WEBVTT - Ryan Petersen on How Global Supply Chains Have Gotten Even Worse 0:00:10.800 --> 0:00:15.080 Hello, and welcome to another episode of the Odd Lots Podcast. 0:00:15.160 --> 0:00:21.200 I'm Joe Wisenthal and I'm Tracy Alloway. So, Tracy, we've 0:00:21.239 --> 0:00:27.720 been talking about supply chain disruptions, shortages, etcetera. For so 0:00:27.760 --> 0:00:31.520 long now it seems that we're now sort of at 0:00:31.520 --> 0:00:34.000 the point where we need to start getting updates. I 0:00:34.040 --> 0:00:36.960 think from the first people that we spoke to about 0:00:36.960 --> 0:00:41.000 the problem many months ago, we've come full circle by 0:00:41.040 --> 0:00:44.279 not really improving at all. Um, Yeah, I think that's right. 0:00:44.320 --> 0:00:48.400 I mean, I think so we started looking into these issues, well, 0:00:48.440 --> 0:00:51.879 if you include semiconductors and the sort of squeeze we've 0:00:51.920 --> 0:00:55.880 seen in semi conductor production, we started looking into this 0:00:56.000 --> 0:00:59.560 in and then of course we have the global pandemic 0:01:00.120 --> 0:01:03.760 in early and that just kicked off all sorts of 0:01:03.800 --> 0:01:09.119 additional supply chain and transportation gridlock issues. We've been examining 0:01:09.120 --> 0:01:11.640 those one by one by one, and we've had a 0:01:11.680 --> 0:01:14.000 lot of people come on the show, well maybe not 0:01:14.040 --> 0:01:15.679 a lot, but a few people come on the show 0:01:15.720 --> 0:01:20.039 who have predicted that at some point, you know, hopefully 0:01:20.120 --> 0:01:22.800 it gets better. And yet here we are more than 0:01:22.800 --> 0:01:26.720 a year later, and it seems like things are not 0:01:26.840 --> 0:01:31.080 only not getting better, they're actually getting worse. Yeah, that's 0:01:31.120 --> 0:01:33.759 kind of the wild parts. So like we've actually been 0:01:33.880 --> 0:01:37.600 the logistical aspects of the pandemic. We're kind of the 0:01:37.640 --> 0:01:41.120 way we started. But then since the global economies have 0:01:41.200 --> 0:01:44.840 really like sort of reopened like really in the spring, 0:01:45.520 --> 0:01:49.000 and suddenly that's when all these things started piling up. 0:01:49.000 --> 0:01:51.880 And we talked about you know, tanker rates and freight 0:01:52.000 --> 0:01:54.000 rates and what's going on at the porch, were like, 0:01:54.080 --> 0:01:56.240 all right, yeah, but okay, it's gonna ease. When what's 0:01:56.240 --> 0:01:58.600 it gonna take the ease? And when when will we 0:01:59.120 --> 0:02:03.680 see so called normalization? And here we are early October, 0:02:04.120 --> 0:02:06.520 and I think the verdict is that not only has 0:02:06.560 --> 0:02:09.880 there not been any sort of quote normalization unquote and 0:02:09.919 --> 0:02:12.760 supply chains, it seems to be getting worse, Like almost 0:02:12.800 --> 0:02:14.639 every measure, Like if you were to just look at 0:02:14.639 --> 0:02:17.200 like how many ports are docked outside the Port of 0:02:17.240 --> 0:02:21.040 Los Angeles, it's more today than when we did like 0:02:21.080 --> 0:02:24.640 a Port of Los Angeles episode back early in the summer. Yes, 0:02:25.080 --> 0:02:29.359 that's exactly what I just said. I thought, Um, but 0:02:31.040 --> 0:02:34.519 this is I mean, look, we love talking about supply 0:02:34.600 --> 0:02:37.360 chain issues, and um, this also gives us a chance 0:02:37.400 --> 0:02:40.800 to revisit one of my favorite economic concepts, which is 0:02:40.840 --> 0:02:42.920 the bul whip effect and the idea that you know, 0:02:42.960 --> 0:02:47.480 a small fluctuation in supply and demand can reverberate across 0:02:47.520 --> 0:02:49.840 supply chains and just get worse and worse and worse. 0:02:49.880 --> 0:02:51.919 So I think this is going to be a good episode, 0:02:52.000 --> 0:02:55.799 and it's always good to revisit these, uh, these topics. 0:02:56.720 --> 0:02:59.880 So we are, as a noted in the beginning, we're 0:03:00.040 --> 0:03:02.120 at the point where we now have to go back 0:03:02.120 --> 0:03:04.639 to guests that we talked about to get their perspective 0:03:04.720 --> 0:03:06.840 of how things have gotten worse. So I'm very excited 0:03:06.880 --> 0:03:10.480 to welcome back on the show, Ryan Peterson. He is 0:03:10.520 --> 0:03:14.040 the founder and CEO of the firm flex Port, which 0:03:14.080 --> 0:03:18.639 helps companies deal with their logistical and shipping issues. So Ryan, 0:03:19.320 --> 0:03:23.160 thank you so much for coming back on Odd Lots. Yeah, 0:03:23.240 --> 0:03:25.160 it's great to be back. I wish we were back 0:03:25.200 --> 0:03:28.320 to celebrate our success and fixing the world's logistical problems, 0:03:28.360 --> 0:03:30.880 but we're not there yet. Well, we'll have you back on, 0:03:31.040 --> 0:03:34.760 you know, in five when we achieved the true normalization. 0:03:35.200 --> 0:03:37.520 But you know, I just looked it up, so it's October, 0:03:38.040 --> 0:03:40.240 early October. We had you on in May. So it's 0:03:40.240 --> 0:03:45.200 actually five months now since we've spoken, So why don't 0:03:45.240 --> 0:03:47.040 you just sort of give us your very like sort 0:03:47.040 --> 0:03:51.360 of brief description of what's happened in the last five 0:03:51.360 --> 0:03:54.640 months since we've talked to you. Yeah. So, what flex 0:03:54.680 --> 0:03:56.520 Sport does, by the way, is we help company ship 0:03:56.560 --> 0:03:58.480 cargo all over the world, and we have a technology 0:03:58.480 --> 0:04:01.200 platform to make this really easy to connect importers with 0:04:01.280 --> 0:04:04.440 exporters and with all the world's asset owners that ship stuff. 0:04:04.440 --> 0:04:07.160 So we're we're like from I sometimes cause a backstage 0:04:07.200 --> 0:04:10.240 pass to the world's economy. We see everything, we're in 0:04:10.280 --> 0:04:12.680 there and we're fighting through all the frictions. So what 0:04:12.760 --> 0:04:16.360 we've seen in the last five months, in the last 0:04:16.760 --> 0:04:19.400 more than a year, really is I think the way 0:04:19.400 --> 0:04:21.240 you might call it, the best analogy might be a 0:04:21.240 --> 0:04:24.760 traffic gym or another one of my engineer said, it's 0:04:24.800 --> 0:04:28.320 like a distributed denial of service ad DOS attack on 0:04:28.320 --> 0:04:31.520 on global trade is you started with just too many 0:04:31.560 --> 0:04:36.000 containers being shipped, and ad DOS attack in in the 0:04:36.040 --> 0:04:39.719 world of websites is when too many bots hit a server, 0:04:39.920 --> 0:04:42.880 hit a computer and the computer just overloads and shuts down, 0:04:43.040 --> 0:04:45.560 and you kind of almost have that at the ports 0:04:45.600 --> 0:04:49.160 where the volume of containers the amount of cargo being 0:04:49.240 --> 0:04:53.320 shipped shipped went up. Weard looking at about a depends 0:04:53.320 --> 0:04:55.640 on the month, but about a twenty percent and on 0:04:55.680 --> 0:04:59.640 the port, but about increase and container volumes over twenty 0:05:00.120 --> 0:05:04.039 levels over pre pandemic levels, which is really extraordinary. Like 0:05:04.080 --> 0:05:06.719 people who work in the software industry, that is no problem. 0:05:06.760 --> 0:05:09.919 Your systems can easily grow in a week if it 0:05:09.920 --> 0:05:13.200 needs to support just we just don't have the added trout. 0:05:13.240 --> 0:05:16.120 But there's a lot of manual work involved or physical 0:05:16.120 --> 0:05:18.800 assets that need to move growing in such a short 0:05:18.800 --> 0:05:21.240 time frame. Our infrastructure is just not made for that. 0:05:21.440 --> 0:05:24.120 And by the way, the reason that volumes went up 0:05:24.160 --> 0:05:26.880 so much what looks like is pretty clear in the 0:05:26.960 --> 0:05:29.960 data that consumers shifted their spend from going out and 0:05:30.000 --> 0:05:33.559 spying services and restaurants too to buy more stuff. Um 0:05:33.680 --> 0:05:35.280 and we joked about that last time that you can 0:05:35.320 --> 0:05:37.320 be you can be a patriot by going to a 0:05:37.360 --> 0:05:40.279 bar tonight. Try to fix this problem. So what happened 0:05:40.279 --> 0:05:42.200 with this traffic jam is you've got now so many 0:05:42.200 --> 0:05:45.159 containers flowing through that you get literal traffic jams. Trucks 0:05:45.279 --> 0:05:48.200 trying to get to the port are in waiting for 0:05:48.279 --> 0:05:51.520 hours and hours. It's taking truck drivers, you know, many 0:05:51.520 --> 0:05:53.919 many hours to get to get to the container to 0:05:53.960 --> 0:05:58.360 pick up their goods. And it's now happens. What's happened 0:05:58.360 --> 0:05:59.960 is that it used to be a truck driver could 0:06:00.000 --> 0:06:03.440 you two truck loads per day, but now because of 0:06:03.440 --> 0:06:06.160 the traffic, they can only do one. And so now 0:06:06.200 --> 0:06:08.440 you don't have enough trucks the same number of trucks, 0:06:08.440 --> 0:06:10.800 but you're not getting the capacity. And and actually some 0:06:10.839 --> 0:06:12.680 truck drivers are saying, hey, I can make more money 0:06:12.720 --> 0:06:15.040 doing something else than wait here because they get paid 0:06:15.040 --> 0:06:17.960 per load, right, so they make more money doing something else. 0:06:17.960 --> 0:06:20.440 So that's caused the problem on the trucking. Then if 0:06:20.440 --> 0:06:23.320 the containers don't get cleared out of the port, there's 0:06:23.360 --> 0:06:27.719 not enough space to unload containers from the ships because 0:06:27.720 --> 0:06:29.400 the containers have to get unloaded and put in the 0:06:29.480 --> 0:06:32.000 yard somewhere at the port. And there's those are overflowing. 0:06:32.040 --> 0:06:33.480 If you go, if you drive by a port, you'll 0:06:33.480 --> 0:06:36.200 see the stacks of containers are just sky high. And 0:06:36.279 --> 0:06:39.599 so then the containers ships are being docked off shore 0:06:39.680 --> 0:06:43.640 waiting for their turn to unload. And uh, it's a 0:06:43.640 --> 0:06:46.000 complex system it's hard to point it to one problem, 0:06:46.000 --> 0:06:48.359 but it just cascades through the supply chain. You're seeing 0:06:48.360 --> 0:06:51.359 now loading docks in China where if they can't get 0:06:51.640 --> 0:06:55.560 cargo shipped out, then the loading dock, it sits on 0:06:55.600 --> 0:06:57.960 the loading dock. And so wherever you try to solve 0:06:58.000 --> 0:06:59.880 the bottleneck, it seems to just kind of move it 0:07:00.000 --> 0:07:03.520 act one into this kind of bullwhip effect problem that 0:07:03.520 --> 0:07:07.320 you're seeing. One thing you mentioned just on the demand side, 0:07:07.400 --> 0:07:09.560 so you know, during the pandemic, we had a bunch 0:07:09.600 --> 0:07:13.120 of people who were stuck at home and ordering things online, 0:07:13.240 --> 0:07:18.200 ordering stuff from Amazon or whatever. But in the current environment, 0:07:18.320 --> 0:07:22.680 just fast forwarding to now, what's your sense of how 0:07:22.760 --> 0:07:25.440 much of the demand, how much of what's actually getting 0:07:25.440 --> 0:07:32.000 shipped is caused by companies trying to um hoard might 0:07:32.000 --> 0:07:34.200 not be the right word, but trying to boost their 0:07:34.240 --> 0:07:39.280 inventories in anticipation that stuff will be more difficult to get. 0:07:40.480 --> 0:07:42.960 It's hard to say exactly what we are seeing is 0:07:43.000 --> 0:07:46.280 the inventory levels are at all times lows right now, 0:07:46.640 --> 0:07:50.120 um that considerably the inventory to sales ratio is that 0:07:50.240 --> 0:07:52.080 is the one to track there, and it's lower than 0:07:52.240 --> 0:07:53.640 I don't know if it's all time low, but it's 0:07:53.640 --> 0:07:57.520 certainly lower than the less than pre pandemic levels, so 0:07:58.160 --> 0:08:00.600 you know, it's like, yeah, they're trying to repl inventory. 0:08:00.600 --> 0:08:02.320 I don't know if that's over ordering or not, but 0:08:02.480 --> 0:08:04.240 that is one of my big fears is that everyone, 0:08:04.600 --> 0:08:06.320 you know, you get scarcity for a long time and 0:08:06.360 --> 0:08:09.920 creates this scarcity mindset and then you overorder and you 0:08:09.920 --> 0:08:13.800 do get that bullet effect. Well, we've done at Flexboard. 0:08:13.840 --> 0:08:17.800 We have a research team and economics team and the 0:08:18.000 --> 0:08:19.920 fascinating stuff that they're doing, and they created this thing 0:08:19.960 --> 0:08:23.000 called the post COVID Indicator, And what they're doing is 0:08:23.080 --> 0:08:25.360 looking at all of the data that we have we 0:08:25.440 --> 0:08:28.240 shipp and probably we're now more than one percent of 0:08:28.240 --> 0:08:31.679 the containers entering the US on the West coast and 0:08:31.680 --> 0:08:34.680 and you know, significant amount on the East coast. And 0:08:34.679 --> 0:08:36.400 they're doing a decent job of trying to strip out 0:08:36.400 --> 0:08:39.480 like sample biases that exist in relatively small data set 0:08:39.520 --> 0:08:42.000 even though it's a lot of containers. But they're studying 0:08:42.040 --> 0:08:44.840 this data to now try to understand what are the 0:08:44.840 --> 0:08:47.360 goods that being shipped and can that the types of 0:08:47.400 --> 0:08:49.680 categories because we have to classify everything to clear it 0:08:49.679 --> 0:08:53.000 through customs. And so we get really interesting data about 0:08:53.040 --> 0:08:56.040 what's being shipped, and they've actually been able to predict 0:08:56.679 --> 0:09:01.520 the personal consumption expenditure of the economy. So the US 0:09:01.600 --> 0:09:05.520 government publishes this data I think every quarter that says 0:09:05.640 --> 0:09:08.559 what percentage of goods are being what percentage spending by 0:09:08.559 --> 0:09:12.920 consumers is on goods versus services, And our data, through 0:09:12.960 --> 0:09:15.280 this work of this economics team, we're able to predict 0:09:15.320 --> 0:09:17.720 it about ninety days in advance of like our people 0:09:17.960 --> 0:09:22.319 going back to buying services or they still spending on goods. 0:09:23.040 --> 0:09:25.200 And what we're seeing is that we predict or at 0:09:25.280 --> 0:09:27.040 least for the next ninety days, which is as far 0:09:27.120 --> 0:09:30.600 forward as we look, the goods are just increasing and 0:09:30.640 --> 0:09:33.959 it's not shifting back towards people buying services. Companies are 0:09:34.520 --> 0:09:36.880 the consumers are buying goods. Therefore companies are, you know, 0:09:36.960 --> 0:09:39.800 buying ore are getting those goods in advance. I don't 0:09:39.800 --> 0:09:41.880 think that's gonna let up until Christmas at least, and 0:09:41.880 --> 0:09:43.960 then we'll kind of see what happens after after we 0:09:43.960 --> 0:09:47.720 get through Christmas season. That that alone is super interesting 0:09:47.800 --> 0:09:51.439 and I guess a little surprising because I guess from 0:09:51.480 --> 0:09:55.920 it just a strictly virus standpoint, it does feel like 0:09:55.960 --> 0:09:59.200 things are more normalized in some respect. You know, the 0:09:59.240 --> 0:10:02.880 restaurant in New York, they're all currently open for both 0:10:02.960 --> 0:10:07.520 outdoor and indoor dining, unlike last year in which the 0:10:07.920 --> 0:10:14.079 sort of school public schools openness was very spotty and inconsistent. Uh, 0:10:14.120 --> 0:10:16.120 schools are open. You know, I gets to be a 0:10:16.200 --> 0:10:18.200 raising some questions of whether there's gonna be like some 0:10:18.320 --> 0:10:21.439 permanent shifts and consumption patterns if we have this sort 0:10:21.480 --> 0:10:24.760 of like kind of normalization of virus patterns and yet 0:10:24.760 --> 0:10:27.600 you're not seeing a real big shift in spending patterns 0:10:27.600 --> 0:10:30.079 in the data. Yeah, I mean that's what our data 0:10:30.120 --> 0:10:31.720 showing right now. And it's been you know, we've been 0:10:31.720 --> 0:10:33.240 pretty good. We haven't been doing this for that long. 0:10:33.280 --> 0:10:35.920 We've been doing it since earlier this year back testing. 0:10:36.200 --> 0:10:40.520 Our model is pretty decent at predicting this thing thus far. Uh, 0:10:40.559 --> 0:10:42.400 And we show it for the next ninety days that 0:10:42.400 --> 0:10:44.400 people are still buying more good of course, remember Christmas 0:10:44.400 --> 0:10:46.480 season is right now, so people are buying lots of 0:10:46.520 --> 0:10:48.440 goods for Christmas. So we'll have to see how it 0:10:48.480 --> 0:10:52.319 plays out after that. But mhm um, So one thing 0:10:52.360 --> 0:10:56.440 we haven't talked about just yet is also the energy 0:10:56.600 --> 0:11:00.880 crisis that we're seeing in Europe, and probably significantly for 0:11:01.000 --> 0:11:04.040 this conversation in China. And you know, I've seen some 0:11:04.080 --> 0:11:09.760 headlines that it's already hitting production of things like iPhones 0:11:09.920 --> 0:11:14.640 and cardboard weirdly and things like that. What's your take 0:11:14.760 --> 0:11:18.680 on how that is going to flow into global supply 0:11:18.760 --> 0:11:22.720 chains and would you expect it to also impact container 0:11:22.760 --> 0:11:26.880 shipping and other forms of transportation. It's very real in China. 0:11:27.040 --> 0:11:29.040 So we've We've had a lot of customers had to 0:11:29.080 --> 0:11:33.480 cancel shipments, hundreds of containers and a single customer where 0:11:33.480 --> 0:11:35.920 the factories just closed. That. I met with a customer 0:11:36.000 --> 0:11:38.960 yesterday in fact too, whose factory can only work two 0:11:39.040 --> 0:11:41.360 days a week during the daytime and they've had to 0:11:41.360 --> 0:11:44.920 shift to nighttime production because of energy rationing in China, 0:11:44.960 --> 0:11:47.440 So that that's very real. I mean, I haven't gotten 0:11:47.559 --> 0:11:50.320 good details like how to predict from here, but I've 0:11:50.360 --> 0:11:52.880 definitely heard it anecdotes from our customers that yes, their 0:11:52.920 --> 0:11:56.160 factories are being rationed on energy and not able to 0:11:56.520 --> 0:11:59.800 work full cycles and it will cut volumes. So that's 0:12:00.440 --> 0:12:02.520 that's another force here that It's just these things are 0:12:02.559 --> 0:12:04.480 such complex systems it's very hard to point to a 0:12:04.480 --> 0:12:06.280 single thing and be like this is the solution or 0:12:06.320 --> 0:12:08.680 this is the cause of the problem. Yeah, so, I 0:12:08.679 --> 0:12:11.240 mean I think actually, and I was just saw a 0:12:11.360 --> 0:12:15.320 chart this morning some of the lines from China to 0:12:15.360 --> 0:12:17.600 the U S some of these indicries that try to 0:12:18.040 --> 0:12:20.720 track and aggregate with the price of shipping a container 0:12:20.800 --> 0:12:24.280 from say China to Los Angeles, they have come down, 0:12:24.800 --> 0:12:26.959 But it doesn't seem like a good reason, Like if 0:12:27.000 --> 0:12:29.840 the reason is that some of these factories have literally 0:12:29.880 --> 0:12:32.520 had to go dark because now the exports are just 0:12:32.559 --> 0:12:35.319 being turned off, That may on the service look like 0:12:35.360 --> 0:12:38.880 a normalization of some sort from a price standpoint, but 0:12:39.000 --> 0:12:42.040 certainly not a normalization from a sort of like we 0:12:42.080 --> 0:12:45.839 want the system to be working standpoint. Yeah, I mean, 0:12:45.880 --> 0:12:49.120 it might normalize logistics prices, but and logistics prices are 0:12:49.280 --> 0:12:52.880 gonna are flowing through to higher prices, like are the 0:12:52.880 --> 0:12:55.240 customer I met with yesterday said that because of the 0:12:55.320 --> 0:12:58.240 high price of freight, they were having to raise the 0:12:58.280 --> 0:13:01.480 price of their good which are sort of like home 0:13:01.840 --> 0:13:04.200 improvement goods. That there are things that are sold through 0:13:04.200 --> 0:13:07.560 home depot and they had to raise their prices. That 0:13:07.640 --> 0:13:10.080 was the impact of the high prices on freight that 0:13:10.200 --> 0:13:13.360 was passing through to the end consumer. That's just the freight. 0:13:13.800 --> 0:13:16.360 But there's a second piece, which is if you're the 0:13:16.400 --> 0:13:19.000 only person that managed to get your product, the only 0:13:19.040 --> 0:13:21.880 company that managed to get your products through, or there's 0:13:21.920 --> 0:13:24.480 just less products coming through their scarcity, and that will 0:13:24.720 --> 0:13:27.440 naturally raise the prices on its own, not just passing 0:13:27.480 --> 0:13:29.160 through the logistics costs, but just hey, you're the only 0:13:29.240 --> 0:13:31.679 person that has this product, you can raise the price. 0:13:31.720 --> 0:13:34.400 And so if less things are coming out of China 0:13:34.480 --> 0:13:37.480 because factories are shutting down, those that do come out 0:13:37.480 --> 0:13:39.720 are going to be worth more and you'll see inflation 0:13:39.800 --> 0:14:00.240 from that. So you mentioned people passing on higher US 0:14:00.360 --> 0:14:05.120 onto customers, and I'm wondering what else can companies or 0:14:05.280 --> 0:14:08.760 you know, importers actually do to try to offset some 0:14:08.840 --> 0:14:12.320 of these issues. So, you know, when we spoke to you, uh, 0:14:12.360 --> 0:14:17.120 initially earlier this year, these were still kind of newish issues. 0:14:17.160 --> 0:14:19.600 Everyone was trying to wrap their heads around it. And 0:14:19.680 --> 0:14:22.720 now we've had you know, almost a year of this, 0:14:23.360 --> 0:14:28.160 it feels like companies maybe should be getting better at 0:14:28.360 --> 0:14:31.640 managing some of these risks, and maybe transportation companies should 0:14:31.640 --> 0:14:33.920 be getting better at managing some of these risks, and 0:14:34.000 --> 0:14:38.120 yet it feels like we're still struggling. There's there's a 0:14:38.120 --> 0:14:39.920 few things you can do to offset risk, but there's 0:14:39.960 --> 0:14:43.240 no silver bullets, and there's no like, no way to 0:14:43.280 --> 0:14:45.920 forecast where prices go. I mean, what what you see. 0:14:46.360 --> 0:14:49.040 The number one and simplest thing that we recommend is 0:14:49.480 --> 0:14:52.120 go sit with your factory and you probably can't go 0:14:52.120 --> 0:14:54.680 there in person, but make sure you get them, really 0:14:54.920 --> 0:14:57.840 go deep with them and make sure that they're loading 0:14:57.880 --> 0:15:01.000 your container to the brim a cross to our customer base. 0:15:01.360 --> 0:15:04.280 We look and we we use machine learning to digitize 0:15:04.280 --> 0:15:06.960 the packing list. So this is the document that tells 0:15:07.000 --> 0:15:10.600 you what's in the container, and it has the dimensions 0:15:10.640 --> 0:15:13.560 of every carton in there and so by it would 0:15:13.560 --> 0:15:16.080 be a really slow process if you did it by hand, 0:15:16.080 --> 0:15:18.800 going through and doing the geometry of how full these 0:15:18.800 --> 0:15:22.360 containers are, but with our software it's trivial. And what 0:15:22.400 --> 0:15:25.440 we find is that actually, on average they're only sevent full. 0:15:26.120 --> 0:15:28.440 That's just a huge opportunity, a huge amount of waste 0:15:28.440 --> 0:15:30.720 for shipping air in a moment where you can't get 0:15:30.720 --> 0:15:32.600 more containers on the ship, we can't get more containers 0:15:32.640 --> 0:15:34.920 through the ports, but we can put more stuff inside 0:15:34.920 --> 0:15:38.440 the containers. That's that's simple, and that's the very first step. 0:15:38.480 --> 0:15:40.560 It's like, really go and you might we have people 0:15:40.560 --> 0:15:43.960 who are re engineering their packaging to kind of optimize 0:15:43.960 --> 0:15:47.360 the dimensions, make stuff ship smaller. Like your cartons themselves, 0:15:47.560 --> 0:15:50.640 there's often wasted space inside the carton. You've seen companies 0:15:50.640 --> 0:15:53.000 have gotten much better at this, like your iPhone or 0:15:53.320 --> 0:15:55.880 you know, these boxes now getting smaller and smaller and smaller. 0:15:55.920 --> 0:15:57.600 And that's that's the big reason why it saves a 0:15:57.600 --> 0:16:00.360 lot on logistics costs when you do that. Um second, 0:16:00.800 --> 0:16:03.960 you're starting to see the first long term deals in 0:16:04.160 --> 0:16:07.160 global logistics, where the first I think in history. I 0:16:07.160 --> 0:16:11.160 mean typically freight is purchased on an annual cycle, where 0:16:11.160 --> 0:16:15.600 you every May, every April May timeframe. These companies run 0:16:15.640 --> 0:16:18.880 an annual bid and they choose their freight provider for 0:16:18.920 --> 0:16:21.760 the next year, and they do a one year contract. 0:16:22.320 --> 0:16:23.960 And now you're starting to see for the first time 0:16:24.000 --> 0:16:28.240 people signing two and three year deals and those that's 0:16:28.320 --> 0:16:31.240 that's never happened before. It's pretty interesting. You're you're really 0:16:31.520 --> 0:16:33.960 you are taking some real risk. What you're basically doing 0:16:33.960 --> 0:16:36.520 is saying, hey, we'll pay well, we'll guarantee, we'll do 0:16:36.560 --> 0:16:39.360 a three year contract, and we got we want lower 0:16:39.400 --> 0:16:42.560 prices this year, and then we'll pay you above historical 0:16:42.640 --> 0:16:45.480 market rates for the year two and three. It's very 0:16:45.520 --> 0:16:48.120 hard to know what the price goes to. And the 0:16:48.200 --> 0:16:55.000 other big trend here is enforceable contracts. So logistics contracts 0:16:55.240 --> 0:16:59.040 have never really been contracts the way I understand a contract, 0:16:59.040 --> 0:17:00.520 which is like you must do the thing that you 0:17:00.520 --> 0:17:02.800 said you were going to do, And that's not really 0:17:02.800 --> 0:17:05.320 how it works in global logistics, where you sign a 0:17:05.320 --> 0:17:07.840 contract and sort of like an agreement and handshake, and 0:17:07.880 --> 0:17:10.920 if you don't follow through. So like someone says they're 0:17:10.920 --> 0:17:14.480 gonna ship a thousand containers and pay five thousand dollars 0:17:14.520 --> 0:17:17.080 per container, that was like a kind of a pretty 0:17:17.119 --> 0:17:19.800 awesome contract if you signed it last year, or if 0:17:19.800 --> 0:17:22.040 you signed it earlier this year, because of course the 0:17:22.119 --> 0:17:24.879 spot rate went to fifteen to twenty thou and you 0:17:24.920 --> 0:17:27.880 have this five thousand dollar contract to ship that container 0:17:28.320 --> 0:17:31.520 or ship those containers. But if the ocean carrier can 0:17:31.560 --> 0:17:33.640 just sort of say, hey, I'm not gonna load you 0:17:34.080 --> 0:17:36.520 at this price, so yeah, you have this contract, but 0:17:36.600 --> 0:17:40.240 I don't have to load your container on this day, 0:17:40.320 --> 0:17:42.320 and so you had all these contracts that were broken 0:17:43.160 --> 0:17:45.920 this year. And I mean, if if that was me 0:17:46.000 --> 0:17:48.560 and I signed that contract as a as an importer, 0:17:48.760 --> 0:17:50.960 I would probably not sign the contract again if you 0:17:51.040 --> 0:17:54.280 broke it. And so people are starting for the first 0:17:54.320 --> 0:17:57.080 time to do what the ocean carriers have always wanted 0:17:57.119 --> 0:17:59.160 but never been able to make happen, which is make 0:17:59.200 --> 0:18:01.600 these contracts and possible because of course it often goes 0:18:01.600 --> 0:18:05.119 the other way where you signed the contract at five 0:18:05.160 --> 0:18:07.520 thousand dollars and then the price went to four and 0:18:07.560 --> 0:18:09.280 then the importer says, yeah, you know what, I know, 0:18:09.320 --> 0:18:11.000 I have that contract, but I'm not gonna I'll just 0:18:11.000 --> 0:18:13.840 ship with somebody else who's offering me for it. Actually 0:18:13.840 --> 0:18:17.080 probably is progress to make these things enforceable and say like, no, 0:18:17.200 --> 0:18:19.280 you have to ship. If you don't ship a container, 0:18:20.000 --> 0:18:23.280 you owe us money anyways, And that's not how the 0:18:23.320 --> 0:18:25.200 industry has works. So I think that's the last thing 0:18:25.240 --> 0:18:27.199 sustainable change that you're gonna see from this is a 0:18:27.240 --> 0:18:29.800 real move towards enforceable contracts, which to my view is 0:18:29.840 --> 0:18:31.520 a good thing. Like I never when I first I've 0:18:31.520 --> 0:18:33.000 been in this industry almost a decade now, and I 0:18:33.040 --> 0:18:35.080 when I realized that contracts weren't enforceable, I was like, 0:18:35.160 --> 0:18:37.920 I just don't understand, Like, what is a contract that's 0:18:37.960 --> 0:18:41.560 not enforceable? Well, well, no, I was just I was 0:18:41.520 --> 0:18:43.280 just gonna say, like, this is kind of the thing 0:18:43.359 --> 0:18:47.720 that I think, Ryan, I first learned from you in 0:18:47.760 --> 0:18:50.120 the spring, and it's informed a lot of the thinking 0:18:50.880 --> 0:18:54.520 that's helped subsequent episodes on This is just how loose 0:18:54.560 --> 0:18:58.280 the industry has all seemed. And it's like, do you 0:18:58.320 --> 0:19:00.919 know a guy and do you know like you know, 0:19:01.040 --> 0:19:03.360 so is it? Do you know someone in Copenhagen who 0:19:03.400 --> 0:19:06.320 can get your get your box on the on the 0:19:06.359 --> 0:19:09.399 ship or do not and etcetera. And I think that 0:19:09.480 --> 0:19:11.359 really surprised me. And even like in some of our 0:19:11.400 --> 0:19:16.560 other discussions like trucking, etcetera, how sort of informal a 0:19:16.560 --> 0:19:19.439 lot of these arrangements are, how many of these deals 0:19:19.440 --> 0:19:22.080 are like other someone goes on a message board or 0:19:22.119 --> 0:19:24.760 like a WhatsApp group and says like, is there someone 0:19:24.800 --> 0:19:27.000 who can pick up this and this city and get 0:19:27.040 --> 0:19:30.359 it to this city? Overall, I've been sort of surprised 0:19:30.359 --> 0:19:33.920 by how like sort of loose and informal are sort 0:19:33.920 --> 0:19:38.040 of this highly fragile global shipping global logistic systems is 0:19:38.440 --> 0:19:40.600 I think we all imagine, like, you know, go to 0:19:40.680 --> 0:19:43.080 your nearest light switch and flip it on, and it's 0:19:43.080 --> 0:19:45.399 just so reliable. And what you're actually doing when you 0:19:45.440 --> 0:19:49.400 flip that light switches there's a power plant somewhere that's 0:19:49.400 --> 0:19:51.680 actually getting a little generating a little bit more power 0:19:51.880 --> 0:19:55.320 just for you. Like you're actually controlling an enormous machine somewhere, 0:19:55.320 --> 0:20:01.120 and there's this incredibly complex automated electrical rid that's providing 0:20:01.119 --> 0:20:02.840 you that power. And I think we imagine that when 0:20:02.880 --> 0:20:04.840 we buy something, there's the same sort of thing that 0:20:04.920 --> 0:20:07.280 must be happening. It's like this automated system that's all 0:20:07.280 --> 0:20:10.760 connected and orders automatically placed back to the factory and 0:20:10.800 --> 0:20:12.680 there's but in fact, it's like a bunch of people 0:20:12.720 --> 0:20:15.280 on phones and shipping pieces of paper around the world, 0:20:15.320 --> 0:20:18.240 duct taping forwarding emails. And I often joke it it 0:20:18.280 --> 0:20:21.000 should we call our industry freight forwarding, but I'm like, 0:20:21.040 --> 0:20:23.320 it should be called freight email forwarding because you're just 0:20:23.400 --> 0:20:26.760 kind of shuffling PDFs around the world trying to make 0:20:26.760 --> 0:20:29.720 things happen. Yeah, that's one thing I learned from when 0:20:29.760 --> 0:20:32.879 I was trying to send that Teddy Bear by containership 0:20:33.000 --> 0:20:35.720 is just like the amount of emails that that you 0:20:36.000 --> 0:20:38.600 have to send, and then you you get cced into 0:20:38.640 --> 0:20:41.560 some responses, and it's just like one person in the 0:20:41.640 --> 0:20:44.800 logistics chain talking to another person in the logistics chain, 0:20:44.800 --> 0:20:47.080 and it just goes on and on and on um. 0:20:47.119 --> 0:20:50.639 But just going back to what companies can do to 0:20:50.800 --> 0:20:55.159 handle this, have you seen anyone sort of reshuffling um 0:20:55.240 --> 0:20:59.960 their product offerings in order to incorporate these higher calls 0:21:00.080 --> 0:21:04.199 us or greater headaches of transport? So, for instance, is 0:21:04.240 --> 0:21:08.760 anyone just cutting back on big bulky stuff that doesn't 0:21:08.760 --> 0:21:14.200