Shipping companies reroute, add fees amid Middle East conflict

The Middle East is central to global trade — in oil and gas, yes, but other goods pass through as well. As the U.S. and Israel continue military strikes in Iran, some shipping giants are modifying routes.

Maersk, for example, announced it is rerouting vessels around Africa. Hapag-Lloyd said it’d do the same and apply a “war risk surcharge” for cargo.

Global shipping likes to pass cargo through the most direct route to minimize costs and time, said Eugene Gholz, a political science professor at University of Notre Dame.

“The shortest routes … often, say, between Asia and Europe might … go past the Persian Gulf, through the Gulf of Oman, through the Red Sea,” he said.

Shipping companies are avoiding the Suez Canal and the Red Sea, even though they don’t border Iran. The Iran-backed Houthi rebels in Yemen have attacked shipping vessels there before, and there are fears they may again.

“As conflict kind of emerges in the Middle East, it's for the safety of their crew, the passengers, the cargo, they have to reroute around the Cape of Good Hope, down around the bottom of Africa,” said Ben Slupecki, an analyst at Morningstar.

Slupecki said it’s not unusual for these types of companies to have to adapt to operating conditions, whether it’s weather or man-made conflict. Variable pricing and surcharges are in the regular course of business.

And these surcharges can benefit the companies.

“It's not something that these companies want to be doing very frequently, but at the end of the day, that it is a kind of a tailwind for them,” Slupecki said.

For one thing, he said, rerouting lengthens the trip: “Adding an extra 10 days to the journey, in essence, kind of artificially reduces supply these ships, driving up the price, rates that they set, rates that they can charge,” he said.

Fees and surcharges also help cover added costs, Slupecki said, including more fuel and paying crew for a longer journey.

Whether and how these additional costs get passed down to U.S. consumers depends on how long the war lasts and where costs are absorbed along the supply chain.  

But it’s likely going to impact consumers closer to the conflict. The shipping companies Maersk and Hapag-Lloyd also suspended vessel crossings in the Strait of Hormuz, which connects to the Persian Gulf. 

“If you live at the end of the Gulf in Kuwait or Iraq, and you're hoping for some imports, you know, they could face higher prices, but global markets not affected a lot,” said Gholz at Notre Dame.

The main impacts, as Gholz sees them, will not be on cargo, but oil and gas.