Media365
Oil prices are easing after hopes of a pause in the US-Iran conflict, but the relief has yet to reach India’s shipping industry.
Freight costs remain elevated as vessels continue to avoid conflict-hit routes, reroute around longer sea lanes and face higher insurance premiums. The latest fall in shipping traffic through the Bab el-Mandeb Strait shows why the disruption to global maritime trade is far from over.
Only 11 commodity vessels crossed the Bab el-Mandeb on Sunday, the lowest level in months, according to shipping data from Kpler, as reported by Reuters. Traffic through the Strait of Hormuz also remained extremely weak, with fewer than 10 commodity vessels passing through daily over the weekend, despite a pause in US-Iran strikes.
That creates a sharp disconnect for India. Brent crude fell more than 5 per cent on Monday after the United States paused strikes on Iran, with hopes rising that diplomacy could prevent a further escalation of the conflict. But shipping markets are responding to a different calculation: whether it is safe, commercially viable and insurable to send a vessel through the region.
Why lower oil prices have not lowered freight costs
Fuel is only one component of the cost of moving goods by sea.
When a vessel avoids a major maritime chokepoint, the cost of the voyage can rise sharply even if crude prices fall.
A longer route means more fuel consumption, higher crew and operating costs, longer transit times and fewer available ships. The last factor is particularly important. When vessels spend additional days at sea, the effective capacity of the global fleet falls.
That can push up freight rates even when oil prices are declining.
The current disruption is affecting two of the most important maritime corridors for global trade and energy flows: the Strait of Hormuz and the Bab el-Mandeb.
The Strait of Hormuz is crucial for Gulf energy exports. Bab el-Mandeb links the Red Sea with the Gulf of Aden and is a key gateway for vessels travelling between Asia and Europe through the Suez Canal.
The latest attacks have put both routes under pressure.
The Iran-aligned Houthis have disrupted traffic near the Red Sea after attacking Saudi oil infrastructure along the coast and declaring a maritime blockade targeting Saudi exports. The result has been a sharp decline in vessel movements through Bab el-Mandeb.
The disruption has also affected oil flows. Reuters reported that the attacks pushed physical crude cargo prices in the Middle East, Europe and Africa to two-month highs last week.
India is absorbing the shock
The impact is already being felt at Indian ports.
Shipping freight rates are expected to rise by as much as 50 per cent on some routes, particularly those connecting India with West Asia, according to a report by Mint. The Federation of Indian Export Organisations has approached the government over port congestion, surcharges imposed by shipping lines and the wider disruption caused by the war.
The pressure is visible even in broader container freight benchmarks.
The Drewry World Container Index stood at $4,374 per 40-foot container on July 23. Although that was 3.8 per cent lower than a week earlier, it was still 130 per cent above its level on February 26, before the war began, according to Mint.
That is the key point for Indian exporters and importers. A weekly fall in freight rates does not mean that shipping costs have normalised.
The broader cost structure remains elevated because the industry is still dealing with disrupted routes, congestion and uncertainty over the safety of future voyages.
Ports become the next pressure point
The disruption is also creating congestion at Indian ports.
With vessels avoiding conflict-hit routes, more ships are calling at Indian ports and using them as transhipment hubs, according to Jawaharlal Nehru Port Authority commissioner and board member Unmesh Sharad Wagh, as cited by Mint.
The additional traffic has increased unloading times from the typical 48 hours to around 72 hours in some cases and could push inventory levels to about 1.5 times normal levels.
That matters because a port delay does not end at the port.
Longer unloading times can mean higher storage and inventory costs. For exporters, delayed cargo can also disrupt production schedules, delivery commitments and working-capital cycles.
The problem is particularly serious for smaller exporters.
Micro, small and medium enterprises account for nearly 49 per cent of India’s exports, according to the data cited by Mint. Many of these businesses export products with relatively low value compared with their weight and depend heavily on maritime transport. A delay or increase in freight charges can therefore have a disproportionate impact on their margins.
Why the disruption may outlast the oil shock
The biggest risk for shipping markets is not necessarily a temporary spike in crude prices.
It is the possibility that vessels continue avoiding the affected routes even after oil prices fall.
A pause in US-Iran military action does not immediately restore confidence among shipowners, insurers and cargo operators. They need to assess whether the pause will hold, whether attacks on commercial shipping will stop and whether the security situation around the two chokepoints has genuinely stabilised.
Until then, the economics of a voyage remain uncertain.
A shipowner may decide that a longer route around the Cape of Good Hope is preferable to sailing through a conflict zone. That decision can add days to a voyage and effectively remove the vessel from the market for longer.
The longer the disruption lasts, the greater the pressure on available shipping capacity.
The threat is particularly significant for energy shipments. S&P Global data showed that shipping traffic through the two waterways remained sensitive to the security situation even as commercial vessels continued to cross them. The data also showed that traffic through Bab el-Mandeb was still active on July 23, but the mix of vessels and the risks around the route remained closely watched.
A sustained diversion could be especially costly for oil tankers. In a worst-case scenario, Asian refiners could be forced to avoid the Red Sea altogether, requiring vessels to take much longer routes around the Cape of Good Hope. Such diversions can substantially increase voyage times compared with conventional routes from Saudi Arabia to Asia.
Exporters are asking for government intervention
The FIEO has asked the government to address rising freight and contingency charges, ensure adequate vessel capacity and improve schedule reliability, according to the Mint report.
The exporters’ body has also sought greater transparency in the surcharges imposed by shipping lines and contingency mechanisms for future geopolitical disruptions.
Shipping lines are already adjusting their networks.
Ocean Network Express is set to replace its West India North America Express service with a new India North America Express service from August as part of a broader network optimisation. Such changes reflect how carriers are adapting schedules and routes to the evolving security situation.
For Indian exporters, however, the immediate problem remains the same.
Even if oil prices fall further, freight rates may not follow.
As long as vessels continue to avoid major maritime chokepoints, insurers charge higher premiums, ports face congestion and ships spend longer at sea, India’s exporters and importers are likely to remain exposed to elevated logistics costs.
With inputs from agencies.
