All-In with Chamath, Jason, Sacks & Friedberg

Industry veterans, degenerate gamblers & besties Chamath Palihapitiya, Jason Calacanis, David Sacks & David Friedberg cover all things economic, tech, political, social & poker.

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

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

Tue, 24 May 2022 03:56

This talk was recorded LIVE at the All-In Summit in Miami and included slides. To watch on YouTube, check out our All-In Summit playlist:

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 play as a hedge against the popular trend of asset-light, velocity vs. speed,'s humanitarian relief shipping, China's influence

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We're really excited to have Claire with us. Come on out, Claire. Are you here? Right. What are we welcome, Claire. What will we be talking about today? We're going to be talking about China, you know, just as everything has been all spicy. Well, yeah. 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 armaments Ukraine. Let's go to China. Sure. Please welcome, Claire. Let your winners ride. Rain Man, Davidson. We open sources to the fans and they've just gone crazy. Queen. 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 high in the headlines. And you know Jason reached out and he said he wanted to really understand what were some some problems and I wanted to see salt that we wanted to see salt. 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. 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 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 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? 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 day, that's where 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? To 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 1st 10 minutes. It's 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, building is really hard. It's it's like the most extreme version of hardware. So as a property developer, if 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 5070 a 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 of 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 across, prohibit, 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 some 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, OK. 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 at 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. OK. 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 W building up here just behind me is is in Shanghai. It's about 1,000,000 foot tower and 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, and a digital experience that we can't see. And so it's another combination of this. E 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 is 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, 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. To to maybe share a story that 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 W in that collaboration can make us all better. So up here is a gentleman you will probably recognize. It stung shopping you're 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 in and 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 that had about 58,000 people, very few paved roads and dung shopping. 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 jingi toshu. And that meant that it would be this place to experiment with bits of capitalism, with free trade, et cetera. So what is it today? Well, first there's that same Rd along progression just a few years after it was declared his own. And then up here behind me is what it looks like now. Shinjin 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 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. OK. 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, yeah. OK, 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 shouldn't. Then, as mentioned in Guangzhou. Guangzhou, it's about 18 million people, places like Juhani. 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? It was in July and then so 9. She's on the China side and then Hong Kong and Macau and together this, this area it's about the size of called West Virginia today has a GDP that's sitting right around Canada and South Korea. OK, about 1.7 trillion. In 2017 they declared this great 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 built 2000 miles of speed rail like high speed trains. Here we have like a little, you know, one from here that goes to Fort Lauderdale. You know, Texas is going to get one in the year 2090. And so, 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 who 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 Chinua, Fudan, etcetera. They funded further life science. They funded for their 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 are 58,000 people in all of Shenzhen. So just between 2010 and 2020 and one small neighbourhood on the western side of Shenzhen, they followed 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, you know, 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, etcetera, leading to these speed trains that 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 of China, well why does it matter? It's because these things layer together. OK. So China's ecommerce percentage is about 25% of their overall retail. Here it's about 14%. Again, you know, 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 will stick with, with shopping and and retail is social shopping. So this idea of streaming while shopping, that's layered with the full experience and imagine what it can do again if you layer. That on top of this we chat 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 we chat. He was just talking about it yesterday. So the point is that we all have this opportunity to really, you know, 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 $0.45 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. There are 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, bring the best seats out, I guess. Going out to get some spicy all right, center stage for you right here, right there in the middle seat. Well done. Well done. Would be nice guys. Be nice, of course. Well, sax is in here, so of course it will be nice. That's kind of by default. Meet our Ryan Peterson from Flexport. Claire. Maybe you guys are Ryan. Go ahead, Claire. Ryan, I'm introducing you two guys. Claire. Ryan. Ryan. Claire. Then you're right. 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? You know, their 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 usually go running sometimes kind of fast at the Olympics. 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 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, 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 there really across the the education bracket, highly trained engineers, but who might be quite young to folks in their their 60s who have really seen China evolve. And so I do think the thing that can get. NIST 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 could take the best of each other. So we're we're best of rivals in a way. There we go. Is there a 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 when I look at again, younger people, the products that they use or the things that the young tech, you know, entrepreneurs in China are working on versus here, they're approaching a lot of the same problems, right. So on the social side. You know, looking at Doyon and what made it so catchy, right? Or what it is for us. Yeah, it's tik T.O.K. It's tik T.O.K. And back to that one about, you know, cheat codes and a preview, you know, Doyen was popular years ago and 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 you read and write Mandarin fluently as well as speak it or, well, you will never confuse me for a football or your but you know enough to get by. And so when you do business in China, do you conduct an English or do you conduct in in Mandarin? Yeah. So with the team, we work fully across what's appropriate because we also work in Hong Kong where it's Cantonese. Right. But all of my communications that go out to 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 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 probably be 50 organizations in the United States that would have to have a say or want to say this. 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 and this is where I think it takes the the best of both which is at a local level. So you have your local, we have a party secretary you have a block leader and and ultimately it goes all the way up to you know the the big guy. But China does this amazing thing. They have a 5 year plan they call it the five year plan. Last year was the 14th 5 year plan and it sets KPI's and areas of focus for. The entire country. And those are things around carbon neutrality, education, agriculture 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 road map? But that filter is all the way down. And so at a local level, those KPI's 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? Like you get fired, you get kicked out of the party. Like what is the? Mechanism of reward. Yeah. Or you know, well, it's 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 to a bigger city becomes a right. So yeah, so from a from a block to a bigger city to a higher, you know, up to a a sort of hiring career stalled out if you don't hit them. But again, it gets accelerated if you exceed that, right. And so that creates a very interesting set of opportunities and so. To, to put it to maybe a 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 the last building that I showed up there is right, sits right on top of the 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 going to happen with the capital markets for your business with 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, sure. So certainly we get a lot of questions but it's another one where the the headlines out versus in you know inside the country certainly the the built environment, the construction and the real estate industries. If you combine that all together you 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 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 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 and shore up the balance sheet, make sure Evergrande wouldn't default on some of their their. 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, especially on the living sector. It's really accelerated some policies to make it easier to 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, 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 we look at 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. 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 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 recognize sometimes is that people who are living for under a dollar a day, three or four or 500 million of them are now gone. And 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, you know, education and and prosperity for for the decades to come and and specifically for the Boomers and Gen X. So, so tell us about that middle class that's emerging. We hear about it. Yeah. How many of them are there at and qualitatively, what do they want from life? Yeah. Well, Jason, 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 today, today. So we read a lot about these bullet trains, right? And so that leads 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, 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 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 talked about on Juneteenth, the ones in Galveston who walked across the bridge and followed railroad tracks to Houston, TX, right. That's amazing. That is amazing. And so I think when a generation or 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 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 map 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 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 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? So first, I think the the urbanization trend of folks consolidating to the cities really can't be overstated just in the way that it shifts sort of how 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, when we were working with Capital Partners there, I see a lot more Brown. This is really going to the universities around Beijing now. These are still what Belton Rd is for folks who maybe haven't heard the term. Yeah. Yeah. Yeah. So many places you guys can read about it and before I forget talking about. So sort of just, you know, everybody loves recommendations here. So if you haven't read Dalio's latest book on changing World order or there's actually a great you read it free bird. Greenberg talked about it every podcast for the last 20 years, so you've gotta read it, listen to your besties. There's also very good, very good illustration of it, as sunrises talked about. But you do do read that because, you know, China has been a major participant in the global S so, you know, the short version of Belton Rd is working really across a set of countries around SE Southeast Asia and Africa, bringing in infrastructure and kind of what it sounds like roads, roads, ports, airports, etcetera. Really building out this network for that part of part of the world. But I think what gets sort of bumped over on that is. Again, things like 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 to further exchange, to lift more people out of poverty, to create further infrastructure. And Claire, I was hoping you would stay with us and be a bestie for Ryan. Who's the next speaker? Would you be willing to help us? Heavy rain. I would be honoured. The other switch seats. So no, no. There we are. Ohh, yes. Switch seats. OK. Yeah, you'd be better. Sheets, get in. I rubbed it out for you and you're the guest. I like it. I like it. So give it up for Claire now, Ryan. Congratulations. CNBC does their top innovator or 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 is a big win. What do they call it? Disruptors list. Ohh, Disruptor 50 and my view of these lists is you should never share any list about your company unless you're #1 and we were #1 this morning so I can. Well done. You truly helped us navigate, I think the 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 one. Just one. So just once apart. And then here is your second time. And apologies, I was filming the interview for that during Palmer's talk this morning. You missed something. I don't know what 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. Ohh, dude. Would you do you have some? Feelings you'd like to share? Seems to be a theme. I mean, this is turning into therapy now. I don't have any any enemies. It's no enemies. And I got, I got some nice things about people jakel. I got COVID. I couldn't think of a single person who do I wanna give this to? I was like, I like everybody. I don't know. So tell us. He was going to do a talk, right? Are you going to talk for a couple of minutes? He gonna talk from there? Yeah. Give us a little bit about what we're seeing. So First off, what Flexport is, we're a global logistics platform. We help businesses of all sizes ship products all over the world from anywhere in the world to anywhere in the world. A lot of business in China, probably about half of all of our volumes come out of China. I know when landlord if you're looking for one, right, if you need to get out there you might have something we'll do some business after this. And 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. We to give you context of Flexport started in 2013, the first revenue was in 2014. Did $2,000,000 in revenue that year. We're on track this year to do $5 billion in revenue. So from very exhausting yeah and. This time period is, I assume it's always like this in this industry. I have only been in the business for about 8 or 10 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 3 months. Total pandemonium. By the way, that might happen again July 1st. Their contract that they negotiated back them is up for renewal on July 1st. So we might talk about that 2016, there were 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 was like $600 to ship a container this past year was 20,000 bucks in 2016. So we go through these boom and bust cycles. It's an asset business that will happen. 201718 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. 0 COVID shut down factories shut down all the purchase orders everyone thought they. 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 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 doubling on more than doubling the transit time. 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 as flex forward. It's like 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 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 ecommerce business and we ship for probably 80 or 90% of the hot new DTC brands. A lot of IPO's recently, a lot of. A lot of really cool, hot new brands they're going through. Almost a perfect storm right now. In like a really, really bad way like the movie The perfect Storm because ocean freight rates are Sky High mentioned this ten $20,000 to ship it container. Rule of thumb long term is like 2 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 10% today, wiping off $40 billion of market cap this morning. So, so it hits companies of all sizes but these DTC brands. A double whammy because Apple last thing was last year when they changed their privacy rules and their customer acquisition models are on Instagram, Facebook, Facebook, all these things stopped working. And so you're at the same moment you're capped, it stops working, you can't acquire customers, your supply chain costs through the roof. And then add to that, the 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. You got to get your dopamine. Somewhere and everybody was just buying goods. So that is like a triple whammy for these companies. I'm incredibly worried about the whole DTC brands, the whole DC space, the DC space by the way, you physical good, you saw it in like the, I think it was trashier that just announced their laying off 25% of their thrasher was buying a collection of those Amazon DTC brands, putting them together and trying to have some economies of scale. Yeah, but when your supply and your demand both get 10X. In the wrong direction. It's game over. 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 gonna buy stuff there are gonna be successful. There are gonna be some winners are gonna be brands that survives though, at what price? 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 a in an environment where venture funding is I think again, venture funding. Apple markets are capital market, capital markets. Public and private investors like you will look at this and go, hey, maybe I, you know, put more into Sass. But he 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 its supply chains, it's been written about the famous PhD paper from like the 60s or something called the Bullwhip Effect and the bullwhip, if you like, crack a whip. The end of that whip is moving incredibly fast. And it's, it's a bit like that in supply chains because you have imperfect information. And so the people doing demand planning are limiting 1 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 time is 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 do we want to have in stock? So we avoid being way overstock. Yeah. And then that and where we're seeing right now is these warehouses are overflowing and people can't. So what changes that like what breaks it open? So, you know, like in China, pinduoduo 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? I mean actually China's got one of the companies to watch is Shane. Erin, it's this Chinese kind of like the new Zara that is taking over the world. I think they're going to do $20 billion in revenue this year. Fast fashion, fast fashion, they're launching 1000 skews a day. 1000 new skews a day, all like AI generated and then if people order enough, yeah, they produce it and it's like really incredible what you're saying a robot says make these skews. This is where this shirt is from. Actual wait, you're not. Yeah sure and it but it's going to be a million is going to be ordered down sorry sorry tell us totally sorry this shirt you so it's literally a shirt from shin but but yes so if 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 8 or 9 days something you know pretty wild she ends up about as close to instantaneous as you can get so very fast moving skews it sort of hyper speed fashions they can have things like. Almost the same day, like for minority, but they're predicting that this puffy shirt is going to be like, women are gonna wanna go for part. But it's a fly. Sure. It's why I agree. And and I think one of the one of the key things here is, is that the 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 it stretches out the way it has right now in ocean freight market, we're taking forever. If that takes 3 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. Set 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 going to buy the cheapest freight I can ever buy because they don't understand that you're goods in transit are just money that's taken a different form for a period of time and money has a cost to it and if you're sitting there in six months that's already expensive because of 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 thing. You import Christmas stuff and in January it's worthless. What price? Do people just find alternate ways, whether it's you establish domestic 3D printing or you buy a fleet of planes or like, there's gotta 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 COVID-19 lockdowns are so strict that that's also exacerbated all of this. And last year, Walmart, to me announcer, spending $10 billion verbalizing their supply chain and building out their own infrastructure for moving goods. You're seeing a lot of 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 and none of these guys have said, hey, we're going to charge our target with the other one, maybe target Amazon, of course, go charter their own ships, go solve the problem their own way. It's really hard to do run these things at scale and operate. It looks good at the PowerPoint slide hit. You know, when you have to get down to it, it's really hard. So there are big CapEx play here, Ryan, for the next decade, I think like a big. Capital equipment, hard asset play, so. The world's ocean carriers, that's what we call the people on the ships, have actually ordered 25% more ships to 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 similar sort of. But anyway, Ryan Ryan said it best. The problem is you can't forecast demand accurately for these long lead time categories that are highly CapEx intensive. So it's mining or whether it's shipping. How do you make a $500 million CapEx decision for a business demand cycle that's five years into the they're all taken, they're all taking profit hits and saying we have to make this investment because we need the security, we need the redundancy. I mean one more did it right, they were optimized. To a team, well, so 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 interesting is they get these companies to sign up what's called take or pay agreements, right. And so they can actually smooth out the demand curve. Five or six in the future, take, take or pay means I'll do a deal that says, OK, I'm going to rip the lithium out of the ground. You take it or you pay for it. I don't care what you do, but I'm going to get the revenue assurance I need to go to Wall Street to get the money. We've started to see the sign for the first time, so we've signed three-year contracts. Collector was the first ever to sign a multi year contract where we commit. We will pay for this rate whether or not, whether or not we ship anything, we're gonna, we're gonna pay up front. Yeah. OK. Take your pay. And and you asked a little bit air freight what's gonna happen. We'll remember 50% of all the world's air freight flies in the belly of passenger planes and there's way less people traveling to and from Asia than there were. Is that right? Yeah, 50% was afraid, which is a little scary when you think about like what's under the belly of that. Is that getting scanned? It is, it is. There's good controls on that. But you never know. It's always. Jason is getting little nerve wracking getting so and they seem to be not so sure. You know you work in any industry long enough you start to question whether everything's perfect. So we've actually got 10 passenger planes that we've leased and we'll 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, seeing them flying masks with other seats at the top. There's still seats in some of them, some we've ripped out the seats. It's like Castaway, you got the big plane. Buildings that if you wanna go to Asia, I've got a 787, there's nobody on there could be a private flight, just you. But exactly this. This is why you've seen the rise of logistics real estate, right, 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 infrastructure on land to be able to get it to people. 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 this. From 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 and then every and everyone missed it. You wanna be asset light. It's still the trend and 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 $400 billion company because they're willing to have assets on the books but it's a different investor and now they have the shower in the equation and they can they can get a better share of value. Locate around. That's the real estate business. The hardest question for me to answer and I know that there's so much out there. Have the same question anytime someone asks me is flexport a software company or a logistics company? Are you going to own assets or not own assets? Yes. And you know I think that 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 trick without the. 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 SAS 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. 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, you're 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 $500 billion. Well, and if we look at some of truth, 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 escape velocity on less than, you know, a billion dollars of investor capital. The problem is, you know, if Ryan for example, decides, hey, I'm going to go and actually vertically integrate and buy an entire fleet of ships. Probably a 10 to $20 billion CapEx cycle over 10 years and you think about replacement costs, it may make a ton of sense actually, right? I wonder when Amazon's cap expenses for those servers started to hit. He's thinking about it. But giving the capital markets a little boy, and he definitely wants to do that. But I thought you want to own a fleet of ships you already own a you have ownerships. But no, we're not gonna do that. I don't think I, you know, there's two plays. You know, fundamentally you're bullwhip 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 going to arrive. How many trucks? 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 your algorithms are helping them make more money from their asset. They want to tell you, or you can invest further down the chain. I mean, one of them's 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 at Alibaba and Alibaba investing down into China like there is a middle Rd. Being able to go to China now, so logistics warehouse, I mean in a way for them to push goods out, as stupid as it sounds, you having purchased a shipping 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 his 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 like a million strategies and ways to play out and I'm I'm not a big believer in like predicting the future and you know, you want to have a vision to know where you're going, but I think. The sort of flexible, yeah, in that that's in the name are we talk about our cultural life. 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 velocities are really important word because we forget a lot like normal people forget that velocity is different from speed. 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 going to 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 as we wrap here. Question for both you and Claire, which is China has big for you before you do your rap question, can I just, can I ask him to, can you tell us, the audience about what you did during the Ukraine crisis? This is beautiful. It's just like 30 seconds about, you know, I didn't go there like Antonio. Crazy man. But what? So we started this group in 2017 called to do humanitarian relief, shipping. Really. At that time, the crisis was 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. I we we, we maintain a database of partners. So we have agents that work and operate on behalf of Flex board in over 120 countries. And at that time, I simply emailed our Syria partner, who's literally. 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 then I realized you could do that. We didn't ship into here. We know who's going to end up in. So we shipped to refugee camps in Turkey and Jordan. So we've been doing this now for five years, shipping to over 50 different countries, any kind of anytime as a hurricane, earthquakes. But we're we're a war. And so when we saw this happening in Ukraine, we immediately kicked into high gear. Flexport team has about 12 full time people and then we have a model where employees at Flex 4 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 ourselves. So we created a go Fund Me campaign partnered with Ashton Kutcher and Mila Kunis. Ashton is an early investor in Flexport and we raised 25 million bucks to pay for shipping. To deliver goods. Yeah. Thank you. Well, and the way you did it with your Ashton and all of our investors, a lot of great people stuff you, you emailed the besties and said, hey, it's $4400 a container. Was that the number 42 or 44? It depends on what's for Ukraine specifically. I mean, for example, we shipped 9 ambulances from 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 or Ukrainian and they were just like stoked. To go and do this. So we delivered 9 ambulances that cost like around 10 grand. Yeah. So bunch of delivering ambulances. I've replied back to him and I said no problem. And he said he mentioned on the podcast, I said no problem. And I donated at $4400 container. And then she said, oh, I donated the plane that 12 containers went on. He did so with the flex on a flex reflex for it. It was like a multilayer flex. So. And then it just snowballed and this hasn't gotten much attention, but Yuri Milner, who's an early flexport investor just donated. $100 million, wow to yes. You're really putting pressure on their side of this team? I didn't hear the last part. Anyway, keep going. Let's go to the well let me, let me wrap everybody does what they can and it it is amazing model where. But by the way, over 60,000 people donated a little bit and I'm almost as just as proud of that. It's like go to people getting involved, stepping up, like hey, you can there in support. The final final question for YouTube. We had this great moment where you know we engage China. We built a bunch of iPhones Amazon basics you know whatever it is and they can shoes and it and it raised you know the the standard of living for a lot of people. We understand China is 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 and they're kind of now becoming incredibly. Influential. What's their intent and how is that going? Clare, maybe you could start. That's a big question, but I think it's it. 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 the spicier view around your resources and protectionism versus one that's morphed around progress and as we may have an increasingly vulcanizing East and West and the ability to their for there to control the 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 S 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 it won't end is in places with dictators. What are you seeing in terms of the the shipping containers? Because you must see shipping containers increasingly leaving certain ports. Where is China sort of exporting? Production too and and what are the up and coming production areas? You know there's some really interesting trends going around around labor costs and China. The reason people went there over the last 40 years be honest, was like cheap labor and and but overtime they became quite sophisticated. They really learned 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 should. 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. If it's just cheap labor, two years ago Mexico became cheaper than China in labor costs. Wow, 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 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 going to respond to shipping closer to home. So you're that is a trend that you're going to 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 costs 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, they've got to make more and more sophisticated products because it can't just be about dirt cheap labor services and yeah, and that's a huge challenge in very few, if anyone's really done it at no one's in it that scale because the biggest country in the world but Japan, Korea have kind of done that, but not 10 times as well. Bigger moving to a services based economy in India. With it comes to mind and then they'll become entitled and want to retire at 55 like you're up. And by the way speech on my favorite answer is someone at I think it was Zuck. Although Toby from Shopify told me he lifted this line, his employees were asking him about the four day work week and he was like well you know I do think we should do some experimentation around how many days a week we work. So but we're going to start with the six day work week like China does and then we'll try the four day work week later. Ladies and gentlemen, please join me in thanking. Thank you, Claire. Well done. Let your winners ride Rain Man David Saxton. We open sources to the fans and they've just gone crazy with it. Besties? Your driveway. Ohh man. We should all just get a room and just have one big huge order because they're all just useless. It's like this, like sexual tension that they just need to release somehow. B. Where did you get Murphy's?