Pablo Escobar was a logistics guy — Ryan Petersen

26:07I think in some of these cases, it's a question of leadership. And how do you get a strong enough leader to— That's probably the more interesting counterfactual is what if there had been a great emperor born who could have reformed and modernized the way the Japanese did? The Japanese had similar problems. They tried to keep the foreigners out successfully for a long time. the Americans showed up with gunboats, forced to open their markets. They had a huge wake-up call and said, we need to modernize. And they sent some of their best and brightest people to the West to learn about industrialization, to learn about the technologies, the structures, the military structures, the economic structures.

26:45And it's called the Meiji Reformation, Meiji something, basically the Meiji dynasty. They put in these reforms that led to Japan becoming a superpower. I mean, ultimately, it wasn't strong enough to do what their ambition was, which is to take over the whole Pacific. America didn't let that happen. But they became a superpower in almost no time. And so, yeah, could that have happened earlier? I mean, I think that's a little bit of what's happened since Deng Xiaoping and more modern China has said, hey, we need to learn from the West and adopt these things and go. But it took, right, there's 100 years or more in there, 150 years from the Opium War to Deng Xiaoping.

27:25It could have, yeah, certainly could have happened earlier, but probably more about leadership than it was if opium hadn't been discovered. I don't know that opium itself held them back. I mean, the Industrial Revolution was very real. And if you don't adopt the technologies of the Industrial Revolution, you're probably going to fail whether or not you get addicted to opium. Before we started, you mentioned the Forbes family. Not the Forbes family with a magazine, but a different Forbes family. Go into that. Oh, yeah. Well, we were talking about opium. I should have hit it when we were there. Um, so most of the opium, there were the, in the beginning, the opium was all traded by the British East India company.

27:59Um, the monopoly that we were talking about over time, um, though they had competition and the early competition was actually from a, a couple of families dynasties. Uh, one was called the Sassoon's, a Jewish family from Baghdad actually, who got pushed out of Baghdad and settled in Mumbai. um the Sassoon docks are still there in Mumbai you can visit those um but the other big family that got into this was the Forbes family and it is not as you said it's not related to the magazine Forbes magazine it's unrelated uh but the Forbes family was American so Americans did the Forbes family and the Americans did about 20 percent of all the opium trading into China uh and they were based out of Boston you hear this term Boston Brahmins the Boston uh very wealthy Boston family There's probably more than one, but the Forest family was the big one.

28:50And there's actually a museum. I haven't been to it yet. It's on my bucket list next time I'm in Boston. Their old family has their house has been turned into a museum of the China trade. And they were big collectors of Chinese art, antiquities, paintings, and the like. And that's all on display there. But they traded about 20 % of the opium. They still are a very prominent family in the United States. They own this private island, which you can see on Google Earth. If you go to Google Earth, look at Martha's Vineyard. And then just to the west of Martha's Vineyard, between Martha's Vineyard and the mainland, there's this long, skinny island.

29:26It's like probably a third the size of Martha's Vineyard. I mean, it's a very big private island, but maybe the biggest private island in America. That's just for the Forbes family. And the patriarch of the Forbes family is John Kerry. The family is still very powerful. and people think John Kerry made his money by marrying the Heinz ketchup fortune, but actually, no, he had his own fortune long before that, the Forbes family. And I don't think China took lightly to the fact that Obama made him the Secretary of State to negotiate with them because they have a long memory. I've never heard this written about, but I don't think there was that famous incident where the Chinese did not bring out the red carpet and Obama had trouble getting off of Air Force One because they didn't bring out like stairs.

30:18And my personal conspiracy theory is that they remember the Forbes family trading all this opium into their country because we would not take kindly either if the cartels that were trading fentanyl into the United States also had a Navy and showed up and took over our cities and started blasting the San Francisco Bay. Like we would not be very happy. We'd probably have a long memory for that as well. I would love to talk about the Jewish trading networks. And before we started recording, you were talking about how basically being able to trade on paper notes on trust versus actually hard currency and having to ship silver all over the place was a huge benefit.

30:54So tell me about that. Well, and, you know, global trade is it's a multiplayer game and it's this complex coordination problem where people have different incentives, information sitting in different parts of the world. How do you communicate? And and of course, before the invention of fiat and now digital payments, wire transfers, you know, a simple form of digital payment. and you had to move physical goods. And that was physical gold, I should say, bullion. That was non-trivial. You'd end up losing things to storms, disasters, pirates, you name it. Your own employees can steal from you. So being able to do trade without having to physically, the goods go one way, the gold going the other way, not having to move the gold the other way is a very big deal if you can avoid it.

31:50And one important innovation, you know, the most important innovation in this is called the Bill of Lading. It's a piece of paper that allowed to be served as title. And you need to have security that you trust that the person authoring this Bill of Lading has, in fact, received payment for the goods. So I can accept the Bill of Lading on their behalf. That's very difficult to do, like to do this kind of long distance trust. And so ethnic minorities like the Jews had a big advantage in that they had these a high degree of trust within their networks. And whether it's family ties or just community that you would trust each other.

32:26And so then if you got a signed document for the seal that you recognize as authentic and not able to be copied, then you could that your counterparty has your trusted member of your network has received payment in Europe for the goods. Then you don't need to ship the gold. You can accept the piece of paper that he has sent you to authenticate that and say, yes, OK, I've trusted this. I mean, now we're trying to innovate on this with things like blockchain and stable coin payments and other things like it's but it's largely an evolution of this old school system. And I would actually argue that I've seen it argued.

33:03It's not my argument that the Jewish law, that Jewish law was the foundation of capitalism. And even further going further back than that, in that in Roman law, you could not trade a debt. So if I owe you money, I owe you money. You cannot sell what I owe you to someone else, and now I owe him money. I only owe you money. It's like an honor-based system. My debt is to you. You can't sell that debt to someone else. And under Jewish law, Talmudic law, you could. You could sell the debt. And that's the foundation of capitalism in many ways. Now you can have equities and bonds. That's literally a bond.

33:43You can sell the bond to somebody else and say, no, now someone else can own it. And similarly with trade, like this piece of paper, it can be sold, it can represent this. And the Jews largely innovated that. At least I've seen that story told. And there was no other like culture throughout history that did this sort of bond trading? Not to my knowledge where like piece of paper representing, because probably, but paper is a relatively new innovation. I don't know that if the Egyptians had this. and these long distance kind of trust-based networks, just incredibly hard. I mean, even today it's very hard.

34:18It's this complex coordination problem, trying to get people with different incentives and information and timing to coordinate. It's what makes Flexport hard and fascinating, the problems that we solve. It's like, I've got to coordinate people on different continents who don't even speak the same language in some cases, although English has largely emerged as the language of trade. Through AI, we've actually, a couple months ago, we launched that now people can talk to each other in their native language and the AI just translates it so you can do trade in your own language. But English as an innovation was actually really important for this.

34:50It's like being able to communicate is hard. I'm admiring, like we have competitors. People think I hate on our competitors, but I don't actually. I'm admiring of like our, one of our competitors was founded in 1890. I mean, forget the internet. This is like before the telephone. They were doing trade on the telegraph, like Morse code. It's kind of interesting. Like, how did they do this? How did they figure it out? And at that time, like the bill of lading was a real innovation. Like you didn't have to transport not only the gold, but the goods like. You could transport the goods to the port, sell the bill of lading.

35:28So now whoever holds this bill of lading can go to the port and pick up the goods. I didn't have to move the goods to the market and sell them. I could just sell you the piece of paper. and you go figure it out from there. That was like a serious innovation 500 years ago. It's absurd that that, by the way, still how a lot of trade takes place. Something like, our statistic is about 5 % of our customers require an original bill of lading. In like paper form? In paper form. And it's still a part of our stack is like mailing these pieces of paper around the world. It's absurd. But people require it.

36:04In some cases, their banks require it in order to unlock payment. It's somehow seen as secure collateralized payment instrument. It's absurd. I mean, it's not very hard to fake a piece of paper. Speaking of competitors, one of our competitors is DHL. Most people know DHL because they're a parcel business. That's why they're a famous company. But they're also one of the biggest freight forwarders in the world. And the original DHL business, the parcel business, started because with the invention of the shipping container, The shipping containers were very efficient, very fast, and now the containers were out running the mail.

36:41And the mail was carrying these bills of lading to serve as title for the transfer of the goods. So the containers were showing up at the port, and the titles were not there to do a transfer. And it's just like a very broken system. So DHL actually formed as the original sharing economy company, where what they would do is you'd be a courier. Anybody could sign up to be a courier for DHL and they would buy you a plane ticket wherever you wanted to go. But you had to carry a duffel bag full of bills of lading. And then those would be serving as title for container shipping. That was the origin of DHL as a logistics network was actually they didn't have any planes or parcel network or anything like FedEx and UPS.

37:22It was just travelers like stuffing. I mean, I don't know how to answer that. It was pre-TSA. Like no one was asking, did you pack your own luggage? Because you'd have to be like, DHL gave me this stuff. I have no idea what's in there. But yeah, that is still largely the way trade is going. I mean, I was just in our Thailand office a month ago and they were showing me Thailand. It's even worse. By the way, it's illegal to criticize the Thai. This isn't against the king of Thailand. Okay. Just to be clear, because that's illegal. You can go to jail. Right. I'm not criticizing the king of Thailand.

37:51You're not even criticizing. You're just noting an observation. Well, I will criticize this one policy they have, which is you have to pay the government a stamp tax. and the stamp for any bill of lading you have to print this government stamp and put it on there to prove that you've paid a i think it's two cents it translates to two u.s cents which of course it costs way more to buy the stamp and stamp it on there than it does do it and i was with our team looking at this process and it turns out you can buy this digitally and there's a qr code that you can print on there to prove that you've stamped it so that's now how we do it but like uh the stamp tax is also this is where i got in some trouble i had to delete my tweet because i was reminding the thai government that this was the stamp tax is what led to the american revolution they put us the exact same thing you had to you had to pay the british king for a stamp uh to put on your documents and they thought i would you know i was saying hey this is why we overthrew the king george the third was it was a policy like this i was not meaning to say that they should overthrow the king of thailand i'm sure he's a good guy he's been there for a long time so i'm not i'm not advocating for that love that guy just to be clear i'm a big fan so we saw a little bit of you know maritime choke points in 2022 with ever given but now we're seeing it full-fledged you know really disrupting trade routes uh with the straight of hermos can you just talk about how like the straight of hermos is impacting things so ever given was that ship that got stuck that was only for a week so it was it ended up being more humorous than anything although we had 44 containers on that ship and about 1200 of them stuck afterwards so as funny as it was for the meme economy, the real economy was pretty pissed off.

39:27Those people didn't see their cargo for a long time. Actually, most of them never got their cargo. Basically, they just got paid by the insurance companies. But starting, that wasn't a big deal. What's happening now is a very big deal. We've been reminded, like reawakened that physical world matters over the last few years, over the last decade, really. Because I think our economy has become so meme-ified and digitized and financialized that we're like on Maslow's pyramid, we're like all living like way up here in la la land and forgetting that like the physical world down here underlies it all.

40:03And then underlying that is like peace and order. Like those are prerequisites for civilization. And we, we take them way too much for granted. The, uh, civilization trade is like a mechanism for building civilization because every time two companies, two parties, two people do trade, we exchange something, we're both made better off or else we wouldn't do it. And that is the creation of wealth. Like new wealth has been created in the world. This is what AOC and everybody gets wrong. It's like, it's not a fixed pie. Like if I make something, you buy it. We, I didn't take anything from you. We're both made better off.

40:37I think the reason why we have that problem in politics is because capitalism is not a zero sum game, but politics is in order for you to win someone else has to lose, which means you kind of like overlay your worldview of what you experience onto the other things. Yeah. And that's not how the world actually works. That's it. Yeah. Hollywood's like that too. Hollywood, there's only so much status in the world. You can't, if someone else becomes a famous movie star, there's like less views for yourself. I mean, maybe, I guess, maybe that's unfair because it is a form of capitalism. You can make a new movie.

41:04You didn't have to steal from anybody else. So I'm not plugged into that scene. But yes, I think the world has come crashing back to remind us of this. First with COVID, like supply chains, this suddenly humans, people stopped taking for granted this like invisible magic that takes place, this invisible reliability that is supply chain. It'd be like the operating system became exposed. You know, like, oh, it's kind of screwed up. Like the ports are backed up. I can't get the things that I want. And then kind of normalized a little bit. Then the big thing that happened was with Israel's with with October 7th and then Israel's invasion of Gaza, the Houthis in this Yemeni, really they're an Iranian proxy terrorist organization that has taken over the country of Yemen.

41:53And Yemen is at the point where the Red Sea meets the Indian Ocean. It's called the Bab al-Mandab. And it's one of the three or four most important maritime choke points in the world that this terrorist organization has taken over. And since December 2023, container shipping has routed around Africa, has not been using the Red Sea and the Suez Canal. Doesn't that have like a couple months or something? A few weeks. It's about three weeks longer. And in the old days, it was months, but in the modern container shipping, they go so fast, it's about three weeks longer. That's been pretty impactful.

42:27It probably raised the price of ocean freight about 60%. It's hard to say because the markets are moving all the time, but it's hard to say what the counterfactual would have been, what the price of freight would have been. But I reckon it was 50 % to 60 % higher ocean freight prices as a result. But like the world goes on, you can go around. There's an alternative route. Hormuz is different because there's no alternative route. There's a pipeline through Saudi Arabia that some amount of oil can go through. By the way, it can be blown up too, so let's see how this evolves. But there's no alternative route.

42:59It's a dead end. It's a cul-de-sac. So there's no other way to get the oil out. and 20 % of the world's oil flows through Hormuz. So we've had this violent wake-up call. I hate to be the guy always crying chicken little saying the sky is falling, but it feels that way economically. I don't know. I saw a gas station here in California that was$9 a gallon yesterday, which I've been waiting for$10 a gallon all my life to see what happens to the display because there's no other digit. I don't know what they're going to do. I guess like tape or something. But that could be here very soon. We'll find out.

43:32And it's not just oil. Oil, petroleum products, natural gas, these are precursors for a huge amount of other things, for plastics, fertilizers, something like 30 to 50 percent of the fertilizer in the world, depending on the type of fertilizer comes out of the Middle East. and helium Qatar produces 30 % of the world's helium helium is not you think of it for clowns and blimps but actually the most important uses are producing semiconductors and SpaceX rockets like you can't do either of those things without helium and so 30 % of the world's helium supply getting taken offline and we don't there's no helium is a non-renewable it comes from radioactive decay You don't make more helium.

44:19It's produced when uranium and thorium deposits emit naturally emit helium through radioactive decay over billions of years. Like it's not you can't make more of it. So this is a huge impact. The economy is so financialized and memefied that it seems like life goes on. But I think we're going to find out over time as this flows through that you're going to see major shortages. And not just higher prices, but like, you know, India, for example, Air India reduced their international flights by about 10 percent last week. And I don't know when we're going to air this, but that's likely to continue coming down.

44:56They're that's just as of today that it's coming down by. And some of this is like, oh, right now it's a price driven economics. But there will be countries that just don't get to participate because, you know, Laos, just like, where are they going to get enough money to buy oil when the price of oil goes up? They're going to get outbid. And you're seeing this where tankers are just like rerouting in the middle of the ocean because trades are getting made and countries are stepping up. And it might be actually a case where having a very strong national government gives you a big advantage because your government can make deals and call up on the phone and go, yo, I'm buying some oil right now.

45:34Like in ways that private companies don't have the same level of power and authority to get these deals done. It's, yeah, I hate to be the guy, like I said, crying that the sky is falling, but I feel that way. I mean, I feel like, yo, you just lost 20 % of the world's oil supply and all these other chemicals. I don't see how your business continues as usual after that. Do you see that kind of getting resolved quickly? Or is this just going to be an enduring problem that we have? It's the question of our time, honestly. Because since in the old days, I'm glad we started all this talking about history.

46:11It's like throughout history, if you looked at a trading ship, like look at the British, the East India merchant man, the ship, and you'll notice it has rows of cannons along the side of it. You didn't just go trade like peacefully. You brought cannons to defend yourself from pirates or navies or whatever else you might find. You didn't know. It was a very dangerous game. And that was largely true is like you mostly traded with your own colonies and your national Navy provided protection for your trade routes. And that was true up until basically World War One, I guess, in the World War Two is when the Americans took over this naval order.

46:52And the new world order that emerged after World War II said, the United States will provide freedom of navigation. Anyone can sail anywhere they want and do business with anybody they want. As long as you ally with us and not the Soviets. I mean, it was really like this Cold War bargain. And we would say actually even went further than that. We opened up our markets and let anybody ship goods to the United States. famously sort of hollowed out our industry and created now Trump as a reaction to that. And so that came, though, with this promise, which was that the United States Navy would protect the shipping routes.

47:31And the most important aspect of every shipping route is the choke points where there's no other way around. And the big, kind of the big five choke points in the world are Hormuz and Suez and Babel Mondav are kind of one Suez and Babel Mondav is kind of one, but Gibraltar, which the English have, you know, Gibraltar being an English part of the UK is not, it's because of this, right? Because the English used to provide this maritime supremacy. And then now you have the Panama Canal and the Strait of Malacca. So these are the big, important maritime straits as of today. There may be new ones emerging, actually.

48:10If climate change plays out the way people are predicting, then the Arctic shipping will emerge. And actually, America's presence in Alaska will be the Bering Strait. There will be a huge choke point. Yeah, because you can cut about a third of the time from Asia to the East Coast by going over the North, over the Arctic instead of through the Panama Canal. Yeah, my understanding is due to the ice melt, there's suddenly now you can break a ship through North Russia, whereas you couldn't previously. You can do it during the summer. And only a couple of ships a year go through container ships a year.

48:45But you can do it now. And you can check them on Atlas, plug for Flexport product, atlas.flexport.com. You can see when the ship's going through there. Mostly Chinese container ships doing that. And so but that is the explicit promise of globalization as it was built under the American order is like the Navy will secure the straits, will secure the choke points. And we've been tested now since December of 23, where we sent an entire carrier group and couldn't stop the Yemenis from hitting container ships and oil tankers in the Red Sea. and now since March 1st or end of February, been unable to reopen the Strait of Hormuz.

49:31And it's a giant question of, okay, so how does trade reorder around this? First of all, it's going to lead to huge energy boom, and it is already. The U.S. are hitting all-time export highs. We were already the biggest exporter in the world of oil, And now we've hit all-time highs basically every week since March 1st. So on net, it might be good for American GDP. We're pumping so much oil and exporting it to become the dominant energy power. I think from Trump's agenda standpoint, yeah, he didn't like this order famously, right, of hollowing out industry and opening our markets. And for what?

50:11What do we get in exchange from this? um i think he's asking been asking that since he came onto the scene and so if you look at his policies yeah like and people are like oh he screwed this up like did he but not from his he doesn't care about this trade we don't buy oil from there our trading partners do our the europeans do is the straight up from o's being closed actually like a benefit to our ability to like export goods for oil for sure yeah yeah like is that is that big enough of a benefit to make it make sense to not really worry about it opening up any faster? It depends on who you are.

50:47I mean, there's winners and losers, but it's like hugely beneficial for Texas and the Texas oil economy. And, you know, if you're a college football fan, the NIL budgets for these Texas football schools are going to go through the roof. So there are winners in this, not to make light of it. But en masse, I mean, I think it's making the same mistake that AOC makes of thinking that it's a fixed pie and like, OK, maybe America takes a bigger steak of the pie, but like the pie is going to shrink. Like if you lose 20 % of oil and everything that falls out from that, you're going to have a smaller economy worldwide.

51:20You're going to have a lot of suffering. We'll see. I mean, I made predictions that with Russia's invasion of Ukraine, that you would have, because 50 % of the world's, it's not 50%, but they're the biggest grain exporters in the world, Russia and Ukraine. And that coming offline, I thought was going to lead to massive famine across Africa. And I said that publicly and I was wrong because Russian grain never stopped. And they're also big exporters of fertilizer. Well, the Middle East picked up the slack and started exporting crazy amounts of fertilizer. So the world's pretty resilient. America produced a lot of food.

51:58And so, yeah, the economy is this crazy, complex, adaptive system that's hard to predict and is like more resilient than you expect. but also complex adaptive systems are very, very resilient until they break down and fail. And like we're playing with fire with the Strait of Hormuz. And so I don't think I don't think it's I think it's way too simplistic to say, look, Texas energy, American energy exports are through the roof. We are dominating the world energy markets to an extent we never have. Not since the Rockefeller days, like because because of this, from a power projection standpoint, maybe if you're Trump, that's what you care about.

52:34more than what's overall like economic output in the world. But I think it's a kind of a fixed pie mentality that's like. It's not great. It's not great. It's not great. Not as a business person. Like nobody should support this if you're trying to do business.