Global shipping costs are surging and trade routes are being disrupted as Iran declared a full closure of the Strait of Hormuz on March 2nd, a critical waterway for global oil and trade. The move follows recent military exchanges between the U.S., Israel, and Iran, raising fears of a wider regional conflict and impacting international supply chains.
According to reports from the shipping and freight industry, major global shipping companies are responding with a five-pronged approach: halting voyages, seeking alternative routes, diverting vessels, suspending bookings, and implementing surcharges. The disruptions are expected to cause delays of 7-14 days for Europe and U.S. East Coast-bound shipments, while routes between the Middle East and Asia face complete interruption or significant detours.
Overall costs – including freight, insurance, and fuel – are estimated to be rising by 30% to 50%, according to industry sources. Shipments of oil, LNG, petrochemicals, and container cargo are facing widespread delays or cancellations, putting pressure on global supply chains.
Maersk and Hapag-Lloyd have suspended all vessel traffic through the Strait of Hormuz until further notice. Mediterranean Shipping Company (MSC) has halted new bookings for shipments to the Middle East, directing vessels to safer areas. CMA CGM, COSCO, Evergreen, and Japan’s three major shipping lines have as well paused operations on routes through the Persian Gulf and Red Sea.
Vessels currently in the Persian Gulf and Gulf of Oman are reportedly anchoring in safer waters, while those en route to the Gulf are either turning back or reducing speed.
The closure of the Strait of Hormuz, a narrow passage between Iran and Oman, is a significant escalation in tensions. It is a key chokepoint for global energy supplies, with approximately 30% of the world’s seaborne oil passing through it daily.
While Shenzhen Port is currently operating normally, the situation is evolving rapidly. Middle East-Europe/U.S. East Coast routes that previously used the Red Sea/Suez Canal are now being diverted around the southern tip of Africa, adding approximately 7-10 days to the journey and substantially increasing costs. The Jebel Ali Port in Dubai, the largest container port in the Middle East and ninth largest globally, has suspended operations.
Some shipping companies are already announcing price increases for shipments to and from the Middle East and Europe, with some suspending cargo acceptance altogether. Despite the increased costs and delays, a representative from Shenzhen Xunhang Xingchen International Supply Chain Co., Ltd. Noted that cargo volume from Shenzhen to Europe remains relatively low following the Spring Festival holiday, and there is currently no shortage of available space. Read more here.
Insurance companies have begun issuing cancellation notices for vessels traversing the key oil artery, with premiums expected to rise as much as 50% in the coming days, according to the Financial Times.
Data from MarineTraffic shows a roughly 70% decrease in vessels passing through the strait following military action by the U.S. And Israel against Iran, with many ships choosing to turn around, reroute, or wait near the coast of Oman. Further details are available here.
