Episode Transcript
[00:00:03] Speaker A: Hello, I'm Mike King from the Freight Buyers Club and we're over at TPM 26 on a slow build up Sunday.
But it's certainly not slow in terms of the news. The US And Israel have struck Iran. The Supreme Court has struck down the AIPA Liberation Day tariffs. There's also an awful lot more to, to digest. And I'm glad that we have Paul Bingham from SNP Global Market Intelligence here with us to help us try and understand some of these things. Hello Paul. Welcome to the Freight Buyers Club.
[00:00:37] Speaker B: Thank you. Great to be back on the Freight Buyers Club.
[00:00:40] Speaker A: So where do you want to start, Paul?
How about the attacks on Iran? So I'm thinking Hormuz, oil prices, closure of Suez Canal, closure of airspace over the Middle East. At the moment, we don't know how long this will continue. What are your first thoughts? What's your read on this?
[00:00:58] Speaker B: Well, all, all of what you just touched on are immediate, immediate implications. And the big picture is, you know, no shipper anywhere can ignore this. You think, well, we don't trade through the Middle east or those routes don't affect us. But in fact they do because of the effect on oil prices shutting down the Strait of Hormuz and that that huge percentage of global crude oil and product that comes out of the Persian Gulf going to have an immediate effect on prices probably starting on the markets, you know, as we speak right now in California time, you know, running through the rest of the week. This is going to raise costs, this is going to help push inflation, unfortunately if it's sustained for any period of time. And that has repercussions everywhere for anybody in transport.
[00:01:36] Speaker A: And just on that, the second part of that two pronged intro I gave you there tariffs. So we're talking about over, over a week ago now when the Supreme Court struck down the IPA tariffs. These are the reciprocal tariffs introduced on Liberation Day in April.
What happened next is we've had a series of announcements to the White from the White House for different types of tariffs, 10%, 15% global tariffs. Can you explain what's happening there and what that means?
[00:02:02] Speaker B: Yes, the Trump administration moved incredibly fast. In fact, you know, the President Trump the same day as the court ruling announced the 10% tariffs under that section 132.
That is a different provision that's under rules going back also 50 years which then before the end of the weekend he raised to 15% which is the maximum allowed under that law. But very Importantly, it has 150 day limit to it. This is not unlimited. As a 150 day period after which Congress would have to approve continuation of that. And based on what Congress has done recently, there's no sign that they would do that. So it's a prospect that, that we really have this 150 day period in which there's 15% tariffs are going to be in place, which I should add exceptions to that. It's not really across the board. You know, the USMCA certified qualified trade and a lot of other categories are still exempt from trade. The actual total effective rate is going to be less than 15%. But for some shippers that means that their rates have gone up to 15 because under the IPA tariffs based on which country of origin or what commodities, some of them were being brought in, less than 15% that he's raised those to. But for other shippers it's a reduction to 15% from where they had been. And there's even a question whether those, those tariffs themselves are legal because the mechanism and the law under which that he's invoking this is tied not to the trade balance but to the overall balance of payments. And there's no evidence that the US is in a balance of payments crisis like had happened back 50 years ago under the gold standard. So there's even those that have said even these tariffs are all actually not valid and there could be some court action taken. But could that play out in 150 days? Maybe it's not going to matter. You know, if it doesn't, if it gets resolved after that, it goes away anyway. What really matters is longer term. And that's where the administration has been saying for many, many months if they lost at the Supreme Court on the IPA tariffs, they were going to use other tariff mechanisms, not just that 122, but all the other tariff mechanisms they've been using since the first Trump administration, those are the defense ones and the ones that are tied to individual commodities. They're harder to get into place. They actually have to have a process that they follow. It's not just the President decides and announces it, but it's very likely that the administration is going to continue on those investigations announcements, increasing those other mechanisms, which there's really no place for Congress to stop those.
So it's very likely that we'll see in that 150 days the administration is going to move quickly to impose those other tariffs in place as substitutes for the IPA tariffs for a greater proportion of total US Imports.
[00:04:39] Speaker A: Just back on one of your earlier points there. So this new tariff regime, so this overlays or rather replaces, or we're not entirely sure how long for. But the IPA tariffs that were there in place now, some countries had much higher AIPA tariffs than others. And we've had all these bilateral trade deals put in place. Now just on screen now, if you're watching, you'll see an economist chart that shows how this has affected different countries. We had certain countries like Brazil and China who were hit with quite swinging tariffs, very high tariffs. Whereas, like say the UK was on a 10% tariff, the EU was on a 15% tariff.
[00:05:17] Speaker B: That's right.
[00:05:17] Speaker A: Now, this sort of the 15%, 10 or 15% tariff that we've got in play now, that basically gives an advantage back to China and Brazil that was supposed to be imperialised. From that, the EU said a deal's a deal. So how does this thing, how does this play out from here?
[00:05:32] Speaker B: Well, that's actually a very important point, is that how the other trade partner countries react or even how they're affected is mattering country by country and basically undercut President Trump cutting these deals because he was doing that based on the IPA tariffs being valid as a threat.
Those are gone, he can't threaten to do those anymore. And some of those tariff levels were stacked. You know, he had put those fentanyl tariffs in and then he had the reciprocal tariffs supposedly on top of that. You know, all of those were taken away. But still some exceptions to that, which is, for example, the end of de minimis that was not affected by the court ruling, that's gone away, that's not coming back. That affected a fair amount of trade that was moving at zero tariff, you know, before de minimis got eliminated. And then all of those other ones, the 301, the 232, those other categories of tariffs that were not tied to the IPA category, those are still in place. So where there had been stack tariffs, they sort of fall back down to that leather. And China's affected for certain commodities for those, as are all those other trade partners. So some of those deals fall apart. Whether those other trade partner countries choose to, you know, honor their obligations to the deal they made to get the level of tariffs that they negotiated under ipa, you know, is really remains to be seen. But obviously the US President Trump can't come back and say, oh, well, I'm going to threaten something to you under IPA if you don't stick to your side of the deal. Basically all of those frameworks and agreements, you know, are undercut by the, by
[00:06:55] Speaker A: this ruling by the Supreme Court, undermined as well.
[00:06:58] Speaker B: Yeah, absolutely. So it's likely that the other sides of those deals fall apart quickly and the countries are going to have to decide what they choose to do based on what's going to be to their advantage. Some of that may be positioning for how much they get hit by the 232 or the 301 or the other categories of tariffs that the administration is going to be pursuing. In a way, that's what they're going to be negotiating on now. It'll be those other categories of tariffs that the administration is threatening to put in place. What the levels will be, what the exceptions will be, will there be waivers? All of that is now opening negotiation under those other categories of tariffs.
[00:07:31] Speaker A: And the other thing that obviously people are going to be very concerned about is how do they get a refund. The Supreme Court didn't really go into any detail what's the situation as far as we understand it right now.
[00:07:42] Speaker B: As I understand that that means you're back to the court of International Trade processes there, that the mechanism can be there for CBP to issue tariffs refunds, which they have done in other cases in the past.
Whether we're going to see that the government is actually going to follow through and make enable that, or whether they're going to say no, you have to take us to court and provide the documentation of harm and show us all your records that you indeed paid these and that we really owe you a refund. That's not clear yet. And if that goes to the path that it could in terms of being difficult, that means individual importers who paid those tariffs are going to have to weigh the cost of hiring an attorney, going through the filings and waiting for the refunds that you don't know when you're going to get paid. And in some cases, based on whether you pass those through or not, we'll have to see how it plays out. Some carrier like FedEx has said they're going to pan if they get the refund that they're suing for, they're going to pass it back to their own customers. Others, it's not clear yet how it's going to play out.
It's really something at this point where we stay tuned and see what the government's going to do. Are they going to facilitate it or are they going to make it more difficult?
[00:08:48] Speaker A: We'll just take a short break there.
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Paul, the US deficit, $900 billion last year, more or less same the year before.
How do you score tariff policies, I think you've called them attacks on your own country in the past. And we have seen the deficit has changed. Some countries have got a bigger deficit, some have got a smaller deficit, but the overall situation is more or less the same. So how do you score that policy?
[00:09:29] Speaker B: Well, if the policy objective was to be measured by a time period of, say 2005 reduction in total US trade deficit, you can score it to say, well, there's no evidence that it worked because in fact, the US Trade deficit did not shrink anywhere near what had been posited. But then some of the advocates for tariffs say, well, it takes longer than that to have supply chains react, and of course it does. In terms of sourcing, you can't build a whole domestic factory production supply chain to replace foreign sourcing, you know, in nine months or even in 12 months. So you wouldn't have expected to see a full impact of that. However, we've also seen as your point, that the Federal Reserve Board in New York, their study of who paid the tariffs said that by by far the large majority of those were paid by US Citizens. The companies that were the actual importers or the, the customers of those companies that actually were buying the goods, they were the ones that paid the tariffs. And that falls in line with what the economists say, strong consensus across economists that tariffs are an import tax. They're a tax that is paid by the importer of record who has to pay the US Government for those imports.
[00:10:39] Speaker A: Where do you see inventories in the US at the moment, what we're expecting, how shippers might react to all of these changes in policies, because we were hoping for a sort of a flaw for tariffs, but now it's all thrown up in the air again.
[00:10:52] Speaker B: Right. I would say we're now in a situation with inventories where it's a continuation of sort of more of the same from 2025, except that many of the inventory management processes and the supply chain managers have more experience with this now. But the uncertainty ahead remains like we had uncertainty through 2025. So we know the IPA tariffs are gone, but managing your inventories against that, the pull forward or the ability to delay imports, if you think that there's going to be a time where tariffs are going to be lower, you know, all those uncertainties remain around tariffs. Right now, there was almost no window with the IPA ruling in terms of being able to escape the new 122 tariffs, literally like 24 hours or maybe on the water for the end of last week, you know, there was almost no time. Really. The only mechanism that anybody could take advantage of there was if you had something sitting in a foreign trade zone and you hadn't brought it in yet and you could do it quickly in basically a day to say, all right, let's bring it in and pay at that rate. But otherwise you're back to paying the 15%. And it's work, you know, either your internal process or your customs broker, freight forwarder, you know, to help you figure out what it is that you gotta pay that you owe. As of the new 122 tariffs going
[00:12:03] Speaker A: into force, your forecast for US imports this year, you've got them down to 2025. Has anything over the last couple of weeks changed how you view this?
[00:12:11] Speaker B: Well, in fact, what happened with the IPA tariffs, we believed that that was going to actually work overall to increase imports slightly, we would have slightly better, higher levels of consumption, higher level of imports, but still down compared to 2025. And now with what's happening in the Middle east, there's even questions whether that will that will outweigh because of the impacts that that's going to have on pricing and the economy in terms of energy prices, whether we're going to be in a situation with actually imports being weakened further. The overall economy we're already forecasting in our alternative scenario for this, this Iran attack is for slower growth than we had been forecasting recently. It's still for faster growth than we had last year overall. But for trade, it's going to be a situation with slower growth of imports and the pace of exports that we're going to. We had had as a forecast increasing now will be reduced for freight buyers
[00:13:06] Speaker A: or maybe for freight buyers, you need to do the procurement, but they need to prepare their boards for 2026. Is there anything they're not thinking about that? Maybe you can say that you should be thinking about this.
[00:13:17] Speaker B: Well, one of the, one of the factors that we had taken into consideration coming into forecast for 2026 was a decline in the value of the dollar exchange rate. We had the dollar depreciating further through 2026, which was going to advantage exporters in terms of making US Exports more price competitive. But for those importers, that was going to add to what you had to pay unless those foreign suppliers were willing to eat the difference on the depreciating dollar. But with what's happened with the flight to safety. This happens every time there's a big world event or crisis like this. There's some flight to safety until relatively to the dollar, it's going to push the dollar exchange rate up higher than we had had in our baseline forecast. So that's also going to affect the terms of trade and then the landed cost that you actually are going to pay for your goods as an importer is going to be affected by that shift in exchange rates.
[00:14:04] Speaker A: Paul Bingham, thanks for coming on the Freight Buyers Club again.
[00:14:06] Speaker B: Great to be back on the Freight Buyers Club and I look forward to more the rest of the year from you.
[00:14:11] Speaker A: I wonder how quickly this some of these conversations might be obsolete, but we will see. We'll get it out as quick as we can. Thank you all for listening. This is Mike King at TPM 26 in Long Beach. We'll be back with more content soon.
