00:00A lot of questions right now, not so much a just about what's coming in or out of the Strait
00:04of Hormuz right now,
00:05but about the broader health of the supply chain, whether we need to start thinking about it, at least right
00:11now, in a different light.
00:13Yeah, absolutely. Thanks for having me on.
00:16The Strait of Hormuz is obviously massively important for energy, for fertilizer, which is really under covered here,
00:24and many other kind of precursors like helium, for example, is one of the main required elements to produce semiconductors,
00:32and 30 percent of it comes from Qatar. So you're going to see broad implications for this.
00:37And then, you know, in my world, which is container shipping, air freight, you see big increases.
00:43We're seeing prices have gone up a lot, not just to the region, but for freight that's coming from Asia
00:50to Europe, for example.
00:51We had just started to see container shipping return to the Red Sea, and they're now going around Africa again,
00:58which they've been doing since the end of 2023. Air freight prices have doubled on that trade lane.
01:04So it's definitely having massive economic implications well beyond just the region.
01:08Have you actually seen any sort of indicator that we could see a slowdown in shipping activity and economic activity?
01:15There was another report today showing just freight rates, some of the shipping rates here in the U.S.
01:20The fuel surcharge is being added, also sort of bumping up the cost of that as well?
01:26Yeah, definitely. I mean, we've already seen prices spike on Asia to U.S. lane, which, you know, on the
01:31surface,
01:32it doesn't seem that connected. If you're shipping from Vietnam to the west coast of the United States,
01:37the price of air freight has gone up about 60 percent on that lane.
01:42Ocean freight, similarly, we were expecting to see very cheap ocean freight this year.
01:46There's a lot of excess capacity of ships. But now this disruption, it's caused, well, just there's some degree of
01:54opportunism
01:55and some degree of just supply and demand. Ships that were supposed to be going into that region are either
02:00trapped
02:01or being rerouted. A lot of congestion in the ports, which is causing, yeah, causing increased prices.
02:09Ryan, do you think the current tension could trigger a global scramble of oil and maybe even essential goods?
02:17I mean, yeah, I think that's the big concern here.
02:1920 percent of the world's oil flows through those straight-of-or moves and take it.
02:23This is not you take off 20 percent. Take that 20 percent out of supply.
02:28You're going to see major implications for that. Look at I mean, it's actually a little bit hard to get
02:32a picture
02:32because I thought actually the Citrini analyst who went down there in firsthand and showed that actually 50 percent
02:39of all the ships transiting don't have their AIS transponder on. There was an analyst this week who went
02:46in person to the straight-of-or moves and covered it. And so actually it's hard to get good data
02:50about what's really
02:51happening. Maybe more. It looks like more oil is flowing out than is getting covered because so many people are
02:56relying
02:56on satellite data. And nonetheless, it's also hard to get a good picture of, like, what are the reserves?
03:02I've heard reports that Taiwan is getting low on natural gas. And if they if they don't start seeing more
03:09ships coming out of the
03:10straight-of-or moves, you're going to see major implications there. And some countries just won't be able to afford
03:15it.
03:16Philippines, Laos, there's some countries that are much lower in the income stack that that buy most of their oil
03:22from that region
03:23are now cut off. Yeah. In some corners of those worlds that you mentioned, oil prices have doubled and some
03:29have actually
03:29imposed work from home mandates. From your vantage point, are there any risks that the market hasn't priced in just
03:34yet?
03:37I mean, yeah, a huge risk. And fertilizer probably being the biggest one in terms of food production that, you
03:44know, it's one thing
03:45for energy prices to go up. It's another thing for just not to be enough food produced. Now, we've seen
03:49this in the past where Russia and
03:51Ukraine, there was major fears that as the biggest grain importers, exporters in the world and fertilizer
03:57exporters to with that conflict that it would get cut off. The U.N. stepped in and created this Black
04:03Sea
04:04mission to get grain exports flowing and the fertilizer from never stopped from Russia. So and also what happened
04:11in that conflict was that the Gulf states stepped up production of fertilizer and urea and other inputs,
04:18phosphates for fertilizer. And yet now if the backup plan has now become the bottleneck, I think there's a big
04:27risk
04:27there. And food supplies is is the kind of thing that, you know, that's where you get revolutions is when
04:32there's not enough food. So we have big risks that haven't been priced is my is my read. I do
04:37just kind of want to go back,
04:38though, to also also what we're seeing in the air here, Ryan. And I know you track a lot of
04:42these sort of connections between what we're
04:43seeing on the ground and the water and in the air, with some of the commercial flights disrupted as well,
04:48which also to a certain
04:49extent double as cargo flights, depending on the airline here. Have those found new routes or is that or are
04:55those
04:55effectively lines of supply that, at least for right now, are shut down?
05:01Yeah, the air freight market's heavily impacted right now. So about 18 percent of the world's air cargo capacity is
05:07operated by
05:07Middle Eastern Airlines. I think Emirates, Etihad and Qatar Airlines in particular. And so a lot of that is
05:15belly freight, belly of the passenger planes. And then they have dedicated cargo cargo planes. That's severely
05:22impacted. It's gone up and down. At some point they were back to operating about 40 percent of flights. And
05:28then there
05:29were some attacks at the Dubai airport in Qatar that brought it back down. So we're now seeing 10 to
05:3420 percent of
05:35flights operating. It's a huge impact. So freight freight from Asia to Europe often stops in the Middle East to
05:44refuel, to be a hub for
05:47transshipment. And so those are heavily impacted. You're seeing the airlines have to route around. So India has picked up
05:54a lot of
05:54volume. Egypt and Turkey are all serving as sort of refueling bases for airlines. And then we're getting creative as
06:03an
06:03industry. So, for example, my company, Flexport, launched a new service where we'll do fast ocean freight from Asia to
06:10the
06:10United States across the Pacific and then fly it from L.A., from L.A.X. to Europe. It's faster
06:18than going around by
06:20ocean and it's cheaper than flying direct air freight. So you're seeing the industry route around these things.
06:25And thank you so much for watching very much.
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