What the Strait of Hormuz Crisis Means for Global Trade

**Tim Elliott** (0:01)
This is the Morning Drive, it's Mira Business FM. Freight costs, fuel prices and delivery timelines are back in focus and questions are growing over how vulnerable global supply chains could become. Container freight costs are creeping up, maritime insurance premiums are surging, delivery timelines are stretching, carriers are hedging their risks. And for a global economy built on just-in-time logistics, prolonged friction in the Strait of Hormuz threatens a massive domino effect across retail, across manufacturing and across the prices that we pay as consumers. Joining us with the latest on the risks, the market reaction and hopefully what businesses and consumers should be preparing for is Abigail Mathias. She's editor at Global Supply Chain Magazine. It's good to see you, Abigail. Thanks for coming back on.

**Abigail Mathias** (0:57)
Morning, great to see you too.

**Tim Elliott** (1:00)
Welcome to Morning Drive. Straight A4 Moose isn't just an energy corridor, it's a hub for global container transit and multimodal logistics networks. We've spent the last few years hoping the era of severe supply chain disruptions was behind us. I guess, if I'm honest with you, Abigail, we're hoping we're nowhere close to a rerun of the global shipping issues that we experienced during COVID.

**Abigail Mathias** (1:32)
Yes, that's a very legitimate fear to have. I think since the global pandemic and the Red Sea crisis, logistics companies have put in place certain methods to protect themselves against shocks like this.
While those things are in place, those can only reduce the shocks. They can't unfortunately completely eradicate them.

**Tim Elliott** (2:01)
Can you put into perspective just how serious the threat to global trade is if tensions continue to escalate?

**Abigail Mathias** (2:10)
Well, the threat is very, very serious.
We have to understand that this trade moves roughly 20 to 30 percent of global seaborne oil and a major share of LNG. Any prolonged disruption immediately affects global energy security. Markets are already pricing higher risk, and several governments have warned that a full shutdown would have worldwide economic consequences. Even brief disruptions matter. There is no equivalent alternative route for most Gulf oil and LNG exports. Pipelines that bypass Hormuz, they exist, but they only can handle a fraction of the total volumes.

**Tim Elliott** (2:54)
Can we look at some immediate market data? I mean, carriers don't wait for a crisis to fully explode before they adjust their models of pricing. They price in risk straight away. We're now just over 90 days into the crisis, 92 days, I think we are. What are you seeing right now in terms of spot freight rates, emergency surcharges, or with marine insurance premiums? Who's paying the price for this continued kind of maritime anxiety?

**Abigail Mathias** (3:27)
Well, unfortunately, it's major global carriers that are facing the brunt of this escalation because they have had to suspend or limit their transitions and their transits through the Strait of Hormuz. Many of them are diverting vessels to alternative ports.
It's also become incumbent of them to try to avoid the Gulf route altogether, which is not easy, and it's slowing regional trade. And it's also increasing congestion in other parts of the world.

**Tim Elliott** (4:03)
When shipping lines do have to bypass areas, where there may be additional risk. What is adding thousands of Nordic Omas around alternative routes due to global container capacity, but also equipment availability?

**Abigail Mathias** (4:22)
Well, the thing is that it does affect most of the supply that's moving around the world.
As you just mentioned, the insurance premiums go up drastically. So that becomes an additional cost for most carriers. They also try to look at trying alternative routes. So road has become, well, the most popular right now to move infrastructure, to move oil and gas. And of course, that's not the most ideal situation, but it has become the only solution in these times.

**Tim Elliott** (5:03)
When delivery timelines get delayed by just a week, it disrupts factory floors, it disrupts retail inventory levels, e-commerce distribution networks, and those are global networks. From a high level supply chain perspective, which industries or product sectors are maybe the most acutely vulnerable to a sustained crisis in the Strait of Hormuz?

**Abigail Mathias** (5:34)
Well, I would say companies across energy, retail and manufacturing are the ones who are having to build a larger buffer stock and expand their warehousing to avoid these shocks in supply chain.
They are looking towards having something which is termed as resilience logistics, which has been put in place to handle this unpredictable nature of events. So they are looking at doing various things like multi-routes and planning those logistically, using more regional warehousing has become important. So like I said earlier, this might not eliminate the risk entirely, but it reduces the shock.