Trade War Scorecard: What's Changing, Who's Winning, What's Next — With Ryan Petersen

26:00Again, I'm not an expert, but it's a – our Flexport team has a lot of expertise in this. And it's called – this general practice is called trade advisory. So Flexport has a trade advisory group that helps people with this. But there are other lawyers and some of it's in law firms. Other logistics companies and customs brokers have this practice that can help brands do this. You want to make sure you're partnering with somebody good who can – it's like you can make some case that – it's a lot like representing yourself in a court of law. Like, yeah, you can do that, but like maybe it's good to get a lawyer if there's any kind of gray area in what you're involved in.

26:33And it's kind of like that. All right, folks, in case it's not clear, Ryan runs Flexport. We should have done a deeper introduction, but UBIT. This is I think your fourth or fifth time on the show. It's tech-enabled freight forwarding. So you believe in the global system because, well, I guess maybe philosophically, but also that's your business. Just by definition, you're into that idea. I want to ask you, just like we've talked about this a couple of times, but again, it gets to this question of if you do the design, that the U.S. does a lot of the design of products at home and the manufacturing abroad, and then they ship it globally, are you getting a good deal if that is your economy?

27:13in general yeah i mean it's done really well for us and if you look at the profit pools like nike designs their stuff in america markets it brands it it's produced i think largely in vietnam and other parts southeast other parts of asia probably all over the world these days but um you know the amount that they pay for the shoes i don't have any inside knowledge on nike but you can there's public reports on this stuff like the vast majority of the profit and the shoe is actually accumulating to the brand, to the design, to the shareholders.

27:49And just pretty clear, like a system that's led to a lot of prosperity in the United States and globally, frankly. I think my big problem with the way this is all addressed is it's a lot of zero-sum, negative-sum mindset conversation. where like in trade, both sides win by definition. That's why we're doing trade. And it's just like we shouldn't lose sight of that, the fact that both parties are made better off when you do a trade and free market economics. Now, where it becomes complex is when you go, wait, but if their government is intervening in the market, then shouldn't our government intervene in the market?

28:31That's kind of the Trump administration's perspective. here is like, hey, you know, I listed all those ways that their governments may be intervening. So it's not a free market. And therefore, do we want our government to come and be free market or come and be put our thumb on the scale and help American companies win more? I just think it's a bit naive. Like, you know, the reality is, let's say what we want is cheap stuff. like as a buyer, as a human being, you like, you want to have more things that are cheap and affordable. Like it really pissed me off when Trump said like, Oh, you know, you only need two dolls instead of 20 dolls or whatever.

29:12It's easy for you to say, but like my daughter, she wants more dolls. I promise you. Um, and if you have to spend more stuff on that, because it's made in America, the, if I have, if the dolls are made in America and I got to spend, I can only buy two of them. I got to spend more of my income on that. I have less money to spend on other stuff, which will go to other people in America. Like, you know, I'm going to be buying – now I'm buying less things. It's a very simplistic kind of like – it's very hard. It's a complex adaptive system, the economy. It's a very complex ecosystem of moving parts and second-order effects that are really hard for a central planner to ever figure out.

29:54The Austrian School of Economics is correct. Like, we should not screw with this that much. I just want to do one quick follow-up to that, then we'll go to break. I mean, we've talked about capital, so factories, manufacturers. We've talked about shipping. We've talked about trade and stock. But the other side of that is labor. And our system is capitalism. I'm pro-capitalism, right? I'm sure you are as well. But I think part of that is, two of the gains will go to the people who own the capital. But the other side of that is they also needed a labor force in some way to help make the things. And when you've separated in some ways the capital becomes less about the factory, more about the idea, and the labor is elsewhere, then that divide leads to some unhealthy dynamics in a society.

30:43What do you think about that? That's what Karl Marx said. Well, I mean I'm not suggesting communism is the right way to solve this. Capitalism itself is a Marxian term. It comes from Karl Marx as the inventor of the term capitalism. And, you know, you talk about free markets where people are free to buy and sell what they want because it makes them better off if they do that. That's like labor. What is labor? I mean, we're all part of labor. This idea that – I don't know. I've never met a capitalist. All the people I know who have a lot of money also work really hard. They're also, like, involved in labor.

31:17This, like, very odd distinction. Like, what am I, a capitalist or am I a worker? Because I work harder than anybody I know. Am I a capitalist? I don't know how much money. You're probably going to beat me in this argument. I know. It's a reasonable argument. But I just want to just talk it through. I think, look, I think you can work really hard. But if you own the capital, then you're going to end up getting much further ahead than somebody that comes in for a paycheck and is pure labor. labor. Like, of course, if you own the capital, you're also working. But, I don't know. I don't know. I think we also take the first, you know, people who own the company, they're the last ones to get paid, too.

31:57I mean, when companies lose money, the employees still get paid, and the owner doesn't get anything, right? And so, there's some degree of, like, well, you get paid last, not first. And, yeah, you take more risk. Now, so, yeah, I think I personally I just think that we'll be better off if the government intervenes less in the economy now there are certain reasons why there's good reasons for the government to intervene and provide a sense of justice or like real justice enforcing laws uh safety defense there's a lot of public goods where that are under provided by a free market like these are all valid reasons we need government i'm not i'm not like some anarchist by any means um but it really is very very tempting to ask the government to come and make our lives better and they almost always screw it up right and like there's it's very funny to see now the republicans are the ones that's a different position for them it's very different and by the way my suggestion is not like government has to fix this it's more just like we're in a very you are somebody who sees this more than most so we're We're in a very unique system where you – I think that Marx is – I haven't read Marx in detail.

33:19But I think his argument was capital takes advantage of the labor. What I'm saying is we now have this global system. And you're talking about how it's advancing, right, where you have capital in one area, labor in one area. So, I mean, where does – and labor will always be the thing that gives the employment to the masses, you would think. By definition, if you want to use that. Yes. So then what happens to the people? I don't think this is like an accusatory question. It's just like something that's kind of fun to explore with you because you have a position. I don't know. I just think the economy is so much more complex than people want to give simple answers.

33:58That we know. I mean, we know that for sure now. The tariffs have illuminated that. Yeah. And that's the problem with all attempts to intervene is that you usually make it worse. Okay. All right. We're going to talk about some intervention on the other side of this break, which starts with the closing of the de minimis loophole and maybe the end or the dissolution of the power of Timu and Sheehan and how Amazon is going to handle all that. We'll be back right after this. And we're back here on Big Technology Podcast with Ryan Peterson, CEO of Flexport. Ryan, we've talked for quite some time about trade and global regulation and some fun stuff about capitalism and labor before the break, which I don't regret.

34:40I'm glad we did that. But I want to talk to you now about some of the real bread and butter tech issues, which is that this de minimis loophole, which allowed Sheehan and Timu to ship to U.S. customers a sizable amount of merchandise without duties. that loophole is gone. And I'm curious if you can share a little bit about how that has changed things in terms of the way that Americans buy. Yeah. So the de minimis loophole said, I don't like calling it a loophole. It was just part of it. It was just in the law. It's in the law. It's in the regulations. It was passed by Congress. It said that goods less than$800 are not subject to customs duties, and it can be done with a a very informal customs entry where you don't need to provide as much data about who made the goods and a few other data points that aren't required.

35:31But the main thing was the duties. So that has now gone away. Now, what happened, the way that companies took advantage of that program was they shipped either direct from China or other countries into the U.S. So you'd order from the big famous brands on this or Timu and Shein, but Amazon, Walmart, a bunch of other companies were doing this at scale. You'd buy the goods. They would fly them over in bulk. So you're doing like air freight in bulk, clear the goods through customs one at a time so there's no duty and each individual item is less than$800 and then deliver it to your house. So you'd get slightly slower shipping than if it was coming from an Amazon FC fulfillment center, but much lower cost because of the duty avoidance.

36:15So that's like the famous case was shipping from China. But actually, what a lot of people don't realize is a huge percentage of the world's apparel, of the American apparel brands had set up fulfillment in Mexico and Canada to do the same thing. Only they would do ocean freight from wherever the goods are made, deliver to Mexico, deliver to Canada, and then fulfill one item at a time from Mexico and Canada. So that's gone away for Chinese made goods. Effective on May 2nd, they shut that down. It is imminently, we don't know when, going to go away for goods from everywhere else in the world. And the immediate result is a huge surge of needing to put fulfillment, wanting to put fulfillment back in the United States.

37:02There's no reason to fulfill from Tijuana. It's pretty far. You're shipping to New York from Tijuana. You're better off having a fulfillment center in the middle of the country or have one on each coast. So that's been a big drive. That is resulting in more jobs in the United States. Aha, we found them. Good job. Like if you're measuring a policy based on its actual outcome instead of its intention, that was a good one for its own intentions. I'm anti-tariff in all their forms, anti-taxes. So I think I like the old - You want to ship. I like the old exemption. It's like, hey, less taxes. I'm not celebrating more taxes.

37:39And a lot of our customers were using this or now put in a bad place with companies that cost them like$10 million more per year. How? Well, now they have to pay duties. They weren't before. But they were doing$10 million of – how is it going to cost them$10 million more? Well, because it's 30 % duty versus zero. Right. Okay. Easily, a reasonable-sized company easily gets you$10 million. Okay. And it was fine. Level playing field. It was kind of a crazy, weird rule. You almost said loophole. Yeah, I attempted to call it a loophole. It was a strange setup that like on some level it's like creating – it's actually a very good illustration of like the market will find a way.

38:25People are creative. It's my lesson for all of our customers too. It's like, hey, you're in the same level planning field. The rules are changing, but they're changing for you and all of your competitors at the same time. And so you got whoever's the most creative, makes the best decisions, can find a way to win when there's a lot of change, like what we're seeing right now in tariffs. And like the de minimis thing is an example of that, like 10 years ago. It went from – see if I can remember my stats on this. It went from 100 ,000 packages a day to 4 million packages a day in the last decade, clearing under de minimis.

39:00Now to – 70 percent of that was China. So now, you know, we've eliminated 70 % of that in the last month. Do Shein and Timu survive? Well, they're very big global companies, first off. So, yes. And they're already finding ways. You know, they have to pay duties, but they're just back to being a level playing field. So I think you're going to see them, one, produce in other countries, and two, just pay the duty and continue to compete. Their goods are not that expensive. They have a low cost of production. So they're going to be well positioned, actually, because they're better at producing things in Asia than American brands are.

39:42What about Amazon? I mean, I heard you recently say that 60 % of Amazon sellers are in China. Yeah. Is Amazon exposed? Very much so. So talk about that. Yeah. You know, I lived in China 20 years ago and sold things. And I was actually an early Amazon seller. Oh, third party? Yeah, I was one of the first because I remember the day that they announced. Right, that's the very beginning. With the day that they allowed third-party sellers, I was like, I thought it was the most amazing thing in the world. I could go add products to the Amazon catalog and it would just show up. Were you selling your motorcycles through it?

40:14And furniture, actually. Okay. I don't think we sold motorcycles. We sold a lot on eBay motors for the motorcycles. I think that's still bigger than Amazon for that category. But I remember thinking, even back then, these Chinese factories, they make all the products. They don't really need me except they don't know how to do marketing and especially not online marketing. But the moment they figure that out, I'm making all this margin and they don't need me anymore. And, you know, fast forward, there's a famous email in 2015. I don't know how famous it is, but there's an email, internal Amazon email that's got surfaced recently.

40:49I probably threw a lawsuit or something. I'm not sure why this email is public about how incredible the growth of their Amazon – of their Chinese seller ecosystem is. and that they're going to lean hard into allowing Chinese sellers to reach. The Chinese sellers have realized that Amazon is the conduit to reach the American consumer with no middleman and that Amazon is going to go all in on making that possible back in 2015. And it's just dramatically accelerated since then. So they've got some exposure, one, from terrorists, but two, just like political exposure. It's kind of a bad look if you're in the Trump administration to see these guys who are just like really helping Chinese.

41:28sellers at the expense of their American sellers. And they were very explicit, like, hey, our American sellers are not going to like this, so let's not make a big scene about it, but we're definitely going to help the Chinese sellers compete. And yeah, it's become very difficult for a U.S. brand to compete on there because the Chinese are going to be better at producing stuff in China than you are. And if they're just as good at selling online, they win. have a great competitive position. But Trump hasn't said anything about Andy Jassy or Bezos. He's been focusing on Tim Cook, so you think there's a real political vulnerability there?

42:09Yeah, I mean, remember they put the tariffs in... Amazon said they were going to list the tariffs as part of the price, and he called them a... Oh, he used a really bad word. We should pull it out, but it was like... I think he called them an unpatriotic company or something like that. He did attack Bezos. Treasonous? I think he called them treasonous. I'm going to get this up. Was it treasonous? It was harsh. I wouldn't want him to call me a treasonous.

42:37Person. Yeah. I don't have the actual language here. Don't quote me. It was something like that. It wasn't comfortable. We're recording you on audio and video, so we're going to quote you to some degree. They undid it. Amazon undid the decision. Which, by the way, I thought was a mistake. They should have said, yeah, we're showing you the tariffs so that you know you should buy goods made in america then you'll have no tariff on those goods they could have framed it they could have spun it a lot better but instead they just backed off immediately yeah well apparently it was something i spoke to the company as something that was like floated internally but was never gonna but that could just be spin yeah i don't know um it was it was serious enough that it made its way out to the press so but they have exposure here i think uh i don't know political exposure economic exposure probably some of both um but they also just on the on the flip side for the de minimis thing in particular, I think Amazon's better off with De Minimis not existing.

43:29Because De Minimis is shipping direct from China to the US consumer. It skips their fulfillment network, which is where they put all the capex and huge competitive differentiator, the fact that you can ship, that they have fulfillment centers everywhere and ship so fast and so cheaply. And so it takes away, if you're shipping from China, I mean, that's what let Timu get to 25 % of Amazon's scale in five years was that they skip all that fulfillment center infrastructure. So it's, de minimis going away is probably good for Amazon and Walmart. So where's the vulnerability then? Just in broad, broader tariffs concepts and broader if the U.S.

44:06is going to crack down on, like the one that is getting circulated right now is a crackdown. We'll see if that's, how this comes through. I'm not familiar enough with how the sausage gets made in Washington, but But there's some bills circulating to ban foreign importers of record. So a foreign importer of record is what these Chinese sellers are. They're selling on Amazon. They don't have a U.S. legal entity. You don't have to be an American company or even a foreign-owned company with an LLC in the United States to import goods into the United States. You can import goods as a foreign company with no legal status in the United States other than what's called a foreign importer of record or a non-resident importer.

44:51There's a huge demand amongst the Amazon seller community, the American companies, to ban this practice. Because what ends up happening, the reason they really hate it, is that one of these companies, if it's a Chinese company, or it doesn't have to be Chinese. He's going to be from anywhere in the world that can do this. You import goods into the U.S. If you declare the valuation instead of – let's say it's$100 ,000 worth of goods, but you say it's only worth$10 ,000, you've cut your duty by 90%. It gives you a huge competitive advantage in selling it. And you can't go to trade prison. And when you get caught, CBP, Customs and Border Protection, is not sending agents to China to arrest the people.

45:31And in fact, it's probably going to be one of the things that's going to be demanded in a well-crafted deal with China and other countries is you must extradite people who commit customs fraud in the United States. One is there's this bill, and I don't know if it can be done by executive order or not, but I know it could be done by Congress. And there's a bill circulating, probably several bills, to shut this down. It's bipartisan support, I think, to not allow foreign importers a record. But likely also it's, hey, you have to allow U.S. customs some kind of jurisdiction or an extradition program to get when people commit customs fraud in the United States from your country.

46:13You've got to turn them over to us. So if they were to shut that down and 60 % of all Amazon sellers are in that program, yeah, that would be painful for them. That would be rough. Yeah. Yeah. So probably, just like Apple, they've over leveraged on China, Amazon. Potentially. I don't know. I'm like, I think China's an incredible place to do business. I wasn't saying, I wasn't arguing with that. It was more just like politically, economically, you have to be careful that you don't put your whole business in a politically or economically vulnerable area. I think that's fair to say. Yeah. Shape the future of enterprise AI with agency.

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47:38Is your enterprise ready for the future of Vigentic AI? Visit agency.org to explore use cases now. That's A-G-N-T-C-Y dot O-R-G. A couple of kind of wild ones to ask you as we close. I have some, I'll say, off the beaten path questions. So you bought Shopify Logistics. I just want to know how soon you think logistics and fulfillment will be done with like 100 % robots. Oh. Yeah, you know, I'm not close enough to the thing. It's a ways out. The current technologies that I've seen aren't there. Okay. Humans are just so dexterous and intelligent and not that expensive. It's a very high bar to clear for these robots because humans are really good at the job.

48:33and if you were to let's just say invert the problem and say okay I have made you this humanoid robot that has all the characteristics of a human his IQ is 100 you know problem solving abilities of a human dexterity of a human it can run around and use its brain and pick anything and bring it and it's only$20 an hour you don't have to buy the robot I'll just rent it to you for$20 an hour you'd be like cool I'll take 500 of them and run a fulfillment center that's true You're like, oh, that's what we have right now. And so it's a very high bar to clear for these fulfillment center robots. In fact, the big case for them is less on the humanoid side.

49:14It's more density. Humanoid actually doesn't solve a lot of problems because you don't get more density out of your warehouse. You want real estate density. You want to be able to stack the goods all the way to the ceiling, jam them in. And so it's more – the form factor is not going to be humanoid most likely in a fulfillment environment. It's what already exists is like auto store is a leader in this. And Symbotic is a really interesting company, public company. It's really about generating more density and lowering the error rate. Humans make more mistakes than these systems in theory. So some of that's here now.

49:50No, but I think before there's no – at least at Flexport, we're still – we have minimal robots in our fulfillment centers. We're mostly people doing the job. And I don't want to spend the CapEx. And the other problem is if the technology is improving as fast as they say, then I definitely don't want to buy it. I'll wait until next year and the year after and the year after. And so that becomes an interesting problem of like how do you figure out when's the right moment. I don't want to spend it. So probably it's also financial engineering and financial models that have to be developed here where you're renting me the robot.

50:21Maybe that's the benefit of Humanoid, though, by the way, is like upgrade cycles could be easier. You just replace one at a time instead of having to, I don't want to buy a$100 million system for my building, you know. Right. I mean, maybe you have like a Humanoid that like has like these baked in stilts. So it can like go up to like 50 feet and then just come back down and you can stack things. What do you say? Yeah, robot forklifts. There's a lot of vacuum tubes. I don't know. There's a million. The Symbotic one, if you can go to Symbotic.com and check out. I think they have some of the stuff on their website.

50:52Some really cool. That's a public company. SoftBank is making a lot of investments in robotic systems for warehouses. We're a big investor of ours. I'm kind of close to some of the stuff and seeing it. SoftBank is? SoftBank is a big investor in it, and they're on my board. So they show me stuff all the time, but they haven't yet sold me a system. So we'll see. I see. Well, maybe one day. Do you believe in their investment in open AI? I don't know. I don't know the economics of it and the terms of what valuation and stuff, but I do believe in open AI. I mean, it's incredible. Thunderclund's a big investor.

51:26Well, a small investor by open AI scale in that as well. You also, you're using AI to help smooth out the fulfillment process within Flexport. We spoke about it briefly a couple times ago, but your teams are using AI systems to take in a lot of the documents and shipping, which come in unstructured, make sense of the data, put them in your system? I mean, we use huge amounts of it and increasing. We have a big advantage. I think if you look at what's required to win in AI, to apply AI. We don't have any advantage in developing the AI. There's smarter people in AI by far that don't work at Flexport than that do.

52:07But in terms of distribution, deployment, training of models, understanding where to apply, what problems can you solve, and then being practical to apply those, I think we just have a huge advantage. if you look at freight logistics end-to-end from factory to your customer's door and all the steps that have to take it place to move the cargo and get it delivered, we're the only company in the top 100 by volume that was founded after the web browser was invented. Okay. And the scale matters because it gives you data to train your models, the domain experience to figure out like what problems actually i need to solve um there's some real nuance here that if you're just an ai person you would never know that this problem exists because you don't experience it and then third is the distribution like when we solve a problem the next day it's it's available for thousands of enterprise customers to use i don't have to beg people for contracts to get access to their data or to beg them to give me money to use my model.

53:11It's just like constant, rapid pace of deployment. So we have a big advantage over our competition in forwarding. And then similarly, a big advantage over AI driven startups, because I'm paranoid that like, okay, I can sit here and go, yeah, we're the only one in the top 100 freight forwarders in the world founded after Netscape was invented in 94. But I'm paranoid that there's some kid out there going, yeah, we're the only freight forwarder founded after ChatGPT was invented in November of 2022. But that person, that small startup, of which there are several, many perhaps, they don't have our data to fine-tune the models or our distribution to go live.

53:50They're having to make AI in a vacuum and then beg people to use it and sign a license, you know, security contract, all this stuff that needs to happen. And like, we just launched product and it goes live the next day for our customer base. This might be too in the weeds, but are you buying off the shelf or open source and customizing it? Some of everything. I mean, we've got partnerships with OpenAI, Anthropic, Google we've used for many years. Google's still the best in a lot of things. Google has a product called OR Tools. It's not generative AI. It's just like deep learning, machine learning.

54:23But OR stands for operations research. So it's the best for routing algorithms, planning systems, for logistics. It's, like, really amazing. So we use that. some startups that are really cutting edge on voice. What do you use the voice for? We use voice to call truck drivers. Oh, right, right. So we have about 400 ,000. This is experimental or this is out the door now? No, it's live. We're making 4 ,000 or 5 ,000 phone calls a day. And this is what assigns truck drivers to certain things and gives them opportunities for jobs. So we have 400 ,000 truck drivers on the mobile app. Right. But we only have 200 ,000 loads a year.

54:58Okay. I've got too many truck drivers. Okay. You're not going to open the app if there's only a load every two years, right? The simple math. They won't engage. So what we'll do is call. If we think we have a load that they would like, we call them. AI Voice. Yeah. AI Voice. And it understands and assigns. It has a full-on conversation explaining all kinds. I mean, it's really good. And it gets better every few months and cheaper. The price of that's come down about 90 % in the last year. And it's becoming quite commodified. So we use vendor, but there's two or three other vendors that are 95 % as good.

55:29And there's an arms race there that we're benefiting from in a lot of this stuff. So AI Voice. We're also going to use it for more and more things, calling to make appointments at terminals or warehouses, calling to check statuses, collect data, email data collection, a lot of what we do. In fact, the core export technology engine for workflow is workflow engine. It's for moving freight around the world. You need taking unstructured data like this is done by humans at our competitors and even in parts of Flexport where you're like, smart person understands the process. You give them an unstructured problem.

56:11You say, hey, move this from here to here. They know what to do. They figure it out. And what Flexport has done over the last decade is break that into simple tasks that are so simple that anybody could break that apart into a simple form, a web form. you could argue that maybe we've spent a decade building simple tasks that we didn't need to that you could just give it to AI and let it do the complex thing. What we're finding right now is that it can't, but it can do the simple tasks. So we've set ourselves up beautifully for it. But as the AI keeps compounding acceleration, you may get to escape velocity.

56:42You're like, I don't need the workflow engine at all. I can just run, go do it all on its own. So we'll see. We're paranoid about it, staying as close as we can And so when those breakthroughs happen, we're the first ones to benefit. That's wild. Okay, I just want to keep in mind time. We're at the top of the hour. Do I have time for two more questions? Yeah, I'm good. Okay. All right. So I want to ask you about your trip to the Panama Canal. You went down there. Apparently, there's been a drought impacting the canal's ability to process loads. But talk a little bit about what you saw and the impact of this drought on the canal's ability to operate.

57:14Yeah, the drought. The thing is that droughts are pretty regular occurrence with the El Nino phenomenon. You'll have rainy years and then dry years. So 2023 was quite a dry year and that led to 2024 not having enough water in the canal to operate at full capacity. So that led to only about two thirds the number of ships trans transiting the canal as were theoretically capable of transiting, which led to huge bottlenecks and delays. At one point, you had a 21-day delay of ships waiting to clear the canal. It only takes 22 days to go around. Quite a coincidence, by the way. How did you manage to keep your delay?

57:56Just under the wire. No, that's probably just people that say, oh, you have to make me wait 23 days, I'll go around. So it's a natural governing effect there. The market's working things out. Yeah, probably. So, yeah, there was drought. The Panama Canal, I mean, if you're ever – I meet people who went to Panama and didn't go to the canal. I'm like, what were you doing? I went all the way there just to see the canal, and I would do it again. Fascinating. One of the most amazing engineering feats in human history, which is not really easily appreciated until you see it. Because it's not a sea-level canal.

58:30That's the reason rainwater matters. It's a freshwater canal. The Suez is a seawater canal. Suez came first. The same guy who built the Sue has tried to build a sea level canal through Panama and failed. And it's an impossible task because it's a rainforest and it's a mountainous rainforest. So at a sea level canal, you're going to get whitewater rivers and waterfalls and mudslides, all the waters flowing into your canal and then turning into a whitewater river racing to the sea. like it the the geology that it would be and we just don't have the the energy levels the resource levels to make a sea level canal through panama and they certainly did in the 1800s and they were attempting this so what they did instead the americans came over about 10 years after that failed and instead of trying to build a sea level canal we just damned the biggest river in central America called the Chagres River and made a huge lake.

59:30And the canal is actually just an enormous lake. And then a very short canal that takes you up to the lake level with locks. I had no idea. And you actually just sail right across the top of the country on this lake. That's crazy. It's really crazy. You see it. You're like, oh, my goodness. How did they? We would never attempt such a thing today. Like, we're just going to. First of all, they had to overthrow. It was part of Columbia. Columbia didn't want it. They were negotiating too hard. And Teddy Roosevelt just said, no, we're taking this away and creating a new country and sent battleships down there to take it from them.

59:58Okay, legitimately crazy. Yeah, we just wouldn't do this kind of stuff anymore at all, much less put a giant dam on top of your country. I hope not. We never say never, given the way things are tracking. It was good for the world, the Panama Canal. But, yeah, incredible place to go visit and see it firsthand. But that drought, what's interesting is that there was a drought, but the droughts are relatively common. You can look at the rainfall pattern, and every six to eight to ten years, there's a year with very low rainfall. El Nino or La Nina, I forget the difference between the two, but it's all part of the same effect on the Pacific, the warming and cooling of the Pacific Ocean.

1:00:39And so the 2023 drought was real, but it was entirely predictable. and what happened is in 2016 they expanded the canal. They were very worried that China was going to build a canal through Nicaragua and their monopoly on transiting between the Atlantic and the Pacific. The Panamanian government was very worried about this. And so they raced through to make a wider canal so that bigger, wider ships could make it through. Well, if you make a wider canal in a freshwater canal, more fresh water is going to flow out of your lake and the lake levels are going to drop and you need more rain to operate it.

1:01:14And so when the drought hit, the system just didn't have enough water in it. It was relatively predictable. Like it's entirely predictable because actually 2014 you had lower rain than 2023. There have been many instances of lower rain. So if you were, you know, you're doing your engineering, you go, oh, okay, let's look at the lowest rain that we've had in the last, I don't know, what do you want, 50 years, 100 years? but building it up to that level may have just been prohibitively expensive. And so we might just live in a world where every six years your canal is not operating at full capacity.

1:01:50Wow. That's crazy. What a cool visit. I have to go down there. I recommend it. It's also just a great country, a lot of history, some cool beaches, nature. Yeah, my wife has been. She loved it. So I have to make my way down. Okay, last thing for you. Tom Lee was on recently, the investment strategist. and was talking through like the black swan events we've had over the past five years. He's been like, there's been one every year for the past five years. And then he listed off a bunch, including like COVID, the bullwhip that we had to the shipping fees that we talked about earlier that it became, there was so much demand and so little supply of ships that all of a sudden you had inflation because it was$20 ,000 a container.

1:02:32And then we talked about the liberation day as another one. And I was like, Tom, it's interesting that supply chain is a constant through all of this. And don't forget, I'm sure you guys talked about it, but Ukraine war and the planes couldn't fly over Russia anymore. That's been a huge logistics impact. Right, and we were talking also Gaza and the Houthis shooting at the boats. And the Houthis have cut off container ships are not going through the Red Sea for the last 18 months. Right. Yep, and you can go, Trump himself was kind of a black swan the first time around and put all these tariffs in.

1:03:00In fact, you go further back in 2016, we had the cheapest ocean freight in human history. it was actually a glut of capacity it was the opposite problem as now but one of the Korean ocean carrier Hanjin went bankrupt that year since I started Flexport it's been one of these black swans just like crazy we like it I mean our customers it sucks for the customers but it's part of why we like working in logistics it's like never the same thing always learning always on your toes I can read the newspaper every day and have some perspective of like actually yeah I mean it's why it's always fun our conversations are always fun because you just have this visibility into the global economy that a few do because of what you do yeah someone asked me recently if i was stressed out and i was like yeah that's how i like it i want to be stressed yeah okay and then the last thing is um i was with uh dvarkash patel oh yeah a couple weeks ago i love him he's great and we were talking about oh he's awesome yeah we're talking about what uh oh he was he actually made this point about um i was talking to him about which models are going to be better.

1:04:03He goes, well, you have electronics. Some electronics are better than others. Sometimes there are companies that are both making TVs, but one will just be better at it. He goes, I don't know why. And I said, I think it's probably supply chain. I'm curious if you think that's the case, that companies that do a better job managing the supply chain, getting the right parts are the ones that are going to be outperforming the others. Yeah, definitely. I mean, it was. Supply chain is a pretty broad definition. I mean, is ultimately can encompass designing your product, producing the product, making the product.

1:04:34So kind of almost by definition. But even in the logistics piece, definitely see companies that have too many people, can't get out of each other's way, too many silos between departments and fighting. There's just a lot of people that have to come together to run a supply chain. You have the designer of the product, the merchandiser, who's figuring out how many of each product to buy and how they're going to sell it and position it. You've got your production sourcing, which factories are we going to work with. the production quality assurance. You have logistics. You have trade compliance. You have finance.

1:05:06I mean, I just listed six or seven to market. You have a lot of departments. And some companies get, I think, too big where there's too many people and can't get along. A lot of problems with data sharing that we try to address. I mean, our goal at Flexport, we get all these users to use our platform. So we're not just for the logistics team. All those other people have some skin in the game of figuring out what's happening and want access to the data and want to see what's going on. But even figuring out what price should you charge if a lot of companies will not have good enough data about their costs down to the individual item level because there's all these, like the freight costs, the customs costs, the freight costs are very different if it's ocean versus air.

1:05:52Right. And you'll see a lot of decisions made without good data about this stuff. So those can make the product too expensive. You're doing too much air freight. You should be doing ocean. All of this goes into the equation of what makes a good business. And then if you're profitable, you can reinvest the profits and make your products even better. And if you're not, you can't reinvest. Operational confidence. Yeah. That's what it comes down to. 100%. Ryan, always great to have you on the show. Thank you so much for coming on. Yeah, my pleasure. Super fun. And folks who want to learn more about Flexport, the website is flexport.com.

1:06:27It is. Flexport.com. Check us out. If you want to learn more about trade and everything, let's keep on top of the tariffs. We run a free series of webinars every two weeks. Great webinars. Say what the latest stuff, what's going on. Try to stay on top of this for you. And folks, Ryan's a great follow on X. You can follow him at TypesFast, T-Y-P-E-S-F-A-S-T. Apparently, you are a very fast typer. The domain was – the handle was available. I don't know if I'm that fast. There was one moment where I think you demonstrated your fast typing skills. But anyway, we'll save that to the next show. All right, Ryan, thanks again for coming on.

1:07:02Thanks, everybody, for listening. We'll be back on Friday to break down the week's news. Until then, we'll see you next time on Big Technology Podcast.