Episode #34: The July BAF Panic and the $166 Billion Liquidity Twist

Welcome back to Container Bytes! I’m Julia Frohwein, powering through being a bit "under the weather" this week alongside our resident freight expert Judah Levine to unpack a highly volatile session. 📍 The Persian Gulf conflict is intensifying, and while peace negotiations continue, ocean freight has officially hit the panic button on early Peak Season demand.

In this episode, we break down the massive June 1st rate explosion. Spot rates didn't just tick up—they skyrocketed by $1,000 to $1,800 per container in a single week. Shippers are aggressively front-loading volumes ahead of the massive July BAF (Bunker Adjustment Factor) hikes, resulting in space shortages, capped allocations, and forced premium fees. Transpacific rates have surged to $4,800/FEU to the West Coast and $6,000/FEU to the East Coast, while Asia-Europe has completely surpassed last year's peak highs.

We also look at a bombshell legal twist in the trade war: The White House has officially challenged the $166 Billion IEEPA tariff refund order. If your previous customs entries have already been "liquidated," the government is saying they won't pay you back unless you sue them directly.

Finally, we look at the newly released USTR Section 301 report targeting forced labor inputs, proposing fresh 10% to 12.5% tariffs on a massive list of global trading partners including the EU, Canada, Mexico, India, and China to replace the expiring July stopgap.

Chapters: 

• 00:00:00 — Powering Through: Julia's British "under the weather" opener. 
• 00:01:00 — June 1st Rate Explosion: The $1,800 week-on-week spot spike. 
• 00:01:45 — Capped Allocations: Why contract shippers are crowding out the spot market. 
• 00:02:15 — The BAF Front-Loading Strategy: Racing the July quarterly adjustment. 
• 00:03:15 — The $166B Refund Fight: Unliquidated vs. Liquidated entries explained. 
• 00:06:00 — Section 122 Ticking Clock: The global 10% tariff expires in July. 
• 00:06:45 — The USTR Shell Over: The new Section 301 forced labor tariff list.

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

0:00

Hi, listeners, and welcome to today's episode of Container Bites, your bite-sized session on the latest in freight. I'm Julia Frowein, joined as always by our resident freight expert, Judah Levine. Judah, how are you today? I'm good. How are you doing? I'm a little under the weather, as you might be able to say. Do you have that phrase to number it's under the weather? Yeah, we do actually. Yeah. I was thinking you would have met a cuter, a cuter saying, but okay, I guess it's the same. Yeah, no, there's probably other things for it, but yeah, but I'm gonna power through. It's all good. Um, let's get into it. So um in the Persian Gulf, there is continued or maybe intensifying military exchanges, even as negotiations are continuing. But once again, for freight, as long as the strait remains closed, it's basically more of the same. But we started to see container rates starting to climb sharply on the major east-west lanes. It's a little earlier than usual. So what's going on with container rates and why is this happening so soon? Yeah, so so peak season demand is certainly clearly kicking in now and sticking on the major east-west lanes, so both Asian Europe and Trans-Pacific. And they're starting from kind of already elevated levels because of the Street of Hormuz issue, because of uh carriers passing on fuel costs. So we're at kind of an elevated starting point as well. And we're definitely seeing increased demand. There are even reports that some contracted carriers are having their allocations limited or cut and seeing premiums uh applied. Why is there an early start? So for Asia Europe, it's not so early compared to what we've seen the last couple of years because of Red Sea diversions. They have longer to go, they have to make sure they get all their goods and time so they're not stuck without inventories when they need them for the shopping season. Um, but the additional aspect of this year, which I think is also now in play for Trans-Pacific, is fuel costs. So uh shippers shipping on the spot market, those costs are passed on immediately in emergency fuel surcharges. But for bigger shippers who have contracts, mostly they pay their fuel costs through the BAF, through the bunker adjustment factor, which is adjust quarterly kind of retrospective for what the carriers paid in the previous quarter. So even if there are some surcharges or some increases passed along, they're going to be more significant starting in July. And so that's probably we're seeing a big increase in demand from those big contracted uh shippers. And that means less space for uh spot market shippers and therefore rates uh going up. But uh yeah, we've definitely seen them going up sharply. So from the start of the war till the end of May, rates have increased about 15% across these lanes. But starting with the June 1st, we saw GRIs, we saw peak season surcharges that could be really significant, and those are already pushed rates up about 1,000 to as much as $1,800 per container just this week. So last week, week on week rates were about level, but this week they're climbing fast. So on the Trans-Pacific to the West Coast, they're already at $4,800 per container to the East Coast, $6,000 to Europe, $4,000 to the Mediterranean, $5,500. And there are additional significant increases scheduled for mid-month as well. So likely rates will uh continue climbing, or carriers will try and continue pushing them up. For Asia Europe, those rates that we're at right now, those are already surpassed the highs that we saw last peak season. So last that was June, uh July, or maybe into July, but we're already past that. Trans Pacific, we're not there yet. We had a very brief, very strong peak season the month of June, July last year because of trade war front loading and things like that. But you know, it seems like we're heading in that direction. And let's talk about the trade war just briefly. There's been some important developments this week in the US, um, some drama around the EPAF tariff refund. What's what's going on there? Yeah, so the Supreme Court held up a ruling that invalidated EPA tariffs, which are basically all the country-specific tariffs that the Trump administration had introduced uh since last February and the I'm sorry, since uh uh February 2025. And the Supreme Court invalidated those um this February, February 2026. Shipper importers had paid $166 billion in EPA duties. And after that decision, the um trade court ordered the uh U.S. Customs and Border Protection to start refunding those duties paid. And in fact, they did. By April, there was kind of an online portal set up and a methodology to start uh generating refunds, and that process is underway for about half of that $166 billion. The distinction, however, and what happened this week is that the White House has uh challenged, and as of yesterday, uh formerly challenged the court order for those refunds because they're saying there's a difference between different types of entries. And to get a little technical, when uh goods enter the country, you have a customs filing, um, the importer pays duties that they estimate on their own with their broker, and then the uh CBP quickly reviews it and releases the goods into the country. But what could be months later, the CBP will kind of audit what the importer paid in those duties and decide was it accurate? Um, did they underpay and we send them a bill or did they overpay and we send them a refund? And that's called liquidation. And the argument basically is that the CBP is processing $80 billion in refunds for goods that hadn't been liquidated before the Supreme Court ruling. But for goods that were liquidated, they're saying they don't have the authority to re-liquidate or kind of reopen the case and then after a refund, unless they have a court order, and that court order needs to be specific to that entry or to that shipper. So that would mean that if you're an importer that hasn't sued the government and trade court, that you might not be liable for a refund if on those entries that had already been liquidated. And so what this probably means is for unliquidated entries, that is going to continue on, refunds are gonna continue to flow. How you're gonna get a refund for those other goods, they're not saying that they're not required to issue a refund. They're saying they can't give a refund unless there's a court order for those specific goods. And that might take longer for this to be worked out, or if it means that the government is successful, um, then it would mean that you know all these importers would have to uh sue the government in trade court and get a court order in order to get those refunds. So the saga, uh the drama continues. Yes, okay. And we're also in this sort of strange interim period from where EPA was invalidated and when the temporary global tariff expires in July. So the White House has promised to replace it with something, other measures, but are they getting close to doing that? Yeah, so also some developments there this week. So as we said, EPA was invalidated. EPA tariffs varied by country from like 10% to as much as more than 20%. Um, when that was canceled, the administration quickly introduced section 122 tariffs, which are for balance of payment issues. And this is also being challenged in court, by the way. But that's only valid for three months, and that's at a global rate of 10%. There was talk that there was going to be 15% for some countries, but it didn't materialize. Um, and then the interim, the administration is looking to use other parts of the trade law in order to introduce tariffs once this section 122 expires in late July. And so one of those is called Section 301, which requires investigations into certain issues and it can be applied, and then the president can apply tariffs for a specific country or for specific types of goods from a given country. Um and so these are underway. And just yesterday, the USTR, US trade representative, issued a statement and kind of a summary report of findings uh for section 301 looking into the control of imports that were manufactured using forced labor. And basically give a list of countries that they say are not doing enough, not that they're using forced labor to manufacture, at least in this part of the study, but saying that they're not doing enough to limit the amount of imports that are coming into their countries from maybe inputs that are coming to their countries that are using forced labor. And that the the recommendation is 10% tariffs on a list of countries, which includes Canada, Mexico, the EU, Taiwan, and UK, and 12.5% for other countries like China, India, Japan, uh, South Korea, Brazil. So we're seeing steps already to try and kind of replace the EBA tariffs once a section one twenty two expires. Okay. All right, so watch this space. Yep. All right, great. All right, that's all we have time for. Thank you, Judah. If you enjoyed the session, please hit the subscribe button to get notified about all our future episodes. Thank you for listening and have a great day. Bye.