July 22, 2025 • 43 mins
The US’ shifting trade policies are creating challenges for shippers and contributing to a volatile freight environment. Freight forwarders that lean into technologies like artificial intelligence or machine learning can help shippers reduce costs and improve efficiency. In this episode of the Talking Transports podcast, Ryan Petersen, the founder and CEO of Flexport, joins Lee Klaskow, Bloomberg Intelligence senior transportation and logistics analyst, to share his insights about how they are helping their clients navigate the changing tariff landscape and boosting their productivity through tech investments. Petersen also shares views on the state of the ocean and airfreight markets, and explains how automation in freight forwarding is lowering the cost to serve — allowing the company to scale and compete more aggressively on price.
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Episode Transcript
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Speaker 1 (00:07):
Hi everyone, this is Lee Clasgal when We're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Clasgow, senior Freight, transportation and logistics analysts at Bloomberg Intelligence,
Bloomberg's in house research arm of almost five hundred analysts
and strategists around the globe. Before diving in a little
public service announcement, your support is instrumental to keep bringing
(00:29):
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need your support. So please, if you enjoyed this podcast,
share it, like it and leave a comment. Also, if
you have any ideas for a future episodes, or just
want to talk transports, please hit me up on the
Bloomberg terminal, on LinkedIn or on Twitter at Logistics.
Speaker 2 (00:46):
Lee.
Speaker 1 (00:47):
Now onto our episode. We are delighted to have Ryan Peterson,
the founder and CEO of Flexport, as our guest today.
Ryan started flex Sport back in twenty thirteen. Flexport is
a technology driven freight for and supply chain management company.
Yields at MBA from Columbia Business School and a BA
from UC Berkeley. Welcome back to Talking Transports. Ryan, Thanks
(01:10):
for coming back onto the podcast. Glad to have you again.
Speaker 2 (01:13):
Great to be with you all. Thanks for having on
me and you.
Speaker 1 (01:16):
Know, just can you just provide a little more information
about flex Sport.
Speaker 3 (01:19):
What exactly do you do?
Speaker 4 (01:21):
Flex Sport's a global logistics company, so we help businesses
ship cargo all over the world, get it delivered from
wherever it's made one hundred and forty seven countries last
year to all the way to consumers doors.
Speaker 1 (01:33):
Now.
Speaker 4 (01:33):
We acquired Shopify Logistics a couple of years ago, so
I got us into the e commerce and fulfillment and
wholesale kind of retail distribution business. So we take all
the way you know, air, ocean, truck, and rail, ship
anything anywhere. I think what makes us different than other
logistics companies We were a technology company, So we have
four hundred software engineers and we're trying to make everything
(01:54):
more seamless and efficient and easier to do with technology.
Speaker 1 (01:58):
All right, let's use that as the jumping point of technology. Obviously,
you guys are kind of like a technology first platform.
Can you talk about you know, it wouldn't be a
conversation about transports or anything for that matter if we
haven't talked about AI. What are you guys doing with AI.
How are you leveraging it? Are you doing it in house?
Are you leveraging outside at capabilities to drive that.
Speaker 4 (02:21):
We We've been using machine learning for many years at
Flex for both stuff that we build ourselves and third
party tools, and we're bringing heavily into llms. I think,
I mean, it's really an incredible moment for companies like
us that are just beneficiaries of it. I think I'm
glad not to be in the AI arms race directly
(02:41):
and have to have one the capital deployment that these
guys are doing, but also just the competitiveness of it
all and the fact that every you know, the costs
come down constantly and the new model arms race that's happening,
but we just get to be we and every other
most other businesses in the world get to be beneficiaries
of that. We're seeing, you know, simple things like document digitization,
(03:04):
which is really big, and logistics is taking all the
text off of all the PDFs and excel files that
customs requires that are needed for shipping goods.
Speaker 2 (03:15):
We've now got that down to be just basically free.
Speaker 4 (03:18):
And we've been using OCR and machine learning tech on
that for a long time.
Speaker 2 (03:23):
But we've the.
Speaker 4 (03:24):
Open AI specific for that has cut our costs by
about ninety five percent and increase the quality, So it's
it's not basically free to extract data from documents with
incredible accuracy.
Speaker 2 (03:35):
So that's a huge win.
Speaker 4 (03:37):
We digitize over a million documents a year, so just
a massive win on costs, probably saving US I.
Speaker 2 (03:43):
Don't call it half a millionaire or something like that.
Then you could go on.
Speaker 4 (03:47):
I mean, the really interesting area actually in logistics is
going to be voice AI based chat voice agents. So
we have four hundred thousand truck drivers using our mobile
apps in the US. We don't have enough loads to
keep them all interested in opening that mobile app every
day right now, and so but now we can just
(04:08):
call them and they still pick up the phone even
when they're driving, and we'll talk to you and you
can tell them, hey, I've got this load, are you
interested in it?
Speaker 2 (04:17):
And get drivers engaged on the platform.
Speaker 4 (04:19):
That way, using it to call warehouses and make make
sure I've got accurate data. Like one of the biggest
causes of high costs and mistakes and logistics is you
don't have the right data about the warehouse hours of operation.
How to make an appointment specific loading doc info right
address all that, so verifying that quite costly with humans
(04:42):
and free with AI voice agents, so that category is
super interesting. And then overall we've automated about thirty five
percent of the work that goes into shipping a container from.
Speaker 2 (04:54):
Door to door of the manual work, not like.
Speaker 4 (04:56):
The obviously I'm not talking about driving trucks and stuff,
but like the court and work in the freight forwarding layer.
Speaker 3 (05:02):
So getting in on thirty five percent you said you
voted in.
Speaker 4 (05:05):
Just in the last eighteen months, we've done thirty five
percent and team feels pretty confident. The goal at the
end of the year is to get that to fifty
and then the goal I don't know.
Speaker 2 (05:14):
We haven't had the goal for next.
Speaker 4 (05:15):
Year're working on that in the next few weeks, but
my goal is eighty by the end of next year.
And it's just like massive, right, I mean, you talked
about huge cost savings for the customer and efficiency gain
well quality gains, like the tech makes your mistakes than
people would have made in the same job. So it's
going to be revolutionary, I think. And we as a
(05:39):
sort of tech newer entrant in the freight forwarding world
have just a big advantage in that we have a
modern tech stack. We write our own code to operate
the business. Therefore, we can apply LM technology and other
machine learning anywhere we want, at any point if we
think we can automate something and make it better and
much harder to do if you don't write your own code.
Speaker 1 (06:01):
Right, And to be clear, you're not a chatbot, right,
You're a human as of right.
Speaker 2 (06:05):
Now, I'm still human.
Speaker 4 (06:06):
But it's going to be kind of I'm very concerned,
very paranoid about this, Like my parents, My grandma when
she died was the last few years of her life.
Speaker 2 (06:15):
This was up fifteen years ago or so.
Speaker 4 (06:16):
I was getting scammed constantly by like Nigerian phone scammers
and going to the bank and wiring money and stuff.
I'm quite worried about AI calling. I'm kind of well known,
so my face is all over the internet, and AI
will be able to replicate me and call my parents.
Speaker 2 (06:33):
It's going to be a crazy, crazy world.
Speaker 1 (06:35):
Yeah, no, definitely, It's an exciting future and a scary
future all at the same time.
Speaker 3 (06:41):
When it comes to AI.
Speaker 1 (06:43):
So you said, you know you hope to get to
fifty percent by the end of the year, Can that
go to eighty ninety percent?
Speaker 4 (06:51):
Yeah, we think we can over the next My personal
goal to CEO is next year, but the team definitely
thinks in the next two years.
Speaker 2 (06:57):
They'll get it to eighty.
Speaker 4 (06:58):
Now it's a bit overd that, like that's all the
standardized work of a happy path, Like, Okay, we're just
shipping this container from here to hear the exceptions that
happen along the way, those are getting resolved by humans,
and those are almost by definition like harder to automate.
Speaker 2 (07:14):
And then there's a lot.
Speaker 4 (07:16):
Of other things that are probably not in that because
they're not just standardized, but anything that's standard in the workflow,
we're able to just check automate it with very high
quality rates.
Speaker 3 (07:29):
And so what does that mean for flex support?
Speaker 1 (07:32):
So does that mean you're just going to be not
hiring people because you're the people that you have are
just going to be that much more productive. Are you
hiring different people because the jobs become different?
Speaker 2 (07:43):
Probably? Probably both those things.
Speaker 4 (07:45):
I mean, we're I think you'll still see us hire
a lot because we're we're very global. We shipped cargo
to and from one hundred and forty seven countries, but
we only have employees in fifteen countries, and we see
that our quality goes up and our costs come down
and our growth goes up when we put employees in
those countries to kind of more tightly manage the process
(08:06):
of what's happening there.
Speaker 2 (08:07):
So we're going to be hiring a lot.
Speaker 4 (08:09):
Just due to our growth and our global kind of
horizontal expansion. We're going to hire a lot in tech,
a lot of salespeople, a lot of marketing. Account account
management is still we're still very much human driven on
the account management side. But yeah, like your number of
operators per shipment needs to come way down.
Speaker 2 (08:25):
That's the promise of it.
Speaker 4 (08:27):
And I think if the one way to think about
is that you look at the P and L of
a freight forwarding company. For every thousand dollars in revenue
that comes in, about eight hundred will go to the
underlying asset owners as they deserve right they own the assets,
the trucks and the ships. Twenty percent is approximately the
take rate. Some companies are a little better, some worse,
(08:49):
but twenty percent for math making the math easy as
a good benchmark, twenty percent is the net revenue that's
what the forwarder gets to keep.
Speaker 2 (08:56):
And of that half of it.
Speaker 4 (08:58):
Is labor costs of the operators that are coordinating. So
if you cut that in half, now you now have
the option. You can make five percent more e BIT
and be the most profitable freight forwarder in the industry,
or you can be five percent cheaper and give it
all to your customers and go for volume and scale.
(09:19):
And you know, if you're five percent cheaper in freight
forward and you win, most of the RFPs and customers will.
Most customers are pretty transactional and focused on costs above
all else, So we want to be the best and
the cheapest, Like that's the path that tech can enable.
If you have the best user experience, best reporting, data
(09:39):
on time visibility, everything that the customer wants from a
quality standpoint, and you're cheaper, then it's like sort of
irrational not to choose you. That's that's the problemise, right,
We'll see, that's what we're all working towards at Flexport.
Speaker 1 (09:51):
Right, And so I guess I was going to ask
you that too, because you know, you are kind of
one of the new kids on the block. If you will,
great great music band, but the way, and so to
to grow to grow your revenue, is it more on
the price side, like like what is the I guess,
(10:12):
not only the value proposition, Like if I'm a ship
or why am I using flex support versus one of
the old legacy guys like a DSV or an Expediters.
Speaker 2 (10:20):
Yeah, I mean we don't.
Speaker 4 (10:21):
I don't think we have competitive advantage against those guys
in costs. We're working that way, certainly working on that
with the automation story I was just talking about, I
think that'll get.
Speaker 2 (10:31):
That will that alone may get us there.
Speaker 4 (10:34):
And then there's a scale driven component to it where
DSBN Expedite are still bigger than.
Speaker 2 (10:39):
Flexport, but not by that much. Like we're we're.
Speaker 4 (10:42):
About half the size of their ocean business in Expeditor's case,
and maybe we might be bigger than DSV on ocean
for a while, not with the Shanker acquisition. So you
know scale logistics, getting bigger makes you cheaper too, So
that's the other that's that's an import function. But the
value prop for a customer, I think you've got to
be within range on the price. If we're way more expensive,
(11:06):
we're not going to win. But you don't always have
to be the cheapest, and we're focusing on a segment
of the market that really values quality, and that quality
as defined by on time performance, responsiveness to messages, you know,
to changes that they want to make, control ability to
make changes yourself say okay, I'm going to ship this
(11:28):
thing to this other place. Obviously it's about data and
compliance especially you know for our customers business.
Speaker 2 (11:38):
And then there's huge range of optimization savings.
Speaker 4 (11:40):
This goes into the cost, but it's slightly different is
you know when people want to talk about costs. A
big thing that we try to do is go look
at their container volumes and how full are they Because
on average we'll see that customer's cargo containers are only
about seventy five percent full and there's a lot of
empty space. So with we have algorithms that will consolidate
(12:04):
loads across containers and get that to push it towards
ninety five. We can save people about fifteen percent on
their freight just through better optimizing the load plans.
Speaker 2 (12:14):
So there's a huge range. I mean, I think the.
Speaker 4 (12:16):
Key and all sales is get to know your customer,
figure out what they're what their problems that they're facing
are and then what range of solutions do you have.
Speaker 1 (12:24):
And what kind of like you know, you know, you
mentioned some of the targets in terms of productivity. Do
you have any other long term targets for the company,
Like you know, you want to be a top three,
top five, top top ten.
Speaker 2 (12:35):
Oh, we want to be number one.
Speaker 4 (12:37):
Yeah, yeah, I don't want to be on any list
unless I'm at the top. On the trans Pacific, which
is the I think it's actually no longer the world's
biggest trade lane in ocean freight intra Asia, so between
Asia mostly China to other parts of Asia is now
the number one trade lane in the world, but it
was always Transpacific eastbound Asia to US was always the biggest.
Speaker 2 (12:59):
I think it's second biggest.
Speaker 4 (13:00):
Now we're the either the fifth or the sixth largest
ocean ocean freight forward or on that trade lane. And
similar ranking in air maybe a little bit smaller, a
little bit lower on the list and air. Yeah, certainly
we want to be number one and then go and
sequence like start with the that was our kind of
home market. We started there Asia t US. Like to
(13:21):
be number one on that lane in the next few years.
We're the number one actually today is Carry Logistics, which
is the Chinese owned by UH fifty owned by SF
Express Shun Fung is a kind of the FedEx of China.
They're they're the number one today by a large margin actually,
and then Expeditors and Sate Robins Center two and three.
(13:44):
I want to say, I think we're number five or
number six, so we're we're we're working our way up
that the rankings there.
Speaker 2 (13:52):
We're much smaller on a lot of the other lands, especially.
Speaker 4 (13:54):
That intro asially we're not We're not really a big
player on that, and I think that's that's just big
opportunity for us.
Speaker 3 (14:01):
So is it easier to grow on the ocean side
of the business, on the air side of the business.
Speaker 1 (14:07):
Or is it easier to grow in that sort of
fulfillment business.
Speaker 4 (14:10):
Actually, you know, we can grow in all different directions,
Like it's harder to grow the ocean's a our most
mature product. We're already pretty big, so that's the hardest
thing to grow because you know, just like law of
large numbers. The area that we feel like we have
the most competitive advantage today is probably our customs brokerage,
which because customs is all about data and therefore databases
and technology and your people are really looking for quality
(14:35):
and there's huge savings involved when you get to quality,
right and customs. So it's not you're not choosing your
customs broker for who has like the lowest cost per entry.
Speaker 2 (14:45):
It's like there's much other.
Speaker 1 (14:46):
Thing that I have a really really dumb basic question
for you. So if I'm shipper and I use you
to move a container of freight from Asia to the US,
so you're just because you're my forward doesn't necessarily mean
you're my custom broker.
Speaker 2 (15:03):
That's right.
Speaker 4 (15:03):
A lot of companies want to consolidate, and it at scale,
especially consolidate all their customs clearances with one company right
to drive compliance control. In fact, CBP Customs Border Protection
likes to see that from a compliance standpoint, it's demonstrating
that you actually have got rigorous controls in place. And
if there's all these random customs brokers clearing it, you know,
(15:26):
because people will source their freight forwarding much more in
a commodity style, so larger companies tend to will often
split that apart and go with a dedicated customs broker
for all their entries. And then the customs broker has
to coordinate with the other whoever's moving the freight on
that transaction. So that piece of our business is growing
really fast, like one hundred percent year over year, and
(15:48):
it's again because we have just like really good technology
advantages on that and a great team obviously the expertise
side of things. And then the other big area that's
where we're free agnosticly is booking.
Speaker 2 (16:00):
We call it booking management and order management.
Speaker 4 (16:03):
These are where you're you're placing the orders to the
factory for the customers and then taking those orders consolidating
them using those algorithms I was talking about into containers
and then booking that.
Speaker 2 (16:16):
With whoever they want to move the freight with. So
you're agnostic.
Speaker 4 (16:19):
We can move the freight with us, or you can
move it with your other a competitor of ours, or
directly with an ocean carrier. But we're giving you the
technology platform and sort of the service to coordinate all
that visibility control, optimization. And we're agnostic that that part
of our business is growing really really fast as well,
but it's small. We're still growing from a basically a
new product for.
Speaker 1 (16:40):
Us, and you know, you can't talk about customs without
talking about what's been going on with the tariffs, because
I'm assuming you know that expertise is.
Speaker 3 (16:49):
In high demand.
Speaker 1 (16:51):
I know, you know, you know, for me, since the pandemic,
people outside of my profession want to speak to me
or what I have to say about transportation logistics of
all of a sudden, one of the cooler kids in
the room. And I'm sure you've had similar interactions. So,
with everything that's going on in the fluid tariffs, how
(17:15):
is that impacting your business?
Speaker 3 (17:17):
Good or bad?
Speaker 4 (17:19):
I mean, it's really bad for our customers, so we
have to start with that. No, we don't, we don't
really Ever, nothing that's bad for our customers can be
good for us in the long term.
Speaker 2 (17:28):
And so yeah, it's.
Speaker 4 (17:30):
Had a lot of volatility added too in this for Flexport,
in that when the terriffs were first announced on April second,
and then they went into effect April ninth, one week later,
you just had a massive fault drop off of bookings
out of China, in particular about a sixty percent decline
in bookings from China ocean freight bookings.
Speaker 2 (17:50):
And that lasted for three or four weeks. Actually, no,
it lasted for five weeks.
Speaker 4 (17:54):
Excuse me, it was a huge decline of ocean freight
out of China, sixty percent of cline. I mean, it
was pretty horrifying to see. So that was very bad
for our business. It rebounded quite a bit when they
relaxed when the administration relaxed the tariffs on China and
the price of motion for then serge. So you know,
(18:15):
it's just created a lot of volatility, very hard to
finance forecast financially on nets been I would say relatively
neutral for US financially, but a lot of volatility. And
then it's created an enormous demand for our customs brokerage
and trade advisory solutions, and that that part of our
business where we're.
Speaker 2 (18:34):
Able to help people with strategies to.
Speaker 4 (18:39):
Lower tariffs in compliant ways and make sure getting refunds
for people on certain like if you import something into
the US and then you'd later export it, your owe
to refund on the duty you paid on the way.
In every year, seven billion goes unclaimed and that was
before these newer rates that went way up, so it's
probably more like eight or ten now that goes unclaimed.
(19:02):
So there's free money, so helping people go file for
those refunds is a big is a nice part of
our business.
Speaker 2 (19:09):
Helping you.
Speaker 4 (19:10):
Basically, when you have a tariff on the customers do
there's three factors that are going to determine how much
you owe. It's the HS code, so that's the classification.
What kind of product is this and therefore what duty
rate does it owe?
Speaker 2 (19:26):
The country of origin where is it?
Speaker 4 (19:28):
And that can be a scientific well we'll get into
each of those actually, but the country of origin where's it?
Speaker 2 (19:32):
Baide? And then the third is any.
Speaker 4 (19:36):
Yeah, free free trade agreements or the subject and the
valuation excuse me, the third one. So it's it's classification,
country of origin, and valuation. So for each of those
HS code, make sure you got the right classification. You're
not allowed to choose the classification just to drive down
duty rate.
Speaker 2 (19:54):
That's illegal.
Speaker 4 (19:56):
But if you have a clear case that the right
classification happens to have a lower duty rate than you win.
The country of origin is much more challenging to determine,
and Trump's trying to.
Speaker 2 (20:08):
Change the rules on that right now.
Speaker 4 (20:10):
We don't know what it's going to end up, how
it might change, but it's not as you know, most
products are not as simple as just like the whole
thing is made in one country, it's assembled from components
from different countries. So helping people get really smart about
that and do that the right way, where you may
deduct things or may transform it to become a product
of another country, or if you do it wrong, costs
you a lot of money. And then valuation, Like you
(20:32):
didn't care what the product was valued at when it
was free trade because it's time zero anyways, But if
it's all of a sudden times thirty percent, you're gonna
get a lot more serious.
Speaker 2 (20:41):
About how you value these goods. And again, you want
good advice.
Speaker 4 (20:46):
It's like legal advice in some ways, it is legal advice, right,
and you just like, yeah, you can go represent yourself
in a court of law, but you probably going to
make a mistake, Like you, it's much better off.
Speaker 2 (20:56):
To hire a lawyer.
Speaker 4 (20:56):
And that's kind of how you think about this type
of In fact, many people do hire lawyers trade trade
attorneys to help.
Speaker 1 (21:02):
With this, right And I and I guess so, so,
so what are what are your customers doing to react
to the more protectionist policies coming out of the US,
Like how are they managing their supply chains. Obviously they're
not all moving to Detroit to start manufacturing stuff, So
(21:23):
what are they doing.
Speaker 4 (21:24):
I haven't met I haven't met a single company that's
going to move more manufacturing to the US as a
result of this, And I've met at least a dozen
who are shifting manufacturing out of the US as a
result of this.
Speaker 2 (21:35):
So by my form my.
Speaker 4 (21:37):
Read, the tariffs are a failure as measured. You know,
you need to measure things not by their intentions but
by their results in the real world.
Speaker 3 (21:45):
So that's so, that's interesting.
Speaker 1 (21:46):
Why are people moving out of the US? What why
is it having the exact opposite.
Speaker 4 (21:52):
Very simply is that if you're manufacturing for export, you're
manufacturing to sell your product in another country. You're now
paying duties on the way in for any components you're using.
And then so your cost just what I and if
you did the manufacturing. And so you know this is
if you're selling your product outside the US, you do
not want to import the goods into the US, the
(22:12):
components that go into the assembly of that product.
Speaker 2 (22:16):
You want to So people rather, you.
Speaker 4 (22:18):
Know, a medical devices company that I'm close with was
manufactured We're going to manufacture and set up their production
line in North Carolina.
Speaker 2 (22:26):
They have to.
Speaker 4 (22:26):
Import the machines from Germany and some of the components
from China and other countries. They just said, I will
just build this line in a different country. That way
we won't have to pay all those higher costs. So
that's the simplest example is when.
Speaker 2 (22:41):
It's for export.
Speaker 4 (22:42):
Another one is there are some cases where they give
exemptions to the finished goods, So bicycles is one of
these finished goods. Bicycles are somehow exempt or have a
lower duty rate than the components too. So we have
a customer that makes bicycles in the United States in
the Midwest.
Speaker 2 (23:00):
Very rare, but they do.
Speaker 4 (23:01):
And so all of a sudden, their costs went way
up if they're finished goods. But if they imported a
finished by sorry on the components, the costs went way up.
But if they imported finished goods, there would be no costs.
So they're just going to start manufacturing off shore. Those
are just two examples of many.
Speaker 1 (23:15):
Yeah, and I guess you know, the tariffs have had
added a lot of volatility to rates, whether it's air
freight or ocean rates.
Speaker 3 (23:24):
Kind of what's your sense on.
Speaker 1 (23:26):
You know, we've seen ocean rates come down considerably, you know,
good for them, bad for everybody else that you know,
they can't go through the Suez Canal, so that's keeping
rates artificially higher than they would be. Where do you
see rates going from here? Do you do you have
a kind of a thought on where ocean rates are headed?
Speaker 4 (23:45):
Yeah, I definitely separate those two, and we do ocean first.
The big you mentioned it, the Suez is the big
open question, and there was a ship sunk in the
Seuez last week, so I think that kind of answers
the question for at least the next twelve twenty four
months or so that no ship, the container ships are
not going to return to the red z. I I
can feel confident in that after that ship got sung
(24:05):
last week, So that's going to keep rates that would
at the moment that opens up, I would predict a
real collapse in ocean freight rates back to at least
to twenty twenty three levels, and probably back to and
potentially back to the levels that we haven't seen since
like twenty sixteen, when that was the kind of the
lowest ocean freight rates ever. And it could easily go
(24:27):
down there because of the tariffs, because of simple supply
and demand that high tariffs need to higher prices on goods,
and higher prices on goods leave the less purchasing of
goods and therefore lower volumes. So kind of a simple
story of how tariffs diminish the price of ocean freight
(24:47):
the I guess the positive story, the bull story for
ocean carriers of why that might not happen or why
rates won't go that low because of this is that
there are just not as many ocean carriers as there
used to be, and they're I'm not alleging anything illegal here,
but I do think a fewer carriers in natural economic
(25:09):
theory means easier to organize kind of higher control supply.
Speaker 2 (25:15):
They've gotten a little smarter about controlling supply. They would.
Speaker 4 (25:18):
They also have rich balance sheets, They're able. They probably
can take supply out of the market better than in
prior years. We saw this when tariffs hit and those
ocean freight bookings collapse.
Speaker 2 (25:32):
They put twenty five percent of all.
Speaker 4 (25:34):
The ships got pulled from the supply side overnight, moved
to other tradelines, but also just idled a lot of capacity.
Speaker 2 (25:41):
So I think I don't know. I thankfully we don't
have to make these predictions.
Speaker 4 (25:47):
They have a much harder job than we do owning
all the assets, and your ship's not fully kind of
you can go bankrupt. So we're we're more agnostic to
the price of what it is in our business. But
it's it's really hard to do to make these predictions.
Speaker 1 (26:02):
And when you're securing capacity for your customers, are doing
it both on a spot basis and a contractual basis.
With the liners, do you work with like one alliance
or do do you work with everybody?
Speaker 4 (26:15):
We make sure to work with all the alliances or
at least one carrier in each alliance, and often more
than one, as well as some of the independent carriers.
We work with everybody we have good relationship with almost
we have good relationship with all the carriers, with great
relationships with post of ale. Then we do spat and
contract probably about In fact, one of the things that
carriers like about us is that we have a very
(26:36):
high ratio of spot free because our tech enables us
to work with much smaller businesses than our competitors, who
do much more like relationship management via the phone, and
small companies it's hard to support as many customers as
we have with everybody having to be on phone based
(26:56):
individual personal relationship. So that long tail volume spot market
volume carriers like it. On average, it pays more than
the contract rates, so that that's a are.
Speaker 1 (27:10):
You like fifty to fifty spot contract and you're we're
actually more.
Speaker 4 (27:13):
And more like sixty spot. It really depends on the lane,
but we're we have a very good ratio. We used
to be more like eighty ninety and people really loved us.
Speaker 2 (27:23):
Yeah, but we've grown that. We've grown the fixed rate
part of our business.
Speaker 4 (27:26):
And the way that it works is it really you're
gated on how much contract volume you're allowed to get,
especially you know when space is tight in this and
it'll happen, you know, at least couple of times a
year where space gets tight, you're not able to book
that much on the lower contract rate. It's the amount
of contract volume you get with the carriers of function
of how much spot volume you can bring, and they
(27:49):
keep your ratio in line.
Speaker 2 (27:50):
So having lots.
Speaker 4 (27:52):
Of SMB business enables you to get more higher ratio
or like support the ratio of fixed business they can
go get.
Speaker 2 (28:00):
So that's there's a lot of nuance in this market.
Speaker 4 (28:03):
But even where we do fixed business, we're not taking
contract risk on price. It's back to back with a
carrier and they they'll put in thanks called peak season
searcharge that flow through even on the contract, right, so
the contracts are cought. I mean, it's a very strange market.
The contracts are not like what you would expect in
(28:24):
other markets where it's legally binding price that you have signed.
Speaker 2 (28:28):
It's it's much more of a guidance.
Speaker 4 (28:30):
In a it's more about allocating guaranteeing you've got space
on that ship than it is guaranteeing that you're going
to pay that price.
Speaker 1 (28:38):
So so what going back to what you know what
your shippers are telling you? What are your shippers telling
you about peak season this year? Have they brought the
stuff already? Is it sitting in warehouses? Are they just
taking a wait and see approach, or they just operating
normally there.
Speaker 4 (28:56):
We haven't gotten a lot of insight there. I don't
have a strong view on the air freight side, Like
we're definitely seeing a huge surge right now, trying to
get ahead of this August first.
Speaker 2 (29:08):
When the tariffs go back up.
Speaker 4 (29:10):
So you're going to see the air freight have an
early early peak, like right now, people trying to move
as much cargo as they can in the next two
weeks to get it into the country, and air Ocean
is kind of already too late. It hasn't departed, you know,
it's too late to they didn't give enough notice to
get it in on time.
Speaker 2 (29:27):
For that we haven't.
Speaker 4 (29:30):
I don't have a clear view of what's gonna happen
with peak season right now.
Speaker 2 (29:34):
I'm not sure.
Speaker 1 (29:35):
But now you mentioned the air freight market, is the
air freight market generally sounder than the container liner market?
Speaker 3 (29:41):
I mean I view the container liner market.
Speaker 1 (29:44):
I mean you said there's fewer operators, so they might
be a little more disciplined with pricing. You know, I've
ben't seen from my vantage point, I don't see much
discipline coming from the operators because you know, those are
expensive ships and they just have to fill them to
pay the pay the loan off. So you know, is
the is the air freight market a little more rational
(30:08):
if you will?
Speaker 4 (30:09):
The air freight market is very unusual amongst all the
world's markets because this drive, the primary driver of supply
for air freight is not demand for air freight. The
driver of supply for air freight is demand for passenger travel,
and that's that's extremely unusual. You know, fifty percent of
all the world's air freight flies in the belly of
(30:30):
passenger planes. So there it leads to all these weirdness
where you know you're you.
Speaker 2 (30:38):
Don't get more, you.
Speaker 4 (30:40):
May get a lot of passenger here's a good example
of this. One of the world's biggest air freight hubs
that no one talks about is Bali in Indonesia, because
there's so many passengers going there, and the air freight
industry figured out, there's all these empty all these empty
planes going into this place from all over the world.
Speaker 2 (30:57):
Let's just load them up with air freight.
Speaker 4 (30:58):
So you can move air freight from China down to Bali,
and then from Bali to Australia, Bali to Europe, wherever it's,
wherever it might be going. Like, it's very strange types
of things, so you see, I certainly wouldn't call it rational.
Speaker 2 (31:12):
I mean it is kind of rational, but not on
the surface.
Speaker 4 (31:16):
The big thing that's happening in air fright right now, though,
the big thing that hit hard was the Dominimus at
the end of Dominimus. That happened on May second, about
between depending on the season, thirty to fifty percent of
the world's air freight was actually Dominimus cargo e comm
packages coming from China.
Speaker 2 (31:38):
That just an.
Speaker 4 (31:39):
Extraordinarily high amount of the large percentage of the volume
in air freight was and it's largely you know, a
handful of players. The big famous ones are Timu and
Sheen and TikTok, but a lot of a lot of
the brands were doing deminimus shipping from China.
Speaker 1 (31:54):
And I'm sorry that that thirty to fifty percent that's
just trans specific trader.
Speaker 2 (31:58):
That's a global figures.
Speaker 4 (32:00):
We higher on trans specific, but it's probably at the
higher end of that range anyways. fIF So that all
went away at least in terms of its ability to
clear as deminimous not paying duties. Those companies have managed
to keep operating. You can still go on there and
(32:20):
buy just end up paying duties, but that will reduce
that will reduce demand. The prices are highers for the goods,
and and it sort of just and a lot of
companies haven't really won't survive that.
Speaker 2 (32:33):
A lot of smaller.
Speaker 4 (32:34):
Ones so that's a huge impact on demand for air
freight that it's come way down. The price of air
freight went to levels where you couldn't make money as
an air cargo operator.
Speaker 2 (32:46):
And that's the other thing here.
Speaker 4 (32:48):
Because of that nature what happened, you know, I mentioned
the Bali thing. Like one weird thing that happens with
this market is that freight gets routed in strange ways
you wouldn't predict. But the other one is these air
the price of air freight can go so low below
the level that an operator of a cargo plane can
(33:08):
make money because the passengers are still going, and so
there's this supply that doesn't it's totally doesn't care what
the price is.
Speaker 2 (33:15):
It's still like they'll fly your stop. So you'll see
the price.
Speaker 4 (33:19):
A cargo plane really can't make money below from Asia
at the US below about four bucks a kilow you're
just like below that price, you're just not going to
make any money. You're almost be better off not flying,
you know, at three point fifty or something, just leave
the plane there and don't don't get in the air.
But the price can go way below that, and it
(33:41):
did for the last month or so, it was down
in the it's back up right now. But but right
after Deminimus ended in May, it was like two bucks
a kilow.
Speaker 2 (33:48):
Because the car, the passenger planes are going to go anyways.
They don't care.
Speaker 4 (33:52):
And if there's empty space in the belly, might as
well make two dollars a kilo on it. So that's
a that's just like a really unusual thing like that
allows the price to really fall way down.
Speaker 2 (34:02):
And then on the flip side, the air freight price can.
Speaker 4 (34:06):
Go almost to infinity when when demand is when supply
is tight and there's more demand than there is capacity,
because you know, especially Apple, but other high margin companies
just don't care.
Speaker 2 (34:21):
They need to get those those products moving.
Speaker 4 (34:24):
They care a lot about price, but at the end
of the day, they need to move the product. And
if it costs twenty dollars a kilow, who cares. You're
making what's the what's the gross margin on an iPhone?
Speaker 1 (34:35):
Right?
Speaker 4 (34:35):
You can look this up in places, it's a lot.
There's two iPhones in a kilo. So you could pay
twenty bucks a kilo easily and be happy, you know,
And they're not happy.
Speaker 2 (34:44):
But they'll they'll do it. They won't stop. So it's
it's kind of a very strange market in general air freight.
Speaker 1 (34:50):
You mentioned the Shopify acquisition and also acquired Convoy a
couple of years ago. For you guys to acquire some thing,
are you looking to get into different businesses or are
you looking to add scale to the businesses that you
already have. I'm assuming you probably get a lot of
companies that come across your desk that are looking to
(35:10):
be bought.
Speaker 4 (35:11):
Yeah, we're we're only interested in things that add to
our capabilities, not not buying scale, but capabilities could be scale,
bring scale with them into a region.
Speaker 2 (35:20):
For example, we've done only a couple of.
Speaker 4 (35:23):
Really minor acquisitions in freight forwarding directly basically if customs
brokerages in different countries, where it accelerates our getting licenses
and compliance team, et cetera, expertise that that's interesting to us,
but it has to.
Speaker 2 (35:38):
Be really small.
Speaker 4 (35:38):
We're not trying to buy like large businesses on Ebada multiples.
It's like buying capabilities in a region. And then beyond that,
it's it's all for us. It's adding capabilities. So for example,
Shopify added the ability for us to do e commerce
fulfillment delivery to people's doors and into retail stores, retail distribution,
(36:02):
and Convoy beefed up our trucking capabilities. Call me if
you're distressed. But I don't want money losing businesses, so
therefore you're not distressed if you're losing money. I mean,
it's just a difficult proposition.
Speaker 3 (36:14):
Gotcha.
Speaker 1 (36:14):
Okay, that makes sense, you know, and you mentioned that
the trucking part of the business. You know, how is
that market. I'm assuming Convoy was mostly North America trucking.
Speaker 2 (36:24):
Yeah, it's a North America trucking.
Speaker 4 (36:26):
It's it's been brutal recession for going on three years
or so in the truckload business.
Speaker 2 (36:36):
Just prices have been very low. We're convoys are great
business because it's tech enabled.
Speaker 4 (36:40):
We're ninety eight percent hands off the wheel, ninety eight
percent of the loads that we move, about twenty thousand
loads a year don't nobody, no human does any work
at all on our side. So that's that gives us
a nice competitive advantage. But where we can be cheaper,
but the actual truckload prices are so low, and brokerage
(37:03):
is it earns a percent on top of the top line,
you know, on top of the revenue. So when the
price is low, it's hard the brokerage can't just make
that much money. So it's it's a lot of brokerages
have been suffering from failures. I think it's contributed to
Convoy being available for us to acquire it, and I
don't I don't have good insight into what will happen
(37:26):
in the wider market where.
Speaker 2 (37:29):
Somewhat agnostic to that.
Speaker 4 (37:30):
Try to be agnostic to what happens in them with
the price and supply and demand, and just focus on
what tech can do to make that give us a
competitive vantage no matter what.
Speaker 1 (37:40):
So, are there any you know, major risks that you're
kind of concerned about as it relates to something that
could impact the supply chains?
Speaker 3 (37:49):
Or is it just the US trade policy?
Speaker 4 (37:51):
Well, US trade policy is the obvious one related to
larger geopolitical stuff. I mean, everything that's happened in the
Suez is pretty crazy. Will rather happen in the Red
Sea affecting the Suez. So war is the massive risk
that I think we all don't think about enough of
(38:11):
what could happen. We always think of wars as these
things that don't really affect us, and we just talk
about them in terms of economics like markets and stuff.
Speaker 2 (38:20):
But I mean it can could get a lot worse
than that.
Speaker 4 (38:24):
So yeah, wars of all different regional wars, larger scale,
that's that's a massive risk.
Speaker 2 (38:31):
Those I guess those are the two big ones. There's
there's a lot of regulations coming down the pipe that are.
Speaker 4 (38:36):
That are difficult to comply with for our customers as well.
Speaker 2 (38:40):
They may be good for the industry and the customs.
You know, a couple in the couple.
Speaker 4 (38:45):
Worth noting, mostly coming out of the EU, but stuff
around climate measuring of emissions, carbon border adjustments. They're getting
tighter and tighter on what's required there to comply.
Speaker 2 (38:59):
Another there is with us. We had this rule on.
Speaker 4 (39:05):
Cotton that you have to be able to track it
and prove that there was no kind of forced labor
involved in its production, right, which, by the way, is
they need to talk to more philosophers when they create
these laws. I think it's impossible to prove a negative,
but nonetheless you're required.
Speaker 2 (39:22):
To do so.
Speaker 4 (39:22):
To comply with this law, you have to prove that
no force labor was involved.
Speaker 2 (39:27):
It's very difficult to show exactly.
Speaker 4 (39:29):
Where you know, dirt to shirt where did this cotton
start and end up? And then two related similar types
of rules are coming out around forestry and wood to
prove that to be able to show if you have
a forest a wood product, exactly where that tree was grown.
(39:49):
And then they want to be able to do this
for sustainable you know, make sure it's not contributing to deforestation.
Those are annoying and costly and very difficult to comply
with for the customer.
Speaker 2 (40:04):
Maybe good for a custom's brokeery.
Speaker 4 (40:05):
Certainly one like us that has a lot of data
that's built around databases. All right, let's help you get
a system in place to track all these things. But
those will lead to less trade, right Uh, terriffs, there's
there's like a tariff, it's a barrier to trade.
Speaker 2 (40:18):
Yeah.
Speaker 1 (40:19):
And you know we were talking earlier about like your trade.
It's really hard to I guess, trace where something was manufactured,
you know, in that vein? You know, is it next
to impossible to know if something comes out of Vietnam
if it most of it was manufactured in China.
Speaker 2 (40:39):
I mean, I just think you're gonna get a lot,
you get a lot of lying.
Speaker 3 (40:42):
Right Well, yeah, I mean that's how much incentive.
Speaker 4 (40:44):
It's a lot and it's so difficult to track down. Uh,
it's not impossible if you're dealing with trustworthy people, which
is the goal of every supply chain is to have
trustworthy suppliers. But there's just such an incentive for the
people to lie at every change. And the more layers
you have, you know, okay, you stores it from this
company who source a component, that component turns out to
(41:06):
have been you know, brokeer or sourced. I mean, that's
that's where this becomes very hard, is when you have
so many tiers to the supply chain, which is how
modern supply chains look, and there's just yeah, there's a
lot of incentives a lie. And the one big regulation
that I think we're likely to see in the next
year or two.
Speaker 2 (41:27):
I don't know how.
Speaker 4 (41:27):
I don't know enough about how DC works, but I
think you're likely to see this in some form is
today companies can sell in the United States without having
an entity in the United States. So foreign companies based
in any you know, anywhere in the world, but a
lot of this is in China, Vietnam as well. They
can sell in the United States on Amazon especially. This
(41:49):
is very rampant on Amazon for something like sixty percent
of all Amazon sellers are actually Chinese companies don't even
have an LLC or an entity of.
Speaker 2 (41:56):
Any kind in the United States, no employees here, and.
Speaker 4 (41:59):
Then they can sell well that you know, if they
break the rules on customs and they lie about one
of those things the HS code, the country of origin
or the valuation to save on duties.
Speaker 2 (42:12):
When they get caught, yeah, it's illegal, but what are
you going to do.
Speaker 4 (42:16):
I mean, Customers is not going to send agents to
China to arrest them.
Speaker 2 (42:21):
And I think this so they're likely.
Speaker 4 (42:23):
Congress is likely, it's got pretty bipartisan support to make
it so that foreign companies cannot import goods into the US.
You have to set up an LLC some kind of
entity in the US to import.
Speaker 2 (42:34):
That's a likely change that's going to come down, I
would predict.
Speaker 4 (42:38):
And another it's also fertile ground for negotiation and these
trade deals is like, hey, you have to show us
that you're going to enforce when we catch a violator
in your country, either extradate them to US or other
in some way enforce these rules so that we could
actually enforce our trade policies. Otherwise it's like put the
(42:59):
US companies in huge disadvantage because we're likely to comply
in foreign country companies that know they won't get pop
prosecuted won't interesting stuff.
Speaker 1 (43:08):
All right, Well, we're coming up on the end of time. Ryan,
I really want to thank you for your time and
insights today. Really appreciate you coming back on to the
Talking Transports podcast.
Speaker 4 (43:19):
Yeah, my pleasure, my pleasure, so much to talk about,
so I'm sure we'll be I'm sure to be talking
again at some point in the future.
Speaker 3 (43:24):
I certainly hope so. And I want to thank you
for tuning in.
Speaker 1 (43:27):
If you liked the episode, please subscribe and leave a review.
We've lined up a number of great guests for the podcast,
so please check back to your conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you
have an idea for a future episode, please hit me
up on the Bloomberg terminal or on Twitter at logistics Late.
Speaker 3 (43:47):
Thanks everyone, and take care.
Hi everyone, this is Lee Clasgal when We're Talking Transports.
Welcome to Bloomberg Intelligence Talking Transports podcast. I'm your host,
Lee Clasgow, senior Freight, transportation and logistics analysts at Bloomberg Intelligence,
Bloomberg's in house research arm of almost five hundred analysts
and strategists around the globe. Before diving in a little
public service announcement, your support is instrumental to keep bringing
(00:29):
great guests and conversations to you, our listeners, and we
need your support. So please, if you enjoyed this podcast,
share it, like it and leave a comment. Also, if
you have any ideas for a future episodes, or just
want to talk transports, please hit me up on the
Bloomberg terminal, on LinkedIn or on Twitter at Logistics.
Speaker 2 (00:46):
Lee.
Speaker 1 (00:47):
Now onto our episode. We are delighted to have Ryan Peterson,
the founder and CEO of Flexport, as our guest today.
Ryan started flex Sport back in twenty thirteen. Flexport is
a technology driven freight for and supply chain management company.
Yields at MBA from Columbia Business School and a BA
from UC Berkeley. Welcome back to Talking Transports. Ryan, Thanks
(01:10):
for coming back onto the podcast. Glad to have you again.
Speaker 2 (01:13):
Great to be with you all. Thanks for having on
me and you.
Speaker 1 (01:16):
Know, just can you just provide a little more information
about flex Sport.
Speaker 3 (01:19):
What exactly do you do?
Speaker 4 (01:21):
Flex Sport's a global logistics company, so we help businesses
ship cargo all over the world, get it delivered from
wherever it's made one hundred and forty seven countries last
year to all the way to consumers doors.
Speaker 1 (01:33):
Now.
Speaker 4 (01:33):
We acquired Shopify Logistics a couple of years ago, so
I got us into the e commerce and fulfillment and
wholesale kind of retail distribution business. So we take all
the way you know, air, ocean, truck, and rail, ship
anything anywhere. I think what makes us different than other
logistics companies We were a technology company, So we have
four hundred software engineers and we're trying to make everything
(01:54):
more seamless and efficient and easier to do with technology.
Speaker 1 (01:58):
All right, let's use that as the jumping point of technology. Obviously,
you guys are kind of like a technology first platform.
Can you talk about you know, it wouldn't be a
conversation about transports or anything for that matter if we
haven't talked about AI. What are you guys doing with AI.
How are you leveraging it? Are you doing it in house?
Are you leveraging outside at capabilities to drive that.
Speaker 4 (02:21):
We We've been using machine learning for many years at
Flex for both stuff that we build ourselves and third
party tools, and we're bringing heavily into llms. I think,
I mean, it's really an incredible moment for companies like
us that are just beneficiaries of it. I think I'm
glad not to be in the AI arms race directly
(02:41):
and have to have one the capital deployment that these
guys are doing, but also just the competitiveness of it
all and the fact that every you know, the costs
come down constantly and the new model arms race that's happening,
but we just get to be we and every other
most other businesses in the world get to be beneficiaries
of that. We're seeing, you know, simple things like document digitization,
(03:04):
which is really big, and logistics is taking all the
text off of all the PDFs and excel files that
customs requires that are needed for shipping goods.
Speaker 2 (03:15):
We've now got that down to be just basically free.
Speaker 4 (03:18):
And we've been using OCR and machine learning tech on
that for a long time.
Speaker 2 (03:23):
But we've the.
Speaker 4 (03:24):
Open AI specific for that has cut our costs by
about ninety five percent and increase the quality, So it's
it's not basically free to extract data from documents with
incredible accuracy.
Speaker 2 (03:35):
So that's a huge win.
Speaker 4 (03:37):
We digitize over a million documents a year, so just
a massive win on costs, probably saving US I.
Speaker 2 (03:43):
Don't call it half a millionaire or something like that.
Then you could go on.
Speaker 4 (03:47):
I mean, the really interesting area actually in logistics is
going to be voice AI based chat voice agents. So
we have four hundred thousand truck drivers using our mobile
apps in the US. We don't have enough loads to
keep them all interested in opening that mobile app every
day right now, and so but now we can just
(04:08):
call them and they still pick up the phone even
when they're driving, and we'll talk to you and you
can tell them, hey, I've got this load, are you
interested in it?
Speaker 2 (04:17):
And get drivers engaged on the platform.
Speaker 4 (04:19):
That way, using it to call warehouses and make make
sure I've got accurate data. Like one of the biggest
causes of high costs and mistakes and logistics is you
don't have the right data about the warehouse hours of operation.
How to make an appointment specific loading doc info right
address all that, so verifying that quite costly with humans
(04:42):
and free with AI voice agents, so that category is
super interesting. And then overall we've automated about thirty five
percent of the work that goes into shipping a container from.
Speaker 2 (04:54):
Door to door of the manual work, not like.
Speaker 4 (04:56):
The obviously I'm not talking about driving trucks and stuff,
but like the court and work in the freight forwarding layer.
Speaker 3 (05:02):
So getting in on thirty five percent you said you
voted in.
Speaker 4 (05:05):
Just in the last eighteen months, we've done thirty five
percent and team feels pretty confident. The goal at the
end of the year is to get that to fifty
and then the goal I don't know.
Speaker 2 (05:14):
We haven't had the goal for next.
Speaker 4 (05:15):
Year're working on that in the next few weeks, but
my goal is eighty by the end of next year.
And it's just like massive, right, I mean, you talked
about huge cost savings for the customer and efficiency gain
well quality gains, like the tech makes your mistakes than
people would have made in the same job. So it's
going to be revolutionary, I think. And we as a
(05:39):
sort of tech newer entrant in the freight forwarding world
have just a big advantage in that we have a
modern tech stack. We write our own code to operate
the business. Therefore, we can apply LM technology and other
machine learning anywhere we want, at any point if we
think we can automate something and make it better and
much harder to do if you don't write your own code.
Speaker 1 (06:01):
Right, And to be clear, you're not a chatbot, right,
You're a human as of right.
Speaker 2 (06:05):
Now, I'm still human.
Speaker 4 (06:06):
But it's going to be kind of I'm very concerned,
very paranoid about this, Like my parents, My grandma when
she died was the last few years of her life.
Speaker 2 (06:15):
This was up fifteen years ago or so.
Speaker 4 (06:16):
I was getting scammed constantly by like Nigerian phone scammers
and going to the bank and wiring money and stuff.
I'm quite worried about AI calling. I'm kind of well known,
so my face is all over the internet, and AI
will be able to replicate me and call my parents.
Speaker 2 (06:33):
It's going to be a crazy, crazy world.
Speaker 1 (06:35):
Yeah, no, definitely, It's an exciting future and a scary
future all at the same time.
Speaker 3 (06:41):
When it comes to AI.
Speaker 1 (06:43):
So you said, you know you hope to get to
fifty percent by the end of the year, Can that
go to eighty ninety percent?
Speaker 4 (06:51):
Yeah, we think we can over the next My personal
goal to CEO is next year, but the team definitely
thinks in the next two years.
Speaker 2 (06:57):
They'll get it to eighty.
Speaker 4 (06:58):
Now it's a bit overd that, like that's all the
standardized work of a happy path, Like, Okay, we're just
shipping this container from here to hear the exceptions that
happen along the way, those are getting resolved by humans,
and those are almost by definition like harder to automate.
Speaker 2 (07:14):
And then there's a lot.
Speaker 4 (07:16):
Of other things that are probably not in that because
they're not just standardized, but anything that's standard in the workflow,
we're able to just check automate it with very high
quality rates.
Speaker 3 (07:29):
And so what does that mean for flex support?
Speaker 1 (07:32):
So does that mean you're just going to be not
hiring people because you're the people that you have are
just going to be that much more productive. Are you
hiring different people because the jobs become different?
Speaker 2 (07:43):
Probably? Probably both those things.
Speaker 4 (07:45):
I mean, we're I think you'll still see us hire
a lot because we're we're very global. We shipped cargo
to and from one hundred and forty seven countries, but
we only have employees in fifteen countries, and we see
that our quality goes up and our costs come down
and our growth goes up when we put employees in
those countries to kind of more tightly manage the process
(08:06):
of what's happening there.
Speaker 2 (08:07):
So we're going to be hiring a lot.
Speaker 4 (08:09):
Just due to our growth and our global kind of
horizontal expansion. We're going to hire a lot in tech,
a lot of salespeople, a lot of marketing. Account account
management is still we're still very much human driven on
the account management side. But yeah, like your number of
operators per shipment needs to come way down.
Speaker 2 (08:25):
That's the promise of it.
Speaker 4 (08:27):
And I think if the one way to think about
is that you look at the P and L of
a freight forwarding company. For every thousand dollars in revenue
that comes in, about eight hundred will go to the
underlying asset owners as they deserve right they own the assets,
the trucks and the ships. Twenty percent is approximately the
take rate. Some companies are a little better, some worse,
(08:49):
but twenty percent for math making the math easy as
a good benchmark, twenty percent is the net revenue that's
what the forwarder gets to keep.
Speaker 2 (08:56):
And of that half of it.
Speaker 4 (08:58):
Is labor costs of the operators that are coordinating. So
if you cut that in half, now you now have
the option. You can make five percent more e BIT
and be the most profitable freight forwarder in the industry,
or you can be five percent cheaper and give it
all to your customers and go for volume and scale.
(09:19):
And you know, if you're five percent cheaper in freight
forward and you win, most of the RFPs and customers will.
Most customers are pretty transactional and focused on costs above
all else, So we want to be the best and
the cheapest, Like that's the path that tech can enable.
If you have the best user experience, best reporting, data
(09:39):
on time visibility, everything that the customer wants from a
quality standpoint, and you're cheaper, then it's like sort of
irrational not to choose you. That's that's the problemise, right,
We'll see, that's what we're all working towards at Flexport.
Speaker 1 (09:51):
Right, And so I guess I was going to ask
you that too, because you know, you are kind of
one of the new kids on the block. If you will,
great great music band, but the way, and so to
to grow to grow your revenue, is it more on
the price side, like like what is the I guess,
(10:12):
not only the value proposition, Like if I'm a ship
or why am I using flex support versus one of
the old legacy guys like a DSV or an Expediters.
Speaker 2 (10:20):
Yeah, I mean we don't.
Speaker 4 (10:21):
I don't think we have competitive advantage against those guys
in costs. We're working that way, certainly working on that
with the automation story I was just talking about, I
think that'll get.
Speaker 2 (10:31):
That will that alone may get us there.
Speaker 4 (10:34):
And then there's a scale driven component to it where
DSBN Expedite are still bigger than.
Speaker 2 (10:39):
Flexport, but not by that much. Like we're we're.
Speaker 4 (10:42):
About half the size of their ocean business in Expeditor's case,
and maybe we might be bigger than DSV on ocean
for a while, not with the Shanker acquisition. So you
know scale logistics, getting bigger makes you cheaper too, So
that's the other that's that's an import function. But the
value prop for a customer, I think you've got to
be within range on the price. If we're way more expensive,
(11:06):
we're not going to win. But you don't always have
to be the cheapest, and we're focusing on a segment
of the market that really values quality, and that quality
as defined by on time performance, responsiveness to messages, you know,
to changes that they want to make, control ability to
make changes yourself say okay, I'm going to ship this
(11:28):
thing to this other place. Obviously it's about data and
compliance especially you know for our customers business.
Speaker 2 (11:38):
And then there's huge range of optimization savings.
Speaker 4 (11:40):
This goes into the cost, but it's slightly different is
you know when people want to talk about costs. A
big thing that we try to do is go look
at their container volumes and how full are they Because
on average we'll see that customer's cargo containers are only
about seventy five percent full and there's a lot of
empty space. So with we have algorithms that will consolidate
(12:04):
loads across containers and get that to push it towards
ninety five. We can save people about fifteen percent on
their freight just through better optimizing the load plans.
Speaker 2 (12:14):
So there's a huge range. I mean, I think the.
Speaker 4 (12:16):
Key and all sales is get to know your customer,
figure out what they're what their problems that they're facing
are and then what range of solutions do you have.
Speaker 1 (12:24):
And what kind of like you know, you know, you
mentioned some of the targets in terms of productivity. Do
you have any other long term targets for the company,
Like you know, you want to be a top three,
top five, top top ten.
Speaker 2 (12:35):
Oh, we want to be number one.
Speaker 4 (12:37):
Yeah, yeah, I don't want to be on any list
unless I'm at the top. On the trans Pacific, which
is the I think it's actually no longer the world's
biggest trade lane in ocean freight intra Asia, so between
Asia mostly China to other parts of Asia is now
the number one trade lane in the world, but it
was always Transpacific eastbound Asia to US was always the biggest.
Speaker 2 (12:59):
I think it's second biggest.
Speaker 4 (13:00):
Now we're the either the fifth or the sixth largest
ocean ocean freight forward or on that trade lane. And
similar ranking in air maybe a little bit smaller, a
little bit lower on the list and air. Yeah, certainly
we want to be number one and then go and
sequence like start with the that was our kind of
home market. We started there Asia t US. Like to
(13:21):
be number one on that lane in the next few years.
We're the number one actually today is Carry Logistics, which
is the Chinese owned by UH fifty owned by SF
Express Shun Fung is a kind of the FedEx of China.
They're they're the number one today by a large margin actually,
and then Expeditors and Sate Robins Center two and three.
(13:44):
I want to say, I think we're number five or
number six, so we're we're we're working our way up
that the rankings there.
Speaker 2 (13:52):
We're much smaller on a lot of the other lands, especially.
Speaker 4 (13:54):
That intro asially we're not We're not really a big
player on that, and I think that's that's just big
opportunity for us.
Speaker 3 (14:01):
So is it easier to grow on the ocean side
of the business, on the air side of the business.
Speaker 1 (14:07):
Or is it easier to grow in that sort of
fulfillment business.
Speaker 4 (14:10):
Actually, you know, we can grow in all different directions,
Like it's harder to grow the ocean's a our most
mature product. We're already pretty big, so that's the hardest
thing to grow because you know, just like law of
large numbers. The area that we feel like we have
the most competitive advantage today is probably our customs brokerage,
which because customs is all about data and therefore databases
and technology and your people are really looking for quality
(14:35):
and there's huge savings involved when you get to quality,
right and customs. So it's not you're not choosing your
customs broker for who has like the lowest cost per entry.
Speaker 2 (14:45):
It's like there's much other.
Speaker 1 (14:46):
Thing that I have a really really dumb basic question
for you. So if I'm shipper and I use you
to move a container of freight from Asia to the US,
so you're just because you're my forward doesn't necessarily mean
you're my custom broker.
Speaker 2 (15:03):
That's right.
Speaker 4 (15:03):
A lot of companies want to consolidate, and it at scale,
especially consolidate all their customs clearances with one company right
to drive compliance control. In fact, CBP Customs Border Protection
likes to see that from a compliance standpoint, it's demonstrating
that you actually have got rigorous controls in place. And
if there's all these random customs brokers clearing it, you know,
(15:26):
because people will source their freight forwarding much more in
a commodity style, so larger companies tend to will often
split that apart and go with a dedicated customs broker
for all their entries. And then the customs broker has
to coordinate with the other whoever's moving the freight on
that transaction. So that piece of our business is growing
really fast, like one hundred percent year over year, and
(15:48):
it's again because we have just like really good technology
advantages on that and a great team obviously the expertise
side of things. And then the other big area that's
where we're free agnosticly is booking.
Speaker 2 (16:00):
We call it booking management and order management.
Speaker 4 (16:03):
These are where you're you're placing the orders to the
factory for the customers and then taking those orders consolidating
them using those algorithms I was talking about into containers
and then booking that.
Speaker 2 (16:16):
With whoever they want to move the freight with. So
you're agnostic.
Speaker 4 (16:19):
We can move the freight with us, or you can
move it with your other a competitor of ours, or
directly with an ocean carrier. But we're giving you the
technology platform and sort of the service to coordinate all
that visibility control, optimization. And we're agnostic that that part
of our business is growing really really fast as well,
but it's small. We're still growing from a basically a
new product for.
Speaker 1 (16:40):
Us, and you know, you can't talk about customs without
talking about what's been going on with the tariffs, because
I'm assuming you know that expertise is.
Speaker 3 (16:49):
In high demand.
Speaker 1 (16:51):
I know, you know, you know, for me, since the pandemic,
people outside of my profession want to speak to me
or what I have to say about transportation logistics of
all of a sudden, one of the cooler kids in
the room. And I'm sure you've had similar interactions. So,
with everything that's going on in the fluid tariffs, how
(17:15):
is that impacting your business?
Speaker 3 (17:17):
Good or bad?
Speaker 4 (17:19):
I mean, it's really bad for our customers, so we
have to start with that. No, we don't, we don't
really Ever, nothing that's bad for our customers can be
good for us in the long term.
Speaker 2 (17:28):
And so yeah, it's.
Speaker 4 (17:30):
Had a lot of volatility added too in this for Flexport,
in that when the terriffs were first announced on April second,
and then they went into effect April ninth, one week later,
you just had a massive fault drop off of bookings
out of China, in particular about a sixty percent decline
in bookings from China ocean freight bookings.
Speaker 2 (17:50):
And that lasted for three or four weeks. Actually, no,
it lasted for five weeks.
Speaker 4 (17:54):
Excuse me, it was a huge decline of ocean freight
out of China, sixty percent of cline. I mean, it
was pretty horrifying to see. So that was very bad
for our business. It rebounded quite a bit when they
relaxed when the administration relaxed the tariffs on China and
the price of motion for then serge. So you know,
(18:15):
it's just created a lot of volatility, very hard to
finance forecast financially on nets been I would say relatively
neutral for US financially, but a lot of volatility. And
then it's created an enormous demand for our customs brokerage
and trade advisory solutions, and that that part of our
business where we're.
Speaker 2 (18:34):
Able to help people with strategies to.
Speaker 4 (18:39):
Lower tariffs in compliant ways and make sure getting refunds
for people on certain like if you import something into
the US and then you'd later export it, your owe
to refund on the duty you paid on the way.
In every year, seven billion goes unclaimed and that was
before these newer rates that went way up, so it's
probably more like eight or ten now that goes unclaimed.
(19:02):
So there's free money, so helping people go file for
those refunds is a big is a nice part of
our business.
Speaker 2 (19:09):
Helping you.
Speaker 4 (19:10):
Basically, when you have a tariff on the customers do
there's three factors that are going to determine how much
you owe. It's the HS code, so that's the classification.
What kind of product is this and therefore what duty
rate does it owe?
Speaker 2 (19:26):
The country of origin where is it?
Speaker 4 (19:28):
And that can be a scientific well we'll get into
each of those actually, but the country of origin where's it?
Speaker 2 (19:32):
Baide? And then the third is any.
Speaker 4 (19:36):
Yeah, free free trade agreements or the subject and the
valuation excuse me, the third one. So it's it's classification,
country of origin, and valuation. So for each of those
HS code, make sure you got the right classification. You're
not allowed to choose the classification just to drive down
duty rate.
Speaker 2 (19:54):
That's illegal.
Speaker 4 (19:56):
But if you have a clear case that the right
classification happens to have a lower duty rate than you win.
The country of origin is much more challenging to determine,
and Trump's trying to.
Speaker 2 (20:08):
Change the rules on that right now.
Speaker 4 (20:10):
We don't know what it's going to end up, how
it might change, but it's not as you know, most
products are not as simple as just like the whole
thing is made in one country, it's assembled from components
from different countries. So helping people get really smart about
that and do that the right way, where you may
deduct things or may transform it to become a product
of another country, or if you do it wrong, costs
you a lot of money. And then valuation, Like you
(20:32):
didn't care what the product was valued at when it
was free trade because it's time zero anyways, But if
it's all of a sudden times thirty percent, you're gonna
get a lot more serious.
Speaker 2 (20:41):
About how you value these goods. And again, you want
good advice.
Speaker 4 (20:46):
It's like legal advice in some ways, it is legal advice, right,
and you just like, yeah, you can go represent yourself
in a court of law, but you probably going to
make a mistake, Like you, it's much better off.
Speaker 2 (20:56):
To hire a lawyer.
Speaker 4 (20:56):
And that's kind of how you think about this type
of In fact, many people do hire lawyers trade trade
attorneys to help.
Speaker 1 (21:02):
With this, right And I and I guess so, so,
so what are what are your customers doing to react
to the more protectionist policies coming out of the US,
Like how are they managing their supply chains. Obviously they're
not all moving to Detroit to start manufacturing stuff, So
(21:23):
what are they doing.
Speaker 4 (21:24):
I haven't met I haven't met a single company that's
going to move more manufacturing to the US as a
result of this, And I've met at least a dozen
who are shifting manufacturing out of the US as a
result of this.
Speaker 2 (21:35):
So by my form my.
Speaker 4 (21:37):
Read, the tariffs are a failure as measured. You know,
you need to measure things not by their intentions but
by their results in the real world.
Speaker 3 (21:45):
So that's so, that's interesting.
Speaker 1 (21:46):
Why are people moving out of the US? What why
is it having the exact opposite.
Speaker 4 (21:52):
Very simply is that if you're manufacturing for export, you're
manufacturing to sell your product in another country. You're now
paying duties on the way in for any components you're using.
And then so your cost just what I and if
you did the manufacturing. And so you know this is
if you're selling your product outside the US, you do
not want to import the goods into the US, the
(22:12):
components that go into the assembly of that product.
Speaker 2 (22:16):
You want to So people rather, you.
Speaker 4 (22:18):
Know, a medical devices company that I'm close with was
manufactured We're going to manufacture and set up their production
line in North Carolina.
Speaker 2 (22:26):
They have to.
Speaker 4 (22:26):
Import the machines from Germany and some of the components
from China and other countries. They just said, I will
just build this line in a different country. That way
we won't have to pay all those higher costs. So
that's the simplest example is when.
Speaker 2 (22:41):
It's for export.
Speaker 4 (22:42):
Another one is there are some cases where they give
exemptions to the finished goods, So bicycles is one of
these finished goods. Bicycles are somehow exempt or have a
lower duty rate than the components too. So we have
a customer that makes bicycles in the United States in
the Midwest.
Speaker 2 (23:00):
Very rare, but they do.
Speaker 4 (23:01):
And so all of a sudden, their costs went way
up if they're finished goods. But if they imported a
finished by sorry on the components, the costs went way up.
But if they imported finished goods, there would be no costs.
So they're just going to start manufacturing off shore. Those
are just two examples of many.
Speaker 1 (23:15):
Yeah, and I guess you know, the tariffs have had
added a lot of volatility to rates, whether it's air
freight or ocean rates.
Speaker 3 (23:24):
Kind of what's your sense on.
Speaker 1 (23:26):
You know, we've seen ocean rates come down considerably, you know,
good for them, bad for everybody else that you know,
they can't go through the Suez Canal, so that's keeping
rates artificially higher than they would be. Where do you
see rates going from here? Do you do you have
a kind of a thought on where ocean rates are headed?
Speaker 4 (23:45):
Yeah, I definitely separate those two, and we do ocean first.
The big you mentioned it, the Suez is the big
open question, and there was a ship sunk in the
Seuez last week, so I think that kind of answers
the question for at least the next twelve twenty four
months or so that no ship, the container ships are
not going to return to the red z. I I
can feel confident in that after that ship got sung
(24:05):
last week, So that's going to keep rates that would
at the moment that opens up, I would predict a
real collapse in ocean freight rates back to at least
to twenty twenty three levels, and probably back to and
potentially back to the levels that we haven't seen since
like twenty sixteen, when that was the kind of the
lowest ocean freight rates ever. And it could easily go
(24:27):
down there because of the tariffs, because of simple supply
and demand that high tariffs need to higher prices on goods,
and higher prices on goods leave the less purchasing of
goods and therefore lower volumes. So kind of a simple
story of how tariffs diminish the price of ocean freight
(24:47):
the I guess the positive story, the bull story for
ocean carriers of why that might not happen or why
rates won't go that low because of this is that
there are just not as many ocean carriers as there
used to be, and they're I'm not alleging anything illegal here,
but I do think a fewer carriers in natural economic
(25:09):
theory means easier to organize kind of higher control supply.
Speaker 2 (25:15):
They've gotten a little smarter about controlling supply. They would.
Speaker 4 (25:18):
They also have rich balance sheets, They're able. They probably
can take supply out of the market better than in
prior years. We saw this when tariffs hit and those
ocean freight bookings collapse.
Speaker 2 (25:32):
They put twenty five percent of all.
Speaker 4 (25:34):
The ships got pulled from the supply side overnight, moved
to other tradelines, but also just idled a lot of capacity.
Speaker 2 (25:41):
So I think I don't know. I thankfully we don't
have to make these predictions.
Speaker 4 (25:47):
They have a much harder job than we do owning
all the assets, and your ship's not fully kind of
you can go bankrupt. So we're we're more agnostic to
the price of what it is in our business. But
it's it's really hard to do to make these predictions.
Speaker 1 (26:02):
And when you're securing capacity for your customers, are doing
it both on a spot basis and a contractual basis.
With the liners, do you work with like one alliance
or do do you work with everybody?
Speaker 4 (26:15):
We make sure to work with all the alliances or
at least one carrier in each alliance, and often more
than one, as well as some of the independent carriers.
We work with everybody we have good relationship with almost
we have good relationship with all the carriers, with great
relationships with post of ale. Then we do spat and
contract probably about In fact, one of the things that
carriers like about us is that we have a very
(26:36):
high ratio of spot free because our tech enables us
to work with much smaller businesses than our competitors, who
do much more like relationship management via the phone, and
small companies it's hard to support as many customers as
we have with everybody having to be on phone based
(26:56):
individual personal relationship. So that long tail volume spot market
volume carriers like it. On average, it pays more than
the contract rates, so that that's a are.
Speaker 1 (27:10):
You like fifty to fifty spot contract and you're we're
actually more.
Speaker 4 (27:13):
And more like sixty spot. It really depends on the lane,
but we're we have a very good ratio. We used
to be more like eighty ninety and people really loved us.
Speaker 2 (27:23):
Yeah, but we've grown that. We've grown the fixed rate
part of our business.
Speaker 4 (27:26):
And the way that it works is it really you're
gated on how much contract volume you're allowed to get,
especially you know when space is tight in this and
it'll happen, you know, at least couple of times a
year where space gets tight, you're not able to book
that much on the lower contract rate. It's the amount
of contract volume you get with the carriers of function
of how much spot volume you can bring, and they
(27:49):
keep your ratio in line.
Speaker 2 (27:50):
So having lots.
Speaker 4 (27:52):
Of SMB business enables you to get more higher ratio
or like support the ratio of fixed business they can
go get.
Speaker 2 (28:00):
So that's there's a lot of nuance in this market.
Speaker 4 (28:03):
But even where we do fixed business, we're not taking
contract risk on price. It's back to back with a
carrier and they they'll put in thanks called peak season
searcharge that flow through even on the contract, right, so
the contracts are cought. I mean, it's a very strange market.
The contracts are not like what you would expect in
(28:24):
other markets where it's legally binding price that you have signed.
Speaker 2 (28:28):
It's it's much more of a guidance.
Speaker 4 (28:30):
In a it's more about allocating guaranteeing you've got space
on that ship than it is guaranteeing that you're going
to pay that price.
Speaker 1 (28:38):
So so what going back to what you know what
your shippers are telling you? What are your shippers telling
you about peak season this year? Have they brought the
stuff already? Is it sitting in warehouses? Are they just
taking a wait and see approach, or they just operating
normally there.
Speaker 4 (28:56):
We haven't gotten a lot of insight there. I don't
have a strong view on the air freight side, Like
we're definitely seeing a huge surge right now, trying to
get ahead of this August first.
Speaker 2 (29:08):
When the tariffs go back up.
Speaker 4 (29:10):
So you're going to see the air freight have an
early early peak, like right now, people trying to move
as much cargo as they can in the next two
weeks to get it into the country, and air Ocean
is kind of already too late. It hasn't departed, you know,
it's too late to they didn't give enough notice to
get it in on time.
Speaker 2 (29:27):
For that we haven't.
Speaker 4 (29:30):
I don't have a clear view of what's gonna happen
with peak season right now.
Speaker 2 (29:34):
I'm not sure.
Speaker 1 (29:35):
But now you mentioned the air freight market, is the
air freight market generally sounder than the container liner market?
Speaker 3 (29:41):
I mean I view the container liner market.
Speaker 1 (29:44):
I mean you said there's fewer operators, so they might
be a little more disciplined with pricing. You know, I've
ben't seen from my vantage point, I don't see much
discipline coming from the operators because you know, those are
expensive ships and they just have to fill them to
pay the pay the loan off. So you know, is
the is the air freight market a little more rational
(30:08):
if you will?
Speaker 4 (30:09):
The air freight market is very unusual amongst all the
world's markets because this drive, the primary driver of supply
for air freight is not demand for air freight. The
driver of supply for air freight is demand for passenger travel,
and that's that's extremely unusual. You know, fifty percent of
all the world's air freight flies in the belly of
(30:30):
passenger planes. So there it leads to all these weirdness
where you know you're you.
Speaker 2 (30:38):
Don't get more, you.
Speaker 4 (30:40):
May get a lot of passenger here's a good example
of this. One of the world's biggest air freight hubs
that no one talks about is Bali in Indonesia, because
there's so many passengers going there, and the air freight
industry figured out, there's all these empty all these empty
planes going into this place from all over the world.
Speaker 2 (30:57):
Let's just load them up with air freight.
Speaker 4 (30:58):
So you can move air freight from China down to Bali,
and then from Bali to Australia, Bali to Europe, wherever it's,
wherever it might be going. Like, it's very strange types
of things, so you see, I certainly wouldn't call it rational.
Speaker 2 (31:12):
I mean it is kind of rational, but not on
the surface.
Speaker 4 (31:16):
The big thing that's happening in air fright right now, though,
the big thing that hit hard was the Dominimus at
the end of Dominimus. That happened on May second, about
between depending on the season, thirty to fifty percent of
the world's air freight was actually Dominimus cargo e comm
packages coming from China.
Speaker 2 (31:38):
That just an.
Speaker 4 (31:39):
Extraordinarily high amount of the large percentage of the volume
in air freight was and it's largely you know, a
handful of players. The big famous ones are Timu and
Sheen and TikTok, but a lot of a lot of
the brands were doing deminimus shipping from China.
Speaker 1 (31:54):
And I'm sorry that that thirty to fifty percent that's
just trans specific trader.
Speaker 2 (31:58):
That's a global figures.
Speaker 4 (32:00):
We higher on trans specific, but it's probably at the
higher end of that range anyways. fIF So that all
went away at least in terms of its ability to
clear as deminimous not paying duties. Those companies have managed
to keep operating. You can still go on there and
(32:20):
buy just end up paying duties, but that will reduce
that will reduce demand. The prices are highers for the goods,
and and it sort of just and a lot of
companies haven't really won't survive that.
Speaker 2 (32:33):
A lot of smaller.
Speaker 4 (32:34):
Ones so that's a huge impact on demand for air
freight that it's come way down. The price of air
freight went to levels where you couldn't make money as
an air cargo operator.
Speaker 2 (32:46):
And that's the other thing here.
Speaker 4 (32:48):
Because of that nature what happened, you know, I mentioned
the Bali thing. Like one weird thing that happens with
this market is that freight gets routed in strange ways
you wouldn't predict. But the other one is these air
the price of air freight can go so low below
the level that an operator of a cargo plane can
(33:08):
make money because the passengers are still going, and so
there's this supply that doesn't it's totally doesn't care what
the price is.
Speaker 2 (33:15):
It's still like they'll fly your stop. So you'll see
the price.
Speaker 4 (33:19):
A cargo plane really can't make money below from Asia
at the US below about four bucks a kilow you're
just like below that price, you're just not going to
make any money. You're almost be better off not flying,
you know, at three point fifty or something, just leave
the plane there and don't don't get in the air.
But the price can go way below that, and it
(33:41):
did for the last month or so, it was down
in the it's back up right now. But but right
after Deminimus ended in May, it was like two bucks
a kilow.
Speaker 2 (33:48):
Because the car, the passenger planes are going to go anyways.
They don't care.
Speaker 4 (33:52):
And if there's empty space in the belly, might as
well make two dollars a kilo on it. So that's
a that's just like a really unusual thing like that
allows the price to really fall way down.
Speaker 2 (34:02):
And then on the flip side, the air freight price can.
Speaker 4 (34:06):
Go almost to infinity when when demand is when supply
is tight and there's more demand than there is capacity,
because you know, especially Apple, but other high margin companies
just don't care.
Speaker 2 (34:21):
They need to get those those products moving.
Speaker 4 (34:24):
They care a lot about price, but at the end
of the day, they need to move the product. And
if it costs twenty dollars a kilow, who cares. You're
making what's the what's the gross margin on an iPhone?
Speaker 1 (34:35):
Right?
Speaker 4 (34:35):
You can look this up in places, it's a lot.
There's two iPhones in a kilo. So you could pay
twenty bucks a kilo easily and be happy, you know,
And they're not happy.
Speaker 2 (34:44):
But they'll they'll do it. They won't stop. So it's
it's kind of a very strange market in general air freight.
Speaker 1 (34:50):
You mentioned the Shopify acquisition and also acquired Convoy a
couple of years ago. For you guys to acquire some thing,
are you looking to get into different businesses or are
you looking to add scale to the businesses that you
already have. I'm assuming you probably get a lot of
companies that come across your desk that are looking to
(35:10):
be bought.
Speaker 4 (35:11):
Yeah, we're we're only interested in things that add to
our capabilities, not not buying scale, but capabilities could be scale,
bring scale with them into a region.
Speaker 2 (35:20):
For example, we've done only a couple of.
Speaker 4 (35:23):
Really minor acquisitions in freight forwarding directly basically if customs
brokerages in different countries, where it accelerates our getting licenses
and compliance team, et cetera, expertise that that's interesting to us,
but it has to.
Speaker 2 (35:38):
Be really small.
Speaker 4 (35:38):
We're not trying to buy like large businesses on Ebada multiples.
It's like buying capabilities in a region. And then beyond that,
it's it's all for us. It's adding capabilities. So for example,
Shopify added the ability for us to do e commerce
fulfillment delivery to people's doors and into retail stores, retail distribution,
(36:02):
and Convoy beefed up our trucking capabilities. Call me if
you're distressed. But I don't want money losing businesses, so
therefore you're not distressed if you're losing money. I mean,
it's just a difficult proposition.
Speaker 3 (36:14):
Gotcha.
Speaker 1 (36:14):
Okay, that makes sense, you know, and you mentioned that
the trucking part of the business. You know, how is
that market. I'm assuming Convoy was mostly North America trucking.
Speaker 2 (36:24):
Yeah, it's a North America trucking.
Speaker 4 (36:26):
It's it's been brutal recession for going on three years
or so in the truckload business.
Speaker 2 (36:36):
Just prices have been very low. We're convoys are great
business because it's tech enabled.
Speaker 4 (36:40):
We're ninety eight percent hands off the wheel, ninety eight
percent of the loads that we move, about twenty thousand
loads a year don't nobody, no human does any work
at all on our side. So that's that gives us
a nice competitive advantage. But where we can be cheaper,
but the actual truckload prices are so low, and brokerage
(37:03):
is it earns a percent on top of the top line,
you know, on top of the revenue. So when the
price is low, it's hard the brokerage can't just make
that much money. So it's it's a lot of brokerages
have been suffering from failures. I think it's contributed to
Convoy being available for us to acquire it, and I
don't I don't have good insight into what will happen
(37:26):
in the wider market where.
Speaker 2 (37:29):
Somewhat agnostic to that.
Speaker 4 (37:30):
Try to be agnostic to what happens in them with
the price and supply and demand, and just focus on
what tech can do to make that give us a
competitive vantage no matter what.
Speaker 1 (37:40):
So, are there any you know, major risks that you're
kind of concerned about as it relates to something that
could impact the supply chains?
Speaker 3 (37:49):
Or is it just the US trade policy?
Speaker 4 (37:51):
Well, US trade policy is the obvious one related to
larger geopolitical stuff. I mean, everything that's happened in the
Suez is pretty crazy. Will rather happen in the Red
Sea affecting the Suez. So war is the massive risk
that I think we all don't think about enough of
(38:11):
what could happen. We always think of wars as these
things that don't really affect us, and we just talk
about them in terms of economics like markets and stuff.
Speaker 2 (38:20):
But I mean it can could get a lot worse
than that.
Speaker 4 (38:24):
So yeah, wars of all different regional wars, larger scale,
that's that's a massive risk.
Speaker 2 (38:31):
Those I guess those are the two big ones. There's
there's a lot of regulations coming down the pipe that are.
Speaker 4 (38:36):
That are difficult to comply with for our customers as well.
Speaker 2 (38:40):
They may be good for the industry and the customs.
You know, a couple in the couple.
Speaker 4 (38:45):
Worth noting, mostly coming out of the EU, but stuff
around climate measuring of emissions, carbon border adjustments. They're getting
tighter and tighter on what's required there to comply.
Speaker 2 (38:59):
Another there is with us. We had this rule on.
Speaker 4 (39:05):
Cotton that you have to be able to track it
and prove that there was no kind of forced labor
involved in its production, right, which, by the way, is
they need to talk to more philosophers when they create
these laws. I think it's impossible to prove a negative,
but nonetheless you're required.
Speaker 2 (39:22):
To do so.
Speaker 4 (39:22):
To comply with this law, you have to prove that
no force labor was involved.
Speaker 2 (39:27):
It's very difficult to show exactly.
Speaker 4 (39:29):
Where you know, dirt to shirt where did this cotton
start and end up? And then two related similar types
of rules are coming out around forestry and wood to
prove that to be able to show if you have
a forest a wood product, exactly where that tree was grown.
(39:49):
And then they want to be able to do this
for sustainable you know, make sure it's not contributing to deforestation.
Those are annoying and costly and very difficult to comply
with for the customer.
Speaker 2 (40:04):
Maybe good for a custom's brokeery.
Speaker 4 (40:05):
Certainly one like us that has a lot of data
that's built around databases. All right, let's help you get
a system in place to track all these things. But
those will lead to less trade, right Uh, terriffs, there's
there's like a tariff, it's a barrier to trade.
Speaker 2 (40:18):
Yeah.
Speaker 1 (40:19):
And you know we were talking earlier about like your trade.
It's really hard to I guess, trace where something was manufactured,
you know, in that vein? You know, is it next
to impossible to know if something comes out of Vietnam
if it most of it was manufactured in China.
Speaker 2 (40:39):
I mean, I just think you're gonna get a lot,
you get a lot of lying.
Speaker 3 (40:42):
Right Well, yeah, I mean that's how much incentive.
Speaker 4 (40:44):
It's a lot and it's so difficult to track down. Uh,
it's not impossible if you're dealing with trustworthy people, which
is the goal of every supply chain is to have
trustworthy suppliers. But there's just such an incentive for the
people to lie at every change. And the more layers
you have, you know, okay, you stores it from this
company who source a component, that component turns out to
(41:06):
have been you know, brokeer or sourced. I mean, that's
that's where this becomes very hard, is when you have
so many tiers to the supply chain, which is how
modern supply chains look, and there's just yeah, there's a
lot of incentives a lie. And the one big regulation
that I think we're likely to see in the next
year or two.
Speaker 2 (41:27):
I don't know how.
Speaker 4 (41:27):
I don't know enough about how DC works, but I
think you're likely to see this in some form is
today companies can sell in the United States without having
an entity in the United States. So foreign companies based
in any you know, anywhere in the world, but a
lot of this is in China, Vietnam as well. They
can sell in the United States on Amazon especially. This
(41:49):
is very rampant on Amazon for something like sixty percent
of all Amazon sellers are actually Chinese companies don't even
have an LLC or an entity of.
Speaker 2 (41:56):
Any kind in the United States, no employees here, and.
Speaker 4 (41:59):
Then they can sell well that you know, if they
break the rules on customs and they lie about one
of those things the HS code, the country of origin
or the valuation to save on duties.
Speaker 2 (42:12):
When they get caught, yeah, it's illegal, but what are
you going to do.
Speaker 4 (42:16):
I mean, Customers is not going to send agents to
China to arrest them.
Speaker 2 (42:21):
And I think this so they're likely.
Speaker 4 (42:23):
Congress is likely, it's got pretty bipartisan support to make
it so that foreign companies cannot import goods into the US.
You have to set up an LLC some kind of
entity in the US to import.
Speaker 2 (42:34):
That's a likely change that's going to come down, I
would predict.
Speaker 4 (42:38):
And another it's also fertile ground for negotiation and these
trade deals is like, hey, you have to show us
that you're going to enforce when we catch a violator
in your country, either extradate them to US or other
in some way enforce these rules so that we could
actually enforce our trade policies. Otherwise it's like put the
(42:59):
US companies in huge disadvantage because we're likely to comply
in foreign country companies that know they won't get pop
prosecuted won't interesting stuff.
Speaker 1 (43:08):
All right, Well, we're coming up on the end of time. Ryan,
I really want to thank you for your time and
insights today. Really appreciate you coming back on to the
Talking Transports podcast.
Speaker 4 (43:19):
Yeah, my pleasure, my pleasure, so much to talk about,
so I'm sure we'll be I'm sure to be talking
again at some point in the future.
Speaker 3 (43:24):
I certainly hope so. And I want to thank you
for tuning in.
Speaker 1 (43:27):
If you liked the episode, please subscribe and leave a review.
We've lined up a number of great guests for the podcast,
so please check back to your conversations with C suite executives, shippers, regulators,
and decision makers within the freight markets. Also, if you
have an idea for a future episode, please hit me
up on the Bloomberg terminal or on Twitter at logistics Late.
Speaker 3 (43:47):
Thanks everyone, and take care.
Host
Lee Klaskow
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