Alitheon and the Port of Seattle, in partnership with the Puget Sound Business Journal, sponsored a recent roundtable discussion about the future of logistics, which is vital to the region’s economy. PSBJ President and Publisher Don Baker moderated a panel with Roei Ganzarski, CEO, Alitheon; and David McFadden, Managing Director, Economic Development Division, Port of Seattle. Read on as the panelists weigh in.
DON BAKER: What is the Port trying to accomplish by building or supporting development of new light industrial buildings?
DAVE MCFADDEN: We are trying to support local manufacturers, in particular maritime manufacturers and suppliers. It’s an incredibly important industry to us, we think it has a vital future. But because of gentrification, and just the squeeze of growth, especially around Ballard, this is an industry being disrupted. And so, we want to provide that stability. We want to provide that home for new and exciting manufacturing and industrial ventures in the future. These buildings have a lifespan of 50 plus years, so we’re really building for tomorrow.
BAKER: Supply chain discussions are usually about efficiency and cost. How are safety and security related to the supply chain?
ROEI GANZARSKI: Usually when people talk about supply chain, they think about how to minimize costs and how to make the transportation and movement of goods from one place to another, more efficient. At Alitheon, we look at supply chain in a slightly different manner, which is how do we know that what the original supplier sent, is what was received. We bring that up because as purchasing and acquisitions have gotten more distributed and more digital, and as supply chains have gotten more distributed and more global, the influx of counterfeits and gray market activity has skyrocketed. There’s an estimate that annual counterfeit and gray market goods top $3 trillion a year. We’re talking about fake brake pads for cars, fake medicine, fake vaccines. There was one that just came out which is fake HIV medicine that people have their lives dependent on. And so, when we talk about supply chain, we want to make sure that what was sent is what arrives and that it’s real, it’s legal, it hasn’t expired, etc. When you think about supply chain, not just as the physical transportation of goods, but being responsible that those goods actually arrive as they should, that’s where safety and security come into play. Fake brake pads that go into a car could be fatal. Fake or expired medicine that left some factory somewhere around the world, or even in the US, and arrives at a pharmacy and is given to a patient, could be fatal. And so, safety and security become really critical in the supply chain, especially as we now get globally diverse.
MCFADDEN: We’re part of a global supply chain. With advances in digitization the exposure is at an all-time high. Our airport and seaport are beehives of activity so it’s a constant challenge to monitor the people and goods that come through our gateways. There’s constant pressure. We are an international point of arrival so the security issues and the focus on security is very, very high. As you know, there’s just too many different ways that people can get over the top and get around the edge. And so, I completely agree with Roei, it just it’s an ongoing issue. With the newest issue being cybersecurity, we were having to gear up and dig deeper and deeper into that vein, because cyber adds a whole new element of exposure out there. And it has a huge impact on our world.
BAKER: Has anything changed since COVID with supply chains that has you worried?
GANZARSKI: As bad as COVID was, people talk about a lot of pluses that came from it. One being the knowledge that you can work remotely work from home and still be productive. Another being the purchasing power of people who could buy anything from anywhere in the world and have it delivered to their doorstep. There was a lot of online purchasing before COVID, but COVID forced a lot more of it to happen. You couldn’t get out of your home, everything was closed, everyone had to buy online, and suddenly a huge spike in people figuring out that online shopping works. With that, rose counterfeiting and gray market. When you’re ordering online, it could be a well-designed and meticulous website, look professional, the products in the pictures look real, and you order. Then what arrives isn’t necessarily real. Even reputable places like Amazon — people find counterfeits there, not because Amazon is intentionally selling counterfeits, but because bad actors are taking advantage of the Amazon platform and selling counterfeits on it. What concerns me since COVID is it’s become easier and easier to do everything you want online, which means it’s become easier and easier to cheat, to lie, and to defraud people out of their money, and increase risk to their health and well-being. As an example, people are buying medicine online which could be in fact fake products. The World Health Organization said that in the United States alone 10% of medicine could be counterfeit. So, think of one out of every 10 prescriptions you take could be counterfeit, and as more and more people get their prescriptions online, that number can go up. And so that’s the thing that concerns me is that with this growth of the digital world, we are not keeping pace with the physical one.
BAKER: How is the industrial real estate market within the region and are there particular risks in the marketplace now or going forward?
MCFADDEN: The industrial market is a bright spot compared to other real estate sectors. It’s not as strong as it was a couple of years ago, but it’s still steady and moving forward. If I’m looking at that sector, compared to office, residential or other sectors, I’m feeling pretty good about it. But that does not mean there aren’t storm clouds. It’s impacted by the other real estate sectors, and it’s impacted by larger themes in the economy. When office is going down, or it’s in a pain period, that’s going to affect the folks that provide them the funding, and we’ve read about banks going through their challenges right now with liquidity. Those are storm clouds that will affect industrial. It may not dampen the deals, but it will make the deals more expensive. The capital will be of higher risk. That’s partly because of what I just described in the other sector, but also with T bond rates and other things climbing, there’s other places for folks to park their money that compete with that. The net effect is that the industrial real estate market is a bit softer. Funding is more expensive which may cause certain deals to get repositioned and other deals maybe not to happen in this environment. And with the uncertainty going forward right now, that also adds more gray to the cloud bank as well. As things go digital, it does get physical, because ecommerce companies all need these last mile warehouses, and that’s one of the ingredients that’s really signaled the strength in industrial. There has just been a tremendous build out of warehouses across the country. And so, I see a relationship to what raw Roei is describing that world and what it means in terms of industrial real estate activities. But generally, that’s another reason why we’re bullish, it’s a good strong sector, we have an asset, you know, in terms of land that we can build on to support new facilities and future entrepreneurs.
GANZARSKI: But by the way, if I could add, guess what happens when you’re managing tens of buildings, commercial buildings, or apartment buildings, and demand is a little weak because of the economy. You need to cut costs. So, what do you do to cut costs, you start looking for cheaper stuff. Need to replace that HVAC computer board, where can I get a cheaper one, let’s look online, if I can get something cheaper, and lo and behold, suddenly, you find out that you bought something cheaper, but it was fake. Most likely that fake board isn’t as effective, or as efficient as the real board is. Suddenly, your overall operational costs go up. Suddenly, after six months, that board burns up and doesn’t work and you have to repair it or replace it. Same thing with water filtration systems, generators, etc. Because information is now readily available online, it’s easier to find something cheaper that seems like a great deal without realizing it isn’t the real thing. And then that ripple effect continues.
BAKER: What is the Port looking to accomplish by developing a Maritime Innovation Center?
MCFADDEN: That project involves us taking what is our oldest building at the Port at Fishermen’s Terminal and renovating it into a modern Maritime Innovation Center. That center will serve as a beacon for innovation within the maritime industry, it will bring in folks from academia, business, government agencies, to collaborate around maritime problems and opportunities. That’s not something where our return on investment is rent, our return on investment is the number of startups or good ideas that we foster and move forward over the next generation within the maritime industry. The results we’re looking for is a bright, vibrant maritime industry that sustaining itself and innovating into the future. It’s not a big building, but we’ve really worked hard with partners from Maritime Blue, the University of Washington, and many others to make this a special facility that will be a hub for maritime innovation. When we were first getting going, we discovered that there were 60 Different accelerator programs in Seattle. None of them focused on maritime, which is one of our classic local industries. We think maritime is still vital, but we felt like there’s something that’s missing in the middle. We have a world class tech and entrepreneurial ecosystem, but it wasn’t connecting to our maritime industry in a formal beneficial way. So that’s really the purpose behind our Maritime Innovation Center.
BAKER: Do you think supply chain needs to be disrupted? And if so, where, and why?
GANZARSKI: Yes. There are some industries out there that have been going on for so long, people just accept how things are. If it has been done a certain way, that’s how things just are today – no questions asked. But supply chains have changed so much, and the global economies have changes so much, we need to be asking the question – should be doing things the same way. When we look at supply chain, how is it tracked today? How do I know what package has gone where and is it still the same package I thought it was. More importantly, what about what is inside that package? Today it’s mostly done with all sorts of additives: a barcode sticker, an RFID tag, a QR code, hologram stickers that “can’t be counterfeited.” The challenge is that any one of those additives can be changed, damaged, taken off, marked off, or be counterfeited themselves. We need to start thinking differently. That’s where from an Alitheon perspective, when we look at the power of AI, and specifically, in our case, optical AI, the power of the computer and the camera that we have in our hands today in a phone, gives us the opportunity to really change the way we think about things. We don’t have to rely on sticking something on a box and hoping that it tells us the truth. We can actually take a picture of the item, and that will tell us the truth – no additives, no nonsense. And that completely changes the game. It’s time as an industry, for us to stop relying on stickers and markers and someone with a Sharpie writing that something is real. We need to stop hoping that as the product goes from one country to another, on different ships, on different trucks, through different warehouses, that no one is able to actually manipulate that, because clearly, they can, again to the tune of $3 trillion a year.
BAKER: What is optical AI bringing or changing in the world of supply chains?
GANZARSKI: I will define AI as augmented intelligence. As augmented intelligence, based on an image and camera, we help human beings know things, get data, and make decisions in a way that they otherwise couldn’t. Today we make decisions on whether a product is real or not, on whether a box is where it’s supposed to be or not, on whether something has expired or not, based on what’s printed on the box. This box of Medicine says it expires July 1, 2023. It’s now June 6, so we must be good. And there’s no way to actually know who actually printed that on the box. We just assume if it’s printed on the box, it must be real. If it has a stamp on it, or a hologram sticker, it must be real. The counterfeiters have figured out, if they fake a good sticker, everyone will believe it. As people, we’re very gullible, we want to believe that we can find a great deal where others can’t. When we find that NFL jersey or cream that is 30% cheaper and it has “the sticker” on it, we are happy and buy. What optical AI allows us to now do is not rely on our own eyes, because as humans, our eyes aren’t that good. If I see a date, I will interpret that that date means it’s okay. And so, I trust it. What we’re doing with optical AI is saying don’t trust necessarily what you can see, because you can’t see everything. Advanced algorithms can see things that we simply are incapable of seeing like minute microscopic differences on the surface of a product that might easily tell this is not what you think it, or it has expired no matter what the box may say. Optical AI gives us the ability to suddenly see the world in a different way, and how it was intended to be where we can now start questioning the actual item and the actual product, not just the package or the box or the sticker that’s on it. And that gives us the ability to have irrefutable truth as opposed to assumed truth, which could be very dangerous.
MCFADDEN: The digitization is coming to our terminals. It’s not there yet. I see a lot of folks on our docks still carrying around paper and clipboards. It is being disrupted. It’s coming and there’s early adopters, and they are using digitization or AI or machine learning or the tools out there to improve or change the way they’re doing business. The supply chain has been disrupted, it will continue to be disrupted, whether it’s by these new technologies or just by the change in global trading patterns. That can be what’s going on in China, but as you know, businesspeople when they’re shut out of getting their supplies they’ll morph and figure out how to produce it or get it somewhere else. You are seeing how a potential West Coast labor disruption influences where people want to ship things. These disturbances aren’t over by any means. All it takes is a different change in commuter behavior, advances in technology, or political changes. I think we’ll continue to see supply chains transform. And I do think change will be purely a function of technological investments. It will also be heavily influenced by what’s going on with our international trade policies and practices. We read a lot about growth of trade with India. How will that impact us in Seattle when India is further south, and it may be more competitive to ship products from there further south or through the Panama Canal. These all become factors.
GANZARSKI: Take an example of microprocessors that happened recently with cars. When the global supply chain hit the microprocessors and there were less processors coming in globally, that means car manufacturers had a challenge finishing their cars, so cars couldn’t get delivered. So, the price of cars went up. When there’s a demand for something that can’t be met by the original manufacturer, someone else will fill that gap. Suddenly, you saw fake chips, old chips, gray market chips, that were supposed to go to one country suddenly showing up in another with erased markings. People will find a way to fill the gap that they need. Sometimes it is with fakes and sometimes with gray market. In any case, it could be detrimental and dangerous.
BAKER: What’s on the horizon for the Port of Seattle in terms of real estate or development?
MCFADDEN: We have one of the largest, busiest airports in the country, it operates on a very small land base, small compared especially to other major airports. We are seeing passenger traffic rebound, the airport is again growing slowly into the future. This rebound in air travel at SEA puts a press on our real estate, some of that is anticipated by our airport master plan. But since that was five years ago, we’ve got other needs that have popped up – needs and opportunities. We’ looking at that right now, I really can’t give you a depth of what some of those needs look like, because we’re literally studying in the now. But it’s a dynamic airport. And as we grow through the decades of the 10, to the 20s, we can expect more growth. It will be smarter and more careful than years past. We want to be a good neighbor and partner in the community as well. On the maritime side we are building facilities and investing in our docks and terminals. We anchor the waterfront — we have a lot of opportunities to support maritime, but also to support the city’s industrial land base and its customers in that vein. That’s incredibly important. Industrial lands are a big source of revenue for the city and the region. And we actually have the capacity to play a major role now and going forward. On the maritime side we’re blessed with both the docks you see along the waterfront, but also over a million square feet of diversified real estate, both commercial and industrial. And so, it’s a great portfolio, and it’s diverse, and it’s well positioned. They’re not making any more waterfront and I think if we take care of it, we can continue to be an economic catalyst for Seattle in the region. And that is probably the best asset we have outside of our people that work here, in terms of really making a difference for economic development within King County.
BAKER: What are you most excited about when you look at the logistics, and supply chain industry, the sector, when you look at going forward?
MCFADDEN: I’m most excited by the green economy of the future. You can have nightmares around climate change. And it’s very real, and it’s pretty scary. But if you scratch deeper, there’s an enormous amount of positive economic energy and potential that goes into transforming ourselves into green sources of electricity. Sitting at the port, I see that coming at us in the form of hydrogen, I see it coming in the form of offshore wind, a whole bunch of new energy sources we’ve never really seen before. And with that, if we can realize and support these clean energy sources that’s exciting. We are getting inquiries from clean tech and green energy companies that want to land at the Port and help provide solutions that address climate change. When that happens, it puts a smile on my face because it gets more real and tangible. We can actually make some of this happen. Some of the despair that you start with leaves because you’re actually seeing things on the ground that will really make that meaningful difference that we need.
GANZARSKI: For me, it’s about consumer education and realization, that as consumers, we have the power in our hands to make change. A few years ago, who would have thought that on Kayak or Google Flight, or Expedia, you will see co2 emissions per airplane ticket as an impact of buying your ticket. People buying jewelry now asking, where’s this gold from? Did it come from a legal mine that has good employee practices? Or maybe from the Congo where they have child labor? Where is this car part from? Will that impact safety? Where is this luxury bag from? If the price is too good to be true, did it come from some sweatshop in China that’s taking advantage of children? More and more people are starting to ask the question and say, what tools do I have that can help me answer these types of questions. So, from that perspective, I find it exciting, that this move to digitization and easy sources of information, is enabling consumers the choice to make better decisions. Whereas once you walked into a store and were told this is the bag, this is the jewelry, this is the medicine, take it or leave it; now you have the choice to say, I’m going to leave it because I can buy it somewhere else where I know, they check and verify in an irrefutable way. To me, that’s really exciting.
Panelists
Roei Ganzarski is CEO of Alitheon®, whose FeaturePrint technology provides for items what fingerprints are for people – a unique identifier for each and every item. FeaturePrint eliminates counterfeits, shuts down gray markets, and enables product tracing, all with just a photo using a standard camera. Prior, Ganzarski was CEO of magniX, the electric aviation propulsion company. magniX were world first to fly multiple electric commercial aircraft and achieved first FAA Special Conditions publication. He was also executive chairman of Eviation, the electric aircraft manufacturer, bringing a new electric aircraft to market. Before that, he was CEO of BoldIQ, a provider of scheduling optimization software; held positions at Boeing, the last of which was Flight Services Chief Customer Officer; worked in banking and advertising; and served in the military.
David McFadden is the managing director of the Port of Seattle’s Economic Development Division. McFadden started at the Port of Seattle in 2015. He oversees the Port’s real estate, small business development and tourism departments. McFadden is a mission-driven leader who has spent his 30+ year career supporting business expansion projects and building local economies. With experience at the state and local level, McFadden has wide-ranging know-how in the areas of business development, city planning, workforce development, tourism, real estate development and public relations. Prior to the Port of Seattle, McFadden served as president and CEO of the Yakima County Development Association. Companies that received support from the association during McFadden’s tenure invested over $400 million in new facilities and created over 2,000 new jobs.