Key Highlights

  • Freight rates along major chokepoints including the Panama Canal, Rhine, Red Sea and Black Sea have surged to record highs due to a combination of conflict and drought
  • Rates for shipping oil from the Gulf to Asia hit $15.22 per barrel in early August due to threats against tankers transiting the Bab al-Mandab Strait, the highest level recorded since assessments began in 2005
  • Prices to transit both sets of locks on the Panama Canal hit records of $1.1 million and $2.5 million in early August, driven by falling water levels and high traffic
  • Average spot rates for container freight from the Far East to the US East Coast rose 234 percent year-on-year to $10,249 per 40-foot container

Middle East Conflict and Drought Combine to Disrupt Global Trade Routes

The cost of shipping goods through many of the world's maritime chokepoints has surged over the past month, driven by the combined effects of war and climate change. A pricing agency tracking freight rates said the dual impact of conflict and low water levels caused by prolonged drought in Europe and Latin America has pushed rates on key routes, including the Panama Canal, the Rhine, the Red Sea and the Black Sea, to record highs.

Chokepoint Rates Hit Records Across Multiple Regions

Rates for shipping oil from the Gulf to Asia hit $15.22 per barrel on August 10, driven by the threat of attacks on tankers linked to Saudi Arabia attempting to transit the Bab al-Mandab Strait — the highest level recorded since the pricing agency began tracking the route in 2005. In the Black Sea, freight rates for tankers moving into the Mediterranean also reached their highest levels since at least 2005 this past week.

At the same time, slots to pass through the Panama Canal have hit record highs, driven by falling water levels tied to an intense El Niño weather pattern and elevated traffic linked to the Middle East conflict. Prices for both sets of locks on the canal, designed for different-sized vessels, hit records of $1.1 million and $2.5 million in early August. A senior figure at the pricing agency described the disruption as the greatest the shipping market has seen on record, surpassing both the Covid Pandemic and Russia-related sanctions.

Drought Compounds Pressure While Container Rates Also Climb

Droughts across Europe have pushed water levels in the Rhine, a critical river for German industry, to their lowest since 2012 for barge freight rates heading to Cologne, Duisburg, Frankfurt and Karlsruhe. The trend has extended to container shipping as well: average spot rates for container freight from the Far East to the US East Coast climbed 234 percent year-on-year to $10,249 per 40-foot container.

An analytics firm's chief analyst said the disruption caused by the Middle East conflict has become a deep-set, structural problem unlikely to resolve soon, with costs ultimately passed through the Supply chain to consumers, particularly for low-margin goods. Leverage that Iran has exerted over the Strait of Hormuz — now the subject of a prospective deal with Oman that could involve toll payments for passage — has heightened concerns worldwide about the fragility of chokepoints essential to global trade. A shipbroker's head of research noted that smaller countries are increasingly aware of the outsized political and economic leverage such chokepoints afford them in a more multi-polar world, with longer-term tanker charter rates now nearing levels last seen during the summer of 2008.