International shipping industry faces soaring freight costs as war rages

Nov 8, 2023 India Shipping News

DUBAI : The cost of shipping goods around the world is likely to continue to rise due to geopolitical turmoil, experts have predicted.

Alongside soaring fuel prices resulting from war of Russia-Ukraine and Israel-Hamas (Gaza), shortages of qualified seafarers and a move to more sustainable shipping practices have proved challenging for shipping firms to contend with.

Dubai-based Tristar Eships, one of the region’s largest maritime logistics companies, has a diverse fleet specialising in clean petroleum products, dry cargo and liquefied petroleum gas.

Trade disruption

Tristar’s Chief Executive of Maritime Logistics, Mr. Tim Coffin, said conflict in Ukraine and Gaza was likely to continue disrupting the flow of trade, elevating the costs of moving goods around the world.

“The consequence [of war] is that oil needs to move further than it used to, so there is more so-called ‘ton-mile demand’ for tanker tonnage than in January 2022,” he said.

“You have to use the same ships to go further. It takes two years to build a ship, so you can’t automatically respond to that change in capacity requirement.

“War equals trade disruption, which equals inefficiency and that leads to higher freight rates.”

Mr Coffin said the Gaza conflict has had an impact on crude oil prices because geopolitical uncertainty always has an impact, and affects fuel prices.

“As a result, we’ve already seen freight rates rocket,” he said.

War in Ukraine has already caused substantial disruption to international shipping and maritime trade routes, largely due to the strategic importance of the Black Sea as a critical waterway for transporting goods between Europe and Asia.

The three main importers of Ukrainian grain in 2020 were Egypt, China and Turkey.

Re-routed ships have resulted in extended transit times and increased operational costs.

Matt Stanley, a senior commodity broker at Starfuels in Dubai, said while the impact on shipping resulting from the Israel Gaza conflict was likely to be less severe than the Ukraine war, it could still deal a heavy blow to fuel prices.

“The biggest problem with the Russian war was in Europe and what it meant for energy security,” he said.

“Because 50 per cent of Europe’s diesel came from Russia, it had a direct impact on supply.

“The Israel-Gaza war does not have the same impact.

“People are concerned about what this conflict means for the Suez Canal and freight has continued to increase in price.

“The longer it drags on, the longer it’s a problem for the region.”

Maritime levy

Tristar operates in 29 countries, and is likely to be impacted by extended transit routes and increasing fuel prices.

The company is also looking to convert 10 per cent of its coastal vessels to electric to reduce carbon emissions.

Although a global maritime levy to offset carbon emissions is yet to be decided on, a shipping tax to help countries deal with climate change could add further financial pressures to the industry in the near future.

However, with automation on board vessels still some way off, the industry is likely to remain reliant on manpowered crew for some time, despite a dwindling workforce.

Around 1.89 million crew are working onboard 74,000 vessels worldwide, according to the Mission to Seafarers charity that supports the welfare and rights of workers.

Many spend up to nine months a year at sea, away from families and friends, transporting around 90 per cent of the goods and fuels around the world.

Speaking ahead of Tristar’s Safety at Sea conference in Dubai on November 6, Mr Coffin said the welfare of seafarers should be an industry priority to retain a qualified workforce.

“Seafarers operate in a very dangerous environment, so the more we can look after them the better,” he said.

“They deserve to be well looked after because of the services they provide society.

“The world has woken up to the fact that supply chains are crucial and that they have to be more robust than the lowest price alternative.”

Mr Coffin added that there’s a mismatch between training capacity, country development and population supply.

“We have seafarers now from Myanmar the Philippines and India, but that source will dry up in the next generation as those countries become more developed, with more diverse economic opportunities,” he said.

“I have no idea where we are going to find our seafarers when this happens, he added.