Ocean Freight & Strait of Hormuz

Roughly 20-21 million barrels of Oil pass through the Strait of Hormuz each day but it is not just tankers that are at risk. Container ships, Bulk carriers amd LNG vessels all move in these waters also. The threat of mines, drone strikes, and Iranian naval interference has made the Strait of Hormuz one of the most consequential chokepoints in Global Trade.

The insurance for war risk premiums for vessels transiting the Persian Gulf have spiked dramatically. Some carriers have rerouted vessels around the Cape of Good Hope adding 10-14 days to transit times. The knock-on effect on Global containers rates have been immediate. Capacity has tightened not because of fewer ships but because of effective capacity has dropped as vessels take longer routes, spend more time at anchor or exit trading lanes entirely.

The Strategic move importers should conduct is to pressure test supply chain resilience: identify suppliers in non-Gulf origins (where possible), pull forward inventory, increase stock levels.

Air Freight has historically served as a relief valve when Ocean freight becomes too expensive or unreliable. That dynamic is starting to play out again, however this comes with an important constraint: Air freight capcity is not infinately elastic. Widebody belly capcity is tied to its passenger demand patterns. Dedicated freighter fleets are finite and the current conflict in the Persian Gulf have complicated Flight routes. Time sensitive goods- electronics, pharmaceuticals, automotive parts- migrated from ocean to air freight timelines became unpredictable. Cargo capacity has tightened, pushing air freight rates upwards across trade lanes.

Cargo yields increased markedly as demand surged. The capacity crunch was most felt on the Asia to North America- Asia to Europe trade routes where both ocean diversion demand and existing e-commerce growth were already competing for belly space.

This is not new for the freight industry, during the opening days/weeks of the COVID 19 pandemic made the freight industry fragile. The war in the Persian Gulf only reenforces that perception, with Overcapcity of ocean freight, soft truckload demand, and elevated interest rates had been supressing carrier earnings. The conflict injected demand- side pressure onto a cost side already under strain.