Weeks into the Iran conflict, the disruption to dairy logistics is becoming more visible.

Shipping dairy to the Middle East used to take 30 to 40 days. Now it can take 60 to 75.

And the longer this conflict lasts, the more pressure it puts on the dairy trade.

In this episode of The Milk Check, host Ted Jacoby III talks with our logistics expert, Tyler Jokerst, Director of Trade Operations, about what all this means for dairy producers, traders and exporters.

In this episode, we cover:

• Why Persian Gulf access remains severely limited, and how exporters are responding
• How normal 30- to 40-day transit times can stretch to 60 to 75 days
• Why alternate routes are creating new choke points
• How higher oil prices are raising shipping and trucking costs
• Why fertilizer, feed costs and food inflation are becoming part of the conversation
• How delayed demand, product displacement and global economic stress could bring more dairy market volatility

Listen to The Milk Check episode 096: A Logistics Expert on the Iran Conflict and Dairy Trade.

Got questions?

We’d love to hear them. Submit below, and we might answer it on the show.

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Ted Jacoby III: Coming up on The Milk Check.

Tyler Jokerst: As this thing progresses, it could prolong it.

Ted Jacoby III: 30 to 40 days of shipping from the East Coast to the Middle East is now 60 to 75.

Welcome to The Milk Check from T.C. Jacoby and Company, your complete guide to dairy markets, from the milking parlor to the supermarket shelf. I’m Ted Jacoby. Let’s dive in.

Ted Jacoby III: Today, we have a special guest, Tyler Jokerst, our Director of Trade Operations, and we’re asking Tyler to join us ’cause we thought it would be a pretty timely topic to discuss logistics, both international and domestic.

With everything going on in the Middle East, how is that affecting logistics, in terms of global trade for dairy, especially important for U.S. dairy, considering the fact that we’re exporting over 20% of our milk production these days? But it’s also affecting us domestically. Gas prices are probably up over 30% at this point, which is going to affect costs when we’re getting all the dairy products we make to consumers here at home.

So, Tyler, welcome and thanks for joining us.

Tyler Jokerst: Thanks for having me, Ted.

Ted Jacoby III: Tyler, what is going on in the Middle East? How is it affecting logistics? Are we going to be able to get container ships into the Persian Gulf anytime soon? And if not, what are we doing in response to that?

Tyler Jokerst: I think the easy answer is: we don’t know, other than there is a war over there. That’s the biggest thing right now causing the impact, and the huge leverage point Iran has is the Strait of Hormuz. For that strait, there’s a lot of product that goes in and out of there.

Primarily oil, but, yeah, a big part of that is containerized shipments, as well. As we all know, the Middle East is a big purchaser of dairy products as well, right now. And we’re seeing a lot of disruption there as far as what we can get in or out of there.

It’s almost come to a virtual stop.

Ted Jacoby III: So, they can’t get into the Persian Gulf. Are there other options?

Tyler Jokerst: Tomorrow, there might not be. That’s the situation we’re in right now. Every day is a day-to-day situation. The current workarounds are what the steamship lines are calling landbridges.

So, essentially, you’re porting into ports on the other side of Saudi Arabia, where you’re not going into the Persian Gulf, and they’re either working on truck or train routes. It can get across, over to Riyadh or Dammam.

Ted Jacoby III: So, Dammam is the main container port for Saudi Arabia and the Persian Gulf. What’s the port in the Red Sea that we’re using now instead?

Tyler Jokerst: King Abdullah is one of ’em. If you go further north, where you’re getting into Jordan, you have Jeddah as well. So, there are a couple of different options there. I think the biggest issue that poses is you’re putting a lot of stress on infrastructure that maybe wasn’t built to handle that much volume coming through.

This is another ripple effect we’re keeping an eye on, and we’re staying close with our freight forwarders and our steamship lines to see if we’re gonna have any ripple effects as far as boats that are anchoring offshore and waiting to get checked. If you were to look at it right now, you’re looking at a miniature effect of what COVID was like in LA back in 2020, when you had numerous boats anchoring offshore, waiting to get offloaded, because you’re at a choke point, trying to put all that supply into one port.

So, it’s unfolding as we go through this day by day.

Ted Jacoby III: So, I take it, there’s a traffic jam going into Jeddah and King Abdullah at [00:03:00] the moment?

Tyler Jokerst: Just a little bit.

Ted Jacoby III: What delays are we experiencing?

Tyler Jokerst: If you were to look at the product on the water, we are currently looking at maybe 15 to 20 days in our current state.

As this thing progresses, it’s gonna be up to the providers, the steamship lines and the freight forwarders and how they work with us to be able to dictate what new routes they need to take or what alternatives they need to make, as far as getting this product to those consumers.

So, it could prolong it to where it’s a constant 20-day longer shipping period than what we’re used to seeing in those areas, which is typically anywhere from 30 to 40 days.

Ted Jacoby III: 30 to 40 days of shipping from the East Coast to the Middle East is now 60 to 75.

Tyler Jokerst: Yep. Absolutely. You’re right on that one.

Ted Jacoby III: Are we still loading containers of cheese and powder and butter and other things and putting ’em on boats and sending ’em to the Middle East?

Tyler Jokerst: Yeah. We are. One of the key things that we’re having to keep an eye on is per steamship line.

So, if you’re working with freight forwarders, they work with numerous different steamship lines, and every steamship line handles it differently. And the main part of why they’re handling it differently is all related to the geopolitics. Some of the steamship lines are owned by Mediterranean companies, maybe in Italy.

There are other steamship lines owned by companies in Israel. They’re probably not getting through the Strait. And then you have the Chinese and Korean-owned steamship lines that tend to have a little more leeway because they might be a little more neutral with Iran, where they might be allowed to pass.

 It’s different with every carrier. So, whenever we look at this, and we assess the notes that we have to have with our freight forwarders, we have: who’s the service provider that we think we should be using, because that’s the one that tends to have the golden ticket in.

Tyler Jokerst: And that’s where we have to balance out cost and service. They might have the golden ticket that can get them into the port. That’s gonna come at a price. They know the demand’s higher because, from a geopolitical standpoint, they can get in and they can get the job done where maybe the other providers can’t.

You start peeling a lot more layers back than what you’ve historically had to, where you just look at a rate in a transit and say, “Okay, this works. We’ll communicate according to our customer and meet their demands.” Now, you’re dealing with a war. It’s unpredictable for those involved directly and indirectly, including us.

And that’s where we have to weigh out additional options that are being thrown at us on a daily basis. That target is moving. We’ll come in tomorrow, and we’ll probably have a different set of rules that we need to follow for that day.

Ted Jacoby III: But you bring up a good point.

I never thought of it that way before. It’s like you can’t take Delta Air Lines into the Middle East because it’s American-owned, but you could probably take Emirates. Most big steamships are actually not owned by the U.S., and those steamship lines that have good relationships over there actually can still get product in.

Tyler Jokerst:  I don’t think you get any airplanes into the Middle East right now, but yeah, from a steamship line standpoint, you can. Whenever I say they can pass through Hormuz, you went from several hundred ships going through the Strait of Hormuz in a day to now, single digits. So, that’s a loose thing where it’s allowed, but less risk of impact or targeting from an economic standpoint, whenever you’re going on [00:06:00] one ship versus the other, that’s the biggest thing to consider.

Ted Jacoby III: How much have shipping costs increased? What was the going rate for a container into the Middle East from the East Coast, and what is it now?

Tyler Jokerst: If you’re looking at door-to-door, or door-to- port, we were hovering around $ 8,000, all in, and now it’s looking more around $10,000, all in.

Ted Jacoby III: Maybe 20%, 30% increase in shipping costs. But that’s not double or triple.

Tyler Jokerst: Not yet.

It could be by next week, though.

Ted Jacoby III: Got it.

Tyler Jokerst: Yep.

Mike Brown: Tyler, when you have a select group of shipping companies you can work with, and you look at the 20%, 30%, that surprised me, it’s not higher. Do we see people deciding we’re just gonna lay low and not try to ship to that market for a while until we see things more stable because of the risk?

Tyler Jokerst: I won’t name specific providers, but we do have some providers where when this thing started to kick off, they were already putting some plans together, and then by the following week, they decided that any of their refrigerated equipment they didn’t want going on that landbridge option that we were talking about earlier.

So, you are seeing that as well, where they’re purely looking at it from an insurance standpoint. Insurance costs are going up a thousand x and saying, “Okay, the risk isn’t worth the reward right now,” because of how much insurance costs to go in there—Wartime, surcharges, things like that.

And they’re completely staying out of the situation altogether and just rerouting their equipment. The bigger effect is that as this goes on, and there’s no improvement to the current situation, it will ripple into the rest of the markets, and you will start to see delays at other ports that maybe service these ports, as far as these types of trade lanes.

And you’ll start to see some disruptions in the supply chain because people have to do something with that product that maybe they already sold. Reselling it might not be an option because the way the markets are right now, the pricing might not allow for that to happen, especially with dairy.

If you’re getting a premium for exporting it versus selling it domestically, you’re gonna sit on it and wait this thing out. So, now you start to have backups in your supply chains at the origin ports, maybe the domestic warehousing, or even, in some cases, the manufacturing sites. So, there are a lot of effects that come from that.

Ted Jacoby III: Tyler, I know that Europe has traditionally sold a lot more dairy into the Middle East than the U.S., even though the U.S. does do a decent amount of business there. They’re having the same problem we are in terms of getting to these ports, but are they capable of shipping product over the land?

Let’s say across Istanbul, through Turkey and get there that way? Or are there too many issues with that approach?

You’re going through Jordan, you’re going through Syria, you’re going through the Kurds. Territory.

Tyler Jokerst: Israel’s dropping bombs north of the country as well. You’re not just looking at us dropping bombs in Iran and then Iran, throwing missiles across the water. You got Israel trying to take on a two-front war as well.

I couldn’t see how a land option would be feasible.

Ted Jacoby III: Yeah, I would have to agree with that. So, we know what’s going on in the Middle East. We know that it’s harder to get the product there right now. How’s it affecting us back home?

Where are we seeing the effects [00:09:00] in logistics back home?

Tyler Jokerst: Gas prices all day. I think barrels are currently sitting at around $95 a barrel. We’ve seen truck prices rise anywhere from 10 to 20%. It is a prolonged tightness in capacity, as well, but fuel has been a big factor as far as our domestic truckload goes, and the rates that we’re used to paying at this time of year.

Ted Jacoby III: Outside of just increased cost because of increased diesel prices, are we seeing any other effects? What about the domestic ports? Are we seeing any backup at the domestic ports? Or are our ports still functioning normally, and it’s really only a fuel surcharge problem?

Tyler Jokerst: Yeah. Our ports are operating functionally, as it stands.

Those ripple effects will eventually hit us. They haven’t yet, but the longer this thing goes on, the more exposure that leaves to ports that are further away from the epicenter.

Joe Maixner: Keep in mind, a lot of the stuff that is still shipping over into the Middle East is contracts that were put on the books before any of this started. We haven’t seen much interest on anything since the beginning of March going into that region, for obvious reasons.

Ted Jacoby III: So, we’re not seeing any new contracts, but we’re still having conversations with our customers about how to fulfill the contracts that were on the books that were expected to ship at this time before the conflict started.

Joe Maixner: Yeah. I think there’s going to be some pent-up demand the longer that this goes on. It’s gonna cause a pop in markets when this finally gets resolved because everybody’s gonna see that demand come back. Especially given the fact that the longer this goes on, the more potential for our markets to weaken because we’re not getting additional sales on the books and product out.

So we could see a quick pop when things really do open back up. I do think it would take a while for that stuff to even roll through the system because there’s gonna be a backlog in ports and products still needing to ship anyway. So, expect more volatility.

Tyler Jokerst: We’re currently going through an annual slowdown, too, in the Middle East. I think it’s Eid al-Fitr that’s going on right now during Ramadan. So, a lot of the buildup in exports is prior to that, with them trying to get all the product over there.

 Just looking at last year, before we had any major geopolitical events happening, aside from tariffs, we would typically see a slowdown this time of year going into that region.

 That’s a good point. Diego, what are your thoughts?

Diego Carvallo: I know that energy is hugely affected by the Hormuz channel being blocked. But is food impacted as much as energy? I think the answer is no. I think most of the destinations where we take our dairy products are both from the U.S. and from Europe.

At least access has not been blocked as bad as it has happened for exports of energy. So I’m just wondering if that impact on dairy is mainly caused by energy or just because it’s impacting fundamentals for our products.

Ted Jacoby III: I know that Dammam is the big port in the Gulf for container ships. It’s a big oil port too, but there’s a separate container port, and then Bahrain and Qatar and even Dubai have their own ports. But then, Saudi [00:12:00] Arabia in particular has Jeddah and King Abdullah. And so, those two ports have taken over in the meantime.

Tyler’s comment about Ramadan being in the rearview mirror is appropriate. This is the slowdown time with demand. And so we probably aren’t feeling the effect as much. I also think, from an energy perspective, the closing of the Strait of Hormuz is affecting other countries, like China, a lot more than it’s affecting the U.S. because we have, over the last 20 years, grown more energy independent because of the shale and fracking we’ve been doing domestically. And I think that has helped quite a bit.

Joe Maixner: Oceania is at a severe disadvantage with this right now, too. I was looking at their energy prices and their diesel costs in Australia, for example. It’s the equivalent of $8.20 a gallon in U.S. terms. They’re really feeling the pinch, and I believe that New Zealand’s in the same boat, and that’s going to affect their shipping rates.

Ted Jacoby III: All these huge container ships, what is their fuel? Diesel?

Tyler Jokerst: Yeah.

Ted Jacoby III: So, it’s just like trucks. They just buy a lot of diesel. So, if they’re dropping off in Australia, they’ve gotta fill up in Australia, where that oil costs a lot more than it does in other places.

Mike Brown: I think this is all walking around the macro effects, and I think we need to talk about that. Let’s talk about the cost of producing food with what we’re doing to the urea, the nitrogen fertilizer markets, with the cutoff of moving product through the strait.

Yes, a lot of it’s already bought; it isn’t all already bought. Between that and what we’re seeing with tariffs in Canada and their struggles with potash, we’re raising the cost of growing food because cows eat food just like we eat food. So, there are costs there that I think we have to think about. The other thing is these, particularly the Asian or even European, but Asia, ’cause that’s our export opportunities, those economies are so dependent on oil coming through the strait. And as those economies slow down, they tend to be much more price-sensitive about products than we are because they don’t have the incomes we have.

Is that gonna slow down? Is that gonna cause a longer-term impact? If we see the world economy basically slow down, what will that do to dairy demand? Dairy is essential, but it is something cost-wise that they may be looking for other alternatives, particularly on the fat side.

We can’t ignore that possibility. Right now, it looks good. Look at the butter market, today it recovered a little bit again. Prices, right now, for farmers are good. They can make money in current markets. But how much global slowdown will we see from this, and how will that affect demand for our U.S. dairy products, is still a concern of mine.

Ted Jacoby III: We’re sitting here at the tail end of March. If this thing doesn’t show real signs of starting to wrap up in the next few weeks, I think there’s gonna be a tone shift in the general macroeconomic markets.

There’s been a lot of talk: how is the U.S., and how is Trump gonna extract ourselves from this conflict? And we’re getting to that point where the length of time is becoming a very real issue. We haven’t quite got there, I don’t think. But I think we’re getting close.

Mike Brown: Those of us who lived through stagflation in the late seventies, [00:15:00] it’s feeling a little bit too much like that right now.

Ted Jacoby III: I would agree. In the seventies, gas prices caused it.

Mike Brown: Oh, absolutely. And it was the conflict with Iran that caused some of that, too.

Ted Jacoby III: Yeah. I think that the economy had already been set up for stagflation for other reasons, government debt being the big one, but you add this to it, yeah, you’re right. That’s very problematic in terms of getting the economy to function smoothly.

Mike Brown: Government debt isn’t exactly our strong point right now.

Ted Jacoby III: The only saving grace is that everybody has the same problem. You look at any developed country, and they’ve all got the same problem we do when it comes to government debt.

Mike Brown: Yeah, they do.

And if you’re looking at our export opportunities, that isn’t necessarily a good thing.

There’s a lot to be nervous about right now.

Tyler Jokerst: If you tie it back to dairy exports, the Middle East accounts for like 20% of all dairy exports in the world.

They consume a lot of cheese. That seems to be a growing sector for ’em as well. For us, that hurts the bottom line.

So it seems to be one of the biggest issues for us as a handler of dairy products.

Mike Brown: One of the conversations at U.S. Dairy Export Council meetings this week was displacement. If the product can’t get there, who’s gonna buy it?

That’s more competition for us because that’s the close-by market for Europe. They love it. It’s close, it’s efficient, but if they can’t get the product there, we’re gonna compete with them somewhere else.

Ted Jacoby III: When it comes to cheese and butter, Mike, you’re spot on. We’re getting lucky on the non-fat side because Iran was a skim milk powder exporter. And that’s off the market, too.

Mike Brown: If you look at prices powder’s not having a problem with finding demand.

Ted Jacoby III: They aren’t.

Mike Brown: A lot in supply.

Ted Jacoby III: [Laughter]

Tyler Jokerst: Alright.

Tristan Suellentrop: We’ve all dealt with shipment delays before, but what’s the most absurd reason you’ve ever seen or heard of one being held up for?

Tyler Jokerst: Oh, shipment delays. Yeah, the worst one I had wasn’t at Jacoby; we seemed to have it dialed in here.

The worst one was from my previous employer. We hit a trans shipment point. Transshipment points are where you’ll have the steamship lines connect with another boat, and they’ll offload some of their containers to the other boat and continue. And it was something like a 40-day delay of just getting it from one boat to another that severely hurt us.

This is one that we’ve had. During 2020, there were plenty of ’em. You looked at the ports of LA and Long Beach, and it could be 30-40 days. And these boats were just anchored off the shore and waiting to get offloaded.

But because of all the causes and effects that we had with COVID, you ran into a lot of delays from that. That was a regular occurrence back in 2020 and 2021.

Ted Jacoby III: Tyler, thanks for joining us. Really appreciate it. Great discussion. So thankful that you’re helping us navigate all this stuff in these very interesting times.

 Thanks, everybody, for joining us today.