Container Bytes #42: The Iran-Oman Framework and the Transpacific Rate Rebound

Welcome back to Container Bytes! 📍 We hope you didn't miss us too much during our one-week hiatus—we are back in action.

In this episode, Julia Frohwein and Judah Levine examine a potential new diplomatic development: a proposed bilateral agreement between Iran and Oman aimed at reopening the Strait of Hormuz. Under this proposal, vessels would coordinate entry through the northern Iranian channel and exit via the southern Omani channel, without transiting tolls for 60 days. We analyze what this means for ocean carriers, why long-haul container vessels will likely remain cautious until stability is guaranteed, and how recent energy market shifts have brought crude oil prices down while bunker fuel costs remain 50% above pre-war baselines.

We also dive into the ocean freight spot market, where major trade lanes are beginning to diverge. Asia-Europe and Mediterranean rates have dropped roughly 15% from their July peaks, with Asia-North Europe falling to $5,000/FEU. Conversely, Transpacific West Coast rates spiked by $1,000 to $7,000/FEU following August 1st GRIs, supported by low inventory levels and ongoing front-loading activity.

Finally, we look at the tariff landscape following the July 24th expiration of Section 122 tariffs, as the White House rolls out Section 301 forced-labor replacement tariffs ranging from 10% to 12.5% across 60 trading partners.

Chapters: 

• 00:00:00 — We're Back: Returning from hiatus. 
• 00:00:25 — The Iran-Oman Framework: A new proposal to reopen Hormuz. 
• 00:02:12 — Carrier Caution: Why mega-ships are waiting out the diplomatic process. 
• 00:04:00 — Energy Market Shift: Crude prices drop as bunker fuel costs remain elevated. 
• 00:05:15 — Rate Divergence: Asia-Europe rates ease while Transpacific rebounds. 
• 00:07:36 — Tariff Transition: Section 122 expires as new Section 301 tariffs take effect. 
• 00:10:32 — Weather Gridlock: Consecutive typhoons maintain pressure on port capacity.

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Transcript

SPEAKER_00 0:00

Hi and welcome to today's episode of Container Bites, your 10 minute update on the latest in freight. Hope you didn't miss us too much. Last week we were off, but good news is we are back. I am Julia Frowine, as always joined by Judah Levine, our freight expert. Judah, how are you doing today?

SPEAKER_01 0:15

I'm good, how are you?

SPEAKER_00 0:16

I'm doing okay, yeah. It's good to get off, but now we're back. Alright, let's get back to freight. So it looks like there is anticipation once again that the Strait of Hamous could reopen, but this time through an Iran-Oman agreement. So what's the latest appear and what's different this time?

SPEAKER_01 0:31

So as you said, this time it's an Iran-Oman initiative. Whereas before uh Oman wasn't really directly involved or officially involved. And this is really um an agreement between these two sides. I'm sure there's input from other parties, but it's kind of this bilateral agreement. And it's a big change in that it is set to allow transits through the Omani side. So when we've seen attacks on vessels in the last you know month or so, it's really been on vessels trying to use this uh lane that is not via the Iranian lane, which is to the to the north. So this deal would reopen the Hormuz without tolls or fees on transiting vessels for 60 days, and this would have ships entering the Persian Gulf in coordination with Iran through that northern lane and exiting the Gulf in coordination with Oman through that southern lane. So it is recognizing authority other than Iran over the Strait of Hormuz to some extent, but it's also validating at least partially Iranian authority over the strait, which the US as well as several other Gulf states have been really opposed to. It would also mark a big change to the status quo if it uh takes effect and if it is part of a more permanent settlement, that would be a a real, uh real shift. But the hope is that this will maybe take the place of what the memorandum of understanding was meant to do back in June, which is kind of create stability, um, open the strait, which is in the interest of a lot of the parties involved, um, and create that a space that the sides US and Iran can negotiate towards a final peace deal, which would tackle other issues like Iran's nuclear program and things like that, which so far have just been sidelined because the Hormuz has been the big issue for now.

SPEAKER_00 2:08

Okay, so what would the reopening of this type of deal mean for ocean freight?

SPEAKER_01 2:12

So, first of all, it's not indefinite that it will happen, even if it's signed by both the sides, Iran and Oman, and maybe contingent on the US removing their blockade, which again would be kind of a uh tacid or really explicit recognition of Iranian control over, or at least partial control over the strait. Um, if it is reopened, though, probably see what we started to see when it kind of reopened last time back in June, which would be uh a rebound in traffic, but one that would be gradual. Even if this goes into effect completely, we're still having just this northern and southern channel, which are much which are kind of the narrower channels, and the main central lane were main closed because of the um concern over Iranian mines. So we might not have traffic returned to normal levels, even if this goes into kind of full effect. For the container market, we'll probably see some of those stuck vessels start exiting before we'll see a lot of traffic entering the Persian Gulf for obvious reasons that you know carriers don't want those vessels to get stuck again, as long as there's so much uncertainty or possible instability. Once there's more um kind of confidence in the solution, you might see more uh container vessels entering the Persian Gulf. And this would ease pressure on those uh land bridge solutions, which are really kind of overwhelmed, um, these alternatives to going through the strait. And so that might start to kind of ease some of the some of the problems there, but it might be a while until you see kind of a resumption of regular traffic and those big vessels and long-haul vessels making calls um in the Persian Gulf, again, until cars are really uh confident that that this is going to cake. It's possible if this goes smoothly and if somehow this involves uh developments uh between Saudi Arabia and and the Houthis meeting a de-escalation there, this could be a step towards the resumption of Red Sea transits as well, which is what we started to see back in June as well. Um, but again, a lot of unknowns. The biggest impact, as we've said before, on you know, global economy and on logistics as well is the price of oil. So if crude prices that had eased back to kind of pre-war levels when the first ceasefire took place in late June, um they had shot up by 35% past $90 a barrel by late July. Um, the recent de-escalation has seen prices come down about 18% since late July. There's only about 10% above uh the pre-war baseline now. A reopening would push crude oil prices down lower. Bunker prices climbed 16% since early July when the ceasefire collapsed. They've leveled off over the last couple weeks, but they're still 50% higher than they were before the war. So if the resumption of crude um flows takes place because this reopening, that will, and maybe not immediately, but put downward pressure on bunker rates, which will be the biggest impact for the broader cocaine market.

SPEAKER_00 4:51

And would fooling bunker cuffs then mean fooling container rates too?

SPEAKER_01 4:55

So it would change the the rate floor. So maybe the floor will be lowered compared to what we saw in the first few months of the war. In the first few months of the war, we had kind of a low demand period, but we saw rates kind of gradually increasing for some lanes or staying at about that uh lunar year level for other lanes and not falling, as what they probably would have. And so this might change what the floor will be once we have kind of remove other factors. But the big factors now are uh peak season demand, and that's been the case really since late May. As we know, ocean peak season started early this year. We had surging demand, and that kind of consistently pushed reefs up across all the major east-west lanes from about late May through early July. We had BAF increases and manufacture price hikes that were set for Q3, and that probably drove some of that early demand, some of that front loading. And we had some shippers in the US also pulling peak season orders forward uh ahead of the late July tariff deadlines. Since early July, though, and kind of despite some uh announced GRIs and peak season surcharges that were meant to go into effect in mid-July and in August 1st, for most of these lanes, rates have eased or at least leveled off. And so that suggests that that kind of the early start in that front loading is meeting kind of an early end peak season as well. Especially if we look at Asia Europe, Asia Europe rates um decreased slightly last week, but just this week we dipped by another $500 per FEU per container. So so far this week. So Asia and North Europe prices are at about $5,000. Um, to Mediterranean, they're about $6,000. Those are both about 15% lower than their peaks in July and about back to mid-June levels. Some carriers have additional increases announced for beginning of August or mid-August for these levels as well. But given the fact that we see rates easing and there are reports of kind of easing demand and increases in blank sailings, there's a lot of uh suspicion that or or um skepticism that these additional rate increases will take. On the Trans-Pacific, though, we have East Coast rates. They've been stable, but still at their peak level, about $9,000 per container since early July. West Coast rates, though, kind of reached a peak of more than $7,500 in early July. Through last week, they had eased 20% from that level. So it looked like rates were past the peak of peak season on this lane, down to $6,000 per container. But just this week we had these August 1st GRIs pop rates back up to $7,000 per container, so a thousand dollar jump just to start the month, which if it sticks, makes it seem like there's still some peak season uh strength left. We even have some forwarders reporting kind of surprisingly strong demand, even though expectations were that that uh demand would cool by now.

SPEAKER_00 7:33

Okay, why are Trans-Pacific rates behaving differently then?

SPEAKER_01 7:36

Yeah, it's a good question. So, first first of all, you know, Trans-Pacific rates of the West Coast at least declined pretty uh sharply in the last few weeks, and now they've popped back up. One speculation for why they eased instead of, you know, as opposed to why they're increasing, is that there was some capacity additions, right? So rates were high, so carriers were adding capacity to to service the volumes and also kind of captured those spot rates. So it's possible that kind of the dip was the anomaly and and it didn't really reflect easing demand more than it reflected increase in the capacity. But why are our rates kind of demand staying strong? Let's say if at least rates aren't maybe increasing relative to where they were earlier, there are multiple possible reasons and probably multiple reasons why this is happening. Or uh one is that there's been maybe unexpectedly low inventory levels in some uh segments of retail. It's also maybe been stronger than anticipated consumer demand, or or carriers or uh importers that were kind of being hesitant and cautious and now are seeing signs and now are deciding to order more. Another part may be the issue of tariffs, and this might be why we're seeing this difference between Asia Europe and Trans-Pacific. Um, July 24th was a tariff deadline. That's when the section 122, uh which were uh which were set at 10% global tariffs, were set to expire. And then this was kind of the tariffs that were that were put in place immediately after EPA was invalidated. Those expired on July 24th, and immediately on July 25th, I'm sorry, immediately after that expiration, the White House implemented section 301 tariffs of about 10% to 12.5% on about 60 trading partners, and these are aimed at addressing uh forced labor and manufacturing. But you know, if we compare those, it's 10% for a lot of nations, it's still 10% compared to section 122. Uh and for others, it's another 2.5%, which isn't you know insignificant, but it isn't isn't a huge jump. Um, so really tariffs haven't changed that much. The USTR, the US trade representatives has recently stated that some of their other 301 investigations, uh, this went into excess manufacturing capacity, which is focusing on kind of the 16 largest trading partners, that that investigation is wrapping up and they'll give those recommendations soon. But even once those those kind of findings are released, there's still a comment period, there's still kind of at least several weeks of process before those uh tariffs could go into effect, and those could push tariff rates back up to NEPO levels, which for a lot of countries are not hugely different than that to 12.5%, maybe 15%, sometimes higher, but still lower. So it's possible that you know there was this anticipation of higher tariffs starting July 25th. That hasn't come to pass. So shippers who were kind of front loading ahead of that deadline and now see that that tariffs are more or less unchanged are continuing to order, and that might be one of the one other reason. Just uh one last thing in terms of all the different trade lanes and rate behavior, even on these lanes where we're seeing rates come down, they're still quite elevated, right? Like $6,000 to Mediterranean or whatever it was. Um, and one other factor on kind of the capacity side has been congestion. So there have been two really significant typhoons that have hit in the in the Far East, especially some of the major um ports in China, and these are, you know, one right after the other, are causing quite significant delays in congestion, and that's tying up capacity. So it's possible that all things be equal, we would see rates falling more significantly on lanes where demand is is falling. Um, but across lanes there's still kind of this upward pressure element, even if there's downward pressure from from demand trends because of this uh congestion delays at some of these major ports.

SPEAKER_00 11:00

Okay, makes sense. All right, interesting. All right, thank you, Judah. That's all we have time for today. If you enjoyed this session, please hit the subscribe button and you'll get notified about all our future episodes. Thank you for listening and have a great day.