War and climate send global shipping costs to record highs

Shipping costs at some of the world’s most important maritime and inland trade routes have surged to record levels as wars and climate-driven drought disrupt global commerce, raising concerns that higher freight bills could eventually translate into more expensive goods for consumers.

The Financial Times, citing pricing agency Argus, reported that freight rates have climbed sharply over the past month across major chokepoints including the Strait of Hormuz, Red Sea, Black Sea and Panama Canal, as well as along Europe’s Rhine River.

The disruptions are being driven by two forces at once: military conflict and unusually low water levels caused by prolonged drought. The impact is particularly significant because many of these routes are critical arteries for energy, industrial goods and food shipments.

The continuing conflict in the Middle East has nearly closed the Strait of Hormuz to shipping, forcing vessels to seek alternative routes and energy supplies. Roughly one-fifth of the world’s oil and gas previously passed through the waterway.

“This is something which is unprecedented,” Alexander Saverys, chief executive of Belgian shipping company CMB Tech, said of the resulting “freight rate boom”.

He warned that factories could be forced to shut down or find alternative suppliers, potentially sourcing goods from “more expensive parts of the world”.

The cost of transporting oil from the Gulf to Asia reached $15.22 a barrel on August 10, according to Argus. The figure, driven by fears of attacks on Saudi Arabia-linked tankers using the Bab al-Mandab Strait, was the highest since the agency began tracking the route in 2005.

Black Sea tanker rates to the Mediterranean have also reached their highest levels since at least 2005, highlighting the extent to which the disruption has spread beyond the immediate conflict zone.

Climate conditions are adding another layer of pressure. Falling water levels in the Panama Canal, linked to intense El Niño conditions, have coincided with heavy traffic resulting partly from Middle East-related rerouting. Transit prices through the canal’s two sets of locks reached records of $1.1 million and $2.5 million in early August.

In Europe, prolonged drought has caused water levels on the Rhine to fall sharply. The river is a crucial transport route for Germany’s industrial economy, and barge freight rates to major destinations including Cologne, Duisburg, Frankfurt and Karlsruhe have reached their highest levels since 2012.

“This is without doubt the single greatest disruption that the shipping market has seen on record, eclipsing the Covid pandemic and Russia sanctions,” said John Ollett, head of Europe freight pricing at Argus.

Container shipping has also been affected. Average spot rates for shipments from the Far East to the U.S. East Coast have risen 234% year-on-year to $10,249 per 40-foot container.

“The disruption caused by war in the Middle East is becoming a deep-set and structural problem that will not go away any time soon,” said Peter Sand, chief analyst at analytics company Xeneta.

Sand warned that higher transportation costs would eventually move through supply chains. “Someone must pick up the tab for increased freight rate costs and consumers can carry some of that burden, especially for low-margin goods.”

The disruption is also highlighting the growing strategic importance of maritime chokepoints. Iran’s control over Hormuz and negotiations with Oman over arrangements that could involve ships paying for passage have intensified concerns about the vulnerability of global trade.

“Chokepoints are becoming more critical largely because smaller countries now recognise the disproportionate political and economic leverage they can wield over global trade in an increasingly multi-polar world,” said Henry Curra, head of research at shipbroker Braemar.

Longer-term tanker charter rates, Curra added, were “at, or at least very near, the all-time records set in summer 2008,” underscoring the scale of disruption confronting the global shipping industry.

By Sabina Mammadli