Ep 133: Flexport CEO Ryan Petersen Breaks Down the Global Impact of Trump’s New Tariffs

27:52There's a populist sentiment of being the man of the people and the unions. Can you talk a little bit about the port automation? Let me give you a hypothetical and tell me why this doesn't work. Let's say I find some land, I don't know, around Seattle, like on the Pacific Northwest, and I want to build a brand new port. And let's say I get through all the environmental issues and assume they don't exist for a few seconds. And I want to build a fully automated port, and I want to use tech from Singapore somewhere that's done this right, maybe the Netherlands. why can't i do that like where and in particular i'm curious about the union play but just in general like what other barriers um well the union first off the union itself claims every inch of the soil of the coastline uh so they it's not they they will stand outside and picket and protest and put up lines and make it hard for truckers to come in and out of your port um probably things get uglier than that but let's not we don't need to entertain hypotheticals but There's a long history of violence in union action that could happen.

28:57So I think there's an implied kind of fear around that. Second is actually, so the union, the way that it works, you have this employers organization that's on the East Coast called the U.S. Maritime Alliance. And on the West Coast, it's called the Pacific Maritime Alliance. And what that is, is sort of, well, it's the counterparty. You have the employers negotiate with the union. So all of the employers of union, like kind of almost unionize themselves, employers of unionized workers. So the port terminals, the ocean carriers, anyone employs these guys. That way you can actually sit down and have a negotiation.

29:35It's not a many, it's not a one to many negotiation union against all these different employers. It's one to one. So for employers, the employers here being the ports themselves, typically. Yeah, the ports, ocean carriers, anyone who employs union labor, those in that particular union. So the way that it works is if you were to open a port, let's say you manage to overcome the pickets or whatever, you ignore it, you fight through it, whatever. You keep the union workers out. If a ship calls at your port, it will not be allowed to call – that company's ships will not be allowed to call at any of the other ports.

30:16that's part of the agreement that these employers have with the union that they they collude they collude across you have to choose as an employer to say okay i'm going to run this port and i'm going to run ships to this port but it means you will not be able to run ships to any other port that's in that network so you probably couldn't get away with just opening one port you'd need to open a bunch so that you could say hey we're effectively non-union we run this without them, we do it on our own. It's quite a barrier to entry. I mean, not, you know, ports are expensive enough to launch one. Just to repeat it, because I want to make sure I get this.

30:53So I get through all the annoyance. I put the port on, you know, Indian reservation, so I don't have to deal with like the United States and I'm ready to go. And a ship shows up that I'm ready to unload with my non-union labor at like probably one fifth the cost and probably works harder and better uh and if you unload that ship that ship and that shipping company will be banned at every other port in the united states yeah exactly and that's not a legal thing that's a just a collusion that's part of their contract yeah now they're legal things too i mean i think the government the local these ports are run by local owned by local governments and then they'll sublease it to you uh and they will not sublease it to you if you say i'm going going to come in here and run a non-union port.

31:40The government themselves will just be like, no, that's not possible here. So this is price fixing, just legalized in a sense. I mean, it's like union side of it, if you will. But imagine if it was like private port operators doing this to keep out the unions in the first place, they'd be going to jail. Something like that. Yeah. So I think it holds America back a lot. I think these contracts are now signed for the next five, six years, six on the East, and I think five more years on the West coast um the world's changing so fast from a technology landscape that maybe there's a company out there within five or six years that's in a position to to change the rules uh to change the game whether they make their own ships maybe it's one of these new junk like this new ship building thing in america hey we're gonna make our own ships go end to end run our own ports ignore the current system, bite through.

32:34Maybe that happens. Maybe the automation is so good that they just turn it on one day. It's just interesting to me. We talk about American exceptionalism and growth and reshoring industry. And then we talk about good union jobs. And we don't admit that those two are in direct conflict with each other. And one essentially prevents the other, at least at scale, is what it seems. But Trump administration has definitely made it very clear that they're on the side of the unions and all of this. So I, I, and frankly, like, you know, the, the employers, the, the current port carriers, port operators, I don't think they hate it that much.

33:10Like is sort of a non-proliferation treaty, like mutual, Hey, like if you, as long as I, the only reason to automate is your competitor is going to automate if you don't, and you're going to lose. But if everybody agrees, we won't automate. You're like, no, everybody's in on it. Everybody wins except the consumer. There's no one at that table representing the rest of us, It's like going, hey, you guys have negotiated this thing with higher fees that you're going to pass through to us. You don't care that much. Yeah, it reminds me a lot. Not that we have to go there, but it reminds me a lot of health care where people talk about who benefits from higher prices.

33:42And the reality is both the hospitals and docs as well as the insurance companies both benefit from higher prices because they have bigger dollars to go after. And the insurance companies operate on a fixed margin. And no one really cares that your health insurance costs go up except the employer who has no leverage. The same idea. When you're in it, you win from it, but it hurts everyone else. Yeah. So I don't know. I have to be careful not to, we are in it. Maybe high prices is good for Flexport. I don't know. But we have to be careful to go, hey, I don't want my interest to be misaligned from like those of the civilization.

34:16And if that ever happens, make sure that you choose civilization over your own. Well, high prices on much smaller volume is probably not a great thing for you. Exactly. Yeah. Well, it's interesting to hear this stuff at a very downstream level. When we're dealing with all these pie in the sky, big picture things without seeing the ramifications just yet. I mean, we're seeing some of it flow through the market, but not actually to the end consumer. And then seeing a very tactical example of how these things manifest themselves and how it can be harmful to the consumer. I guess one question that you mentioned, we're sort of at this paralysis state right now.

34:57At what point and what time horizon do customers actually think about, okay, this is the new normal and we need to figure out how to make it work from a reshoring standpoint? Is that like a six-month thing or a six-year thing? Probably more six months than six years. They're thinking about it every day. I think they know that this is the new normal. It's just a big question of what this is. You know, it's like that's kind of changing constantly. But they're taking it very, very seriously. It's a C-level conversation now. Like logistics and stuff used to not be the case. One of the things I've loved about this industry is that we have massive budgets at people who are not even like C-level, maybe not even vice president.

35:44You know, it's like the only industry you'll find where like someone could have a billion dollar budget and be like six levels down from the CEO. But now it's like actually the CEO is taking a much bigger interest. CFO is involved here where in the past they didn't get that involved. So, but it's just difficult. Like, you know, what do I mean by difficult? It's difficult to know where should you set your money? If you're going to move your manufacturing, which country should you put it in? And two, you're going to probably have to change your prices for consumers, for your goods. How much can you pass through?

36:17What should your new price be? How do you allocate the costs of these things? Like, so really, it could get very tactical. Like, let's say your price for the first three months of this year is low. Duties are high for the second three months of the year. What's your accounting team going to do? Do they smooth the price out throughout the year? Do they care per unit? The ocean freight price has been all over the place, been very high because of the Red Sea. We haven't even talked about that, but there have been kind of terrorist attacks on the Red Sea. All the container ships are going around. That's raised the price of freight by about 3x versus normal.

36:55How do you allocate that to individual items within the – Sorry, 3x the price? Yeah. Just because of the distance? No, because of the constraint on supply, and it's a supply and demand. If you cut supply, it's inelastic freight. The price goes way down, you don't ship more stuff. And the price goes way up, you don't ship less stuff. You ship the same amount. Yeah, but I'm not shocked by the price going up. I'm shocked by the magnitude of it going up, 3X. I mean, it's that long roundabout, obviously. Well, it's not the extra cost. It's the extra market price. The price has gone 3X. The cost hasn't gone.

37:33The carrier is making a lot more money. It's about a 12 % reduction in supply of the world's container shipping. Is it taking that much longer to go around? Oh, because they're all en route longer, and so there's fewer empties available is what you're saying. Yeah, and the ships can per year carry 12 % less cargo because of the longer journey. And it's that in a lot. Like we're moving up 3X because of a 12 % supply reduction. Yeah, yeah. Very elastic. I mean, just think about it. Let's say the price was to go to$1. Are you going to ship 10 times more things? No, you ship about the same amount as before.

38:09You should sell as many as you could sell and vice versa. What I'm taking from all of this is just when people are saying, oh, it's just the art of the deal and this is negotiating leverage and all of that, the ripple effects of this uncertainty flowing through the economy and the supply chain. It's not just a one-off negotiating consideration because we want stronger border control or whatever the consideration for using this as leverage is. It doesn't evaporate and go back the other way once we call it off and say, oh, no, never mind. We were just kidding. We got the deal done. There's so many cascading considerations that end up just impacting the entire economy, the entire supply chain, all of that.

38:56Just hearing it, it's pretty remarkable. Yeah. Businesses have to be super adaptive. And like, in theory, it affects all your competitors equally. So you should, you know, whoever's agile, whoever's good at understanding what's happening and moving with good decisions quickly to get it done should should have a competitive advantage. I mean, I don't think it's the end of the world for companies. It's like, but it is, if your company is just like kind of bureaucratic and no one can make a decision and, you know, all of a sudden you're hit with these new tariffs and no one in your company is capable of saying, well, let's go find a new factory and set it up in a different country.

39:31Or then those are the companies that are going to suffer the worst. Well, it's also, Logan, it's leverage for what? Like, what are we trying to accomplish? Because I was told. I think it's a fentanyl coming in from Canada. Fentanyl, yeah. The first time I was told was all the fentanyl, which is like when they talk about how much fentanyl they've seized, it's like one car's truck. Well, the fentanyl thing is very interesting. So under USMCA, that's the replacement for NAFTA. What's the point of a free trade agreement if you can just impose tariffs? Like I thought we had a free trade agreement. Well, the answer to that is there's clauses in there.

40:04There's a clause that says any of the countries can impose a tariff for national security reasons. So you view it as an excuse for legalism. It has to be national security. So if they want to do this, it can't be a trade negotiation. It can't be about anything other than national security. So they have to talk fentanyl because they've declared a national emergency around fentanyl at the border. So and that may be more true for Mexico than Canada, presumably. Right. But for but they're going to say it every time they discuss it in order for the tariff to be legal under USMCA, they have to mention a national security issue.

40:37And so may or may not be the actual thing that they care about. Well, the duration is always the thing that confuses me, right? Which is like, if we're trying to use this for leverage in a negotiation to get a deal, whatever said deal would be, then are we not, we don't care about actually onshoring some of this stuff? Because like, you need to have these tariffs on to your whole point for a pretty long time for people to believe they're going to be persistent and do giant cap acts. Like you're going to build a billion dollar plant in the United States if the tariffs are gone in three months? Yeah.

41:07Probably not. You want to know that they're there. So which is it? Is it leverage for, you know, fentanyl? Is it reshore? Like, what are we aiming for? And it seems extremely unclear. Yeah, that's, you know, that's what I would push the administration on. They don't care what I think about their duties, but I think they should care a lot what the impact on business is around the planning side of things. Like, you've got an agenda. Let's roll it out as quickly as you can so we can get to what's next and people can start building against what their agenda is. But right now where it's kind of dripping out and changing and they put it out and then unwind it, it's making it really hard for businesses to figure out what the administration wants them to do.

41:48Maybe a totally different question, but I like the intricate details. Like if somebody handed you like a few billion dollar check, let's call it, you could go LBO, some competitor or someone else in the stack in which you play, not yourself because that seems cheap. But what do you buy and why? like what what would you do differently if you owned it i wish i would have had the money it sold last week uh two weeks ago the trump forced the chinese company that own it's a hong kong based company that owned the ports in panama but they own 43 ports around the world beautiful asset uh sold for 22 billion they had they bought 51 so whatever they needed just the panama ports or the whole company no it's 43 ports around the world that would have been a cool thing to own uh makes ports are just beautiful business make money who bought it blackstone with msc which is the biggest ocean carrier in the world um at swiss company it's maybe for people that like why are ports such a beautiful bit we sort of talked about some of the implications of it but why is it such a beautiful well it's a natural monopoly in the sense of like actual nature like there's only you know zach's hypothetical is like the reality is there are not other places that have deep water close to land like it is a geographically constrained subset of places that could be a port uh and so at that point you are you know there's only a handful it's a natural oligopoly let's say maybe not a natural monopoly but there's never going to be you can't just open up a port remember the u.s army tried this last year in gaza we built like a crazy pier and like two weeks later or something, the ocean washed it away.

43:31Like it's not, you need, there are certain places on the planet that are made protective from this power of the ocean. So yeah, it's, it's, and then, you know, I think that port automation is an important problem to work on. So it would be kind of cool to be, have a front row seat and actually working on it rather than just talking about it from a distance. Are there port automation companies you'd go and buy? Is there anyone out there that's interesting to you? I actually think it's better to go full stack here. I think that part of the reason it's so expensive and hard is that if you go work with one of the existing port automation companies, they're going to charge you like$2 billion or more to go do it.

44:09And actually, if you just brought in some AI folks and worked on the software layer, because the cranes, you don't need to replace the crane. You should be using the existing cranes and building a controller for it. I don't know. I'm removed from the problem. I don't work on this at all, but you asked me in a hypothetical world where I had a limited capital. What would I do? I think that would be fun. Somehow the unions will show up and protest, whatever it is. For sure. You're out there, unions. I'm not working on this. Don't worry. Your kneecaps are at risk, but otherwise, yeah, it would be fun.

44:44You guys just launched, maybe talk about like big, big batch releases of product and what you guys just did, how it relates to AI and all that stuff. Yeah, so we just did a big tech launch where we packaged a whole bunch of stuff into one. We're doing this twice a year now where you do a big release of new tech. That's the first for us. Like in the past, we were very, I wouldn't say we were incremental per se, but like the way we rolled out the tech felt a little incremental. Like we launched this thing and that thing. Even our marketing team would like often find out we had built the thing because the tech team launched it rather than get ahead of things.

45:20So doing this big, doing things in a big launch, it actually comes from Steve Jobs. They used to do this. I got it. Brian Chesky, who's like a huge Steve Jobs fan. They started doing it at Airbnb. He's the one that convinced me that this is a better way to do launches. I think it has like three big benefits. One is there's nothing like the power of a deadline. So if you don't have deadlines in your tech team, like then you need to create those. So people and in a positive way too, like, hey, you want to get your story told of what you've built. and get it featured. You need to have it done by this date.

45:54Two is it drove a huge amount of coordination between the people selling our products, the marketing and sales team, and the tech org to actually make these folks talk to each other and work together and get the story down, which I think is a sign of organizational health that there's more collaboration happening in that world. And then third, we did. It worked. We got a lot of buzz. TechCrunch wrote a positive article about Flexport, about any technology company. That's kind of amazing. We did it timed with this big ocean, the biggest ocean freight industry conference. We launched it a week before that.

46:32So there was a lot of buzz that conference last week about what we're doing with AI. And then, yeah, I think that AI is going to, everyone talks about AI in all tech world. It is rightly so the big obsession. I think Flexport is going to be one of the biggest winners in all of this because we get, there's so much competition at the foundational model and the hyperscaler layer that we're just benefiting from lower and lower prices and better tech. But you need data to fine tune it for our industry. You need domain experience to figure out how to actually apply it, what problems to solve. We're a real end-to-end provider, meaning all the way from factory floor, out to customers' doors.

47:13And so we can kind of cherry pick anywhere on that chain. like where's a good use case for AI? Many of these use cases are not worthy of starting a whole company around, but it solves a problem. It could be something real point specific, solves a problem on this one process. So we get the benefit of that. It's just kind of like cherry picking where we want to play, what's going to actually work, what's the low hanging fruit. And then related to that is we're at scale where we have customers, thousands of them. So if we build an AI solution, an AI product, like we bring it to market the next day.

47:46Whereas if you're just a pure AI company, you got to go out and beg enterprises, design a contract and give you their data and all, you know, it's like enterprise sales kind of sucks, but we already have the customers so we can just launch stuff. Can you pick one, like one feature you're super excited about and like walk us through it? Yeah, I mean, the simplest one is to understand is we launched this natural language reporting module. So like you can just ask chat bot, ask questions of your supply chain and answer it with data. So with graphs and lists and charts, and you just talk to it, super easy to use in plain English, generate a report about what have I shipped.

48:26Actually, we were talking about the port strike earlier. So we've had this internally since last September and that port strike was October. That was the first really tactical example where we were able to just in one second, one minute, ask the question, hey, what containers are going to get stuck in these ports if the port goes on strike next week. And what containers do I have heading to these ports or currently at the port? And because we knew in advance about the port strike, that armed our team to start taking action that these containers are going to get stuck. Now you could have done that.

48:58We could do this before with SQL, but it just takes longer and it's not, and you need like, there's a smaller subset of people that are technical enough to go pull those reports. And now you just like, anybody can do it. So we've made that customer facing now before it was an internal tool. That's probably the simplest thing for people to understand. What did you use under the hood to actually... It's using OpenAI, I think, GPT-4. But importantly, we didn't share customer data with GPT-4. It's just using our schema. So it's just basically generating SQL. It understands how to query our databases and generate the reports.

49:36But we have the customer data ourselves and people trust Flexport with their data. That's how we work. So being able, and like our competitors can't do this because their tech is super dated. Most of them don't make their own tech. They buy, they treat it as like an IT cost center. They go buy SaaS and they have like many, many, if you go to any major freight company, try to log in, you'll see like 14 different login pages for all the various apps and stuff. And so it reflected on the back end, like they can't build this unified reporting experience like that. So the first thing you go after is like free your data team to not do SQL queries as a service, basically.

50:20Yeah, for our own teams, exactly. And we were having to, we have our own team, we have a nice reporting module, so you don't need to be that technical. But still, like these things are always a little bit tricky to use. And you end up, we're a super customer obsessed company. And he's like, we'll just do the report for you if your team doesn't have the report they want. And so of our customer-facing team, they were probably spending 25 % of their time generating reports for customers. So we're hoping that makes us way more efficient and gets better reports faster to the customer. So it should be just like a huge win-win.

50:52Anything on the invoice processing, PDF stuff? I assumed it was going to be there. We've done that too, yeah. We launched that. We digitized 1.7 million documents from shipping per year. PDFs, Excel files, bills of lading, commercial invoices, all these different things. And AI has gotten to where now it's so cheap that I'm not even sure I care that much if it gets cheaper. More accuracy, but cheaper doesn't matter that much. It's almost free. We'll probably today that's for our own documents that we're digitizing for you because we're shipping stuff. We'll probably launch that as just a public cert utility that anyone can use to digitize logistics documents, get it into a database schema.

51:36On the data side, have you found, I've heard on using the models themselves, it can be a little finicky to actually query SQL in some ways and get that into natural language. It's one of the use cases I've heard companies. It makes sense intuitively. But was there anything you guys did uniquely to make that work well? A ton of testing and fine tuning and training. It's still not 100%. It's probabilistic. So it's generating code, SQL code, but it's generating code. And that's probabilistic. So it may or may not work in each given instance. But the SQL query is deterministic. So once you get it right, it creates a dashboard.

52:15And the dashboard will continue to be accurate going forward. So it requires training. It requires understanding. We felt like we got it to a level of accuracy that we were comfortable putting into the hands of customers with some strong labeling around this is in beta. Maybe even this is in alpha. I forget how they labeled it. But it's getting better by the week. Like literally, I mean, we started building this six months ago and it just keeps getting more and more accurate. So we were comfortable putting it out there. And I assume that that just keeps improving. One of the things that we've built internally that I want to turn into an external product is digitization of contracts in freight.

52:56The freight contracts come in these Excel files with thousands and thousands of rows and eight or ten tabs and a lot of if-then statements and just huge amounts of business logic that aren't really clear in the document itself that someone who negotiated this talked about on the phone. And so we've built, that was taking us many days to digitize a contract. And then when it would come in every two weeks, these contracts get refreshed with new rates. In many cases, it would take several days to process. Well, if you're losing several days on a two week validity contract, it's like terrible. So we've got that down to minute, like two hours once for an engineer lifetime for the contract.

53:43so as it refreshes, no additional engineering time. And then from there, we'll just ingest. That today is for Flexport contracts that we sign with ocean carriers and airlines and such. Probably we'll give that out to customers. They really need this because your contract, then when you get a rate, your accounting team, when you get the invoice later, you got to do an audit and reconcile the three-way match in accounting world to go, So, you know, this is what I was quoted. This is what actually happened. And here's the invoice that I received and make sure those three things match each other. And yeah, that'll be hugely popular when we start to push that.

54:24So I just need an infinite opportunity to apply AI. And that's probably true for any industry. Like the winners will be these companies that are at scale in order to take advantage of it. Where you have the data to fine tune things, the distribution, the domain experience to figure out how to apply this and where, but are important, but, but are nimble enough with a modern enough tech stack to actually put it in talent base to actually put it to work. So it's, we feel like uniquely fortunate having spent the last decade getting to scale and being the only young company in our industry. When you take a product like that, obviously using it internally for your own contracts, but at some point, clearly this is valuable between any two, maybe three in the future entities that are contracting.

55:11Yeah. How do you think about pricing for something like this if you're rolling it out? Like, do you have a pricing team? Do you do market research? What's the underlying? Do you have to approve the pricing? Who signs off? Yeah, I would probably approve it. My mental model is that if something is zero marginal cost, you're better off giving it to the world that close to that and making people love you more and being more disruptive to the market. Whereas something that has marginal cost, and I think a lot about where does that cost come from? Is it compute? Okay. You know, price that in. But if it's labor cost, I make everybody factor that times two.

55:55the cost itself and then there's like this cultural overhead burden of having a you know a headcount that has to be managed and um i but we're always looking for ways that you know you're also what is the value that i create here and how do you capture part of it so like in that particular product um the main thing is yeah digitizing the contract is one thing but like you're what you're really trying to do is help people run a better freight audit process and capture hundreds of millions, billions and billions of dollars gets wasted effectively through poor invoicing practices. And I'd like to build that as a full on service.

56:32And then let's capture a percent of what I saved you or got you a refund or something. Right. So it's freight auditing typically done with an in-house team or are there third party like intermediaries? There's big freight audit companies. There are pretty big companies that do this. they tend to focus more on domestic, like trucking and parcel. Ocean freight is just so messy and nuanced that it's, I haven't seen anybody like productize anything useful there, but the biggest thing on Flexport's path to profitability, the biggest thing we did last year, well, the biggest thing was probably we reduced the size of our team, but the second close second was building out our better freight audit processes using tech like this, but also just like line by line, do not let people, you know, do not just pay bills.

57:17Like everything needs to be reconciled against what it was supposed to be. That's what I love, by the way, 12 years in. And the second most important thing you did is like automate freight auditing internally. Accounting, like freight boarding is kind of an accounting business to an extent that I wish I would have taken more seriously early days because I had seen boring to me, but like every transaction you've got 10 or 12 vendors sending you a bill and you need to make sure those map correctly to the transaction and which ones do you build through to the end customer and which ones do you fight and challenge and you know putting in the accounting audit process super important when you think about you said you wish you did this earlier maybe like a more macro question of first five years let's say like worst product strategy mistake you made that you regret and kind of why and then we can maybe do the flip of like the best one or we can start with the positive and move to the negative whatever um i think you know we started i told you when i went through y combinator the business flexport was marketed we were a customs brokerage built around modern tech stack and i still think it's the crown jewels of flexports business model like this is the hub of data therefore databases and technology but it need expertise that's kind Kind of what's unique about Flexport were like tech plus human in ways that I think are really unique.

58:42And that the tech only solutions tend to fail. So customs was like the heart of it. We got very early. I wanted to just be customs only and be the best customs brokerage in the world. And then someday we would expand to freight forwarding and other things. Year one, I would say all the brands that we would talk to about that were like, I don't want to separate my customs from my freight. and they forced us to become a freight forwarder. Why? We were talking to smaller customers and small customers tend not to break these apart. If you were going to separate your customs from your freight, you would do it with the best, most established, best reputation customs broker, not some startup.

59:26So we had a brand problem and maybe an expertise. We hadn't built enough tech and expertise and brand for people to trust. Now we have a lot of companies that do just do customs with us and trust us for that. But early days, that wasn't us. But I think it was more just like the types of customers we were going after were pretty small. They wanted it to be end-to-end, just seamless, not have to have a different company involved in the customs for each transaction. So did you feel like the products? So we became a freight forwarder. And I would say that was really, really positive, but also led to a lot of our pain.

59:59because it meant that we took on so much more surface area where teams had to suddenly be building across multi-modes and geographies and couldn't just go like, hey, we're US only, customs only. And it spread our teams out. We did a peanut butter in the tech teams across like small numbers of people owning massive domains that they couldn't really solve. Do you view that as like a company over decision if you don't make it? Like, was that life or death if you go all the way back? Yeah. Could you have verticalized it or stayed there and gone up to enterprise or something? Probably not. It sounds like.

1:00:37I think we maybe could have if we kept our burn low and just like really kept our heads down and found a way. But yeah, there's an alternative world where that would work. But we're just like, as a culture, we're just so customer like, dude, this customer wants us to do this. Like we have this idea of sort of you should in the early days of a company, you should never get a no from customers. You should get a yes if. And the if statement might be effectively a no because you can't do the thing. But like we would just keep coming back. Our sales team was very entrepreneurial, including me. And we were just like, well, if we can do this, they'll buy from us.

1:01:12And then we're like, well, that's, you know, 95 percent of the time you can't. But that five percent drives your product roadmap, drives your business evolution. And I think that pushed us really, really far. Like we got a lot of customers. We grew really fast, but also we started accumulating tech debt of like doing things they weren't actually ready for, doing things manually, doing things without just struggling to keep up with the customer experience side to where this is where I would actually get to the negative side of things, mistakes that we made. We probably didn't focus enough on workflow automation, including that kind of accounting process stuff that I was talking about until about 2019.

1:01:54We made that really, really 2018. We made that really a big, big focus area. So there was like five or six years there where we just like didn't build tech for efficiency, for for accounting economics, unit economics and just driving costs ownership. and that that we it probably be a better company if we'd started that journey much much much sooner what did burn get to when you i assume part of this is just like burn stays high if you don't have efficiencies what did it actually get to where you got scared um well the burn got the worst under dave clark when i brought in the ceo who just really we had actually become quite efficient but he just like hired we hired too many software engineers and grew the team too much and just kind of leaned into spending money for more growth.

1:02:44I won't share how bad it got, but it was pretty bad. We're now on track thanks to like some super hard work for the company. And so where we should, we should, if it's very hard to predict this world, as we talked about earlier, but our financial model has us ending the year sort of close to a hundred million of EBIT by the end of this end of 2025. But it was pretty ugly. It was pretty grim for, obviously the board kind of asked me to come back as CEO. That's not how you plan things. Was it a siren song of growth and just like it would take a step back to focus on the automation and instead you were just pushing forward on the desire to go faster that sort of led to not building this out sooner?

1:03:30It was, yeah, I mean, I think it was definitely growth driven, like focus on customers customers aren't asking you for that yeah asking that's a business problem not a customer problem yeah it was like more internally focused stuff um we it was ambitious ceo me first uh wanting to do more things so i'm constantly launching new businesses i think i'm a i'm an entrepreneur at heart but like that's all i am and flexport is a great platform for entrepreneurship you decide to like constantly find new products that we can launch in so we We have an inventory financing, Flexport Capital. We've launched cargo insurance business.

1:04:06We've launched now fulfillment, trucking, new geographies. A lot of shiny objects. Yeah. I'm not the personality-wise. I don't like doing the same thing over and over again. But logistics is like literally that's your job is to do the same thing over and over again a little bit better than the last time. um so some of that was definitely caused by me wanting to launch new stuff and build new things and then some of it was just cultural poor capital markets were booming we had a lot of money we got for a couple years really bad culture of if there's a problem the answer would be like oh we need to hire someone to own that problem instead of like freaking own the problem you Go solve this problem.

1:04:51So way too much using hiring as the tool to solve problems. So we became overstaffed, spending too much money. That we really reversed now. People are like, you're not allowed to – we've kept the team flat for a while. And we get more done with less people. In retrospect, is there like a framework? If someone's listening and they're a CEO and they're earlier in the journey, Is there anything that you've landed on of ways of making these decisions that you would impart to someone that's thinking about, hey, do I hire a body for this? Or do I actually take the time and really, from a first principle standpoint, try to automate it into the product?

1:05:32Every business is unique. So hard to give generic advice. But I do know every CEO thinks that they can raise that mega round and then not spend the money, not increase the burn, that we just got to take the money while it's there. it's never happened once you'd be the first in the history of the world. Uh, so you will, if you're raising too much money, that will lead to you spending too much money. It's just like inevitable. Um, so be careful how much money you raise and make sure like I, I've, I'm not, uh, I've not advisor to a lot of companies, but some of my friends and stuff, and only a few ever listen to anything I say anyways, like, so, uh, you know, great CEOs sort of think they know what to do and that's what makes them great.

1:06:13So more power to them. But a few have listened to me. I recommend when you raise around a capital, you should impose a 90 day hiring freeze on your team because your team is going to react the wrong way and go, look at all this money. Now we can finally go higher. Hey, what are you talking about? You know, we just raised all this money. That's what it's for. Go to hire. And there's some you need to kind of overweight that culturally to go make sure that your energy is still like, no, we're going to solve our problems, not some not the money. Um, so, but no one ever has the discipline to do that pretty much.

1:06:45It's, it's cultural as much as anything. Um, I think the other thing that happened with Flexport is we got, we got quite big. I fell in this trap of, I've never been a CEO. I've never, you know, like I've been an entrepreneur all my life, but I'd never like run a big company until I created one. Um, and, or even worked in a big company. So there was a lot of, a lot of the advice I got. And I think this has largely changed in the dynamic in the world. But a lot of the advice I was getting from whether that's board members or other investors or other people that I would talk to is you need to hire a great leader.

1:07:18When you have a problem in an area, it's because you don't have the right leader. Go hire an awesome executive. Put them in charge of that and they'll solve the problem for you. And don't micromanage. Don't get too involved. Don't get in their way. Let them run things. I think that's completely wrong. I think you should aim to promote almost entirely from within. And you should run that department yourself. Like you should, as the CEO, do tons of skip levels, be way more involved in everything, make more of the decisions, make sure your executives are making decisions. I had this idea that like we would be this bottoms up culture where everybody could just make their own decisions and not have to have the tops down from the exec.

1:08:02That was really bad. Like you got it. The leader needs to be involved in everything. I probably know this time as CEO, which I've been back for 18 months, and I was only stepped out for really a little bit less than a year. I probably know 10 times more employees at the company than I did before. Like, I'm just like way more in the weeds on everything, what's happening. I define the product roadmap largely myself. I'm just setting the team's goals myself. way less bottoms up. And people like it more, actually. The only reason you don't like micromanagement is if your boss is an idiot. But if your boss is in tune with what's happening and helping you make good decisions, nobody dislikes that.

1:08:44So those are all hard-won lessons, man. Maybe last question. It's a fascinating industry. What are conspiracy theories about shipping or freight forwarding, things where you're like, you know, I wonder if that's true, that are actually true. Yeah, well, some of them would probably get me killed and I'm not going to share what those would be on such a public forum. The one that I, well, first off, what's the origin of the term conspiracy theory? Do you guys know the origin? Oh, I do. Oh man, this is like my favorite. Well, it was around in the late 1800s. It's been around for a while, but the popular popularization of it was the JFK assassination.

1:09:30The idea that believing in a conspiracy makes you crazy only comes about because of JFK post JFK, the CIA believe there was more than one shooter as a crazy person. Gosh, Ryan, this is like my sweet spot. I want to do a JFK assassination podcast is what I want. One topic I'm going to do this on, but post, you have to do it live from, from Dallas. I'll go down. Oh my gosh. I have a whole dossier. I think we could do outdoor just sitting right there on Dealey Plaza, the grassy knoll. There's a guy, Jefferson Morley, who's agreed to come on. He has a blog called JFK Facts that I'm a subscriber to.

1:10:06Oh, let's check it out. He's agreed to come on. And I have this whole dossier. What's his aesthetic? What's this guy look like? He's exactly what you'd expect a guy named Jefferson Morley to look like. He's probably a Washington Post reporter in the 90s that got into it after JFK, the movie came out, which led to the first round of releases of the JFK assassination files. So he was covering it then. But interesting. So Zach, as a noob into the JFK assassination conspiracy, basically after people started to get wind, I think it was in 1967, of the Zapruder film. And it was pretty clear that there was something else going on in the official narrative that came out of the Warren Commission report on the JFK assassination.

1:10:54It didn't actually hold up. There was a memo disseminated internally from the CIA about talking points of how to discredit people that believe the grassy knoll and the two shooters or three shooters or whatever it was theory. And so the original like popularization of conspiracy theory actually came out of the CIA trying to disprove something that seemingly is true by all. Yeah, because Because associating conspiracy theorists with insane people comes from that. Because, you know, there's conspiracies all over the world. I have a conspiracy with my executive. Conspiracy is just a group of people that are operating in private.

1:11:31I have a conspiracy with my executive team to do all kinds of stuff. I don't tell everyone what we're doing, right? It doesn't make us crazy. Now, we will change to some shipping-related conspiracy in a second. But the official CIA historian came out a few years ago and said that the CIA did not cooperate with the Warren Commission fully. so now the official story is that there was a cons if you don't believe there was a conspiracy to cover it up then you are the conspiracy you are the crazy person you know it's funny it's like it's it's the official account has been so it was repudiated in 1976 where they went back and looked at based on the zapruder film official release to the public they went back and uh opened a commission i think it was called the um it was something about assassination commission And they looked into MLK, RFK, and JFK.

1:12:18And they basically concluded that more probably than not, there was more than one shooter. They also concluded that it's factually that the CIA did not cooperate. Yeah, they admit that. Yeah, it's admitted. And it's just like factually. But at the end of the day, everyone goes back to the textbook Warren Commission 1962-63 report on all of this. My dad's the only one who I know who still believes in the official story. There are some people. It's like not quite as mainstream. It was, ironically enough, it was like more well-known that it wasn't officially the way it happened in like the late 70s than it is today.

1:12:50We go through these bouts of history where Zapruder film comes out, public gets aware, then there's a commission on it, and then everyone's aware. Then people forget. Then the JFK movie comes out, everyone's aware, and then it goes back the other way. It's an advertisement for Redpoint LPs. This is the level of diligence that Logan and team do. So yes, I, I literally have a dossier that makes me seem like a very crazy person internally. Cause I've had this conversation with so many people and I come off like a raving lunatic every single time. So I had to just document all of it. Just so anyone that's interested, I just hand it to them and I'm like, just take time and go through all this.

1:13:30So, yeah. Well, there's a, a plug. I'll tell you, if you're in Dallas, you got to go to Dallas, investigate for yourself, go in person, right? You can't manage through layers. You got to go in front lines. So you go down to Dealey Plaza and there's a guy, a very overweight gentleman wearing sweatpants who will be there every day with this like rainbow umbrella that he sits under. And he sells magazines about what really happened. You give him 20 bucks, he'll take you on a tour of the plaza and show you where the other shooters were hiding and what mafias they were affiliated with and everything.

1:14:06So I recommend going to Dallas. The mafia affiliation stuff is just like, it's, it's, it's so crazy. I'm just surprised where you're like, you weren't like, yeah, I've been four times. I know him. This is, you know, it's funny as this came up. So we had to redo our website and they asked like, what's a conspiracy theory you believe in? And I was like, this is, I've been waiting 37 years of my life for this moment, this question to get asked of me. So, so, okay. So shipping related ones. Actually, I have a great one. So the Panama Canal is only operating at two-thirds capacity for the last couple of years.

1:14:46And when you ask, the official story for why is there's a drought. And the Panama Canal runs on freshwater. A lot of people don't know this. The Suez Canal runs on saltwater. There's no locks. It's just the Mediterranean and the Red Sea are connected at sea level and you just go right through. The Panama Canal is freshwater. So you have to go through locks, you go up a hill, and then back down the other side. So it requires the country of Panama to have a lot of freshwater. You actually travel through this big lake in the middle of the country that's fed by all the rivers of Panama. And in 2015 or 16, I forget, they widened the Panama Canal to handle wider ships.

1:15:31and several a couple years later we're told there's a drought and we don't have enough water to operate at full capacity and so uh the big we can't we can only run it about two-thirds of its theoretical capacity and they're blaming it on this drought so i found the timing of this to be quite suspect right after they widen the canal you widen it more fresh water is going to flow out and right after is when they stopped being able to operate it so i started doing my own research on the drought in panama and if you google panama canal drought or panama drought 100 of the articles about the drought the source is the panama canal authority which is like since one of these guys the source of weather data and what's happening with with the rain so i found a couple of guys who have their own little home weather stations i'm still i haven't done enough work i'm pretty busy, but I'm going to keep researching this.

1:16:26In fact, I'm taking my team down to Panama in June. I'm planning to do some more homework while we're there. But I found a couple of guys with their own home weather stations, you know, those little devices you can buy that measure the rain. And there's been no drought discernible at all. In fact, we've had record rainfall in the country, at least on these guys' houses for the last few years. And so I'm pretty convinced that they're so embarrassed by their engineering failure of widening the canal without adequately accounting for how much water they would need that they're blaming climate change and drought for what's actually an engineering failure and that the Panama Canal should be operating if they just designed it properly.

1:17:12So we'll see. We'll see. I don't have enough evidence yet. A couple of backyard weather stations. There's no like economic reason to run under capacity, right? No, no, no. They need to run more ships through there and make more money. This is going to be the longest drought of all time. It's just, at some point, it has to come clean, I would think. I keep claiming climate change forever, so. Yeah. I'm just surprised that you have to go find some dude's local, like measuring rain. I don't put that much effort into this. I'm sure there's some other better source. If you're out there and you know how to get Panama rain data, send it to me.

1:17:45I want to see it, Ryan. Yeah, there's a guy with a rainbow umbrella and sweatpants sitting next to the Panama Canal that you can go see. Whenever I Google it, it keeps coming back to the Panama Canal as the source. I'm like, no, I'm trying to find other sources of data about this. This can be the new test of the next-gen open AI models, whether they can figure this out. I assume they're getting colluded by the same sources. I need to get, yeah, like Climate Corp or whoever. We got to find out who has got good rain data on Panama. I'm sure it's out there. Well, Ryan, thanks for doing this. This was fun.

1:18:17Yeah, my pleasure. Sure. Thanks for having me on.