Pablo Escobar was a logistics guy — Ryan Petersen

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.

Oh, wow. Well, Pablo Escobar is a, 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. The 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. 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, INCO terms. So INCO terms 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 you, if I, I negotiate Incoterms, the most, probably most 90% of trade or so is done on FOB terms, free on board, meaning it's, I sell to you at the port.

Ex—

I have cleared customs is the factory's responsibility. Export customs, you take it from there on the inbound. Everything from the origin port onwards is your responsibility. The, the most famous Incoterm 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.

Mm-hmm.

With tariffs, with Trump's tariffs, they've created this enormous incentive to cheat. And the markets find a way, they're going to cheat. People will, especially entrepreneurs whose backs are against the wall and might lose everything. will often cheat, and that's what we see, just an enormous amount of fraud happening. In fact, a lot of it is just Chinese merchants just selling on Amazon.

Yep.

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% for a few weeks, but right now it's about 35% on most goods. That's a big incentive to lie about the value of the goods, 'cause it's 35% 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's $100,000. No, it's $10,000. And now instead of paying 35% tariff, I pay 3.5%. I'm back where I was before. And that is absolutely rampant right now. In fact, Amazon has become the number one freight forwarder in the— 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. Wow. On the Trans-Pacific Asia to the U.S., 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, 50, 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.

On the matter of incentives, I think it's incredibly important to get the incentives right. And how did things get this bad?

Well, the United States is the only, actually though, there's 2 countries in the world that really allow anybody to import goods into their country almost unrestricted. It's the United States and the UK. And I don't know if we, it doesn't come from British common law. It's these things evolve separately. We've, I don't know when it really started in the US. It's not codified into the statute. But it is, we allow it. So what does that mean? In every other country in the world besides those 2, you need to go create a local entity, whether it's an LLC, a C corp, or a sole proprietor who's in the United States could, would import the goods in their name. And in the United States, that's not required. You can just import stuff into the United States as a foreign company with no domestic presence whatsoever. And you can just register with CBP and just import the goods, and you are the importer even though you're a foreign company. And therefore, we have no ability to enforce what these people do. It's an honor system. Like, most law depends on consequences if you're caught. I mean, people will still cheat, but like, at least there's consequences. It reduces the cheating quite a bit. But if you know, like, nothing can ever happen to me, Because the United States government does not have—

Jurisdiction.

Jurisdiction agents. We don't have trade compliance agents in other countries, so we cannot go after them. We can refer them to the Chinese government for prosecution. That's the best we can do if they cheat. So it's open season. And actually, we pulled this data up. The Chinese government publishes their export statistics to the United States, and they show $112 billion higher export value than what those same goods show up as when they're declared to the US government upon import. That was for 2025, $112 billion. It's going to go up further until something's done about this. So it's just an insane situation, which could be very, very easily fixed. Now, it would never go away, but you simply say, hey, you have to be a US entity. It could be a wholly owned foreign entity, but you got to set up an LLC. Have a U.S. bank account, go through some kind of KYC process, know your customer, who is this entity, and have consequences if you're caught cheating. But haven't been able to get anybody in Washington, D.C. to pay any attention to this issue thus far. They're all very busy with other things. I think I've spent a lot of time in D.C. lobbying on this issue. Lobbying is kind of a strong word, just talking to the administration and trying to let people know that there's a problem. Yeah. And everybody kind of smile and nod. Yeah. Like, you know, I hear you.

Like, that definitely sounds bad.

And then nothing happens in between. I think I need to reframe my efforts a little bit. It's actually a good object lesson in persuasion for me. So I'm used to like show people a problem and then you would think that would be enough for them to want to fix the problem.

Well, it's kind of funny, like there's that line of you can't reason people out of an idea or belief system that they weren't reasoned into. And so if you give them facts and evidence and they weren't reasoned into it in the first place, it doesn't necessarily change their opinion.

Yeah. And there's something around understanding what their incentives are. We're like, what are they trying to do? What are they— it's what do they care that American businesses are being hurt? Not really. Do they care that the US $112 billion at a 35% duty rate, it's $35 billion for the government, but they don't care. They have a money printer. So why do they care about that? So what is it that they care about? I don't know. I'm trying to reframe it. It's probably about national security. I mean, it is. It's absurd from a national security standpoint too. 'Cause you can just import anything into the country. Anything. Fentanyl, bombs. I mean, yeah, sure. Like, if we catch you, we might come after you, but we're not, we're not going after the people importing fentanyl into the country. They let 'em go. So I think if you frame it that way, it might help a little bit being like, look, you can't let foreign companies just import stuff with no presence. I might be talking to the wrong people. I mean, the IRS also probably presumably cares more about collecting taxes. These companies pay no income tax either.

Right.

Right? Because all the profit is now made offshore. Whereas if they imported it and then sold it, there would be a profit recognized in the United States. They'd have to pay income tax. So I don't know. This has been a frustration of mine. I've spent— I've been to DC like once a month for the last half a year or so trying to get people to pay attention to this issue.

I know that you've studied a huge amount of like the history of global trade. So let's just start off on Dutch East India Company. You know, how did, how did this thing get started?

Well, Dutch East India Company was the world's first joint stock company. And it's quite an interesting thing because the Dutch were a province of the Spanish, the Habsburg Spanish Empire was the Netherlands was a province of Spain. And you had the Protestant Reformation, the Revolution, and there was a big war fought, Spanish Inquisition, and they managed to get independence. One of the first things they did was they had these fleets and they started raiding the Spanish, and actually it was more the Portuguese Empire, but for a period there, Spain and Portugal had merged through marriage. And so they, it was one empire and trading both the Indies and the Americas for a brief period. And the Dutch during this time started sailing there, raiding, sort of as pirates, and it became very, very profitable. And they, they, they ended up basically taking over. And once they took over, you had more of a commercial aspect to this and an emergence of many different companies that were trading, and it became unprofitable. The competition, it sort of was bad for business.

Drove down the economics.

And I forget the exact coordinating mechanism, but they, a bunch of these merchants got together and they pooled their ships and said, hey, we're gonna, Create this stock company and allocate shares to everybody, and it'll have this monopoly on trade in the East Indies. And and and then it got listed. It was the first listed public company where you could buy these shares that you put in became tradable. And yeah, it was a couple hundred years of domination. Of course, the British eventually came and took it over with the And the British East India Company took over the, took over the business. But, but yeah, that's, that's kind of the origins of it was some kind of early form of getting together and creating a monopoly, which now would be illegal under antitrust laws.

I think it was a de facto government in effect. It was like a tradable government.

Yeah. Especially the British East India Company was absolutely the government that ruled India for a couple hundred years.

Do you want to go through kind of the history of the like major superpowers from Dutch to—

oh, you start there. I mean, you go way further back in time. If you go all the way to the beginning, trade is as old as— it's older than art. There's evidence for long-distance trade going back like 40,000 years. And the first cave paintings they think are like 25,000 years old. So you can go way, way back. And most empires are built on trade. They said what, Roman legions marched on Egyptian grain, right? And it was a big part of that. It was that trade of bringing grain from around the Mediterranean. I would say the Venetians trading throughout the Mediterranean were the dominant power from what I call it 1100 till they conquered Constantinople in 1200, 1204. So, and a lot of the, actually the Crusades were as much about trade as they were about religion, being able to trade with the East and fighting for control over trade because the modern Israel is Before the Suez Canal, it was an incredibly important trade nexus to reach between Asia and the US— sorry, Asia and the Mediterranean. So the Venetians, and they had rivals, the Genoese, and even Florence, which is not even on the water, but became really active in banking and trading through all these merchant fairs that they would have. Moving goods, moving, moving money was at, in the, in the old days, hundreds of years ago was physical. Like you had to actually be a logistics company to be a bank.

Mm-hmm.

Until not that long ago. I mean, Wells Fargo and American Express both started as freight forwarding companies 'cause you had to move the gold here in the American West. You had to get the gold on stage. That's why Wells Fargo has a stagecoach on their logo, right? So you had Venice trading with the Muslims and I think the, the discovery by the Portuguese, the invention of the caravel, a lot of other early technologies— trade has largely been driven by these development of new technology, the quadrant, the sextant, some of these, the clock. The clock is incredibly important for positioning yourself. You can't do, can't do longitude without a clock. You need to know where you are in the world. You need to know what time it is.

Yeah.

When this— that's how you determine where you are in the world. And so these technologies, especially Henry the Navigator and the Portuguese, sort of like the original venture capital, was funding this exploration down the coast of Africa. They didn't know where they were going to go. I don't know that they actually expected in the early days of Henry the Navigator to make it around Africa. They just realized that it was quite profitable trading in slaves, discovering new lands. They discovered Madeira. Madeira. Madeira is an island. Now it's most famously known as Cristiano Ronaldo's birthplace. But Madeira was this uninhabited island that Madeira means wood. It was heavily forested. Now there's no trees there. They chopped them all down, but became very, very profitable. They set up vineyards there. I mean, free land was like unheard of at that time. They hadn't discovered the Americas yet. So they realized it was profitable. They kept reinvesting those profits and eventually they Vasco da Gama rounded the Cape a few years after Columbus discovered the Americas, actually around 1498. 1498 is when they made it to around the Cape of Good Hope and made it to India. And the Islamic world had put down this kind of iron curtain. You could trade, and they were very open to trade with the Venetians, were essentially allied with the Muslim caliphates and the Ottomans, but they couldn't They could trade, but they couldn't go beyond. And the main things they wanted from the East were spices. Spices are really good for long-distance trade in that time because they're very small and very, very valuable.

You could just like dry 'em out and they wouldn't go bad.

Yeah, they weren't that perishable. And just the value-to-weight density, you know, ratio is just so high. And so the markup, I think it was at least 1,000x, it might've been 10,000x from if you bought the spices—

In India?

No, the spices really originate in Indonesia in the Spice Islands called the Moluccas. If by the time they got to India, they were probably already marked up like 20x or something, and then another 20x, you know, you get, you pretty quickly get to 1,000x or more once you reach Venice. And so there was this huge, people didn't know that, but they knew for sure, you know, you want to get to the source of these things and you didn't even know where they were from. Really had no, it was like a lot of mythology. You didn't know.

Oh, so the people in, you know, England might've been buying cayenne pepper or something, and they were like, we don't know.

Just secure it on the shore. They know it comes from the East, the magical, mythical East, full of wealth and Aladdin genies or whatever. But so that was driving a lot of the early exploration was to try to get to the source of these spices and other goods. So Vasco da Gama kind of makes this end around the Iron Curtain of Islam and being able to go, and that really opens up the Portuguese Empire And then as I said earlier, the Dutch eventually take over and then the British and Venice goes into decline. It took about 100 years. Actually, it's one of the things that people miss with these new technologies, new trade routes. There's a relatively gradual, it's not instant. People think, oh, we invented AI and now tomorrow the whole world changes. Like actually it takes time.

There's a huge amount of inertia.

Yes, there's some inertia, there's adoption cycles, there's, yeah, getting people to actually go that way. I mean, Venice continued to prosper, the golden age of Venice. I mean, they lasted, well, another 100 years after that. It took a while, 'cause in the beginning you're like, okay, I sent one ship over there, came back with a bunch of spices, but like it's 0.1% of the market or something. Like it takes time even with an exponential curve for it to have that kind of an impact.

And at the time, like, how long did it take a ship to get from Indonesia to Britain?

It might be a year or more. I mean, it just— I think just to India was about a year and probably another 6 months from there. And you could only go once a year because of the monsoon winds crossing the Indian Ocean. So it's sort of an annual out and back, maybe 3 years journey or something like this. It wasn't— the Suez Canal was hugely important for this. It cut off— and that was already in the age of steam. It cut off massive amounts of travel time. Now, when corporations start to take over from governments, I mean, it's gone back and forth, right? You had the— mentioned the Dutch East India Company, the English East India Company came in effectively. I think they were sort of reluctant. I'm probably going to get in trouble in India for this. It's one way to make our podcast go viral, by the way, is to say something that offends Indians and they'll go totally crazy. I don't mean to offend. I maybe may have learned my history differently or might be wrong, but I think the East India Company was somewhat— the British East India Company were somewhat reluctant conquerors. They came to trade, they were doing a lot of trade, and in some of what they did really kind of created a lot of breakdowns in Indian society. Some of that was through power, force projection, through taking sides in local armies. Some of it was trade networks that were developed, displaced current economic powers and political dynamics. But India largely devolved into chaos during this time. And I don't think they're unrelated. I think it was probably caused by the English East India Company. And then they realized, hey, this chaos is bad for business. Like, there's civil wars everywhere. It's like anarchy has formed across the subcontinent. And they ended up feeling that they had— they felt compelled to, one way or the other, conquer India and become the government of India, which they were for For a long time before the British government effectively took it over and made it truly a colony. For a long time it was just run by a corporation, which is one of the more—

It's a wild thing to think about.

Screwed up forms of government you could ever have is an actual corporation running it for profit, for profit of people who don't even live there back in England. Actually, one of the interesting things is how do these corporations become monopolies in the first place? How do they get the government to agree to that? It was large, I think it was largely through bribery.

Just paying off the right politicians?

Yeah, they gave the politicians big shares in the company and created these monopolies so that only the British East India Company was allowed to sail on behalf of Britain. And then the British Navy made sure that the French and others couldn't trade. The French were there in a big way. In fact, it was only with the Napoleonic Wars, some of the Napoleonic Wars were fought in India. It was a very global war. But the French had a big settlement in what's now Chennai, Madras. It was Pondicherry, it was called at the time, but it was eastern side of India. There was French colony there that the British took over during the Napoleonic Wars. So it was it. But the British Navy did their best to box out other competitors and made sure it was only the East India Company or later the Raj that could trade. But over time, the networks changed. So the British had a really hard time finding anything This was especially true in China, but also in India. It was a hard time to find things that these people wanted to buy from Britain. The balance of payments wasn't looking very good in the beginning.

So was it kind of like the US and China today where lots of goods flow to the US, but then the empty ship flows back to China?

It was a bit like that, except that they weren't accepting the British pound in money printing like we have now.

So there was like a lack of trust in currency.

It was a lack of, well, they had to use hard metal. It wasn't fiat. It was traded with silver and And bullion, and it became a huge drain, especially China. Like there was the Chinese produced lots of things that the British wanted: tea, silk, porcelain, probably some other stuff. And but those are the big ones. And the the British didn't have anything at scale that they wanted. Like they had like mechanical clocks that people thought were interesting and stuff. But like basically the Chinese weren't. Were pretty self-sufficient. And these guys would show up with like British textiles that weren't very quality compared to the local stuff. And there was nothing to trade. And so what they did want was silver. So it was really draining the silver reserves of the Europeans doing this trade. And where you get silver from, of course, mostly from the Americas, from Peru, from Potosí, the mine in Peru, In Bolivia, excuse me. And actually about 25% of all the silver mined in the Americas went across the Pacific, not across the Atlantic, was sailed via this Manila galleon, sailed to Manila. And Manila, the Philippines became a trading hub because the Chinese were banned from trade externally. And so they had to sneak out to the Philippines and do their trade with the Europeans there.

Why were they banned from trade?

The Ming Dynasty had banned Trade. That's considered a huge tactical blunder. They stopped, they stopped allowing overseas trade.

What was the logic behind that decision?

I think it was mostly government-run operation up until then, naval going, and it was really draining their funds. They weren't seeing a return from it. They weren't looking at overseas commerce as a commercial adventure, as a commercial venture. It was largely diplomatic. It was power projection. It was symbolic. They would build these treasure fleets and go sail the world. To show how great China was and get people to kind of bend the knee and do some diplomacy. But it wasn't profitable at all. And there was a new emperor and he said, enough of this. We got our own problems here domestically. We're going to stop that, stop funding it. And they actually banned overseas trade during the Ming Dynasty about 60 years or something, 50 years before Vasco da Gama rounded the Cape. I mean, it's a great alternative history is what would've happened if the Chinese had been there in force with their, their much larger, more powerful ships than what the Europeans had. So anyways, the Chinese were banned, so they would have to come down to Manila to get, to get trade, to get, um, to do trade. And so the Spanish sent this galleon every year, actually would come by here in California, would sail up the coast and then cross over. I forget where they would head out to sea, but, uh, but in California somewhere and head out to sea, um, trade the silver in Manila. But it was It's not good for the— you don't want to give up all your silver. This is— and so eventually the British figured out that the Chinese did want opium, which came from India, from Afghanistan, and that became the main business of the British East India Company, that most of the profits— I don't think the other stuff they were doing was that profitable.

Was like back home Britain aware of the fact that most of the profits from this company were coming from opium trade?

Yeah. Okay. Yeah, I think so.

Yeah.

It radically changed everything because now you didn't even really need to involve Britain. You would just go from India to China, make a bunch of money, and they, I guess they would, they would take the Chinese goods of tea and stuff and ship that back. And of course, you know, the Tea Party, the original Tea Party, the Boston Tea Party was British East India Company. I may, yeah, the same company, right? Trading this tea from from China, but it had been opium exchanged for tea, shipped to Boston, sold here in the United States, or in then the American colonies. I guess we've come full circle back to Pablo Escobar trading. Now we're trading opium, but as government into China. Chinese are still very bitter about this, rightfully so. They— it devastated, I think 20 to 30% of their population was addicted to opium, which If you go to downtown San Francisco, fentanyl is an opiate, much stronger, but it's—

That's way less than 30%.

Yeah, it's a small percent. It's devastating. And I think it was having a similar effect on their people. And they, they tried to ban it and the British sent gunboats in and, and soldiers and burned down the, the Emperor's Palace in Beijing and conquered the country to, to enable the trade to continue. So I think still a lot of historical anger over that.

In a different timeline where you didn't have the opium trade in China, do you think that the Chinese evolution of power changes and it's kind of different today? Did we just set back, or the British set back China by 50 years or something like this?

Yeah, maybe 30 or 50 years or something like that. It's really hard to say. I think the Chinese, the Qing Dynasty was really failing to modernize, but it was possible to happen. I think in some of these cases, it's a question of leadership and how do you get a strong enough leader to That's probably the more interesting counterfactual is what if there had been a great emperor born who could have reformed and modernized the way the Japanese did? The Japanese had similar problems. They tried to keep the foreigners out successfully for a long time. The Americans showed up with gunboats, forced open their markets. They had a huge wake-up call and said, we need to modernize. And they sent some of their best and brightest people to the West to learn about industrialization, to learn about the technologies, The structures, the military structures, the economic structures, and it's called the Meiji Reformation. Meiji something. Basically, the Meiji Dynasty—they put in these reforms that led to Japan becoming a superpower. I mean, ultimately, it wasn't strong enough to do what their ambition was, which was to take over the whole Pacific. The Americans didn't let that happen, but but they became a superpower in almost no time. And so, yeah, could that have happened earlier? I mean, I think that's a little bit of what's happened since Deng Xiaoping and more modern China's. said, hey, we need to learn from the West and adopt these things and go. But it took, right, there's 100 years or more in there, 150 years from the Opium War to, uh, till Deng Xiaoping. Um, it could have, yeah, it certainly could have happened earlier, but probably more about leadership than it was if opium hadn't been discovered. I don't know that opium itself held them back. I mean, the Industrial Revolution was very real. Uh, and if you don't adopt the industrial, the technologies of the Industrial Revolution, You're probably going to fail whether or not you get addicted to opium.

Before we started, you mentioned the Forbes family, not the Forbes family with the magazine, but a different Forbes family. Go into that.

Oh, yeah. Well, we were talking about opium. I should have hit it when we were there. So most of the opium— there were— in the beginning, the opium was all traded by the British East India Company, the monopoly that we were talking about. Over time, though, they had competition, and the early competition was actually from a a couple of families, dynasties. One was called the Sassoons, a Jewish family from Baghdad, actually, who got pushed out of Baghdad and settled in Mumbai. The Sassoon Docks are still there in Mumbai. You can visit those. But the other big family that got into this was the Forbes family. And it is not, as you said, it's not related to the magazine Forbes magazine. It's unrelated. But the Forbes family was American. So Americans did— the Forbes family and the Americans did about 20% of all the opium trading into China. And they were based out of Boston. You hear this term Boston Brahmins, a Boston, very wealthy Boston family. There's probably more than one, but the Forbes family was the big one. And they're still, there's actually a museum I haven't been to yet. It's on my bucket list next time I'm in Boston of their old family has their house has been turned into a museum of the China trade. And they were big collectors of Chinese art, antiquities. Paintings and the like, and that's all on display there. But they traded about 20% of the opium. They still are a very prominent family in the United States. They own this private island, which you can see on Google Earth. If you go to Google Earth, look at Martha's Vineyard, and then just to the west of Martha's Vineyard, between Martha's Vineyard and the mainland, there's this long skinny island. It's like probably a third the size of Martha's Vineyard. I mean, it's a very big private island, maybe the biggest private island in America. That's just for the the Forbes family. And the patriarch of the Forbes family is John Kerry. Uh, he's— the family's still very powerful. Uh, and they, um, people think John Kerry made his money by marrying the ketchup, the Heinz, uh, ketchup fortune, but actually no, he had his own fortune long before that. Uh, the Forbes family. And I don't think China took lightly to the fact that, um, Obama made him the Secretary of State to negotiate with them because they have a long memory.

Mm-hmm.

I've never heard this written about, but I don't think— there was that famous incident where the Chinese did not bring out the red carpet and Obama had trouble getting off of Air Force One because they didn't bring out stairs. And my personal conspiracy theory is that they remember the Forbes family trading all this opium into their country because we would not take kindly either if the cartels that were trading fentanyl into the United States Also had a navy and showed up and took over our cities and you know started blasting the San Francisco Bay. Like we would not be very happy. We'd probably have a long memory for that as well.

I would love to talk about the Jewish trading networks, and before we started recording, you were talking about how basically being able to trade on paper notes on trust versus actually hard currency and having to ship silver all over the place was a huge benefit. So tell me about that.

Well, and and and you know. Global trade is, it's a multiplayer game and it's this complex coordination problem where people have different incentives, information sitting in different parts of the world. How do you communicate? And of course, before the invention of fiat and now digital payments, wire transfers, you know, a simple form of digital payment, you had to move physical goods. And That was physical gold, I should say, bullion. That was non-trivial. You'd end up losing things to storms, disasters, pirates, you name it. Your own employees could steal from you. So being able to do trade without having to physically— the goods go one way, the gold going the other way, not having to move the gold the other way is a very big deal if you can avoid it. And one important innovation, the most important innovation in this is called the Bill of Lading. It's a piece of paper that allowed to be served as title. And you need to have security that you trust that the person authoring this Bill of Lading has in fact received payment for the goods so I can accept the Bill of Lading on their behalf. That's very difficult to do, to do this kind of long-distance trust. And so ethnic minorities like the Jews had a big advantage in that they had these a high degree of trust within their networks. And they, whether it's family ties or just community that you would trust each other. And so then if you got a signed document with a seal that you recognize as authentic and not able to be copied, then you could, that your counterparty has, your trusted member of your network has received payment in Europe for the goods, then you don't need to ship the gold. You can accept the piece of paper that he has sent you to authenticate that. and say, yes, okay, I've trusted this. I mean, now we're trying to innovate on this with things like blockchain and stablecoin payments and other things, but it's largely an evolution of this old school system. And I would actually argue that I've seen it argued, it's not my argument, that the Jewish law, that Jewish law was the foundation of capitalism. And even further going further back than that, in Roman law, you could not trade a debt. So if I owe you money, I owe you money. You cannot sell what I owe you to someone else, and now I owe him money. I only owe you money. It's like an honor-based system. My debt is to you. You can't sell that debt to someone else. And under Jewish law, Talmudic law, you could sell the debt. And that's the foundation of capitalism in many ways, is now you can have equities and bonds and— You know, but that's literally a bond. You can sell the bond to somebody else and say, no, now someone else can own it. And similarly with trade, like this piece of paper, it can be sold, it can represent this. And the Jews largely innovated that. At least I've seen that story told.

And there was no other, like, culture throughout history that did this sort of bond trading?

Not to my knowledge, where like pieces of paper representing— because probably, probably, but paper is a relatively new innovation. I don't know that if the Egyptians had this. And these long-distance kind of trust-based networks, just incredibly hard. I mean, even today it's very hard. It's this complex coordination problem trying to get people with different incentives and information and timing to coordinate. It's what makes Flexport hard and fascinating. The problems that we solve is like, I've gotta coordinate people on different continents who don't even speak the same language in some cases, although English has largely emerged as the language of trade. Through AI, we've actually, a couple months ago we launched that now people can talk to each other in their native language and the AI just translates it so you can do trade in your own language. But English as an innovation was actually really important for this. It's like being able to communicate is hard. I'm admirer, like we have competitors, people think I hate on our competitors, but I don't actually. I'm admiring of like our, one of our competitors was founded in 1890.

Hmm.

I mean, forget the internet. This is like before the telephone. They were doing trade on the telegraph, like Morse code. It's kind of interesting. Like, how did they do this? How did they figure it out? And it, at that time, like the bill of lading was a real innovation. Like you didn't have to transport not only the gold, but the goods. Like you, you could transport the goods to the port, sell the bill of lading. So now whoever holds this bill of lading can go to the port and pick up the goods. I didn't have to move the goods to the market and sell them. I could just sell you the piece of paper and you go figure it out from there. That was like a serious innovation 500 years ago. It's absurd that that, by the way, still how a lot of trade takes place. Something like, I, I, our statistic is about 5% of our customers require an original bill of lading.

In like paper form?

In paper form. And it's still a part of our stack is like mailing these pieces of paper around the world. It's, it's absurd. But people require it. In some cases, their banks require it in order to unlock payment. It's somehow seen as like secure collateralized payment instrument. It's absurd. I mean, it's like not very hard to fake a piece of paper. Speaking of competitors, one of our competitors is DHL. Most people know DHL from their parcel business. That's why they're a famous company. But they, they're also one of the biggest freight forwarders in the world. And the original DHL business, the parcel business started because with the invention of the shipping container, the shipping container's very efficient. Very fast. And now the containers were outrunning the mail, and the mail was carrying these bills of lading to serve as title for the transfer of the goods. So the containers were showing up at the port and the titles were not there to do a transfer. And it's just like very broken system. So DHL actually formed as the original sharing economy company where you could, they, what they would do is you'd be a courier. Anybody could sign up to be a courier for DHL and they would buy you a plane ticket wherever you wanted to go. But you had to carry a duffel bag full of bills of lading, and then those would be serving as title for container shipping. That was the origin of DHL as a logistics network. Was actually they didn't have any planes or parcel network or anything like FedEx and UPS. It was just travelers like stuffing. I mean, I don't know how they answered that. It was pre-TSA. Like no one was asking, "Did you pack your own luggage?" Because you'd have to be like, "DHL gave me this stuff. I have no idea what's in there." But yeah, that is still largely the way trade is going. I mean, I was just in our Thailand office. A month ago and they were showing me Thailand. It's even worse, by the way. It's illegal to criticize the Thai. This isn't against the King of Thailand.

Okay.

Just to be clear, 'cause that's illegal. You can go to jail. Right. I'm not criticizing the King of Thailand.

You're not even criticizing. You're just noting an observation.

Well, I will criticize this, this one policy they have, which is you have to pay the government a stamp tax and the stamp for any bill of lading, you have to print this government stamp and put it on there. To prove that you've paid a, I think it's two cents. It translates to two U.S. cents, which of course it costs way more to buy the stamp and stamp it on there than it does to do it. And I was with our team looking at this process, and it turns out you can buy this digitally, and there's a QR code that you can print on there to prove that you've stamped it. So that's now how we do it. But like the stamp tax is also this is where I got in some trouble. I had to delete my tweet because I was reminding the Thai. Government that this was the stamp taxes, what led to the American Revolution. They put us the exact same thing. You had to, you had to pay the British king for a stamp to put on your documents. And they thought I would, you know, I was saying, hey, this is why we overthrew King George III. It was a policy like this. I was not meaning to say that they should overthrow the king of Thailand. I'm sure he's a good guy. He's been there for a long time. So I'm not advocating for that. Love that guy. Just to be clear, I'm a big fan.

So we saw a little bit of maritime choke points in 2022 with the Ever Given, but now we're seeing it full-fledged, you know, really disrupting trade routes with the Strait of Hormuz. Can you just talk about how, like, the Strait of Hormuz is impacting things?

So Ever Given was that ship that got stuck. That was only for a week. So it was— it ended up being more humorous than anything, although we had 44 containers on that ship and about 1,200 of them stuck afterwards. So as funny as it was for the meme economy, the real economy was pretty pissed off. Like, those people didn't see their cargo for a long time. Actually, most of them never got their cargo.

Oh, geez.

Basically, they just got paid by the insurance companies. But starting, that wasn't a big deal. What's happening now is a very big deal. We've been reminded, like reawakened, that physical world matters over the last few years, over the last decade really. But because I think our economy's become so memefied and digitized and financialized that we're like on Maslow's pyramid, we're like all living like way up here in la-la land. And forgetting that the physical world down here underlies it all. And then underlying that is peace and order. Those are prerequisites for civilization, and we take them way too much for granted. That civilization, trade is like a mechanism for building civilization because every time 2 companies, 2 parties, 2 people do trade, we exchange something, we're both made better off or else we wouldn't do it. And that is the creation of wealth. Like, new wealth has been created in the world. This is what AOC and everybody gets wrong. It's like, it's not a fixed pie. Like, if I make something, you buy it, we— I didn't take anything from you. We're both made better off.

I think the reason why we have that problem in politics is because capitalism is not a zero-sum game, but politics is.

Yeah, it could be.

In order for you to win, someone else has to lose, which means you kind of like overlay your worldview of what you experience onto the other things.

Yeah.

And that's not how the world actually works.

That's it. Yeah. Hollywood's like that too. Hollywood, there's only so much status in the world. You can't, one, if someone else becomes a famous movie star, it's just like less views for yourself. But I mean, maybe, I guess maybe that's unfair because it is a form of capitalism. You can make a new movie, you didn't have to steal from anybody else. So I'm not plugged into that scene, but yeah, so I think the world's come crashing back to remind us of this first with COVID like supply chains, suddenly humans, people stopped taking for granted this like invisible magic that takes place. Mm-hmm. This invisible reliability that is supply chain. It'd be like the operating system became exposed and you're like, oh, it's kind of screwed up. The ports are backed up. I can't get the things that I want. And then kind of normalized a little bit. Then the big thing that happened was with Israel's, with October 7th and then Israel's invasion of Gaza, the Houthis in, or is this Yemeni Really, they're an Iranian proxy terrorist organization that has taken over the country of Yemen. And Yemen is at the point where the Red Sea meets the Indian Ocean. It's called the Bab al-Mandab, and it's one of the 3 or 4 most important maritime choke points in the world that this terrorist organization has taken over. And since December 2023, container shipping has routed around Africa, has not been using the Red Sea and the Suez Canal.

It's kind of like A couple months or something, or is it a few weeks?

It's about 3 weeks longer. And in the old days it was months with, but in the modern container shipping, they go so fast, it's about 3 weeks longer. That's been pretty impactful. It probably raised the price of ocean freight about 60% versus where, it's hard to say because the markets are moving all the time, but it's hard to say what the counterfactual would've been, what the price of freight would've been. But I reckon it was 50 to 60% higher ocean freight prices as a result. But like the world goes on, You can go around. There's an alternative route. Hormuz is different because there's no alternative route. There's a pipeline through Saudi Arabia that some amount of oil can go through. By the way, it can be blown up too. So let's see how this evolves. But there's no alternative route. It's a dead end. It's a cul-de-sac. So there's no other way to get the oil out. And 20% of the world's oil flows through Hormuz. So we've had this violent wake-up call I hate to be the guy always crying Chicken Little saying the sky is falling, but it feels that way economically. I don't know. I saw a gas station here in California that was $9 a gallon yesterday, which I've been waiting for $10 a gallon all my life to see what happens to the display because there's no other digit. I don't know what they're going to do. I guess tape or something, but that could be here very soon. We'll find out. And it's not just oil. Petroleum products, natural gas. These are precursors for a huge amount of other things, for plastics, fertilizer, something like 30 to 50% of the fertilizer in the world, depending on the type of fertilizer comes out of the Middle East. And helium, Qatar produces 30% of the world's helium. Helium is not, you think of it for clowns and blimps, but actually the most important uses are producing semiconductors and SpaceX rockets. You can't do either of those things without helium. And so 30% of the world's helium supply getting taken offline. And we don't, there's no, we don't, helium is a non-renewable. It comes from radioactive decay. You don't make more helium. It's produced when uranium and thorium deposits emit, naturally emit helium through radioactive decay over billions of years. Like it's not, you can't make more of it. So This is a huge impact. The economy is so financialized and memefied that it seems like life goes on, but I think we're gonna find out over time as this flows through that you're gonna see major shortages and not just higher prices, but like, you know, India, for example, Air India reduced their international flights by about 10% last week. And I don't know when we're gonna air this, but that's likely to continue coming down. That's just as of today that it's coming down by. And some of this is like, oh, right now it's price-driven economics, but there will be countries that just don't get to participate because Laos, just like, where are they going to get enough money to buy oil when the price of oil goes up? They're going to get outbid. And you're seeing this where tankers are just rerouting in the middle of the ocean because trades are getting made and countries are stepping up. And it might be actually a case where having a very strong national government gives you a big advantage.

Yeah.

Because your government can make deals and call up on the phone and go, yo, I'm buying some oil right now, in ways that private companies don't have the same level of power and authority to get these deals done. Yeah, I hate to be the guy, like I said, crying that the sky is falling, but I feel that way. I mean, I feel like, yo, you just lost 20% of the world's oil supply and all these other chemicals. I don't see how business continues as usual after that.

Do you see that kind of getting resolved quickly, or is this just going to be an enduring problem that we have?

It's, it's the question of our time, honestly, because since in the old days, I'm glad we started all this talking about history. It's like throughout history, if you looked at a trading ship, like look at the British, the East India merchantman, the ship, and you'll notice It has rows of cannons along the side of it. You didn't just go trade peacefully. You brought cannons to defend yourself from pirates or navies or whatever else you might find. You didn't know. It was a very dangerous game. And that was largely true, is you mostly traded with your own colonies and your national navy provided protection for your trade routes. And that was true up until basically World War I. I guess in World War II is when the Americans took over this naval order. And the new world order that emerged after World War II said, the United States will provide freedom of navigation. Anyone can sail anywhere they want and do business with anybody they want as long as you ally with us and not the Soviets. I mean, it was really like this Cold War bargain. And we would say actually even went further than that. We opened up our markets and let anybody ship goods to the United States. Famously hollowed out our industry and created now Trump as a reaction to that. And so that came though with this promise, which was that the United States Navy would protect the shipping routes. And the most important aspect of every shipping route is the choke points where there's no other way around. And the big 5 choke points in the world are Hormuz and Suez and Bab-el-Mandeb are kind of one, Suez and Bab-el-Mandeb. Well, the Suez Canal and the Malacca Strait, it's kind of one, but give me a couple or two. Gibraltar, which the English had, Gibraltar being an English part of the UK is not, it's because of this, right? Because the English used to provide this maritime supremacy. And then now you have the Panama Canal and the Strait of Malacca. So these are the big important maritime straits as of today. There may be new ones emerging actually. If climate change plays out the way people are predicting, then the Arctic shipping will emerge. And actually America's presence in Alaska will be the Bering Strait. There will be a huge choke point. Yeah. Because you can cut about a third of the time from Asia to the East Coast by going over the north, over the Arctic instead of through the Panama Canal.

Yeah. My understanding is due to the ice melt, there's suddenly now you can like break a ship through, you know, North Russia, whereas you couldn't previously.

You can do it during the summer and only a couple of ships a year go through, container ships a year. But you can do it now. And you could track them on Atlas, plug for Flexport product, atlas.flexport.com. You can see when the ship's going through there, mostly Chinese container ships doing that. But that is the explicit promise of globalization as it was built under the American order is the Navy will secure the straits, will secure the choke points. And we've been tested now since December of '23.

Yeah.

Where we sent an entire carrier group and couldn't stop the Yemenis from hitting container ships and oil tankers in the Red Sea. And now since March 1st or end of February, been unable to reopen the Strait of Malacca, sorry, the Strait of Hormuz. And it's a giant question of, okay, so how does trade reorder around this? First of all, it's going to lead to huge energy boom It is already. The US are hitting all-time export highs. We were already the biggest exporter in the world of oil, and now we've hit all-time highs basically every week since March 1st. So on net, it might be good for American GDP. We're pumping so much oil and exporting it, become the dominant energy power. I think from Trump's agenda standpoint, yeah, he didn't like this order famously of hollowing out industry and opening our markets and— For what? What do we get in exchange for this? I think he's been asking that since he came onto the scene. And so if you look at his policies, yeah, people are like, oh, he screwed this up. Like, did he? But not from his perspective. He doesn't care about the Strait. We don't buy oil from there. Our trading partners do. The Europeans do.

Is the Strait of Hormuz being closed actually a benefit to our ability to like export goods?

For oil, for sure. Yeah.

Yeah. Like, is that, is that big enough of a benefit to make it make sense to not really worry about it opening up?

It depends on who you are. I mean, there's winners and losers, but it's like hugely beneficial for Texas and the Texas oil economy. And, you know, if you're a college football fan, the NIL budgets for these Texas football schools are going to go through the roof. So there are winners in this, not to make light of it. But en masse, I mean, I think it's making the same mistake that AOC makes of thinking that it's a fixed pie and like, okay, maybe America takes a bigger stake of the pie, but the pie's going to shrink. If you lose 20% of oil and everything that falls out from that, you're going to have a smaller economy worldwide. You're going to have a lot of suffering. We'll see. I mean, I made predictions that with Russia's invasion of Ukraine that you would have Because 50% of the world's, it's not 50%, but it's, they're the biggest grain exporters in the world, Russia and Ukraine. And that coming offline, I thought was gonna lead to massive famine across Africa. And I said that publicly and I was wrong because Russian grain never stopped. And they're also big exporters of fertilizer. Well, the Middle East picked up the slack and started exporting crazy amounts of fertilizer. So the world's pretty resilient. America produced a lot of food.

Yeah.

And so yeah, the economy's this crazy complex adaptive system that's hard to predict and is more resilient than you expect. But also complex adaptive systems are very resilient until they break down and fail. And we're playing with fire with the Strait of Hormuz. And so I think it's way too simplistic to say, look, Texas energy, American energy exports are through the roof. We are dominating the world energy markets to an extent we never have. Not since the Rockefeller days. Like, because, because of this, from a power projection standpoint, maybe if you're Trump, that's what you care about more than what's overall like economic output in the world. But I think it's a kind of a fixed pie mentality that's like—

It's not great.

It's not great. It's not great. Not as a business person. Like, nobody should support this if you're trying to do business.