Flexport CEO Says a ‘Great Recession’ Is Here for Global Shipping

seems to be easing. There is this general shift from consumer goods to services. But things are still relatively busy. But I think I think they've settled down enough that we can start to talk about what we have learned from this whole saga. Absolutely, I think so too. I mean, they're really you know, you still see like occasionally specific products will be in shortage. UM, there are certain types of equipment and if you read the surveys of like the s M or p m I surveys, you still

see manufacturers talk about difficulty getting certain things. Electrical equipment seems to be up there, but there's sort of like generalized shortage of everything, those like crazy lines we were seeing a boat the ports and trucks at the ports and all that stuff. I kind of think that story

is over right. And one of the few good things that that tends to come out of crises in general is that they offer you this opportunity to look at what exactly went wrong and why we're things designed poorly? Is there stuff that we can do better in the future, And so now that some of these supply chain issues and transportation and shipping and logistical issues are starting to ease, we can go back and and think about what we've learned,

what we can do differently. And you raise a really good point, which is that you know, you have some crisis, and there's always like, Okay, what should we fix? What could be done better? But on the other hand, you know, what about maybe not fix anything because you know, once in a century pandemic. Is that a good reason to completely up end the way the world does business? To me,

it's like, let's just put this way. It's not obvious to me that like we won't eventually just return to Well, this is the other question I have, because the industry that we've been talking about the shipping and logistical industry. This is already incredibly cyclical, right, so do they just look at one and say like, well that was a crazy cycle. Now we can get back to our normal cycles and just do what we were doing before. And well, you know, we most of talk about the pandemic and

the COVID disruptions. You know, there are other developments globally. There's the ongoing war in Europe. There's a heightening tensions between US and China politically. Um, there's the energy cost surge in Europe which may not you know, ease for a long time. So there are other things going on anyway, throughout the crazies. We've talked to Guess multiple times, so perfect time to get him back in. We're gonna be speaking with Ryan Peterson. He is the founder and co

CEO of Flex Sports. So Ryan, thanks for coming back on odd lots and also are we right, Like, is the crisis phase of this over? Well, it depends who you are, I think for the average consumer and business, yeah, more or less past now. If you own ships or planes, the crisis might just be started. Right, the crisis of downy Sand. They were all making a lot of money, and now we're gonna speed ran through one of those

cycles that you're talking about. They usually take twenty years, and we did it in too um two or three, and so right now I think we're looking at the opposite problem of excess capacity. There's too many there's gonna be too many ships and and perhaps too many planes

relative to the demand to ship things. And so Tracy and I have been joking that maybe our odd losses for three, it's just gonna take all the episodes we did in two about how there's a shortage is and then just flip the signal to negative so plunging prices over capacity, We'll just do all the episodes over again and change the direction. Era. I've seeing glass that don't lead to a shortage, but I've never seen a shortage

that doesn't lead to it. So so Ryan, you mentioned um that the crisis might just be beginning if you are actually, you know, a shipping company and you see your freight rates start to plunge. And this kind of brings me to something I wanted to ask you, which is, we have seen a lot of these shippers make absolutely insane amounts of profit for the past two or three years. I think the last number I saw was for the

the third quarter of this year. It was net income of fifty nine billion dollars for the global shipping industry, which is more than the forty eight billion they made the year before, and up from like a fraction of that pre crisis. Yeah, from zero or negative. So, I mean, what what do they do with all that money? Is my first question? Do they just buy a bunch of new ships, do they start to put in like efficiency improvements or right do they return it all to their

long suffering shareholders? Um, I think you've seen a little bit of each of those things, and it depends on the company which ones emphasized the most. So some have a few of the ocean carriers have gone been pretty aggressive in buying freight forwarding businesses or e commerce kind of fulfillment, trying to go more end to end owned assets on land that can kind of connect their ships and be able to really provide that full factory to consumers door experience. So you see that from h C,

M A and MERSK in particular. Cima is the big French ocean carrier, um them is the large actually they're kind of small, but all these companies are big. That's an Israeli carrier, and they've been pretty aggressive in doing uh dividends, returning cash to the share out to the owners. UM and MSc, which is now the world's largest carrier, has that a little bit of all these things as well. But they also invested a lot in ships, and so they've become the largest carrier in the world by really

investing in the fleet. So UM, all those strategies are being done. A lot of these companies are private, so you don't really get to see everything that's happening. UM. But and I think it's by nature because Wall Street really can't handle the sickly coal. They want quarterly consistency, they don't. They're just kind of they can't handle these ten years of losing money and then two years of printing money. It's just UM not something that sits well

with public investors. So they tend to be private companies or in some cases stayed owned or kind of quasi stay owned UM and where there's sort of sort of some national interest in having ocean carrier capacity. So you know, obviously the big story, you know, the pandemic disruptions, the insane amount of demand for sort of like pure goods

and the filling warehouses and filling ports, etcetera. But as I mentioned in the intro, there are some other pretty big things that have happened in the last two years, particularly the war in Ukraine which remains ongoing, and just like the clear ratcheting up of tensions with China, and you see these companies start to wonder like, well, what is the long term future of trading between China and the US. And also you know related I guess too, but all of this is the surgeon cost of energy

in Europe. Can you talk a little bit more about these other sort of like non pandemic macro factors and like how much you see them like staying with us right now? Like how much are like businesses that you speak with every day? Sort of like thinking about whether these are sort of deeper long term trends. Well, the the manufacturing in China has been a long term trend. As China has gotten richer, their labor costs have gone up.

It's probably a good thing for the Chinese people, um, but manufacturers are kind of always seeking out that lower cost labor. So that's a that's a trend's gone for a decade or more, and the trade wars sort of brought more attention to it, and uh, you know, the increasing terrorists probably caused some companies to re evaluate, and then the inconsistency of skipping and then kind of COVID where there's different If your factory is closing down, it

makes a little bit less reliable. So that's probably probably had some marginal acceleration, but I think it's a long term trend driven mostly by labor costs. Um. Now it's uh, it's really the most important where labor is the limiting reagent or the hardest thing to find to execute these manufacturing jobs. So that tends to be kind of lower skilled, simpler stuff like a peril which is largely shifted out

towards Southeast Asia and Sri Lanka. But some of the stuff like consumer electronics, it's just this this whole ecosystem there that's in change in and around that's very hard to move those factories. So I think, um, it's kind of overblown some of the heat on the sholf. Like we've traded traded more with China the last couple of years than ever. Um, So it's like a nice narrative, but I don't know that it bears out of the data.

Can I ask a really basic question before we go any further, But when when we talk about spot rates in shipping, and you know, we mentioned that they went up a lot during the pandemic and now they're starting to come back down, how much do those actually matter

for global trade? Because my understanding is that if you're a big, you know, manufacturer, which is someone who ships a lot of goods, you're probably going to have a contract in place that might be different to the spot rate, and you're also going to be renewing that that contract on maybe maybe a yearly basis. So it seems like there's perhaps a lag in how long it takes the decrease in spot rates to feed through to actual shipping rates. Yeah,

that's exactly right. I don't have to stand in front of me, but I want to say it's like about sixty or seventy freight container ice rate moves on annual contracts and thirty or forty on the spot market. I'm not I'm not a hund su sure, but that's like where my brain settles in on it um and so that that spot rate isn't Yeah, it doesn't float through immediately to the p and L of the carriers. Sometimes people don't honor to the contract um and a lot of people if they you know, if they see these

contracts are kind of gentlemen's agreements handshake. It's a repeat game. So if you if you don't honor your contract this year, people are going to really hesitate to sign a good contract with you next year or you know, so it's it's it's not something that is not necessarily legally enforced. People aren't really seeing each other very often over these things.

Although with the with the level of price, you know, you've seen more probably lawsuits against carriers and freight forwarders in the last couple of years than than ever because people are upset about how things played out. Um. But in general, people do onto their contracts even when the spot market drops below but not always, and in any case it is a lag, so it's putting a lot

of pressure. Contract renewal season and ocean freight for the United States is going to be in April or May each year kind of marks through May, and that's coming around the corner. And people are looking at these spot markets and say, you know, that's clearly going to be the driving price of where the where the contract market

settles in. So the pain for the carriers probably comes after this contract season, and it's gonna be there's really interesting kind of economic theory in practice to get to watch and see what plays out. Yeah, I believe. You know. We've talked to Craig Fuller from Freight Waves a few times.

I think he at least in trucking specifically. He sort of likened it to, uh, you know, the deal you have with your babysitter where it's like, Okay, i'll pay you this every you know, a hundred and fifty every Friday or whatever, but if you change, it's not like anyone's gonna sue. You just sort of like expect that that it's like the arrangement and so you just yeah,

I'll keep it. But it doesn't necessarily mean that's some you know, the babysitter doesn't show up one day and she says, oh, it doesn't mean you're gonna like see your babysitter. Yeah, there's there's just a lot more babysitters in the world than there are ocean carriers. So you don't want to burn bridges, you know. The Tanner Tanner Cross. Don't know, you know, there aren't you know, even babysitters right now, at least as a former babysitter, are not

of breaking contract. There are a lot of parents in New York City who have a hard time finding a babysitter right now, I think you really want to be careful about burning that relationship with Yeah, okay, okay, maybe there's more similarity there, but yeah, it is. There's only ten or twelve motion carriers that matter that have any real scale and to represent containers moved in the world. And so it's you know, you don't want to be breaking your contract because you do that once and yeah,

you know you're not. You're down to nine and there are there are a number of these big companies that come around and basically, when when you get to be above about five thousand containers a year that you're shipping, it makes sense for a company to contract directly with that ocean carrier rather than working with the freight forwarder

to buy the freight. Uh. And but there are some big companies that buy from freight boarders and when you dig in, you find out it's because they like dishonored all their contracts and don't carry a lot to work

with them anymore. Well, I mean, this is something I want to ask you because I think, UM, one of the things we learned from our very first episode with you, which was you were basically walking us through why I was having so much trouble getting half a container from Hong Kong um to Los Angeles as an EXPERIMENTUM in shipping congestion. But one of the things we learned was that a lot of this business is relationship driven, UM.

And we used to joke about like Sven in Sweden, right, you know, the Sven who like operates sports somewhere and you can maybe cut some extra room. But for the past couple of years, has the industry become more relationship driven? Is it more important to have these direct relationships with the shippers themselves, or has the crisis sort of opened

up opportunity for that behavior to begin to change. I think the last two years, relationships will probably matter more than ever because when capacity is tight and there's no space on the ship, it's who who's been the best customer for these people over the long term, who plays golf with It's not Spann in Sweden, by the way, It's it's lar. Sorry, sorry, I'm getting my nory up. I'm just okay. You know, So I think the when in capacity is tight, very little else matters in the world.

Then what's your relationship? How are you a profitable customer? How long have you been a profitable customer? What's your consistency? So being being able to bring freight every single week and not cancel. Um that those things start to matter a lot more when when space is wide open, if there's excess capacity, sort of like, hey, you know, you don't need a relationship, We need to sell some more cargo. So I think, um that that that dynamic is going

to shift. And then you know, we went through a real long period from until twenty nine, really at the beginning of pandemic when it kicked in, of just excess capacity and ocean freight, and then we had two years of extremely tight capacity. And it looks like we're right in the midst of a real um a great recession call it um where there's less less containership being than

really even before the Oh wow, okay, that's there. There's our title this episode, the Great Recession that's coming to containership. Thank you container ship, And yeah, now it might be great news for people who have to ship containers, Like all of a sudden, the prices way down and you can get space and you can you know, have some sanity about it. All that. Okay, So we went from glut to extreme scarcity to glut again and not just glood but also like a sort of like very like

poor demand. Can you talk about the energy component like this is like a fascinating thing, like the gaps, say between how much it costs to manufacture goods in Europe for the US due to the gap in electricity prices.

Do you see that reshaping trade flows or has this become another one of these things where it's like it's kind of a fun story and we talked about it in the media, but in the end, like it's hard, you know, kind of like a the world doesn't reorient that fast and ultimately finds a way to sort of go back to the old normal. Yeah, I mean, I think it's a little too early to say. It seems obvious just looking at the numbers that like manufacturing in

Germany doesn't make sense at these energy prices. Does the government come in and subsidize the energy to allow them to maintain the manufacturing which has employed so many people and kind of been the the engine of the European Union as a whole, Like I think they probably will, and so then it starts to be really hard to predict how things play out, because once you have government coming in and intervening in the market, then you know a lot of the market um theory that kind of

breaks down. And I don't really know what will happen. But with those prices, like manufacturing in Germany just doesn't make kind of sense. The US has such an advantage on energy right now. So just going back to the past couple of years, I'm curious whether or not you saw either shippers or people related to the shipping industry and transportation and logistics more generally, whether you saw them

do things that made the whole process more efficient. And I remember in our various discussions on this topic, there there seemed to be a lot of low hanging fruit for the industry. And I think you had one um one figure when we first talked to you, talking about how most container ships on average are only se full, so it would seem like just put more containers on the ship and we could maybe fix some of the backlog,

But did stuff like that actually happen? Because all of these things they seem so simple, but then when when you actually go and try to fix them, it often ends up My impression is it often ends up being more complicated than you expected. Right. Well, actually that stad is that the containers themselves are only ships are full, but the inside of the containers are not optimized. Did the containers get more full? Did they? Did they get

better at talking them? Surprisingly? No, and if anything, you might have gotten worse because which is a really interesting counterintuitive thing, but but it sort of makes sense when you think about the psychology of it. Always like, Okay, you're having a hard time getting a space on a ship. You finally get one, just you're not going to sit there and try to optimize the inside of entertainer. Just like just whatever you got now, just throw it in

there and let's go. Um, Which you know, it's sort of kind of intuitive because you think like, oh, this thing is really scarce, We've got to really optimize our capacity. But you may not have that luxury because you're you know, you're just scrambling to get space on a ship. Um. So no, we haven't seen a lot of progress on that metric. Um, it's we're not seeing I can't say that I saw material changes in the infrastructure in our ports to enable them to like handle a surge and

capacity if that ever happens again. Um, the appointment systems haven't improved. The technology for getting um for for picking up trucks, you know, for for picking up containers, for getting trucks in and out of there hasn't improved. Um. We've got the West Coast Union, it's called the i l WU International Ngenterment Warehousing Unions. UM, they're operating without

a contract right now. So their contract expired the summer. Uh, those negotiations are ongoing, and how many Intel was happening there. But but I have heard that they're main Um, the main thing that they want is to not have more automation in the ports. So I don't see that kind of like upcoming that we're going to get a lot more automation to be able to handle a surge in these in the area. UM. So in general, I would

say the infrastructure is the same, it's not gotten any better. Wait, didn't you You famously went to Long Beach and I think you rented like a boat so that you could observe how things were actually being loaded and unloaded at the port. And wasn't there a change as a result of that trip. Weren't they like stacking I think two containers on top of each other and you you made it or you suggested that they start stacking them higher

and they ended up doing that. Yeah. Yeah, So, um, we I went down there to explore, like, what's really happening here in the ports? Why is this backlog of a hundred chips going out here? People are like, oh you so, you know, like so, I don't know what the words they use, but really in creative or something, go down there and like do them, Like it's kind of my job. I got all my summers cargo stuff there.

I got throughout the happening, you know. Um. And so what we figured out was that the the trucking yards around the port were only allowed to stack containers too high, and then after that they had to just leave the containers on the chassis that's the trailer that holds the containers around. So then we ran out of trailers, ran out of chassis to go pick up more containers, and so you have to change backlog that that created so the City of Long Beach I tweet, I did a

tweet storm about that. At six am, three pm, the City of Long Beach changed the z owning law to allow stacking up to four high. That's pretty impactful. It's I'm told it's the fastest response to a citizen action in the history of government on all human civilization. That was. Yeah. The week prior, we brought the labor union Tacos to try to interview these guys and learn what was happening. That's where we found out that the truckers are missing

their appointments. And then we found out the reason the truckers are missing the appointments is because they don't have any chassis. They don't have the trailers to go pick

them up. So that that zone wall did have an impact. However, it was only the city of Long Beach and Los Angeles didn't follow suit, right, All the other southern California cities didn't follow suit, and and Long bag doesn't have that many trucking yards in it, so it kind of had a marginal benefit but not not dramatic um And I think it was kind of around the edges in the first place, Like what we really need is why does it Why do these truckers need appointments in the

first place, like they should There should be a system where they just show up and we give them the container and then the mobile app tells them where to go. Um So Flexport has implemented that in a couple of terminals for our own cargo, but for the wider industry they haven't done anything like that. All right, I'm not trying to blow up any future Ryan Peterson presidential ambitions with this question. You know, down there at the ports, giving tacos to the workers, all things of a future.

You know, it could be a career in public service one day. But you're honest, take in terms of the difference between unionized first automated ports, what you've seen around the world, Uh, how in your view, like, how costly is it from a sort of economic perspective, if at all, to have this sort of level of unionization that we have at the u S Ports versus what I believe

are more automated ports elsewhere. You know, it's it's hard to unpack the effect of the union, whether it's automation or just like management style and the adversarial relationship between the union and the and the employers UM, and the managers like it's it's a very strange. Um. You know, my company is not unionized, and it wouldn't work if it was, because this idea that a person who manages people is like a different person. It's like you can't

can't relate to each other and um. And so very specifically, what happens at the ports in the when the West Coast at least, is that UM, the management the companies have to say, the terminals say every day how many employees? How many workers do they need the next day? And then the union furnished is that many workers? But there's

different people every time. UM, they move around between the different terminals, so there's not And then the team has to reform every day and you're operating heavy equipment with new people doing new jobs without adequate training in many cases. UM. And it's just kind of a crazy way to work if you think about it. Like the kind of the core element of running a company and running an operation is that you take the team and you go, what did we learn yesterday and what are we going to

do better today? And like you can't have those conversations because it's new people every day UM, and so it's hard to unpack, like how much of the US port inefficiency is from just like a weird structure that's put in in terms of how the workers work with the management. And I'm not blaming the union for that, by the way, it's like why the management. I don't know. It's just this adversarial relationship between management and union that that it

needs to get worked through. UM. And now look, I'm an outsider, I don't I haven't worked in ports. I'm sure these guys will criticize me and tell me I have no idea what I'm talking about. But UM. But then the automation UM piece is like a money saved

anything for the operators. I don't know how much efficiency gains come out of it versus just like, hey, the union workers are really well paid and you didn't have any of them that you can make more money running a port UM and lower the cost of shipping goods. For sure, it costs about the terminals charge about six to unload the container um that and I don't know, it's like takes thirty seconds for a crane to go

like that. So it does seem like a pretty high tax to put on the world China is about a hundred buck and some of that is good to have lower labor costs, but a lot of this because they've got more automation. I was about to ask, can you talk to us about non US ports and what they're doing there, just to give us a sense of what

is possible here. Yeah, and what is possible by the way, like Rotterdam has been a fully automated port for something like five years with self driving trucks like for years ago, because they don't need that much kind of just follow a white line on the tape. There's no people to run into. So it's it's a really it doesn't need like really advanced AI or anything. Um. And their work

our friendly place. Like I don't think people are thinking like, oh, the Dutch or this like terrible you know, like fascist place where workers have no rights. Like I'm pretty sure that the workers in the porta ROTTERDAMU okay. Um. So it is. You know, there are other things that are other ways of working that are possible and people can get along with with investments in robotics, and I think it's really important for civilization that we like keep improving

the efficiency of the way we ship stuff. Um globalization and was really powered by the shipping container. We lower the cost of shipping things by or more. We've lifted like something like a billion people out of poverty through largely in Asia. But the ability for anybody to trade with anybody's created a huge economic benefit. Uh, And we kind of like stop there, you guy, we don't need any more of that, just like have uh you know, We'll stop with the robotics thing and the containers flying.

We don't need optimize the inside of the container or the way the containers are picked up. So it's it's disappointing to me as someone would like to see more growth in the world. I'm sort of a single issue voter on economic growth. I'd like to see so if we're all twice as rich, I feel like we'd be able to solve most of the other problems that are out there. Going back to, you know, the struggles that you believe container shippers are going to face, Like what

are they gonna do? I mean, you we talked a little bit about what they're going to do with all the money that they made in the last two years, but like, what do you see are some of the ways they're going to navigate if we go through this sort of uh down, you know, it's is like kind of a bust for them. We're gonna see contation, Like what are we going to see out of that? I mean, it's a really fascinating thing to watch, Like I get to be kind of front row seated in the game

a little bit. Um. They did make a lot of money. Uh, and yet nobody likes to lose money, no matter how much they have. You don't want to sit there and lose money. So they've returned and a lot of it to shareholders. Uh, they're investing in new business lines. But the end of the day, at the price goes down below the cost, you know, below their costs, they start bleeding cash. Like how long do you bleed cash? What happened?

We've already had a huge amount of consolidation during the prior glut, Like when flex sports started there were twenty three major ocean carriers were down to ten or twelve depending how you count them today. So there's been a lot of consolidation. I don't know there's that much room for more consolidation. Two, as weak players go bankrupt, maybe some of them get bought up UM, and there might

be some bankrupts. These people might walk away say hey, like we made tons of money, we don't, you know, let this thing go. But they also largely paid down their debts, so I don't know that they have a huge amount of debt to default on in the first place. So very interesting to see. UM. There are a couple of factors that might change this trajectory. UM. One is that the consumer is actually still pretty strong in the

United States. Like container volumes are way down, but actually consumer spending is not gone down on even on goods um services has gone way up. It's a good spending has stayed elevated. UM. So maybe there's a world where the consumers continue to spend goods and those trade volumes will come back up. One reason to think about why why trade volumes have gone weight down in the last quarter is that trensit times improved, right, and so it was taking a hundred and twenty days to get a

container from China to the US at peak. I mean it used to be forty We're back down to like fifty or sixty days. And so if all of a sudden you have your your ships go sixty days faster, than you thought they were gonna go. You're gonna have two months of extra inventory in stock in the United States and then you're like, hey, I don't need to order more stock, but you're gonna sell through that inventory

if the consumers stay strong, and then you should have. So, you know, I think the carriers really hoping that January February April May you know, the next few months, people start reorder the factory, start producing more in the company, start ordering more goods to get to get them into the country. So there's some hope there that the consumers

stay strong and that all the recession talk is overblown. UM. They have another thing on supply side that's coming down the pipeline meaning the supply side meaning the capacity for shipping, the number of ships that are out there, and they're um, you sort of the big factors are how many ships are there, what's their capacity, and the how fast do they go? UM. And under this thing UM, the International Maritime Organization that's the division of the United Nations that

oversees it's kind of the governance body for ocean freight. UM. They have a rule that kicks in in two weeks on January one, that the ships, UH must reduce their carbon emissions by and the only way to do that for an internal combustion engine is to just go slower. UM. And so all these ships are going to start slow steaming. We estimate that if they have to go slower than

their max speed in order to hit that target. UM. Now it turns out there a lot of them are already going slower in order to kind of rain in capacity and lower fuel costs. So our economist estimate this is gonna be a four to six reduction in capacity UM that that will start in January, so that may you know, that may rain in some of it as well on the counterside dough. During this boom and yours prior,

these ocean carriers ordered a lot of ships. So over the next three years you're gonna see increase in container capacity as new ships come online, and those orders are already placed and the ships are in construction. So UM, from where I said, it looks like the price has to go down a lot and then the carriers will go back to the old world. And I think, you know, there's a lot of hate spewed at these outra carriers the last few years, but those of us have been

an industry. I know, Hey, this was a ugly business. They lost money for a long time. They're gonna you know, they're gonna fail if they can't make money. They made money.

It comes into aves as as it turns out they made a lot of money for a couple of years, they may lose money for a lot of a long time coming up and hopefully you know they're in it for the long run, as these kind of family businesses and national businesses that they're willing to ride out a downturn because they know the upsides can be so good when when they come. Tracey, I'm kind of fascinated by that point about environmental regulations as de facto capacity curbing mechanisms.

It's like, if they're all the rules are imposed at once, then they sort of can solve the game theory of limiting capacity. Um, I just want to go back to that cyclical point um, because we know that shipping itself is a very cyclical industry and it's gone from basically bus to a massive, massive, like historical boom. But you've spoken about this before, the sort of like the pressures

of short termism on the broader business cycle. So this idea that everyone's obsessed with making money with generating return on equity. Um. Everyone moved to just in time inventory and things like that, which kind of contributed to the bottle note because you don't have a lot of stuff on hand when suddenly demand starts to spike. Have you

seen any progress from that perspective? Like, did anyone in business in manufacturing and retail learn from the experience of one that actually, maybe we want to move to some sort of more resilient model. It's um, I assume some people learn. A lot of companies have you know, more inventory than ever right now. I'm not sure how much of that planned versus like, hey, the transit time sped up and they're they're they've got more inventory than they

want right now. Um. The there is a bit of a Darwinian function in economies, right the people who played over the long game. Uh, those people who do it right should come out ahead and win. Um. But it's difficult because you know, you in the meantime you have too many, too many assets. Uh, you running a return on assets? As the CEO you get you get canned um and and or you go bankrupt because assets are

not free and so can you even you know. Actually, the great reminder here is Hunting, which is a Korean ocean carrier that went bankrupt. And if they would have just held on for six more years, somehow they would have made like dollars in front in the last two years. And uh. And so you know, they might have the right strategy, they had the right assets, they were ready, but they couldn't um they couldn't survive to see the

strategy through. So it's really difficult to just stand from the outside and say, oh, everybody should have more assets on the balance sheet and yet uh, and yet there

are there is a competitive advantage to doing that. Amazon has kind of proven this very interesting to see how eBay still thirty years later hasn't responded un to like Amazon opening up its own fulfillment centers and running a logistics network and kind of dominating an e commerce and you Bays still like, no, We've just like our market place for you, you know, John, But I don't know.

It seems like there's an opportunity that that's missed in going to invest in assets that is many many companies are afraid to do all right, So the big lesson of the last two years is here comes another downturn, and no one actually learned any lessons, are going to do any business any differently. Everyone's gonna go back to just in time, manufacturer in China, manufacturer. It's all just the same world, same world. That's what it's kind of like my takeaway from all that. Can I word on

this point. Words are going to get any more, but just on this point at a minimum. We've spent the past two years talking about supply issues and the sort of hidden like plumbing of the global economy. Has that not translated into anything tangible? I don't know, you know, I think never underestimate the ability of human beings to forget terrible. I think that's some good episodes out of

it all. So I think there'll be more discussion of it. Um. It always not always like Washington has taken some action

to do some things that actually are valuable. UM. Now, ocean carriers have to provide the date uh and when a container is made available uh, which seems like yeah, like that's a reasonable regulation to require that they could tell us exactly when this container was available, because you remember, you only have seven days to pick up the container after it's available, Before you start paying daily fine and if they can't tell you when it's available, it's precisely like,

how are they gonna what ground truth do you have to base those fines on. So that was one of the things that came out of the Ocean Shipping Reform Act that Washington passed. That one seemed pretty sensible. The rest of it. I haven't seen a big impact, but

that one. It's a good rule in my opinion. Um So, but sometimes you know Washington that wants to take action and action you get a group of people in the room and say you have to do something, you will definitely do something, but not whether that thing is bad or not is like a big, big question. Mark, Ryan Peterson, co CEO Flex Sport, thank you so much for coming back on odlines. My pleasure. Thanks for having me. I thought that last point, Tracy, never does it. Never underestimate

humans ability to forget. It's kind of bad and good. I think I don't think it's like kind of a neutral thing like, Okay, we wish something's got fixed. But on the other hand, right, maybe just move on. I think it's kind of bad. Joe. I mean, I started this episode trying to be on an upbeat note that maybe we have learned something from this crisis, but I mean, I don't know. Ryan had some examples of stuff that had changed that he had actually affected change personally, like

stacking containing one one day modest sized port. They did add an extra layer of stack. So some things are possible,

it seems. But it does feel like the cyclical nature of shipping means that a lot of people are just going to look through the past couple of years and just be like, well, you know, it's kind of an abnormal It was an abnormal boom, but it's not unusual that we get these booms followed by these big bus and you know the fact that they only would out made these big orders, like did they start believing it to that something is gonna be fun to my change the permanent bus. And so it does seem like the

overcapacity story is really like staring us in the face. Yeah, it seems like the thing that that would help would be if if there was some sort of floor put under some of these like you know, you want I mean, that's like when he said, like, okay, the environmental regulations kind of do have that effect, like okay, if you mandate if you put out some emissions mandate, and the only way to hit that emissions mandates for everyone to get slower. No one is going to sort of voluntarily

get slower if there's no force. You could see how these sort of curbs might have an effect of like solving some of these capacity problems, solving some of the game theory that otherwise would automatically result in the race to the bottom. Yeah, alright, Well, we've done our our shipping bust episode. I guess maybe in two or three years we'll do another boom episode. Yeah, hopefully not under like global pandemic condition, hopefully something else. But we'll just

keep marking all the turns in the cycle. Shall we leave it there? Let's leave it there? Okay, this has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Wisntal. You could follow me on Twitter at the Stalwart. Follow our producer Kermen Rodriguez on Twitter at

Kerman Arman. Follow our guest Ryan Peterson, He's at types Fast, and follow all of the Bloomberg podcasts on Twitter under the handle at podcasts and for more odd Lots content go to Bloomberg dot com slash odd Lots, where we post transcripts, Tracy and I blog, and we publish a one week newsletter every Friday. We can go there and sign up to get it in your inbox. Thanks for listening.