EXCLUSIVE: Shipping industry must act against spiralling costs

In 2005, the commodities publisher Argus began tracking key prices across the global shipping network. In recent weeks, for the first time since that service began, several significant price points broke new records. A fee of up to US$2.5m to pass through both locks of the Panama Canal, freight rates for tankers in the Black Sea and the rate for shipping oil from the Gulf to the Far East all reached dizzying new heights. Droughts across Europe have also seen Trans-Rhine freight costs hit their highest level in 14 years. The industry itself now has a responsibility to prevent the worst impacts and long-term effect of this trend.

It is tempting in circumstances like this to simply blame the ferocity and unpredictably of events. No doubt, the on-off conflict in Hormuz and continued uncertainty around the stability of one of the world’s most vital trade routes is a persistent and unignorable factor. Add in the increasingly aggressive impacts of a worsening climate and those charged with sourcing and transporting goods across the international seaways face undeniably strong headwinds.

However, to simply accept this as a fait accompli would be a fatal mistake for the industry to make. These two factors are not changing anytime soon. The instability ever rising prices will trigger in all corners of the globe is a major risk to both the shipping and trading industry. It will invite scrutiny and measures from governments and international bodies increasingly under pressure to act. It will also inflict long term damage on the industry’s reputation as the custodians of essential resources.

Therefore, the industry itself must be forthcoming with practical solutions that can help both in the here and now and longer term. Agility is the key watchword. Shipping companies must be embedded with traders to develop a physical trading strategy that can adapt and react quickly to sudden events. Too often vessels, choice of route and freight are seen as separate components of a narrowly focused procurement strategy.

Diversity of options, in terms of sources of supply, modes of transportation and route selection should be basic requirements, rather than ‘nice to haves’ for all operators in the industry. This is where working closely with traders can make the difference. Traders have the agility, network and, in many cases, global reach to shift quickly in the face of volatility and sudden geopolitical eruptions. Indeed, working at speed is what traders’ daily lives are all about.

The industry also has a responsibility to scenario plan and put in place contingencies well ahead of things going wrong. Assumptions can be made about very little, if any, parts of the supply chain. The infrastructure behind the sourcing, refining, distributing and receiving of essential goods can come under threat at any moment, as the events of 2026 have proven to date. What is the plan if that refinery or that port is out of action for a month? Can we use alternative means of transport such as road vehicles or pipelines if required? The alternative solution doesn’t have to be perfect, it doesn’t have to be lowest cost (often it won’t be) it just has to be viable.

In truth, the industry has become too fixated on the live price. Focusing on the immediate price of tradeable goods will not put shipping companies and traders in a strong, long-term position. The media, brokers, suppliers and customers understandably react strongest to the market shifts of today and tomorrow. However, 2026, much like 2022, has proven a wakeup call to the need to invest time, money and resources into the bigger supply chain picture.

In the boardrooms of shipping companies and trading houses the world over, this should be the big focus. It has been over half a year since the conflict in Hormuz began, enough time to have begun establishing a long-term strategy for building resilient, diversified supply networks and contingency plans. If the industry is perceived to have failed in this, it will pose a threat to our position as custodians of the essential resources that power the global economy. Most importantly, it will prevent prices from spiralling out of control when future shocks hit.