Freight costs jump as shipping rates, insurance premium soar

The shipping industry, which plays a major role in global trade, was already fighting a shortage of vessels and containers when American and European sanctions on Russia and its businesses drove up crude prices, increasing shipping costs. On Thursday, Brent crude oil approached a multi-year high of $120 per barrel and was slightly lower at $113 on Friday. On 3 March, the Drewry’s composite world container index was up 2.1% from last week to $9,279.46 per 40ft container.

Anil Devli, CEO of the Indian National Shipowners’ Association (INSA), said daily rates of tankers and vessels have zoomed from $3,000 per day around 10 days ago to $30,000-40,000 now, primarily because there are fewer ships from Russia and Ukraine. He added that war risk premiums for ships have also increased by 3-5%.

“In terms of insurance now, war risk premium (on insurance) has gone up. When you are going into a country that is somewhat ‘war-risk’, then you pay a premium over and above the war risk premium that you generally pay. Then you pay what is called an additional war risk premium. So the war risk premium has gone up dramatically,” Devli said, adding several foreign vessels are stuck around the Black Sea and the Sea of Azov.

Makrand Pradhan, chairman of Total Transport Solutions Ltd, said, “in the past week, shipping lines were not accepting cargos for Russia, but some carriers are now accepting them. However, the freight levels are three times high now. A 20 feet container that used to be $6,000 for St Petersburg from Nhava Sheva has now gone up to $17,000-18,000 per 20 feet container,” Pradhan said.

With crude expected to rise further and no signs of conflict easing, freight rates seem set to maintain their upward trajectory.

Devli said the supply crunch comes amid a fall in demand for Russian ships. He said shipowners worldwide also fear sanctions might be imposed on ships that carry Russian cargo.

The war in Ukraine has already cast a shadow on India’s coking coal imports from Russia, as reported by Mint earlier. While India’s exports to Russia are pegged at $2.6 billion, the imports are valued at $5.5 billion. However, the uncertainty is impacting rates across destinations. Ajay Sahai, CEO of India’s apex exporters body, Federation of Indian Export Organisations (FIEO), said there were expectations that freight rates that have been elevated of late would reduce by the second quarter of 2022. However, with the conflict and rising geopolitical tensions, rates are unlikely to calm down soon.

“Now, with oil prices moving up to $120 per barrel and increasing insurance cost for ships, we feel that probably the freight rate may continue to be high,” he said.

Lancy Barboza, managing director of Flomic Global Logistics Ltd, said that conflict would further raise oil prices, driving air and ocean freight rates worldwide. “There will be other disruptions like the closure of air space and flying of aircraft in the war zone and tit-for-tat boycott of Russian airlines by Western countries countered by a Russian ban on airlines from those countries, which will further aggravate the situation,” he said.

According to data provided by INSA, the fleet size of ships owned by Russians is about 3,000 ships of 18.1 million gross tonnes, which is around 1.2% of global tonnage. The gross tonnage of Indian ships would be about 0.8% of world tonnage, Devli said.Global shipping major A.P. Moller–Maersk, in a statement, said it is closely following the evolving situation with new sanctions being imposed on Russia and the effect on global supply chain flows. “With the fluid circumstances of regular updates and adjustments to the sanctions list, we see a clear need to take some time to establish new and revise existing processes of accepting and handling bookings,” it said.