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Hello and welcome to another episode of the Odd Thoughts Podcast. I'm Tracy Allaway.
And I'm Joe Wisenthal.
Joe tariffs.
One word. One word.
This is going to start all the episodes by saying tariffs from now on, at least for the foreseeable future.
No, there's no other story.
There really isn't.
It's only tariffs for the foreseeable future. And I think you know, we talked about a little bit last week with Brad. I believe plausibly, I don't know in terms of quote damage and all that stuff, but plausibly, this is the biggest.
Story of our lives.
The thing I don't want to say like about the story, but one notable thing about this story is it hits both markets, which you and I have been financial journalists for a very long time, as well as the world economy, right, and we kind of got really into that during the pandemic when we saw all these supply chain disruptions, ports, rerouting, ships and things like that. So this is a chance for us to unite two of our major interests.
That's right.
This is what every guest that we talked to for years about how supply chains work. It's like, all right, let's just go down the list and call them all back up again and find out what's happening. Run it all back.
Let's do it all right.
In the spirit of running it all back, we are going to be speaking to someone we've spoken to quite a bit before. Actually, this was one of our first ever sort of ports shipping disruption guests back in the early twenty twenty days, and I remember he came recommended to me back when. Do you remember when I was trying to ship a Teddy Bear I do from Hong Kong to the US and I failed miserably. Well, someone said you should talk to Ryan Peterson. He's the guy
who knows exactly what's going on. So we're going to be talking to him again today. That's Ryan Peterson, founder and CEO of Flexport. Welcome back to the show.
Great to be back. It seems like whenever there's something really.
Bad, call you up.
That's right, that's right. Okay, So first question, let's see we are recording this on Monday, April seventh. The ten percent tariffs went into effect on Saturday, I think, and then the higher reciprocal tariffs like up to fifty percent are due to take effect on Wednesday, April ninth. How are tariffs actually enacted and communicated? Like, yeah and collected? What exactly happens when tariffs are increased? Like, walk us through the process?
Yeah, so, well, the terifts are applied in this case as a blanket based on the country of origin for the products, but typically they're applied based on the category of the product. So these new arriffs get added to those product category tariffs, so it's cumulative.
These are additional tariffs, and.
It happens with an acch payment to the US Treasury that.
You make via the CP the Customs of Border Protection.
Most of the time you can send a check to Actually, interestingly enough, if you get a refund on duties, you apply and make some change and they approve it, they'll actually send you a check in the mail.
And those have keep getting lost. But that's a story front of the time.
I think it's worth noting I don't want to have to re record a bunch of intros to episodes because things could theoretically change so fast. So we are recording this literally at nine oh six. If something about this conversation is out of date by the time you listen to this in a few hours. Sorry, but we're doing the best that we can. But given all of that, who pays the tariffs? If something is on the water right now but it's not going to get here until
the tenth, do they pay the tariffs? What actually is going to get tariffed? And what can avoid the tariffs that hit on April nine.
Yeah, this is a really interesting and important point for normally, under normal circumstances, the duties rates or the duty is due based on when the goods enter into the United States, when they arrive at the port, and your clear customs.
For these reciprocal.
Tariffs, they made the rule that it's based on when the vessel departs.
And so therefore there's a mad scramble right now here we are is April seventh.
It was went on over the weekend to get cargo loaded and ships out the you know, out of the port or planes taking off before that April fifth deadline. And that's happening again right now before the April ninth deadline. The difference being, you know, if you got out before April fifty, you paid no additional duty.
You get it out by.
The ninth, it's ten percent, and then it'll go up to whatever your country's duty rate is.
That's new.
That's something that's a little different for this time around. Usually it's based on when the goods enter the United States, So we actually won't see those payments made until the goods arrive, right because it's that's the date that they're using to trigger what duty rate road. But it won't hit the federal government's treasury until, you know, for another month usually.
So one of the reasons we like talking to you is because we get a sort of early read on what's app actually happening with shipping traffic as well. But okay, so we had this is a little boost, you know in the first quarter, people trying to build up their inventories potentially get ahead of the tariffs. What are you seeing now that they've been actually announced.
So we Flag Sports were one of the largest customs brokers in the United States. So helping these companies deal with this is like what we do every day. We obviously are very worried about our customer base and how they're going to adapt to this and push through it. So on Thursday Friday last week, we did a call down we called as many customers as we could and just ask them what they're doing, what their plan is, what bookings are coming through with, what we should expect.
And what we.
Found is that twenty eight percent of the companies that we got a hold of told us that they're pausing all ocean freight bookings. Now that's pretty catastrophic, but we don't want to read too much into it, because one is what you said, Tracy, is that they have been importing quite a lot. This date was known for a while, since the January twentieth or so, and so they're well stocked on inventory. They bought it, they brought as much stuff as they could in before the higher duty rates hit.
So that's one thing is that they've got a lot of inventory. They planned for this. And then the second is there's a lot of ongoing negotiations happening. And you know, a cabinet member told me that they that liberation Day is the beginning and not the end of the process, and that they will be negotiating deals and that you know, over the weekend we heard over fifty countries have come to try to negotiate something. And so if you think your duty rate might come back down. You're you know,
you're kind of pause. Pausing is what I would do too.
You know, I'm a little unclear, you know, I know that there are those headlines about other leaders having come to negotiate, and some people are talking about negotiating position, et cetera. At other times you hear from people in the White House like there's not a negotiation or there we're certainly not in a hurry to negotiate, regardless of like what the actual truth is or to the extent that truth can be divined. In the meantime, I just can't measure doing any business.
Yeah, I mean, you got to run your business, okay, but it's very hard to make longer term decisions.
You know, every decision is kind of week to week, and supply chains need much longer term planning. You know, if the goal is to get manufactured, the goal is the stated goal is to move manufacturing back to the United States, but you can't do that in a world where you don't know what duty rates are going to change next week, next month, or next administration, right, I mean, so it's just a really hard environment to actually operate in.
And all this time, you know, people have been moving manufacturing out of China into Southeast Asia, India, Mexico, and then they find out out that duties are coming for all those places too. So it's just like a very tricky to have any kind of long term view in this market.
Speaking of long term views, I have to ask you sort of I guess personal question, but flexports business model is basically all about global trade, right and bringing stuff into and out of America. How much of an issue is this for your own business?
Definitely a challenge.
I mean, our revenue is the price times the volume, and if the volume goes down and the price goes down, our revenue is going to be under threat. So we don't want to sugarcoat it. It's a challenge for sure. At the same time, we take I look at two things. One is you can look at the long run, the truly long run. We've had four percent annual growth of global trade since the Mongol invasions and four percent annual
growth over eight hundred years. It gets you a hockey stick curve like you you know, you wouldn't believe it looks like it looked like a straight vertical line basically. And so the result of that is what I into it from that is, I have pretty strong conviction you fast forward ten years, people will want to do more trade than they do now.
I don't need that.
To be true for Flexport to be successful, but that is my conviction what I know for certain will be true, because I don't know for certain that will be growth in trade, but I am certain that people will value lower costs, everything that we're doing to automate trans actions
and eliminate costs. They'll appreciate more reliable service, higher quality data so they can make plans on how much, how many units to order, when to buy the goods, how to ship them, where to ship them, so they'll value compliance technology, So all the stuff.
That we're building will be incredibly valuable.
Right now, we're saying, okay, we got to focus really hard on our customers, make sure that we help them and we earn every single shipment that they do, and then we have to go really hard after growth.
You know, prices are going to fall. Price of freight is going to fall.
We have a pretty strong conviction of that that the price of ocean freight's going to be really low, possibly historically low, later this year, and that gives us an opportunity. We should be the ones that are passing that through to customers and making ourselves, you know, the best place to get affordable ocean freight in the world, and that should lead to growth. We've seen that in the past when we've had market disruptions, twenty sixteen being the most
obvious example. Is probably before odd lots of time, but in twenty sixteen the price of ocean freight was so cheap that a ocean carrier went bank rupped, Hanjin, the Korean carrier, and that was a year that Flexport grew sixteen x in volume that year.
So we know, you know, we haven't been through.
Something exactly like this, but we've definitely seen you know, history rhymes.
I've always wanted to declare force measure in my life, but I've never had the opportunity for it to come up. There was a headline that I think hit Friday about how met Aerospace saying it could halt orders declaring a force measure. I don't know what how whether you know that could go through legally. Do you anticipate though, like, let's just say again the possibility, which I think is very real, that you know, the tariffs are sort of
fixed in place. Did you see like we're you know, companies to play even and that's a US based manufacturer, but obviously presumably it has you know, intermediate goods that it imports, like serious, various types of players trying to get out of existing contracts or existing relationships.
You're going to see a lot of that, yeah, because you know, let's say you're a vendor to a big box retailer and you sign the contract and sell something at this price and then all of a sudden and there was no clause in there about tariff changes, and all of a sudden, you're way underwater on contract and you have to choose. You're going to either go bankrupt or hurt your reputation. Almost everyone's going to choose to hurt their reputation.
Rather than die.
So I think you'll see a lot of those types of things. There may be some We do a lot of air freight out of China and a lot of it is for e commerce companies. Yeah, and so we're looking hard. It's not a force mature situation, I don't think, but like we're looking hard at do we redeploy those aircraft to fly from other places? Maybe Taiwan to take advantage of all the chip growth growth in.
Chips, maybe Vietnam. We're going to study the teriffs and see what makes the most sense.
I mean, it's possible we stay in China and just continue to do what we're doing, but I suspect there just won't be enough volume.
On this note. You touched on the earlier round of tariffs back during Trump's first presidency. What are the big differences between now versus then, Because my impression is okay, Obviously, the tariffs the first time around, you know, around twenty eighteen, those weren't as high as the ones being talked about right now. But also, and I think you mentioned this earlier as well, we had a lot of companies who adjusted to the China tariffs just by rerouting some manufacturing
into places like Vietnam or Mexico. That doesn't seem to be an option this time around.
Yeah, I mean, so that's the most obvious you hit on it. The first thing is these tariffs are much higher so China. Even twenty five percent eight years ago seemed like a really big deal on China like that, people did reorient their whole supply chain. And now for those same products that got hit with twenty five percent.
This stacks fifty four percent on top of that. So you know, it's just it's so far from China has a seventy nine percent duty, and if you're importing that from Vietnam it's now forty six percent duty.
It's probably it's still worth going to Vietnam. I don't know yet.
I haven't run the math if it's worth coming back to North Carolina. I think that's a The furniture industry is one to watch because those we used to manufacture all this furniture down in North Carolina. Maybe odd lots to do an episode from the North Carolina they have.
That we did? We did?
We actually funny use so you did last year Tracy and I were not only in North Carolina, but we went to multiple textile operations there. So thank you for the opportunity. Thank you for the opportunity to let us plug our own work. But actually that makes me I was going to ask you, you know, one region that seems relatively spared is Latam. Could you see just sort of like a more hemispheric supply chain for a lot of stuff?
Yeah, And TERNSA was getting at that is like well, companies moved their supply chain, some to Mexico, some to Vietnam. I think before I an said the lattipe thing, I think it's possible that's part of why they put high terrace on these other kinds trees, is that a lot of what was happening with the Chinese good Chinese companies were shipping components to in many cases subsidiaries companies that they owned in those other countries in doing assembly there.
And maybe the US looked at that and said, hey, we've got a.
Kind of like leaky bow here.
We got to plug all these holes and put terrace on everybody. But they did go pretty light on Latin ten percent tariff across Latin America except for I look at the bat, but I think that's Guyana, which is like an oil producer, and so I guess we buy too much oil from them, and we want them to buy stuff from US or something. But it was basically ten percent across all of Latin America on the first read.
When I first saw that, That's what I thought, is like, Oh, I guess they're trying to send a signal this is going to be like our strategic backyard.
You should manufacture in Latin America.
But then you look at actually how they calculated the formula, and I think it might just be an accident of like.
Right right, right, that they just don't sell that much to US, And so.
Yeah, yeah, I got it. I don't know if that was strategic.
It looks I was hoping now was like, hey, there's some forethought to how this is all gonna work, But I don't think so.
No, the penguins would suggest otherwise. So, actually, Joe, do you remember one of the companies we spoke to in North Carolina, like a relatively small textile producer. They had moved a bunch of production out of the US into Mexico, and when we talked to them, they were in the process of moving from Mexico to I think it was El Salvador. And now, I mean, I don't know what they're planning now. But on that note, Ryan, is there any scenario where like shifting some capacity to the US
to prepare for a boom in exports? You know, ostensibly that's what Trump is aiming for here, the return of manufacturing to America. Is there any scenario that you planned for where you're sort of reorienting some of your capacity to the US to prepare for that export boom.
I don't really believe in it. Firstly.
I mean I've talked to two different people who had to really pause their factory buildouts because of the tariffs, because the machines that they were going to buy too expensive.
Now, you know, like.
Factories require machinery and components from other countries, So if you make that really expensive, you're gonna have less manufacturing, not more.
So I think this is just like very unlikely to yield the results that they want.
It's darkly funny, but there's really grim all right. There's this wide, bipartisan, so strongly held view that reindustrialization should be some sort of priority. And the first thing you're I mean, that's very dark that already you're hearing about companies putting paws on their factory efforts for obvious reasons. And it's the same reason I mentioned with that aircraft supplier.
But that's pretty dark.
Yeah, I mean, these machines like Germany makes the best machine. One of our customers makes the machines that you put that fill.
Beer bottles and water cans and stuff.
And this company, I got to see one of these machines in person because I was asking the guy, I'm like, how many bottles can it fill?
These?
One hundred and forty thousand per hour? He's like a billion, you know, doing a billion bottles.
Of year per machine.
I'm like, we don't make a machine like that. And if you want to cite that does it beer bottling? You gotta have that machine, like you know, and we want these plants. You can't just manufacture every aspect of it all overnight. It reminds me a little bit of like, you know, you're a guy who.
Hasn't been to the gym in thirty years. Yeah, and like you see to.
Go to the gym, but like, don't try to deadlist.
In a marathon.
No, No, he could do it. He's totally fit. He could do it.
I went to an exercise class last summer and I was like a little too vigorous, and the teacher of it, I was like, swing some kettlebells, like, bro, I know what you're trying to do, but seriously, like he's awful little bit he was like he's like he's like, I know your psych to get in shape for this summer, but like, trust me, you want to slow down a little bit.
So yeah, I can relate Ryan, what are you watching out for next in terms of the sequence of events here? So I guess obviously all of this could turn around very quickly if you know, some phone calls are made and either you know, a big trading partner announces some new amazing deal for the US, or if Trump starts to you know, back away from the tariffs, maybe water things down.
But what are you.
Watching for specifically in the sort of shipping and transportation and logistics world, for the next stage of how this unfolds?
Yeah, I mean apart from watching everything the White House is doing, everything that comes out, and you know, watching interviews with the administration STU, it's really just about our customers and what are they doing.
What are they what are their plans to adapt to this? How are they booking their booking volumes?
But also yeah, are they are they changing sourcing strategies?
Are they raising prices?
We've seen thus far just kind of monitoring the e comm websites of our customers about a five to ten percent increase. Interesting, so monitoring that trying to figure out is that enough to cover the duties of these products?
Like we have quite a lot of data to go off of because we know that as their.
Customs broker, we know how much they're paying for the goods and how much duty they're paying, so that we can monitor is that flowing through to the consumer. So there's a lot of that type of analysis that we want to understand. And yeah, just trying to really just talk to every single customer out there and see where we can help them. It's like pretty grim, as you've
said already, but I'm pretty hopeful. I did you know, someone in the administration told me that they were going to be negotiation, So I think you're gonna see some deals get cut.
Well, figures crossed. Ryan, thank you so much for coming back on Adlots. In classic Audlots fashion, when something bad is happening, we chucked to Ryan, thanks for having me.
Take care Ryan, Good luck, Joe.
There's a lot to pull out of that conversation. I thought Ryan's last point about prices already starting to go up was pretty interesting, And this is where a lot of the macroeconomic implication kind of lies. It's what part of the manufacturing process do the tariffs the extra expense of the tariffs actually lie Because there are a bunch of companies that could absorb the costs. It's not just
the manufacturer or the retailer. There is also this layer of basically middlemen, right, Yeah, they have margins too, but ostensibly they could also absorb some of this.
Well, the way I.
Think about it is, you know, yeah, like how much flows through to consumer prices as measured in the traditional inflation industries.
I don't think we.
Know the only thing we do know for sure is that it's going to make running businesses in the less profitable and less profitable businesses hire and invest less. And on top of the fact that you have these sort of lower profit impulse, so a less inclination to invest and build things, then per Ryan, you're already have entities
putting the pause button on their actual manufacturing. Yeah, that's why, Which is the ostensible thing that we wanted to build out here, And so then you have the second layer of the industrialization.
I really think like there is.
A chance, you know, I mean, I don't want to like get too dramatic, but really accomplishes literally the exact opposite of what the stated aims are here.
Well, also, this is the thing, like it accomplishes the exact opposite. We're seeing that already, but it can reverberate for years and years and years, right, because we know we know that it takes an enormous amount of time, money, and energy to do these types of industrial investments in the US. And if you're uncertain at any point in time, like memories are long, yes in this particular sector, and
so you could have lower investment for years. And the example that we've used frequently on this podcast is home building after two thousand and eight, Right, it's going to take a long time, I'm for investors' companies, businesses to actually regain confidence.
Here's a question.
Let's see there was a deal and Ryan says, maybe there's talking and I believe that somewhere someone who's having a conversation with Ye. Sure, can Trump credibly commit to never using the tariff three? That's the rest of this administration.
That's exactly it, Like, the uncertainty will never be off the table. Yeah, it's always there, hovering in the background. On that note, shall we leave it there?
Let's leave it there?
Okay, This has been another episode of the Odd Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway and.
I'm Joe Wisenthal. You can follow me at the Stalwart, Follow our guest Ryan Peterson, He's at types Fast, Follow our producers Carman Rodriguez at Carman Arma, dash O Bennett
at Dashbock, and kill Brooks at Kile Brooks. From our odd Laws content, go to Bloomberg dot com slash odd Lots, where we have all of our episodes in the daily newsletter, and you can chat about all of these topics, including shipping, supply chains, economics, Trump, tariffs, et cetera, in our discord discord dot gg slash lots.
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