00:40:50 · Ryan Petersen, Ty Morse
[00:40:50] S1: That's it. Yeah. Hollywood's like that too. Hollywood, there's only so much status in the world. You can't... One of... You... If someone else becomes a famous movie star, they... It's, like, less views for yourself. I mean, maybe, I guess, maybe that maybe that's unfair because it it is a form of capitalism. You can make a new movie. You don't have to steal from anybody else. I'm not plugged into that scene. Yes, I think the world's come crashing back to remind us of this. First with COVID, like supply chains, suddenly humans and people stopped taking for granted this invisible magic that takes place, this invisible reliability that is supply chain. It'd be like the operating system became exposed. You're like, oh, it's kind of screwed up. Like, the ports are backed up. I can't get the things that I want. And then kind of normalized a little bit. Then the big thing that happened was with Israel's... With with October 7 and then, Israel's invasion of Gaza, the Houthis in... Or is this Yemeni... Really, they're an Iranian proxy terrorist organization that has taken over the country of Yemen. And Yemen is at the core... At the point where the Red Sea meets the Indian Ocean. It's called the Bab Al Al Mandab. And it's the... One of the three or four most important maritime choke points in the world that this terrorist organization has taken over. And since December 2023, container shipping has routed around Africa has not been using the Red Sea and the Suez Canal. [00:42:15] S0: Like a couple months or something
00:42:17 · Ryan Petersen
[00:42:17] S1: or A few weeks. It's about three weeks longer. And in the old days, was a month with... But in the modern container shipping, they go so fast. It's about three weeks longer. That's been pretty impactful. We probably raised the price of ocean freight about 60% versus... It's hard to say because the markets are moving all the time, but it's hard to say what the counterfactual would have been, what the price of freight would have been, but I reckon it was 50% to 60% higher ocean freight prices as a result. But like the world goes on, you can go around, there's an alternative route. Hormuz is different because there's no alternative route. There's a pipeline through Saudi Arabia that some amount of oil can go through. By the way, it can be blown up too, so let's see how this evolves. But there's no alternative route. It's a dead end. It's a cul de sac. There's no other way to get the oil out, and 20% of the world's oil flows through Hormuz. We've had this violent wake up call. I hate to be the guy always crying Chicken Little saying the sky is falling, but it feels that way economically. I don't know. I saw a gas station here in California. Was $9 a gallon yesterday, which I've been waiting for $10 a gallon all my life to see what happens to the display because there's no other digit. I don't know what they're gonna do. I guess, like, tape or something, but but it's... Those... That could be here very soon. We'll find out. And it's not just oil. Oil, petroleum products, natural gas, they're... These are precursors for a huge amount of other things, plastics, fertilizers, something like 30 to 50% of the fertilizer in the world, depending on the type of fertilizer comes out of The Middle East. Helium, Qatar produces 30% of the world's helium. Helium is not... You think of it for clowns and blimps, but actually the most important uses of producing semiconductors and SpaceX rockets. Like you can't do either of those things without helium. So 30% of the world's helium supply getting taken offline. We don't, there's no, we don't, helium is a nonrenewable. It, it, it comes from, radioactive decay. You don't make more helium it it's produced, when uranium and thorium deposits emit, naturally emit helium through radioactive decay over billions of years. Like it's not, you can't make more of it. So this is a huge impact.
00:44:34 · Ryan Petersen, Ty Morse
The economy is so financialized and memeified that it seems like life goes on, but I think we're gonna find out over time as this flows through that you're gonna see major shortages and not just higher prices, like, you know, India, for example, Air India reduced their international flights by about 10% last week. And I don't know when we're gonna air this, but that's likely to continue coming down. That's just as of today that it's coming down. And some of this is like, Oh, right now it's price driven economics, but there will be countries that just don't get to participate because, you know, Laos, just like, where are they gonna get enough money to buy oil? When the price of oil goes up, they're gonna get outbid. And you're seeing this where tankers are, just like rerouting in the middle of the ocean because trades are getting made and countries are stepping up. And it might be actually a case where having a very strong national government gives you a big advantage because your government can make deals and call up on the phone and go, yo, I'm buying some oil right now. Like in ways that private companies don't have the same level of power and authority to get these deals done. It's yeah. I hate to be the guy, like I said, crying that the sky is falling, but I feel that way. I mean, I feel like, yo, you just lost 20% of the world's oil supply and all these other chemicals. I don't see how you business continues as usual after that. [00:45:59] S0: Do you see that kind of getting resolved quickly or is this just going to be an enduring problem that we have?
00:46:04 · Ryan Petersen
[00:46:04] S1: It's the question of our time, honestly, because since in the old days, I'm glad we started all this talking about history, it's like throughout history, if you looked at a trading ship, like look at the British East India merchant man, the ship, and you'll notice it has rows of cannons along the side of it. You didn't just go trade peacefully. You brought cannons to defend yourself from pirates or navies or whatever else you might find. You didn't know. It was a very dangerous game. And that was largely true. Was like you mostly traded with your own colonies and then your national Navy provided protection for your trade routes. And that was true up until basically world war one, I guess in the world war two is when the Americans took over this naval order and the, the, the, the new world order that emerged after world war two said we, The United States will provide freedom of navigation. Anyone can sail anywhere they want and do business with anybody they want. As long as you ally with us and not the Soviets. I mean, it was really like this Cold War bargain, and we would say actually even went further than that. We opened up our markets and let anybody ship goods to The United States, know, famously sort of hollowed out our industry and created now Trump as a reaction to that. And so that came though with this promise, which was that the United States Navy would protect the shipping routes. The most important aspect of every shipping route is the choke points where there's no other way around. The big, kind of the big five choke points in the world are Hormuz and Suez and Bab El Mandeb are kind of one Suez and Bab El Mandeb is kind of one, but Gibraltar, which the English had... You know, Gibraltar being an English part of The UK is not... It's because of this. Right? Because the English used to provide this maritime supremacy. And then now you have the Panama Canal and the Strait Of Malacca. Like, so these are the big important maritime straits as of today. There may be new ones emerging, actually. If climate change plays out the way people are predicting, then the the Arctic shipping will emerge, and and, actually, America's presence in Alaska will be... The Bering Strait there will be
00:48:21 · Ty Morse, Ryan Petersen
[00:48:21] S0: huge valuable. [00:48:21] S1: Choke point. Yeah. Because you can cut about a third of the time from Asia to the East Coast, by going over the North, over the Arctic instead of through the Panama Canal. [00:48:30] S0: Yeah. My understanding is, due to the, like, ice melt, there's suddenly... Now you can, like, break a ship through, you know, North Russia, whereas you couldn't produce it.
00:48:39 · Ryan Petersen
[00:48:39] S1: You can do it during the summer. And, only a couple ships a year go through container ships a year, but but you can do it now. And you could track them on Atlas plug for a Flexport product atlas.flexport.com. You can see, you can see when the ships going through there, mostly Chinese container ships doing that. And so, but that is the, the, the explicit promise of globalization as it was built under the American order is like the Navy will secure the straits, secure the choke points. And we've been tested now since December of 'twenty three, where we sent an entire carrier group and couldn't stop the Yemenis from hitting container ships and oil tankers in the Red Sea. And now since March 1 or end of February, been unable to reopen the Strait Of Malacca... Oh, sorry, the Strait Of Hormuz. And it's a giant question of does the... Okay. So how does trade reorder around this? First of all, it's gonna lead to huge energy boom, and it is already with The US hitting all time export highs. Were already the biggest exporter in the world of oil, and now we've hit all time highs, like basically every week since March 1. So on net, it might be good for American GDP. We're pumping so much oil and exporting it to become the dominant energy power. I think from Trump's agenda standpoint, yeah, like, he didn't like this order famously, right, of hollowing out industry and opening our markets and, for what? What do we get in exchange from this? I think he's asked, been asking that since he came onto the scene. And so if you look at his policies, yeah, like people are like, oh, he screwed this up. Like, did he, but not from his parade. He doesn't care about the story. We don't buy oil from there. Our trading partners do. Our... The Europeans do.