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Flexport’s Ryan Petersen ‘Not Convinced’ Logistics Really Turned a Corner

Flexport founder and co-CEO Ryan Petersen is not convinced the logistics industry has made enough improvements coming off the past couple years to avoid future cargo logjams. 

“I’m not convinced that we’ve made any strides to improvement in terms of the underlying infrastructure and the capacity to move cargo,” Petersen said during a Flexport presentation Tuesday. 

The logistics executive, who shares the CEO title with former Amazon boss Dave Clark at the digital freight forwarder, spoke in a wide-ranging conversation with Flexport chief economist Phil Levy to reflect on the past year and look ahead at what’s next in 2023 on the macroeconomic and logistics fronts. 

Petersen’s remarks were in response to a question posed to him on the drivers of improved shipping times, which he attributed to a decline in constraints that had earlier hampered the industry and cargo flow. What the industry is seeing now, Petersen said, is a normalization of container volumes that is consistent with existing infrastructure. 

“I haven’t seen anything material that would lead us to believe that, hey, the next time we get 20 percent more containers imported into the West Coast of the United States, we’ll be able to handle it and the ships won’t back up,” Petersen went on to say. “No, I think the ships will back up and it may get worse, depending on how the current negotiations with the [International Longshore and Warehouse Union and Pacific Maritime Association] works out [and] whether we ever have more automation or not to make things run faster.” 

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The ILWU, which represents some 22,000 dockworkers at ports running along the U.S. West Coast has been locked in negotiations with the PMA since May. Workers have continued to move cargo even after their contracts expired July 1, with both sides repeatedly stating they would continue negotiations and cargo flows would not be impacted as they worked toward a new agreement. 

The major change on the economic front that’s helped ease the cargo back-up at the ports has been the pullback in imports in response to consumer spending patterns. 

“Part of the story of 2022 was that goods consumption eased back to a steady, but elevated level,” Levy pointed out. 

The economist went on to note consumption hasn’t fallen off a cliff. 

“We didn’t get that sort of big drop off. We didn’t go to pre-pandemic consumption patterns,” he added. 

Petersen and Levy highlighted the major headlines of the year during their talk, including an easing of goods consumption, inflation and the central banks working to stabilize prices from the macroeconomic perspective. From the logistics viewpoint, 2022 was defined by better transit times, a decline in container volumes and falling freight prices. 

The reflections painted a stark contrast of the transportation industry in comparison to the height of the pandemic when carriers had the upper hand. The pendulum, in 2022, has swung to placing shippers in the catbird seat, particularly as it relates to pricing. 

“Overall, I think you can count on ocean freight again, and that was a big question for the world frankly is if ocean freight remains at 120 days [transit time]—and by the way you couldn’t even count on 120 days. It looked like it was always going up, so you didn’t know what it was going to be. And, if that’s variable, it’s very hard for you to run your global supply chain,” Petersen said. 

Ships moving from Asia to the U.S. West Coast typically take two weeks to make it across the ocean. The 120-day figure Petersen cited highlights some of the worst the surge in imports brought to the shipping industry during Covid. 

“People started to talk about de-globalization,” Petersen said. “This was a major question mark on the whole regime that we’ve been living under for the last 50 years and certainly since the invention of the ocean container that’s made it super easy and cheap to ship anything, anywhere in the world. That was under risk.”

Now, the executive said, the industry can “breathe a sigh of relief” as the market continues to shift. 

“We need to be able to serve our customers at Flexport, but the world needs to rely on cheap and reliable shipping to have a functioning economy,” Petersen said. 

What that means for carriers is a new story different from the one that unfolded over the past couple years in which the major headlines highlighted a period of record profits for ocean liners amid skyrocketing rates for shippers. 

“The carriers, they’re feeling a lot of pain right now and should expect that to increase next year as price gets renegotiated in contract season,” Petersen said. “But, these ocean carriers, very painful to see this steep decline in volume at the same time that prices are coming way down. I don’t think many people are going to feel too bad for them after the last couple of years of record profitability. But the reality is we live in the present and not the past. And, no one wants to lose money. And I think it’s going to be very difficult to make money [moving forward] as an asset owner.”