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