Sunday Snapshots (1st March, 2020)
Sunday Snapshots (1st March, 2020)
Shipping Containers, Banana Republic x Postmates, Letterboxd, and @earth
Hey everyone,
Greetings from Evanston!
It’s a gorgeous day here in the suburbs of Chicago. Spring is just around the corner and I’m wrapping up my second-last quarter here at Northwestern. Right now, it is the calm before the storm of finals rolls around in a couple of weeks. I’m taking this time to relax and get ready for the final stretch.
I’ve been thinking about how to encourage more people to write online. Given that more of the work is about getting started, I wrote two short articles about the fears that I faced when I was just starting out. Here they are:
With all that out of the way, in this issue of Snapshots, I want to talk about:
How the shipping container reinvented global trade
The partnership between Banana Republic and Postmates
An app to keep track of the movies you watch
My favorite Instagram account
And more!
Book of the week
The Box: How the shipping container made the world smaller and the world economy bigger by Marc Levinson sounds like the most boring thing ever. At ~400 pages and an additional 100 pages of notes, it’s a real doorstopper. Yet, it is one of my favorite reads ever.
Why? Because it is that rare book that takes something we take for granted and peels back the layers of complexity behind it. It takes something unsexy and shows how important it is to our modern way of living. Other books in this genre include Debt: The First 5000 Years by David Graeber and Salt: A World History by Mark Kurlansky.
Another question comes to mind – why care about shipping containers at all? It’s literally just a box!
True, but simple ideas can be powerful. The shipping container – by decreasing transportation costs – was one of the key drivers of globalization. It connected the whole world.
And The Box is not just about shipping container, it’s about how ideas become reality. So let’s dive into the lessons:
Ideas are fragile in the beginning
A few days after Steve Job’s death in 2011, Apple organized a memorial service for him open only to Apple employees and special guests. During the remembrance, Jony Ive – the brains behind all of Apple’s iconic products – talked about how Jobs was really good at protecting ideas:
Steve used to say to me — and he used to say this a lot — “Hey Jony, here’s a dopey idea.” And sometimes they were. Really dopey. Sometimes they were truly dreadful. But sometimes they took the air from the room and they left us both completely silent. Bold, crazy, magnificent ideas. Or quiet simple ones, which in their subtlety, their detail, they were utterly profound. And just as Steve loved ideas, and loved making stuff, he treated the process of creativity with a rare and a wonderful reverence. You see, I think he better than anyone understood that *while ideas ultimately can be so powerful, they begin as fragile, barely formed thoughts, so easily missed, so easily compromised, so easily just squished.*
This concept of ideas being fragile reverberates throughout the story of the shipping container.
While the concept of putting smaller items together in a bigger box to make it easier to transport wasn’t new, most attempts were impractical. Margins were slim in the freight business and changing to container shipping required multi-million dollar investments.
So the idea of containers was fragile. At this time, Malcolm McLean nurtured it. He provided the capital, he provided the surrounding infrastructure (more on this below), he worked the labor unions. You need a champion for ideas when they are new. McLean was that champion.
Being a champion of a good idea is of course potentially very lucrative. It was definitely very lucrative for McLean!
Interactions, not actions rule complex systems: When you are dealing with a complex system such as ocean shipping, you need to keep your eyes on the interactions of different variables like labor unions, fuel costs, local politics, technological innovations, etc.
First example: For a container shipping operation to be successful, you need to do things very fast. One of the first bottlenecks for the spread of container shipping was that the existing infrastructure (or the lack of it) could not support the pace necessary for profitability. For that, McLean and his company had to make a completely new type of port. Think of this as a pre-requisite of sorts. You can’t just build a business around a single innovation, you need to make sure that the interactions of the whole system works.
Second example: The interaction of politics and containerization enabled New Jersey to come an outsized hub for shipping from the New York area. Technically, New York (because of its overall propensity for scale and general business presence) makes more sense. But the New York Port Authority was rejected from making New York harbors container-ready. So, they chose to modify the ones in New Jersey. This led to a loss of thousands of existing jobs in the New York City port areas and could have been avoided (or at least delayed) if New York City officials had seen the writing on the wall about shipping containers.
Importance of leverage: I am not talking about leverage in the financial sense, but more in the original meaning of the world. A small input that leads to an outsized output.
McLean showed early signs that he understood this better than most. His earliest business was trucking. In a highly regulated industry where trucks from a single company would only be allowed to operate on selected routes, McLean would regularly “lease” routes from other companies to make his overall routes more efficient and in the process offer the lowest rates in the market. For example, if I had to from DC to Atlanta but I didn’t own the operating license for any of the middle states, leasing routes in those states can help me cost down on hundreds of miles and thousands of dollars.
The size of his leverages grew in sync with the size of his company. Once in the shipping business, he used a combination of shadow businesses and high velocity decision making to control shipping to and from Puerto Rico. This was very lucrative and his company had a monopoly in this market because of how quickly he moved in. This was way easier than trying to capture each single state in the US one-by-one. It doesn’t matter how many times you win, what matters is the magnitude of each victory.
If you’re interested in how to see the world through the lens of forces that drive innovations, definitely pick up a copy of The Box.
Business move of the week
Postmates and Banana Republic
This week, Banana Republic – the Mecca for suburban dads everywhere – announced that it would be offering delivery through Postmates. So in addition to offering in-store pickups and standard free shipping above a certain basket value, you can also choose to have clothes delivered to you within the same day.
What are the companies trying to achieve with this partnership?
For Banana Republic, this move is aimed at counteracting the logistical juggernaut that is Amazon Prime. Banana Republic cannot compete with Amazon on the logistics front and it doesn’t want to exclusively be dependent on the company for its short-term logistics needs. While you can still buy Banana Republic clothes on Amazon, it’s smart of them to diversify their offerings. Apparel typically has large margins and a substantial portion of the costs come from labor overhead. By moving towards a future of delivery, Banana Republic can reduce these costs significantly. Coupled with AR/VR in the future – which will eventually eliminate the “try-on” complaint that customers have today – this strengthens their optionality in the future.
The move is a lot more interesting from the Postmates angle.
For the food delivery comany, this is an opportunity for marginal revenue outside their core business with potentially higher margins. They have also built relationships with other retailers. For example, I ordered a cable from Apple with same-day delivery a few months ago and Postmates fulfilled that order.
Looking into the future, if Postmates can handle enough volume from enough retailers, they can own the customer relationship in specific verticals. That means that they can take more of the value (dollars) from any given purchase.
Unlike food, apparel is not a “consumable.” So, there is true differentiation that can be done. However, that’s not to say that delivery companies can’t chip away at market share. If Postmates et al control enough of the apparel market, it would make sense for them to launch their own private label, just like Amazon has.
Postmates has also filed for an IPO this year. Having “growth segments” like retail deliveries outside of their core business could be an important bad of the story – especially given that food delivery has been shown to be a tough business to crack. This would be similar to Uber talking about UberEats and Uber Freight as the next frontiers of growth. We’ll have to see what the S-1 filing for Postmates says when it is released. When it comes out, I’ll be here to analyze it for you.
Product of the week
I came across a neat little app that keeps track of the movies that you’ve watched and can help you keep track of the movies that you want to watch. You can also follow your friends or movie critics to see what they’ve been watching. As I’ve gained an appreciation for filmmaking and storytelling, this has been a great way to catalog everything.
Random corner of the week
The best Instagram account that I subscribe to is @earth by Andy McCune. It’s a nice break from the endless social status signaling on the app that we’re all guilty of. Andy also has an amazing back story. You can learn more about him through his podcast with David Perell here.
Meal of the week
Last night, I went to Bebu Pizzeria in Lincoln Park. They do half and half pies which is ideal for trying out different flavors. Definitely worth a visit if you’re in the area.
That wraps up this week’s Sunday Snapshots. If you want to discuss any of the ideas mentioned above or have any books/papers/links you think would be interesting to share on a future edition of Sunday Snapshots, please reach out to me by replying to this email or sending me a direct message on Twitter at @sidharthajha.
Until next Sunday,
Sid