Crisis at Hormuz, and your $160b tariff refund clock, with Flexport’s Ryan Petersen

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0:44To learn more about how CoreWeave powers the world's best AI, go to coreweave.com slash ready for anything. The U.S. post-World War II kind of established this order that said you can just send a ship wherever you want and the U.S. 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.

1:24Every company is interconnected with everybody else. And if you stop that, you end up in a much darker place.

1:40That'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.

2:22I'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 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 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.

2:59the attacks on iran have they've effectively closed the strait of hormuz though 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 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.

3:44There's secondary things that 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.

4:18And Dubai's the biggest cargo airport in the world. huge amounts of planes that go from Asia to Europe make stop over there to refuel and kind of it's a hub for transshipment of cargo so there you've seen the price of air freight double in the last since the war started even and it's even up 50 to 60 percent on trades that would seemingly have nothing to do with that like Vietnam to the U.S. across the Pacific air freight prices have gone up 50 percent um i saw the united airlines ceo said that they're modeling that this is going to cost 11 billion dollars of uh fuel expense so these costs are going up because the 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 um 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.

5:18And 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.

5:53And 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 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 had their routes disrupted and are dropping containers at random ports.

6:36If 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 definitely some cases where people are living kind of business nightmares right now.

7:17Listen, we've had a lot of disruption in trade over the last few years, Lord knows. is is this like where does this rate on that sort of how this ripple effect is feeling uh compared to some of those other things we've been going through from a container shipping view it's 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 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.

7:55Now 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 can imagine 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 u.s 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 straight of hormuz and i mean the poor philippines right first ai like decimates their call center jobs data entries wiped out and now they they don't have any oil it's just like a country that's going to be struggling.

8:40And that's one of many allies of the U.S. and 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 like gain competitive advantage from this? Like it's good? Or is that a misread of the situation? Well, certainly our oil companies I mean, Texas is going to boom. 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.

9:16Yeah, 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-net on the economic basis, most of America is – 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.

9:51Right 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.

10:29and then hotshot 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.

11:06Maybe three bucks. I forgot. So we're not going to notice it compared to all the other things. It's one gallon of gas from my car. And yeah, 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 transport between two U.S. ports. It has to be a U.S.-made ship with a U.S.

11:42crew. 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 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 we'll just be we should just close the Strait of Hormuz forever and just get on with it.

12:27And just like the naivete to not realize how it's not just oil and it's oil is not just about pumping your gas at your, in your car. That's what you're used to. Cause that's where you see it in your life. But like, it's a, 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 classes that I'm holding helium 40, 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.

13:07There's just a huge percentage of the—we just don't understand this stuff. The U.S. 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 this is we're now seeing with the Houthis and now the Iranians that if 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 if the Trump is there an off ramp here that if the Trump administration backs off, does that mean Iran backs off?

13:47If 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.

14:31Meanwhile, for businesses here in the U.S., should they be expecting billions in tariff-free funds after the Supreme Court decision? We'll talk about that more after the break. Stay with us.

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16:53Before 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.

17:25You and I could have been 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.

18:05And 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, 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 have a high expectation of return.

18:44So 30, what is it, 30 cents is 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?

19:19Or do you have to do this, like, manually? We have a guide. If you go to tariff.flexport.com, there's a free guide there to show you how to do it. But 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 you see bigger companies getting into, or is it something that smaller companies do, like I need the cash now?

19:57Up 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.

20:29My take is that there will be refunds soon. But you might take the$0.70 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 percent 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 U.S.

21:10Trade 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 done any. 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.

21:55And 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, FU 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, and these, these reviews have to take months or can they like, you know, accelerate them and short, shorten them?

22:33It 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 like good for Flexport? I mean, you're here talking about the crisis. You know, 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? I, you know, nothing that's bad for trade and bad for our customers. It should be really good for Flexport in the long run.

23:11That 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, like, 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.

23:55That started with a phone call from a hedge fund guy that I know, you know, 24 hours, we had a term sheet. 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 opportunities, turmoil, whatever, can sort of distract you from longer term strategy, whether it's things like AI advancement or anything? Like, how much do you worry about that, the sort of urgencies get in the way of priorities?

24:31For 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 4 % to 5 % of all the customs entries we file. We review them and do them a second time, a 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 1.8%, which was given the turmoil of last year was already industry leading in terms of error rates.

25:09It 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.