SPEAKER_04: We're really excited to have Claire with us. Come on out Claire. Are you here? Alright, what are we... Welcome Claire. What will we be talking about today?
SPEAKER_00: We're gonna be talking about China, you know, just as everything has been all spicy. Yeah, well just again, we're trying to make today about just easy breezy topics,
SPEAKER_04: you know, the most easiest things to manage. So armaments, Ukraine, let's go to China, sure. Please welcome Claire.
SPEAKER_00: We are going to actually keep this pretty apolitical today and maybe talk a bit about the parts about China that are less discussed in the headlines. And, you know, Jason reached out and he said he wanted to really understand what were some problems and he wanted to see solved, that we wanted to see solved. So I'm a property developer. I run Greater China for Heinz, we're the largest private real estate firm in the world. And we have an incredible Greater China team. I know I see this folks in the front, they're like, where is she? I can't possibly spot her in there. So we have a team that is working across Beijing, Shanghai, Shenzhen, Dongguan and Hong Kong. And we get to work really across the real estate spectrum. So we built the Greenest Skyscraper in China. We built some of the first international service departments in the country and are doing some really interesting, innovative projects like in Hong Kong. We bought a distressed hotel that we're turning into really a new kind of living, collaborative living that's super technology enabled for a young population there where the average white collar young person, it takes them 20 years of salary to be able to buy an apartment. So we get to approach these problems that are not unique to our part of the world, but often the solution is a combination of East meets West. So back to kind of what's the problem? Well, you know, we're sitting right now in Miami, a place that is super exciting thanks to a lot of the things that are happening right here that have been hyped by a pretty awesome mayor. Right. What do you do? We got on Twitter and he talked to all of us about what this city had to offer. It had key ingredients. It had universities. It had an upward trajectory. It had young people looking to collaborate. And at the end of the day, that's what we want to be. Right. We want to be sitting together in awesome spaces like this, exchanging ideas with other interesting people. That's how you do cool stuff. And so as property developers, we think, you know, how do you create spaces where people want to be their best? Right. Collaborate with others and build a better future. So that's a lot of jargon. But what does that actually mean? Back to the problem? Well, first, these ingredients are pretty clear. I teach a class at Stanford on this called Who Owns Your City? And the students usually pick it up in the first 10 minutes. It's a place that has pretty good infrastructure. Can I get a job? Can I afford to live here? And is there cool cultural stuff that keeps it from being too bland? But then, you know, you'd say, OK, well, cities can learn from each other. Right. You can just take those ingredients and apply it. And that's what Suarez did a great job of here. But we are living in a time where the East and West have never been more divided. Right. And building a city, building buildings is really hard. It's like the most extreme version of hardware. So as a property developer, we spend our time really thinking about what are the big macro trends? What are startups focused on? Where do they want to be? Because our spaces need to be relevant for 50, 70, 100 years. And we can't pick up our building and move it somewhere else. And so you try to take the arbitrage of what's working in one part of the world and try to apply that to another and solve problems. And that's where you find great returns. But it's also where you build places that are going to be relevant for folks. And so, you know, just a couple examples up here behind me. So, you know, we talked about the living challenges. So for folks to be able to to be able to afford a place to buy. But the concept of rental apartments, so like multifamily, if anyone lives in a multifamily building with one landlord, that isn't totally a thing in Greater China. Often people are left to rent from an individual landlord, pay a deposit that's enormous, cross prohibitive, you know, cost prohibitive and get, you know, quality of product that that really is not up to what they would expect. And so taking a very, in some ways, kind of Western concept and applying it in a place that technologically is probably about 10 to 15 years ahead in terms of what that average user is used to. Okay. They're used to unlocking a door with their phone. Their WeChat is their ID. It's the way they meet new people. They can physically shake hands on WeChat to introduce themselves to a friend. It's where they keep their coupons. It's how they pay their rent. It's how they pay their taxes in some regards. Right. We don't have that in America. But if you're like me and you live in Greater China, you do. And so how do you combine those things together to create something that doesn't exist? You see up behind me a logistics building, but it's actually six stories high. Something we're developing. It is a giant, almost like a refrigerator, but a high rise, super tech enabled. And that's because, you know, they've got a lot of people. That building will be sitting within a 45 minute driving radius to 45 million people. And yet China only has a quarter of the cold storage capacity per capita that the US does. It doesn't take a genius to see that this trajectory is lower left to upper right. And so, again, you're taking this concept of east meets west. Building up here, just behind me, is in Shanghai. It's about a million foot tower. You have a lot of those here in the United States. Big fancy office buildings, you know, where people used to go to sit at their computers and do work. But this one is very different from one that you may have walked into earlier this week. This entire building is on WeChat. You can interact with the building on WeChat. You can interact with the landlord. You can interact with your other tenants. You can have chance encounters or organize a yoga trip in the afternoon with the people, with the space, using this digital interface. So in a way, it's really combining the way we live right now. We live in a physical world, but so much of our idea sharing, our collaboration is happening in the air, right? In a digital experience that we can't see. And so it's another combination of this east meets west. And so what becomes a problem and an opportunity, a problem when you sit in the middle of this world, like my team has the honor to do, is you see that there are all of these opportunities for us to be able to share this. Really the best of what the west has to offer with the innovation that's happening on the ground in China. It is so hard to talk about in this very divided world. And so we like to take the positive side and say, you know, we're living in this world of like magic and Larry. And how can we make each other better? So I thought I'd use just a few minutes and then we'll hang out with the besties to maybe share a story that maybe I'll have it read so much about so that you get the benefit of knowing a little bit about what's happening over there. And you can see an example of where sort of east meets west and that collaboration can make us all better. So up here is a gentleman you all probably recognize, it's Deng Xiaoping, famous for really the opening up of China. And he was an experimenter, you know, he had this vision of what China could be, and he saw what the importance of the physical world, the physical infrastructure, what a role that could play in to enable the economy to jump further. And so the picture to the other side is Shenzhen, which in 1980 was barely a fishing village that had about 58,000 people, very few paved roads and Deng Xiaoping, he was from Sichuan, so we really understood what it was like to not be from the big city. And so he declared it a special economic zone, special economic zone, so Jingji Tehchi, and that meant that it would be this place to experiment with bits of capitalism, with free trade, etc. So what is it today? Well first, there's that same road along progression just a few years after it was declared a zone, and then up here behind me is what it looks like now. So Shenzhen is over 12 million people, the average age is 29, it's really the tech hub of China, so companies like DJI, which makes 70% of the world's drones, they call this area home. And just within this area, if you were to go shortly from where this picture is taken, you'll have two of the world's five biggest ports by tonnage. So how do you take that head start and turn it into something further? Well they took a lesson out of the book of the West, and they created something called the Greater Bay Area. Yeah, okay, you guys get it. And so what is the Greater Bay Area? Well it is a collection of nine cities on the mainland side, some of which may be familiar to you guys, so Shenzhen is mentioned and Guangzhou. Guangzhou is about 18 million people. Places like Zhuhai, do you all remember, you know several years ago there was this thing about China building the longest bridge in the world, everyone's like where is that? Okay it was in Zhuhai. And then, so nine cities on the China side and then Hong Kong and Macau. And together, this area, it's about the size of called West Virginia, today has a GDP that's sitting right around Canada and South Korea. Okay about 1.7 trillion. In 2017, they declared this Greater Bay Area name and it was there to really back up a lot of the investment frankly that had already started to join these cities together to create a super region. So within that super region, they spent about 300 billion to build infrastructure to further connect it. So within just four years, they built 2000 miles of speed rail, like high speed trains. Here we have like a little one from here that goes to Fort Lauderdale, Texas is going to get one in the year 2090. And so what does that mean? That means that I can walk out of my office with my teammates in Hong Kong, which is right next to that big Ferris wheel thing that everybody recognizes. I can take one stop onto Metro in 13 minutes on a speed train, I could be in Shenzhen, or I could keep on going. And I could access about 23,000 miles of high speed trains and get to Beijing, get to you know further than Guangzhou, get to Western China. It is amazing and it is happening so quickly and that number will soon be 40,000 as they continue to build but it's not just speed trains. These are interconnected nodes with further Metro right with transit oriented development on top of the meetings of these trains. So back to the so what? So we know that if you take cool people put them in cool places and you give them an opportunity to interact, well, what can you do? So this area, again, the size of West Virginia now with 70 million people who are all quite young. And again, back to the ingredients. We talked about what sort of fosters innovation. Well, they've incentivized universities to put additional campuses here. And these are the best universities in China. So Tsinghua, Fudan, etc. They funded further life science. They funded further tax increment zones to encourage businesses to come and set up nodes of activity focused on areas of excellence. So remember we talked earlier about in 1980, there were 58,000 people in all of Shenzhen. So just between 2010 and 2020, in one small neighborhood on the western side of Shenzhen, they filed 58,000 patents. It's pretty amazing. And that shouldn't be scary. That should be exciting, guys. This is where we get innovation. This is how we get better back to the magic and Larry. Right. Thank you. Yes, you can clap for that. You can clap for that. So what does that mean for us? What does that mean for folks who are sort of getting to work in this interstitial space in between getting to live within it? Up here, you know, behind me I have, I'll clear the visual for you. It's further just connecting showing these metro lanes, these trams, buses, etc. leading to these speed trains. Back down here, that's Hong Kong Island. And then this takes you through a bit of the Bay Area before you get out to the rest of China. Well, why does it matter? It's because these things layer together. Okay, so China's ecommerce percentage is about 25% of their overall retail. Here it's about 14%. Again, now we're smart, we can see where this is going. So you can take some notes on the preview and see what things and trends may be coming here. In China, about 85-ish percent, their transactions are mobile. Here that's barely 30%. Where is that going? How does that work? And you can see what's happening. Another is you can look at trends that are just part of the world there that haven't made it here. And you sit there and you're like, wow, what a chance to iterate. So the example there, again, we'll stick with shopping and retail, is social shopping. So this idea of streaming while shopping that's layered with a full experience and imagine what it can do. Again, if you layer that on top of this WeChat platform we were just talking about, a place where I can go and I could make a new friend right now. You, by looking at you, showing my phone to you, putting them together so we can introduce a product, introduce a lecture, a concept together. Imagine what we can do. Elon likes WeChat, he was just talking about it yesterday. So the point is that we all have this opportunity to really, again, the headlines can be exciting, they can be crispy, but to look beneath them and to take an opportunity to further connect with the people. Because, again, those folks who are hopping on these trains for, you know, probably the equivalent of about 45 cents to get on the public transit here, going around and exchanging ideas. These people, most of them are not politicians. Most of them are not big world global leaders. They're folks who are trying to create something for themselves, to create something for their children, to build a better world. So we're really all on the same team. So with that, bring the besties out I guess. Try not to get too spicy. Alright, center stage for you. Right here? Right there in the middle seat. Oh baby. Well done, well done. Be nice guys, be nice. Of course, of course.
SPEAKER_04: Well, Sax isn't here, so of course we'll be nice. That's kind of by default. And meet our Ryan Peterson from Flexport. Claire, maybe you guys, Ryan, Claire, Ryan. I'm introducing you two guys, Claire, Ryan, Ryan, Claire. Hi, you guys met? We follow each other. So, what do we as Americans not understand about our rival? And what does our rival most not understand about us in your estimation having operated in both countries for so long?
SPEAKER_00: You know, the term rival is an interesting one. Obviously I love sports analogies and came from the track and field world myself. Claire was in the Olympics guys. Claire was injured, Claire was injured. I used to go running sometimes. Kind of fast. At the Olympics.
SPEAKER_00: But, you know, your job in the sport is to find the person who is better than you in some ways. And maybe they're strong where you're weak, you're weak where they're strong. You find each other and you shore up together. And I think that is what becomes so clear when you, you know, live there, when you live on the other side of the world. But maybe we're born here or, you know, I'm a minority so I've maybe always lived in that interstitial space personally. Or even our team. Our team is very representative of modern China. We have people from nearly every province. They're really across the education bracket. Highly trained engineers but who might be quite young. We've had that over some time. We've had that to folks in their 60s who have really seen China evolve. And so I do think the thing that can get missed is almost that concept we talked about, that as rivals, they're not monoliths. Just as America is not a monolith.
SPEAKER_04: And we can take the best of each other.
SPEAKER_03: model for the century for cooperation between the two nations that's enhancing to both? I think it's happening in enterprise. I really think it is. So
SPEAKER_00: when I look at again younger people, the products that they use or the things that the young tech entrepreneurs in China are working on versus here, they're approaching a lot of the same problems. So on the social side, you know, looking at Douyin and what made it so catchy, right? Explain what it is for us. It's TikTok. It's TikTok. And back to that one about, you know, cheat codes and a preview. You know, Douyin was popular years ago and so, you know, I remember first looking at the app and being like, wow, this is very catchy and there's effectively no difference between Douyin and TikTok. So do you read and write
SPEAKER_01: Mandarin fluently as well as speak it? Well, you will never confuse me for a local.
SPEAKER_00: But, you know, enough to get by. And so when you do business in China, do you
SPEAKER_01: conduct in English or do you conduct in Mandarin? Yes, so with the team we work
SPEAKER_00: fully across what's appropriate because we also work in Hong Kong where it's Cantonese. But all of my communications that go into my full team, everything in full team is in Mandarin. We do have a large part of our team that only functions within Mandarin. So when you're, for example, like, you know, you
SPEAKER_01: showed some of these buildings and the idea that came to me is this is a massive coordination problem that's almost impossible in the United States, which is if you have this idea of like this living, breathing, monolithic building that is connected via the internet, it'd probably be 50 organizations in the United States that would have to have a say or want to say. The perception that we get is there is a individual that can effectively make that right decision in China, whether it's at the city level or at the state level. Is that how it's really like? Like when you guys have super ambitious ideas, is there one place you go to and then it just kind of all gets decided? Or is it just like here where it's messy? So it's kind of neither, actually. And this is where I think it
SPEAKER_00: takes the best of both, which is at a local level. So you have, you know, a local, we have a party secretary, you have a block leader, and ultimately it goes all the way up to, you know, the big guy. But China does this amazing thing. They have a five-year plan. They call it the five-year plan. Last year was the 14th five-year plan and it sets KPIs and areas of focus for the entire country. And those are things around carbon neutrality, education, care for seniors, agriculture, industry. And it's a lot like, you know, for you guys who are running companies, setting goals and how are you going to get there? What's the roadmap? But that filters all the way down. And so at a local level, those KPIs for the local leader are, you know, how did you make your district greener? How did you increase revenue from higher quality services and technologically advanced companies? Like what happens if you don't achieve it? You get fired, you get kicked
SPEAKER_01: out of the party. Like what is the mechanism of reward? Yeah, well it's
SPEAKER_00: quite high accountability. And so if you perform very well within that system as a leader, then you can move to higher and more advanced posts with bigger cities. Right, so yeah, so from a block to a bigger city to a higher, you know, up to a higher... So your political career stalls out if you don't hit them, but it gets accelerated if you exceed them.
SPEAKER_03: Right, and so that creates a very interesting set of opportunities. And so
SPEAKER_00: to put it to maybe a tangible example is, so for the things that, you know, are really great for communities like park space or building a building that's green. The last building that I showed up there is right, sits right on top of a metro and is next to a natural history museum. And we needed to work with the local government to ensure that we were relating to the area properly, creating, like leaving it better than we found it. You know, we look at projects where you can't do the project unless you show that it's going to be green and additive or restore historic buildings in the area. There's a real handshake there that I firmly believe creates better outcomes. I know our team would say the same thing. Claire, what's gonna happen with the capital markets for your business with
SPEAKER_02: Evergrande and like some of these big kind of property developers that have had major debt problems? And have you seen that already flowing over? And you understand the market very well, you probably are able to navigate this, but the foreign capital and other investors like might group everybody into the same block and get scared off. Sure, so certainly we get a lot of questions, but
SPEAKER_00: it's another one where the headlines out versus, you know, inside the country. Certainly the built environment, the construction and the real estate industries, if you combine that all together, you've got about 27% of the economy. If you include the full integrated stack, one of the things in five-year plan is to diversify away from that in a way. But is, you know, Evergrande and the other developers, the real focus at the local and the higher level is to help the regular people get good on their deposits and ultimately get the homes that they were promised. So it's very interesting for developers like us and acquisitions people as for some of those smaller developers who got into trouble. Has there been a bailout? Is that the wrong word, the way that
SPEAKER_01: it's been characterized in the US media, that the Chinese government had to step in shore up the balance sheet, make sure Evergrande wouldn't default on some of their loans? I think there was a concern that there would be an entire meltdown
SPEAKER_00: of the full Chinese economy, which is not what we feel on the ground. And I think if anything, it's created a set of opportunities to really level set, especially on the living sector. It's really accelerated some policies to make it easier to build and to create rental housing, which creates more access, which therefore maybe takes away some of the pressure on the condominium system. You know, there for the debt markets to create a space that is maybe taking on projects that are appropriate for the system a little bit, again, more diversification and development in the right places, in the right markets. When
SPEAKER_04: we look at the relationship between the United States and China, we've had three, four, five hundred million people come out of abject poverty on the planet because of this great engagement. I don't know if that's a term, but I'll call it the great engagement. We started using their factories, we started making iPhones there. This has created, despite all of the hand-wringing about the relationship and all the various issues on both sides, a lot less suffering in the world. Absolutely. And so there is something that I think we don't
SPEAKER_04: recognize sometimes is that people who are living for under a dollar a day, three or four, five hundred million of them are now gone. And that leaves some areas in Africa and Southeast Asia that we still need to do that work, which paradoxically or ironically it seems like China is doing in Africa. What I'm curious about is what you're seeing on the ground with their middle class, which to me seems analogous to what we went through in the 30s, 40s, and 50s, this establishment of a middle class which then established education and prosperity for the decades to come and specifically for the Boomers and Gen X. So tell us about that middle class that's emerging. We hear about it, but how many of them are
SPEAKER_04: there and qualitatively what do they want from life? Yeah, well Jason, in a
SPEAKER_00: word it's incredible, right? Again, I talk about infrastructure so much because you see it up there, right? China's only as urbanized as the US was in about 1950. So we read a lot about these... Today. Today. Today. So we read a lot about these... Bullet trains. Right, and so that leaves this incredible consolidation of people to cities and younger people to cities. It's a demographic, you know, spark that maybe gets talked about a little bit less, but also if you look at the change that that person you're talking about has seen in their lifetime. So they went from a, you know, rural lifestyle, frankly most of them, and something of a village setting that had not changed in decades to this future world that in many ways can only be imagined in in movies. And so I think, you know, I sort of struggle to put it into terms because you asked, you know, what do they want? What are they looking towards? And I'd say, you know, to use a personal example, right, I'm the luckiest girl in the world. I get to live in this amazing place and work with this incredible team and, you know, yet, you know, my parents, you know, graduated in a fully segregated world. The elder people when they were growing up were not just slaves, they were the slaves that we talk about on Juneteenth. The ones in Galveston who walked across the bridge and followed railroad tracks to Houston, Texas, right? That's amazing. That is amazing. And so I think when a generation or a collection of generations sees that amount of change, what they want is, first of all, they're grateful, but what do they want? They want to be able to build and create and be people themselves. Yeah. I
SPEAKER_01: have a question. Japan in the 80s had a moment where everything came together for that country. Great population growth, great economic growth, great systems like Kaizen and all of this other stuff that they would export. And the headlines in the 80s was Japan was taking over the United States or Japan was going to lap the United States. But really one of the biggest things that it had working against it was a demographic wave, right? And you had massive negative birth rate that has really compounded Japan's stagnation. China is on the precipice of this because of this one China policy. I think the stat that I saw, which is stunning, is there's 1.2 billion people in China, 1.4. By 2100, it's going to be around 600 million. If that's true, the point is just that there's just there's a real issue. Yeah. Is there something in these five-year
SPEAKER_01: plans around how to become sort of more culturally integrated with the rest of the world? Meaning, how do you use immigration as an example to subsidize some of the negative birth rate? Do you teach English more so that you're more integrated into the world economy? All of these things. Can you just talk about that? So first, I think the the urbanization trend of folks
SPEAKER_00: consolidating to the cities really can't be overstated just in the way that it shifts sort of how the country will work and what's happening on the ground. You know, it's still relatively early days, but when we look at things like Belt and Road, you know, as I walk around Beijing and I compare it to, you know, when when we first started there or when we were working with capital partners there, I see a lot more brown faces going to the universities around Beijing. Explain what Belt and Road is for folks who maybe
SPEAKER_04: haven't heard the term. Yeah, so many places you guys can read about it and
SPEAKER_00: before I forget, talking about sort of just, I know everybody loves recommendations here, so if you haven't read Dalia's latest book on changing world order or there's actually a great... You read it! Freeburg, Freeburg, Freeburg, Freeburg, Freeburg talked about it every podcast for the
SPEAKER_04: last 20. So you've got to read it, listen to your besties. There's also a very good
SPEAKER_00: illustration of it. But you do read that because, you know, China's been a major participant in the global south, so you know, the short version of Belt and Road is working really across a set of countries around Southeast Asia and Africa, bringing in infrastructure and kind of what it sounds like. Roads, roads, ports, airports, etc. Really building out this network for that part of the world. But I think what gets sort of bumped over on that is, again, things like this. So folks coming to China to be educated, the number of folks on the African continent now learning Chinese. And again, I think this is something that is exciting at the end of the day. The opportunity to further exchange, to lift more people out of poverty, to create further infrastructure. Claire, I was hoping you would stay with us and be a
SPEAKER_04: bestie for Ryan, who's the next speaker. Would you be willing to help us interview Ryan? I would be honored. Oh yes, switch seats. Okay, get in, I warmed it up for you.
SPEAKER_04: And you're the guestie. I like it, I like it.
SPEAKER_04: So give it up for Claire. Now Ryan, congratulations. CNBC does their top innovator of private company awards every year, and you made it to the top 50 list today. I didn't check which ranking you got, but being on the list in and of itself is a big win. What do they call it, disruptors list? Disruptor 50, in
SPEAKER_02: my view of these lists is you should never share any list about your company unless you're number one, and we were number one this morning. You truly helped
SPEAKER_04: us navigate, I think, the challenge of us as besties and the audience understanding supply chain. We appreciate that. You've been on the show twice, I think, or once? Just once so far. Just once so far, and then here. This is your second time on the show.
SPEAKER_02: Apologies, I was filming the interview for that during Palmer's talk this morning. You missed nothing. I don't know what I missed. Nothing much happened. But when Palmer and I woke up this morning, we're writing our speeches together and deciding, you know, what we were gonna say. Oh, do you have some feelings you'd like to share with the class? Seems to be a theme. I mean, this is turning into therapy.
SPEAKER_02: I have some emotions. I have some emotions. It's sad. I got COVID. You did some nice things about people, J. Cal. I got COVID. I couldn't think of a single person who do I want to give this to. I was like, I like everybody. So tell us. He was gonna do a talk, right?
SPEAKER_03: Are you doing a talk for a couple minutes? Well, he's gonna talk from there. Yeah, I'll give you a little bit about what we're seeing. So first off, what Flexport is is we're a global
SPEAKER_02: logistics platform. We help businesses of all sizes ship products all over the world from anywhere in the world to anywhere else in the world. We do a lot of business in China. Probably about half of all of our volumes come out of China. I know a landlord if you're looking for one.
SPEAKER_00: If you need some range. You need some ships out there and we'll do some business after this.
SPEAKER_02: So we see a lot. We're sort of like a front row backstage pass to the world economy of what's really happening and unfolding. And it's been a crazy few years. So Flexport started in 2013. First revenue was in 2014. We did two million dollars in revenue that year. We're on track this year to do five billion dollars in revenue. So from very exhausting. And this time period is I
SPEAKER_02: assume it's always like this in this industry. I have only been in the business for about eight or ten years here. But just to take you through that timeline, in 2015 there was a port strike on the West Coast and you couldn't import anything into the United States for like three months. Total pandemonium. By the way that might happen again July 1st. Their contract that they negotiated back then is up for renewal on July 1st. So we might talk about that. 2016 there was so much excess capacity of ocean shipping. Oh so many extra ships were purchased that the price of ocean freight hit the lowest in all of human history. It was like six hundred dollars to ship a container this past year was twenty thousand bucks. In 2016. So we go through these boom and bust cycles. It's an asset business that'll happen. 2017, 18 and 19 our president would launch a new tariff war every couple of months and you couldn't predict anything. 2020 a pandemic hits. You couldn't ship anything for a couple of months out of China. Where like they were really hard. Zero COVID shut down factories shut down all the purchase orders. Everyone thought the Great Depression was coming. Cancelled all the purchase orders. Then it turned out the opposite happened. It was this crazy boom and you couldn't import anything because the ports were overcrowded. It went from 2019 it took about 50 days to ship a container from like when the goods are ready when the factory raises their hand and says hey come and pick up these goods to right now it's about a hundred and twenty days. So doubling or more than doubling the transit time and it is just incredibly hard to operate in this environment if you're trying to run a business and so we've we've had to learn how to navigate through chaos as Flexport. It's like we kind of welcome it at this point. We found that it's probably it might actually be good for our business. We try not to talk about that because it's so bad for our customers and it's been hard to fulfill the customer promises but if you put yourself in the shoes of those customers so like a direct-to-consumer e-commerce business and we ship for probably 80 or 90 percent of the hot new D2C brands. A lot of IPOs recently. A lot of a lot of really cool hot new brands. They're going through almost a perfect storm right now in in like a really really bad way like the movie The Perfect Storm because ocean freight rates are sky-high. Mention this ten twenty thousand dollars to ship a container. Rule of thumb long term is like two grand. So really really elevated cost. Walmart announced really high costs this morning and it's so it's not just small companies but Walmart announced their costs were through the roof from supply chain and their stock fell ten percent today. Wiping off 40 billion dollars of market cap this morning. So it hits companies of all sizes but these D2C brands got a double whammy because Apple last what they was last year when they changed their privacy rules and their customer acquisition models are on Instagram, Facebook all these things stopped working and so you're at the same moment your cacti stops working you can't acquire customers your supply chain costs are through the roof and then add to that the consumers are now starting to come back to conferences like this go back to the restaurants and the clubs and doing the travel and during the pandemic everybody just bought stuff. You got to get your dopamine from somewhere and everybody was just buying goods. So that is like a triple whammy for these companies I'm incredibly worried about the whole D2C brands the whole D2C
SPEAKER_03: space. The D2C space is just anyone in physical goods. You saw it in like the I think it was
SPEAKER_01: Thrasio that just announced they're laying off 25% of their employees. Thrasio was buying a
SPEAKER_04: collection of those Amazon D2C brands putting them together and trying to have some economies of scale but when your supply and your demand both get 10x'd in the wrong direction it's game over. I don't know if it's game over but it
SPEAKER_02: definitely changes the rules of the game the reality is look people still gonna buy stuff there are gonna be successful there are gonna be some winners are gonna be brands that survive. At what price though at what price? Well so you're saying
SPEAKER_03: that your thesis that you're making the statement that you're making today is hey we're seeing real significant risk to D2C companies because of this confluence of issues right now and this could be a big threat to a lot of businesses particularly in an environment where venture funding is. I think again venture funding is a triple storm. Capital markets are driving that. Public and private. Investors like you all will look at this and go hey maybe I
SPEAKER_02: you know put more into SaaS. What Pete said it's just easier to not do anything. It might be easier to not do anything so what does that mean how do you manage this and fundamentally one of the problems that that that comes about in all supply chains it's been written about the famous PhD paper from like the 60s or something called the bullwhip effect and a bullwhip if you like crack a whip the end of that whip is moving incredibly fast and it's a bit like that in supply chains because you have imperfect information and so the people doing demand planning are limiting one system they're selling goods they're looking at this data set the people producing stuff so the different system how long is it taking to produce things that's getting longer the transit times getting longer this data is living across all these different domains and becoming very very hard for a brand to make a decision how many goods should we buy when should we buy them so how much we want to have in stock how do we avoid being way overstock yeah and then that and what we're seeing right now is these warehouses are overflowing and people can't so what changes that like what
SPEAKER_00: breaks it open so you know like in China pin do a do it didn't exist in 2015 now 800 million plus right users but it was technology that broke it open like what's the breakout moment to solve this exact problem you're talking about yeah I mean
SPEAKER_02: actually China's got one of the companies to watch is Shane sh ei n it's this Chinese kind of like the new Zara that is taking over the world I think they're gonna do 20 billion dollars in revenue this year fast fashion fast fashion they're launching a thousand skews a day a thousand new skews a day all like AI generated and then if people order enough yeah they produce it and it's like a really incredible you're saying a robot says make these skews
SPEAKER_04: this is where this shirt is from actually wait you're not yeah see yeah
SPEAKER_04: sure and it was gonna be a million of it be ordered after sorry tell us so it's
SPEAKER_01: sorry this shirt you so it's literally a shirt from she in but but yes so if
SPEAKER_00: Zara so Zara is seeing something on a runway determining that that trend will hit and then they can have it in stores I think within like eight or nine days something you know pretty wild she ends about as close to instantaneous as you can get so very fast moving skews it's sort of hyper speed fashion so they can have things like pre-com almost the same day like from minority but they're
SPEAKER_04: predicting that this puffy shirt is going to be like women are gonna want to go for pie shirt and I think one of the one of the key things here is is that
SPEAKER_02: that transit time of how long does it take you from when the thing is made to when it gets to the customer because if it stretches out the way it has right now an ocean freight market was taking forever if that takes three months four months five months six months all of a sudden you've placed these orders and then the demand went away because people started going to nightclubs instead of buying their gardening equipment and so the tighter you can make that and it does speak to spending a little bit more on logistics where where you know traditional procurement person and logistics only thinks about like I'm just gonna buy the cheapest freight I can ever buy because they don't understand that your goods in transit are just money that's taking a different form for a period of time and money has a cost to it and if you're sitting there on six months that's already expensive because if you know you got to pay interest on that there's opportunity cost what else could you do with the money but now that cost has gotten much worse because by the time the goods arrive maybe nobody wants them you saw that with Christmas where you know you import Christmas that's the classic that you import Christmas stuff and in January it's worthless what price do people just find alternate ways whether
SPEAKER_01: it's you establish domestic 3d printing or you buy a fleet of planes or like there's got to be a work because like I saw this image I think maybe you tweeted it of this entire massive traffic jam basically trying to get the ships even into China because the kovat 19 lockdowns are so strict that that's also exacerbated all of this but and last year Walmart to me announced they're
SPEAKER_03: spending 10 billion dollars verticalizing their supply chain and building out their own infrastructure for moving good you're seeing a lot of
SPEAKER_02: companies do this much easier said than done yeah you've seen at least a few of the big-box retailers Walmart I want to say Home Depot Costco a number of these guys have said hey we're gonna charge our target was the other one maybe target um Amazon of course yeah go charter their own ships go solve the problem their own way um it's really hard to do run these things at scale and operate it looks good at the PowerPoint slide it you know when you have to get down to it it's really hard so they're a big capex play here Ryan for the next
SPEAKER_03: decade I think um like a big capital equipment hard asset play so the world's
SPEAKER_02: ocean carriers that's what we call the people that on the ships have actually ordered 25% more ships the increase the fleet by 25% over the next three years Wow so it could be ugly the other way real quick you have too many ships and nobody you know the ship owners can make happening in mining I mean like it's a
SPEAKER_03: similar sort of but anyway Ryan Ryan said it best the problem is you can't
SPEAKER_01: forecast demand accurately for these long lead time categories that are highly capex intensive so it's mining or whether it's chipping how do you make a 500 million dollar capex decision for a business demand cycle that's five years into the but they're all taking they're all taking profit hits and saying we
SPEAKER_03: have to make this investment because we need the security we need the redundancy I mean Walmart did it right they were optimized to a tee also the way and then all of a sudden it's like hey that optimized system doesn't work look the way that mining for example deals with this which is really
SPEAKER_01: interesting is they get these companies to sign up what's called taker pay agreements right and so they can actually smooth out the demand curve five or six and if you take her pay means I'll do a deal that says okay I'm gonna rip the lithium out of the ground you take it or you pay for it I don't care what you do right but I'm gonna get the revenue assurance I need to go to Wall Street to get the money and we've started to see those signed for the
SPEAKER_02: first time so we've signed three-year contracts Flexport was the first ever to sign a multi-year contract where we commit we will pay for this freight whether or not whether or not we ship anything we're gonna we're gonna pay up right yeah okay take your pay um and and you asked a little bit air freight what's gonna happen there will remember 50% of all the world's air freight flies in the belly of passenger planes there's way less people traveling to and from Asia than there were that right yeah 50% of the world's air freight which is a little scary when you think about like what's under the belly of that yeah it's that getting scanned it is it is there's there's good controls on that but but you never know it's always yes always and it's getting a little nerve-wracking um so and you seem to be not so sure uh you know you work in any industry long enough you start to question whether everything's perfect um so we've actually got ten passenger planes that we've leased and we'll keep doing more that are not flying any passengers we're just filling them with freight we started doing this in the pandemic flying masks but there's seats at the top there's still seats in some of them some we've ripped out the seats like castaway if you want to go to Asia I've got a 787 there's nobody on there could
SPEAKER_02: be a private flight just you but exactly that this is why you've seen the rise of
SPEAKER_00: logistics real estate as a deeply institutional asset class because that math that you talk about the algorithms determining what is ordered how long will it sit and how fast do people want it that takes an infrastructure on land to be able to get it to people and coming back to the question about assets
SPEAKER_02: is there a play here probably yes because most of Wall Street has been trained they've gone to all the same business schools and everybody's been trained that like assets are terrible get them off your books don't carry them don't this is what happened with oil and gas you know going into last year and
SPEAKER_03: then everybody and everyone missed it you want to be asset it's still the
SPEAKER_02: trend and and almost everywhere until somebody like TSMC comes along and says you know what you don't want assets Intel like fine we'll build the fabs another four hundred billion dollar company because they're willing to have assets on the books but it's a different investor and now they have the power in the equation and they can they can get a better share of value and I've been
SPEAKER_03: answering this question around that's the real estate business the hardest
SPEAKER_02: question for me to answer and I know that there's some entrepreneurs out there who have the same question anytime someone asked me is flexport a software company or a logistics company are you gonna own assets or not own assets yes and you know I think the correct answer is to ask the investor which one they'll give you a higher multiple for and then just say that try to figure out who you're talking to but it is on some level you know maybe another answer is like kind of Buddhist dualism like you can't do logistics without the tech you can't do the year without the I think you're bringing up something which is
SPEAKER_01: that today the problem with the capital markets is actually that it is very balkanized so meaning you know let's just say you take a company public like yours the problem that you'll have in the public markets is that there are folks that you'll go to in that room that understand SAS software understand margin structure of a software business etc and then there's folks over here who run the industrials business and folks over here who run consumer the problem is those three folks don't talk they have three completely different conceptions of what a good business is and the problem for you will be and I'm not forecasting this for you to be a correct is that you can get orphaned in any one of these groups and now all of a sudden the capital markets could be totally shut for you this is a very important point that you're bringing up the the thing that I think we need to change is like the capital people that control the money flows do need to have a little bit more of an open mind sure it's true that you'd love a 90% gross margin business but it is also true in the TSMC case you'd rather have a business doing 20% on five hundred billion dollars well and if we look in on off
SPEAKER_04: tomorrow we also have some examples of Amazon the market seems to have worked out this business that's very factory and asset heavy in delivering goods to us and you know the cloud business even even Amazon like look Amazon got
SPEAKER_01: escape philosophy on less than you know a billion dollars of invested capital the problem is you know if Ryan for example decides hey I'm gonna go on actually vertically integrate and buy an entire fleet of ships that's probably a 10 to 20 billion dollar capex cycle over 10 years and you think about replacement costs it may make a ton of sense actually right I wonder when Amazon you
SPEAKER_04: know cap expenses for those servers started to hit but giving the capital
SPEAKER_03: markets a little boy me definitely wants to do that you want to own a fleet of
SPEAKER_02: ships you already own about you have a business but no we're not gonna do that I don't think um I you know there's two plays you know fundamentally your bull whip effect means the data can't flow and people can't make decisions optimally because the data is trapped in multiple places you don't know how to run an efficient supply chain because you don't know how many trucks do I need when the ship arrives like actually even not even like long-term demand for forecasting how many ships but like literally that ship is gonna arrive how many trucks that I dispatch when should I dispatch them like there's two ways to solve this problem one is to own the asset and the other is to create a data network effect such that the asset owner benefits enough from putting it on your platform your machine learning your off your algorithms are helping them make more money from their asset they want to tell you or you can change one of them is a lot hopefully simpler and don't need to manage as many people and life is easier if you can solve the data machine learning problem sorry look to
SPEAKER_00: Alibaba and Alibaba investing down into China like there is a middle road of being able to do it in China so logistics warehouse I mean you know whatever to push it as stupid as it sounds you having purchased a shipping
SPEAKER_04: company and putting it over here to your point Claire and saying here's the little thing we bought it's a bunch of ships it's its own balance sheet and then here's the really great business but we have this little subsidiary over here is a potential middle ground it's what makes Flexport fun business there's
SPEAKER_02: like a million strategies and ways to play out and I'm not a big believer in like predicting the future and you know you want to have a vision and know where you're going but I think be sort of flexible yeah in that it's in the name are we talking about our culture alive what's the goal of what's the goal of a company's culture and Elon talked about the goal of a company the purpose is like hey we've got to create valuable products and services for fellow humans right but the goal of your culture is how do you maximize your velocity in that direction and and velocity is a really important word because we forget a lot like normal people forget that velocity is different from speed yeah if you remember your physics velocity has a direction you got to know where you're going and sometimes going really really fast is actually negative velocity because you're going the wrong way and so how do you stay agile the world's gonna throw all kinds of chaos at you be nimble be able to change like we don't know exactly the strategy I don't have everything that's as we wrap here question for both you and Claire which is China has before you before you do
SPEAKER_01: your rap question can I just can I ask him to can you tell us the audience about what you did during the UK crisis oh this is beautiful it's just it's like 30 seconds about you know I didn't go there like Antonio crazy man but what so
SPEAKER_02: we started this group in 2017 called flexport org to do humanitarian relief shipping really at that time the crisis with Syria and trying to help refugees it was really a simple idea it's like look we got all this stuff here we know they need stuff at the refugee camps what if we shipped it there seemed like a radical idea we maintain a database of partners so we have agents that we can operate on behalf of flexport in over 120 countries and at that time I simply emailed our Syria partner who's literally based in Aleppo where a lot of this destruction was happening and I emailed I said hey we'd like to ship a container to this refugee camp down there and he was like sure what's the address where do you want to ship it and I was like wait is that easy like I thought this was like and they realized you could do that no we didn't ship in this year because we didn't know who's gonna end up in so we shipped to refugee camps in Turkey and Jordan and so we've been doing this now for five years shipping to over 50 different countries any kind of anytime is there a hurricane earthquakes but we're a war I mean so when we saw this happening in Ukraine we immediately kicked into high gear the flexport org team has about 12 full-time people and then we have a model where employees at flexport can surge onto that so we've had about 60 people working on this in this case you know usually we offer pro bono shipping because we shipping is expensive we can't just eat the full cost we are profitable but not enough to really solve the world's problems all by ourself so we created a GoFundMe campaign partnered with Ashton Kutcher and Mila Kunis, Ashton's an early investor in flexport and we raised 25 million bucks to pay for shipping to deliver goods yeah thank you well the way you did it so Ashton and all of our investors a lot of great people sent you you emailed the besties and said hey
SPEAKER_04: it's $4,400 a container was that the number 42 or 44 it depends on where it's coming from. For Ukraine specifically. I mean for example we shipped nine ambulances from
SPEAKER_02: Gibraltar into Ukraine I thought we wouldn't be able to ship into Ukraine because it's a war zone it turns out most I don't know most but a huge percentage of European truck drivers are Ukrainian and they were just like stoked to go and do this so we deliver nine ambulances that cost like around ten grand yeah it's a bunch of ambulances I replied back to him and I
SPEAKER_04: said no problem and he said hey mention on the podcast I said no problem and I donated a $4,400 container and then Shammat said oh I donated the plane that twelve containers went on. So it was a flex on a flex for flexport. It was like a multi-layer flex. So and then it just snowballed and this hasn't got much attention but
SPEAKER_02: Yuri Milner who's an early flexport investor just donated a hundred million dollars. Wow. Yes. You're really putting pressure on their side of this team.
SPEAKER_00: I didn't hear the last part. Anyways keep going. Everybody does what they can and it is an amazing model where but by the way over
SPEAKER_02: 60,000 people donated a little bit and I'm almost as just as proud of that it's like people are getting involved stepping up and saying hey you can do something. Flexport.org. Flexport.org. Final question for you two. We had this great moment where you
SPEAKER_04: know we engaged China we built a bunch of iPhones Amazon basics you know whatever it is Nike shoes and it raised you know the standard of living for a lot of people we understand China's doing this now and they're doing it in Africa and some other places what are you seeing in terms of that relationship how China is looking because towards other countries to become producers of goods and and they're kind of now becoming incredibly influential what's their intent and how is that going Claire maybe you could start. That's a
SPEAKER_00: big question but I think it's this is a long-term play we're all in this for a long term right play and whether you know you take maybe the spicier view around your resources and protectionism versus one that's more just around progress and as we may have an increasingly vulcanizing east and west the ability to their there to control the bigger piece of their own supply chain but the end result as you're sort of saying is you look at places like Niger right the average mother there is having six children we have a very young global south and the important thing is that they're fed they're clothed and that they have an upward trajectory and so that's the people living in abject poverty will probably end in our lifetime you know the only places that
SPEAKER_04: won't end is in places with dictators what are you seeing in terms of the shipping containers because you must see shipping containers increasingly leaving certain ports where is China sort of exporting production to and what are the up-and-coming production areas. There's some really interesting trends going
SPEAKER_02: around around labor costs in China the reason people went there over the last 40 years be honest was like cheap labor and but over time they became quite sophisticated they really learn how to manufacture things especially electronics there if you want to make electronics you pretty much have to make them in Shenzhen the greater Bay Area as she called it so and that's but stuff that's just for cheap labor because that's no longer about cheap labor this is a whole supply chain ecosystem of components and other things and if it's just cheap labor two years ago Mexico became cheaper than China in labor costs Wow huge shift and now Mexico doesn't have the manufacturing capacity they don't have the skill sets they don't but they'll build it you know and people will respond to that trend as long as it takes 120 days to ship stuff from China to the US and we can't get this sorted out brands are gonna respond to shipping closer to home so you're that is a trend that you're gonna see more and more of if the delays stay the way they are I think China's big challenge is if if they become labor cost too expensive how do they keep moving up the value chain and this is what they're made in America made in China 2025 thing is like we've got it they've got to make more and more sophisticated products because it can't just be about dirt cheap labor like week to services yeah and that that's a huge
SPEAKER_02: challenge in very few if anyone's really done it at no one's done at that scale because they're the biggest country in the world but Japan Korea have kind of done that but not ten times bigger moving to a services-based economy India
SPEAKER_04: with IT comes in mind and then they'll become entitled and want to retire at 55 like you're up and I by the way I was speech on my favorite answer someone at
SPEAKER_02: um I think was Zuck although Toby from Shopify told me he's lifted this line his employees were asking him about the four-day workweek and he was like well you know if I do think we should do some experimentation around how many days a week we work so but we're gonna start with the six-day workweek like China does and then we'll try the four-day workweek later later
SPEAKER_00: besties are should all just get a room and just have one big huge or because they're all just like this like sexual tension but they just need to release
