The Exchanges

Q here's what the argument is try to channel Besson here. At least we should have his perspective represented. So what he says is that the United States, basically the economy has grown into this consumption economy. Uh, they're addicted to, Americans are addicted to cheap goods. We're cluttering our homes with stuff from Amazon. And, you know, while we're buying, we're not producing anymore. What do you think about that?

A Yeah. I mean, I hope that they're factoring in the export of digital services, financial services, you know, Netflix, for example, generates 60% of its revenue internationally of thirty three billion of revenue. Like if you're not counting all the Netflix subscriptions in these other countries, you're not actually modeling the modern economy and the, and the trade balances. I mean, that's ultimately trade. They're buying our services. So I don't know how they're doing it. If they're just doing physical goods, I think you're coming up short. You know, Cambodians probably not going to buy a lot of American manufactured goods, but I bet you they pay for some Facebook and Google ads and Tinder boosts and some other stuff. So, you know, the American economy is much different than it's not some like Charles Dickens industrial world. Like we, we have very advanced services that, uh, services economy. And if you're not factoring that in, I think you're going to get the model wrong.

AI assessment note: “I hope that they're factoring in the export of digital services, financial services”

Q And that's now part of like, uh, the press releases that they can optimize, but they've been doing it forever. Is there anything about generative AI that's exciting for you as something, uh, running a business that has a lot to do with efficiency? Of course, some relationships, but You know, can you build on top of like a GPT model and do anything that you couldn't have done beforehand?

A We are, yeah, we, we, we've actually using, um, OpenAI's APIs as well as a company called Adept, uh, which their CEO used to be the head of engineering for OpenAI, um, and so they, but we're using these, the thing that's working for us is that the fact that we've taken, you know, a complex transaction like shipping a container from door to door and broken it down into a series of small discrete tasks, uh, in our workflow system that we build ourselves, then those tasks are simple enough that This generative AI can complete these tasks. Um, and that, I think if you just told open AIs, I'm sure that if you just said, hey, ship this container from here to here, it would, it would hallucinate. It wouldn't do anything useful. Um, but when you say, hey, extract this data from this website and put it into this data format, into this database, or parse this carrier contract, we get these container, uh, these contracts in Excel format with like 20,000 rows and tabs and all these if then Subject to charges. Uh, and actually, uh, AI's quite good at doing the simple things like this and putting that into your database in a structured way, so it's saving us a lot of money, time, being more accurate than humans. Uh, we're finding major progress. I think our, our team is, uh, not all of this is gonna be generative AI, to your point. Some of it's like more traditional ML. Some of it's just lik…

AI assessment note: “we've actually using, um, OpenAI's APIs as well as a company called Adept”

Q it's the number one leadership principle inside Amazon, which is where not only Dave Clark came from, right, but a lot of Flexport leadership that was under him at the time. Yes, of course, it's a little different than, uh, than e-commerce, but if customer obsession is the North Star and Amazon and now Flexport too, right, it's sort of, is it surprising to you that it just didn't translate?

A A little bit. I would say It's quite different being obsessed with consumers and obsessed with businesses. Um, Amazon, you know, is famously very customer obsessed when it comes to, I mean, it is one of their core leadership principles, but go ask one of their merchants if they treat them with that level of obsession. Uh, Amazon does not treat the seller on their platform as a tier one customer. Their job is to help the customer, the consumer at the end of the day. Um, and, uh, I think it's a different thing to take care of businesses. B to B, like how you behave towards serving customers that are businesses is Can it be different fundamentally? Different set of behaviors, et cetera. So, um, yeah, lesson, lesson that's quite interesting is like how unique Flex Sports Culture was in that, or is in that regard, uh, was and is to be really obsessed with helping businesses run a better business, solve problems, have someone to pick up the phone. You know, what, one of the, what does this mean? Like, at the end of the day, we organize ourselves So that each customer is served by the same group of people all the time that actually manage all their freight door to door. Um, and we drifted away from that. And then we've gone back to it since I came back, we went in pursuit of efficiency. We made it so that operators would just do the same task across every customer shipments and get re…

AI assessment note: “A little bit. I would say It's quite different being obsessed with consumers”

Q Because it's not coming out of Ukraine, or?

A Yeah, it's, when Ukraine and the Black Sea in general has become, Um, what's difficult for insurance companies to, it's very hard to sail a ship into a war zone to get insurance for that. And so that's been, um, that that's been heavily impacted. You've got the Panama Canal impacted Uh, right now by a drought and only operating at about two thirds capacity. They say it's a drought. I, I sort of think they, they've screwed up the engineering for it. Uh, there is a drought, but they probably should have factored that in when they widened it. Um, droughts happen, you know, it's not, I don't think it's that historic of a drought. Um, and so the Panama Canal is only operating at about two thirds capacity. Um, you've got, yeah, these kind of major choke points that are under, under a lot of distress right now. Um, even, even the, the, you know, the ship sailing around the tip of Africa, avoiding the Red Sea, it's gonna be interesting to follow that. One is that, like, South Africa's not really set up to service these, this quantity of ships to provide them with refuel, uh, with fuel, um, and other services, and then that southern tip of Africa is extremely treacherous Stretch of ocean. And so I think we're going to see, it's calm right now. It's summertime down there right now. Their summer is our winter, but, um, as we head into their winter, that's when they get the bad storms. So …

AI assessment note: “it's very hard to sail a ship into a war zone to get insurance”

Q So how do you see that impacting your clients and what do you think it means for Shein and Timu?

A Um, well, we fly a lot of e-commerce parcels in on our aircraft. We have three, seven, 47 that fly. And, uh, there's a lot of e-commerce parcels flying in those planes every week. So definitely a big impact. Uh, it's going to crash the price of air freight would be my prediction. Um, I think it's possible. I don't want to speak to those companies in specific, but the model generally, The, ah, of e-com parcels flying in from Asia. You know, the, the tariffs is one big part of their advantage that not paying, going duty free. But there's, ah, several others, you know, not having to pay for expensive U.S. real estate for warehousing, ah, expensive labor on warehousing. They're doing that at Origin. Less working capital, so the goods just, like, sort of just in time. You don't have as much inventory sitting there. Not earning a return while it travels across the ocean or sits in a warehouse. Their last mile costs are lower because they're flying the plane into the local region instead of trucking it, instead of going to a port and then trucking it across the country. Uh, so there's a few other advantages that, and then, you know, their cost of goods, remember these duties are on the costs, not on the final price.

AI assessment note: “definitely a big impact. Uh, it's going to crash the price of air freight”

Q What's the U.S.'s percentage of manufacturing?

A I think we're down to, like, 16 or something. I forget that exact stat, but it's, it's pretty, it's, and it's falling really fast. Um, so, that's valid, and, uh, from a national security standpoint, if you can't produce things, you can't, you know, you can't produce cars, you can't produce tanks. Um, your car, In a war, your car factories become your tank factories. On down the line for a huge range of things, pharmaceuticals, healthcare, like a lot of stuff. If we're dependent, then we're less secure. So I think that's valid. Um, two is if you look at currency and leaving aside China, but so you just look at Vietnam, for example, where Vietnam has had this manufacturing boom for the last five years, about 20, 30% growth annually each year. Their currency is the Vietnamese dong, and it's pegged to the dollar. It hasn't appreciated it at all, and in any kind of a free market economic system, that much, that many more dollars flowing into the economy, that much foreign direct investment and, and, um, purchasing of their goods, you would have an appreciation of the dong. It would, it would go up, and that would help to self-regulate the trade between these countries, and it would make, so they're clearly, you know, they're literally pegging their currency to the dollar, which means they're manipulating their currency to give them an Their manufacturer is an advantage.

AI assessment note: “I think we're down to, like, 16 or something.”