Impact of the Global Shipping Crisis in the Strait of Hormuz

The shipping and logistics sectors in India, crucial to the export-import trade, are facing disruptions due to escalating tensions in the Strait of Hormuz. This follows recent US-Iran-Israel conflicts, contributing to the volatility in freight rates and shipping costs.

Current Situation and Reactions

• Following the US bombing of Iranian nuclear sites, and retaliatory strikes by Iran, global shipping and oil prices are expected to rise.
• Iran's Supreme National Security Council is considering closing the Strait of Hormuz, a critical maritime channel.
• Approximately 20% of global crude oil is transported via this strait, which has been impacted by the ongoing Iran-Israel conflict.

Economic Implications

• Freight rates have risen by 55% on routes from Shanghai to the Arabian Gulf's largest port, Jebel Ali.
• Sea and air freight costs for Indian exporters are increasing, with some shipments to Iran seeing a 20% rise in freight premiums.
• Logistical challenges include increased security measures, higher fuel prices, and rerouting, which affect commodities like basmati rice, pharmaceuticals, and engineering goods.

Strategic Response

• Exporters have suggested rerouting shipments via Chabahar Port instead of Bandar Abbas port in Iran to mitigate delays.
• Companies have enhanced cooperation with global maritime authorities to bolster port security and manage risks.

Global Shipping Trends

The cooling effect of the Trump tariff saga has led to a decrease in Drewry’s World Container Index for the first time in over a month due to weaker US-bound demand.

• Indian ports have seen a relaxation in rates as supply chain disruptions stabilize.

Future Considerations

• Spot rates are expected to remain volatile until the end of the 90-day tariff reduction on US imports from China and the rest of the world.
• A significant drop in demand is predicted as inventory levels are expected to be high post the cargo rush in early 2025.

Key Statistics

• The Strait of Hormuz handles 20% of global petroleum consumption, shipping 20 million barrels per day.
• It also facilitates 25% of global LNG supplies.
• India imports 45–50% of its crude oil and 54-60% of its natural gas via this corridor.