One fifth of the oil traded worldwide must pass through the Strait of Hormuz, which connects the Persian Gulf with the Indian Ocean. It is one of the most important energy corridors on the planet, which is why the escalation of the conflict in the area has a direct impact not only on people’s lives but also on global trade. For those living thousands of kilometres away, the most evident consequence is the rise in fuel prices and many everyday consumer goods. Why does this happen?
Why are fuel and consumer goods prices rising?
Although the implications of such an undesirable and complex situation are numerous, the simple answer is that shipping routes become longer. This means more days at sea, higher fuel consumption (and more expensive fuel), increased personnel costs, and higher insurance expenses to cover potential damage to goods.
Ships that would normally travel between Europe and Asia via the Suez Canal are now forced to reroute around Africa via the Cape of Good Hope. This detour can add thousands of nautical miles and require hundreds of thousands of additional liters of fuel. For example, a container ship traveling from Singapore to Rotterdam would normally take 34 days to cover the 8,233 miles between the two ports via the Suez Canal. The alternative route around the Cape of Good Hope adds approximately 3,500 nautical miles and nine extra days.
Shipping companies are raising freight rates
On the other hand, as insurers apply war surcharges or have stopped covering cargo transiting through the Persian Gulf altogether, shipping companies have also increased freight rates. For freight forwarders such as Startrans, the impact is significant. As experts in international maritime transport, we monitor the situation closely in order to offer our clients the best solutions depending on destination and cargo characteristics.
Eighty percent of global trade moves by sea, so when geopolitical conflicts escalate, the consequences are widespread. In addition to the previously mentioned effects, we can also highlight shipment delays, congestion at alternative ports, and volatility in raw material prices. In conclusion, the entire supply chain is affected, and therefore all stakeholders involved.
At Startrans, we continue to work with the same commitment to service and professionalism as always, hoping the situation improves as soon as possible. First, because we regret the consequences of any war, and second, because we aim to minimize the impact of rising operational costs on our clients. If you have any questions, we invite you to contact us.