Market situation under pressure due to problems in the Middle East

26 April 2024

The dangerous situation in the Middle East is far from over. The war in Israel continues, oil prices are rising and ships are still being hijacked. In addition to daily delays and longer lead times, you as a shipper will face even more challenges – as sea freight rates continue to rise.

MV MSC Aries hijacked

Relations between Israel and Iran have been poor for a long time, but now the situation has truly escalated: a ship has been hijacked in one of the Middle Eastern sea straits. On 13 April 2024, the Islamic Revolutionary Guard Corps (IRGC) took over the cargo ship MV MSC Aries, alleging it had ties with Israel. Regrettably, shipping is once again being used as a political pawn.

The hijacking occurred in the Strait of Hormuz, one of the world’s most critical chokepoints for the oil trade. The ship was travelling from the United Arab Emirates to India but was eventually forced to the Iranian border under pressure.

Source: https://www.businessinsider.nl/straat-van-hormuz-iran-trump/

Dutch and international shipping companies and interest groups, including Euronav (EU) and Prosperity Guardian (US), are very concerned. Shipping should have free passage over water, but piracy has thrown a spanner in the works in recent years. This is viewed worldwide as a violation of international law. Fortunately, the 25 crew members of the MSC Aries have since been released by the Iranian authorities.

Crucial shipping routes disrupted

The Red Sea and the Strait of Hormuz are crucial shipping routes. Nearly everything is transported by sea, so disruptions are unfavourable for global trade.

Iran can close the Strait of Hormuz if it deems it necessary. Globally, a quarter of all maritime and oil trade passes through this channel. If closed, this would cause significant problems in the oil supply.

Implications for sea freight rates and market situation

No oil supply means higher fuel prices, something we will undoubtedly feel in the next diesel surcharge. In addition, ships must often take longer routes. It is still unclear exactly what shipping companies will do in the coming period.

Since mid-April, we have seen sea freight rates significantly increase. Besides these rate hikes, several surcharges have also been added over the past year. All in all, this is causing unrest in the container market.

Many shipping companies are still choosing to sail via the Cape of Good Hope, a safe but longer route to the destination with an additional transit time of about 10-15 days – not including potential congestion at the destination.

Questions

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