Global maritime transport is facing an unprecedented confluence of crises. The war in the Middle East, restrictions on traffic through the Strait of Hormuz, and prolonged droughts in Europe and Latin America are driving up shipping costs along some of the world's most important trade routes to record levels. According to the Financial Times, the current disruption to shipping is, in some respects, even more significant than during the COVID-19 pandemic.
Data from the Argus price agency show that several key arteries of global trade – the Panama Canal, the Rhine River, and the Red Sea and Black Sea regions – are simultaneously affected. While geopolitical conflicts force ships to change routes and seek alternative sources of raw materials, droughts reduce river and canal levels, limiting the amount of cargo that vessels can carry.
One of the most significant price increases has been in the transportation of oil. The cost of shipping one barrel of oil from the Persian Gulf to Asia reached $15.22 on August 10th, the highest level since Argus began tracking these rates in 2005.
Container shipping is also becoming significantly more expensive. The average spot price for shipping a standard forty-foot container from the Far East to the east coast of the United States has risen to $10,249, representing a year-on-year increase of 234 percent. Xeneta also reports that spot rates on this route have nearly quadrupled since the end of February.
The Panama Canal is becoming an expensive bottleneck
The tense situation is particularly evident in the Panama Canal. Declining water levels, coupled with the intensifying El Niño climate phenomenon, are limiting shipping capacity just when demand along the route is increasing.
The closure or significant restriction of traffic through the Strait of Hormuz has led Asian buyers to seek more oil and other energy resources from, for example, the US Gulf Coast. Part of this cargo then heads to Asia via Panama.
The average price of auction slots for passage through commonly used locks reached approximately $1.1 million in August, while for larger vessels, it reached as high as $2.5 million. Some individual auctions even went higher.
However, the problems are not limited to the oceans. Prolonged drought in Europe has reduced the water level of the Rhine River, a key transportation route for German industry. According to the Financial Times, prices for river freight transport to industrial centers such as Cologne, Duisburg, Frankfurt, or Karlsruhe have reached their highest levels since 2012.
The biggest disruption to shipping in history?
John Ollett, head of European freight valuation at Argus, described the current situation as the largest disruption to the shipping market in recorded history, which he says surpasses the impact of both the pandemic and sanctions against Russia.
According to Peter Sand, chief analyst at Xeneta, this is not just a short-term fluctuation. The impacts of the war in the Middle East are gradually turning into a structural problem, and the sharp increase in prices from the spot market is also spreading to long-term shipping contracts.
These higher costs will not only affect the accounts of shipping companies and importers. They can gradually spread throughout the entire supply chain – from energy and industrial raw materials to consumer goods. Ultimately, households may end up paying part of the cost through higher prices.
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