Episode #31: The Hormuz Toll Authority and the Section 122 Shocker

The Strait of Hormuz remains closed, but it officially has a new "manager." 📍 This week, Julia Frohwein and Judah Levine dive into Iran’s creation of the Persian Gulf Strait Authority—a move that signals a permanent intent to entrench authority over the passageway. While Operation Freedom managed to extract a few US-flagged vessels, the naval exchanges between the US and Iran have only added to the uncertainty.

In this episode, we break down Maersk’s $500M fuel bill. Carriers are facing massive cost pressures, and while the Transpacific is holding onto its rate gains, the Asia-Europe lanes are struggling to stay above pre-war levels during this "low demand" period. We also look at the NRF’s muted peak season forecast, projecting a July peak that is 8% lower than last year.

Finally, we tackle the latest trade war bombshell: The US Court of International Trade has invalidated Section 122 tariffs. Just as the IEEPA refunds are getting underway, a new door for tariff refunds has swung wide open.

Chapters: 

• 00:00:00 — Operation Freedom & The New Persian Gulf Strait Authority. 
• 00:01:30 — Maersk’s Earnings: The $500 Million monthly fuel surcharge reality. 
• 00:02:45 — Ocean Rate Divergence: Transpacific gains vs. Asia-Europe stagnation. 
• 00:03:45 — Muted Peak: Why the July "bump" might be a disappointment. 
• 00:05:30 — Trade War Wrinkle: Section 122 invalidated and the refund precedent. 
• 00:08:00 — Subscribe: Join the Container Bytes community.

This podcast is a little experiment from Freightos—and may not be around forever—so if you dig quick bites of freight wisdom, let us know. 

For more detailed weekly freight updates delivered straight to your inbox, check out our weekly freight email. Want the freshest freight data on demand? Hit up terminal.freightos.com.

Transcript

SPEAKER_00 0:02

Hello and welcome to today's episode of Container Bites. I am Julia Frowwine here with our resident freight guru, Judah Levine, ready to kick off another bite-sized session of the latest in freight. Judah, how are you today?

SPEAKER_01 0:13

Good, how are you doing?

SPEAKER_00 0:15

I'm doing okay. Yeah, doing okay. All right, let's jump straight into it. The Strait of Hermuz. Okay, as we know, it's still closed despite Operation Freedom. And now there's an official Iranian Humuz Tull authority. What does this mean for the container market right now?

SPEAKER_01 0:30

Yeah, so as you said, there was Operation Freedom at the beginning of last week. It was quickly paused, although it did succeed in extracting a couple of US flag vessels from the Persian Gulf. At the same time, it also restarted kind of exchanges of really naval fire between uh Iran and the US. Iran also responded by renewing missile and dorm attacks on the UAE. Um, but any case it was quickly paused. Uh President Trump has been saying is now ready to restart Operation Freedom. Negotiations are continuing, making progress, not making progress, still a lot of uncertainty. And at the same time, as you said, Iran has set up the Persian Gulf Strait Authority, which is their new government body for coordinating passage through the strait with their authorization, presumably also with payment. Um, so this is kind of a sign that they want to entrench authority or are ready to entrench um authority over the passageway. Yeah, so a lot of uncertainty and uh maybe not a lot of progress in terms of being reopened, but who knows? For the container market, though, it really means more of the same. It means containers trying to get in and out of the Gulf are going through these alternative accessible ports in the Gulf of Oman or in the Red Sea and then continuing on by road, which is moving containers, but it's complicated and expensive. And for the broader market, it's really still impacted by the price of oil, which is keeping bunker fuel prices elevated as well. Mersk in an earnings call this week said that the additional fuel costs are costing them an additional$500 million a month, so significant kind of cost pressure on carriers. But Mersk also said that they are succeeding in passing these costs on to their customers through higher freight rates.

SPEAKER_00 2:09

But we've seen different rate trends for different container lanes. So how does that square up with what Mersk is saying?

SPEAKER_01 2:14

Yeah, it's a good question. It certainly seems uneven. So on the Trans-Pacific, since the start of the war, we've seen rates kind of gradually continue to increase. So from the start of the war until now, Trans-Pacific rates to the West Coast are up by$1,000 per 40-foot container, up to$2,800 per container. To the East Coast, it's up$1,300 per container, up to$4,300. But that's not the case everywhere. If you look at the other major trades like Asia, Europe, Asia, North Europe now is at$2,800. It's only$300 higher than it was before the war. To the Mediterranean, it's about even where it was before the war at$3,600. But you've got to keep in mind that we're in the low demand period, post-lunar year, pre-peak season. And so generally rates will be falling during this period and they're staying relatively elevated for these lanes. So there probably does represent kind of additional higher rates than there otherwise would be. If we compare it to the previous low demand period post-peak season before lunar year, back in October, rates to North Europe were at$1,700 and now they're at$2,800. And to the Mediterranean were at$2,100 and now we're at 36. So even if they haven't kind of steadily increased, like we saw the Trans-Pacific, they're probably higher than they were. And in terms of dollar amounts, these lanes are kind of generally within range of each other, Trans-Pacific and Asia Europe, they're at about the same level in that uh$2,800 range.

SPEAKER_00 3:31

Okay, so let's stick with ocean for another minute or two. So as you mentioned, ocean peak season is just around the corner. Is there any anticipated impacts on peak season due to the last few months of disruption?

SPEAKER_01 3:42

So the National Retail Federation has released their US ocean import data and projections. And they estimate or project that uh June imports will be down 2% compared to month on month compared to May. They'll increase about 4% in July. So we have June going down, July coming up, then ease slightly in August, and then further in September. And so if these um estimates are correct, that would mean that there will be a trans-specific peak season, right? Things are going to pick up in July and stay kind of elevated in August, but it would be a relatively short and a relatively mutant one. So that the peak that this year would be in July would be 8% lower than last year's peak in July, although last year's peak was kind of boosted by uh the tariff deadlines, but it'd also be 6% lower than the peak season peak in 2024. So not terribly strong. Is that a function of tariffs? Is that a function of you know higher prices and impact on inflation? Could possibly be both. It certainly reflects kind of importer caution, probably, you know, economic uncertainty for what's going on now. Uh, back to that Mersk uh earnings call. Um, they also suggested that there could be a downturn in overall ocean freight demand as we head into the second half of the year. And that would be a challenge for carriers because, as we said, right now they're trying to uh boost rates through these fuel surcharges. We also started seeing them blank sailings. There are reports that even some containers in the Far East are being rolled to later dates because of capacity measurement. So they're trying to keep rates up on that level, but they would love to have a demand boost, increasing volumes and increasing freight rates. And if that doesn't happen, it could be a challenge for them as they'll still be facing these higher, these higher fuel costs. But um it also shows that there doesn't seem to have been much front loading, right? We're gonna have probably tariff changes in July, and we haven't seen much, you know, much of a rush before then.

SPEAKER_00 5:32

Okay, so you just mentioned the trade rule front loading. The much anticipated China US summit is happening this week, and there's been a bit more development around tariffs in general. So what's the latest on there that you can share?

SPEAKER_01 5:43

Right. So uh Trump and Z are meeting this week. Initially, this summit was meant to focus on trade. Kind of the status quo agreement was put in place last year, November, and is meant to expire this year in November, including things like uh port call uh fees, um, which was a big story um uh last October, November. And certainly being complicated by the war, as this you know is another element that China and U.S. might have different approaches to. Um, in terms of the trade war, though, at the moment, U.S. tariffs on China are lower than they were uh back in February, and that's when the Supreme Court invalidated the EPA tariffs. We know the White House quickly replaced EPA with a 10% global tariff, which would be lower than for China it was 20%. They introduced this tariff based on a different trade law called Section 122, and that's supposed to be in place until July, and then tariffs are going to be re-implemented uh possibly around EPA levels via other trade laws through Section 301. Um, but there's just a wrinkle this week in that the US Court of International Trade, which is the same court which initially invalidated EPA, ruled that the use of section 122, which is really meant for a balance of payments issues, um, was being used in an invalid way this time as well. So this section 122 that's used for this kind of stop gap between February and July has now been ruled, has now been invalidated as well, and so we're going to acquire refunds. The ruling was limited to the plaintiffs. So it doesn't uh automatically mean that anyone who's paid tariffs between February and now or will get a refund, but opens the door. Now there's precedent for other lawsuits, which presumably would go the same way. The White House has appealed and has asked that 122 stay in place until it expires because of the various ramifications it would have for trade. If that is accepted, you know, the appeals process would probably, you know, if they keep losing, would probably go to the Supreme Court, which would probably take longer than July anyway. But certainly another kind of development in this tariff story and the possibility that there'll be another round of refunds if this is also invalid for everyone else. So kind of stay tuned there as well.

SPEAKER_00 7:44

All right, sounds good. All right, thank you, Judah. As always, super interesting insights. If you enjoyed this session, please hit the subscribe button and you'll get notified about all our future episodes. Thank you for joining and goodbye.