Andrew C

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Thanks for this interesting and timely read, Doug. Your recommendations to secure advantageous trade deals with foreign governments and to reduce labor content in vehicles is spot on. In response to your questions:

1) This is a complicated question, but I believe that the US government would be worse off in the long term by raising taxes on corporations with international supply chains. All else equal, higher taxes on US-based companies would result in lower corporate profits, which would greatly impact shareholders. This would impact Ford and US manufacturers by lowering their free cash flow and their public valuation, which would restrict their ability to invest in the future capital programs, which makes them less competitive in the future. This means lower revenue and less spent on taxes. Alternatively, if firms raises prices in order to sustain corporate profits, they will sell fewer products, which would also lower their revenues and taxes paid. Therefore, in the best case scenario, increasing corporate tax rates will negatively impact tax revenue in the long term. Given that capital is less expensive for the US government than almost any other entity in the world, the government should not be seeking to maximize near term tax revenues at the expense of longer term revenues – they should be the most long-term oriented. Unfortunately, this is where politics and economics do not align – it may be in President Trump’s best interests to raise taxes on corporations with international supply chains to appease those who voted for him.

2) Point taken that national boundaries are becoming less relevant in the world of globalization, but they are still far from irrelevant. Nations pave the way for corporations to be successful by: i) ensuring the populace is amply educated to contribute to the workforce ii) enforcing the rule of law, and most importantly the existence of property rights iii) providing for the basic infrastructure required to operate a business (e.g., roads, utilities, clean water, etc.). Nations differ dramatically in their ability to deliver upon these promises, which is why entrepreneurs flock to the United States to start businesses. Differences also exist on a state by state basis, explaining why so many companies incorporate in Delaware and locate their headquarters in San Francisco. Though people and businesses are becoming increasingly mobile, nations are still highly relevant.

Great article! I agree with your recommendation for Schneider to continue rolling up the trucking industry due to advantages offered by scale and their proprietary Quest platform. In response to your questions:

1) I would encourage Schneider to work with Amazon for a few reasons:
a) Partnering with Amazon will help Schneider to build additional scale, and thereby spread costs and investments (like the Quest platform) across a larger revenue base.
b) Amazon captured more than half of total e-commerce growth last year [1]. In an industry with GDP+ growth rates, having a customer growing in the teens every year is very valuable.
Shipping rates are relatively commoditized, so
c) By not partnering with Amazon, Schneider will cede the above advantages to competitors who could then become more competitive in other shipping sectors (e.g., by developing their own Quest Platform)

2) I would also encourage Schneider to partner with Tesla or other self-driving auto companies in order to be the first shipping company to market with these technologies, influence how the economics work and hopefully derive some economic benefit in exchange for using their enormous fleet to pilot some of the technologies.


On November 21, 2017, Andrew C commented on Re-inventing NYT: Impact of digitalization on news media :

Interesting read! I agree with you and Alec that the NYT should not attempt to build technology hardware as it is far from their areas of core competence. That said, I believe the NYT can continue to be successful without going into hardware by continuing to have a distinctive voice that is valued by consumers. This voice will continued to be valued no matter the format that people consume it, similar to how musicians / artists are still able to monetize their content whether it is sold on a CD or listened to via Pandora or Spotify. That said, advertising in an age of connected devices where the news is being read to us will present some unique challenges for the NYT. However, I do not believe these challenges are unprecedented – they should be able to incorporate audio advertisements like those heard on the free version of Pandora. Tactically speaking, if Alexa will read news to people in the future via the NYT Alexa app, the NYT should insert an advertisement between each article, unless that listener is a premium subscriber.

To answer your second question, I think a move to a purely subscription based revenue model would be pre-mature at best and crippling at worst. I think the Rdio case offers two useful lessons here, specifically: i) some consumers don’t mind listening to advertisements and ii) there is value in having scale of distribution, to help defray the cost of content.

I am bullish on the NYT’s ability to continue to monetize its content, but believe that local newspapers will continue to consolidate as they lack the scale and wherewithal to effectively distribute their content on the latest platforms (e.g., Alexa or Google Home), similar to how they have struggled to remain relevant on Facebook.

On November 21, 2017, Andrew C commented on Time, Tide and… Massive Capital Expenditures, Wait for No One :

Scott – Thanks for this interesting read. I’m happy to see that the Navy is taking action today on this important issue. To answer your questions:

1) It is perfectly reasonable that the Navy is taking a stand on global warming since its effects will require considerable investment to counteract. That said, I wonder if the current rate of ocean rising (about 1/8 of an inch per year, per NOAA [1]) is enough to require the Navy to take action now. If they have a buffer of 1-2 feet before action must be taken, I would encourage them to delay these expenditures until just before it is too late. Doing so would serve the Navy well for a few reasons: i) if, somehow, the ocean levels stabilize, they will save billions of dollars ii) new technology may be invented in the meantime to reduce the cost of adapting facilities and iii) every that billions of capital expenditures is delayed creates real value due to the time value of money (albeit this is lower because the US government borrows at very low rates).

2) It feels reasonable that the cost of these expenditures are being included in the Navy’s budget because they are directly related to the maintenance of Navy base facilities. That said, it would be helpful for the American public to know how much in aggregate the US government is spending on actions like these so that they realize how expensive global warming already is for our country. I suspect that this figure would help to shift public sentiment towards recognizing global warming as a near term problem, which may result in legislation that helps to counteract global warming’s effects. Given that the Navy’s expense in this area is likely larger than any other government agency’s, I would encourage the Navy to take the initiative to aggregate this figure.


On November 21, 2017, Andrew C commented on The Little Smoothie Company that Could Faces the Big Bad Brexit :

Thanks for this interesting read – it sounds like Innocent found itself in a bit of trouble here – through no fault of its own! Though your recommended solutions are plausible, I would encourage Innocent to focus its efforts primarily on i) building more sophisticated hedging capabilities, perhaps with the assistance of Coca-Cola, and ii) on expanding into countries where they currently source their existing fruits and vegetables.

First, I recommend hedging because it seems like a straightforward way to limit their exposure to currency risk without needing to raise their prices (as sourcing fruit in the UK would require) or re-do their formulations (as Coca-Cola can attest, this is risky business). Furthermore, as Innocent continues to grow, their currency exposure will continue to increase, thereby only increasing their need for proper hedging techniques. As such, rather than waiting to build these capabilities, they should do so now.

Secondly, they should seek to grow sales in euro-denominated countries since earning sales in the same place where expenditures are made serves as a natural hedge. Given that they are growing rapidly and are already in 15 regions, presumably around the UK, this is a realistic and actionable goal for Innocent.

To answer your question, I don’t think there is a definitive way to measure the impact of this uncertainty period on Innocent, but I think that the effects of this period would impact Innocent in the following ways: i) weakening the GBP, as previously mentioned ii) boosting international sales (due to a relatively less expensive product price) iii) discouraging suppliers from agreeing to longer-term agreements because they do not want to be exposed to currency risk (which would make Innocent’s sustainability initiatives harder, but currency risk hedging easier). Net-net, these effects are probably modestly negative in the short run, as declining margins (from higher input costs) will probably be partially offset by rising sales.

On November 21, 2017, That Guy commented on Saving Winter Wonderland? :

Thanks Jenny for this insightful article – I did not know that the making of fake snow had a negative environmental impact. In response to your questions, I believe that resorts should severely limit their usage of snow-making machines due to the impact these machines have on the local ecosystem. According to one article I read, the extended snow cycle that alpine resorts have as a result of artificial snow alters the natural climate cycle of the surrounding region. Additionally, snow-making can actually cause alpine rivers to run dry for long portions of the spring, which has an enormous negative impact on the foothills ecosystem. Another article also mentioned that the loud (115 db) snow making machines can disrupt the nocturnal behavior of certain animals, which also has broad implications for the local ecosystem. One could likely assume that snow-making results in a lot of unhappy owls!

That said, a unilateral ban of snow-making machines, as Brooke recommends, could also have a severe negative impact on the employees of ski resorts and their shareholders, so I believe a more nuanced solution is required. I agree with your recommendation of investing in more efficient snow-making equipment, but I would also add a few more recommendations: i) More proactively market the use of resort land in the summer for hiking, camping, etc. in order to make resorts less reliant on the ski season ii) gathering natural made snow from neighboring un-skiied mountains and iii) Creating (and promoting) cross country ski trails that may not require as much snow.

That said, a reduction in the skiing season will likely mean a nearly commensurate decline in resort revenue for most firms, so any adaptation in snow-making behavior will likely need to be driven by legislation. Let’s hope the ski resorts cooperate with the government to devise a solution that is able to balance environmental sustainability with a reasonably long ski season!

– Andrew