Freight costs surge 12 times! Under Middle East conflict, global trade enters the "most expensive" shipping season in history

Middle East conflict escalates, the Strait of Hormuz remains obstructed, and deep, far-reaching impacts are being transmitted to global supply chains in a way that combines insurance costs and freight charges.

According to a report by CCTV, Neil Roberts, head of maritime and air business at the London-Lloyd’s insurance market, said that after the conflict escalated, premiums for vessel war-risk insurance have been quickly raised. How much vessel insurance premiums will increase specifically depends on the type of vessel and the particular circumstances, but insurance costs are only a small part of the operating costs for shipping; shipping companies also need to factor in freight charges, and freight rates have currently already risen by 11 to 12 times.

This shock has spread from large shipping companies to small and medium-sized enterprises in the United States. According to AP, small business owners such as footwear designers, pistachio growers, and gardening suppliers are facing a threefold pressure of disrupted imports and exports, soaring costs, and weakening demand.

Rising premiums up sharply; traditional pricing models are overturned

Neil Roberts said that before the Middle East conflict, the typical quoted shipping insurance rates were about 0.2% to 0.3% of the vessel’s value; after the conflict escalated, premiums were quickly raised to 1% to 3%.

MSN, citing data from Lloyd’s, indicates that premiums for some high-risk routes have climbed to 3% to 7.5%, while traditional pricing for war risk is usually only 0.1% to 0.25%. Taking as an example a large tanker valued at $200 million to $300 million: with the premium rising from 0.25% to 3%, the insurance cost for a single voyage would jump from about $600k to $7 million to $9 million—this leap is enough to completely rewrite the economic logic of the voyage.

Freight and rerouting costs stack up, and supply-chain pressure heats up across the board

Insurance costs are only one part of the increase in shipping operating costs. Neil Roberts said shipping companies also need to bear delay costs caused by freight charges, fuel costs, and vessel rerouting.

According to an MSN report, to avoid high-risk waters, more and more shipowners are choosing alternative routes such as rerouting around the Cape of Good Hope; while this significantly extends transit time, it also further pushes up fuel costs.

Freight cargo war-risk insurance premiums are also rising sharply. MSN reported that cargo premiums in affected regions have risen from about 0.03% to nearly 1%, directly raising the delivered costs of crude oil, LNG, and high-value manufactured products, forcing importers and exporters to renegotiate contracts or compress profit margins.

Small businesses are hit first, and a “perfect storm” is already taking shape

According to AP, U.S. small and medium-sized enterprises are absorbing the direct shock brought by the conflict.

Nichols Farms, a pistachio company run by the fourth generation in California, has export revenue accounting for 50%, mainly shipped to Europe, the Middle East, and other places. After the Strait of Hormuz was obstructed, supplies to Saudi Arabia, Iran, and the UAE were interrupted, leaving about $5 million worth of goods stranded at sea. In addition, a Kansas City gardening supplier stocked up on fertilizer in advance to cope with rising prices, while a Chicago electronics store owner was stuck due to the surge in oil prices.

Brandon Fried, executive director of the Airforwarders Association, said that with the combined effect of three factors—cost increases, route changes, and tighter capacity—small businesses face a “perfect storm.” Business owners generally believe that although the current disruption has not yet surpassed the supply-chain crisis during the pandemic, if the conflict continues for several months, the damage may gradually move toward that level.

Structural risks emerge, and the market seeks response mechanisms

The current spike in premiums may signal a structural shift. As geopolitical fragmentation intensifies and new forms of war technology make risk assessment increasingly complex, traditional actuarial models are no longer adequate. Estimates suggest that premiums for the highest-risk routes could approach 10%—and without state support or naval protection, that level could make some routes unprofitable on a commercial basis.

To that end, governments and industry organizations in multiple countries, including India, are exploring the establishment of domestic war-risk insurance pools to ensure the availability and affordability of coverage. Neil Roberts emphasized that the existence of insurance coverage is often more important than the price itself—without insurance, banks typically will not allow ships to put to sea. This means that the insurers’ willingness to underwrite will directly determine whether global trade can operate normally.

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