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E82: All-In Summit: Claire Cormier Thielke on China + Q&A with Flexport's Ryan Petersen

This conversation was recorded LIVE at the All-In Summit in Miami! 0:00 Claire Cormier Thielke's AIS talk: "Tomorrowland: China Placemaking and the Future of Innovation" 17:40 Claire takes Q&A with the Besties + Ryan Petersen: Understanding the China/US rivalry 24:08 How the Evergrande debt situation impacts the greater Chinese real estate industry, China's still-nascent middle class, How China is subsidizing its negative birth rate 34:30 Ryan Petersen breaks down Flexport's business, the tumultuous past few years, and how DTC might be in major trouble 46:34 Asset-heavy plays as a hedge against the popular trend of asset-light, velocity vs. speed, Flexport.org's humanitarian relief shipping, China's influence Follow the guests: https://twitter.com/clairethielke https://twitter.com/typesfast Follow the besties: https://twitter.com/chamath https://linktr.ee/calacanis https://twitter.com/DavidSacks https://twitter.com/friedberg Follow the pod: https://twitter.com/theallinpod https://linktr.ee/allinpodcast Intro Music Credit: https://rb.gy/tppkzl https://twitter.com/yung_spielburg Intro Video Credit: https://twitter.com/TheZachEffect #allin #tech #news

Jason CalacanishostClaire Cormier ThielkeguestDavid FriedberghostChamath PalihapitiyahostRyan Petersenguest
May 24, 202259mWatch on YouTube ↗

EVERY SPOKEN WORD

  1. 0:00 – 17:40

    Claire Cormier Thielke's AIS talk: "Tomorrowland: China Placemaking and the Future of Innovation"

    1. JC

      We're really excited to have Claire with us. Come on out, Claire. Are you here?

    2. CT

      Hello.

    3. JC

      Great. What are we-

    4. NA

      (claps)

    5. JC

      Welcome, Claire. What will we be talking about today?

    6. CT

      We're gonna be talking about China, you know-

    7. JC

      Ah.

    8. CT

      ... just as everything has been all spicy. We'll-

    9. JC

      Yeah. Well- well, just again, we're- we're trying to make today about just easy, breezy topics that, you know, the most easiest things to manage, so we-

    10. CT

      (laughs)

    11. JC

      Armaments, Ukraine, "Let's go to China." "Sure." Uh, please welcome Claire.

    12. CT

      Hey.

    13. NA

      (claps)

    14. DS

      What's going on?

    15. JC

      Let your winners ride. Rain Man, David Sa- What's going on? And I said- We open sourced it to the fans, and they've just gone crazy with it. Love you guys. Queen of Kin Wan. Going all in.

    16. CT

      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 Hailan- in the headlines. And, you know, Jason reached out and he said he wanted to- to really understand what were some- some problems, and he wanted to see solved, that we wanted to see solved. So, I'm a property developer. Uh, I run Greater China for Hines. We're the largest private real estate firm in the world. And we have an incredible Greater China team. I know I see there's folks in the front, they're like, "Where is she? I can't possibly spot her in there." Uh, so-

    17. NA

      (laughs)

    18. CT

      (laughs) So, we have a team that is working across Beijing, Shanghai, Shenzhen, Dongguan and Hong Kong, and, uh, we get to work really across the real estate spectrum. So, uh, we built the greenest skyscraper, uh, in- in China. Uh, we built some of the first international serviced apartments, uh, 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, uh, 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 kinda what's the- 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 did he do? He 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 where we wanna be, right? We wanna be sitting together in awesome spaces like this, uh, 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, uh, it's a place that has pretty good infrastructure, uh, uh, can I get a job, can I afford to live here, and is there cool cultural stuff that keeps it from being too bland. Uh, but then, you know, you'd say, "Okay, well, cities can learn from each other," right? You can just take those ingredients and apply it, and that's what Suarez did a- 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- it's like the most extreme version of hardware. So, as a property developer, you know, we spend our time really thinking about what are the big macro trends? What are startups focused on? Uh, where do they wanna 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 gonna be relevant for folks. And so, you know, just a couple examples. Uh, up here behind me. So, you know, we talked about the living challenges, uh, 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, uh, cross-prohi- you know, cost prohibitive, and get, you know, quality of- 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? Uh, you see up behind me a- a logistics building. Uh, but it's actually six stories high, something we're developing that is a- a giant-... almost like a refrigerator, uh, but a high rise, super tech-enabled. Uh, and that's because, you know, they 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. Okay? It doesn't take a genius to see that this trajectory is, you know, lower left to, to upper right. And so again, you're taking this concept of East meets, meets West. The building up here, uh, just behind me, is, 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. Um, 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. Uh, you can have chance encounters or, uh, organize a yoga trip in the afternoon, uh, with the people, with the space, using this digital interface. So in, 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, but a problem, uh, when you sit in the middle of this world, like my team has the honor to do, uh, 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, but 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, um, to, to maybe share, uh, a story that, that maybe y'all haven't 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 y'all will probably recognize. It's Deng Xiaoping. You know, famous for really the opening up of China. And, you know, 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, uh, in, in... to enable the economy to jump further. And so, the picture to the other side is Shenzhen, which, in 1980 was barely a, a fishing village. It had about 58,000 people, very few paved roads. And Deng Xiaoping, he was from Sichuan, so he 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 qiuju. And that meant that it would be this place to experiment with, uh, bits of capitalism, with free trade, et cetera. So what is it today? Well first, there's that same road, a long progression, just a few years after it was declared a zone. And then up here behind me is what it looks like now. Shenzhen is over 12 million people. The average age is 29. Uh, it's really the tech hub of China. Uh, so companies like DJI, which makes 70% of the world's drones. Uh, they call this area home. And, uh, 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, okay? 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. It's like the... Yeah, yeah, okay. You guys get it. (laughs) And so, what is the Greater Bay Area? Well, it is a collection of nine cities on the mainland side, uh, some of which may be familiar to you guys. So Shenzhen is mentioned, and Guangzhou. Guangzhou is about 18 million people. Uh, places like Zhuhai. Do y'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. Uh, and then, so nine cities on the China side, and then Hong Kong and Macau. And together, this, this area, it's about the size of, call it 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 Gre- Greater Bay Area name, and, 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'd built 2,000 miles of speed rail, like high-speed trains. You know, we have like a little, you know, one from here that goes to Fort Lauderdale. You know, Texas is gonna get one in the year 2090.

    19. NA

      (laughs)

    20. CT

      Uh, and so, (laughs) 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 and 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, et cetera. Uh, they funded further life science. They funded, uh, 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. That'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? (clapping) 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? Uh, you know, up here, you know, behind me I have... uh, I'll, I'll clear the visual for you. It's further just connecting showing these metro lanes, these, uh, trams, uh, buses, et cetera, leading to these speed trains. Back down here, that's Hong Kong Island, and then this takes you, uh, through a bit of the Bay Area before you get out to the rest of, of China. Well, why does it matter? It's because these things layer together. Okay? So China's e-commerce percentage is about 25% of their overall retail. Here, it's about 14%. Again, you all are 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 of 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, with shopping and, 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. And 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 'em 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, uh, that we all have this opportunity, um, to really, you know... again, the headlines can be exciting. They can be crispy. Um, 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, uh, 45 cents, right? To get on the public transit here. Going around and exchanging ideas, these people, most of them are not politicians, right? Most of them are not big world global leaders. They're folks who are trying to, to create something for themselves, to create something for their children, to build a better world, right? So we're really all on the same team. So with that-

    21. CP

      Okay.

    22. CT

      ... bring the besties out, I guess. (clapping)

    23. CP

      (laughs)

    24. CT

      Try not to get too spicy.

    25. CP

      All right. Center stage for you.

    26. CT

      Right here?

    27. CP

      Right there in the middle seat.

    28. CT

      Oh, baby.

    29. CP

      Well done. Well done. Um-

    30. CT

      Be nice, guys. Be nice.

  2. 17:40 – 24:08

    Claire takes Q&A with the Besties + Ryan Petersen: Understanding the China/US rivalry

    1. CP

      what do we as Americans not understand about our rival? And what does our rival most not understand about us in your esti- estimation having operated in both countries for so long?

    2. CT

      Hmm. You know, the term rival is an, an interesting one. Obviously I love sports analogies and came from the track and field world myself.

    3. CP

      Claire was in the Olympics, guys.

    4. CT

      (laughs) Claire was injured. Claire was injured, but-

    5. CP

      She's like, "I used to go running sometimes."

    6. CT

      (laughs)

    7. DS

      Kind of fast.

    8. CP

      At the Olympics.

    9. CT

      But, you know, (laughs) your job in the sport is to find the person who is better than you in some ways, uh, and maybe they're strong where you're weak, you're weak where they're strong. You find each other and you, you shore up together.

    10. DF

      Mm-hmm.

    11. CT

      And I think that is what becomes so clear when you, you know, live there, when you live (laughs) on the other side of the world, um, but maybe were born here. Or, uh, you know, I, I'm a minority, so I've maybe always lived in that interstitial space personally. Uh, or even our team, our team is very representative of modern China. We have people from nearly every province. They're really across the, uh, the education bracket, highly trained engineers, but who might be quite young, uh, to folks in their, their 60s who have really seen China evolve. And so I, I do think the thing that can get, uh, missed is almost that concept like we talked about that as, quote, rivals, you know, they're not monoliths. Just as America is not a monolith, right? And we can take the best of each other.

    12. DF

      So we're- we're best of rivals in a way.

    13. CT

      There we go. Well said.

    14. DS

      Is there a model for this century for cooperation between the two nations that's enhancing to both?

    15. CT

      Hmm. I think it's happening in enterprise. I really think it is. So when I look at, again, younger people, um, the products that they use or the things that the young tech, uh, you know, entrepreneurs in China are working on versus here, they're, they're approaching a lot of the same problems, right? So on the social side, uh, uh, you know, looking at Douyin and what made it so catchy, right? Uh, uh-

    16. DF

      Explain what it is for us, yeah.

    17. CT

      It's TikTok. It's TikTok. And back to that one about, you know, cheat codes and, and a preview, uh, you know, Douyin was popular years ago. And, uh, and so, you know, I remember first looking at the, at the app and being like, "Wow, this is very catchy." And there's effectively no difference between Douyin and TikTok. They are the same.

    18. DF

      So do you, do you read and write Mandarin fluently as well as speak it or?

    19. DS

      (laughs)

    20. CT

      Well, you will never confuse me for a local.

    21. DF

      Or fluently enough, yeah.

    22. CT

      (more Chinese) . But, you know, enough to get by. (laughs)

    23. DF

      And so when you do business in China, do you conduct it in English or do you conduct it in, in Mandarin?

    24. CT

      Yeah, so with the team, we work fully across what's appropriate 'cause we also work in Hong Kong where it's Cantonese.

    25. DF

      Right.

    26. CT

      Um, but all of my communications (laughs) that go out to my full team, everything in full team is in Mandarin. Uh, we do have a large part of our team that only functions within Mandarin, um.

    27. DF

      So when you're... For example, like, you know, you 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 had 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 a say.

    28. CT

      Mm-hmm.

    29. DF

      The s- 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?

    30. CT

      Hmm.

  3. 24:08 – 34:30

    How the Evergrande debt situation impacts the greater Chinese real estate industry, China's still-nascent middle class, How China is subsidizing its negative birth rate

    1. RP

      Claire, what, what's gonna happen with the capital markets for your business with Evergrande and, like, some of these big kinda property developers that have had d- major debt problems in Phila... Have you seen that already flowing over? And y- you understand the market very well, you s- 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.

    2. CT

      Sure, sure. So certainly, we get a lot of questions.

    3. RP

      Yeah.

    4. CT

      Um, but it's another one where the, the headline's out versus ins- you know, inside the country. Certainly, um, the, the built environment, the construction, and the real estate industries, if you combine that all together, you've got about 27% (laughs) of the economy, um, if you include the full integrated stack. One of the things in five-year plan is to d- diversify away from, from that, in a way. Uh, but is, you know... Evergrande and the other developers, um, the real focus at the local and the higher level is to help the regular people, uh, get good on their deposits and ultimately get the homes that they were promised. So it's very interesting for developers, uh, like us and acquisitions people, as for some of those smaller developers who got into trouble-

    5. DF

      Has there been a bailout? Is it, is that a, is that the wrong word the way that it's been characterized in the US media, that the Chinese government had to step in to shore up the balance sheet, make sure Evergrande wouldn't default on some of their, their loans?

    6. CT

      I think there was a concern that there would be an entire meltdown 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, espe- especially on the living sector. Um, it's really accelerated some policies to make it easier to, to build and to create rental housing, um, which creates more access, which therefore maybe takes away some of the pressure on the condominium system, um, you know, there, uh, for, for the debt markets to create a space that is, uh, maybe taking on projects that are, you know, appropriate for the system, um, a little bit again, more diversification and development in the right places, in the right markets. So...

    7. JC

      When we look at, um, the relationship between the United States and China, we've had three, four, 500 million people come out of abject poverty on the planet because of this great engagement. Uh, I, 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, uh, and, and all the various issues on both sides, um, a lot less suffering in the world.

    8. CT

      Absolutely.

    9. JC

      And so there is something that I think we don't recognize sometimes is that people who are living for under a dollar a day, three or four, 500 million of them are now gone. Um, and, and that leaves some areas in Africa and, and Southeast Asia that we still need to do that work, um, 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, you know, um, education and, and prosperity for, for the decades to come, and, and specifically for the Boomers and Gen X. Um, so, so tell us about that middle class that's emerging. We hear about it-

    10. CT

      Yeah.

    11. JC

      ... but how many of them are there, and, and, m- qualitatively, what do they want from life?

    12. CT

      Yeah. Well, Jason, i- in a word, it's incredible, right? Like, again, I, I talk about infrastructure so much because you, 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-

    13. DF

      Today.

    14. CT

      Today. Today. So we read a lot about these-

    15. RP

      Bullet trains and...

    16. CT

      Right. And so that leads to this incredible consolidation of people to cities and younger, younger people to cities. It's a demographic, you know, spark that, 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-

    17. JC

      A farm.

    18. CT

      ... um, in 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, I sort of struggle to put it into terms 'cause he asked, you know, what, what do they want? What are they looking towards? And I'd say on a, 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.

    19. NA

      (claps)

    20. CT

      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 wanna be able to build and create and be people.

    21. DF

      Themselves.

    22. CT

      Yeah.

    23. DF

      I 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 gonna 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's on the prepcis- precipice of this because of this One-China policy. I think the, 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.

    24. CP

      If that's true, the point is just like, there's- there's a real issue.

    25. CT

      Yeah.

    26. CP

      Um, is there something in these five-year plans around how to become sort of more culturally integrated with the rest of the world? You know, 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?

    27. CT

      Mm-hmm. So first, I think the- the urbanization trend of folks consolidating to the cities really can't be overstated. Um, just in the way that it shifts sort of how- how the country will work and what's happening on the ground. Um, 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-

    28. CP

      Really?

    29. CT

      ... going to the universities around Beijing. Now, these are still-

    30. CP

      Explain what Belt and Road is for folks who maybe haven't heard the term. Yeah.

  4. 34:30 – 46:34

    Ryan Petersen breaks down Flexport's business, the tumultuous past few years, and how DTC might be in major trouble

    1. RP

      seeing. Um, so, uh, first off, what Flexport is, is we're a global logistics platform. We help, uh, 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. Um, probably about half of all of our volumes, uh, come out of China. Ocean and air freight.

    2. CT

      I know a landlord if you're looking for one, Ryan, just putting it out there. (laughs)

    3. CP

      If you need some trade.

    4. RP

      If you need to ship something, we'll do some business after this. Um, and so we see a lot. We're- we're sort of like a front row backstage pass to the world economy of what's really happening and unfolding. Um, and it's been a crazy few years. We, to give you context, so Flexport started in, um, 2013. Its first revenue was in 2014. We did $2 million in revenue that year. Uh, we're on track this year to do $5 billion in revenue. Uh, so from... (clapping) Uh, very exhausting. Yeah. And, um, this time period is, I assume it's always like this in this industry. I have only been in the business for about eight or 10 years here. But, uh, just to take you through that timeline, uh, 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. Um, 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. Uh, 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 $600 to ship a container. This past year it was 20,000 bucks in 2016.

    5. CP

      Wow.

    6. RP

      So we go through these boom and bust cycles. It's an asset business that'll happen. Uh, 2017, '18 and '19, our president would launch a new tariff war every couple of months and you couldn't predict anything. Uh, 2020, a pandemic hits. You couldn't ship anything for a couple of months outta China, where like they- they were really hard, zero COVID, shut down factories, shut down all the purchase orders. Everyone thought the Great Depression was coming.... canceled 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, it went from... In 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 120 days. So you're doubling or more than doubling the transit time, um, and it, 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 at, as Flexport. It's like we kind of welcome it at this point. Um, 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, uh, 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% of the hot new DTC brands, um, a lot of IPOs recently, a lot of, a lot of really cool hot new brands. They're going through a... almost a perfect storm right now, uh, in, in, like, a really, really bad way. Like the movie, The Perfect Storm, um, because ocean freight rates are sky high. I mentioned this, 10, $20,000 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 so it's not just small companies, but Walmart announced their costs were through the roof from supply chain, and their stock fell 10% today, wiping off $40 billion of market cap this morning. Um, so, so it hits companies of all sizes, but these DTC brands got a double whammy because Apple last... I think it was last year when they changed their privacy rules and their customer acquisition models are on Instagram-

    7. DS

      Facebook.

    8. RP

      ... Facebook, all these things stopped working. And so you're... at the same moment your CACT stops working, you can't acquire customers, your supply chain costs-

    9. DS

      Your opex.

    10. RP

      ... are through the roof. Uh, and then add to that that consumers are now starting to come back to conferences like this, going back to the restaurants and the clubs and doing the travel. And during the pandemic, everybody just bought stuff. Uh, you got to get your dopamine from somewhere, and everybody was just buying goods. So that, uh, is like a triple whammy for these companies. I'm incredibly worried about-

    11. DF

      The whole DTC brands, the whole DTC space.

    12. RP

      The DTC space, just anyone in physical goods.

    13. DS

      By the way, you saw it... You saw it in, like, the... I think it was Thrasio that just announced they're laying off 25% of their employees.

    14. DF

      Thrasio was buying a collection of those Amazon DTC brands-

    15. DS

      DTC businesses.

    16. DF

      ... putting them together and trying to have some economies of scale.

    17. RP

      Yeah.

    18. DF

      But when your supply and your demand both get 10Xed in the wrong direction, it's game over.

    19. RP

      It's... I don't know if it's game over, but it definitely changes the rules of the game. The reality is, look, people still are gonna buy stuff. There are gonna be successful, there are gonna be some winners, there are gonna be brands that survive.

    20. DF

      At what price though? At what price?

    21. DS

      Well, so you're, so you're saying that... Your thesis that you're making, the statement that you're making today is, hey, we're seeing real significant risk to DTC companies because of this confluence of issues right now. And this could be a big threat to a lot of businesses, particularly in an, in an environment where venture funding is...

    22. RP

      I think you're... Yeah, venture funding, right.

    23. DS

      Oh, my gosh, it's a triple storm.

    24. Right, right.

    25. RP

      The capital markets are drying up.

    26. DF

      Capital markets-

    27. DS

      Capital markets, right.

    28. DF

      ... public and private.

    29. RP

      Investors like you all will look at this and go, "Hey, maybe I'll, you know, put more into SaaS or something."

    30. DS

      Like Keith said, it's just easier to not do anything.

  5. 46:34 – 59:51

    Asset-heavy plays as a hedge against the popular trend of asset-light, velocity vs. speed, Flexport.org's humanitarian relief shipping, China's influence

    1. RP

    2. DS

      Absolutely.

    3. CT

      But exactly thi- this is why you've seen the rise of logistics real estate-

    4. DS

      Right.

    5. CT

      ... 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 as well.

    6. RP

      And, and coming back to the question about assets, 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-

    7. DS

      This is what happened with oil and gas, you know, going into last year.

    8. DF

      Asset light market. Asset, asset light was the trend.

    9. DS

      And, and then ev- and everyone missed it.

    10. DF

      You want to be asset light.

    11. RP

      It's still the trend in, in, in 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." And now they're a $400 billion company because they're willing to have assets-

    12. DS

      Totally.

    13. RP

      ... on the books.

    14. DS

      Totally.

    15. RP

      But it's a different investor positioning.

    16. DS

      And now they have the power in the equation and they can, they can get a better, uh, share of value.

    17. DF

      And Bomber says if they put a blockade around it, we're screwed.

    18. RP

      And I've been, you know, I've been answering this question-

    19. DS

      That's, that's the real estate business too.

    20. RP

      The hardest question for me to answer, and I, I'm, I know that there's some entrepreneurs out there who have the same question, anytime someone asks me, "Is Flexport a software company or a logistics company? Are you gonna own assets or not own assets?"

    21. DF

      Yes.

    22. RP

      And, you know, I think the, the correct answer is to ask the investor which one they'll give you a higher multiple for and then just say that.

    23. NA

      (laughs)

    24. DF

      Right.

    25. RP

      Um, try, trying 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 tech without the logistics.

    26. DF

      You're, I think you're bringing up something which is 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 SaaS software, understand margin structure of a software business, et cetera. 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.

    27. DS

      Yeah.

    28. DF

      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 problem-

    29. RP

      No, no, you're correct.

    30. DF

      ... 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 $500 billion. You know what I'm saying?

Episode duration: 59:51

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