The dual-strait crisis-restricted passage through the Strait of Hormuz in the Middle East and the threat of blockade at the Bab el-Mandeb-has forced global shipping to reroute on a massive scale, leading to an 112% year-on-year surge in vessels transiting around the Cape of Good Hope.
This has directly triggered a sharp rise in fuel, freight, and insurance costs. However, the market has not seen a broad-based price increase; instead, freight rates have shown a polarized trend. More notably, the global oil supply crisis caused by the conflict is gradually undermining container cargo demand, resulting in an industry situation characterized by rising costs, declining cargo volumes, and stagnant freight rate increases.
Shipping lane crisis triggers global rerouting
Traffic through the Strait of Hormuz dropped by 94% in March (77 vessels vs. 1,229 at the same time last year), while the Bab el-Mandeb Strait faces a blockade risk. Major carriers including Maersk and Hapag-Lloyd have collectively abandoned the Red Sea/Suez route. According to data from South Africa's Transnet National Ports Authority, ships rerouting via the Cape of Good Hope surged by 112%. The Red Sea route is expected to remain completely suspended until 2026, making the Cape of Good Hope the new global shipping "throat." This detour has directly extended transit times by 10 to 30 days and increased voyage distances by 3,500 to 4,000 nautical miles.
Detour plus conflict triggers triple cost surge
Global marine fuel prices at the top 20 ports have nearly doubled, with high-sulfur fuel reaching a record high of $916 per ton, while low-sulfur fuel is approaching its peak levels seen during the Russia-Ukraine conflict.
Freight costs have increased by 15% to 20% due to rerouting, with a $200 rise in the rental cost for 20-foot containers, and shipping lines imposing frequent surcharges for emergency fuel and inland trucking fees.War risk insurance premiums have surged 12-fold, with rates rising from 0.25% to 3%. For ultra-large crude carriers, the single-passageway premium through a strait can reach as high as $14 million, prompting several insurers to directly cancel standard war risk coverage for Gulf routes.
Freight rates are a mixed bag-some soaring, others plummeting.Costs have been rising steadily, yet there has been no across-the-board price increase, resulting in a clear two-tier market trend.
With geopolitical factors providing a boost, regional feeder routes to the Middle East and India have seen sharp increases against the trend. Freight rates on Shanghai-to-Middle East routes have more than doubled compared to pre-conflict levels, while rates on Asia-to-India's Nhava Sheva route have risen by 70%. A surge in transshipment cargo has further driven up regional freight prices.
In contrast, the trans-Pacific and Asia-Europe main routes have seen a rapid decline in their upward momentum, turning downward. Routes from Shanghai to the U.S. West Coast, East Coast, and Northern Europe, although slightly higher than pre-war levels, all declined week-on-week this week; only the Mediterranean route maintained slight growth, supported by rerouting benefits.
Industry data shows that shipping lines' planned main route rate hikes for March have all been canceled. Insufficient cargo volume and empty sailing have become the key factors suppressing freight rates.
Price hike benefits cannot offset demand collapse
Over the past five years, both the pandemic and the Red Sea crisis have driven freight rates higher. The key reason lies in the fact that global trade demand remained strong during those periods, naturally leading to price increases due to supply shortages.
The current Middle East conflict has caused the largest supply disruption in global oil markets in history. Rising oil prices continue to impact household consumption and suppress industrial manufacturing. The petrochemical industry chain, reliant on liquefied petroleum gas, has cooled down, leading to reduced exports of finished products such as plastics and light industrial goods. Weak consumer demand has further rippled into foreign trade, causing a continuous decline in container cargo capacity.
