Flexport CEO Ryan Petersen on tariff chaos, customs fraud at scale, and why 60% of Amazon sellers are non-resident importers

Devon. Devon is the software AI software engineer. Crush your backlog with your personal AI engineering team. We also have Ryan Peterson joining from Flexport. Does he have a price? Would he join TBBN full-time for three billion? Would you do it?

Would you become a Would you become Would you become a mercenary for three billion? Three and a half billion. You have to go You have to walk out of your office and say, "I'm sorry, everyone. I'm becoming a podcaster. " Oh, I think I could join you guys and run for it. Sorry, I'm not No, no. It's a life's work mission.

You have to be full-time. The offer is contingent. You wouldn't do it. You'd stick around. That's great. You are true. You are true uh you are true missionary. Uh, give me give me the lore again on your take on missionaries versus mercenaries in the AI wars.

What what does history teach us about whether you should build an army of missionaries or mercenaries? Cuz I feel like some people are going both ways on this. Yeah.

And we were right before you joined, we were we were I I was just joking about uh Andrew Tolk from Thinking Machines over the summer being, you know, I'm just imagining what the what the exchange with Mark was. But uh I'm really I'm really honored that you would give me this $1. 5 billion offer.

You know, it shows massive faith in me, but you know, I'm going to stick with the team, stick with the mission, and like I hope we can find a way to collaborate. And then Zuck circles back with three and a half billion. And suddenly it's it's like, "All right, I think I think we're in business here.

" I think now what was rumored? Three and a half billion. Three and a half billion's the rumor. Yeah. Wild. Wow. Well, yeah. You know, Mchavelli was the one who wrote the most about mercenaries and how useless they are when it comes to actual fighting.

I about this more in the context of Zuck security team than I do in Ton in his AI engine. Like when the bullets start flying, are these guys ready to take a, you know, take one or are they going to run away? Well, to Andrew's credit, he was at Meta for 11 years. Yeah, he is just going home. He's going home. Yeah.

Small small price to bring to bring him home. Yeah. Uh, how was your weekend? Great. Great. Well, I'm here in Southern California. Not unfortunately can't visit you guys. I'm in Palis Veres. We're having the Flexport customer conference starts this starts tonight. So, been practicing my my big talk tomorrow.

We're releasing a whole bunch of new technology and uh host a whole bunch of customers at this point is the you know I imagine like 100% of the flexport team they have to be missionaries not mercenaries at this point because every day you could wake up to a 1,000% tariff on your entire business and if you're a mercenary you're going to jump ship.

So I imagine the team is kind of buckled down already for this and Friday wasn't actually that crazy even though the market was crazy but what was the playbyplay internal Friday morning you said you had just gotten off of 2026 planning with the team and got hit with that.

Thankfully we do agile planning and we replant all the time. Uh but yes, we just had a three-day planning session in San Francisco, like 40 of our leaders. And then like within hours of wrapping it up and saying goodbye to everybody, Trump announced 100% duties on China.

So, and the last time he had these duties at this level back in April and May, um we saw volumes from China, the US go down by 60%. Yeah, that's um that lasted for five weeks until they they relaxed the tariffs and then they came roaring back. So, we'll see. I mean, Poly Market has it.

I think we've all learned a little bit. Stay calm. Poly market right now has it at at least an hour or two ago had it at um 13% odds of this going through on November 1st. Sure. So the market doesn't and then Trump also kind of signaled on Sunday that hey maybe he's going to ease off a little bit.

So we're not we're not we're definitely not panicking on it. Uh props to the Flexport Customs Engineering team because we have this thing it's called tariffs. flexport. com. It's a tariff calculator. Yeah. And these guys have to keep it updated.

And they this administration loves putting out these the news on changes to customs policy on Friday afternoons. Yep.

And these guys have worked so many weekends to keep, you know, speaking of missionaries, they're working nights and weekends on duty, on call on pager duty to uh to keep the tariff simulator up to speed with whatever the newest regs are.

uh from your actual conversation with customers, wh what was the was there any material change to folks business um post liberation day?

Like I I know personally like several companies that actually took seriously like the mission of reshoring and now they're maybe like six months into building a different facility but it's taking years and but they're like like it it definitely flipped a switch from American dynamism is trendy to like there is a board level mandate to to actually consider reshoring in some way.

How have your customers perceived it? um how are people thinking about moving around the globe generally?

That was definitely true in the first few months but then when tariffs started hitting you know like India tariffs right now are as high well the China tariffs went up on Friday but until Friday India tariffs on India were just about the same as on China. Sure.

Um so it was sort of you know latam tariffs are pretty low but it's it's unclear if that's like here to stay or just a temporary blip. You could see Trump changing that overnight.

Um, so it's hard like supply chain, especially if you're doing your own manufacturing, you're setting up your own plant, that's like a multi-year, four, five year minimum commitment that you're probably making before it pays back and then after that, you know, return on capital would take even longer than that.

So I think it's the smart I I think the folks you're talking to are probably in some sort of defense industry or something that's like more national security oriented and you're like yeah we need to do this in the United States for your typical company that's making apparel or home goods or other types of products.

It's just like it's not really there to come back to the US. I've met more companies who aren't going to do it as a result of having like the worst case I've seen is a company that makes bicycles in the United States.

Oh, and they've made it so that bicycles are uh duty-free if you import them, but the bike parts are not. So, these guys can't import parts. They have to pay taxes on tariffs on the parts, but their competitors just import whole bikes. So, they're like, "Hey, we're just going to start producing overseas.

" That's really rough. Yeah. It feels like at the end of the day, there's like so many little subniches in the economy.

Like we there was a story in the Wall Street Journal about uh the maker of Sharpie was successful in like reshoring all of Sharpie manufacturing, but Sharpies are probably not, you know, the target of like one specific tariff. And then also that's a critical industry for Trump. He's got to sign.

That was a hilarious one. That's true. The autographs can't get signed. Yeah. Um has an auto pen. Will it be a Sharpie? Like auto pen. Sharpie. Auto pen? What do you mean? It's like a machine that does the signature. Oh, yeah. Yeah. Yeah. Yeah. That's how Biden signed all of his bags. No way.

Um, so I mean, is is everyone just kind of glued to Truth Social now to to get the latest updates on where this all goes or or are there other kind of like uh folks that are like reading the tea leaves and understanding like is Poly Market the the the definitive data source?

like how are how are customers actually updating on like how real this is? I think prediction markets are yeah incredibly valuable for this really useful. They're pretty thinly traded. Like the one I cited only has $146,000 of liquidity. Yeah, it's not really getting used because one customer could make a hedge. Sure.

They're it's going to cost them more than that. So, um but there's they're still signaling that. Um actually, you know, the best source for us is just going to DC and talking to people.

I've been going there once a month um going back in a couple weeks and just trying to get intel what's really happening, what's coming down the pipe. Um I think more you can build relationship.

This administration's like, you know, as opposed to terrorism I am as I am, they've been very open door to hearing our ideas, listening, they genuinely want to help businesses. So they've been like we've been able to go in there and talk to them.

And um we're we're working on a couple things that we think we can reduce customs fraud. Like there's this massive fraud that's happening in customs right now. Oh yeah. Because you well you just have this incentive if you're the tariffs go way up now.

There's an incentive to cheat that wasn't there a couple years ago or even last year. And the way that you can cheat this is highly illegal. So do not do this. Do not do this. It's not worth it. I I I only have one rule is I'm never going to jail. Yeah. So don't have the rules. Simple man. Simple man. Yep.

Um, but so the way that it works and it's very rampant right now is the United States is the only country in the world that allows foreign companies to import goods into the country with no legal entity, no requirement to have a employee or person locally.

So you can just import stuff into the country as a foreign company and then you just lie on your declarations. And our customs CBP has agents in like 60 countries, but they're there for counter narcotics and anti-terrorism stuff. They're not there for trade compliance and trade enforcement.

So they're these companies just cheat and there's like basically no concept and if they get caught, they can spin up a new entity at home and just keep doing it. So there's zero downside.

Or maybe the goods get and the the the fraud is somebody is bringing in let's say $3 million worth of goods and they just say it's like oh it's $200,000 something like that, right?

raped by and so and so again the the people that are punished through that are actual American companies or anybody doing it the right way that then has to compete with a player in the market who doesn't have the same cost structure as them because they're just not paying tariff they're not exactly this is why we feel strongly about it and um right now on the Amazon marketplace 60% of the sellers are non-resident importers that's what we call this I know because 60% of the time I buy something on Amazon It's garbage.

Yes. So, um I love Amazon, but that that that is a that is becoming a problem. That's my personal experience. Yeah.

So, um so we're we're we're we're trying to highlight this issue around Washington, and people have been really receptive to the to learn about it and to see how this works and to to some proposed, you know, ways that you might close this loophole.

Um, so yeah, that and the the way that what's happening where American companies are getting trapped in this is that they're allowing their factories to import the goods for them.

So instead of them importing it, they're letting the factory import it and and feeling like everyone's their own personal lawyer and saying, "Hey, I didn't know about the fraud. It's not my fault. I just bought the goods in the United States, and if they were if the factory didn't pay duties, that's not my problem.

" Well, um, that is not how the law works. If if you're if you're paying for your goods at a price less than the duties alone would have been then you must have you know you should have known about this and I think a court it's going to be hard to convince a jury.

So I think that um you'll see some enforcement cases but probably they just need to make it so foreign companies just like every other country in the world you need to have a legal entity in the country in order to import goods. Yeah.

Do you have an idea of the scale of like the sweet spot for the scale of that type of fraud?

I imagine that you really can't get away with that if you're, you know, doing 10 billion dollars of commerce, but there's probably a whole a whole host of little, you know, $20 million operations that are maybe cheating or something. Got pretty big.

So, I I analyzed that um in in the United States, ocean freight shipping manifests are public record. Oh, sure. And so, I analyzed all of them last week uh with with a team member of mine.

We went through this and what we found was about 10% of um trade has switched terms uh to where the factories is now importing the goods is our estimate around 10 11%. Which is just massive amount of fraud. Um and uh and probably going to keep growing and growing until they until they take enforcement. Yeah.

Um but is it even impo imp possible to enforce?

Like how wouldn't you have to like 10x US it has to be a US entity with a my proposal and we'll see if this lands somewhere but is like would have to be a US entity with a US bank account with a US director that can go to prison if they and a US employee who could be held liable. Exactly.

And then you know like sure you can always break the law but if there's a threat of going to jail you're probably not going to do that most of the time. Most people wouldn't. Yeah. Um and we have a great country because it's much easier to start a business than it is to be a criminal. Yeah. No.

Uh so most of the smart people become entrepreneurs instead of criminals. Whereas in other countries that's not true. It's easier to be a criminal than to start a business. Yeah. Can you give us an update on Import Genius?

We were reading a New York Times article and Import Genius was cited and we were just kind of like whoa. Like you know we we we know that uh we we know the founders. But uh I'd love to know like like what's the state of the business? It seems like you're still finding interesting data from that.

like how what like what role does Import Genius play in the in the overall like community right now? Um yeah, so import a data service that takes those public shipping records that I mentioned and makes them searchable and accessible. And so that's the data that I was using to figure out look into this fraud web.

A lot of different journalists use it to find that's cool what's going on in the world. Um they're also kind of finding digging up fraud of some kind. Well, that's that there's there's lots of other use cases besides investigating fraud, but that's what tends to get into.

Yeah, I imagine you can just use it to understand like are our volumes falling or rising or what rates are, etc. Exactly. We use it for market share analysis. We use it for lead generation for logistics companies helping to like uses it to find companies that we should talk to about their freight.

Um, and people use it for factories like to find you're looking to do research on a factory, kind of see what their shipping history is. Yeah. Uh, overall, I mean, maybe to close out. Um, I'd love to know just kind of like there's obviously a lot of volatility with the tariff and the and the overall trade war.

I don't even like it's just been such a like a low rumble for the last years for the last year for this entire administration. I'm sure it's been a lot louder in your world, but uh does it feel like we're closer to having resolution?

Like when we talked, we talked last time I was like I was like I think the business community and I think you agreed with me. The business community just wants something to stick a deal if it's 50% forever. We can build our models off of that. We can invest against that.

But uncertainty is particularly destabilizing to the US economy, to global trade, etc. Whatever it lands at, let's just get there now. Does it feel like we're closer than ever or getting farther away? Like how do you feel about just like the level of volatility in global trade?

It it started to feel like things were calming down until really I think Trump the administration going after India is what kind of set off to be like oh okay maybe these aren't as stable as if like a negotiation can just quickly spiral on a country like that that in a lot of ways we have a lot in common with India and should be an ally of ours.

Um the China this current level on China is definitely at a our our view is anything above about 60% duty is going to be an embargo level where almost all trade stops. Um and we're so we're well above that right now. Um I don't think that that's where the administration wants this to land.

I think they'd they'd probably like it to be a little bit below the embargo level and give them uh a ratchet make it a ratchet where they can put it above the embargo level on a moment's notice with uh when when they don't do what they want. Um the I I I wish we could say we had the long-term stability.

Like if the current rates on Latin America lasted, it would be really kind of very clear for folks of what policy the administration is putting forward is, hey, we're going to treat the southern South America, Latin America as kind of our backyard, our hemispheric partners.

We're going to encourage kind of manufacturing there for stuff that doesn't make sense in the United States. I think it's very hard for them to come out and say that overtly because they were like the actual message is no make it in America. Yep. Um in the in the United States of America, not America.

Um what is uh what's the latest on with the ports automation at the ports? Oh, it's illegal. That's the latest. No, it's not illegal.

It's against the contract of the union for the next u I think five more years from now on the west on the east coast and four more years on the west coast I want to say and our direct competitors are doing the same thing right uh say that again the other world and and and I'm sure the rest of the world is also banning automation right so we'll so we'll be equally competitive and of course it's like no Singapore is probably extremely automated right contract ends in like four or five years.

Um, and we'll see. But in the meantime, there will be no automation in the US ports. Yeah. So, we're behind. Uh, makes it even harder. We've got, by the way, here in LA, um, the Long Beach Container Terminal is an automated terminal.

I think that's what kind of kicked off the union and and pissed them off and made them realize this is like a real thing when they put it in about 10 years ago. Um, it's it's really impressive. like it's a giant robot that's like a square mile of all autonomous trucks driving around and there's no people in there. Yeah.

And so that we do have the it's like a solve problem. The technology exists. It works. It's like really efficient. Um really cool to look at. Highly encourage doing a tour of that. Be cool. Flexport's gonna take a bunch of our customers on a tour of that at our conference here in a couple days. Yeah.

Are there any other like geological or geographic uh areas in the US that could be ports, could be automated ports but don't have any port infrastructure or and are just like ah it's some houses or something we could buy or it's just like kind of an abandoned beach.

It it you can't because um the union claims every inch of American soil. Okay. Of every inch of American coastline. So even if today they're not there, they they still claim spirit. Okay. Yes. and they will show up. So, you can't do it.

The thing that No, one area I'd really love to see America take advantage of is our river network. And and like actually this points to like if Latin America were to become a much bigger trading partner for us, then you would predict that the New Orleans should be the biggest port in the United States. Oh yeah.

If you have the whole Mississippi River network and you can get everywhere all the way connecting up to the Great Lakes up to Canada, like you could really make an amazing but there's almost no container shipping on that network in part because of union contracts and like a flexport a flexport river but boat would go really hard.

Maybe you could put a casino on it too to make you know make it really American 100%. I really think like a sparge network running all over and and like replace a lot of the trucks on the road too because it's so much more efficient, cheaper, greener, like cooler um in so many ways.

And yeah, I I haven't looked into the gambling laws, but in in international waters, you can of course. So, you know, you just gamble down the Amazon, then gamble all through the Caribbean, and then gamble up the Mississippi. It's the future. Anyway, thanks so much for stopping by. New product line. Congratulations.

This is great. I got I got to ideate with you guys more. I think we'll probably come up with some good product ideas for uh I think I think a caretsu of gambling and shipping is just a perfect mystery boxes.

Yeah, everyone's acting, everyone's asking what's the flexport second act and I think it's I would like to do something in futures actually where you could hedge the price of shipping and you know maybe that's a partnership with us in one of these prediction markets would be pretty cool.

Yeah, that'd make a ton of sense. Needs to happen. Yeah. I mean, isn't that the story of uh Southwest? They bought a bunch of fuel futures and then they were like had the ability they had pricing power for like a number of years. I don't know how apocryphal that story is. Yeah. Yeah, I think I read about that.

Um, we haven't done any hedging yet. I'm always telling our finance team to do it and then they come back with reasons why you don't need to or something, but it seems like we should. Yeah, it' be fun. Turn into a hedge fund. Be good. If you can't today, there's not really like a futures.

There's a couple of these marketplace are trying to form like futures on actual price of ship container shipping. Those don't exist yet in a way that's really viable. But if that existed, we would for sure start I would like to when we should be the smartest people in the market, right?

Like yeah some point you're like we doing all this commodity shipping so we should just trade shipping. Maybe maybe well when you announce it uh come back and tell us all about it and good luck with the customer conference. Thanks so much for stopping by. We'll talk to you soon.