Industry Update – Middle East Conflict – Update 2

Attention: Shipping Manager

 

Middle East Conflict Update 2

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.

• Sea Freight

Iran’s Islamic Revolutionary Guard Corps (IRGC) have announced the closure of the Strait of Hormuz, and the conflict continues to pose security risks to maritime traffic transiting the Strait of Hormuz and the Red Sea. As a result, emergency security and operational measures 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. Some carriers have applied this surcharge on all trade lanes globally, regardless of proximity to the Middle East, and we expect most carriers to follow suit. 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.
Some carriers have introduced crisis or emergency surcharges, which we will need to pass on if applicable.
Major airports remain effectively closed, however some have resumed very limited operations:

• Dubai airport has partially resumed operations, though flight movements remain restricted. Operations are mainly focused on repatriation flights, limited cargo flights and aircraft repositioning.
• Abu Dhabi Airport remains impacted by regional airspace closures. Only limited operational and repositioning flights are currently operating.
• Doha Airport remains heavily restricted. Only limited operational movements and priority flights currently operating.

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

• Fuel Costs

The ongoing escalation in the Middle East is causing significant disruption to international energy markets. As a result, fuel prices have risen significantly in a short period of time, which has a direct impact on transport costs and the viability of logistics and supply chains.
We have already received notice from partners in Europe that to offset costs incurred, additional emergency fuel surcharges will be introduced from many locations in Europe. We expect rising fuel costs will result in similar surcharges or increases to be applied to inland and road transport from other origins globally, as well as in Australia. Please note that we will need to pass these on.

• Destination Fuel Surcharge Increases

As fuel price volatility continues to rise, Destination Fuel Surcharge has increased in both Sydney and Melbourne, effectively immediately. This reflects the increased costs being passed on from our suppliers, and we expect other Australian ports to follow suit. Updated surcharges are given below:

Sydney Fuel surcharge = 34.5%

Melbourne Fuel surcharge = 28.5%

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.

 

We will keep you updated once further information becomes available.