As the war between the United States and Iran shows signs of expanding across the Middle East, the global shipping industry has fallen into turmoil. With the Strait of Hormuz effectively closed, daily tanker rates have surpassed $420,000, hitting a record high. Insurers that shipping companies rely on for war coverage have suspended protection.
On the 3rd, according to London Stock Exchange Group (LSEG), the daily time charter equivalent (TD3C) for very large crude carriers (VLCCs) on the "Middle East-China" route was $423,736 as of the previous day. That is a 94% surge from the prior trading day on the 27th of last month ($218,154), and a record high.
This route includes lanes from the Middle East to India, Japan and Korea. The rate applies to all large tankers in Asia. On the back of increased crude exports from the Middle East and geopolitical risk, it climbed to a record high since COVID-19 late last month. As of Jan. 5 at the start of the year ($28,709), it was still below $30,000. With the Iran war, it has risen to about 14 times that level.
Rate indexes across the industry, including for tankers, are also rising. According to S&P Global Platts, a global energy information and analysis firm, the Worldscale (WS), the industry standard rate index, for the Middle East-China route stood at 216.89, up 47.5 points from a week earlier. That is the highest level since May 2020, when demand for storage ships exploded due to a collapse in oil prices.
War risk insurers have decided to suspend coverage for ships transiting the Strait of Hormuz. According to foreign media including the shipping trade outlet "TradeWinds," as Iran attacked some vessels passing through the strait, insurers made this decision.
In addition, the Joint War Committee in the London insurance market raised war risk insurance premium rates for ships passing through the Middle East from about 0.1% to as high as 1.3%. The Islamic Revolutionary Guard Corps declared the closure of the Strait of Hormuz, saying, "Any ship that attempts to pass will be burned."
Global carriers operating tankers are currently suspending operations and waiting in safe waters such as the Gulf of Oman before entering the Strait of Hormuz. Among domestic carriers, one HMM container ship (the Daon) is reportedly anchored at Jebel Ali Port in Dubai, United Arab Emirates (UAE). It is understood that 30 to 40 ships from Korea are always present in Middle Eastern waters including the Strait of Hormuz, the Persian Gulf and the Gulf of Oman.
An HMM official said, "The Daon is waiting in a safe situation," adding, "As the likelihood increases that it will be unable to enter Dubai for the time being, we are reviewing a route change."
An official at the Ministry of Oceans and Fisheries said, "The government on the 1st notified the shipping industry to suspend operations in the Strait of Hormuz," adding, "Currently, Korea's ships have dropped anchor at sea or are moored at ports, so it has been confirmed that the situation is not dangerous."
Some say shipping companies could benefit. With rates soaring, profitability could improve in the short term. Bae Se-ho, a researcher at iM Securities, said, "Uncertainty over crude exports has risen due to tensions between the United States and Iran, prompting preemptive increases in crude exports by major Middle Eastern countries," adding, "There is room for further short-term rate increases, and container rates are also rising, so domestic shipping companies are likely to see short-term gains."
However, shipping companies see not only rates rising but also expenses increasing, so revenue is unlikely to grow as a result. The most notable factor is fuel costs. With the Iran war, international oil prices have surged.
On the previous day at the ICE Futures Exchange, May-delivery Brent crude futures settled at $77.74 per barrel, up 6.7% from the prior session. Wood Mackenzie, a global consulting firm, said, "If the suspension of tanker operations is not swiftly reversed, international oil prices are expected to exceed $100 per barrel in the short term."
A senior official at a domestic shipping company said, "It is hard to say we are making revenue simply because rates have risen," adding, "In addition to the surge in oil prices, expenses are following suit, including higher insurance premiums."
Meanwhile, the Korea Shipowners' Association (KSA) on this day sent an official letter to members including HMM and Pan Ocean requesting compliance with "safety measures for ships transiting the Strait of Hormuz and for crew." The letter included: ◇ conducting prior safety education and emergency response drills ◇ establishing and implementing ship-by-ship security plans ◇ rechecking the status of war insurance enrollment and special terms. It is also sharing ship position information in real time with the Ministry of Oceans and Fisheries (MOF) situation room and the Cheonghae Unit, and is closely cooperating with local embassies to support crew when calling at alternative ports.