Major Long-Haul Shipping Routes See Rate Hikes, Carriers in "Dilemma" Amid Middle East Conflict

Wall Street Journal Reporter | Chen Yixuan

Affected by the US-Iran conflict, tensions in the Strait of Hormuz are rapidly spreading to the global shipping market.

Shipping intelligence firm Alphaliner reports that within days of the Middle East escalation, many ships have suspended passage through the Strait of Hormuz, docking at Persian Gulf ports or anchoring offshore while waiting. Currently, about 130 to 140 container ships are stranded in the Persian Gulf area, with a total capacity of approximately 470,000 TEUs, accounting for about 2% of the global container fleet.

The latest Shanghai Containerized Freight Index (SCFI) stands at 1,489.19 points, up 156.08 points from the previous period. Notably, routes directly affected by the Middle East situation—Persian Gulf, South America, and Central/South America—saw the most significant freight rate increases, with the Persian Gulf route rising over 70% week-on-week, and South America and Central/South America routes increasing over 50%.

Additionally, freight rates on the four major routes—including Europe, the Mediterranean, West America, and East America—have all risen. The Shanghai Export Container Freight Index (SCFI) is regarded as an important indicator of the global container shipping market, covering the core transoceanic trade routes.

Latest Shanghai Container Freight Index (SCFI) on March 6

It is worth noting that the four major ocean routes do not directly pass through the Strait of Hormuz. However, the simultaneous rise in freight rates still indicates that geopolitical risks are affecting market expectations, further transmitting to the global shipping price system. This has also forced some shipping companies to reassess their route planning and operational strategies.

In the capital markets, shipping stocks have also responded noticeably. Companies like Maersk, Hapag-Lloyd, and Evergreen Marine have seen their stock prices rise, with the market generally betting that geopolitical risks could push up freight rates and improve shipping companies’ profit outlooks.

Shao Fei, senior market analyst at the Shanghai International Shipping Research Center, told Wall Street Journal that the freight rate increase is driven both by market panic caused by the Middle East situation and by seasonal demand rebound after the Spring Festival, with both factors jointly pushing prices higher. Additionally, financial factors such as container freight index futures also influence market expectations, leading to some volatility in freight rates.

Route Restructuring, Freight Rates Still Uncertain

In the short term, the SCFI index generally rose, but the long-term trend remains unclear. Data shows that constrained capacity is putting pressure on the global shipping market. “It’s like reducing some capacity in the ‘plate’ of the global fleet,” Shao Fei said.

However, she also pointed out that this capacity change does not necessarily mean long-term freight rate increases. She believes there are multiple possible scenarios.

The first is capacity shifting. If the Strait of Hormuz remains blocked long-term, demand for container shipping in the Middle East could sharply decline. Ships originally allocated to Persian Gulf routes might be reassigned to other routes, such as Asia-Europe or trans-Pacific routes, to find new cargo sources.

“When these ships enter other routes, local supply will increase, and the original supply-demand structure will change,” Shao Fei explained. In this case, some routes’ freight rates might fluctuate: they could fall due to increased capacity, or temporarily rise if port congestion caused by capacity buildup occurs.

Another possibility involves rerouting. If some Middle Eastern ports or ships receive exemptions, shipping companies might maintain routes through detours or transshipment. Under such circumstances, demand persists, but longer transit distances and reduced vessel turnaround efficiency could effectively compress available capacity, supporting freight rates.

Shao Fei told Wall Street Journal that the current shipping market is at a stage of multiple variables intertwined, making it difficult to predict freight rate trends based solely on static supply and demand.

In this context, industry discussions about alternative transportation options have begun.

One idea is transshipment through Saudi Red Sea ports. Compared to the impacted ports in the Persian Gulf and Oman Gulf, Saudi Red Sea ports are currently relatively safe. If cargo is shipped to Europe, it can pass through the Suez Canal into the Mediterranean and then reach European ports, maintaining route viability.

However, for cargo destined for East Asia or Southeast Asia, the voyage would be significantly longer. Shao Fei pointed out that entering the Mediterranean via the Red Sea and rerouting around the Cape of Good Hope could exceed 15,000 nautical miles. Alternatively, passing south through the Bab el-Mandeb Strait into the Indian Ocean and reaching the Far East could shorten the route to 5,000–6,000 nautical miles but would face risks from Houthi attacks.

“In such cases, regardless of the route chosen, shipping companies need to weigh higher costs against higher risks,” she said. For shipping lines, current route choices are a dilemma: either bear higher risks to keep costs low or reroute to avoid risks at the expense of high operational costs.

In fact, some shipping companies have already begun adjusting routes.

On March 6, Maersk, in partnership with the “Twin Star” alliance member Hapag-Lloyd, announced the launch of a new Asia-Europe route, AE19, designed to bypass high-risk waters by rerouting around the Cape of Good Hope and calling at Jeddah Port in Saudi Arabia, providing an alternative channel for the troubled Asia-Europe and Middle East supply chains. The first voyage ship, Maersk Elba, is expected to arrive at Tianjin New Port around March 13.

Maersk AE19 Route Announcement (Source: Maersk official website)

An internal Maersk source told Wall Street Journal that this route combines the former FM1 and ME11 routes, with Jeddah port serving as a transshipment hub for Middle Eastern cargo.

Roughly estimating based on port sequence, the full cycle of AE19 is about 30,000 nautical miles. Compared to traditional Suez Canal routes, this route involves two reroutes around the Cape of Good Hope, doubling the overall distance, which will significantly increase operating costs for shipping companies.

Recently, Xeneta chief analyst Peter Sand pointed out that the escalation of Middle East tensions combined with the risk of attacks in the Red Sea is creating uncertainty for shipping companies in both the Persian Gulf and Red Sea routes, exerting unprecedented pressure on global shipping networks.

Dual Challenges of Risks and Costs, Shipping Lines Face Dilemmas

Compared to freight rate fluctuations, a more immediate challenge lies in operational costs for shipping companies.

Several industry insiders told Wall Street Journal that, given the unclear situation in the Strait of Hormuz, most shipping companies and cargo owners are adopting a wait-and-see approach. Cargo heading toward the Middle East has largely been halted, and the market is experiencing a “price without volume” situation.

The most certain change so far is the rapid rise in shipping costs. Shao Fei said, “As long as ships are anchored or waiting, crew wages, ship rentals, and daily operating costs will continue to accrue.” For ships already in the Persian Gulf, prolonged waiting means mounting operational expenses, and whether they can complete their voyages remains uncertain.

War risk insurance costs are also rising rapidly. Many international insurers have increased risk premiums for relevant routes, and some have even canceled coverage for certain segments.

So far, major international mutual insurance associations such as Gard, Skuld, and NorthStandard have issued notices to cancel or adjust war risk insurance coverage in waters near the Persian Gulf and Strait of Hormuz, making it difficult for some ships to operate in these areas even if they are capable.

Industry insiders told Wall Street Journal that war insurance premiums are now at a state of “either no coverage or very high prices,” adding pressure on shipping companies’ route choices.

On the other hand, high-risk environments may also create short-term high-yield opportunities. In the oil tanker market, this is especially evident. Some VLCCs (Very Large Crude Carriers) operating in Middle Eastern routes have recently seen daily charter rates exceeding $400,000, indicating a “high risk, high reward” market characteristic.

In the container sector, smaller or more risk-tolerant shipping lines might continue operating these routes. However, most large container shipping companies are more cautious.

Several shipping lines have issued emergency operational adjustments and force majeure notices. Evergreen Marine, CMA CGM, Wan Hai Lines, and RCL have announced suspensions or adjustments to some Middle Eastern routes, implementing rerouting or alternative port unloading measures.

They also stated that additional costs and risks from port changes, delays, storage, and transshipment will be borne by cargo owners or shippers. For shipping companies, balancing high risks and high costs may become a key operational challenge in the near future.

Shao Fei said that oil tanker freight rates have already risen significantly, but changes in the container shipping market will take time to manifest. During the pandemic, container freight rates soared, and shipping companies enjoyed unexpected profits due to systemic port and logistics disruptions causing long-term supply chain imbalances. However, the current situation remains uncertain.

It is also important to note that the Middle East situation is causing sharp fluctuations in oil prices. Fuel costs typically account for about 30% of shipping operating expenses. If oil prices rise, operating costs will continue to increase, especially with rerouted routes.

“If the conflict eases in the short term and routes are restored, supply and demand could quickly return to previous levels. But if risks persist, shipping companies may respond through rerouting or capacity adjustments, with the final outcome depending on each company’s strategy,” Shao Fei told Wall Street Journal.

“Profit prospects remain uncertain, but rising costs and risks are now a definite pressure on shipping companies,” she added.

Latest market rumors suggest that Iran’s Islamic Revolutionary Guard Corps has announced that, under certain conditions, the Strait of Hormuz could reopen as early as March 11.