Is the Oil Crisis About to Break Global Supply Chains?

0:00Support for the show comes from VCX, the public ticker for private tech. The U.S. stock market started history's greatest wave of wealth creation. From factory workers in Detroit to farmers in Omaha, anyone could own a piece of the great American companies. But today, our most innovative companies are staying private longer, which means everyday Americans are missing out until now. Now, introducing VCX, a public ticker for private tech. Visit GetVCX.com for more info. That's GetVCX.com. Carefully consider the investment materials before investing, including objectives, risk, charges, and expenses.

0:33This and other information can be found in the Funds Perspectives at GetVCX.com. This is a paid sponsorship.

0:43Support for the show comes from Public.com. You've got your core holdings, some high conviction picks, maybe even a few strategic options at play. So why not switch the investment platform built for those who take it seriously? Go to public.com slash ProfG and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash ProfG. Paid for by public investing. All investing involves the risk of loss, including loss of principal, brokered services for U.S.-listed registered securities. Options and bonds and a self-directed account are offered by Public Investing, Inc., member FINRA, and SIPC.

1:16Complete disclosures available at public.com slash disclosures.

1:40The funniest I mean. It went viral. Bob's business? A revival. Now, imagine what your dreams can become when you put imagination to work at Canva.com. Today's number, 19 billion.

1:55Ryan Petersen:That's how many dollars it will cost to renovate New York's new JFK airport. That makes it one of the most expensive U.S. reconstruction projects since Kylie Jenner. Money market madness. If money is evil, then that building is hell. The show goes on! The folks in there have watched the show, show! Welcome to Prof. G Markets. I'm Ed Elson. It is March 25th. Let's check in on yesterday's market vitals. The S &P and the Dow declined marginally as investors looked for clarity on negotiations with Iran. Meanwhile, the Trump administration deployed more troops to the Middle East and oil resumed its climb.

2:38Ryan Petersen:And finally, the Nasdaq dropped as software stocks took yet another dive. More on that later. OK, what else is happening? The Strait of Hormuz, which carries a fifth of global energy exports, has now been effectively closed for 25 days, and the ripple effects are being felt across the globe. Fertilizer prices are up 25 % since the war began. Gas is up 30%. Diesel is up 40%. Meanwhile, shipping disruptions are raising global freight costs and extending delivery times. War risk insurance premiums for vessels have increased by about 50 percent, and oil tanker shipping costs have exploded by as much as 200 percent.

3:21Ryan Petersen:So here to break down what all of this means for global supply chains, we're joined by Ryan Peterson, CEO of Flexport, one of the world's leading freight and logistics platforms. Ryan, I always love having you on whenever something is happening with supply chains because you're one of the few people who is actually in this business and you're seeing what is happening on the ground. I have been reading about what is happening to prices, specifically diesel prices. I've been seeing what's happening to diesel prices and fuel. And I've been seeing that this is just exploding prices for all forms of freight, basically anything that ships anything.

4:00Ryan Petersen:I'd just be interested to hear what you're seeing on the ground right now. Yeah, great. Thanks for having me on. Especially we're seeing an air freight market, which obviously is very jet fuel driven, but also the Middle Eastern air carriers, I think Emirates and Qatar and Etihad, and I guess Saudia, which is the Saudi one, they represent 18 % of all air cargo capacity in the world. Emirates is the world's biggest airline, I think, and Dubai is the biggest air cargo airport in the world. So it's just a huge, and those have basically been taken offline. They started to eke their way back up. I didn't see the latest today, but they were trying to bring flights back.

4:38And then, you know, new attacks at the airport. They've more or less ramped that way, way down. So especially Asia to Europe, the air cargo prices are double. In fact, we have Flexport have built this service to ship going from Asia to Europe. We ship in cargo across the Pacific Ocean, bringing it to LAX, and then flying it to Europe from Los Angeles. which is suboptimal to say the least, but saving people money by doing it that way and getting it there. Actually, the biggest impact on ocean freight is the Persian Gulf is not that big of a deal from a container shipping standpoint. The bigger story, obviously, by far is oil.

5:14You mentioned fertilizer, some of these other downstream kind of things that come off of the petroleum products. But the bigger story from container shipping is the Red Sea, which we have not been using container ships have effectively not been going through the Red Sea since December of 2023 with the Houthi attacks, these terrorist attacks in the Red Sea. And in February, the carriers, three of them had just started to return service via the Suez Canal. And they immediately pulled out for too much. It was too risky. So that actually the big impact here is it was about to get a lot better. Like supply chains were about to sort of normalize.

5:54And now we've gone back to going around the tip of Africa. So that's going to add, right now it's increased the price of ocean freight about 50%. And that's a much longer transit time going around.

6:06Ryan Petersen:So we've got oil prices going up, which means that it's more expensive to fuel all of these vessels and all of these aircraft carriers, basically anything that carries anything. We've got the fact that it's almost impossible for any of these ships to go through the Strait of Hormuz. And now you're also pointing out that we've got these issues at the Red Sea. So multiple different issues here. How difficult is it right now to be in the supply chain business compared to other times in history? I think, for example, maybe COVID as an example, where it was obviously like a real supply chain problem.

6:48Ryan Petersen:Like, how bad is it out there? I think it obviously depends very much on what you're trying to do. Like, if you're trying to ship to the Middle East, it's a disaster. I mean, you can't get into the Persian Gulf. There's no container ships going through. Like, I think oil and gas, I think we're seeing about three ships went out yesterday. Normally, it's over 100. So it's a huge reduction in that supply chain. If you're on a global basis, like, the ocean freight story here is a pretty small scale. If COVID was an 8 out of 10 and the Red Sea disruption has been like a 6 out of 10, this container shipping story of the straight-and-form moves is only like a 3.

7:26It's because, yes, I'm not saying it's only a 3 for the global economy. I just mean for container shipping specifically. For the global economy, this is probably the worst thing in our lifetime if they can't get it resolved soon. because how energy is upstream of everything and more importantly, food, the fertilizer production coming out of that region and it's planting season. So it's a very bad timing for the world's agricultural supply chains. But the Persian Gulf from a container shipping standpoint is a cul-de-sac. You don't need to go in there unless you're delivering to there. And there's only the stat that we're looking at is 0.6 % of the world's container ships are currently stuck inside the straits.

8:07So it's not a, you know, it's kind of a rounding error. It's not a big deal for container shipping. Now, fuel prices have gone up 87 % for ocean bunker fuel, the fuel that powers the ship. So that's, you know, there's definitely, it's an energy story is what I would say, rather than a container shipping story.

8:25Ryan Petersen:Ultimately, that energy story is going to affect people like you, right? I mean, if it's more expensive to get the fuel to put the fuel in the ship, or to put the fuel in the aircraft to go somewhere. Is that not also an issue on your end, or is it less of an issue? Yeah, it is. It is. As I said, the prices have gone up about 50%. And the United Airlines CEO said earlier this week or end of last week, he said that this is, their model was, their modeling, the jet fuel price increases is going to cost them$11 billion. Wow. And he said that in their best year ever at United, they made$5 billion in profit.

9:03Wow. which tells you they're going to, the model basically says they have to increase plane ticket prices by 30 % just to pay the fuel. So just to give you a sense of like how this is upstream of everything else. And that's really everything. I mean, we don't think about it, but plastic is all made from petroleum products, like huge percent pharmaceuticals and healthcare, cosmetics, consumer goods, paint, you know, it's in everything. and the U.S. will be okay relative to other markets because we're self-sufficient in energy and fuel. You're going to see a lot of markets, a lot of countries where it's not about prices.

9:43It's like actual shortages. Like you can't get stuff at any price. And yeah, of course the price will go parabolic at that point. But that's the real danger that I think the economy is facing right now. And hopefully, we only take it for granted that supply chains and modern civilization, actually, just like it's all built on a foundation of kind of peaceful coexistence here that if you upset that apple cart, it can get really bad.

10:10Ryan Petersen:Yeah, give us a sense of how this could trickle down to the consumer, because it seems like all that we're really seeing right now, if you're paying for gas at the pump, you're immediately feeling this right now. You're immediately seeing how this is impacting your life. But I think the thing that is probably less understood is how the disruptions in the supply chain could also affect your life in some way. It could translate to price increases in I don't know what. So paint us a picture of how this could translate for consumers. The one that we narrowly avoided is on the West Coast. So California shut down all or most of its refineries in an effort to go green.

10:51But of course, we still consume a lot of oil in California, a lot of oil-based petroleum, gasoline, whatever. And so we've been importing refined petroleum from Korea and other Asian markets because we shut down the refineries in California. Well, those markets are now out of crude to process because they're getting their crude from the Middle East. And so the president had to last week suspend, waive a temporary provision, but waived the Jones Act. and the jones act is what prevents the reason that they have to get refined petroleum from asia is because under the jones act which is a hundred year old law if you want to move um oil by ship from texas to california it has to be on a u.s made tanker with a u.s crew citizen american citizens as the crew and those don't exist so it's not possible for american that we don't have California is not connected to the Texas energy market.

11:53And they actually did it not to save California, but to save Alaska. Because Anchorage is the world's, I said Dubai is the biggest cargo airport. Dubai, Anchorage is right up there. It's a massively important air cargo market because you can't fly a 747 loaded with cargo, can't make it from Asia to the United States without refueling. They all stop in Anchorage to refuel. And so Anchorage is, and if they were about to not have any jet fuel, if they hadn't waived this, the Jones Act. So there's these things that are, you know, we just kind of take for granted. Yeah, of course you can get jet fuel at the airport, but it's very interconnected now.

12:31And actually, I should have looked this up before I came on. I don't know how long they actually can suspend the Jones Act for, but it's not permanent. It's an act of Congress. The president has some emergency powers, but it's not a permanent waiver of that. So we'll see how that plays out.

12:45Ryan Petersen:When I think about the global supply chain at this point, it feels like we've had these immense shocks. I mean, first it was COVID and suddenly everyone realized, OK, supply chains matter. I think that's when you became, honestly, you really burst into the scene in that moment because everyone was like, oh, my gosh, we need to understand this stuff. So then we see, obviously, what's happened in the Middle East and how it's disrupted the Red Sea, as you mentioned, something that's less talked about. Also tariffs and what that has done to the supply chain. And now here we are again with this war in Iran.

13:18Ryan Petersen:I guess my question to you, do you think that this is a temporary shock that we will kind of move through over the maybe short to medium term? or have supply chains just structurally become more difficult? Is this kind of issue something that's here to stay? That's the right question. I think there's a, let's hope that it's temporary. You got to plan as if it's not though. And we really take this for granted. I mean, it didn't used to be like this. It used to be worse. Before World War II, if you wanted to do trade anywhere, You sort of countries just traded with their own colonies. And like you most remember, like, you know, before during the British Empire and prior and centuries prior, like if you wanted to do trade, you put a bunch of cannons on your on your merchant.

14:10You sailed around the world ready to blast anybody, you know, and it was like way worse. And we got to the world order that we have today after World War Two with the U.S. Navy basically providing protection and freedom of navigation and saying, hey, no, you know, you can anyone can sail anywhere. U.S. Navy will protect the sea lanes and you could, you know, open up trade. And so that's why this is such a fundamental challenge, the Red Sea first and now the Persian Gulf, because it's a challenge to that global order. It's like, is the U.S. Navy capable of opening the Strait of Hormuz? And we've already seen they're not capable of opening the Red Sea.

14:47They tried. The carrier task force and the Yemen, you know, a small group of rebels in Yemen prevailed and have continued to make it so that the container ships have to go around. So it's a massive question for globalization, the way that our economies are structured, our companies are all built around these globalized supply chains. And I think people need to start thinking about plan B of more regional supply chains that are not as exposed. um countries need to think hard about their who their strategic partners are more countries are going to arm up and create you know have to invest in their own navies probably see this from japan starting to see a lot of european companies start to european countries i should say start to um build up military force for the first time saying maybe we can't count on just america to defend us and and there's a realize there's a lot of bad guys in the world and you can't just sit around and expect that everything's going to be fine.

15:42Ryan Petersen:It's a really interesting point. I guess I'm wondering, as the CEO of one of the biggest companies that works exactly in this space, what does that mean for you? How do you change your strategy in a world where you can't take globalization and free and unfettered trade for granted, and you do have to start thinking about about geopolitics, about violence, about war. I mean, if we're talking about cannons on ships and you're saying that Europe needs to think about that again for the first time since before the war, before the World War I or World War II, like, what does that mean for you? Yeah.

16:22You know, and actually going through the Red Sea, like the one ocean carrier that was providing service last couple of years was CMA because the French Navy was providing escorts to the French container shipping line. So you are starting to see a little bit of that. Yes, of course it's not good. Like we want to live in a world of open free trade. Like our mission is to make global trade easy for everybody. So these things make it harder. We found, and you want to be in a growing market. Like every entrepreneur wants to be in a growing market. We like to say, you know, we like to think like, our market is so big.

16:57It is, it's vast. And so Flexport can be successful even if the market shrinks. But we've already learned, like, man, it's way better if your market's growing and you don't have to fight. It doesn't have to be such a knife fight for every, you know, incremental customer. So, yeah, it's bad for business. We have found ways to stand out. You know, and technology becomes a big piece of this puzzle of, like, our visibility tech has been more important than ever for helping people figure out where's my stuff? When is it going to arrive? What container ships are having to be rerouted? Where are these containers getting dropped?

17:28Like some of the core value props that Flexport offers are like actually more valuable and more differentiated in that environment. Same on the tariff front. Like we built all this tech to help companies manage their tariffs and figure out how much do they owe. Because it used to be simple to calculate. But now you need to know on what date did this container clear customs? Tariff rate on one day is way different than it was a week earlier or a week later. And what refund am I going to get? And how do I help people get refunds from tariffs now that the Supreme Court kind of overturned the tariffs?

18:02So we've seen that we can definitely stand out with tech in this volatility and turn it to our advantage. That said, like, you know, I'd much rather have a growing market where everything's Goldilocks. It's very interesting.

18:15Ryan Petersen:OK, Ryan Peterson, CEO of Flexport. Ryan, really appreciate it. Thank you. Yeah, my pleasure.

18:24Ryan Petersen:After the break, round two of the Sasspocalypse hits the markets. And for even more markets insights, you can subscribe to my weekly newsletter, Simply Put, at simplyput.profgmedia.com.

18:43It's true that some things change as we get older. But if you're a woman over 40 and you're dealing with insomnia, brain fog, moodiness, and weight gain, you don't have to accept it as just another part of aging. And with MidiHealth, you can get help and stop pushing through it alone. The experts at Midi understand that all these symptoms can be connected to the hormonal changes that happen around menopause, and Midi can help you feel more like yourself again. Many healthcare providers aren't trained to treat or even recognize menopause symptoms. Midi clinicians are menopause experts. They're dedicated to providing safe, effective, FDA-approved solutions for dozens of hormonal symptoms, not just hot flashes.

19:25Most importantly, they're covered by insurance. 91 % of MIDI patients get relief from symptoms within just two months. You deserve to feel great. Book your virtual visit today at joinmidi.com. That's joinmidi.com. Continue on your existing route. Caution. Office politics ahead. Rerouting. Hazard reported. Downsizing in progress. Rerouting. Promotion denied. Make an immediate U-turn. Dead end ahead. Consider alternate route. If only there was a GPS system to help you navigate your career. Fortunately, there's strawberry.me, where you'll be matched with a career coach who will help you find the best career route for you, either by helping you get unstuck at your current job or by helping you land a new, more rewarding one.

20:22If your career has hit a dead end, strawberry.me can get you moving again. Go to strawberry.me slash unstuck and get 50 % off your first coaching session. That's strawberry.me slash unstuck. Now is the most affordable time ever to find out if career coaching is right for you.

21:09your dreams can become when you put imagination to work at canva.com.

21:18Ryan Petersen:We're back with ProfG Markets. Anthropic is yet again moving markets. On Monday night, the company released a new clawed co-work feature which allows its AI model to autonomously access apps, navigate browsers, and edit files. This news immediately spooked the markets. Major software companies like Microsoft, Salesforce, and Palantir all ended the day in the red. As a whole, the IGV software ETF closed down roughly 4%. It's now off more than 30 % from its peak last fall. Here to break down what is happening in software, we are speaking with Gil Luria, Head of Technology Research at DA Davidson.

22:03Ryan Petersen:Listen, Gil, this is the SaaSpocalypse part two, probably less intense than the first one. But it is striking that we're seeing the same thing, a new AI tool released by the same company. And again, investors are very concerned about this. What do you make of the new tool from Anthropic? And are you as concerned as other investors appear to be? So computer use by AI is actually a really big milestone. So it is a big leap forward for the capabilities for artificial intelligence within the workplace, within the business context. And these days, as has been the case for the last few months, the market is associating good for AI with bad for software.