Ep. 24: Fuel Surcharges Ahead and the Middle East Starting to Come Back Online

The Middle East isn't exactly "business as usual," (you knew that) BUT the cargo heart is starting to beat again. We’re moving past the total shutdown and into the "creative logistics" phase. That's a polite way of saying everything is moving by truck on two-lane highways and costing a fortune.

The real story this week isn't just the closure of the Strait; it’s the surcharge flurry hitting lanes that haven't even seen a ripple from the Gulf. While ocean liners are ship-to-ship refueling like some high-stakes Mad Max sequel, BCOs are finally starting to push back on "volatility taxes" during contract season. 

I’m not crying. You’re just looking at your next fuel surcharge invoice.

Share this episode or I’ll personally ensure your next shipment is "optimized" via a 40-day scenic route through a port that doesn't exist.

00:00:00 — The Strait of Hormuz is still closed (sorry for being blunt). 

00:01:15 — Land bridges and India shuttles: Cargo finds a way. 

00:03:45 — The Surcharge Flurry: Why your Asia-Europe rate just spiked for no reason. 

00:06:10 — Maersk is now its own gas station (ship-to-ship refueling). 

00:08:20 — Air cargo's 84% spike and the "safe air corridor" gamble. 

00:10:45 — Trump, Xi, and the Section 122 tariff shell game.

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For more detailed weekly freight updates delivered straight to your inbox, check out our weekly freight email. Want the freshest freight data on demand? Hit up terminal.freightos.com.

Transcript

SPEAKER_00 0:02

We are back with another episode of Container Bites. Uh the Straits of Remove have now been closed for two and a half weeks. Sorry, that was it just jumped over without saying hi Judah. Hi Judah.

SPEAKER_01 0:13

Fine. It's fine. It happens.

SPEAKER_00 0:15

It's fine. The Straits of Remove have now been closed for two and a half weeks. Nothing moved in the Straits of Remuse. What have the ramifications been for the container market?

SPEAKER_01 0:25

So if we talk operationally, it's really still contained to Gulf-bound containers. Containers going to or from Gulf states. Those are the ones really facing disruptions. Initially, carries had suspended bookings completely to new bookings to um to the Gulf, and we're trying to figure out what to do with containers that are already on their way. Things have improved now. Carriers like CMACGM and MERST are now accepting new bookings. And that's because they've, you know, just like we had during the Red Sea, kind of freight is finding a way. And they're developing routes to alternate ports in the region, like to Saudi Arabia or accessible ports in Oman and UAE, and then developing land bridges, kind of land transport on to the final destination. So in that sense, it's improving. We're also seeing a lot of volumes going to uh the west coast of India and then carriers developing shuttle services that are going back and forth between India and those accessible ports. Um so this is kind of a way to get those kind of very important goods continuing to move, but it's not really a sustainable solution because the capacity and the expense are a lot um different than the typical routes. And not to mention that some of these alternate alternate ports are now also become coming under a attacks, like the UAE's port of uh Fujaru.

SPEAKER_00 1:43

Is that is that spreading out and causing more congestion at at other ports? You know, like Marshall found that you can get these like little domino effects from from uh block some ports that are blocked.

SPEAKER_01 1:55

Yeah, so like I said, these alternate ports aren't really set up for handling large volumes. So kind of those ports are already there are already um reports of those ports um experience congestion. Also building congestion in those West Coast India ports, as we mentioned, those are getting a lot more traffic than otherwise they would have for now. But in terms of the broader market operationally, we're not really not seeing any knock-on congestion that are affecting other ways just yet.

SPEAKER_00 2:24

And when you were talking about those shuttle services before, is that mostly uh does that mean a lot more inland trucking or is that rail? Where how is that moving once it once it actually gets to the ports?

SPEAKER_01 2:35

Yeah. So the answer is where these rail will go by rail, but mostly there is there's not rail access from these ports, for they're not usually meant, you know, used for that. So it's really by truck, which is why it really kind of limits the uh the access and the volumes. And sometimes these trucks are going on you know very long distances on you know two-lane highways, and um it's really seen as kind of a stopgap measure for for now while the street is closed.

SPEAKER_00 2:59

You know, I was looking at I guess we'll we'll talk about this when we get to the air cargo side, but it it it does seem that with the exception of a couple of limited countries, things are starting to tick back up when it comes to cargo moving around, right? It's no longer that like full like binary cargo on or cargo off, right?

SPEAKER_01 3:17

Uh yeah, exactly. So because of these uh kind of adjustments, these are ways to try and get those containers where they need to go. But I think they're still, you know, very, very disruptive, and not to mention that there's still assets stuck in the Gulf like empty containers and like uh uh container vessels.

SPEAKER_00 3:35

And does it mean business unusual for the rest of the container world? Have have prices changed there, or are is this impacting I don't know, China-US trade?

SPEAKER_01 3:45

Right. So operationally, not impacting. We're not hearing of disruptions, we're not hearing of uh empty container shortages, or we're not hearing of congestion and delays at port at other ports because of this kind of knock-on, like you said, domino effect. Um, but we are starting to see rates be in impacted, or we may be about to see rates being impacted. So at first, carriage had announced fuel surcharges of as much as a couple hundred dollars per container, and these are kind of global surcharges, not on a specific sailing, a specific distance, a specific use of uh fuel, but rather just spreading those costs across the board or across all these lanes. Um and if if fuel prices do get up to kind of levels where they are now or stay at those levels, it wouldn't be kind of unprecedented. It would make things more expensive, but it's not going to uh be super disruptive. But by midweek last week, we start to see kind of a flurry of other surcharges, either explicitly related to a war or not. Emergency surcharges, peak season surcharges on a whole bunch of lanes, not necessarily related to the Gulf of the Middle East at all, including Asia, Europe, including transatlantic. Um, and those could be up to thousands of dollars per container. So we're gonna see what happens there. These have have been scheduled really to go into effect next week. The interesting part is that we're starting to see um reports of some skepticism that these surcharges or these rate hikes are gonna take just because other market dynamics might not be there to support them. Okay. And also, right now we're in trans-Pacific um long-term ocean contract negotiation season. So normally long-term contracts are s are um finalized by by May. And we're hearing reports of some big shippers, big BCOs kind of pushing back that their contracts shouldn't include surcharges for um, you know, for stuff going on in the Strait of Hermuz that doesn't directly impact them. So it'll be interesting to see, you know, for the Red Sea, we had rates go up across the board, and there was kind of pointing to uh capacity being absorbed by these by these diversions. So kind of it there was an argument to be made it made sense. Um, but we'll see what happens beyond those fuel surcharges, whether we're going to see rates increase across markets because of this disruption as well.

SPEAKER_00 6:00

I feel like kind of the MO for a lot of ocean line, or just like there's volatility in one place. Let's jack up the prices everywhere and just kind of protect ourselves.

SPEAKER_01 6:10

Yeah, I mean, it's yes, yes and no. I mean, the price of oil is certainly going up, and that was a big component of their costs. Another really interesting part is that it's not just the price of fuel, but the accessibility to that fuel. So MERSC explained that they don't have access to ports where they normally refuel. So in order to make sure that they have the fuel they need, they're actually moving it themselves, shipping it themselves on their ships to other places and even like uh uh fueling ship to ship in some places, if I understood correctly. So those are certainly additional costs. And those types of things are really widespread and they're facing those additional costs, they're going to pass those on to their uh to the shippers, to their customers. So again, they'll kind of remain to be seen.

SPEAKER_00 6:51

And and if we looked, if we look towards the air cargo side, I think that's even you know, where's where it's even more stark, right? If you look at the you look at the flight radar, we're you and I were discussing this before, just like see these huge areas where there isn't a lot of airspace, uh a lot of um airplanes flying. I know that air cargo is starting to tick back up a little bit. Uh some airports are open, but they've been being targeted as part of the conflict. Where is air cargo right now uh in the region?

SPEAKER_01 7:18

Yeah, so as opposed to ocean, where you could say operationally the disruption is really contained for air is really a broad impact because uh Gulf carriers like uh Qatar and Emirates, those are two of the top three largest air cargo carriers in the world. A lot of that capacity has been has been grounded, and a lot of east-west volumes go through there, especially from uh countries in Asia to Europe. Also, Africa to Europe will transit through the you know, through these Gulf hubs normally. So this is really a big operational disruption. Um, Qatar has remained, their airspace has remained closed completely. UAE has opened their airspace through what they're calling safe air corridors. So they've kind of gradually, and Emirates has put out reports saying they're gradually increasing the number of their flights, so they're not back to normal, but they're I think they're past 50% of their of their normal flights are continuing to go. But like you said, uh the airport in Dubai has specifically been targeted or has at least been impacted by fires and things like that from you know intercepted drones or whatever um impacting the airport itself. And it's been closed several times for for several hours, but uh it continues. That is a real disruption, and we're seeing that reflected in rates as well. So um the our Freidos Air Index, um, we've seen rates spike on a lot of these lanes. South Asia to Europe, those prices are up to almost $5. That's 84% higher than the start of the war. Southeast Asia to Europe up 20 more than 25% to more than $4 compared to the start of the war. And that's because these volumes that used to transit uh through the Gulf are now having to go out of Asia directly uh to Europe and other destinations. So we're seeing rates uh rates increase. And you know, we're seeing fuel surcharges being introduced as well. Um that being said, while we saw rates climb pretty quickly over the first stretch of the war, over the last few days we've seen rates kind of leveling off. And that might be because um, you know, Emirates is is uh recovering some of their capacity, but also because uh European carriers and carriers in the Far East are adding um those direct long-distance flights between um Asia and Europe or or uh other lanes. And so that might be this partial um capacity recovery is letting rates level off instead of continuing to climb.

SPEAKER_00 9:37

Um going back to like a million years ago, on the trade war side of things, have things calmed down a little bit, or are we still in the same crisis mode, but it's not as crisis y as uh was happening in the Middle East?

SPEAKER_01 9:51

Yeah, no, still a lot going on. You have to get somewhat get pushed to the back burner, depending, you know, where your attention lies. Um, there actually is some overlap between the two, war in Iran and trade war. President Trump has been trying to kind of garner international support for uh naval forces that will secure the Strait of Hormouth, meaning that the war could continue on, but the Strait of Hormouths would be opened through naval escorts, and he hasn't found a lot of support. And one of the countries that he's asked for help from that that has declined was China, and he had uh threatened that he's gonna push off there's supposed to be a big uh Xi Jinping Trump summit at the end of this month, and he threatened that he would push that off if China doesn't assist with the with the strait. Uh and then a few days later he announced that he's pushed off the summit for for a month, but because of his attention in Iran, uh, you know, in the with the war in Iran, and not because of this trade issue. So, you know, um who's who's to say? But that summit was a lot of anticipation or hope that that was going to kind of help stabilize the trade environment or even ease some of the uh tariff levels or or other things. So so that um story continues. Um and also we know that we have these Section 122 tariffs that the uh administration put in place when EPA was invalidated, and that's at 10% on a on a global uh basis um for audio imports into the US until the end of July. And the uh administration has continued to take steps to replace those by other means right now with Section 301 tariffs, and they're looking at that in a range of countries. And just this week they said that the these probes that need to kind of precede any uh authorization of tariffs is focusing on, or there are some that are dedicated to looking at excess capacity um issues in China, Singapore, and and Thailand. So this kind of uh continues. And I've also seen uh uh reports that you know the the countries who have trade deals with the U.S. are saying, you know, we don't want to pay tariffs beyond what we've agreed to in these um, you know, in our agreements, even if they're gonna be imposed by other means. Um, but at the same time, they're objecting to kind of accusations of excess capacity, which is basically kind of you know subsidized manufacturing have been as uh unfair competition for other countries. So that story continues as well, but it does seem like it's moving in the direction of tariffs and arraying in place by other means before um before that 122 expires in July.

SPEAKER_00 12:22

Awesome. All right, well, Judah, thank you so much. Uh, really appreciate the update. Looking forward to doing this next week. As a reminder for anyone listening, you can access the data behind what we're talking about at terminal.fredos.com. We send out a weekly email with all this that you can sign up for at Frados.com as well. Please feel free to recommend the podcast. Uh, leave us five stars, does a whole lot of good. Uh, have an awesome day.