Crisis at Hormuz, and your $160b tariff refund

Note: Transcripts are automatically generated from episode audio, and are not fully corrected for spelling, grammar, and formatting.

RYAN PETERSEN: 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 US Navy can’t provide that guarantee anymore. Oil is not just about pumping gas into your car. It’s part of so many different products.

Thirty percent 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, to 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.

BOB SAFIAN: That’s Ryan Petersen, 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. 

[THEME MUSIC]

I’m Bob Safian. I’m here with Ryan Petersen, founder and CEO of Flexport. Ryan, good to see you. Welcome back to the show.

PETERSEN: It’s great to be here.

SAFIAN: Do you have to check your — you get up on Monday morning, and you’re like, “What happened today in trade?” Or is it that you don’t even have to wait? You’re getting woken up in the middle of the night with all the changes.

PETERSEN: I do tend to wake up in the middle of the night and check, but that’s just my insomnia. It’s not because of work. But it does seem like every single day, multiple times a day, there’s new news, and by the time this airs, everything may change.

Copy LinkHow the Strait of Hormuz is disrupting oil, air cargo, and shipping routes

SAFIAN: The attacks on Iran have effectively closed the Strait of Hormuz, the world’s most critical oil choke point. Oil prices are up, ships are stranded, global shipping is kind of in limbo. So I know this is changing as we speak, but from what you can see at Flexport, what does the traffic jam look like? What’s the snapshot right now?

PETERSEN: The big story, of course, here is oil and energy generally, natural gas, all of that. I think that’s pretty well covered in the media — that prices have been spiking and shortages are starting to appear. Places like Australia, which is very energy-rich but doesn’t produce a lot of oil, are running out of diesel and moving toward a world where they’re just not going to have enough fuel. There are 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 problems in food production around 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 cargo airline capacity, depending on what source you look at. And Dubai is the biggest cargo airport in the world.

Huge numbers of planes that go from Asia to Europe 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 say that they’re modeling this is going to cost $11 billion in fuel expense.

SAFIAN: So these costs are going up because fuel prices are going up, or also because it’s disrupting routes or forcing people to change direction? Or is it hard to know right now?

PETERSEN: It’s both. Fuel price is the big one, but it’s going up also because supply and demand is sort of a global market. And if you pull out all that Emirates and Etihad and Qatar Airways capacity — those are big airlines — then they start moving planes around, and it’s all kind of fungible. A plane that’s flying across the Pacific could instead fly somewhere else. Freight is a very mercenary market. They get away with what they can get away with.

The actual big impact here is that, in February, the container shipping lines had, for the first time, started to return to the Red Sea. We haven’t had container shipping through the Red Sea and the Suez Canal since December 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 now they’ve all immediately gone back to routing 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 massively important for container shipping.

SAFIAN: I mean, are container ships stranded? Are they stuck?

PETERSEN: 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 routes 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.

SAFIAN: Oh, really? They’re just like, “I’m letting it off here”?

PETERSEN: Yeah. 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.” 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 are definitely some cases where people are living business nightmares right now.

Copy LinkHow this crisis compares with COVID and other recent supply chain shocks

SAFIAN: Listen, we’ve had a lot of disruption in trade over the last few years. Lord knows. Where does this rate, this ripple effect, compared to some of those other things we’ve been going through?

PETERSEN: From a container shipping view, it’s 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, but 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, this is one of the worst things you can imagine because the price of oil is upstream of everything else. The bigger impact here, again, is oil prices — 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.

I was just looking at the Philippines. Ninety-six percent 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 is wiped out, and now they don’t have any oil. It’s 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.

Copy LinkWhy America may be more insulated but still cannot escape the fallout

SAFIAN: As you talk about this, America, the United States, is a little more insulated from some of this than places in Europe and Asia. Is there a scenario where American companies gain a competitive advantage from this? Is it good? Or is that a misread of the situation?

PETERSEN: Well, certainly our oil companies are. I mean, Texas is going to boom. The price of oil’s gone way up. Texas college football’s probably going to have a great NIL team. No, sorry. It’s not appropriate to joke. Yeah, 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 on a net economic basis, most of America — 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. If others do worse, it doesn’t mean we do better. We actually also do worse.

SAFIAN: When you’re interacting with the shipping customers that you deal with, is there a breakdown yet about who’s feeling it most — big global organizations, small businesses?

PETERSEN: Right now, the people who are feeling this the worst are air freight shippers, especially air freight from Asia to Europe. And who ships by air? It’s high-value stuff, or it’s new product launches. One of our customers makes fashion accessories, I guess you could call it, and they have a very successful product launch right now in Europe, and it’s running out of stock. 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. We created a service where 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 the same day. That’s a lot faster than going around the tip of Africa and a lot cheaper than flying it to Europe. So it’s kind of a hybrid sea-air. They’re fine. They have a hot product launch. Good for them. For the most part, in air freight, it’s things like the iPhone, computers, really high-value stuff that you fly by air.

SAFIAN: My iPhone prices are going to be going up.

PETERSEN: I did the math on this once. The price of freight on your iPhone is probably like a buck out of the thousand bucks. Maybe three bucks. I forget.

SAFIAN: So we’re not going to notice it compared to all the other things. It’s one gallon of gas for my car.

PETERSEN: Yeah. I think California is going to see some problems here. They closed down a lot of the refineries for green, climate-change reasons, but now we import 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 that to transport between two US ports, it has to be a US-made ship with a US crew. And there aren’t a lot of those, so the price is way, way higher. Hawaii and Alaska are the big sufferers under the Jones Act, and Puerto Rico too. So Trump suspended that as an emergency suspension. 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.

Copy LinkWhat is really at stake when global trade chokepoints start to fail

SAFIAN: For folks listening to this, what do you feel is at stake for global trade right now, in this moment?

PETERSEN: It goes beyond trade. You’re just starting to realize how tied to globalization our economies are, how interconnected everything is. I had someone last night tell me, “Oh, we should just close the Strait of Hormuz forever and just get on with it.” The naivete of not realizing that it’s not just oil — and oil is not just about pumping gas into 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 plastics. These glasses that I’m holding. Helium — 30% of the world’s helium comes from Qatar. It’s not just for clowns at children’s parties. It is used to make semiconductors. You can’t make semiconductors without it. You can’t launch SpaceX rockets without helium. We just don’t understand how much of this stuff matters.

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, 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. And if the Trump administration backs off, is there an off-ramp here? Does that mean Iran backs off? If they don’t, then what?

It is existential, I think, for the modern economy. People look at the stock market or the price of fuel or something, but this is much more than the price of some commodity or equities or bonds. It’s how all of the economy functions now. 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 a peaceful world.

SAFIAN: 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 refunds after the Supreme Court decision? We’ll talk about that and more after the break. Stay with us. 

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Before the break, Flexport’s Ryan Petersen 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. 

Copy LinkWhy businesses may be owed tariff refunds and how the claims process works

You 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 know you’ve built tools to help businesses calculate their claims.

PETERSEN: 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 whether 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 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 are sophisticated buyers on the other side of that paying — we’re hearing rumors, and it 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 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 be interested. So they’re betting you’ll get paid.

SAFIAN: Right.

PETERSEN: But it’s unclear when. It’s a huge question, though — $166 billion. And Customs and Border Protection said 330,000 companies 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.

SAFIAN: I mean, is it hard to do? Do you just go on a website and put it in, or do you have to do this manually?

PETERSEN: We have a guide. If you go to tariffs.flexport.com, there’s a free guide there to show you how to do it. But I don’t know. I think with a lot of big companies, no one’s job is to collect the tariff refund, and people are used to doing their job, not figuring out what their job should be.

SAFIAN: And this financing option for basically securitizing it — getting paid today for whatever you might get tomorrow — is that something you see bigger companies getting into, or is it something smaller companies do, like, “I need the cash now”?

PETERSEN: 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 are just looking for guidance. They don’t know. It’s very difficult to operate under 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 I’m in the minority.

SAFIAN: But you might take this 70 cents on the dollar from a hedge fund to get your money today and not have to worry about it.

PETERSEN: Yeah, it’s tough. You’ll feel stupid if there are refunds in 90 days and you left 30% of your money on the table.

Copy LinkHow new tariffs could trigger another legal battle and more uncertainty

SAFIAN: At the same time this is happening, the Trump administration has not backed away from tariffs. They have these new levies. Does that restart the legal fight?

PETERSEN: It does. They’ve put in Section 122, it’s called, and that’s going to get challenged. They’ve also rolled out more than 80 different investigations, either from the Commerce Department or the US Trade Representative, to add tariffs — 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 ruled out the 15 yet.

SAFIAN: He’s talking about 15%, but they haven’t actually done any —

PETERSEN: I know why CBP hasn’t done 15. Don’t tell anybody. I hope they’re not listening. But that has a limit of 150 days. So they’re trying to get these other tariffs implemented by — July 24 is the deadline for when that rolls off. And yes, it may get challenged, and those might get refunded too. We’ll see.

There are two other types of tariffs, and those require investigations by either the Commerce Department or the US Trade Representative, investigations that can take months. So they’re not as easy as IEEPA. The one that got overturned by the Supreme Court allowed the president to just kind of wake up in a bad mood and say, “F you, Canada.” So he’s a little more restrained, but likely you end up in a very similar place. He has a lot of tools in his tool belt.

SAFIAN: And these reviews have to take months, or can they accelerate them and shorten them?

PETERSEN: It is a great question. I feel like with AI, you could probably do the two months of research as one prompt. Like, “Hey, write me a Section 301 investigation, Claude. Don’t make any mistakes.” It might just work.

Copy LinkWhy fast-moving companies can gain ground when trade chaos hits

SAFIAN: Is all this turmoil oddly good for Flexport? You’re here talking about the crisis. You do it on social media and elsewhere. It must help your brand awareness. It helps the case for your tools. Or is there risk of all that kind of backfiring on you?

PETERSEN: Nothing that’s bad for trade and bad for our customers can 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, in some cases, for 125 years. It’s just harder for them. It’s managers all the way up and down to the top. They don’t have that same take-some-risk, make-a-decision, launch-some-stuff mentality. 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. In 24 hours, we had a term sheet. Within a week, we had multiple term sheets, and we’re going to go live with it. There’s no one whose job is to do that at a big company. So it’s just harder for them to execute like that.

Copy LinkHow AI is reshaping logistics while supply chains grow less predictable

SAFIAN: How much do you think these opportunities, turmoil, whatever, can distract you from longer-term strategy, whether it’s things like AI advancement? How much do you worry that the urgencies get in the way of priorities?

PETERSEN: 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 a small percentage — like 4% to 5% — of all the customs entries we file. We review them and do them a second time, a standard compliance procedure.

In October, we built this AI agent, so we now audit 100% of our customs entries before we transmit them to the government, and it reduced our error rate from 1.8% — which, given the turmoil of last year, was already industry-leading in terms of error rates — to 0.2% in that same compliance review. That was the thing. We had that data around November of last year, where we saw, “Oh wow, this is not just cheaper, but way better. It’s letting us audit everything. It’s way better than humans could ever be.”

And we set the whole company on fire from 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. Then tariff refunds hit, and 10 days after that, the Iran war started. So yeah, it’s super distracting. We’re trying to make sure the vast majority of our team is still staying the course and applying AI to everything we do.

SAFIAN: I’m curious because you say you’re in there coding yourself, and I know you have that background, but I find it hard to keep up with all the new things that are coming out. How do you try to do that?

PETERSEN: Actually, I really like what X did recently — Twitter. On the mobile app, they created this “For You” dropdown menu, and there’s a choice in there for artificial intelligence, and you can just block everything else out. For some reason, it’s not persistent. It only stays for one session, and you have to turn it back on. But it blocks out all the other news that’s out there in the world because there’s so much stuff. Part of me just wants to see what’s new in AI. There are 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.

And two is just trying it yourself, leading from the front, going out and using these apps. Claude Code is my favorite right now. And Claude Coworker is a close second. Codex from OpenAI is just as good, as far as I can tell. So all these things — 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 are in such a good position to be that company for logistics. But if we don’t do it — there are no guarantees. It doesn’t just happen. It has to happen through us wanting to make it happen. And someone else will do it if we don’t.

SAFIAN: And there is a lot of conversation that software businesses are great beneficiaries, but also maybe most at risk.

PETERSEN: Yeah, for sure. 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 the relationships you need with all of the ocean carriers and trucking companies and ports and governments.

And when the AI doesn’t work, it’s not like, “Oh, my AI didn’t work. Oh well, I just won’t ship the thing.” It still has to ship. It’s a little like Tesla’s self-driving approach. 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 it didn’t screw up, and now I don’t have to do that. That’s kind of how we’re trying to make it come to life in supply chain.

SAFIAN: I was talking to someone who works for a SaaS company, and Google had just come out with a new product iteration that the market reacted to like, “Ugh, this company’s going away.” And the stock price went down. Then they went and used it, and they were like, “Yeah, it doesn’t really quite…” How often are you finding that you try these tools and think, “Yeah, I see there’s something there, but it’s not really doing what I need it to do yet”?

PETERSEN: For sure. Especially if you’re trying to replace a whole software company in one shot, or if Google is doing some — I don’t know — they launched some new design tools. I think Figma’s still miles ahead of them, for example. There’s a lot of that. And a lot of what we see in our particular applications of AI is that it can do really interesting, important point solutions, like automate some job. There’s not a whole company in that, and yet it’s important that you do it.

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. 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 there. 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’m just like, “I don’t really want to teach them how freight forwarding works.” It’s this dark art that we spent 10 years figuring out, and I’m not really eager to teach others how it works. So we’d rather be the ones that apply it to ourselves rather than let these other guys come in and forward-deploy onto our teams.

SAFIAN: We’ve seen this nonstop series of trade crises — COVID, the Suez Canal blockage, the Houthi attacks in the Red Sea, the tariff war, Supreme Court involvement, now the war closing Hormuz. Do you think things are ever going to get predictable again in supply chain?

PETERSEN: No, I don’t think so. We’ve now learned that these choke points are super important. Also, you didn’t mention it, but the Panama Canal was not operating properly two years ago —

SAFIAN: That’s right, yeah.

PETERSEN: — because there wasn’t 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 the assumption that you have to figure out how to operate under uncertainty.

SAFIAN: Well, Ryan, thanks, as always, for coming on and sharing with us.

PETERSEN: Yeah, my pleasure. Thanks for having me, Bob.

SAFIAN: 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 of what an expert in chaos theory once told me: 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, that’s progress. I’m Bob Safian. Thanks for listening.