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The US post-World War II kind of established this order that said you can just send a ship wherever you want and the US
Navy will provide freedom of navigation.
Maybe the U.S.
Navy can't provide that guarantee anymore.
Oil is not just about pumping your gas in your car.
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.
It is existential, I think, how all of the economy functions.
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's 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.
It's great to be here.
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, 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 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.
They've 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 what you can see at Flexport like, what does the traffic jam look like?
What's the snapshot of right now?
The big story of course here is oil prices and energy generally, natural gas, which all of that.
I think that's pretty well covered out there in the 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 not.
They're just not going to have enough fuel.
Their secondary um things are less well covered, which are maybe even more impactful 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 stop over 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 is 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.
You just like, it's kind of fungible.
Like a plane that's flying across the Pacific could instead fly somewhere else.
And it's just like, it's a very mercenary market freight.
Like they get away with what they can get away with, you know, so.
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 shipping 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 the 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 ships container ships inside the Strait of Hormuz.
Now many, many more are on ships that would have called in the Strait of Hormuz, that have been had their routes disrupted and are dropping containers at random ports that you know 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 seven days of free storage at that port before you start paying big fees.
So yeah, there's like 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 like pretty insignificant.
COVID, 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 to 10 yet.
We always have to be ready for something bigger.
Let's say that was an 8.
The Red Sea disruption is probably like a 6 or a 5.
And then this is like a 2 or a 3 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 ever, because the price of oil is just upstream of everything else.
The bigger impact here again is like oil price, oil shortages.
Frankly, like 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 like decimates their oil, call center jobs, data entries 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 and the Pacific that's going to have these problems.
As you talk about this.
It's 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?
Is there a scenario where sort of American companies like gain competitive advantage from this?
Like it's good or is that is that a misread of the oil companies?
I mean, Texas is going to boom like the price of oil has gone way up.
Texas College Football is probably going to have some great NIL team.
No, sorry.
It's not appropriate to joke.
Yeah, certain segments of the U.S. 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 net on the economic basis, 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 the stuff over there.
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 sea air.
I mean, they're fine.
They have a hot product launch, like good for them, you know.
For the most part in air freight.
It's things like the iPhone, you know, like 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 forgot.
So we're not going to notice it compared to all the other things.
It's one gallon of gas for my car.
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 again.
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 transport between two U.S. ports.
It has to be a U.S.-made ship with a U.S. 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 in 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.
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 oh, we should just close this trade of Hormuz forever and just get on with it.
And just like the naivete 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 like it's part of so many different products that 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.
Helium, 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 U.S.
Navy will provide freedom of navigation.
And that worked until...
Really, we're now seeing with the Houthis and now the Iranians that maybe the U.S.
Navy can't provide that guarantee anymore.
And so much of our civilization depends on it that it's a really, really important question.
And is there an off-ramp here?
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, oh, for the economy.
People look at the stock market or the price of fuel or something.
This is like – 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.
As Ryan points out, we are a global economy, whether we're talking about oil or iPhones, which makes any military action disruptive.
Meanwhile, for businesses here in the US, should they be expecting billions in tariff-free funds after the Supreme Court decision?
We'll talk about that and more after the break.
Stay with us.
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Listen to Search Engine wherever you get your podcasts.
Before the break, Flexport's Ryan Peterson shared a real-time view of the trade impacts from military action in Iran.
Now we dig into the Supreme Court's tariff ruling against the Trump administration and whether 160 billion in refunds may be coming to businesses.
Plus how AI is changing logistics and software-based firms, and whether all the trade turmoil might actually be good for Flexport itself.
Let's jump back in.
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.
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 get, take away the risk.
So the fact that there's sophisticated buyers on the other side of that paying um you know, 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 you know they're.
They have a high expectation of return.
So 30.
What is it, 30 cents?
It's like a 40% return or something like that.
That only works if you'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.
I mean, is it hard to do?
You just go on a website and put it in, or do you have to do this, like, manually?
We have a guide.
If you go to terrorist.flexport.com, there's a free guide there to show you how to do it.
But, uh...
I don't know.
I think a lot of people.
We forget that big companies like no one's job is to collect the tariff refund.
People are just doing their job, not like figuring out what their job should be.
And this sort of financing option for like, basically securitizing getting paid today for whatever you might get tomorrow.
Is that something that like... that you see bigger companies getting into?
Or is it something that smaller companies do, like I need the cash now?
Up until now, it's really only been an option for companies with claims above $10 million.
I'm actually working right now at Flexport to try to create the option for people below $10 million.
We hope to be able to announce that soon.
But we haven't seen a lot of activity below that.
And frankly, people don't know what to do.
I'm getting texts daily from importers with claims of all sizes, including some big claims, over 20 million, who just looking, they don't know it.
It's very difficult to operate on uncertainty and there's 20 million at stake for the company that texted me this morning.
I don't know what I would do.
My take is that there will be refunds soon.
But you might take the 70 cents on the dollar from a hedge fund to get your money today and not have to worry about it.
Yeah, it's tough.
You'll feel stupid if there's refunds in 90 days and you left 30% of your money on the table.
At the same time, this is happening, right?
Like the Trump administration has not backed away from tariffs there.
You know, they have these new levies.
Does that...
Does that restart the legal fight?
It does.
They've put in Section 122, it's called, and that's going to get challenged.
They've also rolled out their over 80 different investigations either from Commerce Department or the US.
Trade Representative to add tariffs on either country-specific tariffs or sector product commodity-specific tariffs.
And these are under different statutes because the current tariff, the 10%, Trump said it was 15%.
Nobody should remind him that they only did 10.
They haven't rolled out the 15 yet.
He's just talking the 15%, but they haven't.
I don't know why CDP hasn't done 15.
Don't tell anybody.
I hope they're not listening.
But that has a limit of 150 days.
And so they're trying to get these other tariffs implemented by – that was July 24th is the deadline for when that rolls off.
And yes, it may get challenged, and those might get refunded too.
We'll see.
There's two other types of tariffs.
And those require investigations by either the Commerce Department or U.S.
Trade Representative.
Investigations that can take months.
So they're not as easy as IEPA, the one that got overturned by Supreme Court allowed the president just kind of wake up in a bad mood and say you know, F you Canada.
So he's a little bit more restrained, but likely you end up in a very similar place.
He has a lot of tools in his tool belt.
And these reviews have to take months, or can they, like you know, accelerate them and shorten them?
It is a great question.
I feel like with AI, you could probably do the, you know, two months of research is one prompt.
Like, hey, write me a Section 301 investigation, Claude.
Don't make any mistakes.
Like, it might just work, so...
Is all this turmoil oddly good for Flexport?
I mean, you're here talking about the crisis.
You do it on social media and elsewhere.
It must help your brand awareness for Flexport.
It helps the case for your tools.
Or is there risk of all that kind of backfiring on you?
You know nothing.
That's bad for trade and bad for our customers.
Should be really good for Flexport in the long run.
That said, I think it's a good principle in business that if you're better at operating in conditions of uncertainty and disorder than your competition, then you can benefit from uncertainty.
And we've proven that over and over again.
We move faster.
We make decisions.
We just take action.
And part of it is being a younger company.
Our competitors are really good companies, but they've been around for, in some cases, 125 years.
It's just harder for that.
It's managers all the way up and down the top.
They don't have that same take some risks, make a decision, launch some stuff.
We expect to launch a fund to buy people's refunds at a discount and help these small businesses that haven't been served by the hedge fund market.
That started with a phone call from a hedge fund guy that I know you know 24 hours.
We had a term sheet to you know.
Within a week we had multiple term sheets.
Like we just, we're going to go live with it.
There's no one whose job is to do that at a big company.
And so it's just like harder for them to kind of execute like that.
How much do you think that sort of these um Opportunities turmoil, whatever can sort of distract you from longer-term strategy, whether it's things like AI advancement?
How much do you worry about that, the sort of urgencies get in the way of priorities?
For sure.
In October of last year, we rolled out this AI agent that does customs compliance audits.
And we still do the exact same audit process we did before for our customs brokerage, which is human experts reviewing some small percentage, like four to 5, of all the customs entries we file.
We review them and do them a second time. sort of standard compliance procedure.
In October, we built this AI agent.
So we audit 100% of our customs entries before we transmit them to the government.
And it reduced our error rate from 18, which was, given the turmoil of last year, was already industry leading in terms of error rates.
It reduced it to 0.2% in that same compliance review.
And that was the thing.
We had that data around November of last year where we saw oh wow, this is not just cheaper, but it's way better.
It's letting us audit everything.
Like it's way better than humans could ever be.
And we set the whole company on fire for all of November through February, applying AI agents to everything that we do.
That's all I want to work on right now.
And I was pumped.
I was doing a lot of coding myself and just building this stuff.
And then tariff refunds hit.
And then 10 days after that, the Iran war started.
So yeah, it's super distracting, and trying to kind of make sure that it doesn't, the vast majority of our team is still staying the course and just applying AI to everything we do.
I'm curious because you say you're in there coding yourself and I know you have that background, but like I just find it's hard to keep up with all of the new things that are coming out.
How do you try to do that?
You know, actually, I really like what X did recently, Twitter.
On the mobile app.
They created this for you drop-down menu and there's a choice in there for artificial intelligence and you just block it.
I wish, for some reason, it's not persistent, but...
It only stays for one session and you have to return it on.
But it blocks out all the other news that's out there in the world because there's so much stuff.
And part of me, I just want to see what's new on AI.
So that's been the best way to stay.
And there are.
There's like four or five new breakthroughs every single day that I go deep on, read about and try.
So that's the number one thing too, is just trying it yourself, leading from the front, like going out and using these apps, Cloud Code being my favorite right now, and Cloud Cowork as a close second.
Codex from OpenAI is just as good as far as I can tell.
So all these things are just, yeah, you want to be all over everything.
I really think every company is going to get replaced by people who are good at using AI.
And you either do it yourself and replace yourself and your processes, or someone else is going to come along.
And I'm paranoid because we're in such a good position to be that company for logistics, but...
If we don't do it and there's no guarantees that it doesn't just happen like it has to happen for the force of us wanting to make it happen, and someone else will do it if we don't.
Well, I mean and there is a lot of, you know, whatever conversation that sort of software businesses are great beneficiaries, but also what are most at risk.
Yeah, for sure.
I mean I feel vindicated because for a decade all the smart investors and many smart employees told me we should just be a SaaS company and sell access to software.
And I always felt like the service business that we're in of shipping things is a much bigger market that's way more defensible and hard to get into.
AI is not going to build your relationships that you need with all of the ocean carriers and trucking companies, and ports and governments.
When AI doesn't work, It's not that, oh, my AI didn't work.
Oh, well, I just won't ship the thing.
Like, you know, it still has to ship.
It's a little bit like Tesla self-driving approach.
Like, I've had a Tesla for 10 years and the self-driving is finally really, really good.
But for years, I was holding the wheel and making sure, you know, it didn't screw up.
And now I don't have to do that.
Well, that's kind of how we're trying to make it come to life in supply chain.
I was talking to someone who works for a SaaS company and, you know, Google had just came out with a new sort of product iteration that, like the market was like oh, this company's going away, you know, and the stock price went down.
And then they went and they used it and they were like yeah, it doesn't really quite – like how often are you finding that you find these tools and you get in and you try them and you're like yeah –.
I see there's something there, but it's not really doing what I need it to do yet.
For sure, yeah.
Especially if you're trying to replace a whole software company, you know, with one shot or like Google doing some, I don't know.
They launched some new design tools.
I think Figma is still miles ahead of them, for example.
And there's a lot of that.
And a lot of what we see in our particular applications of AI is like it can do really interesting, important things.
Point solutions like solve, automate some job.
There's not a whole company in that, and yet it's important that you do it, and so it's actually much better to apply it within a company than it is to build a new ai focused software company around it.
Uh, and if you are building an ai focused software company, you have to go into these industries, into these companies, Convince them to give you their data, to teach you their workflow, to allow you to figure out what's going on here.
And most of these companies are resistant to that, including Flexport.
We've been approached by all the foundational model companies.
They want to come in and automate our business for us.
And I just am like... don't really want to teach them how freight forwarding works.
It's like this dark art that we spent 10 years figuring out, and I'm not really eager to like teach others how it works.
So we rather be the ones that apply it to ourselves, rather than let these other guys come in and forward deploy onto our teams.
We've seen this sort of nonstop series of trade crises COVID, the Suez Canal blockage, the Houthi attacks in the Red Sea tariff war, Supreme Court involvement, now the war closing Hormuz.
Like, do you think things are ever going to get predictable again in supply chain?
No, I don't think so.
You know, and there's...
We've now learned that these choke points are just super important.
We had also, you didn't mention, but the Panama Canal was not operating properly two years ago.
That's right, yes.
Yeah, not enough water.
There's always rumors about China and Taiwan.
So I don't think anything's going to be normal, maybe ever.
I think you should operate with that.
Assumption is you have to figure out how to operate under uncertainty.
Well, Ryan, thanks as always for coming on and sharing with us.
Yeah, my pleasure.
Thanks for having me, Bob.
Listening to Ryan, I'm struck by where he's confident and where he sees uncertainty.
He's pretty sure that tariff refunds will be coming.
He's also pretty sure that AI is a game changer.
But he's uneasy about the economic impacts from Iran and he doesn't see much stability ahead for supply chains.
In such chaotic moments, I'm reminded what an expert in chaos theory once told me that the key insight with chaos is understanding where things are truly unpredictable and where they aren't, and then acting accordingly.
With a war going on it can feel trite to say focus on what you can control, but sometimes that's all we have.
By taking action, we can start to influence the conditions around us.
And if we're deliberate and thoughtful about it, well...
That's progress.
I'm Bob Safian.
Thanks for listening.
Rapid Response is a Wait What original.
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