Strait of Hormuz Closure Sends Shipping and Air Transport Costs Soaring

The war involving the United States of America (USA), Israel and Iran is shaking the entire global logistics market. Amid growing concerns over a prolonged closure of the Strait of Hormuz, ocean freight rates are soaring across vessel types, and the shock is rapidly spreading to the air cargo market as well.
According to The Baltic Exchange Ltd. on the 15th, the Worldscale freight index (WS) for Very Large Crude Oil Carrier (VLCC) tankers on the Middle East–China route reached 348.9 on the 12th. This is a 55.3% surge compared with 224.72 on the 27th of last month, just before the war broke out. Compared with the beginning of the year (50.49 on January 2), the index has jumped to nearly seven times its previous level. Daily charter rates for 270,000-ton tankers on the same route have also risen to 326,198 dollars, about 50% higher than just before the conflict.
Gas carrier rates are no exception. Spot rates for 174,000-cubic-meter Liquefied Natural Gas Carrier (LNG carrier) vessels have climbed to 205,000 dollars, while one-year time-charter rates have reached 100,000 dollars. These represent increases of 5.8 times and 2.4 times, respectively, compared with pre-war levels.
The impact of rising logistics costs is also being felt directly in the passenger aviation market. The airline industry expects fuel surcharges to increase sharply in April. This is because the average price of Singapore jet fuel, measured by Mean of Platts Singapore (MOPS), is forecast to exceed 300 cents per gallon due to the crisis in the Middle East. That would be more than 1.5 times higher than this month’s level of 204.40 cents.
As a result, the current level-6 fuel surcharge could jump to level 16 or higher in April. There are concerns that international air tickets for the same routes, if issued next month, could cost more than 100,000 won extra compared with this month. If jet fuel prices rise above 370 cents per gallon, the surcharge level could climb to 23, potentially surpassing the previous record of level 22 set in 2022 during the Russo-Ukrainian War under the system introduced in 2016.
ggg@fnnews.com Kang Gu-gwi Reporter