WEBVTT - Flexport CEO Says a ‘Great Recession’ Is Here for Global Shipping 0:00:10.320 --> 0:00:14.000 Hello, and welcome to another episode of the Odd Loves Podcast. 0:00:14.040 --> 0:00:17.320 I'm Joe wasn't All and I'm Tracy Alloway. So, Tracy, 0:00:17.520 --> 0:00:21.960 it seems it seems you're going to jinx it. Know, 0:00:22.400 --> 0:00:27.320 it seems like the supply chain. It seems like the 0:00:27.360 --> 0:00:30.080 supply chain, the crisis that people it kind of feels 0:00:30.080 --> 0:00:32.280 like that's over in my opinion. I mean, I definitely 0:00:32.280 --> 0:00:34.440 think we're seeing some of the bottlenecks that we spent 0:00:34.560 --> 0:00:38.839 the better part of one talking about those are starting 0:00:38.880 --> 0:00:42.320 to ease. Some of the import boom into the US 0:00:42.440 --> 0:00:44.919 seems to be easing. There is this general shift from 0:00:44.960 --> 0:00:50.440 consumer goods to services. But things are still relatively busy. 0:00:50.479 --> 0:00:52.919 But I think I think they've settled down enough that 0:00:52.960 --> 0:00:56.080 we can start to talk about what we have learned 0:00:56.440 --> 0:00:59.600 from this whole saga. Absolutely, I think so too. I mean, 0:00:59.600 --> 0:01:03.160 they're really you know, you still see like occasionally specific 0:01:03.200 --> 0:01:06.560 products will be in shortage. UM, there are certain types 0:01:06.600 --> 0:01:09.600 of equipment and if you read the surveys of like 0:01:09.640 --> 0:01:11.839 the s M or p m I surveys, you still 0:01:11.880 --> 0:01:16.479 see manufacturers talk about difficulty getting certain things. Electrical equipment 0:01:16.600 --> 0:01:18.440 seems to be up there, but there's sort of like 0:01:18.760 --> 0:01:22.720 generalized shortage of everything, those like crazy lines we were 0:01:22.720 --> 0:01:25.520 seeing a boat the ports and trucks at the ports 0:01:25.520 --> 0:01:27.640 and all that stuff. I kind of think that story 0:01:27.720 --> 0:01:31.040 is over right. And one of the few good things 0:01:31.080 --> 0:01:33.720 that that tends to come out of crises in general 0:01:33.959 --> 0:01:38.000 is that they offer you this opportunity to look at 0:01:38.120 --> 0:01:42.640 what exactly went wrong and why we're things designed poorly? 0:01:42.840 --> 0:01:45.280 Is there stuff that we can do better in the future, 0:01:45.640 --> 0:01:47.960 And so now that some of these supply chain issues 0:01:48.000 --> 0:01:53.200 and transportation and shipping and logistical issues are starting to ease, 0:01:53.880 --> 0:01:57.280 we can go back and and think about what we've learned, 0:01:57.400 --> 0:01:59.280 what we can do differently. And you raise a really 0:01:59.280 --> 0:02:01.560 good point, which is that you know, you have some crisis, 0:02:01.600 --> 0:02:03.560 and there's always like, Okay, what should we fix? What 0:02:03.600 --> 0:02:05.720 could be done better? But on the other hand, you know, 0:02:05.760 --> 0:02:08.399 what about maybe not fix anything because you know, once 0:02:08.440 --> 0:02:11.320 in a century pandemic. Is that a good reason to 0:02:11.400 --> 0:02:14.400 completely up end the way the world does business? To me, 0:02:14.480 --> 0:02:17.320 it's like, let's just put this way. It's not obvious 0:02:17.360 --> 0:02:21.079 to me that like we won't eventually just return to Well, 0:02:21.120 --> 0:02:24.040 this is the other question I have, because the industry 0:02:24.040 --> 0:02:27.200 that we've been talking about the shipping and logistical industry. 0:02:27.360 --> 0:02:30.560 This is already incredibly cyclical, right, so do they just 0:02:30.639 --> 0:02:33.480 look at one and say like, well that was a 0:02:33.520 --> 0:02:36.200 crazy cycle. Now we can get back to our normal 0:02:36.280 --> 0:02:38.880 cycles and just do what we were doing before. And well, 0:02:38.919 --> 0:02:40.519 you know, we most of talk about the pandemic and 0:02:40.560 --> 0:02:43.840 the COVID disruptions. You know, there are other developments globally. 0:02:43.960 --> 0:02:47.600 There's the ongoing war in Europe. There's a heightening tensions 0:02:47.639 --> 0:02:52.120 between US and China politically. Um, there's the energy cost 0:02:52.200 --> 0:02:55.120 surge in Europe which may not you know, ease for 0:02:55.160 --> 0:02:57.880 a long time. So there are other things going on anyway, 0:02:58.040 --> 0:03:01.160 throughout the crazies. We've talked to Guess multiple times, so 0:03:01.320 --> 0:03:03.760 perfect time to get him back in. We're gonna be 0:03:03.840 --> 0:03:06.680 speaking with Ryan Peterson. He is the founder and co 0:03:06.880 --> 0:03:10.600 CEO of Flex Sports. So Ryan, thanks for coming back 0:03:10.600 --> 0:03:14.120 on odd lots and also are we right, Like, is 0:03:14.200 --> 0:03:17.880 the crisis phase of this over? Well, it depends who 0:03:17.919 --> 0:03:20.519 you are, I think for the average consumer and business, yeah, 0:03:20.880 --> 0:03:23.880 more or less past now. If you own ships or planes, 0:03:24.000 --> 0:03:28.080 the crisis might just be started. Right, the crisis of 0:03:29.080 --> 0:03:30.760 downy Sand. They were all making a lot of money, 0:03:30.760 --> 0:03:33.079 and now we're gonna speed ran through one of those 0:03:33.080 --> 0:03:35.240 cycles that you're talking about. They usually take twenty years, 0:03:35.280 --> 0:03:38.000 and we did it in too um two or three, 0:03:38.000 --> 0:03:40.040 and so right now I think we're looking at the 0:03:40.040 --> 0:03:44.440 opposite problem of excess capacity. There's too many there's gonna 0:03:44.440 --> 0:03:46.920 be too many ships and and perhaps too many planes 0:03:47.880 --> 0:03:51.120 relative to the demand to ship things. And so Tracy 0:03:51.160 --> 0:03:53.720 and I have been joking that maybe our odd losses 0:03:53.800 --> 0:03:57.280 for three, it's just gonna take all the episodes we 0:03:57.320 --> 0:04:01.160 did in two about how there's a shortage is and 0:04:01.200 --> 0:04:04.560 then just flip the signal to negative so plunging prices 0:04:04.640 --> 0:04:07.400 over capacity, We'll just do all the episodes over again 0:04:07.480 --> 0:04:11.000 and change the direction. Era. I've seeing glass that don't 0:04:11.040 --> 0:04:12.920 lead to a shortage, but I've never seen a shortage 0:04:13.000 --> 0:04:16.360 that doesn't lead to it. So so Ryan, you mentioned 0:04:16.520 --> 0:04:19.520 um that the crisis might just be beginning if you 0:04:19.560 --> 0:04:22.200 are actually, you know, a shipping company and you see 0:04:22.200 --> 0:04:25.440 your freight rates start to plunge. And this kind of 0:04:25.760 --> 0:04:27.920 brings me to something I wanted to ask you, which is, 0:04:28.000 --> 0:04:31.760 we have seen a lot of these shippers make absolutely 0:04:31.839 --> 0:04:34.880 insane amounts of profit for the past two or three years. 0:04:34.920 --> 0:04:38.440 I think the last number I saw was for the 0:04:38.440 --> 0:04:41.000 the third quarter of this year. It was net income 0:04:41.080 --> 0:04:44.279 of fifty nine billion dollars for the global shipping industry, 0:04:44.320 --> 0:04:47.160 which is more than the forty eight billion they made 0:04:47.160 --> 0:04:50.760 the year before, and up from like a fraction of 0:04:50.800 --> 0:04:57.520 that pre crisis. Yeah, from zero or negative. So, I mean, 0:04:58.000 --> 0:05:00.159 what what do they do with all that money? Is 0:05:00.200 --> 0:05:02.680 my first question? Do they just buy a bunch of 0:05:02.680 --> 0:05:06.520 new ships, do they start to put in like efficiency 0:05:06.560 --> 0:05:08.799 improvements or right do they return it all to their 0:05:08.880 --> 0:05:12.200 long suffering shareholders? Um, I think you've seen a little 0:05:12.200 --> 0:05:13.880 bit of each of those things, and it depends on 0:05:13.880 --> 0:05:17.080 the company which ones emphasized the most. So some have 0:05:18.000 --> 0:05:20.479 a few of the ocean carriers have gone been pretty 0:05:20.480 --> 0:05:25.520 aggressive in buying freight forwarding businesses or e commerce kind 0:05:25.520 --> 0:05:28.200 of fulfillment, trying to go more end to end owned 0:05:28.520 --> 0:05:30.880 assets on land that can kind of connect their ships 0:05:30.880 --> 0:05:33.760 and be able to really provide that full factory to 0:05:33.960 --> 0:05:36.920 consumers door experience. So you see that from h C, 0:05:37.200 --> 0:05:39.280 M A and MERSK in particular. Cima is the big 0:05:39.279 --> 0:05:44.240 French ocean carrier, um them is the large actually they're 0:05:44.279 --> 0:05:46.920 kind of small, but all these companies are big. That's 0:05:46.920 --> 0:05:49.719 an Israeli carrier, and they've been pretty aggressive in doing 0:05:49.800 --> 0:05:52.719 uh dividends, returning cash to the share out to the owners. 0:05:53.360 --> 0:05:57.000 UM and MSc, which is now the world's largest carrier, 0:05:57.120 --> 0:05:58.720 has that a little bit of all these things as well. 0:05:58.760 --> 0:06:01.880 But they also invested a lot in ships, and so 0:06:01.920 --> 0:06:05.000 they've become the largest carrier in the world by really 0:06:05.040 --> 0:06:08.440 investing in the fleet. So UM, all those strategies are 0:06:08.480 --> 0:06:10.000 being done. A lot of these companies are private, so 0:06:10.040 --> 0:06:13.560 you don't really get to see everything that's happening. UM. 0:06:13.760 --> 0:06:16.680 But and I think it's by nature because Wall Street 0:06:16.680 --> 0:06:20.360 really can't handle the sickly coal. They want quarterly consistency, 0:06:20.440 --> 0:06:22.800 they don't. They're just kind of they can't handle these 0:06:22.800 --> 0:06:25.000 ten years of losing money and then two years of 0:06:25.200 --> 0:06:28.120 printing money. It's just UM not something that sits well 0:06:28.160 --> 0:06:31.000 with public investors. So they tend to be private companies 0:06:31.120 --> 0:06:33.600 or in some cases stayed owned or kind of quasi 0:06:33.640 --> 0:06:36.880 stay owned UM and where there's sort of sort of 0:06:36.880 --> 0:06:42.640 some national interest in having ocean carrier capacity. So you know, 0:06:43.040 --> 0:06:47.839 obviously the big story, you know, the pandemic disruptions, the 0:06:47.920 --> 0:06:52.040 insane amount of demand for sort of like pure goods 0:06:52.120 --> 0:06:55.720 and the filling warehouses and filling ports, etcetera. But as 0:06:55.760 --> 0:06:58.279 I mentioned in the intro, there are some other pretty 0:06:58.279 --> 0:07:01.159 big things that have happened in the last two years, 0:07:01.360 --> 0:07:05.480 particularly the war in Ukraine which remains ongoing, and just 0:07:05.520 --> 0:07:08.520 like the clear ratcheting up of tensions with China, and 0:07:08.560 --> 0:07:10.840 you see these companies start to wonder like, well, what 0:07:11.000 --> 0:07:13.680 is the long term future of trading between China and 0:07:13.680 --> 0:07:16.280 the US. And also you know related I guess too, 0:07:16.400 --> 0:07:19.160 but all of this is the surgeon cost of energy 0:07:19.280 --> 0:07:21.640 in Europe. Can you talk a little bit more about 0:07:21.680 --> 0:07:27.160 these other sort of like non pandemic macro factors and 0:07:27.280 --> 0:07:29.480 like how much you see them like staying with us 0:07:29.560 --> 0:07:31.800 right now? Like how much are like businesses that you 0:07:31.840 --> 0:07:34.679 speak with every day? Sort of like thinking about whether 0:07:34.920 --> 0:07:40.160 these are sort of deeper long term trends. Well, the 0:07:40.160 --> 0:07:43.800 the manufacturing in China has been a long term trend. 0:07:43.880 --> 0:07:46.880 As China has gotten richer, their labor costs have gone up. 0:07:46.960 --> 0:07:49.920 It's probably a good thing for the Chinese people, um, 0:07:50.040 --> 0:07:53.040 but manufacturers are kind of always seeking out that lower 0:07:53.040 --> 0:07:55.400 cost labor. So that's a that's a trend's gone for 0:07:55.760 --> 0:07:58.360 a decade or more, and the trade wars sort of 0:07:58.400 --> 0:08:00.680 brought more attention to it, and uh, you know, the 0:08:00.840 --> 0:08:04.280 increasing terrorists probably caused some companies to re evaluate, and 0:08:04.320 --> 0:08:08.280 then the inconsistency of skipping and then kind of COVID 0:08:08.640 --> 0:08:10.680 where there's different If your factory is closing down, it 0:08:10.720 --> 0:08:13.400 makes a little bit less reliable. So that's probably probably 0:08:13.400 --> 0:08:15.400 had some marginal acceleration, but I think it's a long 0:08:15.480 --> 0:08:19.560 term trend driven mostly by labor costs. Um. Now it's uh, 0:08:20.080 --> 0:08:23.160 it's really the most important where labor is the limiting 0:08:23.200 --> 0:08:26.040 reagent or the hardest thing to find to execute these 0:08:26.440 --> 0:08:29.080 manufacturing jobs. So that tends to be kind of lower skilled, 0:08:29.520 --> 0:08:32.560 simpler stuff like a peril which is largely shifted out 0:08:32.640 --> 0:08:37.160 towards Southeast Asia and Sri Lanka. But some of the 0:08:37.160 --> 0:08:40.120 stuff like consumer electronics, it's just this this whole ecosystem 0:08:40.160 --> 0:08:42.800 there that's in change in and around that's very hard 0:08:42.840 --> 0:08:46.120 to move those factories. So I think, um, it's kind 0:08:46.120 --> 0:08:48.240 of overblown some of the heat on the sholf. Like 0:08:48.280 --> 0:08:51.160 we've traded traded more with China the last couple of 0:08:51.240 --> 0:08:54.679 years than ever. Um, So it's like a nice narrative, 0:08:54.679 --> 0:09:05.400 but I don't know that it bears out of the data. 0:09:08.080 --> 0:09:10.440 Can I ask a really basic question before we go 0:09:10.480 --> 0:09:13.240 any further, But when when we talk about spot rates 0:09:13.360 --> 0:09:15.400 in shipping, and you know, we mentioned that they went 0:09:15.480 --> 0:09:17.839 up a lot during the pandemic and now they're starting 0:09:17.880 --> 0:09:20.960 to come back down, how much do those actually matter 0:09:21.360 --> 0:09:24.079 for global trade? Because my understanding is that if you're 0:09:24.120 --> 0:09:27.640 a big, you know, manufacturer, which is someone who ships 0:09:27.679 --> 0:09:29.760 a lot of goods, you're probably going to have a 0:09:29.800 --> 0:09:33.480 contract in place that might be different to the spot rate, 0:09:33.720 --> 0:09:36.679 and you're also going to be renewing that that contract 0:09:36.720 --> 0:09:39.360 on maybe maybe a yearly basis. So it seems like 0:09:39.360 --> 0:09:42.400 there's perhaps a lag in how long it takes the 0:09:43.040 --> 0:09:47.760 decrease in spot rates to feed through to actual shipping rates. Yeah, 0:09:47.760 --> 0:09:49.680 that's exactly right. I don't have to stand in front 0:09:49.720 --> 0:09:51.400 of me, but I want to say it's like about 0:09:51.880 --> 0:09:55.400 sixty or seventy freight container ice rate moves on annual 0:09:55.440 --> 0:09:59.120 contracts and thirty or forty on the spot market. I'm 0:09:59.120 --> 0:10:00.840 not I'm not a hund su sure, but that's like 0:10:00.880 --> 0:10:03.880 where my brain settles in on it um and so 0:10:04.200 --> 0:10:08.600 that that spot rate isn't Yeah, it doesn't float through 0:10:08.600 --> 0:10:11.080 immediately to the p and L of the carriers. Sometimes 0:10:11.080 --> 0:10:14.120 people don't honor to the contract um and a lot 0:10:14.120 --> 0:10:16.319 of people if they you know, if they see these 0:10:16.360 --> 0:10:23.080 contracts are kind of gentlemen's agreements handshake. It's a repeat game. 0:10:23.360 --> 0:10:25.959 So if you if you don't honor your contract this year, 0:10:26.679 --> 0:10:28.559 people are going to really hesitate to sign a good 0:10:28.559 --> 0:10:30.600 contract with you next year or you know, so it's 0:10:30.640 --> 0:10:33.920 it's it's not something that is not necessarily legally enforced. 0:10:33.920 --> 0:10:35.960 People aren't really seeing each other very often over these things. 0:10:36.000 --> 0:10:38.440 Although with the with the level of price, you know, 0:10:38.440 --> 0:10:41.560 you've seen more probably lawsuits against carriers and freight forwarders 0:10:41.559 --> 0:10:43.320 in the last couple of years than than ever because 0:10:43.360 --> 0:10:46.080 people are upset about how things played out. Um. But 0:10:46.160 --> 0:10:48.559 in general, people do onto their contracts even when the 0:10:48.600 --> 0:10:51.760 spot market drops below but not always, and in any 0:10:51.760 --> 0:10:53.400 case it is a lag, so it's putting a lot 0:10:53.400 --> 0:10:56.319 of pressure. Contract renewal season and ocean freight for the 0:10:56.400 --> 0:10:58.640 United States is going to be in April or May 0:10:59.080 --> 0:11:02.760 each year kind of marks through May, and that's coming 0:11:02.800 --> 0:11:05.080 around the corner. And people are looking at these spot 0:11:05.120 --> 0:11:07.319 markets and say, you know, that's clearly going to be 0:11:07.400 --> 0:11:10.240 the driving price of where the where the contract market 0:11:10.280 --> 0:11:13.720 settles in. So the pain for the carriers probably comes 0:11:13.760 --> 0:11:17.280 after this contract season, and it's gonna be there's really 0:11:17.320 --> 0:11:20.960 interesting kind of economic theory in practice to get to 0:11:20.960 --> 0:11:24.080 watch and see what plays out. Yeah, I believe. You know. 0:11:24.120 --> 0:11:26.720 We've talked to Craig Fuller from Freight Waves a few times. 0:11:26.760 --> 0:11:28.839 I think he at least in trucking specifically. He sort 0:11:28.840 --> 0:11:31.160 of likened it to, uh, you know, the deal you 0:11:31.200 --> 0:11:33.160 have with your babysitter where it's like, Okay, i'll pay 0:11:33.200 --> 0:11:36.040 you this every you know, a hundred and fifty every 0:11:36.040 --> 0:11:38.280 Friday or whatever, but if you change, it's not like 0:11:38.280 --> 0:11:40.600 anyone's gonna sue. You just sort of like expect that 0:11:40.600 --> 0:11:43.280 that it's like the arrangement and so you just yeah, 0:11:43.280 --> 0:11:45.400 I'll keep it. But it doesn't necessarily mean that's some 0:11:45.600 --> 0:11:47.720 you know, the babysitter doesn't show up one day and 0:11:47.880 --> 0:11:49.760 she says, oh, it doesn't mean you're gonna like see 0:11:49.760 --> 0:11:53.400 your babysitter. Yeah, there's there's just a lot more babysitters 0:11:53.400 --> 0:11:55.440 in the world than there are ocean carriers. So you 0:11:55.760 --> 0:11:59.959 don't want to burn bridges, you know. The Tanner Tanner Cross. 0:12:00.000 --> 0:12:02.599 Don't know, you know, there aren't you know, even babysitters 0:12:02.720 --> 0:12:06.400 right now, at least as a former babysitter, are not 0:12:06.960 --> 0:12:09.840 of breaking contract. There are a lot of parents in 0:12:09.880 --> 0:12:11.560 New York City who have a hard time finding a 0:12:11.559 --> 0:12:13.640 babysitter right now, I think you really want to be 0:12:13.640 --> 0:12:16.560 careful about burning that relationship with Yeah, okay, okay, maybe 0:12:16.559 --> 0:12:19.840 there's more similarity there, but yeah, it is. There's only 0:12:19.840 --> 0:12:21.959 ten or twelve motion carriers that matter that have any 0:12:21.960 --> 0:12:24.840 real scale and to represent containers moved in the world. 0:12:24.840 --> 0:12:26.600 And so it's you know, you don't want to be 0:12:26.600 --> 0:12:29.120 breaking your contract because you do that once and yeah, 0:12:29.280 --> 0:12:30.920 you know you're not. You're down to nine and there 0:12:30.960 --> 0:12:32.880 are there are a number of these big companies that 0:12:32.920 --> 0:12:35.400 come around and basically, when when you get to be 0:12:35.760 --> 0:12:38.440 above about five thousand containers a year that you're shipping, 0:12:38.800 --> 0:12:41.040 it makes sense for a company to contract directly with 0:12:41.040 --> 0:12:43.840 that ocean carrier rather than working with the freight forwarder 0:12:43.920 --> 0:12:46.880 to buy the freight. Uh. And but there are some 0:12:46.960 --> 0:12:49.079 big companies that buy from freight boarders and when you 0:12:49.120 --> 0:12:51.360 dig in, you find out it's because they like dishonored 0:12:51.400 --> 0:12:53.240 all their contracts and don't carry a lot to work 0:12:53.240 --> 0:12:56.199 with them anymore. Well, I mean, this is something I 0:12:56.240 --> 0:12:58.120 want to ask you because I think, UM, one of 0:12:58.120 --> 0:13:01.040 the things we learned from our very first episode with you, 0:13:01.120 --> 0:13:03.880 which was you were basically walking us through why I 0:13:03.920 --> 0:13:06.800 was having so much trouble getting half a container from 0:13:06.840 --> 0:13:10.520 Hong Kong um to Los Angeles as an EXPERIMENTUM in 0:13:10.559 --> 0:13:13.199 shipping congestion. But one of the things we learned was 0:13:13.280 --> 0:13:17.640 that a lot of this business is relationship driven, UM. 0:13:17.679 --> 0:13:20.440 And we used to joke about like Sven in Sweden, right, 0:13:20.559 --> 0:13:23.400 you know, the Sven who like operates sports somewhere and 0:13:23.440 --> 0:13:26.600 you can maybe cut some extra room. But for the 0:13:26.640 --> 0:13:30.959 past couple of years, has the industry become more relationship driven? 0:13:31.040 --> 0:13:34.040 Is it more important to have these direct relationships with 0:13:34.160 --> 0:13:37.480 the shippers themselves, or has the crisis sort of opened 0:13:37.559 --> 0:13:42.959 up opportunity for that behavior to begin to change. I 0:13:43.000 --> 0:13:45.160 think the last two years, relationships will probably matter more 0:13:45.160 --> 0:13:48.200 than ever because when capacity is tight and there's no 0:13:48.240 --> 0:13:50.600 space on the ship, it's who who's been the best 0:13:50.640 --> 0:13:53.680 customer for these people over the long term, who plays 0:13:53.720 --> 0:13:56.480 golf with It's not Spann in Sweden, by the way, 0:13:56.480 --> 0:14:02.880 It's it's lar. Sorry, sorry, I'm getting my nory up. 0:14:03.640 --> 0:14:06.800 I'm just okay. You know, So I think the when 0:14:07.080 --> 0:14:11.760 in capacity is tight, very little else matters in the world. 0:14:11.760 --> 0:14:14.280 Then what's your relationship? How are you a profitable customer? 0:14:14.320 --> 0:14:17.080 How long have you been a profitable customer? What's your consistency? 0:14:17.559 --> 0:14:19.520 So being being able to bring freight every single week 0:14:19.560 --> 0:14:23.040 and not cancel. Um that those things start to matter 0:14:23.080 --> 0:14:25.080 a lot more when when space is wide open, if 0:14:25.080 --> 0:14:28.640 there's excess capacity, sort of like, hey, you know, you 0:14:28.680 --> 0:14:30.960 don't need a relationship, We need to sell some more cargo. 0:14:31.080 --> 0:14:33.560 So I think, um that that that dynamic is going 0:14:33.600 --> 0:14:35.760 to shift. And then you know, we went through a 0:14:35.840 --> 0:14:42.920 real long period from until twenty nine, really at the 0:14:42.920 --> 0:14:46.480 beginning of pandemic when it kicked in, of just excess 0:14:46.480 --> 0:14:48.960 capacity and ocean freight, and then we had two years 0:14:49.000 --> 0:14:53.040 of extremely tight capacity. And it looks like we're right 0:14:53.080 --> 0:14:56.720 in the midst of a real um a great recession 0:14:56.760 --> 0:15:00.480 call it um where there's less less containership being than 0:15:00.760 --> 0:15:04.720 really even before the Oh wow, okay, that's there. There's 0:15:04.720 --> 0:15:08.480 our title this episode, the Great Recession that's coming to containership. 0:15:08.640 --> 0:15:10.800 Thank you container ship, And yeah, now it might be 0:15:10.800 --> 0:15:12.800 great news for people who have to ship containers, Like 0:15:12.840 --> 0:15:14.160 all of a sudden, the prices way down and you 0:15:14.160 --> 0:15:16.040 can get space and you can you know, have some 0:15:16.200 --> 0:15:18.840 sanity about it. All that. Okay, So we went from 0:15:19.040 --> 0:15:22.640 glut to extreme scarcity to glut again and not just 0:15:22.960 --> 0:15:25.320 glood but also like a sort of like very like 0:15:25.440 --> 0:15:29.080 poor demand. Can you talk about the energy component like 0:15:29.120 --> 0:15:31.520 this is like a fascinating thing, like the gaps, say 0:15:31.600 --> 0:15:34.560 between how much it costs to manufacture goods in Europe 0:15:34.560 --> 0:15:37.560 for the US due to the gap in electricity prices. 0:15:37.720 --> 0:15:41.560 Do you see that reshaping trade flows or has this 0:15:41.600 --> 0:15:43.840 become another one of these things where it's like it's 0:15:43.880 --> 0:15:45.520 kind of a fun story and we talked about it 0:15:45.520 --> 0:15:48.120 in the media, but in the end, like it's hard, 0:15:48.320 --> 0:15:51.200 you know, kind of like a the world doesn't reorient 0:15:51.320 --> 0:15:53.720 that fast and ultimately finds a way to sort of 0:15:53.760 --> 0:15:56.160 go back to the old normal. Yeah, I mean, I 0:15:56.160 --> 0:15:58.200 think it's a little too early to say. It seems 0:15:58.240 --> 0:16:01.880 obvious just looking at the numbers that like manufacturing in 0:16:01.880 --> 0:16:06.000 Germany doesn't make sense at these energy prices. Does the 0:16:06.040 --> 0:16:08.840 government come in and subsidize the energy to allow them 0:16:08.840 --> 0:16:12.640 to maintain the manufacturing which has employed so many people 0:16:12.680 --> 0:16:15.200 and kind of been the the engine of the European 0:16:15.240 --> 0:16:17.480 Union as a whole, Like I think they probably will, 0:16:17.560 --> 0:16:19.120 and so then it starts to be really hard to 0:16:19.160 --> 0:16:21.760 predict how things play out, because once you have government 0:16:21.760 --> 0:16:23.920 coming in and intervening in the market, then you know 0:16:23.920 --> 0:16:26.920 a lot of the market um theory that kind of 0:16:26.960 --> 0:16:28.880 breaks down. And I don't really know what will happen. 0:16:30.440 --> 0:16:33.520 But with those prices, like manufacturing in Germany just doesn't 0:16:34.000 --> 0:16:36.240 make kind of sense. The US has such an advantage 0:16:36.240 --> 0:16:39.440 on energy right now. So just going back to the 0:16:39.480 --> 0:16:42.920 past couple of years, I'm curious whether or not you 0:16:43.120 --> 0:16:47.520 saw either shippers or people related to the shipping industry 0:16:47.520 --> 0:16:50.960 and transportation and logistics more generally, whether you saw them 0:16:51.160 --> 0:16:55.080 do things that made the whole process more efficient. And 0:16:55.120 --> 0:16:58.920 I remember in our various discussions on this topic, there 0:16:59.120 --> 0:17:01.360 there seemed to be a lot of low hanging fruit 0:17:01.480 --> 0:17:04.080 for the industry. And I think you had one um 0:17:04.640 --> 0:17:06.640 one figure when we first talked to you, talking about 0:17:06.680 --> 0:17:10.280 how most container ships on average are only se full, 0:17:10.720 --> 0:17:13.639 so it would seem like just put more containers on 0:17:13.680 --> 0:17:16.480 the ship and we could maybe fix some of the backlog, 0:17:17.000 --> 0:17:20.240 But did stuff like that actually happen? Because all of 0:17:20.280 --> 0:17:22.520 these things they seem so simple, but then when when 0:17:22.600 --> 0:17:24.760 you actually go and try to fix them, it often 0:17:24.880 --> 0:17:27.360 ends up My impression is it often ends up being 0:17:27.359 --> 0:17:30.920 more complicated than you expected. Right. Well, actually that stad 0:17:31.000 --> 0:17:34.959 is that the containers themselves are only ships are full, 0:17:35.240 --> 0:17:38.120 but the inside of the containers are not optimized. Did 0:17:38.160 --> 0:17:40.680 the containers get more full? Did they? Did they get 0:17:40.680 --> 0:17:43.760 better at talking them? Surprisingly? No, and if anything, you 0:17:43.840 --> 0:17:46.240 might have gotten worse because which is a really interesting 0:17:46.280 --> 0:17:49.359 counterintuitive thing, but but it sort of makes sense when 0:17:49.359 --> 0:17:51.520 you think about the psychology of it. Always like, Okay, 0:17:51.560 --> 0:17:53.760 you're having a hard time getting a space on a ship. 0:17:54.640 --> 0:17:57.720 You finally get one, just you're not going to sit 0:17:57.760 --> 0:18:00.159 there and try to optimize the inside of entertainer. Just 0:18:00.240 --> 0:18:02.399 like just whatever you got now, just throw it in 0:18:02.400 --> 0:18:05.000 there and let's go. Um, Which you know, it's sort 0:18:05.000 --> 0:18:06.600 of kind of intuitive because you think like, oh, this 0:18:06.720 --> 0:18:09.879 thing is really scarce, We've got to really optimize our capacity. 0:18:09.960 --> 0:18:11.879 But you may not have that luxury because you're you know, 0:18:11.920 --> 0:18:15.200 you're just scrambling to get space on a ship. Um. 0:18:15.240 --> 0:18:17.000 So no, we haven't seen a lot of progress on 0:18:17.040 --> 0:18:22.880 that metric. Um, it's we're not seeing I can't say 0:18:22.880 --> 0:18:25.879 that I saw material changes in the infrastructure in our 0:18:26.000 --> 0:18:29.159 ports to enable them to like handle a surge and 0:18:29.200 --> 0:18:33.440 capacity if that ever happens again. Um, the appointment systems 0:18:33.480 --> 0:18:37.200 haven't improved. The technology for getting um for for picking 0:18:37.280 --> 0:18:39.600 up trucks, you know, for for picking up containers, for 0:18:39.600 --> 0:18:42.440 getting trucks in and out of there hasn't improved. Um. 0:18:42.480 --> 0:18:45.879 We've got the West Coast Union, it's called the i 0:18:46.119 --> 0:18:51.200 l WU International Ngenterment Warehousing Unions. UM, they're operating without 0:18:51.200 --> 0:18:55.120 a contract right now. So their contract expired the summer. Uh, 0:18:55.200 --> 0:18:57.840 those negotiations are ongoing, and how many Intel was happening there. 0:18:57.880 --> 0:19:01.520 But but I have heard that they're main Um, the 0:19:01.560 --> 0:19:04.520 main thing that they want is to not have more 0:19:04.520 --> 0:19:07.360 automation in the ports. So I don't see that kind 0:19:07.400 --> 0:19:10.040 of like upcoming that we're going to get a lot 0:19:10.080 --> 0:19:12.280 more automation to be able to handle a surge in 0:19:12.320 --> 0:19:15.280 these in the area. UM. So in general, I would 0:19:15.280 --> 0:19:20.359 say the infrastructure is the same, it's not gotten any better. Wait, 0:19:20.400 --> 0:19:23.879 didn't you You famously went to Long Beach and I 0:19:23.880 --> 0:19:26.120 think you rented like a boat so that you could 0:19:26.119 --> 0:19:29.280 observe how things were actually being loaded and unloaded at 0:19:29.280 --> 0:19:32.359 the port. And wasn't there a change as a result 0:19:32.440 --> 0:19:35.800 of that trip. Weren't they like stacking I think two 0:19:35.920 --> 0:19:38.400 containers on top of each other and you you made 0:19:38.440 --> 0:19:40.760 it or you suggested that they start stacking them higher 0:19:40.760 --> 0:19:43.360 and they ended up doing that. Yeah. Yeah, So, um, 0:19:43.440 --> 0:19:46.800 we I went down there to explore, like, what's really 0:19:46.800 --> 0:19:49.440 happening here in the ports? Why is this backlog of 0:19:49.480 --> 0:19:52.320 a hundred chips going out here? People are like, oh 0:19:52.400 --> 0:19:54.840 you so, you know, like so, I don't know what 0:19:54.840 --> 0:19:57.200 the words they use, but really in creative or something, 0:19:57.280 --> 0:19:58.960 go down there and like do them, Like it's kind 0:19:58.960 --> 0:20:01.040 of my job. I got all my summers cargo stuff there. 0:20:01.080 --> 0:20:03.520 I got throughout the happening, you know. Um. And so 0:20:03.560 --> 0:20:07.840 what we figured out was that the the trucking yards 0:20:07.880 --> 0:20:10.800 around the port were only allowed to stack containers too high, 0:20:11.240 --> 0:20:14.679 and then after that they had to just leave the 0:20:14.680 --> 0:20:17.600 containers on the chassis that's the trailer that holds the 0:20:17.600 --> 0:20:19.560 containers around. So then we ran out of trailers, ran 0:20:19.600 --> 0:20:21.960 out of chassis to go pick up more containers, and 0:20:22.000 --> 0:20:24.240 so you have to change backlog that that created so 0:20:24.440 --> 0:20:26.320 the City of Long Beach I tweet, I did a 0:20:26.320 --> 0:20:29.199 tweet storm about that. At six am, three pm, the 0:20:29.240 --> 0:20:31.040 City of Long Beach changed the z owning law to 0:20:31.080 --> 0:20:35.760 allow stacking up to four high. That's pretty impactful. It's 0:20:36.040 --> 0:20:39.280 I'm told it's the fastest response to a citizen action 0:20:39.280 --> 0:20:45.720 in the history of government on all human civilization. That was. Yeah. 0:20:45.720 --> 0:20:48.160 The week prior, we brought the labor union Tacos to 0:20:48.160 --> 0:20:50.159