C (4:47)

Dealing with big box retailers means EDI connections.

A (4:50)

And that's often a trigger for needing an ERP system. We've been using EDI connections to Costco forever. And the only way that we've really

C (4:58)

solved that problem to make it seamless is through Fulfill. EDI adds complexity to everything you do and Fulfill solves that complexity with their

A (5:06)

connections to their systems.

C (5:08)

You need Fulfill to move from being

A (5:09)

just a DTC brand to being a true multi channel brand because big box retailers are going to require you to connect to their systems using edi. Me tell you, it's way easier if you do it with fulfill.

C (5:21)

Ryan, my understanding is tariffs are over. The Supreme Court has ended tariffs. We're never going to hear about tariffs again. Is that right?

A (5:27)

Tariff jubilee. We are not there. There's a whole lot of different tariffs that are out there that are. The tariffs have been around since basically that's how governments funded themselves for the first like 3,000 years of civilization. So I don't think we should assume that they're going to anywhere but one particular class of terrorists, which is called ipa. The International Economic Emergency Powers act was overturned by the Supreme Court. So that was the reciprocal tariff. That was a big bucket of tariffs and gave Trump, in his view. Now the Supreme Court said he didn't have those powers, but his view was they had kind of blanket powers to throw tariffs out at anybody at any time for any reason. You look at him the wrong way one morning, he'll drop a tariff on you that is now over. But there are many other forms of terrorists that the tariffs that the administration still has access to and they're still existing and expect new ones to come out. So that's the high level. Yeah.

B (6:19)

And Ryan, you know, speaking of rich we obviously had a 10 or 20% IEA put on us, but the biggest tariff affecting us is like a 50% global steel and aluminum tariff. And that is still in place. No one's challenged that. Like, maybe explain to the audience that the Supreme Court tackled one small sliver of tariffs and we're going to get refunds on that or potentially get refunds on all that. But, like, how many other slivers are there in the tariff world?

A (6:49)

First off, like, I guess the highest level understanding here is that under the US Constitution, it's the Congress that controls the tariff and not the president. And there are a large number of tariffs that are put in place by Congress that have existed for a long period of time. And those are. No one's questioning that. There are at least five acts of Congress where they have given the president authority over tariffs under certain circumstances. And so AIPA was one of those. AIPA has never been used for terrorists before. It has been used for. It was given. The president was given powers to do things like sanctions and, you know, cutting off companies. That countries that we're at war with, there's Iran, sanctions are done under aipa, Russia, many others where there's like, hey, you can't trade here. Trump's interpretation of IPO was, hey, we can use this to put tariffs on people. If I can use it to stop trade, then I can certainly use it to put a tariff in. And the Supreme Court said, no, you mentioned steel and aluminum. So that's done under what's called Section 232. That was the trade Act. That was a different trade act where Congress gave power under national security and they used it for steel and aluminum. I think it's a reasonable case if it has been challenged, they won the challenge. No one thinks that's going away. Steel and aluminum tariffs, reasonable to say, hey, we need to have a steel and aluminum industry for times of war. You got to be able to make tanks and everything else. Interestingly, it was the seal. It was the same section 232 tariffs for national security that Trump used at the end of last year to put tariffs on furniture. So he has declared a national security emergency on furniture that is being challenged. I think that's going to be a tough case to make that we have a national security concerns around our furniture industry. So that's 232. Those are. That's one. Form 232 requires an investigation by. I think it's U.S. trade Representative's office that has to. It's some formality and it has to be by one sector in one country that you need to go and say, hey, this sector, this country is exposing the US to national security issues. You also have section 301, which is a similar thing. But that section 301 is the tariffs that were done on China back in original Trump administration and Biden kept those in place. Those have, if they've been challenged, they've, they've held up and they're not going anywhere. Then you have section 122. That's the tariff that he put in that morning of the Supreme Court ruling. They put in section 122 tariffs. Those are temporary and a maximum of 15%. Temporary. They end on July, what is it, 24th. I think they have 150 days maximum term and they're only a maximum of 15%. Interestingly, he announced 10% that was put into law, put into the regulation. He then the next morning said it would be 15%. We still, two weeks later, the 15% never came out. We're all paying 10. We probably shouldn't talk about this. Don't remind them.

C (9:46)

He's distracted, Ryan, he's distracted. Don't say anything.

A (9:49)

Totally. Right? I mean, I think literally that's what's happened. You know, he did post it to True Social that it was going to 15%. But the truth Social is not the law of the land. And posted true Social are not legally binding for the moment. So we are still waiting.

B (10:03)

Are you sure about that? I thought if you posted on True Social. It is, it is.

C (10:06)

The markets react like it might be the law of the land. All right, so let me summarize what we've said up until this point. There's a lot of numbers, there's a lot of legalese here. But as Ryan said, tariffs have been around basically forever. Hamilton used these at the outset tariffs and duties to help fund the government. Originally there wasn't like a federal income tax, which is how we derive a bunch of our income today. So it's not a new idea. The thing that has been new under this administration of Trump is using these never before used statutes and approaches to try and create basically unilateral authority and power for the President to tariff anyone at any time for any reason. And more or less, the Supreme Court looked at that and was like, okay, obviously just on its face, this doesn't make sense. One of the more kind of damning moments of the Supreme Court case was Barrett asked the lawyer for the government. She said, so you're telling me we have a national emergency with Switzerland, who is an ally of ours and we run a trade surplus with. And they were like, yeah, I guess so. So it just didn't hold up in court. It obviously didn't, didn't withhold scrutiny, which I think is a win for just our country that like, hey, we have systems and you have to follow them. And now the President is pursuing these other avenues and as Ryan said, they're getting challenged legally. So we're not done hearing about the courts and legal challenges. These tariffs, it sounds like just about anything he does from this point forward is going to be challenged and we'll see how that plays out. But the idea tariffs are pretty significant because at one point it got as big as like 150% or some kind of crazy number. So as a result, there's $150 billion of honey that's at stake. And let's talk about that. That's a pretty big number. Ryan, how are companies going about getting that money and do you think they will get that money?

A (12:13)

Yeah. So we are, are, we have pretty high level of conviction certainty that you'll get the money, that you'll get the refund. And it's $175 billion is the stat that I read. So it's a massive amount of money. And what is uncertain for very uncertain as of today is process for how to get the when you will get it and the timing. Oh, and by the way, 175 billion. I gotta double check where this stat came from. But you also are gonna get 6% interest on your money. So you're, it's not the worst investment of all time that you put your, you know, maybe some of you guys would have wasted your money on stupid things like excess inventory or ad spend that didn't work. You know, at least the government held onto you and is paying you 6% return. So you get, you, you will, you will get an interest on it. How you're going to get it and when is very much under out for debate or we're going to find out more soon. So the reason I have high certainty, I have two reasons. One is I read the, the court case docs myself and have my team of lawyers reading it too. And what, what is very clear in the court, the way that this all played out is that the Court of International Trade took the case and that's where the administration first lost, lost the case in the Court of International Trade. Then it went to the appellate court, which is the level below the Supreme Court. They lost again and then it went to The Supreme Court, where they lost a third time. In the second case in the appellate court, the government filed a motion that said, if we lose this case, we will issue refunds. Like, it's black and white. There's a paragraph in there that I'm sure the guys who wrote it probably getting fired by Trump. Like it is a direct, like, say, and it's going back to the same court and they're going to read the judge, same judge is going to read it and go, well, you told me that you were going to do refunds. So it seemed like a slam dunk to me. That's my interpretation. I'm not a lawyer. However, I've talked to three trade attorneys in the last, really, the first week after this went down, and two of them told me 100% certainty that the government was going to lose the case and have to do research funds.

C (14:16)

So I'll interject here at one of the best parts and one of the, the court proceedings on this. There's this back and forth with the, the representative of the government, their lawyer and the judge going back and forth. And the, the judge said, your position is clear. The Supreme Court told you what your position is. You have to issue refunds. And the, the government lawyers said, well, it's going to take a manual review. It's going to take millions of man hours. We don't know how, you know, some kind of insane estimate. And the judge said, we live in the age of computers. It must be possible for the custom service to program its computer so it doesn't need a manual review. So it definitely feels like the legal branch has kind of had it with this administration. And one interesting opinion I have is Trump better be careful how he handles these refunds, because if he screws around too much and drags his feet too much, what happens if the 122s get struck down in the lower court? They're not going to put, they're going to put an injunction on those tariffs, I would think. Don't you think, Ryan? Like, if I'm the court and the last time I ruled against you, you said, hey, you know what? We're going to pay it back, plus interest. You can keep it in place until it goes all the way to the top of the chain. If I see you as a bad actor who's not fulfilling on your promise to do that, then the next time I rule against you, I'm just going to be like, no, we're not collecting these anymore.

A (15:39)

Yeah, I wouldn't want to speculate whether 122s hold up. I'm not probably not qualified on that. I think a lot of these have held up in the past. It was IUPO that was the extraordinary one. Or it's never been done before, but. But it will get challenged122 and I haven't talked to enough lawyers that have. I think they won't give you that level of certainty that it's going to get struck down. But it's temporary is the thing. And you know, I think the furniture one is very likely to get struck down. Others will. That, that first thing you said though, that customs has to do a manual review. I mean, come on. We look literally, if you go to tariffs.flexport.com, go to the top and click the refund button. There's a refund calculator there. We've calculated three and a half billion and it's instant. You just download your data from the government system, upload it and you'll see your refund amount instantly. We've calculated three and a half billion dollars of refunds for people and it zero human labor like you. Just do it, Brian.

C (16:30)

They're using abacuses. This is not, it's not as simple as you're making it out to be. It has to be done manually.

A (16:36)

Yeah. So we'll see. We'll see. They'll. They'll drag their feet. Probably

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B (17:26)

I would love to get money back from the government, but the whole time I've been so nervous that it's never going to happen just because like my relationship with the government is money goes one way. So I'm glad we're all very confident we're going to get it back. Have we thought about ways we could get screwed over though, have we thought about ways that they could not pay the money back? Like what, what are the risks as you sit here today?

A (17:47)

First off, Flexport has gotten over $900 million of refunds from government, from CBP on behalf of our customers over the last five years. So it's like there's a long precedent here of getting refunds. If you overpay duties, you're owed money back. There's a simple process. It's not simple, but there is a process for this that we've largely automated that we can go file those and get it back. It's unclear as of today if, if. Well, I guess to answer your question, what are the risks? One risk is they don't file. The standard process of how this has worked over the last deck, you know, decade and beyond of, you know, you file what's called either a post summary correction or a protest. And that's pretty straightforward. We know how to do it. We do it every day on behalf of people who have overpaid their duties in some other way. Now, one risk is, what Mike was alluding to is the government says, ah, we can't do this. We don't know how to do this. And it's all, it all depends on this one guy named John who has to review every piece of paper. And John doesn't have, you know, John only works 9 to 5 and he's a government employee. So we're not. It's going to take us 100 years to file your thing. So that's a real risk. And then it goes back to lawsuit and judge has to order it and then they just don't comply. I mean, there's ultimate, there's some risk here of like you talking about our democracy, like will they comply with order from the Supreme Court? It's always a risk, I suppose. I mean, I think it's probably overhyped that risk, but they took away one big risk. So over the last five years, there's $900 million that we got for customers until February 6th. Like one month ago. Those were all set via paper checks in the mail. And we were having so many incidents of the check never showing up and then getting cashed by a scammer for our customers that thank goodness they finally set it up. So if you, if you want to get your refunds, you must go to the ACE portal. ACE's Customs Technology System. It's called the Automated Commercial Environment. You should have an account as an importer. You get one. If you don't have one, go sign up, you got to go put your ACH details for your bank account in there because that's how the wires are actually going to come through is go into ACE and set it up. And I thought it was very interesting that in late January is when they announced, hey, we're switching away from paper checks to automated ach.

C (19:52)

Totally a coincidence, Ryan. Totally a coincidence. Could not have been, I think, gearing

A (19:56)

up knowing that they're going to have to pay this and customs is run by like responsible civil servants. So, you know, it's not, they're not really political appointees in there. These are people who are like Supreme Court orders them to do something, I think they're probably going to do it. So that's, that's kind of my take on it.

C (20:12)

So the number one thing you're saying is to, to, if you have paid these, these tariffs, you should file protests on, especially on anything that could be getting close to liquidation.

A (20:23)

That's our approach. That's our approach. It's not very costly. It's like, go ahead and get ahead of this, like avoid. But if you're already in a lawsuit, maybe it covers the bases already. But like, the traditional approach to getting refunds is very straightforward, very standard. You file either a post summary correction or a protest. By the way, the difference in those, not to get too technical, but you're basically, the post summary correction comes first. And you can only do that for the first 188 days or something after the entry. And then you have another window of 180 days for the protest and then it starts to go to liquidation. That's all. The dates are always a little hard for me to remember, but something around those lines.

B (21:00)

We ended up joining a class action in December of last year just before there was the ruling just to like prevent or save our stuff from going into liquidation. And there's so many of them happening right now that we were able to join one. It was like $14,000 from a big law firm and that guarantees like all the way through. Right? And we did the math and it's like we were doing a lot of daily bringovers and like it was going to be like 200 bucks a pop to file the protests or something if we did it like piece by piece.

A (21:31)

No, but you can file all the entries for that. You don't, you don't need to file like every single entry individually for 200 bucks. But yeah, it would be like maybe you do it once a quarter or once a month or something like that as, as the new Ones keep coming off.

C (21:43)

So one of that's making it more affordable legally is that you've got big dogs like Costco that have billions at stake that are really leading the process and pushing this through the courts. Like, Simple, Modern and Ridge aren't at that, you know, the front bearing the cost. And so I think sounds like we're pretty similarly situated, Sean, where we're a part of one of these larger lawsuits, but, you know, we're not having to incur the cost other than, as of,

A (22:06)

by the way, as of, I, I looked at this like the week after the Supreme Court ruling, there were 2100 lawsuits challenging the basically demanding a refund. So that, that's, that's also part of why we're like, you probably don't need to file yet another lawsuit. Like the court has said, like, if one, if one company gets a refund, everybody's getting a refund. So our views have been like, yeah, God bless you, Costco, and you guys for, for bearing the cost. But I don't think every single company in the world needs to file a lawsuit. But if you're in your state, you said eight figures, like, all right, you know, if it's 14,000 bucks, great. Like, throw in on that all day.

B (22:42)

How much of the strategy of delay, delay, delay do you think is just letting stuff go to liquidation? And my second question is how much what, how likely is it that Congress gets together and actually, you know, passes a law this year that they must do a refund or, you know, must do a refund or actually gives us more framework around, like, how about clear guidelines of what the president can do when it comes to tariffs? Right. Like, you know, Congress hasn't functioned in probably 15 years. So.

A (23:10)

Yeah.

B (23:10)

Do you think that's ever going to happen?

A (23:12)

No, I don't think you're going to get anything from Congress because the midterm elections are coming up and both sides, like, the Republican side doesn't want to be seen opposing Trump because that makes him unelectable, and the Democrats don't want to be seen siding with him. So it's very hard for those two sides to align, especially on trade right now. Like, there's other trade acts that are just going nowhere in the current, current day. I don't know your other question about, like, dragging fee. I don't think they are. I assume that the people at the top don't understand this liquidations process. The people in the administrative, I mean, it's pretty technical, and I think they're just like, moreover, dragging their feet to hope that somehow they win the appeal or something happens and they may not be dragging their feet like at this point. We'll find out pretty soon. Customs said last week that they would issue guidance in 45 days. Some puts us kind of, I want to say middle of middle of April is when we custom said they would issue guidelines on how refunds. What's going to happen with refunds?

C (24:11)

So yeah, I think it's just timelines at this point. It's going to happen. It's just kind of when does it happen?

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A (25:04)

We should mention the secondary market that's brewing and I'd love to get your guys take. Oh yeah, how you read it?

C (25:08)

We've had offers. Sean, have you guys had offers recently at higher, higher percentages?

B (25:13)

Well, Cancer Fitzgerald, you know, day one of the tariff was offering us, you know, 33 cents on the dollar. Right. Or 50 cents on the dollar. So there is, there is a lot of money markets to be made doing this, but we haven't taken any deal. I actually don't know of any brand who's taken any deal. So Ryan, I would love to hear, hear your perspective.

A (25:32)

We see quite a few, the, the, there are a few brokers out there kind of banks that are doing this and they're, they're the price was around 20 to 25 cents on the dollar until the supreme, the morning of the Supreme Court. It may be if you know some outliers like 33 or something. But it was around 20, 25 is what we were hearing. And then by the night of the Supreme Court, by that Friday it had hit 50. So like capitalism is just a beautiful thing. I'm now I heard about 2 transact in the kind of 58 to 62% range of about a hundred million dollars of like big claims. So there is transacting now and I've talked to a lot of CEOs I, I'd love to take hear your guys pulse on this, but I talked to a lot of people who are like get me 70%, I'm in. And there's kind of the market hasn't cleared at that level. So I think there's a lot of pent up demand a little bit higher just because of the uncertainty of timing. And a lot of people are skeptics like Sean's saying, I don't know, there's probably a million ways I cannot get paid. The government never pays me anything. And there's some people just need the or have good. You know, you got a good opportunity to invest it. You think you can earn a higher return inside your business than, than whatever interest rate you're getting here. So I think at 70% there's a lot of demand. The other thing is those buyers have only been restricted to claims above 10 million bucks. So the smaller guys with a million or 2 million bucks haven't been able to participate. Watch this space. I think Flexport, as we've processed three and a half billion of calculations, we want to come to those people and go hey, you want to sell? Here's the deal.

C (26:59)

So it's like everything's a prediction market. It's like, you know, in some way it's just like this is another version of a prediction market. And that's interestingly like when you think about the ways that polymarket has like kind of intersected my life. The place where I TRA my go to on like what is likely to happen was looking at the poly market on the the US losing its Supreme Court case on tariffs. And I would just, I'd watch it daily and if it ticked up I'd get nervous and if it went down I'd feel pretty good because I've just kind of come to assume that like whoever that there is some alpha and there's some people that really know things that I don't know that are betting on those.

A (27:38)

The fascinating thing too is like the Monday after the Supreme Court case ark you do simple margin does a fair amount of retail sales. I don't know if you had this experience or want to talk about it, but the Monday after a bunch of our customers who sell through retailers big box said hey, we got calls that Monday said hey, let's talk about refunds. And what's going to happen here, you have no legal obligation to give money back to whatever retailer, but they have no legal obligation to carry your product.

C (28:02)

It's one of the reasons why when you, when you sell to retailers, you, you know, that they're doing channel checks, looking at your cost structure, and that they've got their own internal estimates of your cost structure. But you're always going to be, you know, as protective of that information as you can. And tariffs are kind of this very public way for people to understand and get insight into your cost structure. And with us, interestingly, we were already. We'd already decided, hey, regardless of what happens here, we're gonna make some moves on pricing and cut pricing in some areas. So fortunately, like, we were kind of. We didn't get those calls because we were already, like, moving that direction. But like you said, Ryan, like, for sure, if I'm a DMM at Walmart, I'm like, hey, it's time to dial for dollars. The Supreme Court just struck these down, and we know everybody's cost structure just went down. You know, whatever, 10, 15%. Let's go get it. And that's the game.

A (28:56)

Yeah. And it's, It'll be interesting to see how much of that is just lower my price going forward versus, like, hey, I want a piece. I want a piece of the action. And it's a great moment for D2C founders because you just get all the money and I don't. I mean, Costco said they were going to give refunds to their members, which is kind of epic marketing. We'll see what that looks like. But your average DC company is not going to go do that. And you're just in a pretty good place where all of a sudden you got a cash windfall. Don't go waste it.

B (29:19)

Yeah. As long as you survived, right? You, you just said the, the, the, the small guys can't, you know, can't sell their refund potential to a bank or whatever. They're. Those are the people who would need it. Like, if you have a $500,000 claim or $1 million claim, like, we know a lot of people who got super screwed, nearly went out of business or something that did go out of business because they, they couldn't handle the rapid change so fast. If you were doing section 321 out of Mexico and then you had a 0% tariff, then it goes to 147%. Like, you just, you couldn't deal with that. You had no U.S. presence. And we know people who got CAUG

A (29:56)

that call them up. They're on the beach somewhere. They might have a lot of, they might have a nice asset coming their way that they forgot about. This going to be that that's the next interesting play here. Probably going to be this whole secondary market of buying up kind of bankrupt failed companies just to go get their refund claims.

C (30:10)

Let's pivot to the rest of tariffs like this obviously isn't over, Ryan. It's, it's just going to be kind of a feature of this presidency for as long as it lasts. And I think that as you mentioned, we've got Congress is going through midterms. It doesn't look great for the Republican Party. Usually doesn't when you have the kind of incumbent president. It seems like we're going to continue to have tariffs and we're going to continue to have legal challenges and kind of congressional indifference or potentially even antipathy towards. So what happens in July? So July is a big day because that's when the 122s have to roll off. This is not in debate. So what will happen then in your view?

A (30:55)

I think, I think what you should expect is between now and July that they replace these temporary section 122 tariffs. The 10% that's going to be 15 as soon as they remember to do it, that is when that will roll off in second half of July. By then they're going to want to have rolled out new tariffs under either section 301 or section 232. And those are require this Congression, this investigation either by USTR or Commerce Department. I forget which one is which one of those is requires Commerce and one ustr. Those require a little bit more formality. Let's call it like a two month, two to three month process. There's 12 of those investigations ongoing right now at the Commerce Department for different sectors. They did one for furniture, they're going to do one. They've got one going for semiconductors. You can look these up and see what are the 12 different sectors and see is my, you know, my product falling in that area. So I would expect a bunch of those to ramp up and get deployed. They kind of have this deadline like yo, you need, we need new tariffs by July. We're not out of the woods here. And it's going to get even more complicated as they, these stack in different ways and you've got some tariffs stack, some are replacement, some, you know, so it's, it's not a simple math.

B (32:10)

Yeah Ryan. So let's, let's really unpack that for the audience. Because if you, if you're not in the industry and just read headlines, what you just heard is that tariffs are now illegal. And what, what you're saying and explaining to everybody is that one very small slice of the tariff pie got overturned.

C (32:26)

It'll be refunded for.

B (32:27)

For some people, it's a lot of money.

C (32:29)

Right.

B (32:29)

If you're. If for some people, the only tariff they paid was ipa. Right. I, like, I don't, you know, the famous one was syringes got to 187% or whatever. I don't know if syringes have other tariffs and duties on top of them, but, like, that was a big deal, the tariffs on that. But for me, steel and aluminum has. Has remained unchallenged. That, like, no one is trying to give me a refund for that. That is going to continue because it went through section 202 or 301 or whatever.

A (32:55)

232, 233.

B (32:56)

Yeah, there you go. And like, I'm gonna have to pay that forever because that's just the new regime. And what you're saying is, hey, AIPA is going to be done. You're going to get a refund for that, but you're not out of the woods. There's going to be more tariffs coming, and you have to watch really closely if your industry is going to be caught up in one of these 12 investigations. Is that what you're saying?

A (33:12)

Yeah, exactly. And 12 investigations. That stat's a month old. I should have prepared a little bit more here. There are probably some other ones that I haven't paid attention that I should be all over, but Commerce Department has got these little investigation, big investigations going. And I don't know, like, by the way, in the age of AI, how hard is it to make an investigation? You're like, you know, claude, write me a six. You know, take. Here's the investigation we did on steel and aluminum. Make one of these for semiconductors. And, like, it spits it out. And you're like, okay, present that to Congress. So this idea that that's some kind of blocker for the administration may not be true anymore, is just create these investigations and spin them up on the fly. So there's going to be. Yeah, it's going to get more complex and not really go away. There's quite a few levers to keep imposing tariffs, but they're all, like, a little bit more constrained in terms of, like, it's either one sector at a time or one country at A time they're not just this blank. And it takes more formality, not this blanket. Like, I didn't like the way the Prime Minister of Canada looked at me, like, fu Canada type of vibe that we've had.

B (34:13)

But if you're, if you're a betting man, Ryan, if you're going on polymarket, you know, would you say in a year the average consumer brand is spending more money on tariffs than today or less money on tariffs than today?

A (34:25)

Well, let's not say today, but then three months ago or like a month ago, I would say less. Like this has helped the Supreme Court. It is going to come down relative today. Might go up a little bit because it's only at 10% for a lot of markets. It's not. They'll have some levers to go higher than that for certain industries that they want to target.

C (34:43)

So my take on this is that actually this is going to kind of work out well for brands. What's going on with Iran, which is where I want to pivot next after this, is you're getting a lot of disruption. You're getting oil prices going up. That's absolutely not what you want when you're the party that's in control going into midterm elections. And I think that you're going to see some real efforts by the administration to keep inflation in check as much as they can. And so I think that you'll have some. It's interesting, before the Supreme Court ruled against the government in our particular industry, there was some chatter that they might relax, reduce the tariffs on things like water bottles, just because it's a consumer product that's basically all made in other countries. And it's just, they know that it's driving inflation. There's not really a domestic industry to kind of prop up. So we'll see. I think the other thing that's interesting here is the unilateral nature of IPA was probably the most frustrating thing about it, because there was no alpha in having a great supply chain. It's like, oh, great, you built redundancy where you can produce in Malaysia and Thailand and China. Doesn't matter. They're all at the same tariff rate. And my guess is that there's going to be some room for that in what's to come. That as the administration goes and does these investigations, that it's not going to hold up to be like, you know what, everybody making furniture everywhere but the United States is bad and violating it, like that just doesn't hold up in court anymore. It's going to have to be okay. This country and this industry is not behaving ethically. And to be clear, we should have things that punish that and keep that in check. My, my big position on this thing the whole time has been we have separation of powers and we have processes for a reason and that's what makes our country great. And I think that regardless of where you are on how you view international trade, China, some of these things, I think we can all agree it's good when the process works. So it'll be interesting to see how that plays out. But like Ryan, tell me, tell us a little bit about what you're seeing with the Iran situation. Obviously, we've had a very important trade route that's just totally been closed off and oil for a short period of time went up to like $110 a barrel. Things are pretty wild right now. How is this impacting things on the ground?

A (36:55)

The actually one of the big impacts, it's the Persian Gulf is not that important from a ocean freight perspective. From a containerized ocean freight is hugely impactful for oil, you know, famously. And that's, that's the real impact here is like what happens to the economy with the price of oil and not just price of oil, but oil shortages in many parts of the world because, you know, price goes to infinity if there's no oil. And so that, that can be very ugly. It is not that important for containerized freight because if you just look at the map, it's a cul de sac, right? Like it's not the Red Sea, where it's just this main thoroughfare that every container has to go through. 35% of the world's containers go through the Red Sea before the Houthis problem. But actually these are very closely linked conflicts. And one of the bad, really bad impacts of this is that Maersk, the second or third largest container operator in the world container line, had just in February begun resuming service through the Red Sea, through the Suez. As that took hold and their competitors followed suit, that was going to unlock about 15% of ocean freight container capacity in the world. And it would have dropped the price of container shipping like dramatically. They immediately pulled out because of course, the Houthis are considered this proxy for Iran. And if Iran's shooting missiles in the Persian Gulf, like for sure you can't trust your ships sailing through the Red Sea. And so they pulled back after just one month. Kind of worst case scenario from their perspective is to start it and then pull back. So that's, that's like probably the biggest impact on container shipping is actually we were about to see green shoots of capacity coming back. It unlocks a huge amount of capacity just because it takes the ships so long to go around Africa.

B (38:30)

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A (39:13)

Air freight is the other big impact and bigger impact because the Middle Eastern airlines own, I think I read 18% of the world's cargo airplanes. Cargo capacity rather is owned by Emirates, Etihad and Qatar Air. There's, there's three and maybe that counts Saudi Arabia too. So those are basically grounded. They're starting to fly back again. Surprise. Surprisingly to my view, like we read this morning from our airframe that Emirates has re restarted service out of Dubai airport to Asia, from Asia to Dubai. So you're seeing some amount of capacity come online it temporarily, I hope. Temporarily. This week the price of air freight spiked by about 50% from Vietnam to the US like a trade lane that you, I don't know why that's connected on the surface but these are all connected because it's a global market of supply and demand and there's always a, there's always a case in logistics of like you price what you can get away with and people finding, you know, there's some excuse to raise prices. They'll try it and see if the market will bear it. I don't think that's going to hold it that level of 50% probably. But yeah, price is going to be a little elevated for those who do air freight. Hopefully neither of you, hopefully you guys are all ocean freight but some air freight. But the real impact of all of this is the price of oil and what happens to the availability of oil and if the straight of Hormuz stays closed like container shipping is not your problem. Your problem is, like, oil and can't run manufacturing and cars and buses all over the world.

B (40:36)

We're getting quotes. You know, coming into Chinese New Year, we have a hit product. I'm trying to get it into every market as fast as possible. And, you know, if we want to get this hit product from China to the UK it's. We're getting quoted 60 days, basically, for ocean, right? And we're like, okay, we'll. We'll air it, right?

C (40:54)

Yeah.

B (40:55)

And it's like, oh, it's $5 a unit to air. It's like, okay, well, I'm gonna look into a train. And, you know, there's. There's only, like, one train that can take it over. And I guess I'm just gonna wait the 60 days train.

A (41:09)

We'll talk offline. We get you on a sea air option. You could do air, you could do ocean part of the rest of the way.

C (41:15)

There's some pre express, Sean. We'll have people on horseback, and that's a big item that you're going to wallet.

A (41:21)

What product? You got five bucks?

C (41:22)

No, it's like, it's. It's not a big item. You're not talking about a piece of luggage either, right, Sean, this has a

B (41:27)

battery in it, so that's why it's really hard to get it on an airplane.

A (41:30)

I think you'll start to see that come down. I think the capacity is starting to come online. As I said, Dubai is already. Emirates has already restarted shipping flights to Southeast Asia.

B (41:40)

The.

A (41:40)

What's happened is that they've been routing. There's basically three routes that the airlines have done to skip Dubai Airport until it reopens. And that was. They're flying a lot to India and then refueling and going onward. They were going over Iran. Remember, you can't fly over Ukraine either. So you're, like, trying to weave your way through here and landing in Istanbul and refueling. And then some others are going to Egypt and refueling. Those are the three routes that I've seen.

B (42:08)

There's a chart of all the airplanes flying, and they call it World War Three. And, like, nobody's flying over Iran. No one's flying over Ukraine. And then nobody's flying over where the Houthis are in the. In the Red Sea. And then nobody's flying over South Sudan where there's another conflict happening. So there's just like. There's just like two or three little highways where all of the planes on Earth are going through right now. And it looks. It just looks crazy.

C (42:31)

You said this, Ryan. But one thing I think that's good for people listening to understand, there were two or three times that you mentioned, like, hey, that could be a 15% reduction or a 20% increase in capacity. But one of the, I would say counterintuitive things is if you lose 15% capacity, you don't get like a 15% move in prices. Or if you gain 15% in capacity, that doesn't just mean that things get 15% cheaper. It tends to be a lot more dramatic than that. Is that accurate?

A (43:01)

Yeah, it's incredibly volatile. And for the simple reason that you, you don't. The amount of units you ship is rarely a function of the price of freight. It's. It's always a function of your demand and your overall margin structure. And can you make money? I mean, Sean will pay five bucks for that product. If he can make money, he'll do it. You know, it's like it doesn't it really matter. It'll matter if you can't make money, but otherwise you're better off shipping it than not shipping it. Or maybe another way to frame that is in a world where there's excess capacity, then the price of freight drops to the, in pure economic theory, to the marginal cost of that supplier, of that carrier. And in, let's take the ocean freight example, let's say there's excess capacity in the network in your ship. I've got a ship sailing today. It's not full. The cost of throwing one more container on the top, loading it in China, is like a hundred bucks. Unloading, it's like 300. Cool. As long as someone's willing to pay me 500 bucks, I'll make a profit. I should take that container.

C (43:53)

Yeah, it's kind of like the airline example where when they have an empty seat on a plane that's about to take off, you know, they'll sell it for 50 bucks, maybe. But when you've got a full flight and they're asking, will anybody give up their seat? Sometimes they have to pay you $2,000 to give up your seat. Same exact principle.

A (44:09)

It's very similar. And then on the, on the inverse side, when there's not enough capacity, when there's excess demand, people pay any price. And I was just reading recently, there was a Washington Post article yesterday about Apple having a container load of iPhones or some product, maybe computer stolen, and it had $7 million worth of electronics in it. You know, if you're shipping $7 million worth of freight, do you really care if the Price of freight is 2,000 or 3,000. Like, no, you need to make sure it gets there and doesn't get stolen. And you saw that in Covid, the price can go to 20,000. Because Apple and other people just make. They've been making plenty of money. They're willing to spend it if the price goes crazy. So it's a very volatile market. It makes it difficult, by the way, to operate. It's why most of the ocean carriers are either privately held in, like, family businesses or owned by a government. Because, like, Wall street can't handle this kind of, like, volatility. They want nice, quarterly, predictable earnings. You're like, oh, one year you make a hundred billion, and then you lose money for 10 years. Like, that is not a wall.

C (45:09)

I saw some crazy stat. Like, in 21, there were. There were a couple of these that made more than they'd made in the previous 20 years or something. Like, just insane.

A (45:19)

They're 10 companies, and they combined made $150 billion in one year. And they're owned by these families. Like, they guys. They got some nice art collections. In, like, one year, you make $20 billion. You're like. And after a decade, some of them were borderline bankrupt. Like, their debt was trading at huge discounts. And then Hanjin did go bankrupt, the Korean one. Two of them went bankrupt, like, two to three years before the COVID thing, when they wouldn't. Oh, dude, that's brutal.

C (45:49)

That's a bad beat right there.

B (45:51)

I was gonna say. It's also why the, like, the oil takers, you know, are. Won't risk going through this trader for muse. It's because, like, the oil takers do they cost like $4 billion for one of those ships. So, like, you just.

C (46:03)

You. You just.

B (46:04)

You lose everything if it goes down.

C (46:06)

Yeah, it's super asymmetric risk, you know,

A (46:08)

like, you can not sail. For a while there was one, like, Greek God of oil who's just running the straight, though.

C (46:14)

Greek God of oil. That's what. That's what I aspire to, guys. Later in my career, I just want to have some weird, esoteric part of the logistics chain that I just own. I'm the. I'm the Australian railroad tycoon. You can't go through Australia on. On these tracks without my approval.

B (46:33)

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C (47:19)

All right, Sean, Ryan, I know both of you guys are very AI forward with your organizations and it's been insane. I feel like it's taken up every spare moment I've had over the last couple months. Ryan, I'll start with you. How are you seeing AI? And I think you used the phrase in a text with me of the age of wonder. How are you seeing AI impact the way that you run your company and your business?

A (47:47)

I've had a couple moments here where just woke up and said, okay, every single thing has changed and it keeps happening to me. The most recent one being Claude Opus 4.6. Like the last month of my life has just been. I haven't been this excited about tech since I was a teenager. Just unbelievable. Just building stuff and building apps and lighting people on fire, frankly, at my company being like, look what I did in one minute. What are you doing? Like, what's going on? Why are you taking so long? Look what you can do. And we're a licensed customs broker. As a licensed customers broker. Broker, you know, that's why we're talking about tariffs a lot here. But you, we, we have a compliance process as one does. So we, we review about 5% of entries a second time with a more seasoned, experienced customs compliance team. And we just re review the customs entry to see if we made mistakes. Our error rate on those was 1.8%, which is best, best in class. It's an industry. It's very good. By the way, it doesn't mean we made mistakes that were like illegal, but maybe you didn't include some free trade agreement that you were eligible for. And then we had to go back and file a correction, a protest. Well, in October of last year we introduced this AI agent. And now we audit 100% of entries before we hit submit. We still do the same exact compliance after the fact, but now we do 100% audit. We took our error rate from 1.8% to 0.2%. And that was the moment for me we had that we started to get that data in around November. When you go, oh wait, the AI is not just free and cheap labor. It's like it's way better than the experts are. It can do this. And then you start looking at, wait a minute, it can do this across every part of our business. And so that was the big wake up call. We started building agents for everything we've got. Agents for bill audit agent for consolidating freight, for looking at opportunities, for checking did we invoice the customer the right amount based on what we quoted or what the services that were rendered are on this thing. So that was that. And then if you guys, I mean, I assume you're using it, but Claude code everyone talks about, I think Claude co work for a non engineer, non technical person is the first thing that people see that will just totally blow their mind because it lets you watch the agent work on your behalf and just go out to use other apps and just get work done. It's, it's unbelievable. Mind blowing as a technologist to see this take place.

C (50:04)

Yeah. Sean, what about you? What's, how's this showing up with Reg?

B (50:07)

We're really entering the agent age, right. So you know, AI and you know, prompting Claude to do work for you or sending data is awesome. But yeah, Claude cowork. I use a lot of Manus to do a lot of like, you know, deep research stuff for me and actually like build presentations. And then we just rolled out Victor. So Victor's in, I think it's a fork of openclaw that lives in Slack. So the reason why this is good is setting up Open call is a pain in the ass. So Victor's like SOC 2 compliant and like, you know, data and security ready for an organization. And then because it's in Slack, everyone can use it. And that was the big game changer in an organization is like, you know, I'm very confident. You know, if I had Ryan on my team, he'd go out there and he'd, he'd figure stuff out and build awesome stuff. If I had Mike on my team, it's the same thing. How do you get someone who is, you know, a junior level account manager to actually use the best in class tools? How do you, how do you put it in front of them and make sure they're engaging with it? Victor has been awesome because they can roll it out across Slack and he's in every single channel and he's doing summaries. And I have people now asking Victor to go do work for him. And you could just watch it happen in real time. Right? You connect Victor to everything.

C (51:18)

This is very similar to what we've experienced. I'm talking to a lot of different people, a lot of different chat groups are going crazy right now. And what it seems to be, the key is there's, there's all these different tools. Like, I haven't used Manus at all. A lot of people are using cloud code. But you've got things like Victor and you've got, you know, Perplexity has their kind of all in one kind of solution. There's all kinds of stuff and there's more stuff coming to market just literally hourly. And what I think I've learned is it's not even about what tool are you using. It's are you helping people in your organization to have that initial aha moment where they realize what is possible is so much greater than, than what they thought. And I think you nailed it. Ryan. I had a similar situation. I've run our Amazon ads accounts for a lot of the last 10 years and then in one of our newer businesses I'm running it and I just was like, I'm going to build a system to does this on in an automated way. And the thing that is kind of radicalizing about it wasn't just that I built a system and I'm like, I've probably spent 1500 hours working with Amazon ad system and now I can spend like five hours a year. It was that I built a system that does it better than me. Like, it just, it has more inputs, it has better judgment. It. Because it can look at more things at once. And so like this isn't just like outsourcing, it's more like upgrading what's even possible for your organization to do. And I think that that's, that's kind of the way that I've thought about it going forward as a CEO is my number one job. And some of that's like me building things and showing it to people to give them inspiration. Some of that's bringing in tools, whether it's Victor or anything else, to help people have that initial light bulb moment. It's funny, I had a back and forth with our creative director for Simple Modern last week, and I think to him AI had been more of a discouragement than an encouragement, you know, because it's just like you see it cannibalizing all these skills that you've built. Anyway, we Had a good conversation. But Friday at 9:30pm he sends me a slack and he's just like, okay, this is amazing. This is my radicalizing moment because this would have taken me four hours and I just did it in 30. He attached like a loom where he just showed it in like 30 seconds. He did this amazing thing that would have taken him a long time under any kind of previous set of tools. So that's my big takeaway. Is that like you said, Ryan, it's a fundamental reshaping of what business is going to look like, what's possible. This thing absolutely destroys busy work, which is awesome. Nobody wants to be doing reconciliations.

B (53:59)

Yeah. You know, one of the biggest wins we had over here is we have a licensing business. My cure. Licensing business. You typically if you want to run a licensing business in your organization, you need two to three full time hires. Okay. Because the amount of paperwork that goes into a licensing business is insane.

C (54:15)

Right.

B (54:15)

Like every month you're sending a different report to the NFL or the MLB or whoever else. Right. Claude just does it now. It really, it really was a 20 hour per month, you know, structure of reports and paperwork and emails and whatever and it's down to five minutes. It's like here's all our sales. Run it for us. And like there's going to be so many, so many big unlocks like that.

C (54:41)

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A (55:27)

One of my favorite examples here I was this was just a creative endeavor and to learn what the AI is capable of and I was using Claude coworkers and the Claude actually I had to do a little bit of research on this but only as of right now. Mid Journey is the image generation AI that can actually upscale to the level required to print something at a resident dpi. That's necessary. So I Wrote a children's book. I wrote a children's book actually a few years ago about the ship that got stuck in the Suez Canal. Plug it right here. It's on Amazon, you can buy it. But I just wrote another one about tariff refunds and it took this one. This is hand. This is an artisanal hand drawn. Real humans were involved in writing and drawing this one. I did it with Claude code controlling mid journey in the browser. It generated the prompt, it generated the script, it logged in. I used a bookbaby.com to print this thing. I gave it access to my bookbaby.com account. It logged in, it figured out all of the design specs, like how big does it need to be? The bleeds, the sizing, everything. It then logged into mid journey, created the prompts, I gave it a high level hero's journey of a story of, you know, this mouse importing cheese from France. And then like the business got up by tariffs and then, you know, there's a refund and everybody gets free cheese. Was kind of my high level story and it figured the whole thing out and nailed it. It's like the most beautiful art. It's 10 times better book than this one. It actually took me four or five hours, but that's because I made some mistakes along the way and it was a fun process. I was iterating but I created it as a skill that I saved in a doc that now I can do. I think I'll have my next children's book in like an hour of work.

C (57:03)

That's the thing that's crazy is like there is some tuition, there is some learning, but then once you've done it, you're like, okay, now I can move 10x faster because I don't need to think through all the setup. And it was similar with me when I was getting open claw set up. Like I did a lot of things wrong, but now I could go. It probably took me 100 hours to get to where I am, but I could probably reset it up in five because I, I kind of understand the concepts and I'm not even convinced. I think where we're going, I think these models are going to be so good that even a lot of the things we're having to do where we're kind of getting in the way, I think even those things are going to get abstracted that you're just going to be able to qualitatively say, hey, do this. I don't care about all the details and the logins and the crons that you need to do to pull this off. Just tell me what you're going to do and go do it. And it'll be like, okay, great.

A (57:52)

There's also downsides on some of these things. Like my brother's building, my brother's a great computer programmer and he's more obsessed with this than anybody. He, he actually has Claude code hooked to voice mode. So he just walks around wherever he's going, just coding on his phone just by talking to it. But he, he showed me this hilarious screenshot where it cloud completely deleted everything in his database and. Oh yeah, I shouldn't have done that, sorry. Like, wait, what? Like, and Amazon this morning just announced that they're like heavily restricting what junior developers can push with code. Because very often if you're actually running a SaaS application, when you tell it to make a change, what it actually does is delete the entire application then make a new one.

C (58:32)

Well, Amazon pushed bad code last week. They took the entire front end down for three hours. And we were talking about that were like how many billions of dollars in sales is that? I don't even know. But it's like it's some kind of an insane number of sales they lost because they pushed some bad code. And, and this is going to be another interesting thing. It's like depending on where you are as a company, are you a public company, are you private, how big are you, your ability to lean in? This is actually, I think like really bullish for small businesses. Amazon is going to have to be more brittle, they're going to have to be more regulated. Whereas you know, people like, like simple, modern, like we can move it basically as fast as we want to. We want to move because there, there's not any kind of customer facing code that would be that bad if we broke it.

A (59:19)

Yeah. And under led, like you can, you can, you can give everybody forgiveness, like, and set the pace. Like, yo, we're going to take some risk here. We're going to move fast, we're going to break things, we're going to get it done. Whereas if you're some middle manager in a giant company, you're like, it's not worth the risk, man. You get fired. And the upside is like, oh, a conversion rate optimization, like it's not worth it.

B (59:37)

You said in one of the group chats, you said like, AI is making everybody a pro, like a programmer, but without the security and optimization of like the years of training. We have a friend who spent like $4,000 on tokens just like, because you built something wrong, you just let it run overnight. It's like, oh, it cost me $4,000. And it's like, we're all programmers, but we actually have no idea how to make something secure or efficient.

C (60:01)

What we don't know is we don't know what comes next because we know the technology is going to get way better and we know that there's going to be some real security issues that pop up, that people are going to start cutting off access to their data. They're going to try and start creating more walled gardens and you're going to have some pretty major breaches, I'm guessing in some pretty public places. And so we'll see. I don't know, but I think what we've been emphasizing with our team is like two things that I don't think abstract data is going to be really, really, really valuable in a world where everybody has access to these models. It's your ability to create interesting things is what's your access to data and then there's still a judgment layer. And what I've been challenging people around me with is even if you have, it's kind of like the magic lamp with the genie, right? It's kind of an age old story because let's say you did find a magic lamp that where you rubbed it and there was a genie and he gave you three wishes. What would you use the, the three wishes on? It's kind of a hard question. And in a way that's kind of what clog code is. It's like, oh, I can do literally anything with you. And then it's a little bit overwhelming. It's like, well, I don't even know what I would build. And so it actually takes kind of rewiring your brain to even think through like how would I use all this power? And that's what I've been really trying to challenge myself and the people around me to do recently. Hey, thanks for being with us. We want to thank our special guest, Ryan Peterson, who he did a great job of summarizing what's going on, the craziness with logistics. I'm sure we will have him go on again very soon. Want to thank everybody for joining us and a special thanks to all of our sponsors that make the pod possible. We appreciate all of you. All right, till next time. See ya.