Ryan Petersen on How Global Supply Chains Have Gotten Even Worse

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:19)

So Tracy, we've been talking about supply chain disruptions, shortages, et cetera, for so long now, it seems that we're now sort of at the point where we need to start getting updates, I think, from the first people that we spoke to about the problem many months ago.

Tracy Alloway (0:38)

We've come full circle by not really improving at all.

Yeah, I think that's right. I mean, I think, so we started looking into these issues. Well, if you include semiconductors and the sort of squeeze we've seen in semiconductor production, we started looking into this in 2019 And then of course, we had the global pandemic in early 2020, and that just kicked off all sorts of additional supply chain and transportation gridlock issues. We've been examining those one by one by one, and we've had a lot of people come on the show. Well, maybe not a lot, but a few people come on the show who have predicted that at some point, hopefully it gets better. And yet here we are more than a year later, and it seems like things are not only not getting better, they're actually getting worse.

Joe Weisenthal (1:30)

Yeah, that's kind of the wild part. So we've actually been the logistical aspects of the pandemic, we're kind of the way we started.

But then since the global economies have really sort of reopened, like really in the spring, and suddenly that's when all these things started piling up, and we talked about tanker rates and freight rates and what's going on at the ports. We're like, all right, yeah, but okay, it's gonna ease. When, what's it gonna take to ease? And when will we see so-called normalization?

And here we are early October, and I think the verdict is that not only has there not been any sort of quote normalization unquote in supply chains, it seems to be getting worse. Like almost every measure, like if you were to just look at like how many ports are docked outside the port of Los Angeles, it's more today than when we did like a port of Los Angeles episode back early in the summer.

Tracy Alloway (2:24)

Yes, that's exactly what I just said, I thought.

But this is, I mean, look, we love talking about supply chain issues and this also gives us a chance to revisit one of my favorite economic concepts, which is the bullwhip effect and the idea that, a small fluctuation in supply and demand can reverberate across supply chains and just get worse and worse and worse. So I think this is gonna be a good episode and it's always good to revisit these topics.

Joe Weisenthal (2:56)

So we are, as noted in the beginning, we're at the point where we now have to go back to guess that we talked about to get their perspective of how things have gotten worse. So I'm very excited to welcome back on the show, Ryan Petersen.

He is the founder and CEO of the firm Flexport, which helps companies deal with their logistical and shipping issues. So Ryan, thank you so much for coming back on Odd Lots.

Ryan Petersen (3:22)

Yeah, it was great to be back. I wish we were back to celebrate our success in fixing the world's logistical problems, but we're not there yet.

Joe Weisenthal (3:29)

Well, we'll have you back on in like 2025 when we achieve the true normalization. But I just looked it up. So it's October, early October. We had you on in May. So that's actually five months now since we've spoken.

So why don't you just sort of give us your very like sort of brief description of what's happened in the last five months since we've talked to you?

Ryan Petersen (3:53)

Yeah, so what Flexport does, by the way, is we help companies ship cargo all over the world and we have a technology platform to make this really easy to connect importers with exporters and with all the world's asset owners that ship stuff. So we're like, I sometimes call us a backstage pass to the world's economy. We see everything we're in there and we're fighting through all the friction. So what we've seen in the last five months, in the last more than a year really, is I think the way you might call it, the best analogy might be a traffic jam.

Or one of my engineers said it's like a distributed denial of service, a DDoS attack on global trade.

You started with just too many containers being shipped and a DDoS attack in the world of websites is when it's too many bots hit a server, hit a computer, and the computer just overloads and shuts down. And you kind of almost have that at the ports where the volume of containers, the amount of cargo being shipped went up. We're looking at about a 20%, depends on the month, but about a 20% and on the port, but about a 20% increase in container volumes over 2019 levels, over pre-pandemic levels, which is really extraordinary. People who work in the software industry, that is no problem. Your systems can easily grow 20% in a week if it needs to. A port, we just don't have the added throughput. There's a lot of manual work involved or physical assets that need to move. Growing 20% in such a short timeframe, our infrastructure is just not made for that. And by the way, the reason that volumes went up so much, what looks like is pretty clear in the data that consumers shifted their spend from going out and buying services and restaurants to buy more stuff. And we joked about that last time that you can be a patriot by going to a bar tonight. Try to fix this problem. So what happened with this traffic jam is you got now so many containers flowing through that you get literal traffic jams, trucks trying to get to the port are waiting for hours and hours. It's taking truck drivers many, many hours to get to the container to pick up their goods.