Freight rates soar 12-fold! Amid Middle East war, global trade enters the "most expensive shipping season in history"

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With the escalation of conflict in the Middle East and continued obstruction in the Strait of Hormuz, a profound shock is being transmitted to the global supply chain through the dual effects of rising insurance costs and freight charges.

According to CCTV reports, Neil Roberts, head of marine and aviation at Lloyd's of London, said that after the conflict escalated, war risk insurance premiums for ships have rapidly increased. The exact rise in premiums depends on the type of vessel and specific circumstances, but insurance fees are only a small part of the operating costs for shipping companies; they must also consider freight, which has currently increased by 11 to 12 times.

This shock has already spread from large shipping companies to small and medium US businesses. According to Associated Press, small business owners such as shoe designers, pistachio growers, and gardening suppliers are facing a “triple threat” of blocked imports and exports, soaring costs, and shrinking demand.

Insurance premiums soar, traditional pricing model overturned

Neil Roberts said that before the Middle East conflict, typical shipping insurance quotes were about 0.2% to 0.3% of a ship’s value; after the escalation, premiums have quickly risen to 1% to 3%.

MSN, citing Lloyd’s data, pointed out that insurance premiums on some high-risk routes have risen to 3% to 7.5%, while traditional war risk pricing was usually only 0.1% to 0.25%. For example, for a large tanker worth $200 million to $300 million, the premium going from 0.25% to 3% means that the insurance cost for a single voyage would soar from about $600,000 to $7 million-$9 million—this leap is enough to completely rewrite the economics of each journey.

Freight and rerouting costs stack up, supply chain pressures intensify

Insurance cost is only part of the rise in operational costs for shipping. Roberts noted that shipping companies must also bear freight rates, fuel costs, and delays from rerouting ships.

According to MSN, to avoid high-risk waters, more shipowners are choosing alternative routes such as rounding the Cape of Good Hope, which significantly increases sailing time and further pushes up fuel costs.

War risk insurance premiums for cargo have also risen sharply. MSN reports show that in affected areas, cargo insurance premiums have jumped from about 0.03% to nearly 1%, directly increasing the landed cost of crude oil, LNG, and high-value manufactured goods, forcing importers and exporters to renegotiate contracts or squeeze profit margins.

Small businesses are hit first, "Perfect storm" emerges

According to Associated Press, US small and medium-sized businesses are facing a direct blow from the conflict.

Nichols Farms, a California pistachio business now in its fourth generation, exports 50% of its crop, mainly to Europe and the Middle East. After disruptions in the Strait of Hormuz, supply to Saudi Arabia, Iran, and the UAE was cut off, with about $5 million in goods stranded at sea. In addition, Kansas City gardening suppliers are stockpiling fertilizer in advance to cope with price increases, while a Chicago electronics shop owner is struggling with rising oil prices.

Brandon Fried, executive director of the Airforwarders Association, said that the combined factors of rising costs, route changes, and tightening capacity pose a “perfect storm” for small businesses. Business owners generally believe that although the current impact has not surpassed the supply chain crisis during the pandemic, if the conflict lasts several months, the level of disruption may gradually approach that period.

Structural risks emerge, markets seek response mechanisms

The current surge in premiums may signal a structural shift. Geopolitical fragmentation is intensifying, and new types of warfare are making risk assessment increasingly complex, rendering traditional actuarial models less applicable. Some estimates show that premiums on the highest-risk routes could approach 10% — without state support or naval protection, such levels could make some routes commercially unviable.

As a result, governments including India and industry bodies are exploring the establishment of domestic war risk insurance pools to ensure insurance accessibility and affordability. Neil Roberts emphasized that the existence of insurance coverage is often more critical than price itself — without insurance, banks typically will not allow ships to set sail. This means that the willingness of the insurance market to underwrite will directly determine whether global trade can run normally.

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