New freight landscape: higher costs and shifting routes

New freight landscape: higher costs and shifting routes

Tensions around the Strait of Hormuz have brought shipping risks back to the forefront of global commodities trade. Unlike the impact of disruptions in the Black Sea following the outbreak of war in Ukraine in 2022, which directly affected a major agricultural export channel, the Hormuz shock has been transmitted to global agricultural trade primarily through a sharp deterioration in shipping conditions, reflected in higher fuel costs, longer voyage times, and increased risk premiums.

Freight costs are shaped primarily by vessel hire rates and fuel costs, with hire rates typically accounting for a larger share. Prior to the Hormuz crisis, charter markets had already strengthened while the crisis further amplified voyage costs through higher bunker prices and inefficiencies in vessel deployment. Specifically, a supply-risk premium was priced into marine fuels even before any large-scale physical disruption materialized, making fuel a key transmission channel for the escalation of shipping costs. Very Low Sulphur Fuel Oil in Singapore, the primary benchmark for bunker fuel prices, peaked at around USD 1 100 per tonne in mid-March, more than double its pre-crisis level, and has since eased to about USD 700 per tonne. This surge fed directly into higher voyage costs for bulk carriers: for a typical Panamax voyage of 25 days with fuel consumption of 30 tonnes per day, fuel expenses alone are now approximately USD 2.20 per tonne of cargo higher than in February.

The crisis has also undermined fleet efficiency, as vessels reroute away from the Suez Canal and the Strait of Hormuz, extending the typical voyage time through the region by about 10-14 days. In addition, congestion at alternative ports has prolonged vessel employment, lowering effective capacity and further supporting an already firm time charter market. The Panamax sub-index of the Baltic Dry Index currently stands at around 30 percent above its February 2026 level and about 41 percent higher than a year ago. As a result, freight rates have increased unevenly across routes and commodities, with the strongest impact on long-haul trades. Shipping a Brazilian soybean Panamax to China, for example, is currently 30 percent more expensive than in February 2026 and 70 percent higher than a year ago. Similarly, freight costs for Russian wheat to Indonesia have risen by about 10 percent since February 2026 and over 30 percent from a year ago while shipping urea from the Russian Baltic region to India has increased by 34 percent from February 2026 and by 70 percent from a year ago.

However, increases in freight rates do not affect landed prices (total cost delivered to the importing country, including the purchase price at origin and all associated transport, insurance, and import costs) uniformly across commodities. In grain markets, the freight share in landed costs has increased modestly - by around 2-3 percentage points compared to pre-crisis levels - and has been a key driver of recent increases in CFR (cost and freight) prices. Despite this added cost pressure, global trade in grains and oilseeds has remained surprisingly resilient, with combined wheat, maize and soybeans exports reaching record levels between March and May 2026. This suggests that current disruptions are not constraining availability; their impact is primarily economic, operating through higher landed costs and shifts in relative competitiveness across origins.

Fertilizer markets, although relying on the same bulk shipping system, have followed a somewhat different trajectory. While freight costs have increased, the sharp rise in fertilizer prices following the closure of the Strait of Hormuz initially overshadowed the contribution of transport costs to landed prices. Recent declines in fertilizer prices have, however, increased the relative importance of freight once again.

Looking ahead, these pressures no longer appear purely temporary. Shipping operators continue to factor in elevated risk across key corridors, suggesting that global freight markets may be entering a "new normal" of higher costs, lower efficiency and greater volatility. In such a context, any additional shock, whether geopolitical, operational or weather-related (including potential El Niño risks for key chokepoints such as the Panama Canal) can have disproportionately large effects, as it impacts a system already under strain. Maritime logistics are playing an increasingly important role in global food commodity and input markets, influencing prices, redirecting trade flows, and affecting the resilience of global trade.