Flexport’s CEO on the mystery and messiness of global supply chains

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Hello. We’re writing from Frankfurt, but today’s note is focused on events in far warmer climes. Southern California, to be exact.

We’ve been intrigued by the recent Twitter storms of Ryan Petersen, chief executive of freight forwarder Flexport. Based in the Bay Area, he’s had plenty to say about the situation on the ground in the Ports of Long Beach and Los Angeles, where delays are among the worst in the world. So we decided to interview him for today’s main piece. It’s a long one, so we’re going to keep the introduction short. Enjoy!

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How seeing things in person can ease supply chain woes

Ryan Petersen says Flexport, the company he’s headed since it was founded in 2013, aims to bring tech savvy to the antiquated industry of freight forwarding. Yet it’s by marrying up modern social media with some rather more old school methods that he’s come to our attention.

Endless articles tell us supply chains are a mess, in few places more so than on the US West Coast, where — as of Saturday — 70 ships with about half a million containers stacked on deck are anchored in the Pacific Ocean, waiting to dock at Southern California’s ports. But rather than just reading about the problems befalling Los Angeles and Long Beach, the two ports that account for the bulk of goods reaching US shores from Asia, the Flexport chief paid them a visit.

“Technology is important,” he told Trade Secrets. “But there’s no substitute for going and meeting people. It’s just crazy how much you learn from talking and seeing things in person.”

Those visits, which Petersen has chronicled through a series of Tweet storms, have now led to a change in policy that some are saying — only half jokingly — might have saved Christmas.

Last Friday, Petersen rented a boat and took one of Flexport’s partners out to Long Beach for a tour of the port complex.

During the three-hour visit, both Long Beach and LA next door were at a standstill, with less than a dozen containers being unloaded owing to a lack of space to stack them. One reason the port is packed is that in nearby trucking yards, empty containers can only be stored in stacks of two. (In the ports they can be stacked higher, but not without limit.)

Petersen called on the authorities in Long Beach and in LA to allow for containers to be stacked six-high across the city.

By Saturday, the mayor of Long Beach had responded, tweeting (naturally) that “effective immediately” the city would allow containers to be stacked four-high, and even five-high with safety approvals. “This is a temporary move to address our national supply chain emergency,” the mayor, Robert Garcia, said.

“It was great to see the rule change happen, to feel like democracy is functioning. I don’t think it was just me, thousands of people were posting about it,” Petersen says. “It just goes to show you the power of Twitter.” 

He is rather modest about the change’s capacity to fully free up the supply chain in time for the holiday season, however.

“I suspect the effect won’t be as big as you’d like. The bottleneck just shifts. You might be able in principle to stack containers higher, the law is no longer the restriction. But can you actually physically do the stacking? You need machines to do it, and now those machines are in short supply,” he says. “It will have some impact. The trucking company that alerted us to this problem in the first place, they do have the machines, for instance. So you do alleviate part of it.”

Petersen’s trips down to Long Beach, where he rolled up with a Taco stand to feed workers on another visit before surveying the port complex, comes after President Joe Biden announced neighbouring Los Angeles would begin to operate 24/7 in the run-up to the festive season as part of a nationwide drive to iron out supply chain snags. Long Beach made a similar announcement a few weeks earlier.

Many in the industry think operating the ports all hours will do little to help. Kevin Hayes, a former senior vice-president at Long Beach, hit out at Petersen after the Flexport chief claimed in an interview with CNBC that opening at night would ease strains. “These are the solutions proposed by people who are operating from a position of total ignorance,” “Hayes said. “Opening the ports 24 hours when there is no place to take the cargo, no chassis and no truckers available would succeed in having the ports open 24 hours, and nothing more.”

Petersen has come round to Hayes’ point of view. “I’m glad that Joe Biden and the administration are paying attention and working on solutions. It’s the obvious one to run the port on the weekends and at night, but I’m not completely sure it’s the correct one. If it’s not running well during the day, simply adding more hours doesn’t necessarily help.” 

Petersen’s sense from speaking to port workers is that the mood is one more of frustration than exhaustion. Cargo cannot be unloaded on to jam-packed bays, so they are not overworked. Morale is far worse among truck drivers, he says. “Owner operators, people who own their own truck, get paid per load. Their incomes have been cut in half because of the delays,” he says. “The system breaks down without truck drivers, you already had shortages pre-pandemic, and many of them are opting out because of what’s happened to pay. This is the vicious cycle I’m most worried about. The more that leave, the worse delays get, and the less money those owner operators can make.” 

While chaos at ports is a feature of the entire world at present, the delays appear particularly bad on the US West Coast.

Petersen thinks there are two reasons for this. The first is the US consumer’s seemingly unquenchable appetite for consumer durables. “US bank accounts have more money in them than ever in world history, according to JPMorgan. Sales are really booming.”

The second is a failure by US ports to secure the investment they so desperately need. “It’s only Los Angeles and Long Beach that can handle ships that hold up to 16,000 twenty-foot containers; the largest ships in the world can now hold 24,000. No other container port in the United States can go above 12. We need taller cranes, newer cranes. Unions have been highly opposed to automating in the United States,” he says. “We have laws that require that dredging be done by ships that are made in America by American companies. The ports are also owned by the cities that they’re in. And if you’re talking about big infrastructure investments, well, Oakland, like all big cities, has a lot of problems. They’re not going to be able to invest the amounts needed. The federal government doesn’t play a strong enough role. They don’t need to run them, but hey, let’s invest in them.”

Petersen, who besides a stint making pizzas for Domino’s has spent his working life being an entrepreneur, got into freight forwarding after an earlier gig importing motorcycles convinced him this was an industry in desperate need of demystification. “George Bernard Shaw says every profession is a conspiracy against the laity. And it seemed like freight forwarding was just the poster child for this. There were all these acronyms and code words and I just felt like they always made me feel stupid all the time and were taking advantage of me because I didn’t know what this or that term meant.”

Before Flexport, he set up, a company that provides trade intelligence using data gathered from electronic bills of lading — a term he dubs “old fashioned English or like something from the era of the Vikings”. As a newbie to the trade beat, we feel his pain.

Petersen says he tries to use Flexport’s marketing to educate people, and has a glossary on its website to make logistics more transparent to those unfamiliar with the lexicon. “Even yesterday, I had somebody use some acronym and I was like, ‘I don’t know what that means’. They were like, ‘You’re the CEO of Flexport’. But I don’t care about acronyms. Like, why don’t you just use the language that humans can understand?” 

Yet, even after years in the industry, it’s still difficult to find a coherent narrative to explain why supply chains have ended up in such a mess. “It’s human nature to try to find a villain. But I don’t think there is anyone who really understands what’s happened and who is to blame. You have a very complex system that has run in somewhat of an equilibrium for the last 50 years. And then one year the amount of cargo coming into the West Coast grew by a fifth, and what went out went down by a similar amount,” he says. “I try to piece together what’s happening, but every time I talk to somebody new, I get a different view.”

Petersen thinks it’s difficult to solve the conundrum without knowing where all of the world’s containers are in real time. That’s something Flexport is trying to produce.

There’s an obvious lesson that the pandemic has underlined, however. “The chassis situation is very similar to what we saw with PPE. How do you have no spare capacity for something that’s this vital? If there was a national emergency, you’re going to need to move containers around to supply the troops. There needs to be national strategic reserves of goods like chassis. You can’t risk that they’re not there; that’s what we’ve definitely learned.”

Trade links

Dublin port traffic with the UK is down a fifth since Brexit. Andy Bounds looks ahead to Friday’s meeting between David Frost and European Commission vice-president Maros Sefcovic in today’s edition of Europe Express.

Statement of the obvious alert. TSMC’s founder called (Nikkei, $) the US plan to invest $52m into the American chip industry too small to rebuild a complete supply chain in the country.

EU Trade has upped its Twitter game. Claire Jones and Francesca Regalado

Trade Secrets Summit — 11 November 2021

Flexport’s CEO on the mystery and messiness of global supply chains

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