The ongoing conflict in the Middle East is reshaping the pricing structure of global shipping routes. War risk insurance premiums for vessels passing through the Strait of Hormuz have skyrocketed, while container shipping rates to the United States are approaching $10,000. The financial burden stemming from the war is causing rerouting and a shortage of shipping capacity, putting pressure on global logistics networks.
According to the shipping industry on September 15, military tensions in the Middle East have sharply reduced vessel traffic through the Strait of Hormuz. Global commodity analysis firm Kpler reported that only four cargo ships passed through the strait on September 14, down from ten the previous day and significantly lower than the pre-war average of about 125 vessels per day.
As shipping traffic declines, war risk insurance premiums remain elevated. Recent market estimates indicate that premiums for vessels transiting Hormuz have surged to as much as 40 times the normal rate. For a Very Large Crude Carrier (VLCC) valued at $100 million, the insurance premium, which typically hovers around $250,000, could reach as high as $10 million. Actual premiums are determined individually based on the vessel, insurer, and operational conditions.
Shipping rates have also seen a dramatic increase. According to British shipping consultancy Drewry, as of September 10, the cost for a 40-foot container (FEU) from Shanghai to New York was recorded at $9,726. At current exchange rates, this translates to approximately 1.3 million won per container.
On the same date, the average spot rate for containers from China to Khor Fakkan was $10,626 per 40-foot container, marking a 479% increase since February 28. This is about 5.8 times higher than pre-war levels, as container transport through the Strait of Hormuz has become virtually restricted, leading to increased demand for alternative shipping routes through Jeddah and Khor Fakkan.
The Shanghai Containerized Freight Index (SCFI) is also on the rise. On September 11, the SCFI reached 3,662.18, up 2% from the previous week's 3,590.05. As of September 4, shipping rates to the U.S. West Coast were $7,242 per FEU, while rates to the U.S. East Coast reached $10,324.
Shipping companies are passing on the increased costs to customers. Maersk has implemented emergency surcharges for cargo heading to or departing from regions including Iraq, Kuwait, parts of Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, and Oman. The surcharges are $1,800 for a 20-foot standard container, $3,000 for a 40-foot standard container, and $3,800 for refrigerated, special, or hazardous containers. Additionally, vessels transiting the Strait of Hormuz incur an extra $1,000 per container to cover insurance and crew risk compensation.
This situation has complicated the calculations for shipping companies regarding their routes. While the war risk in the Strait of Hormuz has led to increased insurance and crew risk costs, some shipping companies are returning to the Suez Canal to avoid the longer transit times and fuel costs associated with rerouting around the Cape of Good Hope.
Cost and time are the primary factors driving this decision. According to Geneta, using the Red Sea and Suez Canal for the China to Genoa route can reduce transit time by about 11 days compared to rerouting around the Cape of Good Hope. Shorter distances mean savings on fuel and operational costs, allowing vessels to be deployed for subsequent voyages more quickly.
However, the Red Sea route has not fully normalized. In August, the average weekly shipping capacity passing through the Bab el-Mandeb Strait was 212,636 TEU, double the amount from a year ago, but only 23% of the 930,679 TEU recorded in August 2023, prior to the Red Sea crisis. Shipping companies are cautiously resuming some services while monitoring the security situation.
Ultimately, the Middle East conflict is not only blocking shipping routes but also altering the cost structure of maritime transport. A shipping industry insider noted, "As the geopolitical risks in the Middle East persist, shipping companies must consider safety, insurance premiums, fuel costs, and transit times when deciding on routes. If additional costs continue for an extended period, they will likely be reflected in shipping rates, leading to increased logistics costs for shippers and import-export businesses."
* This article has been translated by AI.
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