Middle East / Strait Surcharges

Recently, the security situation in the Strait of Hormuz and the Red Sea has remained tense, extending from schedule uncertainty to concrete voyage execution and changes in the cost structure. As major carriers such as Maersk, CMA CGM and ONE roll out various surcharges and contingency plans in quick succession, the direction of Middle East route freight rates has become a focus of market attention.

I. Three Reasons Behind the Wave of Surcharges

1. The Strait Passage Faces a “Dilemma”

Iran is seeking to levy a “service fee” of 5%–7% of cargo value on vessels transiting the Strait of Hormuz, while Oman proposes about 3%. However, the United States has imposed sanctions on the agency responsible for operating the waterway, and the Lloyd's Market Association has further stipulated that insurance will be terminated if a vessel pays such transit fees. Carriers are caught in an awkward position where “paying may trigger sanctions and not paying means no passage”, so incremental costs such as war-risk premiums and crew compensation can only be passed on through surcharges.

2. Bunker Costs Rebound Sharply

Affected by the Middle East conflict, marine fuel prices have reversed their previous decline. Singapore very-low-sulphur fuel oil rose 24% from early July to US$785 per ton, while high-sulphur fuel oil rose 32%. CMA CGM stated explicitly that the escalation in the Strait of Hormuz drove fuel prices sharply higher, forcing it to levy an emergency bunker surcharge from August 1.

3. Red Sea Route Risks Transmit to Operations

Regional carrier RCL has canceled a China–Red Sea voyage and declared force majeure due to Red Sea security threats, making clear that extra costs such as rerouting, storage and demurrage will be borne by cargo owners. Through surcharges and force majeure clauses, carriers are passing the cost of route disruption risk downstream.

II. Summary of Recent Surcharge Adjustments

III. Where Are Middle East Freight Rates Heading?

In the short term, freight rates are more likely to rise than to fall.

First, base freight rates are already high. Affected by the Middle East conflict, freight rates from South Asia to Europe and the Americas have risen by about 50%, and rates from India to the UAE have surged to eight times their pre-crisis level. With the various surcharges formally taking effect in August, the actual cost paid will be pushed even higher.

Second, capacity supply is tightening. MSC has canceled its “India Express” service and ONE has significantly cut sailings on some routes, visibly shrinking market capacity. Meanwhile, export demand has rebounded strongly and space bookings are tight, so the supply-demand imbalance provides strong support for rates.

In addition, the invocation of force majeure clauses means cargo owners must not only bear higher freight rates but also budget extra costs for contingencies such as voyage cancellation and temporary rerouting.

Advice for Cargo Owners and Freight Forwarders

Given the high uncertainty on Middle East and Red Sea routes at present, we recommend the following:

1) Closely monitor the latest carrier announcements and keep abreast of rate and voyage developments;

2) Budget in advance and fully account for the cost impact of stacked surcharges;

3) Stay in communication with customers and flag potential cost risks in advance;

4) Allow more generous transit time to cope with possible schedule adjustments or rerouting.