Episode 26: How OL USA Solves Customer Challenges in a Shifting Supply Chain Landscape
Adam Honig: Just to be clear, it’s an audio podcast, so we appreciate you getting dressed up, Alan, for it. But we will steal a little clip for a promo piece. Just to let you know, it’s going to be spoken. We try to run about 20 minutes. That’s the length that we go for, and it goes by pretty quick.
Alan Baer: I did run and put on this shirt because I saw the comment that it was a video. Otherwise, you would have had the t-shirt.
Adam Honig: That’s okay. You look great.
Hello, and welcome to Make It. Move It. Sell It. On this podcast, I talk with company leaders about how they’re modernizing the business of making, moving, and selling products, and of course, having fun along the way. I’m your host, Adam Honig, the CEO of Spiro.ai. We make amazing AI software for companies in the supply chain, but we’re not talking about that today. Instead today, we’re talking to Alan Baer, the president of OL USA, a full-service logistics provider for air, ocean, and domestic.
Welcome to the podcast, Alan.
Alan Baer: Nice to be here. Thank you very much.
Adam Honig: For sure. Now tell us a little bit about OL, what you guys are all about and the story behind it.
Alan Baer: OL was born out of a group of industrial, or industrious, I should say, logistics people. We came together starting back in 2012, and we only had a couple of offices back then. We were an intrepid group of five. Over the last decade, we’ve grown from those five to having, at one point, 15 offices before COVID, and then we became 200 offices when we all moved home and started working from home. We’ve somewhat stayed in that structure. Along the way, we added some operations in Dubai, the UK, and also out in the Philippines. Today, we are a fairly balanced company. About half of our business is outbound, out of the United States, and the other half is inbound. On top of that, we do business in and out of the UK, in and out of Dubai, and also with our operation in the Philippines.
Adam Honig: Gotcha. Who’s a typical customer, would you say, Alan?
Baer: We do business with a lot of middle-tier organizations, whether it’s other logistics providers who take advantage of our global scale and scope. We have a lot of customers there. What we term our “beneficial cargo owners” come to us, and both again on the import and export sides, because we provide, as I like to say, creative solutions that help their individual needs and their individual supply chain. We have exporters who’ve been along for the 10-year ride who were in Europe originally, and now they’re in South America, Australia, Asia, and Europe. We give them the capability to come to their contacts within OL. We can price business all over the world and arrange transportation.
The other thing we have is a lot of solid partners around the world. We have 150 to 180 agents we’re dealing with all the time. That’s where we came up with the tagline “local around the world.” We’re here in those four core centers, but we have local knowledge and expertise all over the world, thus, “local around the world.”
Adam Honig: It seems like it used to be a much simpler world. You manufactured something, maybe it was in Asia, maybe it was in Mexico, and you shipped it to the US or maybe to one location. Today, it’s all multimodal. Everything’s going everywhere all at the same time.
Alan Baer: Yes. To your point, if you go back five or 10 years, China, as the factory of the world, was in a dominant position for almost the last 20 years. Then, starting in 2016, 2017, as some of the tariffs were introduced, businesses were forced, some in survival mode and others simply for cost containment and competitive reasons, to find new sources of supply. We’ve seen over the last six or seven years that supply has migrated into Vietnam, Indonesia, Malaysia, Thailand, and even countries like Cambodia have been coming on. You’ve seen companies right up to and including Apple that have taken supply out of China and moved it to India, for example. I think we’ll continue to see that.
Then there’s the near-shoring phenomenon where there will be increased business in Mexico. We’re seeing countries like Colombia, Panama, Ecuador, and Peru where companies are looking and saying, oh, wow, I’m five, seven, nine days of transit time. It’s a geopolitical chess game as well as a supply chain game.
Adam Honig: Right now, when they’re moving from China, it’s not like they’re picking up their whole operation from China. They’re just diversifying. Is that what you’re saying? Or are you seeing people move out wholesale?
Alan Baer: You have a little bit of both. Let’s imagine you were buying 100% from China and the tariff came in. There may be some parts you can still get in China that are non-tariff, but for the tariff pieces, you move to Thailand. There were other companies, though, who literally picked up their whole factory, loaded it on 100 trucks, and immediately went south of the border into Vietnam. Within a couple of weeks, they were open in Ho Chi Minh. You really saw that trend continue to the point where the ocean carriers, who were dominant in the transportation of cargo, started to put larger and larger vessels into Vietnam. It used to be that Vietnam was a feeder port, whether it was via Taiwan, Singapore, or wherever. Now, the mothership will call directly in Vietnam because of the volume of cargo that, over the last six or seven years, has been generated by factory migration.
Adam Honig: Now I want to talk about these tariffs for a second. We were talking about this a little bit earlier. To the casual observer, a 10% tariff doesn’t seem like such a big deal, but it’s obviously big enough to make pretty dramatic action happen for these manufacturers. Why do you think that is?
Alan Baer: Tariffs have ranged anywhere from 10% to 25%. If you start with a container of $50,000 and you had a $15,000 margin, which would be a decent margin, 15 over 50 is a nice profit margin. But now 10% of that disappears. You now pay $55,000 because of the tariff: 50 to the vendor in China and 5 to the US government. Your actual margin was cut down by 33%. Now, if you look at that same equation, but your tariff is 25%, well now, out of $15,000 of margin, $12,500, because it’s 25% on 50, goes away. Now you’re down to only $2,500 in profit. That’s not enough to pay your staff, your overhead, or your borrowing costs to borrow the $50,000. You’re literally, in some cases, out of business if you don’t move that source from China to a non-tariff location.
Adam Honig: Gross profit was down, but the net profit just could disappear entirely.
Alan Baer: Correct. You might have the same equation of I buy it for 50, I sell it for 65, but I’m no longer really buying it for 50 because now I’ve got to add on top of the tariff itself. So my actual landed cost, including transportation, has just blown me out of the water.
Adam Honig: Right. Now I know, or at least I perceive, that part of the desire for the tariff was to bring more manufacturing to the US. Do you feel like that’s been a result of these tariffs?
Alan Baer: Honestly, I don’t think so at the moment. We haven’t seen that enough yet. There’s some recent activity, like the CHIPS Act and things like that, where we’re trying to near shore. But that, I think, is more, again, geopolitical in nature. It’s also based on the defense industry having access to CHIPS and the worry over things like China-Taiwan and US-Taiwan. But if you’re bringing in lighting fixtures or some really baseline products that may go into a house or something, we’re not equipped in the US to suddenly start making those things on the scale that we’ve been buying them out of China at the same price. There are a lot of people who make light of it, but if we were to produce some of that stuff all here and the price of a $300,000 house or a $400,000 entry house was suddenly up by $50,000 or $100,000 because it was all made here, how many people are you forcing out of the market? Does that ultimately depress the housing market? There are all sorts of equations you can do with that.
But I have a very close friend who was literally put out of business overnight because they were bringing in reading lights that kids would clip on their books. It had a timer attached to it. At night, when they got into bed, they had to read for 10 minutes, and the light had a timer on it. Then it would turn off, and they knew they would have to go to sleep. Literally overnight, he couldn’t supply Target and Walmart anymore because suddenly, it was a 25% tariff. He didn’t even have a 25% margin when you’re selling into some of the big box guys. He had to reinvent his whole business because the lighting business was done.
Adam Honig: Wow. These tariffs have caused a lot to go to places like Vietnam. How do those ports, countries, and everything else deal with all this new demand? It must be really challenging for them then.
Alan Baer: Absolutely. We’ve seen that initially, when the ports weren’t ready, in a sense, for it, for example, to the point about how deep is the water, how deep is the port itself. Over the last seven, eight, or ten years, we’ve seen increased activity where some of the major port development companies have built new facilities all over Vietnam up and down the coast. The same is true in Thailand, Malaysia, and Indonesia, which is also doing it. At one point, it was concentrated in and around Jakarta; now you’re seeing it spread out across the islands of Indonesia as manufacturing is there. Some of the printer companies are there. I think even now Tesla may be moving some part manufacturing to Indonesia as well.
The other Southeast Asian countries have been the beneficiaries of the tariff because there’s a lot of business that has migrated and is helping them and their GDP. It’s why you see Thailand in the top 10 for growth now. Vietnam, same thing. They’re even growing faster to some degree now than the Chinese are.
Adam Honig: Well, it’s got to make things very challenging for anybody who’s involved in the logistics business. Not only do you have all of the supply chain disruptions of COVID and everything that’s related to that, but you’ve also got all this geopolitical change at the same time.
Alan Baer: Absolutely. I think the thing that you’re faced with now is how to forecast it. You have to get on a plane. If the hierarchy in a business is, hey, we can’t just rely on that supplier in Shanghai. You’ve got to find one in India, one in Thailand, and another in Vietnam. Your sourcing people are on flights and going around knocking on doors. Can you build this mold? Can you make this part? Can you hit this spec? A lot of trial and error, but that’s why, over the last few years, you’ve seen the volume from those countries increase. Even our exports from the US to those countries have increased as their trade flow increases. There are more dollars showing up there. They’re, in turn, buying more machinery from the US, even down to bulldozers, tractors, and graders. There happens to be a big used market for used construction equipment coming out of the US and moving into places like Vietnam to improve roads, site development for factories, and things like that. There’s this recyclement, if you will—I don’t even know if that’s a word—of construction equipment–
Adam Honig: It works for me.
Alan Baer: –that gets sent out.
Adam Honig: That’s really interesting, Alan, because we had a recent podcast guest who actually moved himself and the headquarters of his business to Jakarta just so he could be closer to suppliers. Just being able to be physically in touch with them was so important.
Alan Baer: Yes, absolutely. I think there are two pieces to that. One is quality control. You want to be right on site to make sure that the products that are churning out and that you’re putting in containers and shipping all over the world meet the spec that they have to, whether they’re going to the EU or the US. The other is driven, as we’ve been talking about, through geopolitical means, where companies had their headquarters in China, or they had a regional office there, or Hong Kong, and those are increasingly being relocated to Singapore. It’s just a less cantankerous environment that they’re located in. It’s a beautiful place actually to say, oh, I live in Singapore. It’s not a bad gig.
Adam Honig: Yes, I’ve been to Singapore. It’s super nice there, actually, except when it gets super humid as well, but you can’t have everything. I want to talk for a minute about canals because this has been on my mind as somebody who’s involved in a lot of shipping. I was reading about the Suez Canal and how they’re widening it and making it deeper. What is going on with all of that?
Alan Baer: This is a reaction to the larger and larger vessels that the carriers have been building. You’re now in the 23,000–25,000 TEU size. As a result, when they’re fully loaded, the draft of the vessel has been getting deeper and deeper, and therefore the canal authorities are widening and, for sure, deepening them where they can, to avoid some of the issues that we’ve experienced with the Evergreen vessel when she ran aground.
Adam Honig: Is that what happened? It was too narrow or not deep enough for that vessel?
Alan Baer: Not so much in that case because she got sideways in the canal, and instead of going the long way, she was trying to float forward.
Adam Honig: I mean, that happens to me when I get in a canal. I go sideways right away.
Alan Baer: As a result, she ran aground, unfortunately, at a speed that she buried the bow of the ship in the sand and silt that was on the bottom. It took them a while to refloat her and pull her out. But we see the same thing on the Panama Canal now where, even though they’ve added an extra lock for bigger ships, the lake in between the two sides of the canal is too shallow, so they’re restricting the tonnage of the vessels coming through the canal there. Again, they can’t dig the lake any deeper. We just need more rain in Panama at the moment to deepen the water for the bigger ships to get through.
Adam Honig: What about the changing temperatures in the ocean? I’ve been reading a lot about that recently. Does that impact logistics at all with the ocean currents moving around differently?
Alan Baer: I don’t know so much about the ocean current per se, but it’s more just the weather anomalies. The ships are out in the middle of the ocean, and they’ve got to dance around storms as best they can. You see the pictures that people love to circulate of the containers rocking back and forth, and then finally, a hundred of them can go over the side. As weather challenges increase, you could have more of that. It’s the same thing in just looking at US supply chains. If there are worse storms, whether it’s rainstorms or flooding, the tornadoes that we’ve been experiencing these past few weeks, in the winter, blizzards that just literally shut down rail lines and truck lines, the weather plays into supply chain nonstop. We’ve seen times where airports are shut down because it’s too hot, and the runways aren’t capable of handling it. We’ve seen highways play into that as well. All of those are–
Adam Honig: Or we had that big collapse on I-95 in Philadelphia recently. Exactly. Is there a weather person on staff at your company, or are you guys just monitoring the services as you see them?
Alan Baer: We’re big fans of Lonnie Quinn on CBS-TV here in New York.
Adam Honig: I can understand why. Let’s talk for a minute about OL. One of the things that I know about your business is that you guys take a little bit more of a creative approach to the problem. Can you maybe just talk a little bit more about that?
Alan Baer: One of the things we focus on when we talk about it each week with all of the teams, and because we’re now sitting in this 200 at-your-home table or desk, we do a lot of Zoom calls, and as a result, we try to reinforce that we don’t take a cookie-cutter approach. Just because you had a solution for customer A doesn’t mean it’ll work for customers B and C. You really have to noodle through with each one and make sure we’re asking the right questions about what’s important to customers. Some people will really accept the proverbial slow boat from China because it’s at a lower price. Other people need it to get here in nine or ten days and are paying that to avoid air freight.
You have to understand the drivers of the company’s business and the values of their product, and then make sure that, in conjunction with a lot of back and forth with the customer themselves, you do use your creative juices to find the right solution. It allowed the customer, if you will, to maximize their spend, which in the end goes into their profit margin and the price they need to charge the American consumer, or on our exports, the local consumer at the destination. It’s all about building a competitive mousetrap, so to speak.
Adam Honig: Is there any project that you guys were involved with that was really creative or unusual that comes to mind?
Alan Baer: Interestingly enough, we do move movie equipment around the world. We had some stuff that went to New Zealand, and then recently, we moved some automobiles for a particular movie that went into Eastern Europe. Now we’re in the process of bringing some of that stuff back.
Those are fun things. We once moved a Ferris wheel that was in an amusement park in Europe and had to come back to Florida for refurbishing. In conjunction with our partners over there, we moved that, which was just interesting to see the picture of it assembled then disassembled inside open top in containers, then again in Florida and then back out again and then reassembled.
Those are interesting moments that are a little bit different than just the standard 20 or 40 of food stuffs going back and forth, although food is vital everywhere we move it, so that helps as well.
Adam Honig: It would have been crazy if they wanted to keep the Ferris wheel together on the ship so that they could ride it while they were coming across the Atlantic or something like that. You wouldn’t recommend it, but it would have been fun.
Alan Baer: Right. It would have been an interesting one. But wait, something that does move like that are the gantry cranes that you see in all the ports and all the harbors, the big monster things. They move set up on the flat part of a ship. They’re just standing there like giant transformers, almost like you’re picturing these transformers up on the vessel. They move intact.
Adam Honig: That’s amazing. Now, Alan, I know from our previous conversations that you’re very into the AI thing. What’s your view on where that’s going to have a big impact in your industry?
Alan Baer: I think ultimately there’ll be a convergence of the ability to ask the computer for services, including schedules and pricing over a long run, much like you go to a website to do travel bookings of any kind. Over time, that will hit our industry. We’re already weaving into our visibility platform the language model, so that instead of receiving a report or an Excel sheet, you’ll hear if you want the video version of it, or you’ll have it programmed to speak to you, if you will, or you’ll have the text version and it’ll just say, good morning, Adam. Here’s the story of your cargo today. You’ve got 10 containers on the water. They’re all in line with the projected dates, or this one is on a customs hold. That will allow you, instead of scouring an Excel sheet, you’ll just know your story. You can get that daily. You can get it weekly. You can get it twice a day or whatever cadence you want to invent. I think that will go deeper and deeper into it.
As other organizations embed AI into their programs, whether it’s an app or just their day-to-day truck software or anything like that, even the CRM software, it’ll all converge in the background. We’re using it on the CRM side to create stories about why customers should use us and to do marketing through using an AI tool, merging government statistical data with an AI tool to drive canvassing for freight. I think all of those things are coming at an increasing velocity at the moment.
Adam Honig: It’s a really exciting time. I’ve recently been listening to the Spotify AI DJ, and it reminds me a little bit about what you’re talking about that you can just get what you need when you need it. Somebody is talking to you. Maybe you’re in your car. You don’t have to be reading a document or something like that. I think that’s pretty exciting stuff.
Alan Baer: For sure. Not to plug, whether it’s Alexa, Siri, or anything like that, but I am imagining that over the next 12 to 18 months, you’ll be able to say to an OL app, hey, OL, tell me about my cargo. It’ll know that it’s you because, in the background, the Apple knows that it’s Adam logging in and asking that question. Do I have any containers that are late today? It’ll give you feedback on that. Did that hot load sail out of Shanghai? That interactiveness will just occur in the background as we move forward over the next 12 to 18 months. I really see that coming alive.
Adam Honig: It’s definitely around. We’re just on the cusp of some really interesting things. I totally agree.
Well, listen, Alan, I really appreciate your coming on the program today. Thank you so much.
Alan Baer: It’s been my pleasure. It’s always good to see you.
Adam Honig: As a reminder to our listeners, you can find every episode of the Make It. Move It. Sell It. podcast. It’s Spiro.ai/podcast. I don’t know, Alan, do you think listeners should maybe give us a good rating or a like?
Alan Baer: Absolutely. Hopefully, in the words of Uber, I want a five-star rating.
Adam Honig: I really appreciate that. Well, listen everybody. Thanks so much for tuning in. We’re looking forward to the next episode.