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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
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what will we be talking about today we're going to be talking about china you know just as everything has been all
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spicy yeah well just again we're trying to make today about just easy breezy topics that you know the
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most easiest things to manage so we armaments ukraine let's go to china sure please welcome claire
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[Music] we are going to actually keep this pretty apolitical today and maybe talk a
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bit about the parts about china that are less discussed in the highla in the headlines
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and you know jason reached out and he said he wanted to really understand what were some some
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problems and i wanted to see salt that we wanted to see salt so i'm a property developer
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i run greater china for heinz we're the largest private real estate firm in the world
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and we have an incredible greater china team i know i see these folks in the front they're like where is she i can't
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possibly spot her in there so so we have a team that is working across beijing shanghai shenzhen dongguan
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and hong kong and we get to work really across the real estate spectrum so we built the greenest skyscraper uh in
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in china we built some of the first international service departments uh in the country
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and are doing some really interesting innovative projects like in hong kong we bought a distressed hotel that we're
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turning into really a new kind of living collaborative living that's super technology enabled
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for a young population there where the average white collar young person it takes them 20 years of salary to be able
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to buy an apartment so we get to approach these problems that are not unique to our part of the
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world but often the solution is a combination of east meets west so back to kind of what's the the
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problem well you know we're sitting right now in miami a place that is super exciting
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thanks to a lot of the things that are happening right here that have been hyped by a pretty awesome mayor right
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what did he do we got on twitter and he talked to all of us about what this city had to offer it had
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key ingredients it had universities it had an upward trajectory it had young people looking to collaborate and at the
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end of the day that's where we want to be right we want to be sitting together in awesome spaces like this
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exchanging ideas with other interesting people that's how you do cool stuff and so as property developers we think
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you know how do you create spaces where people want to be their best right collaborate with others and build a
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better future so that's a lot of jargon but what does that actually mean back to
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the problem well first these ingredients are pretty clear i teach a class at stanford on this
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called who owns your city and the students usually pick it up in the first 10 minutes it's
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a place that has pretty good infrastructure can i get a job can i afford to live
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here and is there cool cultural stuff that keeps it from being too bland but then
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you know you'd say okay well cities can learn from each other right you can just
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take those ingredients and apply it and that's what suarez did a great job of here
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but we are living in a time where the east and west have never been more divided
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right and building a city building building is really hard it's it's like the most extreme version of hardware
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so as a property developer we spend our time really thinking about what are the big macro trends what are
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startups focused on where do they want to be because our spaces need to be relevant for 50 70 100 years and we
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can't pick up our building and move it somewhere else and so you try to take the arbitrage of
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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
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great returns but it's also where you build places that are going to be relevant for folks and so you know just
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a couple examples up here behind me so you know we talked about the living challenges uh so for folks to be able to
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be able to afford a place to buy but the concept of rental apartments so like multi-family if anyone lives in a
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multi-family building with one landlord that isn't totally a thing in greater china
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often people are left to rent from an individual landlord pay a deposit that's enormous uh cross prohibit you know cost
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prohibitive and get you know quality of of product that that really is not up to
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what they would expect and so taking a very in some ways kind of western concept and applying it in a place that
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technologically is probably about 10 to 15 years ahead in terms of what that average user is used to okay they're
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used to unlocking a door with their phone their wechat is their id it's the way they meet new people they can
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physically shake hands on wechat to introduce themselves to a friend it's where they keep their coupons it's how
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they pay their rent it's how they pay their taxes in some regards right we don't have that in america
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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
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something that doesn't exist you see up behind me a logistics building but it's actually six stories high
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something we're developing it is a giant almost like a refrigerator uh but a high-rise super tech enabled
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and that's because you know they've got a lot of people that building will be sitting within a 45 minute driving
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radius to 45 million people and yet china only has a quarter of the cold storage capacity per capita
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that the us does okay it doesn't take a genius to see that this trajectory is you know lower
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left to upper right and so again you're taking this concept of east meets meets west building up here
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uh just behind me is is in shanghai it's about a million foot tower you have a lot of those here in the
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united states big fancy office buildings you know where people used to go to sit
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at their computers and do work um but this one is very different from one that you may have walked into earlier
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this week this entire building is on wechat you can interact with the building on
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wechat you can interact with the landlord you can interact with your other tenants
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you can have chance encounters or organize a yoga trip in the afternoon with the people with the space
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using this digital interface so in a way it's really combining the way we live right now we live in a physical world
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but so much of our idea sharing our collaboration is happening in the air right in a digital experience that we
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can't see and so it's another combination of this east meets west and so what becomes
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a problem and an opportunity the problem uh when you sit in the middle of this world like my team has the honor to do
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uh is you see that there are all of these opportunities for us to be able to share
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this really the best of what the west has to offer with the innovation that's happening on the ground in china but it
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is so hard to talk about in this very divided world and so we like to take the positive side and say
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you know we're living in this world of like magic and larry and how can we make each other
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better so i thought i'd use just a few minutes and then we'll hang out with the besties
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um to to maybe share a story that maybe y'all haven't read so much about so that you get the
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benefit of knowing a little bit about what's happening over there and you can see an example of where sort of east
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meets west and that collaboration can make us all better so up here as a gentleman you all will
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probably recognize stung xiaoping famous for really the opening up of china and you know he was an experimenter you know
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he had this vision of what china could be and he saw what the importance of the physical
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world the physical infrastructure what a role that could play uh in in to enable
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the economy to jump further and so the picture to the other side is shenzhen which in 1980
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was barely a fishing village it had about 58 000 people very few paved roads and deng xiaoping he was
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from sichuan so we really understood what it was like to not be from the big city
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and so he declared it a special economic zone special economic zone so jinji and that meant that it would be this
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place to experiment with uh bits of capitalism with free trade etc so what is it today well first there's
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that same road along progression just a few years after it was declared a zone and then up here behind me is what it
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looks like now shenzhen is over 12 million people the average age is 29. it's really the tech hub
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of china so companies like dji which makes 70 of the world's drones uh they call this
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area home and uh and just within this area if you were to go shortly from where this
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picture is taken you'll have two of the world's five biggest ports by tonnage okay
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so how do you take that head start and turn it into something further well they took a lesson out of
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the book of the west and they created something called the greater bay area that's like the
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yeah yeah okay you guys get it and so what is the greater bay area well it is a collection of nine cities
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on the mainland side uh some of which may be familiar to you guys so shenzhen as mentioned and
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guangzhou guangzhou is about 18 million people places like juhai do you all remember
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you know several years ago there was this thing about china building the longest bridge in the world everyone's
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like where is that okay it was in july and then so nine cities on the china side and then hong kong
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and macau and together this this area it's about the size of called west virginia today
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has a gdp that's sitting right around canada and south korea okay about 1.7 trillion
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in 2017 they declared this great greater bay area name and and it was there to really
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back up a lot of the investment frankly that it already started to join these cities together to create
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a super region so within that super region they spent about 300 billion to build infrastructure to further
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connect it so within just four years they built 2 000 miles of speed rail like high-speed trains
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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
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the year 2090. uh and so so what does that mean that means that i can walk out of my office with my
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teammates in hong kong which is right next to that big ferris wheel thing that everybody recognizes i can take one stop
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onto metro in 13 minutes on a speed train i could be in shenzhen or i could keep on going
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and i could access about 23 000 miles of high-speed trains and get to beijing get to you know
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further than guangzhou get to western china it is amazing and it is happening so quickly and that number will soon be
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40 000 as they continue to build but it's not just speed trains these are interconnected
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nodes with further metro right with transit-oriented development on top of the meetings of these trains
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so back to the so what so we know that if you take cool people and put them in cool places
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and you give them an opportunity to interact well what can you do so this area again the size of west virginia now
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with 70 million people who are all quite young and again back to the ingredients
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we talked about what sort of fosters innovation well they've incentivized universities to put additional campuses
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here and these are the best universities in china so chinwa fudan etc they funded further life science
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they funded further tax increment zones to encourage businesses to come and set up
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nodes of activity focused on areas of excellence so remember we talked earlier about in 1980
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there were 58 000 people in all of shenzhen so just between 2010 and 2020 in one
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small neighborhood on the western side of shenzhen they filed 58 000 patents it's pretty amazing
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and that shouldn't be scary that should be exciting guys this is where we get innovation this is how we get better
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back to the magic and larry right thank you yes you can clap for that you're glad for that
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[Applause] so what does that mean for us what does that mean for folks who are sort of
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getting to work in this interstitial space in between getting to live within it uh you know up here you know behind me i
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have i i'll clear the visual for you it's further disconnecting showing these metro lanes these
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trams buses etc leading to these speed trains back down here that's hong kong island
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and then this takes you through a bit of the bay area before you get out to the rest of of china
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well why does it matter it's because these things layer together okay so china's e-commerce percentage is
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about 25 of their overall retail here it's about 14 again y'all are smart we can see where
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this is going so you can take some notes on the preview and see what things and trends
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may be coming here in china about 85-ish their transactions are mobile here that's barely 30 percent where is
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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
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the world there that haven't made it here and you sit there and you're like wow what a chance
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to iterate so the example there again we'll stick with with shopping and retail is social
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shopping so this idea of streaming while shopping that's layered with a full experience and imagine what it can do
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again if you layer that on top of this wechat platform we're just talking about a place where i can
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go and i could make a new friend right now you by looking at you showing my phone to you putting them
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together so we can introduce a product introduce a lecture a concept together imagine
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what we can do elon likes wechat he was just talking about it yesterday so the point is
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uh that we all have this opportunity um to really you know again the headlines can be exciting they can be
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crispy but to look beneath them and to take an opportunity to further connect with the people
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because again those folks who are hopping on these trains for you know probably the
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equivalent of about 45 cents right to get on the public transit here going around and exchanging ideas
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these people most of them are not politicians right most of them are not big world
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global leaders they're folks who are trying to to create something for themselves to
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create something for their children to build a better world right so we're really all
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on the same team so with that bring the besties out i guess try not to get too spicy
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all right center stage for you right here right there in the middle seat oh baby well
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done well done um be nice guys be nice of course well uh saks is in here so of course we'll be nice um that's kind of
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by default uh and meet uh our uh ryan peterson from flexport claire uh maybe you guys have ryan
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claire ryan i'm introducing [Laughter] what do we as americans not understand about our rival
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and what does our rival most not understand about us in your estimation having operated in both countries for so long
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um you know the term rival is an an interesting one obviously i love sports analogies and came from the track and
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field world myself claire was in the olympics guys claire was injured claire was like i
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used to go running sometimes kind of fast at the olympics but you know your job in the sport is to find
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the person who is better than you in some ways uh and maybe they're strong where you're
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weak you're weak where they're strong you find each other and you you shore up together
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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
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um but maybe we're born here or uh you know i you know i'm a minority so i've maybe always lived in that
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interstitial space personally or even our team our team is very representative of modern china we have
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people from nearly every province they're really across the uh the education bracket highly trained engineers but who
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might be quite young uh to folks in their their 60s who have really seen china evolve and so
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i i do think the thing that can get uh missed is almost that concept like we talked about that as
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rivals you know they're not monoliths just as america is not a monolith right and we can take the best of each other
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so we're we're best of rivals in a way there we go is there a model for the century for
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cooperation between the two nations that's enhancing to both i think it's happening in enterprise i
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really think it is so when i look at again younger people um the products that they use or the
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things that the young tech uh you know entrepreneurs in china are working on versus here they're they're
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approaching a lot of the same problems right so on the social side uh uh you know looking at doing
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and what made it so catchy right what it is for us yeah it's tick-tock it's tick-tock and back to that one
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about you know cheat codes and a preview uh you know doing was popular years ago
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and uh and so you know i remember first looking at the at the app and being like
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wow this is very catchy and there's effectively no difference between do you read and write mandarin fluently as well
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as speak it or well you will never confuse me for uh but you know enough to get by
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and so when you do business in china do you conduct in english or do you conduct
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in mandarin yeah so with the team we work fully across what's appropriate because we also work in hong kong where
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it's cantonese right but all of my communications that go out to my full team everything in full team is in
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mandarin we do have a large part of our team that only functions within mandarin um so
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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
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massive coordination problem that's almost impossible in the united states which is if you have this idea of like
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this living breathing monolithic building that is connected via the internet it'd probably be 50 organizations in the
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united states that would have to have a say or want to say the perception that we get
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is there is a individual that can effectively make that right decision in china whether it's at the city level or
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at the state level is that how it's really like like when you guys have super ambitious ideas
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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
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so it's kind of neither actually and and this is where i think it takes the the best of both
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which is at a local level so you have you know a local we have a party secretary you have
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a block leader and and ultimately it goes all the way up to you know the the big guy
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um but china does this amazing thing they have a five-year plan they call it the
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five-year plan last year was the 14th five-year plan and it sets kpis and areas of focus for
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the entire country and those are things around carbon neutrality education care for seniors agriculture industry
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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
00:22:26
what's the road map but that filters all the way down and so at a local level those kpis for the local leader
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are you know how did you make your district greener how did you increase revenue from higher quality services and
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technologically advanced companies like what happens if you don't achieve it you get fired you get kicked out of the
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party like what is the mechanism of reward yeah or you know well it's quite high accountability and
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so if you perform very well uh within that system as a leader then you can move to higher and more advanced posts
00:23:04
to a bigger city right so yeah so from a block to a bigger city to a higher you know up to a
00:23:10
uh higher career stalled out if you don't hit them but again it gets accelerated
00:23:15
right and so that creates a very interesting set of opportunities and so to put it to maybe a tangible example
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uh is so for the things that you know are really great for communities like park space or building a building that's
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green uh the the last building that i showed up there is wright sits right on top of a metro and is next to a natural
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history museum and we needed to work with the local government to ensure that we were
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relating to the area properly creating like leaving it better than we found it you know we look at projects where you
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can't do the project unless you show that it's going to be green and additive or restore historic buildings in the
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area there's a real handshake there that i firmly believe creates better outcomes i
00:24:05
know our team would say the same thing claire what what's going to happen with the capital markets for your business
00:24:11
with evergrande and like some of these big kind of property developers that have had major debt problems and have
00:24:17
you seen that already flowing over and you understand the market very well you probably are able to navigate this but
00:24:22
the foreign capital and other investors like might group everybody into the same
00:24:27
block and get scared off sure sure so certainly we get a lot of questions um but it's another one where the the
00:24:34
headlines out versus you know inside the country certainly um the the built environment the
00:24:40
construction and the real estate industries if you combine that all together you've got about 27 of the
00:24:44
economy um if you include the full integrated stack one of the things in five-year plan is to
00:24:51
diversify away from from that in a way but is you know evergrande and the other developers
00:25:01
the real focus at the local and the higher level is to help the regular people get good on their deposits and
00:25:10
ultimately get the homes that they were promised so it's very interesting for developers
00:25:14
uh like us and acquisitions people as for some of those smaller developers who got into trouble has there been a
00:25:19
bailout is it is that is that the wrong word the way that it's been characterized in the u.s media that the
00:25:24
chinese government had to step in shore up the balance sheet make sure every grand wouldn't default on some of their
00:25:29
i think there was a concern that there would be an entire meltdown of the full chinese economy which is not what we
00:25:36
feel on the ground and i think if anything it's created a set of opportunities to really level set
00:25:42
especially on the living sector it's really accelerated some policies to make it easier to to build and to create
00:25:50
rental housing which creates more access which therefore maybe takes away some of the pressure on
00:25:56
the condominium system um you know they're for for the debt markets to create a space that is
00:26:04
uh maybe taking on projects that are appropriate for the system a little bit again more diversification
00:26:11
and development in the right places in the right markets when we look at the relationship between the united
00:26:17
states and china we've had three four five hundred million people come out of abject
00:26:22
poverty on the planet because of this great engagement i don't know if that's a term but i'll call it
00:26:28
the great engagement we started using their factories we started making iphones there
00:26:33
this has created despite all of the handwringing about the relationship and all the various issues on both sides um
00:26:41
a lot less suffering in the world absolutely and so there is something that i think we don't recognize
00:26:46
sometimes is that people who are living for under a dollar a day three or four 500 million of them are now gone um and
00:26:52
and that leaves some areas in africa and southeast asia that we still need to do
00:26:57
that work um which paradoxically or ironically it seems like china is doing in africa
00:27:03
what i'm curious about is what you're seeing on the ground with their middle class which to me seems analogous to
00:27:09
what we went through in the 30s 40s and 50s this establishment of a middle class
00:27:13
which then established you know education and prosperity for for the decades to come and specifically for the
00:27:20
boomers and gen x um so so tell us about that middle class that's emerging we hear about it yeah
00:27:28
how many of them are there and qualitatively what do they want from life yeah well jason
00:27:34
in a word it's incredible right like again i talk about infrastructure so much because you you see it up there
00:27:42
right china's only as urbanized as the us was in about 1950. so we read a lot about these today
00:27:50
today so we read a lot about these bullet trains right and so that leads this incredible consolidation
00:27:57
of people to cities and younger younger people to cities it's a demographic you know spark that maybe gets talked
00:28:04
about a little bit less but also if you look at the change that that person you're talking about
00:28:10
has seen in their lifetime so they went from a you know rural lifestyle frankly most
00:28:17
of them um and something of a village setting that had not changed in decades to this
00:28:22
future world that in many ways can only be imagined in in movies and so i think you know i sort of
00:28:30
struggle to put it into terms because he asks you know what what do they want what are they looking towards and i'd
00:28:36
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
00:28:42
place and work with this incredible team and you know yet you know my parents you
00:28:48
know graduated in a fully segregated world the elder people when they were growing
00:28:54
up were not just slaves they were the slaves that we talk about on juneteenth the ones in galveston who walked across
00:29:02
the bridge and followed railroad tracks to houston texas right that's amazing that is amazing
00:29:11
and so i think when a generation or collection of generations sees that amount of change what they
00:29:19
want is first of all they're grateful but what do they want they want to be able
00:29:23
to build and create and be people themselves yeah i have a question japan in the 80s had a moment where
00:29:31
everything came together for that country great population growth great economic
00:29:36
growth great systems like kaizen and all of this other stuff that they would export and the headlines in the 80s was
00:29:43
japan was taking over the united states or japan was going to lap the united states
00:29:48
but really one of the biggest things that it had working against it was a demographic wave right and you had
00:29:54
massive negative birth rate that has really compounded japan's stagnation china is on the precipice of this
00:30:02
because of this one china policy i think the the stat that i saw which is stunning is there's 1.2 billion people
00:30:07
in china 1.4 by 2100 it's going to be around 600 million if that's true the point is just that
00:30:16
there's just there's a real issue yeah um is there something in these five-year plans around how to become sort of more
00:30:24
culturally integrated with the rest of the world you know meaning how do you use immigration as an example to
00:30:30
subsidize some of the negative birth rate do you teach english more so that you're
00:30:34
more integrated into the world economy all these things can you just talk about that
00:30:40
so first i think the the urbanization trend of folks consolidating to the cities really can't
00:30:47
be overstated just in the way that it shifts sort of how how the country will work and what's
00:30:52
happening on the ground um you know it's still relatively early days but when we look at things like
00:30:58
belt and road you know as i walk around beijing and i compare it to you know when when we first started
00:31:06
there when we were working with capital partners there i see a lot more brown faces
00:31:11
really going to the universities around beijing now these are still what belt and road is for folks who maybe haven't
00:31:16
heard the term yeah yeah so many places you guys can read about it and before i forget talking
00:31:22
about so sort of just i know everybody loves recommendations here so if you haven't read dalia's latest book
00:31:29
on changing world order or there's actually a great you read it free burger she read it you know
00:31:36
yeah greenberg talked about it every podcast for the last 20 so you've got to read it listen to your besties uh
00:31:42
there's also a very good uh very good illustration of it as sunrises but you do do read that because you know
00:31:52
china has been a major participant in the global south so you know the short version of felton road
00:31:57
is uh working really across a set of countries around southeast southeast asia and africa bringing in
00:32:04
uh infrastructure and kind of what it sounds like roads uh roads ports airports etc really building out this network for
00:32:13
that part of part of the world but i think what gets sort of bumped over on that is uh again things like
00:32:20
like this so folks coming to china to be educated the number of folks on the african continent
00:32:27
now learning chinese and again i think this is something that is exciting at the end of the day
00:32:34
the opportunity to to further exchange to lift more people out of poverty to create further
00:32:42
infrastructure and claire i was hoping you would stay with us and be a bestie for ryan who's the next speaker would
00:32:48
you be willing to help us interview ryan i would be honored you're going to switch seats
00:32:53
no no there we are oh yes switch so give it up for claire now ryan congratulations um cnbc
00:33:10
does their top innovator or private company awards um every year and you made it to the top 50 list today
00:33:18
i didn't check which ranking you got but being on the list in and of itself is a
00:33:22
big win what do they call it disrupters list uh disruptor 50 and my view of these list is you should never share any
00:33:27
list about your company unless you're number one and we were number one this morning
00:33:33
well done you truly helped us navigate i think um the the uh challenge of us as besties and
00:33:42
the audience understanding supply chain we appreciate that you've been on the show twice i think or one just once just
00:33:47
once apart and then here's your second time and uh apologies i was uh filming the interview
00:33:52
for that during uh palmer's talk this morning you missed nothing yeah i don't know
00:33:57
what i meant but when uh palmer and i woke up this morning we're writing our speeches
00:34:02
together and deciding you know what we were gonna say oh do would you do you have some feelings
00:34:08
seems to be a theme i mean this is turning into therapy yeah uh no i don't have any i don't know many enemies no
00:34:14
enemies i got i just said nice things about people jkl i got covered i couldn't think of a single person who do
00:34:19
i want to give this to i was like i like everybody i don't know so um tell us he was going to do a talk
00:34:25
right are you doing a talk for a couple of minutes well he's going to talk from there yeah let's hear a little bit about
00:34:29
what we're seeing um so first off what flexport is is we're a global logistics platform we help uh businesses of all
00:34:35
sizes ship products all over the world from anywhere in the world to anywhere else in the world we do a lot of
00:34:39
business in china um probably about half of all of our volumes come out of china
00:34:44
i know a landlord if you're looking for one right if you need anything something we'll do some business after
00:34:50
this um and so we see a lot we're sort of like a front row backstage pass to the world economy of
00:34:58
what's really happening and unfolding um and it's been a crazy few years we to give you context so flexport started
00:35:06
in um 2013 first revenue was in 2014 we did 2 million dollars in revenue that year
00:35:11
we're on track this year to do 5 billion in revenue so from uh very exhausting yeah
00:35:19
and um this time period is i assume it's always like this in this industry i have only
00:35:26
been in the business for about eight or ten years here but uh just to take you through that timeline uh in 2015
00:35:33
there was a port strike on the west coast and you couldn't import anything into the united states for like three
00:35:37
months um total pandemonium by the way that might happen again july first their contract that they negotiated back then
00:35:43
is up for renewal on july 1st so we might talk about that uh 2016 there was so much excess capacity of ocean
00:35:49
shipping oh so many extra ships were purchased that the price of ocean freight hit the lowest in all of human
00:35:55
history it was like six hundred dollars to ship a container this past year was twenty thousand bucks in 2016.
00:36:01
so we go through these boom and bust cycles it's an asset business that'll happen uh 2017 18 and 19 our president
00:36:07
would launch a new tariff war every couple of months and you couldn't predict anything uh
00:36:12
2020 a pandemic hits you couldn't ship anything for a couple of months out of china where like they
00:36:18
were really hard zero kovid shut down factory shut down all the purchase orders everyone thought the great
00:36:22
depression was coming canceled all the purchase orders then it turned out the opposite happened it was
00:36:27
this crazy boom and you couldn't import anything because the ports were over crowded it went from
00:36:33
in 2019 it took about 50 days to ship a container from like when the goods are ready when the factory raises their hand
00:36:40
and says hey come and pick up these goods to right now it's about 120 days so you're doubling more than doubling
00:36:47
the transit time um and it is just incredibly hard to operate in this environment if you're
00:36:53
trying to run a business and so we've we've had to learn how to navigate through chaos as flexport it's like we
00:36:59
kind of welcome it at this point um we found that it's probably it might actually be good for our business we try
00:37:04
not to talk about that because it's so bad for our customers and uh has been hard to fulfill the customer promises
00:37:09
but if you put yourself in the shoes of those customers so like a direct to consumer e-commerce business and we ship
00:37:14
for probably 80 or 90 percent of the hot new ddc brands a lot of ipos recently a
00:37:19
lot of a lot of really cool hot new brands they're going through an almost a perfect storm right now
00:37:27
uh in in like a really really bad way like the movie the perfect storm um because ocean freight rates are sky high
00:37:34
i mentioned this 10 20 000 to ship a container rule of thumb long term is like two
00:37:40
grand so really really elevated cost walmart announced really high costs this morning
00:37:46
and it's no it's not just small companies but walmart announced their costs were through the roof from supply
00:37:50
chain and their stock fell 10 today wiping off 40 billion dollars of market cap this morning um so
00:37:56
so it hits companies of all sizes but these d2c brands got a double whammy because apple last what it was last year
00:38:02
when they changed their privacy rules and their customer acquisition models on instagram
00:38:08
facebook facebook all these things stopped working and so you at the same moment your cact stops working you can't
00:38:14
acquire customers your supply chain costs through the roof uh and then add to that that consumers
00:38:19
are now starting to come back to conferences like this going back to the restaurants and the
00:38:23
clubs and doing the travel and during the pandemic everybody just bought stuff uh you got to get your dopamine from
00:38:30
somewhere and everybody was just buying goods so that uh is like a triple whammy for
00:38:36
these companies i'm incredibly worried about the whole ddc brand the whole ddc space the d2c space
00:38:43
physical goods you saw it in like the i think it was thrashio that just announced they're laying off 25 percent
00:38:48
of their russia was buying a collection of those amazon d2c brands putting them together and trying to have some
00:38:54
economies of scale yeah but when your supply and demand both get 10xed in the wrong direction it's game over
00:39:02
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
00:39:06
going to buy stuff there are going to be successful there are going to be some winners they're going to be brands what
00:39:10
price though at what price well so you're so you're saying that your thesis that you're making
00:39:15
the statement that you're making today is hey we're seeing real significant risk to d2c companies because of this
00:39:22
confluence of issues right now and this could be a big threat to a lot of businesses particularly in an
00:39:27
environment where venture funding is i think again venture funding oh my gosh capital markets
00:39:33
public and private investors like you all will look at this and go hey maybe i you know put more into saskatchewan he
00:39:38
said it's just easier to not do anything it might be easier to not do anything so
00:39:41
what does that mean how do you manage this and um fundamentally one of the problems
00:39:46
that's that that comes about in all supply chains it's been written about um the famous
00:39:51
phd paper from like the 60s or something called the bullwhip effect and a bull whip if you like
00:39:56
crack a whip the end of that whip is moving incredibly fast um and it's it's a bit like that in supply
00:40:02
chains because you have imperfect information and so the people doing demand planning are limiting one system
00:40:09
they're selling goods they're looking at this data set the people producing stuff
00:40:13
it's on a different system uh how long is it taking to produce things that's getting longer the transit time is
00:40:19
getting longer this data is living across all these different domains and becoming very very hard for a brand to
00:40:25
make a decision how many goods should we buy when should we buy them so how much do
00:40:29
we want to have in stock how do we avoid being way over stock and then and what we're seeing right now
00:40:34
is these warehouses are overflowing and uh people can't so what change is that like what breaks it open so you know
00:40:39
like in china pinduodua didn't exist in 2015 now 800 million plus right users but it was technology that broke it open
00:40:49
like what's the breakout moment to solve this exact problem you're talking yeah i
00:40:51
mean actually china's got one of the companies to watch is um shane uh s-h-e-i-n it's this chinese uh kind of
00:40:59
like the new zara that uh is taking over the world i think they're gonna do 20 billion dollars in
00:41:04
revenue this year fast fashion fast fashion they're launching a thousand skus a day
00:41:09
a thousand new skus a day all like ai generated and then if people order enough yeah they produce it and it's
00:41:14
like uh really incredible you're saying a robot says make these skews this is where this shirt is from
00:41:22
actually oh wait you're screaming i can't do that yeah see like i did that shirt
00:41:28
and it was like it's gonna be a million i'm gonna be ordering i'm sorry sorry tell us sorry this shirt so it's
00:41:34
literally a shirt from xi'an but but yes so if zara so if zara is seeing something on a runway
00:41:41
determining that that trend will hit and then they can have it in stores i think
00:41:44
within like eight or nine days something you know pretty wild uh she ends about as close to instantaneous as you can get
00:41:52
so very fast moving skews at sort of hyper speed fashion so they can have things like pre-columns
00:41:57
like from minority but they're predicting that this puffy shirt is going to be like women are going to want
00:42:04
to go for pipes but it's a fly shirt i agree and and i think one of the one of the
00:42:09
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
00:42:14
to the customer because if it stretches out the way it has right now in ocean freight market where it's taking forever
00:42:19
if that takes three months four months five months might not be flying six months all of a sudden you've placed
00:42:24
these orders and then the demand went away because people started going to night clubs instead of buying their
00:42:28
gardening equipment and so the tighter you can make that and it does speak to spending a little bit more on logistics
00:42:34
where where you know traditional procurement person in logistics only thinks about like i'm
00:42:40
just gonna buy the cheapest freight i can ever buy because they don't understand that your goods in transit
00:42:45
are just money that's taking a different form for a period of time and money has a cost to it and if you're
00:42:52
sitting there in six months that's already expensive because of you know you've got to pay interest on that
00:42:55
there's opportunity cost what else could you do with the money but now that cost
00:42:58
has gotten much worse because by the time the goods arrive maybe nobody wants them um you saw that with christmas
00:43:03
where you know you import christmas that's the classic that you import christmas stuff and in january it's
00:43:08
worthless what price do people just find alternate ways whether it's you establish domestic 3d
00:43:15
printing or you buy a fleet of planes or like there's got to be a work because like i saw this image i think maybe you
00:43:21
tweeted it of this entire massive traffic jam basically trying to get the ships even
00:43:27
into china because the covet 19 lockdowns are so strict that that's also exacerbated all of this but and and last
00:43:33
year walmart jimmy announced they're spending 10 billion verticalizing their supply chain and building out their own
00:43:38
infrastructure for moving goods you're seeing a lot of companies do this uh much easier said than done yeah um
00:43:45
you've seen at least a few of the big box retailers walmart i want to say home depot costco number these guys have said
00:43:50
hey we're gonna charge target was the other one maybe target um amazon of course yeah go charter their own ships
00:43:56
go solve the problem their own way um it's really hard to do run these things at scale and operate it looks good at
00:44:01
the powerpoint slide uh hit you know when when you have to get down to it it's really hard so is there a big capex
00:44:06
play here ryan for the next decade i think um like a big capital equipment hard asset
00:44:12
play so the world's ocean carriers that's what we call the people that are on the ships have
00:44:18
actually ordered 25 more ships increase the fleet by 25 over the next three years
00:44:25
wow so it could be ugly the other way real quick you have too many ships and nobody you know the same is happening in
00:44:31
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
00:44:36
accurately for these long lead time categories that are highly capex intensive so whether it's mining or
00:44:42
whether it's shipping how do you make a 500 million dollar capex decision for a business
00:44:47
demand cycle that's five years into this but they're all taken they're all taking
00:44:50
profit hits and saying we have to make this investment because we need the security we need the redundancy i mean
00:44:55
walmart did it right they were optimized to to a team also and then all of a sudden it's like hey that optimized
00:45:00
system doesn't work look the way that mining for example deals with this which is really interesting is they get these
00:45:05
companies to sign up what's called take or pay agreements right and so they can actually
00:45:09
smooth out the demand curve five or six simple consumers take or pay means i'll do a deal that says okay i'm gonna rip
00:45:15
the lithium out of the ground you take it or you pay for it i don't care what you do right but i'm gonna get the
00:45:21
revenue assurance i need to go to wall street to get the money we've started to see those signs for the first time so
00:45:26
we've signed three-year contracts flexport was the first ever to sign a multi-year contract where we commit we
00:45:30
will pay for this rate whether or not uh whether or not we ship anything we're gonna we're gonna pay up front yeah okay
00:45:35
take her pay um and and you asked a little bit uh air freight what's gonna happen there well
00:45:40
remember uh 50 of all the world's air freight flies in the belly of passenger planes there's way less people traveling
00:45:46
to and from asia than there were is that right yeah fifty percent of their freight which is a little scary when you
00:45:50
think about like what's under the belly of that yeah is that getting scanned uh it is it is there's there's good
00:45:55
controls on that but uh but you never know it's always yeah it's just a little nerve-wracking um so and he seemed to be
00:46:01
not so sure uh you know you work in any industry long enough you start to question uh whether
00:46:06
everything's perfect um so we've actually uh got 10 passenger planes that we've leased and we'll keep
00:46:12
doing more that are not flying any passengers we're just filling them with freight we
00:46:17
started doing this in the pandemic there's seats in them flying masks with other seats at the top there's still
00:46:21
seats and some of them some we've ripped out the seats like castaway you got the
00:46:25
big plane yeah if you want to go to asia i've got a 787 just nobody on there could be a private
00:46:33
flight just you but exactly this is why you've seen the rise of logistics real estate as a deeply institutional asset
00:46:40
class because that math that you talk about the algorithms of determining what is ordered how long will it sit and how
00:46:46
fast do people want it that takes infrastructure on land to be able to get it to people and coming back to the
00:46:51
question about assets is there a play here probably yes because most of wall street has been trained they've gone to
00:46:57
all the same business schools and everybody's been trained that like assets are terrible get them off your
00:47:01
books don't carry them don't this is what happened with oil and gas you know going into last year and then everything
00:47:07
and everyone missed it you want to be asset light it's still the trend and almost everywhere until somebody like
00:47:12
tsmc comes along and says you know what you don't want assets intel like fine we'll build the fabs another 400 billion
00:47:17
dollar company because they're willing to have assets on the books but it's a different
00:47:21
investor and now they have the power in the equation and they can they can get a
00:47:24
better uh share of value and i believe i've been answering this question that's the real estate business the
00:47:29
hardest question for me to answer and i i know that there's some entrepreneurs out there who have the same question
00:47:34
anytime someone asked me is flexport a software company or a logistics company are you going to own assets or not own
00:47:40
assets yes and you know i think the correct answer is to ask the investor which one they'll give you a higher
00:47:45
multiple for and then just say that um try to figure out who you're talking to but it is on some level you know
00:47:53
maybe another answer is like kind of buddhist dualism like you can't do logistics without the tech you can't do
00:47:57
the dirt without the list i think you're bringing up something which is that today the problem with the capital
00:48:01
markets is actually that it is very balkanized so meaning you know let's just say you take a company public like
00:48:07
yours the problem that you'll have in the public markets is that there are folks that you'll go to in that room
00:48:13
that understand sas software understand margin structure of a software business etc and then there's folks over here who
00:48:19
run the industrials business and folks over here who run consumer the problem is those three folks don't talk they
00:48:25
have three completely different conceptions of what a good business is and the problem for you will be and i'm
00:48:31
not forecasting this for you to be correct is that you can get orphaned in any one of these groups and now all of a
00:48:36
sudden the capital markets could be totally shut for you this is a very important point that you're bringing up
00:48:41
the the thing that i think we need to change is like the capital people that control the money flows do need to have
00:48:47
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
00:48:53
true in the tsmc case you'd rather have a business doing 20 on 500 billion dollars well and if we look you know
00:49:00
we also have some examples of amazon the market seems to have worked out this business that's very factory and asset
00:49:08
heavy in delivering goods to us and you know the cloud business even even amazon like look amazon got escape
00:49:14
velocity on less than you know a billion dollars of investor capital the problem
00:49:18
is you know if ryan for example decides hey i'm going to go and actually vertically integrate and buy an entire
00:49:23
fleet of ships that's probably a 10 to 20 billion dollar capex cycle over 10 years and you
00:49:29
think about replacement costs it may make a ton of sense actually right i wonder when amazon is cap expenses for
00:49:36
those servers started to hit he's thinking about it but giving the capital markets little
00:49:42
boy in me definitely you know there's two plays you know fundamentally your bull whip effect
00:49:53
means the data can't flow and people can't make decisions optimally because the data's trapped in multiple places
00:49:58
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
00:50:04
arrives like actually even not even like long-term demand for forecasting how many ships but like literally that ship
00:50:09
is going to arrive how many trucks should i dispatch when should i dispatch them like there's two ways to solve this
00:50:14
problem one is to own the asset and the other is to create a data network effect
00:50:18
such that the asset owner benefits enough from putting it on your platform your machine learning your op your
00:50:23
algorithms are helping them make more money from their asset they want to tell you
00:50:28
or you can invest further down into the change i mean one of them's a lot hopefully simpler and don't need to
00:50:33
manage as many people and life is easier if you can solve the data machine learning problem sorry we looked at
00:50:38
alibaba and alibaba investing down into china like there is a middle road of being able to
00:50:43
tie now so logistics warehouse i mean wait for them to push goods as stupid as it sounds you having
00:50:50
purchased a shipping company and putting it over here to your point claire and saying here's the little thing we bought
00:50:56
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
00:51:00
subsidiary over here is a potential middle ground it's what makes flexport fun business there's like a million
00:51:06
strategies and ways to play out and i'm not a big believer in like predicting the future and
00:51:10
you know you want to have a vision and know where you're going but i think be sort of flexible yeah in that what's in
00:51:15
the name we talk about our culture what's the goal of what's the goal of a company's culture um and elon talked
00:51:22
about the goal of a company the purpose is like hey we've got to create valuable
00:51:25
products and services for fellow humans right but the goal of your culture is how do you maximize your velocity in
00:51:32
that direction and velocity is a really important word because we forget a lot like normal people forget that velocity
00:51:38
is different from speed if you remember your physics velocity has a direction you got to know where
00:51:42
you're going and sometimes going really really fast is actually negative velocity because you're going the wrong
00:51:46
way and so how do you stay agile the world's going to throw all kinds of chaos at you be nimble be able to change
00:51:51
like we don't know exactly the strategy i don't have everything now as we wrap here um question for both you and claire
00:51:57
um which is uh china has played before you do your rap question can i just can i ask him to
00:52:03
can you tell us the audience about what you did during the uk crisis um oh this is beautiful it's just just like 30
00:52:10
seconds about you know i didn't go there like antonio crazy man but um what so we started this group in 2017 called
00:52:18
flexport.org to do humanitarian relief shipping uh really at that time the crisis was syria and trying to help uh
00:52:25
refugees it was really a simple idea it's like look we got all this stuff here we know they need stuff at the
00:52:29
refugee camps what if we shipped it there uh seemed like a radical idea we maintain a database of partners so we
00:52:36
have agents that we can operate on behalf of flexport in over 120 countries and at that time i simply emailed our
00:52:41
syria partner who was literally based in aleppo where a lot of this destruction was happening and i emailed i said hey
00:52:46
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
00:52:51
want to ship it and i was like wait it's that easy like i thought this was like and i realized you could do that no we
00:52:55
didn't ship in this year because we didn't know who was going to end up in so we shipped to refugee camps in turkey
00:52:59
and jordan um so we've been doing this now for five years shipping to over 50 different countries any kind of anytime
00:53:04
there's a hurricane uh earthquakes but uh we're a war um and so when we saw this happening in ukraine we
00:53:12
immediately kicked into high gear the flexport.org team has about 12 full-time people and then we have a model where
00:53:17
employees at flexport can surge onto that so we've had about 60 people working on this uh in this case you know
00:53:23
usually we offer pro bono shipping because we the shipping is expensive we can't just eat the full cost we are
00:53:28
profitable but not enough to really solve the world's problems all by ourselves so we created a gofundme
00:53:35
campaign partnered with ashton kutcher and mila kunis ashton's an early investor in flexport
00:53:40
and we raised 25 million bucks to pay for shipping uh to deliver goods yeah thank you well and the way you did
00:53:47
it for ashton and all of our investors a lot of great people you emailed the besties and said hey um
00:53:53
it's forty four hundred dollars a container was that the number forty two or forty four it depends on where it's
00:53:58
coming from ukraine specifically i mean for example we shipped nine ambulances from uh gibraltar into ukraine i thought
00:54:05
we wouldn't be able to ship into ukraine because it's a war zone uh it turns out
00:54:08
most i don't know most but a huge percentage of european truck drivers are ukrainian and they were just like stoked
00:54:14
to go and do this uh so i so we delivered nine ambulances that cost like around 10 grand yeah it's a bunch of
00:54:19
delivery ambulances i replied back to him and i said no problem and he said hey mention on the podcast i said no
00:54:23
problem i donated a 400 container and then sherman said oh i donated the plane that 12 containers went on
00:54:31
he did so was the flex on a flex reflect for it it was like a multi-layer flex so and
00:54:38
then um it just snowballed and this hasn't gotten much attention but yuri milner who's an early flexboard investor
00:54:43
just donated a hundred million dollars wow wow two yes uh you're really putting pressure on their side of the street
00:54:58
it is an amazing model where but by the way over 60 000 people donated a little bit and i'm almost just as proud of that
00:55:04
it's like people are getting involved stepping up realizing hey you can do something.org flexport.org and support
00:55:09
congress final question for youtube um we had this great moment where you know we engaged china we built a bunch of
00:55:17
iphones amazon basics you know whatever it is naked shoes um and it and it raised
00:55:23
you know the standard of living for a lot of people we understand china's doing this now
00:55:27
and they're doing it in africa and some other places what are you seeing in terms of that relationship how china is
00:55:33
looking because towards other countries to become uh producers of goods and and they're
00:55:39
kind of now uh becoming incredibly influential what's their intent and how is that going claire maybe you can start
00:55:46
that's a big question um but i think it's it this is a long term play we're all in
00:55:53
this for a long term right play and whether you know you take maybe the spicier view around know resources and
00:56:01
protectionism uh versus one that's more just around progress and as we may have an
00:56:07
increasingly vulcanizing east and west um the ability to they're there to control the bigger piece of their own
00:56:14
supply chain but the end result as you're sort of saying is you look at places like niger right the average
00:56:21
mother there is having six children we have a very young global south and the important thing is that they're
00:56:28
fed they're clothed and that they have an upward trajectory and so that's it people living in abject poverty will
00:56:35
probably end in our lifetime uh you know the only places it won't end is in places with dictators what are you
00:56:41
seeing in terms of the shipping containers because you must see shipping containers increasingly leaving
00:56:47
certain ports where is china sort of exporting production to and what are the up-and-coming production areas you know
00:56:56
there's some really interesting trends going around around labor costs uh in china the reason people went there over
00:57:00
the last 40 years to be honest was like cheap labor uh and but over time they became quite sophisticated they really
00:57:06
learned how to manufacture things especially electronics they're if you want to make electronics
00:57:09
you pretty much have to make them in shenzhen the greater bay area as she called it um
00:57:13
so and that's but stuff that's just for cheap labor because that's no longer about cheap
00:57:18
labor this is a whole supply chain ecosystem of components and other things but if it's just cheap labor two years
00:57:24
ago mexico became cheaper than china in labor costs wow which is a huge shift and
00:57:29
now mexico doesn't have the manufacturing capacity they don't have the skill sets they don't but they'll
00:57:34
build it you know and people will respond to that trend as long as it takes 120 days to ship stuff
00:57:40
from china to the u.s and we can't get this sorted out brands are going to respond to shipping closer to home so
00:57:46
you're that is a trend that you're going to see more and more of uh if the delays
00:57:50
stay the way they are i think china's big challenge is if if they become labor costs too
00:57:56
expensive how do they keep moving up the value chain and this is what they're made in a made in china 2025 thing is
00:58:01
it's like we've got to they've got to make more and more sophisticated products because it can't just be about
00:58:05
dirt cheap migrate to services yeah and that that's a huge challenge and very few if anyone's really done it no
00:58:13
one's at that scale because they're the biggest country in the world but japan and korea have kind of done that but not
00:58:18
ten times as well bigger moving to a services-based economy india with i.t companies in mind and then they'll
00:58:24
become entitled and want to retire at 55. like europe and oh by the way speech my favorite answer is someone that um i
00:58:30
think was zuck although toby from shopify told me he lifted this line his employees were
00:58:35
asking him about the four day work week and he was like well you know if i do think we should do some experimentation
00:58:40
around how many days a week we work so but we're gonna start with the six day work week like china does
00:58:45
and then we'll try the four day work week later ladies and gentlemen please join me in thanking
00:58:51
thank you i am claire well done we'll let your winners ride rain man david and they've just gone crazy with it
00:59:10
[Music] it's like this like sexual tension that they just need to release your feet
00:59:42
[Music] i'm going on [Music]