G7 will not release oil reserves temporarily, and land and sea transportation have been biased by the situation in the Middle East

    On March 9th local time, G7 finance ministers held an emergency video conference and finally reached a basic consensus – not to release strategic oil reserves temporarily. This decision may seem like a temporary suspension of energy policies, but against the backdrop of ongoing tensions in the Middle East, it has brought a chain reaction to global land and sea transportation, especially the near closure of the Strait of Hormuz, which has added insult to injury to the already stressed transportation industry.

    First, let’s talk about the most directly affected sea transportation. The core problem of sea transportation at present is not only the high oil price expectation caused by the G7 not releasing oil reserves temporarily, but more importantly, the navigation crisis in the Strait of Hormuz. After the US and Israel took military action against Iran, the “world oil valve” carrying about 30% of the world’s crude oil and 20% of liquefied natural gas transportation has experienced a cliff like decline in navigation volume. Since March 2nd, there have been almost no large oil tankers or major international container ships passing through, with only 26 large ships passing through within a week, which is less than 6% of the normal level. Iranian senior officials have made it clear that as long as the US and Israel continue military strikes, security in the Strait of Hormuz cannot be restored. This has led shipping companies to choose to avoid risks and suspend bookings in the Middle East. Leading shipping companies such as Daffy and Maersk have even withdrawn their plans to resume operations in the Red Sea and suspended passage through the Suez Canal.

    Helpless, many oil tankers can only detour around the Cape of Good Hope in Africa. This detour not only extends the voyage from the Middle East to China by 10 to 14 days and adds 3500 nautical miles to the one-way journey, but also directly increases various costs. The 40 foot container shipping cost on the Red Sea route has skyrocketed from around $3000 to $10000, an increase of over 200%. Several foreign shipping companies have also imposed emergency conflict surcharges and war risk surcharges, with single container surcharges reaching up to $4000. At the same time, the International Protection and Indemnity Association has listed large areas of water in the Persian Gulf and Red Sea as high-risk zones. War risk premiums have skyrocketed, and some insurance companies have even directly refused to provide coverage, further exacerbating the chaos in maritime transportation. Traders either hoard goods in advance or postpone orders, which in turn leads to port congestion and tight transportation capacity, forming a vicious cycle. More noteworthy is that oil producing countries such as Kuwait, the United Arab Emirates, and Iraq around the Persian Gulf have started to reduce production due to inventory saturation caused by the inability to export crude oil, which further strengthens expectations of tight energy supply.

    Looking at land transportation again, although there is no crisis of channel interruption like sea transportation, it is still firmly trapped by high oil prices. The G7 is temporarily not releasing its oil reserves, which is equivalent to locking in the situation of high short-term oil prices. Fuel costs account for 30% to 40% of the total operating costs of road freight, and the impact on long-distance heavy trucks is most significant. According to the current trend of oil prices, for every 0.1 yuan/liter increase in diesel, the monthly average cost of a 13 meter heavy-duty truck traveling 10000 kilometers per month will increase by 3000 to 5000 yuan. Recently, international oil prices have repeatedly exceeded 100 US dollars/barrel, and Brent crude oil has once approached 120 US dollars/barrel. The pressure of domestic refined oil price adjustment continues to increase, and the cost pressure of land transportation is still constantly accumulating.

    In order to cope with rising costs, logistics companies have begun to rapidly increase fuel surcharges, with express delivery bills rising by 0.3 to 0.8 yuan and bulk freight rates increasing by 0.05 to 0.1 yuan per ton kilometer. It is expected that within 1 to 2 weeks, whole vehicle and less than truckload freight rates will generally increase by 5% to 15%, and the increase in long-distance and bulk categories will be even higher. However, this has unexpectedly highlighted the advantages of new energy logistics models. In the fields of short distance delivery and urban logistics, the operating cost advantages of electric trucks are becoming increasingly apparent, and the electrification process is accelerating. At the same time, the interruption of sea routes has also brought some alternative demand to land routes. Some goods from the Middle East to Europe and South Asia have begun to shift towards a “sea+land” intermodal transport model, such as from the Persian Gulf to the port of Sarala in Oman, and then transported by land to Central and Eastern Africa and Europe. This has also increased the demand for cross-border road and rail freight.

    In fact, the impact of land and sea routes is not independent of each other, but rather transmits and amplifies pressure to each other. The skyrocketing sea freight rates and tight transportation capacity have caused some goods to shift to land routes, further exacerbating the transportation pressure on land routes; The rising cost of land-based fuel will also push up the cost of short distance port connections, warehousing and transportation, forming a “cost spiral” that poses significant challenges to the entire transportation industry.

    At present, the market’s attention is focused on the G7 energy ministers’ conference call on March 10th, and all parties are concerned about whether this meeting will clarify the triggering conditions for the release of strategic oil reserves, such as oil prices breaking a certain threshold or the duration of the Strait of Hormuz blockade. If the meeting sends a signal that reserves may be released, it may alleviate the short-term upward pressure on oil and freight prices; But if the situation does not ease and the Strait of Hormuz continues to shut down, alternative demand for land transportation will further rise, and oil prices may reach a new milestone. For foreign trade enterprises, logistics enterprises, and individual practitioners, the most crucial thing at present is to do a good job in cost locking and diversified route layout, in order to reduce losses in the fluctuations of the transportation industry.