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Speaker 1: Hi everyone, this is Lee Clasgal when We're Talking Transports.

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Speaker 1: Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,

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Speaker 1: Lee Clasgow, senior Freight, transportation and logistics analysts at Bloomberg Intelligence,

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Speaker 1: Bloomberg's in house research arm of almost five hundred analysts

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Speaker 1: and strategists around the globe. Before diving in a little

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Speaker 1: public service announcement, your support is instrumental to keep bringing

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Speaker 1: great guests and conversations to you, our listeners, and we

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Speaker 1: need your support. So please, if you enjoyed this podcast,

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Speaker 1: share it, like it and leave a comment. Also, if

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Speaker 1: you have any ideas for a future episodes, or just

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Speaker 1: want to talk transports, please hit me up on the

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Speaker 1: Bloomberg terminal, on LinkedIn or on Twitter at Logistics.

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Speaker 2: Lee.

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Speaker 1: Now onto our episode. We are delighted to have Ryan Peterson,

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Speaker 1: the founder and CEO of Flexport, as our guest today.

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Speaker 1: Ryan started flex Sport back in twenty thirteen. Flexport is

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Speaker 1: a technology driven freight for and supply chain management company.

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Speaker 1: Yields at MBA from Columbia Business School and a BA

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Speaker 1: from UC Berkeley. Welcome back to Talking Transports. Ryan, Thanks

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Speaker 1: for coming back onto the podcast. Glad to have you again.

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Speaker 2: Great to be with you all. Thanks for having on

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Speaker 2: me and you.

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Speaker 1: Know, just can you just provide a little more information

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Speaker 1: about flex Sport.

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Speaker 3: What exactly do you do?

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Speaker 4: Flex Sport's a global logistics company, so we help businesses

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Speaker 4: ship cargo all over the world, get it delivered from

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Speaker 4: wherever it's made one hundred and forty seven countries last

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Speaker 4: year to all the way to consumers doors.

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Speaker 1: Now.

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Speaker 4: We acquired Shopify Logistics a couple of years ago, so

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Speaker 4: I got us into the e commerce and fulfillment and

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Speaker 4: wholesale kind of retail distribution business. So we take all

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Speaker 4: the way you know, air, ocean, truck, and rail, ship

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Speaker 4: anything anywhere. I think what makes us different than other

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Speaker 4: logistics companies We were a technology company, So we have

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Speaker 4: four hundred software engineers and we're trying to make everything

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Speaker 4: more seamless and efficient and easier to do with technology.

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Speaker 1: All right, let's use that as the jumping point of technology. Obviously,

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Speaker 1: you guys are kind of like a technology first platform.

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Speaker 1: Can you talk about you know, it wouldn't be a

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Speaker 1: conversation about transports or anything for that matter if we

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Speaker 1: haven't talked about AI. What are you guys doing with AI.

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Speaker 1: How are you leveraging it? Are you doing it in house?

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Speaker 1: Are you leveraging outside at capabilities to drive that.

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Speaker 4: We We've been using machine learning for many years at

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Speaker 4: Flex for both stuff that we build ourselves and third

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Speaker 4: party tools, and we're bringing heavily into llms. I think,

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Speaker 4: I mean, it's really an incredible moment for companies like

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Speaker 4: us that are just beneficiaries of it. I think I'm

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Speaker 4: glad not to be in the AI arms race directly

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Speaker 4: and have to have one the capital deployment that these

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Speaker 4: guys are doing, but also just the competitiveness of it

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Speaker 4: all and the fact that every you know, the costs

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Speaker 4: come down constantly and the new model arms race that's happening,

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Speaker 4: but we just get to be we and every other

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Speaker 4: most other businesses in the world get to be beneficiaries

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Speaker 4: of that. We're seeing, you know, simple things like document digitization,

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Speaker 4: which is really big, and logistics is taking all the

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Speaker 4: text off of all the PDFs and excel files that

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Speaker 4: customs requires that are needed for shipping goods.

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Speaker 2: We've now got that down to be just basically free.

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Speaker 4: And we've been using OCR and machine learning tech on

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Speaker 4: that for a long time.

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Speaker 2: But we've the.

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Speaker 4: Open AI specific for that has cut our costs by

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Speaker 4: about ninety five percent and increase the quality, So it's

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Speaker 4: it's not basically free to extract data from documents with

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Speaker 4: incredible accuracy.

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Speaker 2: So that's a huge win.

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Speaker 4: We digitize over a million documents a year, so just

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Speaker 4: a massive win on costs, probably saving US I.

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Speaker 2: Don't call it half a millionaire or something like that.

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Speaker 2: Then you could go on.

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Speaker 4: I mean, the really interesting area actually in logistics is

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Speaker 4: going to be voice AI based chat voice agents. So

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Speaker 4: we have four hundred thousand truck drivers using our mobile

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Speaker 4: apps in the US. We don't have enough loads to

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Speaker 4: keep them all interested in opening that mobile app every

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Speaker 4: day right now, and so but now we can just

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Speaker 4: call them and they still pick up the phone even

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Speaker 4: when they're driving, and we'll talk to you and you

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Speaker 4: can tell them, hey, I've got this load, are you

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Speaker 4: interested in it?

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Speaker 2: And get drivers engaged on the platform.

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Speaker 4: That way, using it to call warehouses and make make

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Speaker 4: sure I've got accurate data. Like one of the biggest

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Speaker 4: causes of high costs and mistakes and logistics is you

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Speaker 4: don't have the right data about the warehouse hours of operation.

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Speaker 4: How to make an appointment specific loading doc info right

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Speaker 4: address all that, so verifying that quite costly with humans

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Speaker 4: and free with AI voice agents, so that category is

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Speaker 4: super interesting. And then overall we've automated about thirty five

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Speaker 4: percent of the work that goes into shipping a container from.

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Speaker 2: Door to door of the manual work, not like.

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Speaker 4: The obviously I'm not talking about driving trucks and stuff,

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Speaker 4: but like the court and work in the freight forwarding layer.

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Speaker 3: So getting in on thirty five percent you said you

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Speaker 3: voted in.

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Speaker 4: Just in the last eighteen months, we've done thirty five

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Speaker 4: percent and team feels pretty confident. The goal at the

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Speaker 4: end of the year is to get that to fifty

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Speaker 4: and then the goal I don't know.

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Speaker 2: We haven't had the goal for next.

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Speaker 4: Year're working on that in the next few weeks, but

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Speaker 4: my goal is eighty by the end of next year.

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Speaker 4: And it's just like massive, right, I mean, you talked

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Speaker 4: about huge cost savings for the customer and efficiency gain

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Speaker 4: well quality gains, like the tech makes your mistakes than

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Speaker 4: people would have made in the same job. So it's

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Speaker 4: going to be revolutionary, I think. And we as a

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Speaker 4: sort of tech newer entrant in the freight forwarding world

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Speaker 4: have just a big advantage in that we have a

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Speaker 4: modern tech stack. We write our own code to operate

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Speaker 4: the business. Therefore, we can apply LM technology and other

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Speaker 4: machine learning anywhere we want, at any point if we

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Speaker 4: think we can automate something and make it better and

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Speaker 4: much harder to do if you don't write your own code.

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Speaker 1: Right, And to be clear, you're not a chatbot, right,

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Speaker 1: You're a human as of right.

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Speaker 2: Now, I'm still human.

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Speaker 4: But it's going to be kind of I'm very concerned,

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Speaker 4: very paranoid about this, Like my parents, My grandma when

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Speaker 4: she died was the last few years of her life.

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Speaker 2: This was up fifteen years ago or so.

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Speaker 4: I was getting scammed constantly by like Nigerian phone scammers

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Speaker 4: and going to the bank and wiring money and stuff.

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Speaker 4: I'm quite worried about AI calling. I'm kind of well known,

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Speaker 4: so my face is all over the internet, and AI

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Speaker 4: will be able to replicate me and call my parents.

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Speaker 2: It's going to be a crazy, crazy world.

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Speaker 1: Yeah, no, definitely, It's an exciting future and a scary

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Speaker 1: future all at the same time.

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Speaker 3: When it comes to AI.

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Speaker 1: So you said, you know you hope to get to

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Speaker 1: fifty percent by the end of the year, Can that

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Speaker 1: go to eighty ninety percent?

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Speaker 4: Yeah, we think we can over the next My personal

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Speaker 4: goal to CEO is next year, but the team definitely

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Speaker 4: thinks in the next two years.

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Speaker 2: They'll get it to eighty.

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Speaker 4: Now it's a bit overd that, like that's all the

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Speaker 4: standardized work of a happy path, Like, Okay, we're just

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Speaker 4: shipping this container from here to hear the exceptions that

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Speaker 4: happen along the way, those are getting resolved by humans,

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Speaker 4: and those are almost by definition like harder to automate.

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Speaker 2: And then there's a lot.

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Speaker 4: Of other things that are probably not in that because

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Speaker 4: they're not just standardized, but anything that's standard in the workflow,

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Speaker 4: we're able to just check automate it with very high

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Speaker 4: quality rates.

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Speaker 3: And so what does that mean for flex support?

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Speaker 1: So does that mean you're just going to be not

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Speaker 1: hiring people because you're the people that you have are

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Speaker 1: just going to be that much more productive. Are you

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Speaker 1: hiring different people because the jobs become different?

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Speaker 2: Probably? Probably both those things.

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Speaker 4: I mean, we're I think you'll still see us hire

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Speaker 4: a lot because we're we're very global. We shipped cargo

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Speaker 4: to and from one hundred and forty seven countries, but

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Speaker 4: we only have employees in fifteen countries, and we see

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Speaker 4: that our quality goes up and our costs come down

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Speaker 4: and our growth goes up when we put employees in

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Speaker 4: those countries to kind of more tightly manage the process

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Speaker 4: of what's happening there.

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Speaker 2: So we're going to be hiring a lot.

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Speaker 4: Just due to our growth and our global kind of

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Speaker 4: horizontal expansion. We're going to hire a lot in tech,

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Speaker 4: a lot of salespeople, a lot of marketing. Account account

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Speaker 4: management is still we're still very much human driven on

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Speaker 4: the account management side. But yeah, like your number of

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Speaker 4: operators per shipment needs to come way down.

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Speaker 2: That's the promise of it.

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Speaker 4: And I think if the one way to think about

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Speaker 4: is that you look at the P and L of

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Speaker 4: a freight forwarding company. For every thousand dollars in revenue

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Speaker 4: that comes in, about eight hundred will go to the

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Speaker 4: underlying asset owners as they deserve right they own the assets,

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Speaker 4: the trucks and the ships. Twenty percent is approximately the

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Speaker 4: take rate. Some companies are a little better, some worse,

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Speaker 4: but twenty percent for math making the math easy as

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Speaker 4: a good benchmark, twenty percent is the net revenue that's

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Speaker 4: what the forwarder gets to keep.

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Speaker 2: And of that half of it.

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Speaker 4: Is labor costs of the operators that are coordinating. So

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Speaker 4: if you cut that in half, now you now have

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Speaker 4: the option. You can make five percent more e BIT

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Speaker 4: and be the most profitable freight forwarder in the industry,

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Speaker 4: or you can be five percent cheaper and give it

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Speaker 4: all to your customers and go for volume and scale.

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Speaker 4: And you know, if you're five percent cheaper in freight

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Speaker 4: forward and you win, most of the RFPs and customers will.

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Speaker 4: Most customers are pretty transactional and focused on costs above

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Speaker 4: all else, So we want to be the best and

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Speaker 4: the cheapest, Like that's the path that tech can enable.

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Speaker 4: If you have the best user experience, best reporting, data

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Speaker 4: on time visibility, everything that the customer wants from a

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Speaker 4: quality standpoint, and you're cheaper, then it's like sort of

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Speaker 4: irrational not to choose you. That's that's the problemise, right,

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Speaker 4: We'll see, that's what we're all working towards at Flexport.

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Speaker 1: Right, And so I guess I was going to ask

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Speaker 1: you that too, because you know, you are kind of

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Speaker 1: one of the new kids on the block. If you will,

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Speaker 1: great great music band, but the way, and so to

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Speaker 1: to grow to grow your revenue, is it more on

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Speaker 1: the price side, like like what is the I guess,

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Speaker 1: not only the value proposition, Like if I'm a ship

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Speaker 1: or why am I using flex support versus one of

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Speaker 1: the old legacy guys like a DSV or an Expediters.

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Speaker 2: Yeah, I mean we don't.

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Speaker 4: I don't think we have competitive advantage against those guys

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Speaker 4: in costs. We're working that way, certainly working on that

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Speaker 4: with the automation story I was just talking about, I

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Speaker 4: think that'll get.

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Speaker 2: That will that alone may get us there.

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Speaker 4: And then there's a scale driven component to it where

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Speaker 4: DSBN Expedite are still bigger than.

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Speaker 2: Flexport, but not by that much. Like we're we're.

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Speaker 4: About half the size of their ocean business in Expeditor's case,

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Speaker 4: and maybe we might be bigger than DSV on ocean

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Speaker 4: for a while, not with the Shanker acquisition. So you

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Speaker 4: know scale logistics, getting bigger makes you cheaper too, So

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Speaker 4: that's the other that's that's an import function. But the

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Speaker 4: value prop for a customer, I think you've got to

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Speaker 4: be within range on the price. If we're way more expensive,

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Speaker 4: we're not going to win. But you don't always have

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Speaker 4: to be the cheapest, and we're focusing on a segment

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Speaker 4: of the market that really values quality, and that quality

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Speaker 4: as defined by on time performance, responsiveness to messages, you know,

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Speaker 4: to changes that they want to make, control ability to

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Speaker 4: make changes yourself say okay, I'm going to ship this

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Speaker 4: thing to this other place. Obviously it's about data and

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Speaker 4: compliance especially you know for our customers business.

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Speaker 2: And then there's huge range of optimization savings.

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Speaker 4: This goes into the cost, but it's slightly different is

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Speaker 4: you know when people want to talk about costs. A

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Speaker 4: big thing that we try to do is go look

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Speaker 4: at their container volumes and how full are they Because

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Speaker 4: on average we'll see that customer's cargo containers are only

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Speaker 4: about seventy five percent full and there's a lot of

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Speaker 4: empty space. So with we have algorithms that will consolidate

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Speaker 4: loads across containers and get that to push it towards

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Speaker 4: ninety five. We can save people about fifteen percent on

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Speaker 4: their freight just through better optimizing the load plans.

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Speaker 2: So there's a huge range. I mean, I think the.

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Speaker 4: Key and all sales is get to know your customer,

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Speaker 4: figure out what they're what their problems that they're facing

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Speaker 4: are and then what range of solutions do you have.

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Speaker 1: And what kind of like you know, you know, you

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Speaker 1: mentioned some of the targets in terms of productivity. Do

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Speaker 1: you have any other long term targets for the company,

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Speaker 1: Like you know, you want to be a top three,

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Speaker 1: top five, top top ten.

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Speaker 2: Oh, we want to be number one.

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Speaker 4: Yeah, yeah, I don't want to be on any list

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Speaker 4: unless I'm at the top. On the trans Pacific, which

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Speaker 4: is the I think it's actually no longer the world's

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Speaker 4: biggest trade lane in ocean freight intra Asia, so between

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Speaker 4: Asia mostly China to other parts of Asia is now

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Speaker 4: the number one trade lane in the world, but it

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Speaker 4: was always Transpacific eastbound Asia to US was always the biggest.

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Speaker 2: I think it's second biggest.

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Speaker 4: Now we're the either the fifth or the sixth largest

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Speaker 4: ocean ocean freight forward or on that trade lane. And

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Speaker 4: similar ranking in air maybe a little bit smaller, a

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Speaker 4: little bit lower on the list and air. Yeah, certainly

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Speaker 4: we want to be number one and then go and

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Speaker 4: sequence like start with the that was our kind of

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Speaker 4: home market. We started there Asia t US. Like to

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Speaker 4: be number one on that lane in the next few years.

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Speaker 4: We're the number one actually today is Carry Logistics, which

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Speaker 4: is the Chinese owned by UH fifty owned by SF

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Speaker 4: Express Shun Fung is a kind of the FedEx of China.

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Speaker 4: They're they're the number one today by a large margin actually,

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Speaker 4: and then Expeditors and Sate Robins Center two and three.

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Speaker 4: I want to say, I think we're number five or

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Speaker 4: number six, so we're we're we're working our way up

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Speaker 4: that the rankings there.

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Speaker 2: We're much smaller on a lot of the other lands, especially.

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Speaker 4: That intro asially we're not We're not really a big

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Speaker 4: player on that, and I think that's that's just big

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Speaker 4: opportunity for us.

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Speaker 3: So is it easier to grow on the ocean side

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Speaker 3: of the business, on the air side of the business.

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Speaker 1: Or is it easier to grow in that sort of

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Speaker 1: fulfillment business.

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Speaker 4: Actually, you know, we can grow in all different directions,

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Speaker 4: Like it's harder to grow the ocean's a our most

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Speaker 4: mature product. We're already pretty big, so that's the hardest

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Speaker 4: thing to grow because you know, just like law of

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Speaker 4: large numbers. The area that we feel like we have

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Speaker 4: the most competitive advantage today is probably our customs brokerage,

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Speaker 4: which because customs is all about data and therefore databases

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Speaker 4: and technology and your people are really looking for quality

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Speaker 4: and there's huge savings involved when you get to quality,

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Speaker 4: right and customs. So it's not you're not choosing your

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Speaker 4: customs broker for who has like the lowest cost per entry.

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Speaker 2: It's like there's much other.

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Speaker 1: Thing that I have a really really dumb basic question

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Speaker 1: for you. So if I'm shipper and I use you

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Speaker 1: to move a container of freight from Asia to the US,

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Speaker 1: so you're just because you're my forward doesn't necessarily mean

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Speaker 1: you're my custom broker.

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Speaker 2: That's right.

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Speaker 4: A lot of companies want to consolidate, and it at scale,

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Speaker 4: especially consolidate all their customs clearances with one company right

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Speaker 4: to drive compliance control. In fact, CBP Customs Border Protection

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Speaker 4: likes to see that from a compliance standpoint, it's demonstrating

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Speaker 4: that you actually have got rigorous controls in place. And

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Speaker 4: if there's all these random customs brokers clearing it, you know,

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Speaker 4: because people will source their freight forwarding much more in

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Speaker 4: a commodity style, so larger companies tend to will often

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Speaker 4: split that apart and go with a dedicated customs broker

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Speaker 4: for all their entries. And then the customs broker has

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Speaker 4: to coordinate with the other whoever's moving the freight on

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Speaker 4: that transaction. So that piece of our business is growing

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Speaker 4: really fast, like one hundred percent year over year, and

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Speaker 4: it's again because we have just like really good technology

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Speaker 4: advantages on that and a great team obviously the expertise

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Speaker 4: side of things. And then the other big area that's

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Speaker 4: where we're free agnosticly is booking.

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Speaker 2: We call it booking management and order management.

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Speaker 4: These are where you're you're placing the orders to the

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Speaker 4: factory for the customers and then taking those orders consolidating

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Speaker 4: them using those algorithms I was talking about into containers

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Speaker 4: and then booking that.

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Speaker 2: With whoever they want to move the freight with. So

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Speaker 2: you're agnostic.

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Speaker 4: We can move the freight with us, or you can

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Speaker 4: move it with your other a competitor of ours, or

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Speaker 4: directly with an ocean carrier. But we're giving you the

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Speaker 4: technology platform and sort of the service to coordinate all

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Speaker 4: that visibility control, optimization. And we're agnostic that that part

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Speaker 4: of our business is growing really really fast as well,

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Speaker 4: but it's small. We're still growing from a basically a

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Speaker 4: new product for.

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Speaker 1: Us, and you know, you can't talk about customs without

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Speaker 1: talking about what's been going on with the tariffs, because

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Speaker 1: I'm assuming you know that expertise is.

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Speaker 3: In high demand.

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Speaker 1: I know, you know, you know, for me, since the pandemic,

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Speaker 1: people outside of my profession want to speak to me

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Speaker 1: or what I have to say about transportation logistics of

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Speaker 1: all of a sudden, one of the cooler kids in

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Speaker 1: the room. And I'm sure you've had similar interactions. So,

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Speaker 1: with everything that's going on in the fluid tariffs, how

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Speaker 1: is that impacting your business?

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Speaker 3: Good or bad?

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Speaker 4: I mean, it's really bad for our customers, so we

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Speaker 4: have to start with that. No, we don't, we don't

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Speaker 4: really Ever, nothing that's bad for our customers can be

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Speaker 4: good for us in the long term.

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Speaker 2: And so yeah, it's.

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Speaker 4: Had a lot of volatility added too in this for Flexport,

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Speaker 4: in that when the terriffs were first announced on April second,

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Speaker 4: and then they went into effect April ninth, one week later,

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Speaker 4: you just had a massive fault drop off of bookings

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Speaker 4: out of China, in particular about a sixty percent decline

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Speaker 4: in bookings from China ocean freight bookings.

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Speaker 2: And that lasted for three or four weeks. Actually, no,

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Speaker 2: it lasted for five weeks.

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Speaker 4: Excuse me, it was a huge decline of ocean freight

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Speaker 4: out of China, sixty percent of cline. I mean, it

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Speaker 4: was pretty horrifying to see. So that was very bad

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Speaker 4: for our business. It rebounded quite a bit when they

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Speaker 4: relaxed when the administration relaxed the tariffs on China and

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Speaker 4: the price of motion for then serge. So you know,

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Speaker 4: it's just created a lot of volatility, very hard to

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Speaker 4: finance forecast financially on nets been I would say relatively

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Speaker 4: neutral for US financially, but a lot of volatility. And

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Speaker 4: then it's created an enormous demand for our customs brokerage

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Speaker 4: and trade advisory solutions, and that that part of our

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Speaker 4: business where we're.

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Speaker 2: Able to help people with strategies to.

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Speaker 4: Lower tariffs in compliant ways and make sure getting refunds

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Speaker 4: for people on certain like if you import something into

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Speaker 4: the US and then you'd later export it, your owe

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Speaker 4: to refund on the duty you paid on the way.

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Speaker 4: In every year, seven billion goes unclaimed and that was

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Speaker 4: before these newer rates that went way up, so it's

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Speaker 4: probably more like eight or ten now that goes unclaimed.

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Speaker 4: So there's free money, so helping people go file for

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Speaker 4: those refunds is a big is a nice part of

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Speaker 4: our business.

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Speaker 2: Helping you.

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Speaker 4: Basically, when you have a tariff on the customers do

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Speaker 4: there's three factors that are going to determine how much

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Speaker 4: you owe. It's the HS code, so that's the classification.

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Speaker 4: What kind of product is this and therefore what duty

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Speaker 4: rate does it owe?

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Speaker 2: The country of origin where is it?

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Speaker 4: And that can be a scientific well we'll get into

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Speaker 4: each of those actually, but the country of origin where's it?

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Speaker 2: Baide? And then the third is any.

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Speaker 4: Yeah, free free trade agreements or the subject and the

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Speaker 4: valuation excuse me, the third one. So it's it's classification,

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Speaker 4: country of origin, and valuation. So for each of those

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Speaker 4: HS code, make sure you got the right classification. You're

399
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Speaker 4: not allowed to choose the classification just to drive down

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Speaker 4: duty rate.

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Speaker 2: That's illegal.

402
00:19:56,440 --> 00:19:58,720
Speaker 4: But if you have a clear case that the right

403
00:19:58,840 --> 00:20:02,200
Speaker 4: classification happens to have a lower duty rate than you win.

404
00:20:03,480 --> 00:20:08,080
Speaker 4: The country of origin is much more challenging to determine,

405
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Speaker 4: and Trump's trying to.

406
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Speaker 2: Change the rules on that right now.

407
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Speaker 4: We don't know what it's going to end up, how

408
00:20:11,920 --> 00:20:14,280
Speaker 4: it might change, but it's not as you know, most

409
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Speaker 4: products are not as simple as just like the whole

410
00:20:15,880 --> 00:20:19,080
Speaker 4: thing is made in one country, it's assembled from components

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Speaker 4: from different countries. So helping people get really smart about

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Speaker 4: that and do that the right way, where you may

413
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Speaker 4: deduct things or may transform it to become a product

414
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Speaker 4: of another country, or if you do it wrong, costs

415
00:20:29,720 --> 00:20:31,960
Speaker 4: you a lot of money. And then valuation, Like you

416
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Speaker 4: didn't care what the product was valued at when it

417
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Speaker 4: was free trade because it's time zero anyways, But if

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Speaker 4: it's all of a sudden times thirty percent, you're gonna

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Speaker 4: get a lot more serious.

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Speaker 2: About how you value these goods. And again, you want

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Speaker 2: good advice.

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Speaker 4: It's like legal advice in some ways, it is legal advice, right,

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Speaker 4: and you just like, yeah, you can go represent yourself

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Speaker 4: in a court of law, but you probably going to

425
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Speaker 4: make a mistake, Like you, it's much better off.

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Speaker 2: To hire a lawyer.

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Speaker 4: And that's kind of how you think about this type

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Speaker 4: of In fact, many people do hire lawyers trade trade

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Speaker 4: attorneys to help.

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Speaker 1: With this, right And I and I guess so, so,

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Speaker 1: so what are what are your customers doing to react

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Speaker 1: to the more protectionist policies coming out of the US,

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Speaker 1: Like how are they managing their supply chains. Obviously they're

434
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Speaker 1: not all moving to Detroit to start manufacturing stuff, So

435
00:21:23,680 --> 00:21:24,400
Speaker 1: what are they doing.

436
00:21:24,680 --> 00:21:27,120
Speaker 4: I haven't met I haven't met a single company that's

437
00:21:27,160 --> 00:21:30,000
Speaker 4: going to move more manufacturing to the US as a

438
00:21:30,040 --> 00:21:32,160
Speaker 4: result of this, And I've met at least a dozen

439
00:21:32,240 --> 00:21:34,679
Speaker 4: who are shifting manufacturing out of the US as a

440
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Speaker 4: result of this.

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Speaker 2: So by my form my.

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Speaker 4: Read, the tariffs are a failure as measured. You know,

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00:21:41,240 --> 00:21:43,240
Speaker 4: you need to measure things not by their intentions but

444
00:21:43,280 --> 00:21:44,760
Speaker 4: by their results in the real world.

445
00:21:45,000 --> 00:21:46,480
Speaker 3: So that's so, that's interesting.

446
00:21:46,920 --> 00:21:49,280
Speaker 1: Why are people moving out of the US? What why

447
00:21:49,320 --> 00:21:51,719
Speaker 1: is it having the exact opposite.

448
00:21:52,560 --> 00:21:56,240
Speaker 4: Very simply is that if you're manufacturing for export, you're

449
00:21:56,280 --> 00:21:59,680
Speaker 4: manufacturing to sell your product in another country. You're now

450
00:21:59,680 --> 00:22:02,440
Speaker 4: paying duties on the way in for any components you're using.

451
00:22:03,640 --> 00:22:06,040
Speaker 4: And then so your cost just what I and if

452
00:22:06,080 --> 00:22:08,199
Speaker 4: you did the manufacturing. And so you know this is

453
00:22:08,200 --> 00:22:10,760
Speaker 4: if you're selling your product outside the US, you do

454
00:22:10,880 --> 00:22:12,600
Speaker 4: not want to import the goods into the US, the

455
00:22:12,640 --> 00:22:16,040
Speaker 4: components that go into the assembly of that product.

456
00:22:16,200 --> 00:22:18,400
Speaker 2: You want to So people rather, you.

457
00:22:18,359 --> 00:22:22,520
Speaker 4: Know, a medical devices company that I'm close with was

458
00:22:22,600 --> 00:22:25,280
Speaker 4: manufactured We're going to manufacture and set up their production

459
00:22:25,359 --> 00:22:26,240
Speaker 4: line in North Carolina.

460
00:22:26,560 --> 00:22:27,000
Speaker 2: They have to.

461
00:22:26,960 --> 00:22:29,480
Speaker 4: Import the machines from Germany and some of the components

462
00:22:29,480 --> 00:22:32,320
Speaker 4: from China and other countries. They just said, I will

463
00:22:32,400 --> 00:22:35,440
Speaker 4: just build this line in a different country. That way

464
00:22:35,440 --> 00:22:38,400
Speaker 4: we won't have to pay all those higher costs. So

465
00:22:39,040 --> 00:22:41,439
Speaker 4: that's the simplest example is when.

466
00:22:41,280 --> 00:22:42,040
Speaker 2: It's for export.

467
00:22:42,640 --> 00:22:45,760
Speaker 4: Another one is there are some cases where they give

468
00:22:45,840 --> 00:22:48,159
Speaker 4: exemptions to the finished goods, So bicycles is one of

469
00:22:48,200 --> 00:22:51,639
Speaker 4: these finished goods. Bicycles are somehow exempt or have a

470
00:22:51,640 --> 00:22:55,159
Speaker 4: lower duty rate than the components too. So we have

471
00:22:55,200 --> 00:22:58,639
Speaker 4: a customer that makes bicycles in the United States in

472
00:22:58,640 --> 00:22:59,280
Speaker 4: the Midwest.

473
00:23:00,320 --> 00:23:01,600
Speaker 2: Very rare, but they do.

474
00:23:01,880 --> 00:23:03,840
Speaker 4: And so all of a sudden, their costs went way

475
00:23:03,880 --> 00:23:05,560
Speaker 4: up if they're finished goods. But if they imported a

476
00:23:05,600 --> 00:23:08,160
Speaker 4: finished by sorry on the components, the costs went way up.

477
00:23:08,400 --> 00:23:10,480
Speaker 4: But if they imported finished goods, there would be no costs.

478
00:23:10,720 --> 00:23:13,320
Speaker 4: So they're just going to start manufacturing off shore. Those

479
00:23:13,320 --> 00:23:14,720
Speaker 4: are just two examples of many.

480
00:23:15,280 --> 00:23:20,720
Speaker 1: Yeah, and I guess you know, the tariffs have had

481
00:23:20,840 --> 00:23:23,400
Speaker 1: added a lot of volatility to rates, whether it's air

482
00:23:23,480 --> 00:23:24,560
Speaker 1: freight or ocean rates.

483
00:23:24,800 --> 00:23:25,919
Speaker 3: Kind of what's your sense on.

484
00:23:26,240 --> 00:23:30,199
Speaker 1: You know, we've seen ocean rates come down considerably, you know,

485
00:23:30,320 --> 00:23:32,879
Speaker 1: good for them, bad for everybody else that you know,

486
00:23:32,920 --> 00:23:35,639
Speaker 1: they can't go through the Suez Canal, so that's keeping

487
00:23:35,680 --> 00:23:39,080
Speaker 1: rates artificially higher than they would be. Where do you

488
00:23:39,160 --> 00:23:41,199
Speaker 1: see rates going from here? Do you do you have

489
00:23:41,240 --> 00:23:44,840
Speaker 1: a kind of a thought on where ocean rates are headed?

490
00:23:45,200 --> 00:23:49,080
Speaker 4: Yeah, I definitely separate those two, and we do ocean first.

491
00:23:50,119 --> 00:23:52,240
Speaker 4: The big you mentioned it, the Suez is the big

492
00:23:52,280 --> 00:23:54,720
Speaker 4: open question, and there was a ship sunk in the

493
00:23:54,720 --> 00:23:56,639
Speaker 4: Seuez last week, so I think that kind of answers

494
00:23:56,640 --> 00:23:59,320
Speaker 4: the question for at least the next twelve twenty four

495
00:23:59,359 --> 00:24:01,600
Speaker 4: months or so that no ship, the container ships are

496
00:24:01,600 --> 00:24:03,080
Speaker 4: not going to return to the red z. I I

497
00:24:03,080 --> 00:24:05,360
Speaker 4: can feel confident in that after that ship got sung

498
00:24:05,480 --> 00:24:09,560
Speaker 4: last week, So that's going to keep rates that would

499
00:24:09,600 --> 00:24:12,520
Speaker 4: at the moment that opens up, I would predict a

500
00:24:12,640 --> 00:24:15,560
Speaker 4: real collapse in ocean freight rates back to at least

501
00:24:15,560 --> 00:24:19,679
Speaker 4: to twenty twenty three levels, and probably back to and

502
00:24:19,680 --> 00:24:22,040
Speaker 4: potentially back to the levels that we haven't seen since

503
00:24:22,080 --> 00:24:24,119
Speaker 4: like twenty sixteen, when that was the kind of the

504
00:24:24,119 --> 00:24:27,280
Speaker 4: lowest ocean freight rates ever. And it could easily go

505
00:24:27,320 --> 00:24:30,439
Speaker 4: down there because of the tariffs, because of simple supply

506
00:24:30,480 --> 00:24:36,760
Speaker 4: and demand that high tariffs need to higher prices on goods,

507
00:24:36,760 --> 00:24:39,199
Speaker 4: and higher prices on goods leave the less purchasing of

508
00:24:39,240 --> 00:24:42,719
Speaker 4: goods and therefore lower volumes. So kind of a simple

509
00:24:43,040 --> 00:24:46,440
Speaker 4: story of how tariffs diminish the price of ocean freight

510
00:24:47,359 --> 00:24:51,159
Speaker 4: the I guess the positive story, the bull story for

511
00:24:51,200 --> 00:24:55,600
Speaker 4: ocean carriers of why that might not happen or why

512
00:24:55,680 --> 00:24:57,720
Speaker 4: rates won't go that low because of this is that

513
00:24:57,760 --> 00:24:59,960
Speaker 4: there are just not as many ocean carriers as there

514
00:25:00,119 --> 00:25:06,639
Speaker 4: used to be, and they're I'm not alleging anything illegal here,

515
00:25:06,680 --> 00:25:09,400
Speaker 4: but I do think a fewer carriers in natural economic

516
00:25:09,440 --> 00:25:14,919
Speaker 4: theory means easier to organize kind of higher control supply.

517
00:25:15,400 --> 00:25:18,160
Speaker 2: They've gotten a little smarter about controlling supply. They would.

518
00:25:18,440 --> 00:25:22,440
Speaker 4: They also have rich balance sheets, They're able. They probably

519
00:25:22,440 --> 00:25:25,199
Speaker 4: can take supply out of the market better than in

520
00:25:25,320 --> 00:25:30,640
Speaker 4: prior years. We saw this when tariffs hit and those

521
00:25:30,720 --> 00:25:32,119
Speaker 4: ocean freight bookings collapse.

522
00:25:32,840 --> 00:25:34,359
Speaker 2: They put twenty five percent of all.

523
00:25:34,280 --> 00:25:38,200
Speaker 4: The ships got pulled from the supply side overnight, moved

524
00:25:38,200 --> 00:25:41,560
Speaker 4: to other tradelines, but also just idled a lot of capacity.

525
00:25:41,760 --> 00:25:46,359
Speaker 2: So I think I don't know. I thankfully we don't

526
00:25:46,359 --> 00:25:47,360
Speaker 2: have to make these predictions.

527
00:25:47,359 --> 00:25:49,080
Speaker 4: They have a much harder job than we do owning

528
00:25:49,119 --> 00:25:51,679
Speaker 4: all the assets, and your ship's not fully kind of

529
00:25:52,080 --> 00:25:55,520
Speaker 4: you can go bankrupt. So we're we're more agnostic to

530
00:25:55,600 --> 00:25:57,919
Speaker 4: the price of what it is in our business. But

531
00:25:59,640 --> 00:26:02,920
Speaker 4: it's it's really hard to do to make these predictions.

532
00:26:02,560 --> 00:26:06,400
Speaker 1: And when you're securing capacity for your customers, are doing

533
00:26:06,400 --> 00:26:09,160
Speaker 1: it both on a spot basis and a contractual basis.

534
00:26:09,240 --> 00:26:13,040
Speaker 1: With the liners, do you work with like one alliance

535
00:26:13,320 --> 00:26:15,040
Speaker 1: or do do you work with everybody?

536
00:26:15,400 --> 00:26:17,680
Speaker 4: We make sure to work with all the alliances or

537
00:26:17,680 --> 00:26:22,080
Speaker 4: at least one carrier in each alliance, and often more

538
00:26:22,080 --> 00:26:24,320
Speaker 4: than one, as well as some of the independent carriers.

539
00:26:24,400 --> 00:26:26,840
Speaker 4: We work with everybody we have good relationship with almost

540
00:26:27,000 --> 00:26:28,640
Speaker 4: we have good relationship with all the carriers, with great

541
00:26:28,640 --> 00:26:31,480
Speaker 4: relationships with post of ale. Then we do spat and

542
00:26:31,600 --> 00:26:34,479
Speaker 4: contract probably about In fact, one of the things that

543
00:26:34,520 --> 00:26:36,600
Speaker 4: carriers like about us is that we have a very

544
00:26:36,640 --> 00:26:40,639
Speaker 4: high ratio of spot free because our tech enables us

545
00:26:40,640 --> 00:26:45,040
Speaker 4: to work with much smaller businesses than our competitors, who

546
00:26:45,119 --> 00:26:49,280
Speaker 4: do much more like relationship management via the phone, and

547
00:26:49,480 --> 00:26:52,959
Speaker 4: small companies it's hard to support as many customers as

548
00:26:53,000 --> 00:26:56,400
Speaker 4: we have with everybody having to be on phone based

549
00:26:56,840 --> 00:27:03,800
Speaker 4: individual personal relationship. So that long tail volume spot market

550
00:27:03,880 --> 00:27:07,000
Speaker 4: volume carriers like it. On average, it pays more than

551
00:27:07,040 --> 00:27:10,800
Speaker 4: the contract rates, so that that's a are.

552
00:27:10,720 --> 00:27:13,120
Speaker 1: You like fifty to fifty spot contract and you're we're

553
00:27:13,119 --> 00:27:13,800
Speaker 1: actually more.

554
00:27:13,640 --> 00:27:17,680
Speaker 4: And more like sixty spot. It really depends on the lane,

555
00:27:17,680 --> 00:27:19,640
Speaker 4: but we're we have a very good ratio. We used

556
00:27:19,640 --> 00:27:22,320
Speaker 4: to be more like eighty ninety and people really loved us.

557
00:27:23,160 --> 00:27:25,200
Speaker 2: Yeah, but we've grown that. We've grown the fixed rate

558
00:27:25,240 --> 00:27:26,200
Speaker 2: part of our business.

559
00:27:26,280 --> 00:27:28,480
Speaker 4: And the way that it works is it really you're

560
00:27:28,560 --> 00:27:32,719
Speaker 4: gated on how much contract volume you're allowed to get,

561
00:27:33,560 --> 00:27:36,679
Speaker 4: especially you know when space is tight in this and

562
00:27:36,760 --> 00:27:38,440
Speaker 4: it'll happen, you know, at least couple of times a

563
00:27:38,520 --> 00:27:40,800
Speaker 4: year where space gets tight, you're not able to book

564
00:27:40,840 --> 00:27:43,560
Speaker 4: that much on the lower contract rate. It's the amount

565
00:27:43,560 --> 00:27:46,000
Speaker 4: of contract volume you get with the carriers of function

566
00:27:46,080 --> 00:27:48,919
Speaker 4: of how much spot volume you can bring, and they

567
00:27:49,000 --> 00:27:50,440
Speaker 4: keep your ratio in line.

568
00:27:50,840 --> 00:27:52,400
Speaker 2: So having lots.

569
00:27:52,200 --> 00:27:56,560
Speaker 4: Of SMB business enables you to get more higher ratio

570
00:27:56,800 --> 00:28:00,360
Speaker 4: or like support the ratio of fixed business they can

571
00:28:00,400 --> 00:28:00,800
Speaker 4: go get.

572
00:28:00,960 --> 00:28:03,320
Speaker 2: So that's there's a lot of nuance in this market.

573
00:28:03,520 --> 00:28:05,920
Speaker 4: But even where we do fixed business, we're not taking

574
00:28:05,960 --> 00:28:09,840
Speaker 4: contract risk on price. It's back to back with a

575
00:28:09,880 --> 00:28:13,280
Speaker 4: carrier and they they'll put in thanks called peak season

576
00:28:13,320 --> 00:28:18,119
Speaker 4: searcharge that flow through even on the contract, right, so

577
00:28:18,200 --> 00:28:20,760
Speaker 4: the contracts are cought. I mean, it's a very strange market.

578
00:28:21,080 --> 00:28:24,760
Speaker 4: The contracts are not like what you would expect in

579
00:28:24,920 --> 00:28:28,800
Speaker 4: other markets where it's legally binding price that you have signed.

580
00:28:28,800 --> 00:28:30,920
Speaker 2: It's it's much more of a guidance.

581
00:28:30,480 --> 00:28:34,240
Speaker 4: In a it's more about allocating guaranteeing you've got space

582
00:28:34,280 --> 00:28:36,520
Speaker 4: on that ship than it is guaranteeing that you're going

583
00:28:36,600 --> 00:28:37,359
Speaker 4: to pay that price.

584
00:28:38,840 --> 00:28:41,000
Speaker 1: So so what going back to what you know what

585
00:28:41,040 --> 00:28:43,400
Speaker 1: your shippers are telling you? What are your shippers telling

586
00:28:43,400 --> 00:28:46,840
Speaker 1: you about peak season this year? Have they brought the

587
00:28:46,880 --> 00:28:50,400
Speaker 1: stuff already? Is it sitting in warehouses? Are they just

588
00:28:50,520 --> 00:28:54,080
Speaker 1: taking a wait and see approach, or they just operating

589
00:28:54,160 --> 00:28:55,400
Speaker 1: normally there.

590
00:28:56,320 --> 00:28:59,400
Speaker 4: We haven't gotten a lot of insight there. I don't

591
00:28:59,400 --> 00:29:02,680
Speaker 4: have a strong view on the air freight side, Like

592
00:29:02,720 --> 00:29:04,720
Speaker 4: we're definitely seeing a huge surge right now, trying to

593
00:29:04,720 --> 00:29:06,800
Speaker 4: get ahead of this August first.

594
00:29:08,600 --> 00:29:09,840
Speaker 2: When the tariffs go back up.

595
00:29:10,360 --> 00:29:13,360
Speaker 4: So you're going to see the air freight have an

596
00:29:13,400 --> 00:29:16,240
Speaker 4: early early peak, like right now, people trying to move

597
00:29:16,240 --> 00:29:18,960
Speaker 4: as much cargo as they can in the next two

598
00:29:19,000 --> 00:29:21,000
Speaker 4: weeks to get it into the country, and air Ocean

599
00:29:21,080 --> 00:29:23,280
Speaker 4: is kind of already too late. It hasn't departed, you know,

600
00:29:24,080 --> 00:29:25,880
Speaker 4: it's too late to they didn't give enough notice to

601
00:29:25,880 --> 00:29:26,800
Speaker 4: get it in on time.

602
00:29:27,440 --> 00:29:30,120
Speaker 2: For that we haven't.

603
00:29:30,320 --> 00:29:32,720
Speaker 4: I don't have a clear view of what's gonna happen

604
00:29:32,760 --> 00:29:33,760
Speaker 4: with peak season right now.

605
00:29:34,200 --> 00:29:34,840
Speaker 2: I'm not sure.

606
00:29:35,080 --> 00:29:37,600
Speaker 1: But now you mentioned the air freight market, is the

607
00:29:37,640 --> 00:29:41,720
Speaker 1: air freight market generally sounder than the container liner market?

608
00:29:41,840 --> 00:29:43,680
Speaker 3: I mean I view the container liner market.

609
00:29:44,320 --> 00:29:46,800
Speaker 1: I mean you said there's fewer operators, so they might

610
00:29:46,800 --> 00:29:50,040
Speaker 1: be a little more disciplined with pricing. You know, I've

611
00:29:50,040 --> 00:29:52,920
Speaker 1: ben't seen from my vantage point, I don't see much

612
00:29:52,960 --> 00:29:56,440
Speaker 1: discipline coming from the operators because you know, those are

613
00:29:56,480 --> 00:29:58,680
Speaker 1: expensive ships and they just have to fill them to

614
00:29:59,640 --> 00:30:02,920
Speaker 1: pay the pay the loan off. So you know, is

615
00:30:02,960 --> 00:30:08,200
Speaker 1: the is the air freight market a little more rational

616
00:30:08,240 --> 00:30:08,760
Speaker 1: if you will?

617
00:30:09,080 --> 00:30:12,360
Speaker 4: The air freight market is very unusual amongst all the

618
00:30:12,360 --> 00:30:16,200
Speaker 4: world's markets because this drive, the primary driver of supply

619
00:30:16,360 --> 00:30:19,560
Speaker 4: for air freight is not demand for air freight. The

620
00:30:19,640 --> 00:30:23,680
Speaker 4: driver of supply for air freight is demand for passenger travel,

621
00:30:25,480 --> 00:30:28,480
Speaker 4: and that's that's extremely unusual. You know, fifty percent of

622
00:30:28,520 --> 00:30:30,360
Speaker 4: all the world's air freight flies in the belly of

623
00:30:30,400 --> 00:30:35,560
Speaker 4: passenger planes. So there it leads to all these weirdness

624
00:30:35,640 --> 00:30:38,480
Speaker 4: where you know you're you.

625
00:30:38,360 --> 00:30:39,800
Speaker 2: Don't get more, you.

626
00:30:40,120 --> 00:30:42,320
Speaker 4: May get a lot of passenger here's a good example

627
00:30:42,360 --> 00:30:44,560
Speaker 4: of this. One of the world's biggest air freight hubs

628
00:30:44,560 --> 00:30:49,479
Speaker 4: that no one talks about is Bali in Indonesia, because

629
00:30:49,520 --> 00:30:51,920
Speaker 4: there's so many passengers going there, and the air freight

630
00:30:51,960 --> 00:30:55,080
Speaker 4: industry figured out, there's all these empty all these empty

631
00:30:55,120 --> 00:30:57,200
Speaker 4: planes going into this place from all over the world.

632
00:30:57,240 --> 00:30:58,720
Speaker 2: Let's just load them up with air freight.

633
00:30:58,840 --> 00:31:02,480
Speaker 4: So you can move air freight from China down to Bali,

634
00:31:02,480 --> 00:31:05,040
Speaker 4: and then from Bali to Australia, Bali to Europe, wherever it's,

635
00:31:05,040 --> 00:31:09,000
Speaker 4: wherever it might be going. Like, it's very strange types

636
00:31:09,040 --> 00:31:12,360
Speaker 4: of things, so you see, I certainly wouldn't call it rational.

637
00:31:12,600 --> 00:31:14,480
Speaker 2: I mean it is kind of rational, but not on

638
00:31:14,520 --> 00:31:15,080
Speaker 2: the surface.

639
00:31:16,240 --> 00:31:18,160
Speaker 4: The big thing that's happening in air fright right now, though,

640
00:31:18,280 --> 00:31:22,320
Speaker 4: the big thing that hit hard was the Dominimus at

641
00:31:22,360 --> 00:31:26,800
Speaker 4: the end of Dominimus. That happened on May second, about

642
00:31:27,600 --> 00:31:30,160
Speaker 4: between depending on the season, thirty to fifty percent of

643
00:31:30,160 --> 00:31:35,480
Speaker 4: the world's air freight was actually Dominimus cargo e comm

644
00:31:35,560 --> 00:31:37,840
Speaker 4: packages coming from China.

645
00:31:38,800 --> 00:31:39,800
Speaker 2: That just an.

646
00:31:39,640 --> 00:31:43,120
Speaker 4: Extraordinarily high amount of the large percentage of the volume

647
00:31:43,240 --> 00:31:45,880
Speaker 4: in air freight was and it's largely you know, a

648
00:31:45,880 --> 00:31:48,240
Speaker 4: handful of players. The big famous ones are Timu and

649
00:31:48,280 --> 00:31:50,680
Speaker 4: Sheen and TikTok, but a lot of a lot of

650
00:31:50,680 --> 00:31:53,760
Speaker 4: the brands were doing deminimus shipping from China.

651
00:31:54,480 --> 00:31:56,920
Speaker 1: And I'm sorry that that thirty to fifty percent that's

652
00:31:56,960 --> 00:31:58,200
Speaker 1: just trans specific trader.

653
00:31:58,760 --> 00:31:59,800
Speaker 2: That's a global figures.

654
00:32:00,160 --> 00:32:03,760
Speaker 4: We higher on trans specific, but it's probably at the

655
00:32:03,800 --> 00:32:08,600
Speaker 4: higher end of that range anyways. fIF So that all

656
00:32:09,400 --> 00:32:11,920
Speaker 4: went away at least in terms of its ability to

657
00:32:12,080 --> 00:32:18,320
Speaker 4: clear as deminimous not paying duties. Those companies have managed

658
00:32:18,360 --> 00:32:20,280
Speaker 4: to keep operating. You can still go on there and

659
00:32:20,280 --> 00:32:23,080
Speaker 4: buy just end up paying duties, but that will reduce

660
00:32:25,440 --> 00:32:27,959
Speaker 4: that will reduce demand. The prices are highers for the goods,

661
00:32:28,000 --> 00:32:30,600
Speaker 4: and and it sort of just and a lot of

662
00:32:30,600 --> 00:32:33,360
Speaker 4: companies haven't really won't survive that.

663
00:32:33,440 --> 00:32:34,600
Speaker 2: A lot of smaller.

664
00:32:34,240 --> 00:32:37,360
Speaker 4: Ones so that's a huge impact on demand for air

665
00:32:37,400 --> 00:32:39,720
Speaker 4: freight that it's come way down. The price of air

666
00:32:39,760 --> 00:32:43,720
Speaker 4: freight went to levels where you couldn't make money as

667
00:32:43,760 --> 00:32:45,120
Speaker 4: an air cargo operator.

668
00:32:46,560 --> 00:32:47,840
Speaker 2: And that's the other thing here.

669
00:32:48,040 --> 00:32:50,680
Speaker 4: Because of that nature what happened, you know, I mentioned

670
00:32:50,720 --> 00:32:53,800
Speaker 4: the Bali thing. Like one weird thing that happens with

671
00:32:53,880 --> 00:32:56,760
Speaker 4: this market is that freight gets routed in strange ways

672
00:32:56,760 --> 00:32:59,840
Speaker 4: you wouldn't predict. But the other one is these air

673
00:33:00,840 --> 00:33:04,800
Speaker 4: the price of air freight can go so low below

674
00:33:04,840 --> 00:33:08,320
Speaker 4: the level that an operator of a cargo plane can

675
00:33:08,360 --> 00:33:11,800
Speaker 4: make money because the passengers are still going, and so

676
00:33:11,960 --> 00:33:14,640
Speaker 4: there's this supply that doesn't it's totally doesn't care what

677
00:33:14,680 --> 00:33:15,240
Speaker 4: the price is.

678
00:33:15,280 --> 00:33:18,320
Speaker 2: It's still like they'll fly your stop. So you'll see

679
00:33:18,680 --> 00:33:19,120
Speaker 2: the price.

680
00:33:19,280 --> 00:33:23,200
Speaker 4: A cargo plane really can't make money below from Asia

681
00:33:23,200 --> 00:33:27,320
Speaker 4: at the US below about four bucks a kilow you're

682
00:33:27,400 --> 00:33:29,400
Speaker 4: just like below that price, you're just not going to

683
00:33:29,440 --> 00:33:32,120
Speaker 4: make any money. You're almost be better off not flying,

684
00:33:32,760 --> 00:33:34,800
Speaker 4: you know, at three point fifty or something, just leave

685
00:33:34,840 --> 00:33:37,040
Speaker 4: the plane there and don't don't get in the air.

686
00:33:38,360 --> 00:33:41,400
Speaker 4: But the price can go way below that, and it

687
00:33:41,440 --> 00:33:43,200
Speaker 4: did for the last month or so, it was down

688
00:33:43,240 --> 00:33:45,320
Speaker 4: in the it's back up right now. But but right

689
00:33:45,360 --> 00:33:47,720
Speaker 4: after Deminimus ended in May, it was like two bucks

690
00:33:47,760 --> 00:33:48,600
Speaker 4: a kilow.

691
00:33:48,760 --> 00:33:51,160
Speaker 2: Because the car, the passenger planes are going to go anyways.

692
00:33:51,200 --> 00:33:51,760
Speaker 2: They don't care.

693
00:33:52,240 --> 00:33:54,200
Speaker 4: And if there's empty space in the belly, might as

694
00:33:54,200 --> 00:33:57,440
Speaker 4: well make two dollars a kilo on it. So that's

695
00:33:57,480 --> 00:34:00,480
Speaker 4: a that's just like a really unusual thing like that

696
00:34:00,600 --> 00:34:02,880
Speaker 4: allows the price to really fall way down.

697
00:34:02,960 --> 00:34:06,680
Speaker 2: And then on the flip side, the air freight price can.

698
00:34:06,560 --> 00:34:11,920
Speaker 4: Go almost to infinity when when demand is when supply

699
00:34:12,040 --> 00:34:14,520
Speaker 4: is tight and there's more demand than there is capacity,

700
00:34:15,200 --> 00:34:19,600
Speaker 4: because you know, especially Apple, but other high margin companies

701
00:34:19,760 --> 00:34:20,439
Speaker 4: just don't care.

702
00:34:21,440 --> 00:34:23,600
Speaker 2: They need to get those those products moving.

703
00:34:24,640 --> 00:34:26,319
Speaker 4: They care a lot about price, but at the end

704
00:34:26,320 --> 00:34:29,799
Speaker 4: of the day, they need to move the product. And

705
00:34:29,840 --> 00:34:33,000
Speaker 4: if it costs twenty dollars a kilow, who cares. You're

706
00:34:33,040 --> 00:34:35,320
Speaker 4: making what's the what's the gross margin on an iPhone?

707
00:34:35,360 --> 00:34:35,480
Speaker 1: Right?

708
00:34:35,480 --> 00:34:37,279
Speaker 4: You can look this up in places, it's a lot.

709
00:34:37,440 --> 00:34:40,160
Speaker 4: There's two iPhones in a kilo. So you could pay

710
00:34:40,200 --> 00:34:43,080
Speaker 4: twenty bucks a kilo easily and be happy, you know,

711
00:34:43,120 --> 00:34:44,319
Speaker 4: And they're not happy.

712
00:34:44,040 --> 00:34:46,440
Speaker 2: But they'll they'll do it. They won't stop. So it's

713
00:34:46,480 --> 00:34:49,439
Speaker 2: it's kind of a very strange market in general air freight.

714
00:34:50,239 --> 00:34:56,480
Speaker 1: You mentioned the Shopify acquisition and also acquired Convoy a

715
00:34:56,520 --> 00:35:00,239
Speaker 1: couple of years ago. For you guys to acquire some thing,

716
00:35:00,320 --> 00:35:02,960
Speaker 1: are you looking to get into different businesses or are

717
00:35:02,960 --> 00:35:05,120
Speaker 1: you looking to add scale to the businesses that you

718
00:35:05,200 --> 00:35:08,759
Speaker 1: already have. I'm assuming you probably get a lot of

719
00:35:08,760 --> 00:35:10,719
Speaker 1: companies that come across your desk that are looking to

720
00:35:10,719 --> 00:35:11,160
Speaker 1: be bought.

721
00:35:11,440 --> 00:35:13,600
Speaker 4: Yeah, we're we're only interested in things that add to

722
00:35:13,640 --> 00:35:18,120
Speaker 4: our capabilities, not not buying scale, but capabilities could be scale,

723
00:35:18,440 --> 00:35:20,320
Speaker 4: bring scale with them into a region.

724
00:35:20,680 --> 00:35:23,239
Speaker 2: For example, we've done only a couple of.

725
00:35:23,360 --> 00:35:28,920
Speaker 4: Really minor acquisitions in freight forwarding directly basically if customs

726
00:35:28,920 --> 00:35:33,440
Speaker 4: brokerages in different countries, where it accelerates our getting licenses

727
00:35:33,520 --> 00:35:37,640
Speaker 4: and compliance team, et cetera, expertise that that's interesting to us,

728
00:35:37,680 --> 00:35:38,160
Speaker 4: but it has to.

729
00:35:38,120 --> 00:35:38,800
Speaker 2: Be really small.

730
00:35:38,840 --> 00:35:42,600
Speaker 4: We're not trying to buy like large businesses on Ebada multiples.

731
00:35:42,600 --> 00:35:46,839
Speaker 4: It's like buying capabilities in a region. And then beyond that,

732
00:35:46,920 --> 00:35:52,040
Speaker 4: it's it's all for us. It's adding capabilities. So for example,

733
00:35:52,080 --> 00:35:54,680
Speaker 4: Shopify added the ability for us to do e commerce

734
00:35:54,719 --> 00:36:01,120
Speaker 4: fulfillment delivery to people's doors and into retail stores, retail distribution,

735
00:36:02,680 --> 00:36:06,560
Speaker 4: and Convoy beefed up our trucking capabilities. Call me if

736
00:36:06,560 --> 00:36:09,360
Speaker 4: you're distressed. But I don't want money losing businesses, so

737
00:36:09,440 --> 00:36:11,680
Speaker 4: therefore you're not distressed if you're losing money. I mean,

738
00:36:11,680 --> 00:36:13,600
Speaker 4: it's just a difficult proposition.

739
00:36:14,080 --> 00:36:14,440
Speaker 3: Gotcha.

740
00:36:14,680 --> 00:36:17,480
Speaker 1: Okay, that makes sense, you know, and you mentioned that

741
00:36:17,560 --> 00:36:20,040
Speaker 1: the trucking part of the business. You know, how is

742
00:36:20,080 --> 00:36:23,760
Speaker 1: that market. I'm assuming Convoy was mostly North America trucking.

743
00:36:24,120 --> 00:36:25,720
Speaker 2: Yeah, it's a North America trucking.

744
00:36:26,400 --> 00:36:31,640
Speaker 4: It's it's been brutal recession for going on three years

745
00:36:31,760 --> 00:36:34,440
Speaker 4: or so in the truckload business.

746
00:36:36,280 --> 00:36:39,439
Speaker 2: Just prices have been very low. We're convoys are great

747
00:36:39,440 --> 00:36:40,800
Speaker 2: business because it's tech enabled.

748
00:36:40,840 --> 00:36:43,680
Speaker 4: We're ninety eight percent hands off the wheel, ninety eight

749
00:36:43,719 --> 00:36:45,720
Speaker 4: percent of the loads that we move, about twenty thousand

750
00:36:45,719 --> 00:36:48,799
Speaker 4: loads a year don't nobody, no human does any work

751
00:36:48,840 --> 00:36:52,799
Speaker 4: at all on our side. So that's that gives us

752
00:36:52,800 --> 00:36:57,720
Speaker 4: a nice competitive advantage. But where we can be cheaper,

753
00:36:57,760 --> 00:37:03,000
Speaker 4: but the actual truckload prices are so low, and brokerage

754
00:37:03,719 --> 00:37:08,279
Speaker 4: is it earns a percent on top of the top line,

755
00:37:08,320 --> 00:37:09,880
Speaker 4: you know, on top of the revenue. So when the

756
00:37:09,880 --> 00:37:12,560
Speaker 4: price is low, it's hard the brokerage can't just make

757
00:37:12,560 --> 00:37:14,880
Speaker 4: that much money. So it's it's a lot of brokerages

758
00:37:14,920 --> 00:37:17,600
Speaker 4: have been suffering from failures. I think it's contributed to

759
00:37:17,680 --> 00:37:23,120
Speaker 4: Convoy being available for us to acquire it, and I

760
00:37:23,160 --> 00:37:26,320
Speaker 4: don't I don't have good insight into what will happen

761
00:37:26,360 --> 00:37:27,920
Speaker 4: in the wider market where.

762
00:37:29,320 --> 00:37:30,480
Speaker 2: Somewhat agnostic to that.

763
00:37:30,680 --> 00:37:33,319
Speaker 4: Try to be agnostic to what happens in them with

764
00:37:33,400 --> 00:37:36,239
Speaker 4: the price and supply and demand, and just focus on

765
00:37:36,280 --> 00:37:37,800
Speaker 4: what tech can do to make that give us a

766
00:37:37,840 --> 00:37:39,080
Speaker 4: competitive vantage no matter what.

767
00:37:40,080 --> 00:37:44,239
Speaker 1: So, are there any you know, major risks that you're

768
00:37:44,600 --> 00:37:47,400
Speaker 1: kind of concerned about as it relates to something that

769
00:37:47,440 --> 00:37:48,960
Speaker 1: could impact the supply chains?

770
00:37:49,040 --> 00:37:51,360
Speaker 3: Or is it just the US trade policy?

771
00:37:51,640 --> 00:37:54,920
Speaker 4: Well, US trade policy is the obvious one related to

772
00:37:55,120 --> 00:37:58,200
Speaker 4: larger geopolitical stuff. I mean, everything that's happened in the

773
00:37:58,320 --> 00:38:02,759
Speaker 4: Suez is pretty crazy. Will rather happen in the Red

774
00:38:02,760 --> 00:38:08,719
Speaker 4: Sea affecting the Suez. So war is the massive risk

775
00:38:08,880 --> 00:38:11,640
Speaker 4: that I think we all don't think about enough of

776
00:38:11,680 --> 00:38:14,719
Speaker 4: what could happen. We always think of wars as these

777
00:38:14,719 --> 00:38:16,480
Speaker 4: things that don't really affect us, and we just talk

778
00:38:16,520 --> 00:38:20,080
Speaker 4: about them in terms of economics like markets and stuff.

779
00:38:20,120 --> 00:38:22,399
Speaker 2: But I mean it can could get a lot worse

780
00:38:22,440 --> 00:38:22,799
Speaker 2: than that.

781
00:38:24,000 --> 00:38:28,000
Speaker 4: So yeah, wars of all different regional wars, larger scale,

782
00:38:28,040 --> 00:38:29,439
Speaker 4: that's that's a massive risk.

783
00:38:31,040 --> 00:38:32,959
Speaker 2: Those I guess those are the two big ones. There's

784
00:38:32,960 --> 00:38:35,120
Speaker 2: there's a lot of regulations coming down the pipe that are.

785
00:38:36,680 --> 00:38:40,160
Speaker 4: That are difficult to comply with for our customers as well.

786
00:38:40,400 --> 00:38:43,800
Speaker 2: They may be good for the industry and the customs.

787
00:38:43,880 --> 00:38:46,120
Speaker 2: You know, a couple in the couple.

788
00:38:45,840 --> 00:38:49,760
Speaker 4: Worth noting, mostly coming out of the EU, but stuff

789
00:38:49,760 --> 00:38:56,000
Speaker 4: around climate measuring of emissions, carbon border adjustments. They're getting

790
00:38:56,040 --> 00:38:58,480
Speaker 4: tighter and tighter on what's required there to comply.

791
00:38:59,640 --> 00:39:03,879
Speaker 2: Another there is with us. We had this rule on.

792
00:39:05,440 --> 00:39:08,080
Speaker 4: Cotton that you have to be able to track it

793
00:39:08,719 --> 00:39:10,840
Speaker 4: and prove that there was no kind of forced labor

794
00:39:10,880 --> 00:39:14,200
Speaker 4: involved in its production, right, which, by the way, is

795
00:39:15,600 --> 00:39:17,439
Speaker 4: they need to talk to more philosophers when they create

796
00:39:17,440 --> 00:39:21,000
Speaker 4: these laws. I think it's impossible to prove a negative,

797
00:39:21,239 --> 00:39:22,839
Speaker 4: but nonetheless you're required.

798
00:39:22,560 --> 00:39:22,920
Speaker 2: To do so.

799
00:39:22,960 --> 00:39:24,520
Speaker 4: To comply with this law, you have to prove that

800
00:39:25,640 --> 00:39:27,000
Speaker 4: no force labor was involved.

801
00:39:27,440 --> 00:39:29,399
Speaker 2: It's very difficult to show exactly.

802
00:39:29,080 --> 00:39:32,120
Speaker 4: Where you know, dirt to shirt where did this cotton

803
00:39:32,160 --> 00:39:37,280
Speaker 4: start and end up? And then two related similar types

804
00:39:37,280 --> 00:39:41,200
Speaker 4: of rules are coming out around forestry and wood to

805
00:39:41,320 --> 00:39:44,160
Speaker 4: prove that to be able to show if you have

806
00:39:44,200 --> 00:39:49,400
Speaker 4: a forest a wood product, exactly where that tree was grown.

807
00:39:49,920 --> 00:39:51,600
Speaker 4: And then they want to be able to do this

808
00:39:51,640 --> 00:39:55,239
Speaker 4: for sustainable you know, make sure it's not contributing to deforestation.

809
00:39:57,520 --> 00:40:03,120
Speaker 4: Those are annoying and costly and very difficult to comply

810
00:40:03,200 --> 00:40:03,920
Speaker 4: with for the customer.

811
00:40:04,040 --> 00:40:05,959
Speaker 2: Maybe good for a custom's brokeery.

812
00:40:05,719 --> 00:40:07,360
Speaker 4: Certainly one like us that has a lot of data

813
00:40:07,480 --> 00:40:10,080
Speaker 4: that's built around databases. All right, let's help you get

814
00:40:10,480 --> 00:40:13,200
Speaker 4: a system in place to track all these things. But

815
00:40:13,200 --> 00:40:16,160
Speaker 4: those will lead to less trade, right Uh, terriffs, there's

816
00:40:16,200 --> 00:40:18,240
Speaker 4: there's like a tariff, it's a barrier to trade.

817
00:40:18,560 --> 00:40:18,799
Speaker 2: Yeah.

818
00:40:19,160 --> 00:40:22,760
Speaker 1: And you know we were talking earlier about like your trade.

819
00:40:23,080 --> 00:40:28,160
Speaker 1: It's really hard to I guess, trace where something was manufactured,

820
00:40:29,440 --> 00:40:32,839
Speaker 1: you know, in that vein? You know, is it next

821
00:40:32,880 --> 00:40:35,400
Speaker 1: to impossible to know if something comes out of Vietnam

822
00:40:35,480 --> 00:40:38,920
Speaker 1: if it most of it was manufactured in China.

823
00:40:39,239 --> 00:40:40,560
Speaker 2: I mean, I just think you're gonna get a lot,

824
00:40:40,600 --> 00:40:41,839
Speaker 2: you get a lot of lying.

825
00:40:42,600 --> 00:40:44,240
Speaker 3: Right Well, yeah, I mean that's how much incentive.

826
00:40:44,239 --> 00:40:49,080
Speaker 4: It's a lot and it's so difficult to track down. Uh,

827
00:40:49,600 --> 00:40:52,680
Speaker 4: it's not impossible if you're dealing with trustworthy people, which

828
00:40:52,719 --> 00:40:55,200
Speaker 4: is the goal of every supply chain is to have

829
00:40:55,280 --> 00:40:57,920
Speaker 4: trustworthy suppliers. But there's just such an incentive for the

830
00:40:58,040 --> 00:41:01,200
Speaker 4: people to lie at every change. And the more layers

831
00:41:01,239 --> 00:41:03,160
Speaker 4: you have, you know, okay, you stores it from this

832
00:41:03,200 --> 00:41:06,440
Speaker 4: company who source a component, that component turns out to

833
00:41:06,440 --> 00:41:08,880
Speaker 4: have been you know, brokeer or sourced. I mean, that's

834
00:41:09,120 --> 00:41:10,799
Speaker 4: that's where this becomes very hard, is when you have

835
00:41:11,840 --> 00:41:13,759
Speaker 4: so many tiers to the supply chain, which is how

836
00:41:13,880 --> 00:41:17,640
Speaker 4: modern supply chains look, and there's just yeah, there's a

837
00:41:17,680 --> 00:41:23,200
Speaker 4: lot of incentives a lie. And the one big regulation

838
00:41:23,320 --> 00:41:26,040
Speaker 4: that I think we're likely to see in the next

839
00:41:26,400 --> 00:41:26,919
Speaker 4: year or two.

840
00:41:27,000 --> 00:41:27,440
Speaker 2: I don't know how.

841
00:41:27,520 --> 00:41:29,440
Speaker 4: I don't know enough about how DC works, but I

842
00:41:29,480 --> 00:41:32,680
Speaker 4: think you're likely to see this in some form is

843
00:41:32,800 --> 00:41:37,040
Speaker 4: today companies can sell in the United States without having

844
00:41:37,080 --> 00:41:40,360
Speaker 4: an entity in the United States. So foreign companies based

845
00:41:40,400 --> 00:41:41,800
Speaker 4: in any you know, anywhere in the world, but a

846
00:41:41,840 --> 00:41:44,200
Speaker 4: lot of this is in China, Vietnam as well. They

847
00:41:44,239 --> 00:41:49,120
Speaker 4: can sell in the United States on Amazon especially. This

848
00:41:49,200 --> 00:41:51,760
Speaker 4: is very rampant on Amazon for something like sixty percent

849
00:41:51,800 --> 00:41:55,040
Speaker 4: of all Amazon sellers are actually Chinese companies don't even

850
00:41:55,080 --> 00:41:56,640
Speaker 4: have an LLC or an entity of.

851
00:41:56,640 --> 00:41:59,560
Speaker 2: Any kind in the United States, no employees here, and.

852
00:41:59,520 --> 00:42:03,040
Speaker 4: Then they can sell well that you know, if they

853
00:42:03,040 --> 00:42:06,880
Speaker 4: break the rules on customs and they lie about one

854
00:42:06,880 --> 00:42:09,080
Speaker 4: of those things the HS code, the country of origin

855
00:42:09,160 --> 00:42:11,880
Speaker 4: or the valuation to save on duties.

856
00:42:12,760 --> 00:42:15,759
Speaker 2: When they get caught, yeah, it's illegal, but what are

857
00:42:15,760 --> 00:42:16,160
Speaker 2: you going to do.

858
00:42:16,239 --> 00:42:18,560
Speaker 4: I mean, Customers is not going to send agents to

859
00:42:18,680 --> 00:42:20,560
Speaker 4: China to arrest them.

860
00:42:21,239 --> 00:42:23,000
Speaker 2: And I think this so they're likely.

861
00:42:23,360 --> 00:42:26,440
Speaker 4: Congress is likely, it's got pretty bipartisan support to make

862
00:42:26,480 --> 00:42:29,399
Speaker 4: it so that foreign companies cannot import goods into the US.

863
00:42:29,440 --> 00:42:32,080
Speaker 4: You have to set up an LLC some kind of

864
00:42:32,200 --> 00:42:34,560
Speaker 4: entity in the US to import.

865
00:42:34,760 --> 00:42:36,520
Speaker 2: That's a likely change that's going to come down, I

866
00:42:36,520 --> 00:42:37,120
Speaker 2: would predict.

867
00:42:38,400 --> 00:42:41,319
Speaker 4: And another it's also fertile ground for negotiation and these

868
00:42:41,360 --> 00:42:45,600
Speaker 4: trade deals is like, hey, you have to show us

869
00:42:45,600 --> 00:42:48,400
Speaker 4: that you're going to enforce when we catch a violator

870
00:42:48,440 --> 00:42:52,040
Speaker 4: in your country, either extradate them to US or other

871
00:42:52,600 --> 00:42:56,000
Speaker 4: in some way enforce these rules so that we could

872
00:42:56,000 --> 00:42:59,279
Speaker 4: actually enforce our trade policies. Otherwise it's like put the

873
00:42:59,360 --> 00:43:01,880
Speaker 4: US companies in huge disadvantage because we're likely to comply

874
00:43:02,880 --> 00:43:05,840
Speaker 4: in foreign country companies that know they won't get pop

875
00:43:05,880 --> 00:43:08,240
Speaker 4: prosecuted won't interesting stuff.

876
00:43:08,840 --> 00:43:12,480
Speaker 1: All right, Well, we're coming up on the end of time. Ryan,

877
00:43:12,600 --> 00:43:14,600
Speaker 1: I really want to thank you for your time and

878
00:43:14,640 --> 00:43:17,360
Speaker 1: insights today. Really appreciate you coming back on to the

879
00:43:17,400 --> 00:43:18,760
Speaker 1: Talking Transports podcast.

880
00:43:19,080 --> 00:43:21,080
Speaker 4: Yeah, my pleasure, my pleasure, so much to talk about,

881
00:43:21,120 --> 00:43:22,960
Speaker 4: so I'm sure we'll be I'm sure to be talking

882
00:43:23,000 --> 00:43:24,400
Speaker 4: again at some point in the future.

883
00:43:24,680 --> 00:43:27,040
Speaker 3: I certainly hope so. And I want to thank you

884
00:43:27,080 --> 00:43:27,680
Speaker 3: for tuning in.

885
00:43:27,719 --> 00:43:30,320
Speaker 1: If you liked the episode, please subscribe and leave a review.

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Speaker 1: We've lined up a number of great guests for the podcast,

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Speaker 1: so please check back to your conversations with C suite executives, shippers, regulators,

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Speaker 1: and decision makers within the freight markets. Also, if you

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Speaker 1: have an idea for a future episode, please hit me

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Speaker 1: up on the Bloomberg terminal or on Twitter at logistics Late.

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Speaker 3: Thanks everyone, and take care.