TechCrunch - Trump tariff's swift impacts, from Flexport CEO Ryan Petersen┃StrictlyVC SF
Flexport, a global logistics and customs brokerage company, is navigating significant challenges due to new tariffs and duties impacting their customers. The cumulative tariffs on Chinese goods have reached up to 79%, affecting many businesses' survival. Flexport is actively strategizing to help clients adapt, including exploring domestic production and other logistical strategies. The company is also leveraging AI to optimize operations, such as route optimization and automating communication tasks, which has reduced manual labor by 35%. Despite the current trade disruptions, Flexport remains optimistic about the long-term growth of global trade and is focused on building technology to enhance efficiency and reduce costs. The company is also cautious about maintaining customer trust by not selling sensitive data, instead using it internally for services like underwriting.
Key Points:
- Flexport is dealing with increased tariffs on Chinese goods, reaching up to 79%, impacting customer businesses.
- The company is using AI to automate logistics processes, reducing manual labor by 35%.
- Flexport is focused on long-term growth, leveraging technology to improve efficiency and reduce costs.
- The company maintains customer trust by not selling sensitive data, using it internally for underwriting.
- Flexport is prepared for market fluctuations with a strong financial position and customer base.
Details:
1. 🌊 Flexport's Global Logistics and Challenges
- Flexport assists companies with managing ocean and air freight logistics, providing a platform to streamline these processes.
- Ryan has led Flexport for 12 years, with a brief six-month hiatus to work as a venture capitalist at Founders Fund before returning to the company.
- Under Ryan's leadership, Flexport has positioned itself as a key player in global logistics, tackling challenges in supply chain efficiency and integration.
- Flexport's innovative approach has included leveraging technology to improve the transparency and speed of freight operations, contributing to a more efficient global supply chain.
2. 📉 Tariffs and Duties: A Client's Nightmare
- Flexport is facing significant challenges due to recent tariffs and duties that heavily impact their customers, with some products like sofas facing an overall 79% duty rate if made in China.
- Tariffs from both the Biden and Trump administrations have cumulatively increased costs for various products, with some experiencing a total duty rate ranging from 7% to 25%, creating substantial financial challenges for import-dependent companies.
- Flexport explores strategies such as domestic manufacturing, but such solutions are not always competitive, especially for items like sofas.
- Despite the challenges, Flexport aids clients in navigating these complex tariff scenarios, offering support and composure in uncertain times, although much of the situation is beyond their control.
- There is potential for positive change, as demonstrated by Vietnam and Israel eliminating duties on American goods, highlighting the dynamic nature of international trade negotiations.
3. 🌐 Strategies Amid Global Trade Changes
- Vietnam has been hit with a 46% duty, which significantly impacts businesses operating there. This high tariff can lead to increased costs for companies relying on Vietnamese imports, potentially forcing them to explore alternative sourcing options.
- The closure of the dimminimus program, which previously allowed goods under $800 to be imported duty-free, will now impose duties on these goods. This change affects not just imports from China but global trade, increasing costs for businesses and potentially leading to higher consumer prices.
- Currently, 50% of the world's air freight is transported as duty-free direct-to-consumer shipping. The significance of this method in global trade cannot be overstated, as it allows for faster delivery times and lower costs. Changes to duty-free regulations could disrupt this balance and affect global supply chains.
- Over 30% of large e-commerce brands have established fulfillment centers in Mexico. This strategic move impacts the duty-free status of goods ordered from platforms like Shopify, as it allows businesses to bypass certain trade barriers and reduce shipping times to the US market. This shift underscores the importance of geographic proximity in e-commerce logistics.
4. 📞 Crisis Communication and Customer Management
- In crisis situations, staying calm and composed is essential for leadership to prevent organizational panic.
- Understanding and communicating new rules quickly is vital; the company provided timely and insightful updates to customers.
- A strategically timed blog post informed customers about specific developments, such as semiconductor exemptions, before the media reported them.
- The organization held a record-setting webinar with 2,300 customers, showing the demand for clear communication.
- Technical challenges arose due to the unprecedented webinar attendance, indicating a need for enhanced infrastructure.
- Internal communication strategies included maintaining transparency and regular updates to keep employees informed and aligned.
5. 🚢 Shipping Regulations and Their Wide-Reaching Effects
- A proposed rule by the US Trade Representative may impose a fee of up to $1.5 million for every port call made by ships made in China or owned by carriers with Chinese-made ships, potentially starting April 17th.
- The rule aims to stimulate American shipbuilding by making it costly for carriers using Chinese ships to operate in US ports, potentially leading to fewer port calls and increased shipping costs.
- Carriers may skip smaller ports like Oakland and Seattle to avoid fees, negatively impacting local jobs and increasing transportation costs to these areas.
- A requirement for 15% of US exports to be shipped on American-made vessels, of which only 23 exist, could create logistical challenges and increase export costs.
- The Jones Act requires domestic ocean freight to be carried on US-made ships, affecting exports to US territories, and this new rule could further complicate and constrain export operations.
- Conflicting goals of promoting American shipbuilding while handicapping exports may lead to logistical inefficiencies and economic drawbacks.
6. 🛠️ Building Resilience and Innovating with Technology
- Flexport maintains a robust balance sheet to handle various market challenges and focuses on long-term growth.
- The company leverages technology to increase industry efficiency, reduce costs, and improve data accuracy in tracking shipments.
- Global trade has consistently grown at 4% annually since 1200 AD, illustrating resilience through major historical events.
- With $2.1 billion in revenue last year, Flexport captures a small share of a trillion-dollar market, highlighting growth potential even in a contracting market.
- Flexport manages about 1% of US container entries and operates in 147 countries, showcasing its extensive reach.
- AI and machine learning are central to Flexport's strategy, focusing on route optimization and reducing manual processes in freight forwarding.
- Coordination labor costs, termed 'freight email forwarding,' account for $100 of every $1000 spent on shipping.
- Flexport achieved a 35% reduction in task completion time over 18 months, demonstrating significant operational improvements.
7. 🤖 AI-driven Transformation at Flexport
- Flexport is automating approximately 1% of its processes weekly using AI, indicating a rapid pace of digital transformation.
- The company conducts 5,000 phone calls daily with voice AI agents, significantly increasing operational efficiency.
- Plans are underway to expand these AI-driven calls to include foreign languages, enhancing global communication capabilities.
- AI is utilized to automate calls for missing documents from factories, such as customs invoices and packing lists, reducing operational costs.
- Flexport's mobile app engages 400,000 truck drivers, with AI facilitating load notifications to improve driver engagement and operational efficiency.
- The AI-driven communication quality is improving every three months, showcasing ongoing advancements in AI capabilities.
- Flexport's innovation strategy has shifted from management-led ideas to a more bottom-up innovation approach, empowering teams to contribute innovative solutions.
- Customer interactions are still handled by humans, emphasizing the company's commitment to personalized customer service while using AI for backend operations.
- Flexport maintains strict privacy controls over customer data, ensuring trust and confidentiality in handling commercial invoice data.
8. 💼 Balancing Data Privacy and Corporate Strategy
8.1. Data Usage in Lending
8.2. Valuation Insights
8.3. Leadership and Sustainability
9. ✈️ Leadership, Growth, and Future Directions
- The speaker transitioned from being a backpacker with limited resources to engaging with global leaders and CEOs, marking a significant personal and professional growth journey.
- Specific leadership experiences include meetings with influential figures like global leaders and CEOs, which are both a privilege and a highlight of the speaker's career.
- Achievements such as global travel and networking are indicative of the speaker's success and are seen as milestones in their career.
- The speaker outlines a long-term vision, expressing confidence in continuing this path for the next 30 to 40 years, demonstrating commitment and strategic planning for future growth.