New Freightos index: Israel-Iran conflict yet to hit shipping

Geopolitical tensions, particularly the Israel-Iran conflict, pose a risk to global shipping, with concerns focused on the potential closure of the Strait of Hormuz, a critical passage for 20% of global oil supply. While current oil reserves may buffer immediate price shocks, a closure would reroute shipping, impacting Dubai's Port of Jebel Ali and potentially causing congestion in South Asian ports. Meanwhile, trans-Pacific container rates are fluctuating amid these tensions and evolving trade negotiations, with recent rate increases potentially unsustainable due to restored carrier services and frontloading in anticipation of tariff adjustments, despite peak season surcharges announced by ocean carriers.

Analysis

The ongoing Israel-Iran conflict presents a material risk to global energy and freight markets, primarily through the potential closure of the Strait of Hormuz, a chokepoint for 20% of global oil supply. While current adequate global oil reserves might temper immediate price shocks from a closure, any disruption would inevitably reroute shipping, create significant logistical challenges, notably for Dubai's Port of Jebel Ali, and inject volatility into both oil and freight sectors. This tension is already reflected in energy markets, with Brent crude rising to $72.20 from $66.80 prior to recent escalations, West Texas Intermediate trading at $72.92—surpassing JP Morgan's $66 peak forecast for 2025—and benchmark diesel prices experiencing their largest upward move since January. In the container shipping segment, particularly the trans-Pacific routes, rates are experiencing fluctuations driven by these geopolitical uncertainties and evolving U.S.-China trade negotiations. Asia-U.S. West Coast prices saw a 9% increase to $5,994 per FEU and East Coast rates an 11% rise to $7,099 per FEU for the week ending June 13. However, these gains, following a post-May rebound, may prove transient due to a sharp increase in carrier capacity potentially overshooting actual demand, evidenced by some vessels departing with unfilled space and a recent 3% decline in daily West Coast rates from the prior week's average. Anticipatory frontloading by shippers ahead of potential tariff adjustments, such as the tentative U.S.-China deal maintaining significant tariffs, has also inflated current volumes, which are expected to taper, potentially diminishing freight demand for the remainder of 2023, as suggested by the National Retail Federation's forecast for a July dip in arrivals. Despite these headwinds, ocean carriers like CMA CGM, Maersk, and Hapag-Lloyd have announced substantial peak season surcharges for July.

Key Decisions for Investors

• Closely monitor geopolitical developments impacting the Strait of Hormuz due to its critical role in global oil supply and potential for significant market volatility in energy and freight.
• Approach recent trans-Pacific container rate increases with caution, as increased carrier capacity and the expected normalization of frontloaded volumes may pressure rates downwards despite announced peak season surcharges.
• Evaluate portfolio exposure to oil price fluctuations, considering current elevated prices relative to some forecasts (e.g., JP Morgan's 2025 projection) and the potential for further spikes linked to Middle East tensions; hedging strategies for oil, potentially via instruments like USO or BNO, may be prudent.