Shipping Industry Retreats from Red Sea Amid Rising Tensions
Ocean carriers are increasingly avoiding the Red Sea and the Strait of Hormuz following a recent U.S. and Israeli military operation in Iran, which has led to retaliatory attacks by Iran on neighboring countries. This escalation in conflict has raised significant concerns regarding the safety of seafarers and the operational viability of shipping routes in the region. As a result, major shipping companies, including Maersk, Hapag-Lloyd, and CMA CGM, have suspended their services through these critical maritime chokepoints.
Data from maritime visibility platform Windward indicates that traffic through the Strait of Hormuz plummeted by 81 percent below its seven-day average on Sunday. This decline is particularly alarming given that the Strait is a vital artery for global oil and natural gas trade. The suspension of services is expected to cause delays for vessels calling at ports in the Persian Gulf. As of Monday, 132 active container ships, with a combined capacity of 458,000 twenty-foot equivalent units (TEUs), were still in the Persian Gulf, representing only 1.4 percent of the global fleet, according to Linerlytica.
The situation is further complicated by the fact that 10 percent of the global container shipping fleet has routes that pass through the Strait. While Iran cannot officially close the strait, prolonged disruptions could lead to a reconfiguration of shipping services, tightening vessel supply and increasing congestion at Asian ports. Experts warn that ports such as Singapore and Tanjung Pelepas may become transshipment bottlenecks, resulting in rapidly rising spot rates for cargo destined for the Gulf region.
Impact on Global Shipping and Insurance Costs
The ongoing conflict has prompted several marine insurers, including Gard, Skuld, and NorthStandard, to cancel war-risk policies for ships entering the Persian Gulf, effective Thursday. This decision follows a trend of elevated war-risk premiums during the Red Sea crisis, which have deterred vessels from transiting through the Suez Canal. Estimates suggest that these premiums, previously around 0.25 percent of a vessel’s replacement value, could increase by 50 to 100 percent due to the ongoing conflict.
FMNP Advisory Board Annual Retreat at the Marine Discovery Center
In response to these heightened risks, shipping companies are passing on the increased costs to their customers. Maersk has announced an emergency freight increase of $1,800 per TEU and $3,000 per 40-foot container for goods entering or exiting countries surrounding the Strait of Hormuz. The company has also implemented various emergency contingency surcharges on its Middle East Gulf and Indian subcontinent services.
Hapag-Lloyd and CMA CGM have similarly introduced war-risk charges for cargo moving to and from the Persian Gulf. CMA CGM has instructed all vessels currently in the region to seek shelter immediately and has rerouted several services around the Cape of Good Hope due to the uncertainty in the area. Mediterranean Shipping Company (MSC) has suspended all bookings for cargo destined for the Middle East until further notice, affecting a total of 73,000 TEUs of weekly capacity across nine services.
