The US post World War II kind of established this order that said, 'Hey, everybody can trade with everybody and you can just send a ship wherever you want and the US Navy will provide freedom of navigation.' Maybe the US Navy can't provide that guarantee anymore. Oil is not just about pumping your gas in your car. That's what you're used to because that's where you see it in your life. But it's part of so many different products. 30% of the world's helium comes from Qatar. You can't make semiconductors without it. You can't launch SpaceX rockets without helium. How all of the economy functions now is like every company is interconnected with everybody else. And if you stop that, you end up in a much darker place.
That's Ryan Peterson, CEO of global trade platform Flexport and a repeat guest on this show. Ryan's been dubbed tech hurricane reporter for global trade. And with the Strait of Hormuz essentially blocked and the price of oil soaring, I wanted to get his real-time view of the on-the-ground and on-the-water impacts. We also talk about the prospect of tariff refunds after the Supreme Court's ruling against the Trump administration and more. It's serious stuff, but Ryan's sense of humor keeps it fresh. So, let's get to it. I'm Bob Safian and this is Rapid Response.
I'm Bob Safian. I'm here with Ryan Peterson, founder and CEO of Flexport. Ryan, good to see you. Welcome back to the show.
Do you have to check your—like you get up on Monday morning, you're like, 'What happened today in the trade?' Or is it—do you don't even have to wait? You're getting woken up in the middle of the night with all the changes.
I do tend to wake up in the middle of the night and check. But that's just like my insomnia. It does not have to be because of work, but it does seem to be like every single day, multiple times a day, there's new news and by the time this airs, everything may change.
The attacks on Iran have effectively closed the Strait of Hormuz, the world's most critical sort of oil choke point. Oil prices up, ships stranded, global shipping kind of in limbo. So, I know this is changing as we speak, but from your vantage point, from what you can see at Flexport, like what does the traffic jam look like? Sort of how fast are ripple effects spreading? Like what's the snapshot of right now? The big story of course here is oil and energy generally, natural gas, which is—all of that I think that's pretty well covered out there in the media that the prices have been spiking and shortages starting to appear. Places like Australia which is very energy rich but doesn't produce a lot of oil is running out of diesel and moving towards a world where they're just not going to have enough fuel to operate. Things that are less well covered which are maybe even more impactful are around fertilizer. That's actually probably a more important story here. It's planting season and if those don't come to market, you're going to have big, big, big problems in the food production of the world. Container shipping is not that impacted actually. Just because the Persian Gulf is a cul-de-sac. You don't really need to go in there. Air freight's a bigger deal. The Middle Eastern airlines own somewhere between 15 and 20% of all the cargo airline capacity depending on what source you look at. And Dubai is the biggest cargo airport in the world. Huge amounts of planes that go from Asia to Europe make stopovers there to refuel and it's a hub for transshipment of cargo. So there you've seen the price of air freight double since the war started. And it's even up 50 to 60% on trades that would seemingly have nothing to do with that like Vietnam to the US across the Pacific air freight prices have gone up 50%. I saw the United Airlines CEO said that they're modeling that this is going to cost 11 billion of fuel expense. So, these costs are going up because the fuel prices are going up or also because it's disrupting routes or forcing people to change their direction or is it hard to know right now?
It's both. Fuel price is the big one but it's going up also because of supply and demand. It's sort of a global market and if you pull off all that—Emirates and Etihad and Qatar Airways are big airlines—and if you pull that out they start moving planes around. It's kind of fungible, like a plane that's flying across the Pacific could instead fly somewhere else. And it's just a very mercenary market, freight. They get away with what they can get away with.
On the container shipping side, the actual big impact here is that in February the container shipping lines for the first time had started to return to the Red Sea. We haven't had container shipping through the Red Sea and through the Suez Canal since December of 2023 because of the Houthi terrorist attacks in the Red Sea. And they just started to return in February following the ceasefire in Gaza. And then now they've all just immediately returned to going back around Africa. So that's actually the bigger impact for container shipping because again the Persian Gulf is a cul-de-sac whereas the Red Sea is just massively important for container shipping.
I mean are container ships like—are they stranded? Are they stuck?
Yeah, a small percentage. I saw someone who had gone and counted them all and he said there are 57 container ships inside the Strait of Hormuz. Now many more are on ships that would have called in the Strait of Hormuz and have had their routes disrupted and are dropping containers at random ports. If you had a container that was meant to go to Dubai, they're just leaving it wherever. And now it's your problem as a business to go—you've got a container stuck in some random port that you didn't plan for.
Oh, really? They're just like, 'I'm letting it off here.'
Yeah. Like let's say you were going from Argentina to Dubai. What they've been doing is saying, 'All right, just drop it at the next port of call.' And so now you have a container stuck in Morocco or Brazil or France or somewhere. And you're only given 7 days of free storage at that port before you start paying big fees. So yeah, there's definitely some cases where people are living kind of business nightmares right now.
Listen, we've had a lot of disruption in trade over the last few years. Lord knows, is this like—where does this rate on that sort of—how this ripple effect is feeling compared to some of those other things we've been going through?
From a container shipping view it's pretty insignificant compared to all the congestion we had at the ports. Let's say that's like an eight—there's no 10, right? We haven't lived a 10 yet. We always have to be ready for something bigger. Let's say that was an eight. The Red Sea disruption is probably like a six or a five and then this is like a two or a three for container shipping. Now for air freight this is probably a much bigger deal than those things were for the world economy. I mean this is like one of the worst things you could imagine because the price of oil is just upstream of everything else. The bigger impact here again is like oil price, oil shortages. Frankly, the US will be mostly fine on this. We're going to see high prices, but there's going to be oil shortages in a lot of markets across Asia. You know, I was just looking at the Philippines. 96% of their oil comes from the Strait of Hormuz. And I mean, the poor Philippines, right? First AI decimates their call center jobs, data entry's wiped out, and now they don't have any oil. It's just like a country that's going to be struggling. And that's one of many allies of the US in the Pacific that's going to have these problems.
As you talk about this, that sort of America, the United States is a little bit more insulated from some of this than places in Europe and Asia. Like is there a scenario where sort of American companies gain competitive advantage from this? Like it's good? Or is that a misread of the situation?
Certainly our oil companies are. I mean Texas is going to boom. The price of oil's gone way up. Texas college football is probably going to have some great NIL team. No, sorry, it's not appropriate to joke. Certain segments of the US are going to do very well. We're the biggest oil producer in the world. So, it's going to be very good for them. But at net net on the economic basis, like most of America's—yeah, we might be better off than other countries because we have oil and energy and food. But it's not a zero-sum game, the economy, right? It's like if others do worse, it doesn't mean that we do better. We actually also do worse.
When you're interacting with the shipping customers that you deal with, is there a breakdown yet about who's feeling it most? You know, big global organizations, small businesses.
Right now, the people who are feeling this the worst are air freight shippers and especially air freight from Asia to Europe. And who ships air? It's high value stuff or it's new product launches. So one of our customers makes fashion accessories, I guess you would call it, and they have a very successful product launch right now in Europe and it's running out of stock and they need to air freight stuff over there and they like can't, you know, the rates are so expensive that the economics don't make sense for their product. So we've been getting creative. So we created a service. We actually do a fast ocean express service to Los Angeles across the Pacific and then hot shot transfer it from the port to LAX and fly it to Europe same day. And that's a lot faster than going around the tip of Africa and a lot cheaper than flying it to Europe. So it's like kind of a hybrid. They're fine. They have a hot product launch. Good for them. You know, for the most part in air freight, it's things like the iPhone, you know, really computers, really high value stuff that you fly by air.
My iPhone prices are going to be going up.
I did the math on this once. The price of freight on your iPhone is probably like a buck or something out of the thousand bucks, maybe three bucks. I forget. We're not going to notice it compared to all the other things. It's one gallon of gas for my car. And yeah, again, you know, I think California is going to see some problems here. They closed down a lot of the refineries for kind of green climate change reasons, but now we import the oil from South Korea and they get their oil from the Middle East. So, we're going to have some problems there. That's why Trump suspended the Jones Act for oil. You know who's going to benefit actually is Hawaii. The Jones Act says you have to—for to transport between two US ports, it has to be a US-made ship with a US crew. And there's not a lot of those. So, the price is way, way higher. And Hawaii and Alaska are the big sufferers of the Jones Act and Puerto Rico. And so Trump suspended that like an emergency suspension. So now all of a sudden Hawaii can get oil from American ports on non-US ships and it's going to be much, much cheaper.
For folks listening to this, like what do you feel like is at stake for global trade right now in this moment?
It goes beyond trade. I mean, you're just starting to realize how tied to globalization, how tied our economies are to each other, how interconnected everything is. You know, I had someone last night tell me, 'Ah, we'll just be—we should just close the Strait of Hormuz forever and just get on with it.' And just like the naivety to not realize how it's not just oil and oil is not just about pumping your gas in your car. That's what you're used to because that's where you see it in your life. But it's part of so many different products. It's a precursor to so much in the chemicals industry. It goes into all sorts of—all the plastics, these glasses that I'm holding. 30% of the world's helium comes from Qatar. It's not just for your clowns, your children's parties. It is used to make semiconductors. You can't make semiconductors without it. You can't launch SpaceX rockets without helium. There's just a huge percentage of the—we just don't understand this stuff. The US post World War II kind of established this order that said, 'Hey, everybody can trade with everybody and you can just send a ship wherever you want and the US Navy will provide freedom of navigation.' And that worked until really this is—we're now seeing with the Houthis and now the Iranians that maybe the US Navy can't provide that guarantee anymore and so much of our civilization depends on it that it's a really, really important question of is there an off-ramp here? That if the Trump administration backs off does that mean Iran backs off? If they don't then what? It is existential I think for the modern—and we say off of the economy, people look at the stock market or the price of fuel or something. This is much more than the price of some commodity or equities or bonds or something. It's like how all of the economy functions now is like every company is interconnected with everybody else. And if you stop that, you end up in a much darker place. So let's all pray. Civilization depends on peace and we often just take it for granted. So pray for those who are trying to bring back this peaceful world.
You and I could be having this conversation today even if there were no activity going on in the Middle East because we've had other things going on in the world of trade and tariffs. The Supreme Court reversing Trump's initial tariffs, new tariffs under a different statute. Can importers count on getting a refund in this situation? I mean, I know you've built tools to help businesses sort of calculate their claims.
Our take is yes. I think that my strong view bordering on certainty is that the government will pay these tariff refunds. It's a question of timing and what the process is and how arduous the paperwork is and like do they reject a lot of the claims and force you to go back and refile and stuff like that. But our take is that it's pretty clear that the refunds are owed and the court has compelled them to do so. And there is a very active secondary market now where you can sell your refund and just take away the risk. So the fact that there's sophisticated buyers on the other side of that paying—we're hearing rumors and depends on the size of your claim but the bigger claims are going for above 70 cents on the dollar and these are hedge fund buyers who have a high expectation of return. So 30—what is it? 30 cents is like a 40% return or something like that. That only works if they're going to get paid within two years. After that, that's not enough of a return for a hedge fund to want to be interested. So they're betting that you'll get paid, but it's unclear when. It's a huge question though. $166 billion and Customs and Border Protection said 330,000 companies that are owed a refund. Only 6% of them have gone and entered their bank account info to get the refund. Most companies are asleep at the wheel on this.
