Trumps tariff war is causing vast disruption across international trade. Ryan Petersen, founder and CEO of worldwide logistics and shipping platform Flexport, shares a behind-the-scenes look into how global commerce truly functions right now. Petersen also explores how business leaders should meet this moment and understand what tariffs wont change when it comes to global trade. Whether you’re a scrappy startup or well-established organization, Petersen reveals why the current trade crisis could unlock hidden opportunities.
We have seemingly entered a new era in global trade. Everyone knew that Donald Trump would focus on tariffs if he got a second term as U.S. president, but few expected the speed, the scale of disruption that we’ve seen, from China to Canada, now Champagne from France. Are there moments in recent weeks where you’ve gone like, what just happened?
There are moments every day, it seems like. Flexport’s a platform for global logistics. We help companies ship cargo all over the world. We started as a customs brokerage. That was the first thing we did, was help people figure out how much they owe and make those filings on every shipment they transact. So yeah, we’re in it.
We all thought we knew there would be tariffs coming at least on China. Canada caught us by surprise. If they’re going to put tariffs on Canada, then there’s kind of probably no safe haven.
The other one that’s really caught me by surpriseI didn’t see coming; it hasn’t actually been officially rolled out. They kind of put it as a proposal, so let’s see if it comes down the pipebut it’s the fees on Chinese-made ships whenever they make a port call in the U.S.
It impacts any carrier. That means the companies that operate the ships. If they own a single Chinese ship anywhere in their fleet, or if they have even ordered a ship but it has not yet been delivered from a Chinese shipyard, then they’ll have to pay this fee on all of their ships every time they make a call at a U.S. port. And it’s a very high fee, about $500 on every container that they ship.
Among your clients, is there any consistency around how folks are responding and adjusting to the tariffs? Are business leaders angry? Are they frustrated? Are any of them excited?
They’re angry and frustrated. I’ve definitely seen both of those sentiments. The frustration is both on the duties impacting their business and on the lack of certainty about what’s next and how to set things up.
I think people are resigned and understand that duties are higher from China. If you have an option to produce elsewhere, people have been pursuing that. For a decade or more, because Chinese labor costs are much higher. People are making more money. If you’re just looking for cheap labor, China hasn’t been the go-to spot for a long time. But the tariffs are accelerating that.
So last cycle, it was mostly targeted at China, so people felt, “Let me go set up in Vietnam, Malaysia, Cambodia, Mexico, Peru.” We’ve seen it all. Now I think people are a little bit paralyzed.
There’s a little bit of paralysis setting in because supply chain decisions tend to be long-term, multi-year. Like you’re setting up a new factory relationship, new logistics network. A lot of people are kind of paralyzed waiting for the other shoe to drop and figure that out. It’s very interesting. Even people who voted for Trump, and then they’re like, oh, “Actually this is hitting my business pretty hard. I’m not sure I like this.” So it’s a mixed bag.
There are a lot of business leaders who supported Trump, so that’s why I asked whether there are any folks who are excited about it, but it doesn’t sound like in your world there’s a lot who are excited.
Well, nobody really likes to pay more taxes, right? And tariffs are ultimately more taxes. Probably there’s some American manufacturers who feel like, “Hey, okay, good, this is leveling the playing field.”
But a lot of them use imported components in their goods. It might impact others more than them. And ultimately that is the game of business. You have to out-compete your competition. If you’re made in America, you’re probably feeling much better about things right now.
But the big problem with tariffs is, it is going to be very difficult to really cause change. They’re trying to change the culture and the economic base of the country and move us to start making things again. I think that’s a noble cause, like you should manufacture more in America.
But the fundamental problem is that the U.S. dollar is just so strong that even if you put tariffs on, it’s still cheaper to buy stuff from other countries. Unless they weaken the dollar and make it just much more expensive to import from other countries, and make our products cheaper to export to other countries. It’s going to be hard to transform this sort of trade imbalance.
Twenty years ago, for every 100 containers that were coming into the country, 80 would go back with goods in them. Today it’s 30, and 70 containers are just going back truly empty. So, if you see these big container ships, you’re near a port, take a look.
If it’s sailing outbound, you see all those containers, 70% of them on the way out are just empty containers. That’s a problem, honestly. We should be making more stuff. But I think as long as the dollar is the global reserve currency, and it gives you such purchasing power to go to other countries and buy stuff, then that’s what businesses are going to do. Water flows downhill.
Are there any changes yet in how goods are moving around the world that you think are going to persist? Lessons or guidelines to keep in mind?
Certainly it’s good to say: What are the things that are going to be true no matter what in the world? So you know people are going to want to produce, they’re going to manufacture their goods wherever they can get the highest quality at the lowest price.
That’s going to be true. They’re going to want reliable transit times. They’re going to want low prices on the logistics. They’re going to want lots of choice. So those things are true. So you have to invest in those long-term cycles.
There’s always going to be some regression to the mean, so you want to hedge for that. And then you want to understand what’s never happened before that’s now possible because of technology.
You want to make sure you’re the one investing in making those things happen. 10% is going to the layer of just the labor of coordination to connect all the dots and make these not the blue collar labor that’s moving the containers, driving them and sailing the ships and whatever.
Just the coordination layer is 10%. We estimate 80% of that can be eliminated with technology, largely AI-based, like automation routines. So, if you make everything 8% cheaper, it doesn’t matter what happens. The world’s going to want that. So we know we have to invest in that, regardless.
The changes from tariffs and how they’re affecting global trade versus how AI will b impacting global tradeit almost sounds like you feel, in the long run, the technology may have a bigger impact.
It will certainly have a big, big impact. It will lower the cost, as I said. It should make things more reliable. There’s a lot of costs to eliminate. For example, we have algorithms now that play Tetris with your cartons and load the containers more full. On average, we can have people eliminate about 10% of their containers, 10 to 14%, depending on how poorly you optimized the stuff before we met you. So, things like that. Better route planning. Technology is way better at this than human beings that just go, okay, let me pick that one.
What we have is a database of every ship going everywhere and the cost, and then machine learning will pick you the cheapest one that will get you there on time. So there’s a million ways to make things more reliable, cheaper, and yeah, regardless of what happens with tariffs, everybody’s going to want that.
