Update on Hormuz Strait Shipping

Last week, we blogged on the opening of the Hormuz Strait, but with the two-week ceasefire between the U.S. and Iran feeling tenuous and Iran warning of possible mines in the water and threatening to attack ships if they didn’t coordinate with Tehran officials and possibly pay a toll, there was limited ship passage through the strait.

Ocean freight carriers were waiting and watching. One of the things to watch was negotiations between the U.S. and Iran. Those ended without a deal, so the Trump Administration made its next move: a naval blockade in the Strait of Hormuz.

Obviously, the U.S. blockade was not to stop ships from traversing the Hormuz Strait, rather it was to stop ships from calling on Iranian ports. The U.S. won’t allow Iran to sell oil and ship it out through its ports.

Jack Phillips reported details in an article in the Epoch Times:

The UK Maritime ​Trade Operations (UKMTO) agency said on April 13 that it has been informed ​that effective ​from 2 p.m. Coordinated Universal Time, or 10 a.m. ET, maritime ​access restrictions are ​being enforced, affecting Iranian ports and coastal ​areas, including ​locations along the Persian Gulf, ‌Gulf ⁠of Oman, and Strait of Hormuz.

“Access restrictions apply ​without ​distinction ⁠to vessels of any ​flag engaging ​with ⁠Iranian ports, oil terminals, or ⁠coastal ​facilities,” UKMTO’s advisory states.

It states that “transit passage through the Strait of Hormuz to or from non-Iranian destinations is not reported to be impeded by these measures; however, vessels may encounter military presence, directed communications, or right-of-visit procedures during passage.”

President Trump issued a warning on Truth Social to the Islamic Republic regime that if any of its remaining ships approach the blockade, they’ll be destroyed:

Iran’s Navy is laying at the bottom of the sea, completely obliterated – 158 ships. What we have not hit are their small number of, what they call, “fast attack ships,” because we did not consider them much of a threat. Warning: If any of these ships come anywhere close to our BLOCKADE, they will be immediately ELIMINATED, using the same system of kill that we use against the drug dealers on boats at Sea. It is quick and brutal. P.S. 98.2% of Drugs coming into the U.S. by Ocean or Sea have STOPPED!

Meanwhile, the U.S. started using ships – missile destroyers – to clear out whatever mines Iran’s Islamic Revolutionary Guard Corps has put in the water to make the Strait of Hormuz safe for shipping.

Jacki Thrapp reported on it in the Epoch Times:

Two U.S. missile destroyers started clearing mines in the Strait of Hormuz on April 11 as peace talks kicked off between Washington and the Iranian regime, the U.S. Central Command (CENTCOM) confirmed.

“Today, we began the process of establishing a new passage and we will share this safe pathway with the maritime industry soon to encourage the free flow of commerce,” CENTCOM Commander Adm. Brad Cooper said in a statement on April 11.

The American ships included the USS Frank E. Peterson and USS Michael Murphy.

Ship Movement Through the Port of Hormuz

There is some uptick in shipping through the Strait of Hormuz, but it is still practically at a stand-still compared the usual, pre-Iran-War traffic through the strait.

There are some conflicting reports on how many ships have been moving through the Strait of Hormuz. There are a few things that could explain conflicting numbers:

• Inclusion or exclusion of ships moving and positioning for transit rather than completely crossing the strait
• High regional amounts of ship spoofing – Automatic Identification System (AIS) or GPS data to broadcast false locations, identities, or movements – preventing maritime intelligence firms from registering or recording ships
• Possible inclusion or exclusion of certain naval ships

Frankly, ship activity in the Strait of Hormuz is not high in transparency. For example, the maritime intelligence company Winward reported there were 17 transits of the strait yesterday (April 13th) but also 156 “dark activity events” across the region. Dark activity is when a vessel’s AIS signals are no longer being broadcast or detected.

Here are yesterday’s vessel crossing details from Winward:

• Inbound crossings: 10 vessels (9 AIS, 1 dark), including 2 tankers (Aruba, Vietnam), 1 bulk carrier (Marshall Islands), and 7 cargo vessels (Panama, Antigua and Barbuda, Comoros, Togo, India).
• Outbound crossings: 7 vessels (all AIS), including 3 tankers (Panama, Comoros, Hong Kong), 3 cargo vessels (India, Comoros, Gambia), and 1 bulk carrier (Liberia).

This is an increase in traffic through the strait, as recent traffic has been as small as 3 to 7 ships a day. Compare that to a pre-war average of about 138 ships per day.

Even so, the outlook is encouraging for ship traffic to continue increasing.

Short-Term Cost Increases for Shippers

Only about 1.5% of the world’s shipping capacity has been stuck in the Persian Gulf region with the onset of the Iran War. And capacity is hardly stretched thin. However, ocean freight carriers are absolutely using the conflict as a reason to increase freight rates.

While there is not enough strain on capacity to justify serious freight rate increases (in fact, carriers are lucky not to be currently facing serious overcapacity problems), carriers are facing significant fuel cost increases. This comes as no surprise since 20% of the world’s exported oil ships out of the Persian Gulf and through the Port of Hormuz.

Oil prices are highly volatile. In Universal Cargo’s Thursday’s blog last week, we wrote how crude oil dropped under $100 per barrel after President Trump announced the ceasefire. This weekend, with the announcement of the blockade instead of a deal, oil prices spiked by around 8%. Monday oil prices started coming back down. They dropped sharper today. Prices have landed back under 100 per barrel, even lower than we saw at the end of last week:

• Brent Crude settled at $94.79
• WTI Crude settled at $91.28

Many of the world indexes for freight rates report on Thursday or Friday, so we’ll see where they land this week in the wake of the blockade. I expect to see more upward growth in rates this week. Carriers will hold the increases they’ve established with General Rate Increases (GRIs) and other surcharges related to the Iran War as long as they can. Both transatlantic and transpacific rates saw significant growth so far in April after a brief moment of stabilization from the month of freight rate increases after the start of the Iran War.

The problem for carriers is the supply/demand equation will likely make it difficult to support higher freight rates for an overly extended length of time. The question is will they be able to maintain these higher freight rates until the arrival of international shipping’s peak season. That’s something we’ll be watching closely here at Universal Cargo.