Industry Update – Middle East Conflict – Update 3

Attention: Shipping Manager

 

Middle East Conflict Update 3

We are monitoring developments from Freight & Trade Alliance (FTA) and the Australian Peak Shippers Association (APSA) on the ongoing conflict in the Middle East.
As previously noted, the situation has already resulted in severe disruption to global air cargo and containerized sea cargo, with flow-on consequences for Australian supply chains.
While some regional ports and limited flight operations have resumed, the overall operating environment remains highly unstable.

 

• Sea Freight

The Strait of Hormuz remains closed to regular merchant shipping due to the security risks and insurance implications associated with operating in the area.
Some ports that experienced disruption have reopened, such as Jebel Ali. However, emergency security and operational measures still remain in place, including:

• Suspending passage through the Strait of Hormuz
• Suspending passage through the Suez Canal, with vessels rerouted via the Cape of Good Hope
• Suspending bookings to and from the Middle East region until further notice.
• Directing vessels operating in the Gulf region, as well as those en-route, to proceed immediately to designated contingency ports or safe shelter areas.
• Carriers continue to announce emergency freight increases, war risk, or emergency conflict surcharges
• Of concern is the announcement of emergency fuel surcharges, reflecting global energy market conditions. We have now seen that most carriers have applied this surcharge, which can apply to all trade lanes globally, regardless of proximity to the Middle East. These surcharges range up to USD 200 per TEU. Please note we will need to pass these on if applicable
• MSC, the largest container line in the world, has declared “End of Voyage” for all shipments in their care destined for ports in the Arabian Gulf. Rarely invoked, this declaration means cargo will be discharged at ports of MSC’s choosing rather than the contracted destination.
  The responsibility and onwards cost of the container, transferring back to the consignee at the discharge port

The above measures will likely remain in place until there is a significant de-escalation of hostilities. In the meantime, we expect that there will be significant delays, rerouting of vessels, equipment issues, port congestion and schedule adjustments. There will also be a significant upward pressure on freight rates.

 

• Aviation & Air Cargo

The Middle East is a critical global aviation hub connecting Asia, Europe, Africa and Oceania.
Widespread airspace and airport closures and restrictions, as well as flight cancellations, continue to have global effects on air cargo capacity, schedule reliability, and freight rates.
Even as major airports resumed very limited operations, ongoing disruption continues to affect key Gulf transit hubs, including:

• Cancellation of large volumes of passenger services and the associated loss of capacity
• Grounding of many freight services
• Suspension or limitation of express courier services in some markets
• Longer transit times as flights are rerouted around closed or restricted airspace
• Major upward pressure on rates and emergency surcharges

As previously mentioned, major carriers will only resume full operations once there is confirmation of safe operating conditions permitting the reopening of airspace.

 

• Destination Fuel Surcharge Increase

The situation in the Middle East is causing significant disruption to international energy markets, directly affecting Australian domestic freight costs through fuel pricing.
As fuel price volatility continues to rise, Destination Fuel Surcharge has increased in Adelaide, Brisbane, Melbourne and Fremantle, effectively immediately. This reflects the increased costs being passed on from our suppliers. Updated surcharges are given below:

Melbourne Fuel surcharge = 30%

Brisbane Fuel surcharge = 30%

Fremantle Fuel surcharge = 30%

Adelaide Fuel surcharge = 39.5%

Given the volatility of the price of fuel, we will continue to assess these surcharges weekly and keep you updated. However, if you would like to clarify the latest updates, please contact your sales representative.

If you have any concerns relating to a shipment, please contact your customer service representative.