Pablo Escobar was a logistics guy — Ryan Petersen

**Ti Morse** (0:00)
Today, I have the pleasure of sitting down with Ryan Petersen, the founder and CEO of Flexport. You are one of the experts on global trade, and I think one of the best entrepreneurs of all time, and somewhat of a tradesman himself, was Pablo Escobar.

**Ryan Petersen** (0:11)
Oh, wow. Well, Pablo Escobar is, to be clear, evil, terrible human. One of the first entrepreneurs to get into politics, though. I think he ran for mayor. Did he win? I can't remember the story. But yeah, Pablo Escobar also was a logistics guy.
Kind of this term cartel is really about an alliance. A cartel is an alliance of different companies, different countries in the terms of, in the case of OPEC, for example. But a cartel in the drug context was, he ran the logistics side of this alliance of companies. So you had producers, you had distributors downstream, but Pablo Escobar's job was logistics shipping.
Of course, much harder form of logistics than what we have to do because it all had to be underground and illegal and crossing borders is hard enough, clearing customs is hard enough, having to do this without being detected by the government and while they're trying to kill you actively, total nightmare. I was listening to the trial of El Chapo and there was this great audio recording that I guess the NSA or somebody tapped his phones. They had this audio recording that they played as evidence of him dealing drugs and they had him negotiating what are called, we call it in the industry, incoterms. So incoterms are like, I forget who created this standard, probably the World Trade Organization, it's the standard terms by which you negotiate where are the goods handed over in a trade transaction. So if I negotiate incoterms, probably most 90% of traders have done on FOB terms, free on board, meaning I sell to you at the port, I have cleared customs as the factory's responsibility, export customs, you take it from there on the inbound, everything from the origin port onwards is your responsibility. The most famous ecoterm today is called DDP, delivery and duty paid. That means it's the supplier's job to deliver all the way to your warehouse. So it's obviously a big deal because it's who pays the tariff, who pays the freight, who crosses the border. And so there's this great video recording, audio recording of El Chapo haggling over a kilo of heroin. And like, is it DDP or is it FOB? I mean, it's a big deal because now who's responsible for getting this into the United States is probably like 80% of the cost of this thing is crossing the border illegally. But actually, incoterms are back in the news because there's a huge amount of fraud happening right now.
With tariffs, with Trump's tariffs, they've created this enormous incentive to cheat. And you know, the markets find a way, they're going to cheat. People will, especially entrepreneurs whose backs are against the wall and like might lose everything will often cheat. And that's what we see. Enormous amount of fraud happening. In fact, a lot of it is just Chinese merchants just selling on Amazon.

**Ti Morse** (3:00)
Yeah.

**Ryan Petersen** (3:01)
And the fraud looks like this. In the old day, pre-tariffs, like it was a couple percent, you didn't bother. And so you just import it, you pay the duties, you didn't cheat. I mean, there was probably some cheating, but it wasn't rampant. Now, when tariffs have gone to 35 at peak, they were like 150 percent for a few weeks. But right now, it's about 35 percent on most goods. That's a big incentive to lie about the value of the goods, because it's 35 percent of whatever you tell the government the value of the goods is. And so people are just lying and they're saying, hey, this thing is 100,000? No, it's 10,000. And now instead of paying 35 percent, Terrify paid three and a half percent, and back where I was before.
And that is absolutely rampant right now. In fact, Amazon has become the number one freight forwarder.
People don't know this actually. I haven't seen it reported with breaking news here. They're now the number one freight forwarding company on the Trans-Pacific, Asia to the US. And it's because, my theory is, allegedly, I allege, it's allegedly, just a huge amount of fraud that's happening with these merchants who sell on Amazon, all these companies with their brand name of like XYZ 47, you know, like these crazy names, they're just lying and they're undercutting everybody on price because of it. Yeah, there's always incentive to cheat, whether you're Escobar or some Chinese merchant.