As freight rates through the Strait of Hormuz surge, very large crude carriers have been racing toward the Middle East in recent days, a move that has further worsened the global shortage of shipping capacity.

Middle East tensions push tanker rates higher and tighten global capacity

On October 7, the cost of shipping crude from the Persian Gulf to East Asia on a supertanker hit a record of nearly US$1.4 million per day, roughly 540% higher than levels before the conflict, according to a report. Freight costs on the route from the U.S. Gulf Coast to Japan have also soared: the total cost for a very large crude carrier reached US$82 million, up 50% from three weeks earlier. Of the roughly 850 very large crude carriers worldwide, more than 40% are located in or near the Persian Gulf. Drawn by high freight rates, shipowners are heading to the Middle East, further tightening global shipping capacity.

The core reason for the surge in freight rates is that Middle East crude exports have been forced to adopt a shuttle transfer method. That is, buyers' ships are unwilling to take the risk of entering the Strait of Hormuz, so producing countries can only send very large crude carriers into the strait to load oil, then conduct ship-to-ship transfers outside the Gulf of Oman to export tankers waiting there. This method is inefficient and consumes a large amount of shipping capacity. Some oil traders have been forced to switch to smaller tankers, but rates for those vessel types are rising just as quickly.

Global shipping giant Maersk raises emergency fuel surcharge

Amid continued tensions in the Middle East, Danish shipping giant Maersk announced on October 8 that starting October 12 it will raise its emergency fuel surcharge to 20%. The measure applies only to inland transport in the United Kingdom and Ireland and does not apply to ocean shipping operations. Analysts noted that with huge uncertainty still surrounding the Middle East situation, tight shipping capacity and rising freight costs may be difficult to ease in the short term.