Bloomberg beta on it. We're talking about it last week. And it's just one of the most interesting questions because like, you're right. You

You see it everyone from Shopify, Amazon. And Amazon, now they're going to do this. 10,000 person layoff, which is actually kind of tiny, given the fact that they've hired like a quarter million people in a year and a half. But all these, and Facebook, for instance, and a lot of the e-commerce companies, how did everyone make this mistake? The simplest way is that, you know, these are really data-driven companies. And data, there's a problem with data, is it all comes from the same place, which is the past.

And if the future doesn't look like the past, like you're being data-driven, actually, it's not really helping you that much. And by the way, everybody made the mistake before. Like, no one, I can't find a single economist when COVID first hit. There's this pandemic that made the prediction, hey, this is going to lead to a huge increase in the amount of goods being shipped and global trade's going to go up. Like, everybody thought trade's going to collapse. Like, all previous recessions meant trade went down.

There was less goods being shipped and it was real pain for the industry. So, you know, it's just like incredibly hard to predict things. I'm kind of like trying to keep flexported out of the prediction business and make sure that we're instead just like the most, the best in reading what's happening right now rather than in the future and being really quick and agile to adapt to a current situation. Because I just find it with like we're just not that good at predicting the future. But your business is sort of, we talk about Amazon, Shopify, Facebook. These are almost like tangentially related to like whether the economics of COVID would last forever. Yours is directly related because if you're in the shipping business, you know, you, you, You have to make a decision.

Is this going to last forever and how does our company adjust? Or is this going to be temporary? And how does our company, you know, get by for the time being and then eventually return to normal? So what was your prediction of that? I mean, I know you don't want to be that, but you had to have made some assumptions. And then how has that gone over the past couple months? We made the prediction that it would change, like that things would come back to normal,

that these prices can't last forever, that it's going to have to be. revert but timing you were so yeah were you so close to the timing we were very uncertain we sort of you know and i never put any faith in the project the projections and you want to kind of have like a base case of uh okay let's say this prices collapse and we're not able to grow volumes what does that look like in the p and l and can you survive that you can you can that be acceptable like to lose money the way you're going to lose if it doesn't go and so but it's impossible to model these things out we're we're lucky that we are not an asset we're we don't own assets. We don't own the ships, the planes, the trucks. Now, for the last two years, owning the assets

meant you just printed money. The next two to five to ten years, it's going to be pretty ugly for those asset owners. And I think hopefully they did responsible things with the capital while they had it. And so that they don't experience crazy amounts of pain. Yeah, one of the interesting things I've learned from you in previous interviews is that planes, like that you end up, we end up having 50% of cargo coming in on passenger planes. And you actually rented your own planes in order to. to maybe ease some of this crunch. Yeah.

And so we did, we leased at the very start of the pandemic when it first hit, the big problem that we saw was that there were, I mean, the real problem, not in our business, but civilization level problems that our doctors and nurses and hospitals didn't have enough masks, enough PPE to protect the frontline health care workers. And when we, as being in this industry of like, okay, how do we get the masks? we saw that there were huge quantities of masks available for purchase in China and that the hospitals had resources to purchase them, but they just couldn't get the masks over. So like, oh, great, this is a problem. We know something about.

But as you said, 15% of the cargo capacity for air freight, and this was all air freight because we were in a hurry, it goes in the belly of passenger planes. And those are all grats. Is it 50 or 15%? 5.0. Really? And that's just air freight versus what's the percentage of air freight to shipping? freight that comes into the U.S.? It's like 80% ocean.

Okay. All right. Depending on the lane and the commodity and something like this, it can be higher or lower. But, and so you, so you had this like crunch. But if you listen carefully, you can hear the answer to the problem is like, hey, the passenger planes are grounded. Okay. Let's go use them.

So we released, we put, we did 87, we had 87 planes that flew over and got masks. We shipped about 500 million masks to frontline health care workers on five continents, It's not just in the U.S. So that was our – but we had to make a bet for a bunch of those, like we had several where we signed multi-year contracts. And to like lock in, we had our own 747s. We still do from – because we signed multi-year contracts on those. And we had to make a bet.

Now, we were fortunate. We were fast enough in making this bet that everybody still had this mental view that, oh, trade is going to collapse. And so the asset owners were happy to sign a long-term deal. with us at what turned out to be really good market rates. I mean, the price of air freight is still above where we signed those long-term deals. So that was, that turned out to be quite profitable for us. But we actually thought it would lose a lot of money, but it was the right thing to do to get, you know, masked to the frontline health care workers.

We've been fortunate that the bet paid off. But I suspect in the coming year, that bet will turn underwater and we'll lose money. It's okay because we made a lot of money in the last couple of years on it. So financially still, I'd do it over again. Interesting. But it's a small piece of our business. as I was saying, like we're not really asset heavy. We don't usually make, you know, it's a small percentage of the air freight that we do. We're the third largest provider of air freight

into the United States for international air freight. And this is a small percent that we have on these like long term where we have our own 747s. Most of it's kind of brokered out to other people's assets. Okay. Fascinating. And so we're talking this all time about, you know, how temporary is this, how long is this going to last? I mean, that's sort of, to bring it full circle, been the key question about inflation. You know, is this transitory or is this just a factor in the system? And it's kind of, that comes back down to the supply chain question, right? Because you're starting to see the supply chain is correcting itself and now inflation is easing. I'm curious if you ever thought, we just had Sagarin Jetty and Marshall Kasloff on from the realignment. And they had mentioned

that like the number, you know, we're relying on the Fed to fix the inflation issue, the number one thing that the current administration could have done from day one is to say there's a supply chain crisis we're going to fix it and that will help us with with inflation so you know i'm curious how you think about that in terms of like the whether the inflation is transitory or or you know permanent and how much does does the actual supply chain actually factor into that i'm always like really hesitant in macroeconomics it's just like there's some complex factors that is like human brains are really good at kind of creating a narrative from complex But it doesn't mean that that narrative is predictive or accurate, even accurate looking

backwards, much less predictive going forward. That said, I'll weigh in on it with that caveat. I think the inflation is important, but rather supply chains are important to inflation, but there can't be all encompassing unless, for example, the oil is not really a supply. I mean, I guess you could probably define the price of energy as part of the supply chain, but it's really like upstream or like are we investing in the infrastructure to pump more oil, do more drilling, generate, lower the price of oil like that. We're not.

And so that's going to lead to long-term inflation of the price of energy, which ultimately the entire economy is running on energy. It's just conversion of energy into other forms of things that we want to consume. And so I think that's going to be a lasting influence. The interest rates, you know, because of things like the refinancing that I was mentioning earlier, where people, you know, nobody's refinancing at a home. next year at these higher interest rates. And so that's a huge amount of cash that people had to spend. So that's going to actually be a force towards lowering inflation. That's kind of how

the high interest rates work to lower inflation. So people aren't going to have as much money in their pocket. And then it all comes down to like printing at the end of the day. It's like, does the Fed continue to kind of print tons of money? Do we, and there's going to be real political reasons where the moment they stop and the budget, it's like politicians just love kicking the can down the road and spending more money it's what you know and so there's just this huge influence um an incentive for a politician to say no I'm not we're not going to have austerity and lower our spending while I'm in office like let the next guy do that and we've been kicking that can on the road for a long time so um my a lot a lot of factors uh but yeah supply chain at least to the

extent that logistics and the price of freight as I was indicating before has impacted it that's going to come back and normalize and maybe go the other way to where it's actually cheaper than it was pre-pandemic because we've got about over the next two years it's going to be 25% more ships coming online the capacity for ocean shipping we people respond to that high price and say hey let's build some more ships and make some more money and then you get an increase of supply of shipping takes a little while but now demand's going to be down and supply is up so you should predict like really cheap prices of shipping for for the in the coming years would be my prediction if I had to make one.

And it's amazing that we're already seeing. I mean, the fact that we're seeing the movement downwards so quickly is pretty wild. How does this holiday season look like? I feel like that's the key, right, that people are going to spend during the holiday season. Maybe they haven't spent yet. They're waiting. I feel like I've had this running conversation with some of your executives for the last couple of years.

Like, are you doing your holiday shopping now? Are you going to wait? Like, are you going to try to get the lock in that price now or, you know, kind of risk the inflation going up as we go? So we have Flexport Research is our economics team. And they put out great reports, by the way, flexport.com slash research. For those of you out there,

we want to kind of follow us along. We have great intel. We're like in these transactions. We represent about 1% of U.S. trade and have, and then the team studies also other macro indicators and things. So what we're seeing right now is actually that people are, this expenditure is still there. We're seeing spending about 1% up over last year on consumer goods.

So it's still there. but what's happened from a shipping standpoint is that brands overordered they thought it was going to be even higher than that they have too much inventory so they're shipping a lot less and so as long as the consumer spending stays about there eventually the brands have to ship more to keep up keep up with it but the good spending term is not it hasn't collapsed the extent that we thought or that that's been widely reported now inflation's up a lot so if spending is up 1% absolute volume of kids may be down a little bit. I mean, do you expect the holiday season to run smoothly or, and do you, you know,

if you have to, when you're buying your holiday gifts, are you going to wait now towards the last minute or are you going to lock in the rates that we have now? As a consumer, I never, you know, let's see. I don't have advice for the average consumer out there. I think probably go buy what you want for your family, take care of them. I wouldn't expect, I wouldn't expect, like, big changes. Right. But you personally?

You know, I haven't gotten a Christmas present in so long. My family, like when I was 18, my dad gave me a road outlets. Okay. Sort of like get out of the house, dude. Go do experiences over things. Here's a map. Yeah, most holiday, most happiness experts would say that's the right path. Ryan Peterson is with us.

He's co-CE CEO and founder of FlexPort supply chain technology company. We're going to take a quick break on the second half. We're going to talk a little bit about Flexports plans to hire in this really wild. economy, some questions we got from Twitter, actually, about de-globalization and climate, and we'll see where else we'll go. Back right after this. Hey, everyone, let me tell you about The Hustle Daily Show, a podcast filled with business, tech news, and original stories to keep you in the loop on what's trending.

More than 2 million professionals read The Hustle's daily email for its irreverent and informative takes on business and tech news. Now, they have a daily podcast called The Hustle Daily Show, where their team of writers break down the biggest business headlines in 15 minutes or less and explain why you should care about them. So search for The Hustled Daily Show and your favorite podcast app like the one you're using right now. And we're back here on the second half of big technology podcast. Ryan Peterson is with us. He's a co-CEO and founder of Flexport. I've been looking forward to speaking with him for quite some time and I'm really glad you're here, Ryan. Ryan, can you give us like a bit of

a sense as to how much stuff is actually shipped across the oceans? I mean, is it possible to even put in towards? Well, it's, I mean, almost everything. We don't, we're not producing that much. There is a kind of a great reshoring that's happening right now. I would argue a little bit underreported the amount of kind of like reindustrialization that's taking place in the United States as companies learn the lesson from the last couple of years that it's hard to get stuff from overseas. They're starting to evaluate and can we produce locally. But nonetheless, like, globalization has been this great boon for the world. I mean, we've had incredible amounts of prosperity generated by the ability for

everybody to trade with everybody. And we got to the point where, and the United States, we're very reliant on international manufacturing. Something like 80, 90 percent of everything is shipped by, it goes on a ship. But of all the goods that, you know, an ordinary consumer touches, not, you know, America is thankfully pretty close to independent on energy now. so we're not we're not super dependent on imports of oil anymore but yeah fast amounts of stuff and you know you just kind of it's a little bit out of sight but almost any object that you

see you can ask like hey where did where did this thing come from you know you take a look at the label oh this one made in Portugal you know so um right it's kind of a fun mind experiment to spend the day looking around and ask that question that you kind of forget how did this stuff get here Yeah. And so it's interesting. We ended on the second half, you know, where you talked about how you got the Road Atlas as a Christmas gift. And yet your job is to move stuff, you know, move things, you know, across the globe. I'm curious, you know, you talk, think about the state of consuming and the state of experiencing. And what you must as CEO of co-ceo of Flexport have some thoughts about like the state of consumerism in the world right now. You never think about that. Yeah. Of course. And I think it's a really important aspect of modern culture that's often degraded.

People are insulting of it and don't quite appreciate how much it leads to prosperity. I mean, you're buying things and that's other people's livelihood. People are generally living that they spend money elsewhere. And there's this great circulatory system that's really powered by the consumer. And one of the great ask, one of the things that's, one of the things that's, American prosperity, we have the greatest consuming culture in the world. And in fact, every other country in the world kind of depends on the American consumer. Whenever we have a recession, we export it. Other countries experience recession. America has never imported a recession from

somewhere else. It's always kind of consumer led here in the United States. And so you can sort of say, hey, we're too consumer, we're too consumer oriented. We should be more meditative and learn to enjoy nature and not spend things. But guess what? You'll be a lot less prosperous. And you'll have a downstream of prosperity is longer livelihoods, you know, people are healthier as a result of all that prosperity. So it's a dangerous system to mess with. Right. But are they happier? That's another question, right? Like, I mean, what your father's lesson to is that, you know, stuff can't bring you happiness or maybe not as much as being out on the road. It might be true. Although happiness is sort of an ephemeral emotion. I try, I try not to get too

attached to it. I'm like don't want to, it can come and can go. And I don't, you certainly shouldn't depend on stuff for your happiness, but the same time, I'm not, I'm not convinced that the alternative is, oh, don't consume anything. Right, right, of course. Interesting. So let's, maybe let's get to some of these, these questions. So talking about all, all the stuff that we ship and climate, right? So we actually had a question from Vernon, and this person, Vernon 3 Austin on Twitter. You know, I'm talking about the market of the electrification of cargo ships in Fleet Zero. You know, how big of that market can there be?

And is there room for lower cost electric cargo ships? So is there a way that we are able to continue this pace of consumerism and preserve the planet that we have? Yeah. So Fleet Zero is a company actually that Flexport invested in this working on electrification of shabs. And I think their current target market market. market is, it's maybe a minimum viable product or an entry point to the market, which is, let's power these ships while they're docked off of electric, car, off of electricity and off batteries, but rather than powering them off running the combustion engine while they're sitting

at the dock, the problem becomes that they're going to have to solve and others, and I'm not, I'm not close enough to the physics, but friends who are say this might be impossible problem, is that the size of the battery in order to cross the Pacific becomes so big that you run out of any space to ship cargo. Right. And, you know, you're like, oh, well, then we'll just make the ship bigger, but then the battery has to get bigger. And so I'm not, I don't know that that works.

I think I'm really interested in nuclear cargo shipping. There are two civilian nuclear ships in the world. Both of them are run by Russia. But it, and the U.S. Navy's runoff of nuclear. They have, I think, 750 nuclear-powered vessels, and never had an accident. So I think that's probably the answer to get to a zero-carbon world. I think that the idea that we're just going to decart get off of carbon and get off of fossil fuels for our ships without nuclear is probably a fantasy.

I have invested in, I'm cheering for the Fleet Zero guys, and I like their early market entry point, but I'm as yet unconvinced that it can work on the long haul. And I have to remind people there's this idea that we're just going to rapidly transition off fossil fuels but be careful because the fossil fuels have powered all of the prosperity that got us out of

what before the industrial revolution, it was very, very bleak. A standard of livings were horrible. 25% of people died from homicide. It was just an ugly time to be alive and you want to just switch back but if you don't actually have the technology

you can't solve that with policy. And there's this idea that we're just going to like use the government and policy to get us off fossil fuels and off energy. But policy can't generate new energy. You need actual technology. You need solutions. And until people get really behind the nuclear movement, I don't really take them that seriously because these other forms of energy aren't there right now. Yeah. And yeah, I guess this debate, the nuclear debate has been sort of, it's been renewed now that the Russia crisis is happening.

and people are looking for alternatives. So maybe that's where it ends up. There's finally a little bit of progress there. Finally a little progress. I'm very interested in the nuclear shipping. If anyone's working on that, reach out to me. I'd love to learn more. Yeah.

Now, just going back to one thing we talked about in terms of the consumer economy, it feels a little circular to me like the economy's doing well because people are buying things and people are buying things because the economy is doing well. Like, how do you have economy based entirely off of consumerism? Well, that's 100% what happens in. in economics is that it's circular and why recessions can be pretty dark. You know, it doesn't have to be just consumers and take software SaaS businesses,

where SaaS businesses sell to all the other companies in the world, including other SaaS businesses. And when one of the first things that we've done, we're like, hey, you know, economy's turning. We've got to cut our costs. Let's go look at our expenditure. And what's the easiest thing to do is cut software spend that you're not getting an ROI from.

It's much easier than cutting people or office, real estate, et cetera. It's like, hey, let's just cut some of our contract. Well, if Flexport as a software company, if we cut back on our software spend, that creates problems everywhere else. And then those companies have to cut their software space. It's just the nature of an economy. The alternative is called autarky, where everybody produces for themselves. It's called subsistence farming.

And people have tried that, too. And what you get is poverty. And if you haven't lived in poverty, it's nice. You know, it looks nice. People like to travel and take photographs. It's very picturesque. And it has great aesthetics. going around the world. People love going to like African villages and taking

picture of the people. But if you talk to those people, you go hang out with them. I lived in El Salvador. I've lived in Brazil. They want to live like us. They don't want to, they don't think that this is like cute and picturesque. They're like, I want to live in a shopping ball. I want to have air conditioning. I want to go to shopping mall. I want to have air conditioning. I want to have all the, all the nice health care, all the things that we have. So it's kind of a luxury belief to think that we could like overthrow this, the system that we have. Well, instead of overthrow, I'm just curious how it works. It's just, it seems, again, circular.

But I think you're right that there is a circularity to economies. Well, it's the same eco in economy as in ecosystem. Like, it's the same Greek root, you know, and you can think of an ecosystem where, in fact, one of the principles of the environmental movement is, hey, don't mess with complex systems that you don't understand because you might disturb it. You don't want this one species, even though it's annoying, like I'd personally like to see us eradicate, poison. I mean from the face of the Earth because I'm highly allergic and I hate the stuff. But it's probably a bad idea because you don't know what other cascading effects that that creates and other animals that are eating the poison ivy that maybe they go extinct, et cetera. So it's a very similar principle that can be applied to economics and the economy.

It's like, hey, you don't really understand the system that no one really understands it all. It's a very complex adaptive system, multivariate. It doesn't subject itself easily to science. Like science loves to isolate a variable. It's kind of the way it works. is like, let's isolate this variable and see what its impact is. But if everything is connected to everything, the scientific method doesn't really work for that. You need, maybe machine learning can start to handle the degree of complexity,

but it's basically beyond the realm of our simple brains to understand. At a detailed level, we can kind of get a grasping of it in a holistic view. Where in El Salvador did you live? In Santa Marta, I didn't really live. Yeah, I didn't really live there. I spent a couple of months there. What were you doing there? I was a tour guide.

Really? It's a former, actually, it's interesting, a former, El Santa Marta was one of the homes of their guerrilla movement during the Civil War in El Salvador. The FMLN was, I mean, it was kind of this guerrilla village. And we would do tours down there to meet the people, sleep, hang out, living there, cinder block houses, et cetera.

It's kind of interesting. This is back in my early 20s. Yeah, it's a beautiful country. What do you think about the Bitcoin experiment? Hope it works out for that. I like the boldness of it all, but the timing is not being great. Yeah, I mean, I was more bullish on it

and thought that there were some real uses, and I still think there's some real uses, but geez, probably not doing it very well, especially given that they bought so much. crypto at the peak. Relative to their GDP. I mean, I think the more interesting thing that El Salvador has been really forward looking on currency is they just adopted the U.S. dollar. That's actually the national currency of the country. They don't have the, I forget what the oldest Salvador in currencies to be called. But the reason I think that's amazing for them is that 20% of their GDP

is money sent back from Salvador and living in the United States. Well, if you're 20% of your GDP is from in U.S. dollar generated, you don't really want to pay currency conversion fees on it on 20% of GDP, so just adopt the dollar, and you get, you get a sounder currency as well. So I think that they've been kind of like, you know, everyone talks about the Bitcoin experiment, but the US dollar experiment was pretty radical and I think it has really paid off for the country. Yeah, and also in Ecuador, the dollarization there, their, their currency had been, you know, notoriously unstable.

And going to the dollar actually caused a tremendous amount of pain at the outset. that people saw lots of their household wealth disappear overnight. But I would say, having been there recently, a lot of people are quite happy that they're now on the dollar. But of course, there's other problems with it, which is that the U.S. now has a lot of control. Yeah, these things are hard to do. And I'm glad I don't have to be a policymaker.

And I'm not as clear with the Ecuadorian economy. I doubt they're nearly as dependent on remittances from the United States as El Salvador is. Because El Salvador has, these stats are a little old. I haven't been as following this closely, but five million people and a million of them are in the United States. So it's like, you know, six million total Salvadorans in the world. And kind of like almost 20% of the whole population lives in the United States. They're much more, I suspect they're much more connected to the U.S. economy than Ecuador is.

Yeah. And this is a nice little segue for, you know, a moment to think about globalization because, you know, you had talked about how, like, it increased prosperity all over the world. And now we're at a moment where a lot of that. seems to be rolling not well yeah rolling back i mean we see what's happening with the u.s and china starting to move away from each other and of course there was the russia issue and we had we had another good twitter question from brooks bergreen who said um you know what do you think global supply chains are going to look like in 20 years out factoring in geopolitical tensions and

de-globalization trends this will be the great issue of our lifetimes i think is is whether we hold the system together and allow for any country to trade with any other country, any company to find its best supplier anywhere in the world, find customers anywhere in the world, or do we move to a much more balkanized world where you sort of have more less trade and people buying things more locally and not able to find cheaper sources or better customers elsewhere? And it does seem that all the trends are in that direction. politically, nationalism is on the rise. We learned a lot of lessons from the COVID and supply chain resiliency and said, hey,

maybe we should be buying things more in our neighborhood, if not locally in the United States, but in Latin America rather than in Asia. And so we're going to, that does seem to be the trend. And I think it's worrisome from my standpoint, not just because, of course, my business is all about trade and shipping things globally, but because if you look at the last 50 years. We lifted a billion people out of poverty, a lot in China, but India, throughout Asia, throughout the world. It's really, we like to report on all the doom and gloom in the world, but you could also have written every single day for the last 30 years, you could have written

the headline, 100,000 people lifted out of poverty today. But no, you know, that headline didn't get written once. And so reversing that in the same way that you have this boom on the way up, the reverse can be really, really painful. America is reasonably well positioned for this. America, I mean, the United States, reasonably well positioned in that we are self-sufficient in food and energy, have most of the raw materials that we need. We depend on trade less than almost any other country on planet Earth

from a percentage of GDP standpoint. It's really other countries depend on U.S. consumers and our dynamic economy. And yet, it's not a zero-sum game. So America is going to do better relative to everybody else if we de-globalized, but we will do worse than if we hadn't de-globalized. Trade makes both parties better off. And losing sight of that, I think, is really dangerous for the world and will likely lead the pain. Where do you think we're heading?

I mean, we do have, like, you know, that's theoretical, but we do have concrete movements away from globalization in many parts of the world. It seems to be where we're heading, yeah. to what timeline and what degree is the big open question and what are the what are the counter forces is there anybody out there who's advocating for it not many i think i'm one of the few i feel often left to learn i mean our mission at flexport is to make global trade easy for everybody so we will always be a that's pro supportive of trade and trying to show people that it's not obvious that both parties are made better off when when they trade with each other voluntarily but it's sort of tautological when you think about it that you wouldn't do the trade if you

weren't better off. So let's, but it's also trade, you know, it's underappreciated, but trade has really depended on the U.S. Navy. The U.S. Navy has guaranteed freedom of navigation and made it so that cargo ships can call anywhere in the world and go circulate without worrying about pirates or foreign navies attacking them. And if the U.S. Navy and the United States government loses interest in that and doesn't want to police the seas and cargo ships, all it takes a couple of cargo ships getting blown up to end trade in a region because you can't ensure it. Nobody in the right mind wants to sail through the region if they're getting attacked. So you saw this with Russia and Ukraine, there was one, maybe two cargo ships that got hit by missiles

and all trade in the north end of the Black Sea has ceased, no more maritime, no more shipping in that region. So it's pretty precarious. I don't think we recognize how fragile this global order is that was created after World War II. How does your company adjust or prepare for that? possibility. Well, we're not, you know, some, you work on the things that you can control to a large degree. And so we're, we are developing more capabilities for things with trade in our own neighborhood. So we've been investing in Latin America, being able to United States trade,

U.S. trade, our biggest trading partners are Mexico and Canada. We've got offices in Canada. I suspect our roadmap has us opening offices in Mexico. I'm not sure if 23 is on the timeline or the year after. We'll see, which it tends to be a talent problem as much as anything. But building up capabilities to support trade within those regions. And just overall, being adaptive, we want to be the most agile company in the world, understanding what happens in real time so that we can act against it. A lot of these headlines are overblown. You know, trade with China was bigger than ever last year.

Right. Oh, interesting. So. Interesting. Okay. A couple more for you before we have to head out. first of all, tough time in the public markets right now. How enticing is IPO and being a public company to you? So we thought about going public in the boom. So much pressure from investors told me just do it, man up and do it. You can, you know, don't be scared. You can go public. A lot of our,

some of my close advisors internally wanted to go public. And I started to question whether that was really the best for the company or best for their own personal shareholders, like a little bit tricky because I've never had to question that before, but I just strongly disagreed with a lot of the forces that were people putting pressure on me. I didn't think we were ready. I thought also that the capital markets were overheated and I didn't want to go public. If I was like in it for the quick buck, go public, sell some shares. Life is great. But I was looking at future me and going well, and then we're going to have when capital markets come down, when freight markets restore sanity, we will not be the darling and I'll still be the CEO and still be suffering. So I would

I feel very smart impression about that. We raised enough capital, beginning of last, beginning of this year, we raised $935 million. So we are really well funded and can stay private for as long as we want. I think internally, it's less about capital markets at this point. I mean, you're going to be valued at what you're going to be valued at. We frankly just weren't ready internally. We've got a lot of work to do, to earn the kind of valuation, you know, like your private market and to an extent, also public market, your valuation is always, it's never like, what are you worth today? it's there's some what is the probability that you're going to be worth 10 times that amount and that

probability is worth something uh you know and a private earlier stage company tends to have more of its valuation tied to that probability whereas a mature company has been around for 100 years like the probability is really small and it's not that's not actually meaningfully impacting its valuation it's like based on today's free cash flow and flex sports valuation is largely driven I wouldn't say largely we're a good company we're profitable last year but a lot of our valuation is like hey if we really crush we're the we're the leading technology platform for global trade that's a huge market uh the biggest player in our market has 2% share and we're we're still about one 10th their size if we crush it we could be 10 times their size what would that company

be worth it would be worth hundreds of billions of dollars and if there's a 10% probability of that then you know you get an elevated valuation so we have to increase that probability a lot And I think as you go public, people are giving you less credit for future stuff. That's not what their venture capitalists are in the business of like understanding what's possible rather than what's present today. And I think public market investors are much more focused on the next couple of quarters or next couple of years at the best. So we got a lot of work to do to make that, to bring that story to life and make it so

people can believe in it. Yeah. And it has been such a roller coaster for companies on the public market recently. You look at Peloton, right? I mean, I'm not comparing you guys to Pelotan, obviously very different companies, but, you know, their stock has been down 90, 91, 92 percent. Are they one-tenth of the company they were? Likely not. There was this, you know, up and down movement, even a company like Meta right now is down 71 percent on the year. Are they one third of the company? Everybody went public last year regrets it much if they had a choice. And one of the things that I think maybe, I might be, you know, assuming here, but I imagine that one of the things that, you know, that this has enabled you to do, is not layoff this year.

And in fact, you're looking at, I think, what double headcount or double new employee ads? Like, talk about what it's like to be hiring now. It's really in our engineering department where we're going to double the size of the engineering team. We're going to have to be really lean in other parts of the business and look very closely at all our costs and, like, keep things in line. We've had a hiring freeze in the rest outside of tech already for many months.

And, but it's, we believe deeply, regardless of what's happening in the short term, in the long-term secular trend of technology is going to transform global trade and global logistics. And regardless of whether trade comes down a lot or not, like we are today like 0.1% of global trade. We're tiny. So even if it

got cut in half, like Flexport can still become a massive, massive company. So none of the macro trends, whether it's capital markets, freight markets, global trade really matter that much on the long term. We're still deep believers that technology is going to transform this space. And we see,

so much potential. And yet, like, if I look internally at our teams, we've got like amazing areas of the business that have great business plans, that have funding and that just don't have a team or like have two engineers when 12 could transform the nature of our product on that one team. You're like, why don't you have 12 engineers? So we just looked at it and said, hey, this is the moment. Everybody's cutting their engineering hiring. We're really well capitalized. We've got 1.6 billion in cash. We were profitable last year. Let's go, let's go lean into the tech hiring. But the rest of the company, we've got to look very closely at like, are we overstaffed or are we have the right amount of staff doing the right things? Do people have the

right KPIs? So it's, you know, it's not a, it's a difficult moment to manage for everybody. I don't think Flex Sports have been from that. Yeah. And you also, speaking of hiring, you brought on a new co-CEO, Dave Clark from Amazon. So a couple of questions about that. Then we can, we can wrap up. First of all, what was it about about Dave that made you want to bring him in and what's the deal about um yeah what's the deal like having a co-ceo that's kind of an interesting uh decision so why did you do that and i'll point out and i didn't give him this nickname but dave's nickname at amazon was the sniper so it's kind of an interesting uh type of nickname to carry so i'm kind of curious if you can answer that one yeah you know people who actually

worked with dave were like a big teddy bear so i think i think it's a bit of a uh unbear nickname that doesn't super early he's not definitely not embracing that one um Dave uh Dave there's probably nobody on planet earth there were like maybe two or three people on earth that I would hire to be the CEO of Flex4 like I actually really like the job I think I'm pretty good at it there's but I have real weaknesses and I was trying to compensate for those weaknesses by hiring a really strong number two like a C-O to run operations I'm not you know the act of running a company like FlexBore. Maybe it's true of any big company, but certainly in logistics, it's all about day-to-day progress of getting a little bit better at the thing you did yesterday. Like for us,

can we improve the transit time of our containers or our air freight by a little bit every single day? Can we look at what cause and its statistical studies of, okay, let's look at all the transit times for all the containers on his trade lane, look at the outliers that took too long, figure out what went wrong, do this sort of deep root cause analysis and make sure that doesn't happen again and kind of like it's real operational intensive heavily in the metrics it's not my thing i'm more like creator create new products i like the technology i love being in the looking at the product figure how could we make this user experience better how can we be a growth company get in front of more customers launching new regions etc that my core skill set is like actually

not the main thing that flexport needs so i was like all right trying to hire a co-o i basically caught a whale, where Dave's like the best tech and logistics guy on planet Earth. You won't find someone with a better experience and more love of the game than Dave. And there's kind of a generational leadership change happening at Amazon with Bezos leaving, Jeff Wilkie, who was Dave's longtime boss leaving. There was just a little bit of, there was an opportunity that was created by some of those changes where Dave was, for the first time in 20-something years, look open to a conversation. And I didn't think it would really happen. But, And then again, I was trying to hire a CEO.

And then once Dave and I started talking, I started like reflecting personally. I was like, which department would I run and what would Dave run? How are we going to divide this up? And I actually couldn't find a department that I thought I'd be better at running than Dave. And so we ultimately settled on the idea that I'm going to be exec chairman and Dave will be CEO. I'm still going to work at Bikesport every day and still be available, but actually be more available for things like this or speak at a conference, go meet an investor. go meet a customer and less like I got to be in every meeting managing the metrics day to day. So that right now we're co-CEOs, but in March day, it becomes CEO and I step up to

exec chairman. Is he already having you write six pages for meetings or is that something that will come later? So we've adopted that three years ago. So it's been a relatively easy transition because you look at our top 60 people, 28 of them came from Amazon. Right. We've we've leaned into that unapologetically. We think Amazon's the best. logistics company in the world, certainly the best tech plus logistics company. And it's kind of hard to find people with that experience. So we've hired a lot of people out of there. Fascinating.

Yeah, for those who aren't read in, although I'm sure many listeners are that Amazon meetings start where people who are going to run the meeting instead of like doing a PowerPoint and kind of talk, bullshitting their way through, you know, presentation. They'll write basically six pages worth of information about how this project will work, let you visualize it. Everybody sits down, reads it. And then the meeting start. guys do this silent meetings also we do this as well yeah you can never go back once you do it

my problem with power points is too full like one is that the power whenever i ask a question i'm like oh i'll get to that it's like it's like three slides from now and i'm like well what like let's just talk about it why do i have to wait like you know it's it's much easier to fake kind of competency you throw some nice graphics up there or something and very hard to fake it when you're writing um and then it gets it gets everyone on the same page and i find that smart people we're giving the same information agree with each other 99% of the time like most disagreements from smart people come when they just have different information but actually the 1% where they have the same information and they disagree is like you spend all your time on that like that's the interesting

part like so it allows that kind of much to me much higher quality of discussion very cool ryan peterson thanks so much for joining yeah my pleasure thank you thank you everybody for listening we got two great shows coming up next we have peggy johnson's CEO of magic leap and erin levy of box is going to be on within the next couple weeks so make sure to subscribe if this is your first time here. We have some really good shows coming through. If you've been here for a while and want to give us a rating, five stars goes a long way on Apple Podcasts and Spotify. Thank you, Nate Goatony for mastering the audio. Thank you, LinkedIn, for having me as part of your podcast network. And thanks again to all of you, the listeners. Appreciate you coming back week after week,

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