Shipping Companies Turn to Unconventional Routes as Costs Soar

 Cargo  ships 

Shipping companies resort to unconventional routes due to high costs and maritime congestion.

Caught between the hammer of soaring jet fuel prices and the anvil of congestion in vital Middle Eastern waterways, some shipping companies are seeking alternative routes in unexpected locations, as the ceasefire between Iran and the United States is unlikely to provide a quick breakthrough.

One US freight forwarder stated that clients who previously shipped electronics and other consumer goods from Asia to Europe via Middle Eastern transit hubs are now opting to ship and fly their goods through Los Angeles for lower rates.

"This route is much faster than shipping around the Cape of Good Hope and significantly cheaper than direct air freight," Ryan Petersen, CEO of Flexport, told Reuters. Air freight costs have skyrocketed due to strong demand and soaring jet fuel prices as Iran continues to blockade the vital Strait of Hormuz.

According to World ACD Market Data, air freight capacity to the Middle East has shrunk by more than 50% year-over-year in the past two weeks. Flexport reported that long-term air freight rates from Vietnam to Europe have nearly doubled to $6.27 per kilogram compared to pre-war levels.

In contrast, air freight rates from Los Angeles to Paris have risen by only 8%, and airlines have been operating more passenger flights due to increased demand, freeing up more cargo space.

Noel Hasegaba, CEO of the Port of Long Beach, part of the busiest U.S. seaport complex in Los Angeles, said: “We may see an increase if the trade disruptions in the Middle East continue.”

Air Cargo Capacity Declines

Marco Blumen, managing director of Evian Consulting, said that global air cargo capacity, which was expected to grow by 5.5% this year, has fallen by 1% so far due to the Iranian conflict that began on February 28.

He added that the way things will unfold this year will depend in part on the return to service of wide-body passenger aircraft operated by major Gulf carriers, which account for nearly half of the region’s air cargo capacity.

Neil van de Woog, chief cargo officer at Zenita, a transport pricing platform, said that a delayed recovery in Gulf tourism after the fighting ends could lead airlines to reduce passenger capacity, which would impact air cargo. He added: “Gulf carriers, such as Emirates and Qatar Airways, operate some of the world’s most important air cargo networks.”

British Airways said on Thursday it would reduce flights to the Middle East when services resume, indicating that escalating regional tensions would negatively impact demand. Specialized cargo carriers, such as UPS, are still operating in the region under contingency plans and their aircraft are not currently flying to hubs like Dubai.

Third-party chartered aircraft have stepped in to cover some flights, but jet fuel supplies are expected to remain limited and expensive for months. "Everyone's main problem is the sharp rise in fuel prices," said Dan Morgan-Evans, cargo manager at Air Charter Service.

Ryan Carter, executive vice president of AIT Worldwide Logistics for the Americas, said one of the company's clients spent at least five to six times the usual amount to transport drilling equipment to Saudi Arabia for oil exploration by air and land after its scheduled sea voyage from Houston was canceled due to the war.

However, many companies feel they have no choice but to pay extra for air freight. "Sometimes, moving the cargo is essential," added Morgan Evans.