Flexport Chairman and CEO Ryan Petersen Talks Tariffs & The Freight Industry

Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful, Can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at chatgpt.com by selecting Work Mode, available on Plus and Pro plans. Bloomberg Audio Studios podcasts, radio news.

Let's talk about tariffs because President-elect Donald Trump proposing tariffs on Canada, Mexico, China, and the EU, resulting in more questions than answers about how his administration will. Implement them and how fast. Ryan Peterson of Flexport writing, we're seeing strong demand for ocean freight. It could be driven by a multitude of factors— fear of a potential IAL strike and tariff increases, earlier than usual Lunar New Year, plus a strong economy. Ryan joins us now. Ryan, really interesting there when you think about this increased demand for ocean freight. You name a number of factors as we just walked through. Is that taking share from other methods or is this just the pie growing bigger?

Well, I think what you're seeing is a pull forward. So it's taking share from the future that people are trying to get goods in before a potential strike or tariffs. If you're concerned about those things, which you should be, you know, and you have the option, you have the flexibility in your supply chain, you want to get the goods in as soon as possible to avoid the disruption.

And how much can we draw on the experience of the 2016 election and the first Trump administration when it comes to mapping out the potential impacts of some of the tariffs that we're talking about?

Yeah, I mean, we've seen we've seen this movie before in many ways. The tariffs weren't as disruptive as people maybe expected them to be. Their tariffs have existed, you know, throughout all of human history. It's basically how governments always funded themselves. So people are able to adapt to this. It's not it's not huge shock, but it is you know the big thing right now is the uncertainty. It's like what exactly is going to hit? When is it going to hit? How is it going to hit? So for example, this Just this week, the president of Mexico actually imposed large tariffs against imports from China. And to everyone's surprise, those actually affected Mexican fulfillment centers. So these are e-commerce warehouses who are not shipping into Mexico but import to Mexico in order to ship, reship, re-export those goods to consumers in the US. That's a huge way that US e-commerce is done is actually out of fulfillment centers in Mexico. And this morning, you know, the largest— or last night, late last night, the largest fulfillment centers in Mexico had to email all of their customers and cancel all their contracts. So a lot of American businesses are scrambling today to find new, new fulfillment opportunities, new ways to serve their customers in the US, even though it had nothing to do with the US government.

Yeah, that feels like a complete wild card. So when something like that happens, basically someone throws a deck of cards up in the air. How long does it take for a new normal to, to be set in place?

The fun part about working in logistics, we all figured out many years ago there's no such thing as normal and we got to be ready for whatever happens. So it's every day a new thing. It feels like between the, you know, the strikes in the Red Sea disrupting ocean freight, you've got tariffs, you've got a drought that's affecting the Panama Canal. It's sort of— you just have to be very nimble and agile if you want to run a supply chain in the modern world.

Yeah, it makes sense. Going back to the tariffs question that Katie was posing, the details, of course, are TBD. We don't know when. We don't know how much, but we do know that some form of these tariffs are coming on imported goods into the US and the mechanics are pretty clear in terms of tariffs tend to reduce demand for these imports, at least if you're American. But you also point out that we've seen a decrease in ocean freight rates from China and that could be an offset. So walk us through how that— what that might mean for goods that are being imported from China and how manufacturers think about that.

Yeah, we'll see. Ocean freight rates have been quite high throughout the year. Sort of 2 to 3 times long-run historical averages. And this is in a market where the supply side of the market, the number of ships in operation and their capacity has, has ballooned. There's been a huge number, a huge deployment of new container ships that as these carriers made a lot of money during the last cycle, during COVID they redeployed, reinvested that in new ships. So one would predict with this huge surge of supply that the price will come down. The only reason that hasn't happened is because of the Red Sea. It's absorbing capacity as ships have to go around the southern coast of Africa. If anything is to be done in allowing container ships to return through the Red Sea, that will instantly bring the price of ocean freight down by 2/3 or so is our guess, maybe more, probably saving companies $4,000 to $5,000 per container that they import. That's a pretty big deal. The average value of an ocean container at wholesale, the goods inside of it is probably $100,000. So if you're talking about 25% tariffs, that's $25,000. Helps a little bit. It's not going to get you all the way back there, though. The $25,000 per container is a pretty big blow.

Yeah, absolutely. And I mean, as we've been talking about, there's a lot of unknown here and it's both about the levels that we're talking about, the final levels, whether or not we get deals negotiated with our trade partners. But when it comes to actual tariffs, in your notes, you write that there's basically There's basically only 2 ways that businesses can deal with new tariffs. They can absorb the cost themselves or they can increase their prices. And the businesses that you work with, that you speak to, what are you hearing so far about which path they're actually going to follow?

Yeah, well, those are— that's a very simplistic way that, you know, trying to simplify things for everybody. I think that's true in the very short run. You know, if you've got goods on the water coming here and not much else to do but pay the tariffs, and then you have to choose whether to make less money or pass it on. In the medium term, there's a lot of strategies available. You can, by the way, make goods in the United States and you don't have to pay any tariffs. You know, you may on the raw materials, but you won't on the, on the finished goods, which is most of the value. You can make goods in other countries that have free trade agreements with the United States. There's, there's tariff engineering. So by understanding at a very detailed level, partnering with your customs broker like us here at Flexport, you can understand the raw materials and how those create the duty rate. And if you change things, you may get a different duty rate. So there's a lot of opportunity to, to reduce tariffs over the medium term. And I think companies are getting really smart about this thanks to the last cycle. All of these strategies have been deployed. People— if you didn't see this coming at all, sure, people weren't sure that Trump was going to get elected. But by the way, Biden's been increasing tariffs, too. So I think people have been preparing for this for a while. And, and should be in a reasonably okay place to adapt to it.

Well, Ryan, where are we on the nearshoring/onshoring narrative? Because that's been a big push over the last couple of years, especially gaining steam in the pandemic. But you know better than most people that supply chains are pretty slow-moving animals. They take a long time to actually shift and move them. So where are we on that push?

It really depends on the sector. I mean, there's a, there's a massive amount of industrial reindustrialization taking place in the United States right now, but it tends to be much higher value goods, higher complexity things that were— and the deployment of things like advanced manufacturing and robotics. But for low value goods, what you're seeing is that the shift down to countries like Vietnam, to Mexico as well, but even cheaper countries like Vietnam and Cambodia, India is having quite a boom right now in exports. So it's— and then, and then certain things, you know, China is still just a great country at manufacturing. And there are certain sectors where even with higher tariffs, it still makes economic sense to produce there because of the quality and the scale of their manufacturing capabilities. And you see it. You know, I was in China not too long ago and the quality of their cars is remarkable that even with high tariffs, I think for much of the world, people are going to still want to import those cars. They're so much cheaper and better than what's produced domestically in most countries.

Yeah. And at affordable prices, no less, too. Ryan, as you speak with your customers, what is the number one worry that they have for 2025 beyond tariffs? Because that is a big unknown and it kind of hangs over everything.

Yeah, I mean, short term, it's definitely this ILA strike on the East Coast that's looming. Looming over our heads. We, we had that back in October for 4 or 5 days. And then the Biden administration stepped in and kind of told them, hey, knock it off before the election. So they got to stay until January 15th, an extension of the contract. Well, that's 5 days before inauguration, obviously. So we are very much in crunch time for what happens with those negotiations. My, my latest understanding was that the 2 parties weren't even speaking to each other To get it, you know, so the odds of a deal seemed kind of low. The demands of the union right now is not just no more automation and higher wages. They've already achieved those. The carriers and the employers have agreed to that, but they're asking for reverse automation, actually eliminate automation that already exists.

All right, Ryan, great to speak with you and get your insight. That is Ryan Petersen of Flexport.

When you're running a business, the best days are the ones where priorities stay on track. For midsize and large companies, risk can affect multiple parts of the organization at once, from property and liability to cyber and regulatory challenges. At that level, managing risk becomes an ongoing discipline. At The Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. And when losses do happen, that work is paired with insurance coverage shaped by years of underwriting, risk engineering, and claims experience. Learn more at thehartford.com/riskmitigation. Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates. Hartford, Connecticut.