The ceasefire in the US-Iran war has sparked cautious optimism among shipping market participants that more vessels could soon be able to exit the strait of Hormuz. But Mideast Gulf loadings are unlikely to return to pre-war levels anytime soon, given high costs, the difficulty of securing insurance and the risk of continued attacks.
The two-week US-Iran ceasefire announced on 7 April may offer some hope for vessels currently stranded in the Mideast Gulf, a freight analyst observed. "Yet the reality has not changed — the risks remain substantial and real for shipowners".
Attacks on commercial shipping have brought transits through the strait of Hormuz to a near standstill since the war broke out on 28 February, severely curtailing exports of crude, oil products, LNG, fertilizers and other commodities.
The Asia-Pacific region is the most heavily exposed to the supply disruptions. Governments in the region, including the Philippines, Malaysia and Thailand have held talks with Iran to guarantee the safe passage of some vessels through the strait.
But these agreements appear to facilitate only ship exits, with shipowners and traders unconvinced the government-to-government deals — or the ceasefire — provide sufficient assurance for them to resume new loadings from the Mideast Gulf, shipbrokers noted.
No-one is currently willing to be the first to exit the strait, an official at a South Korean refiner said.
Iran is charging shipowners a fee of $1/bl for their vessels to pass through the strait, Hamid Hosseini, spokesman for Iran's oil, gas and petrochemical products exporters' union, told Argus today. Tehran is proposing a regional solution to the crisis, under which the proceeds of the vessel fees would be shared with other countries as war reparations, according to a bill being discussed in the country's parliament. But it is unclear if this will help smooth transits through the strait.
The failure of an Indian charterer to secure a vessel for an Iraqi cargo this week encapsulates the continuing uncertainty.
Indian state-controlled refiner Bharat Petroleum (BPCL) sought a Suezmax vessel on 7 April to load from Basrah to west coast India from 13 April. "Fixing with an India-based charterer should have provided [shipowners] sufficient confidence", one shipbroker said — especially given the Indian government held talks with Iran over two weeks ago, while Tehran on 4 April exempted Iraq from any restrictions imposed in the strait of Hormuz.
But BPCL received no offers, even from Indian shipowners, and subsequently withdrew the cargo on 8 April.
"This cargo had all the hallmarks of a relatively ‘easy fixture' but the risks [for shipowners] clearly overshadowed any interest toward it", an India-based shipbroker said.
At least two other Mideast Gulf cargoes had to be withdrawn last week because the charterers were unable to secure offers from shipowners, Argus shipping data show.
Risks remain
More cargoes have emerged from the Mideast Gulf since the ceasefire. But a number of barriers are continuing to deter most shipowners from considering future loadings from the Mideast Gulf.
"Yes, shipowners are likely to get good freight for Mideast Gulf shipments, but whether they actually get paid at the end remains a question", said another shipbroker, who reported incurring "significant demurrage" on one of its ships trapped in the Mideast Gulf.
The freight clause in the charter-party did not clearly specify payment responsibilities in the event of war, leaving the shipowner "frustrated and locked in a dispute with the charterer", the shipbroker said.
Securing insurance cover for the vessel and its cargo is also problematic. War risk insurance remains highly restrictive, with cover available only on a selective basis and largely limited to a small number of insurers, including some state-backed schemes. Any cover offered typically requires strong guarantees, sources said.
Additional war risk premiums (AWRP) for the Mideast Gulf are at around 0.85pc of a vessel's hull and machinery value, with some cases at 0.55–0.75pc with a 50pc no claim bonus (NCB). AWRP rates are unlikely to ease immediately despite the ceasefire announcement, which will add further costs for shippers above significantly elevated freight rates, market participants said.
Such difficulties mean there is little incentive for shipowners to seriously consider Mideast Gulf loadings, especially when they have other options available.
"Freight rates in other regions have surged because of the Middle East conflict", a freight analyst said, "and that has offered opportunities outside the region for shipowners to secure attractive freight rates without risks".
The Argus Crude Tanker Index, a composite measure of global very large crude carrier (VLCC), Suezmax and Aframax freight rates, has risen by 54.6pc since the war started — from $7.17/bl on 27 February to $11.09/bl on 8 April, which is just 2¢/bl short of its all-time-high on 26 March.
"Overall, the risk-to-reward ratio for Mideast Gulf loadings still seems highly unfavorable, even with a ceasefire in place. I could lose my ship and my crew to a stray missile" a shipowner said. "Why would I want to put myself in that situation, when so many other options are available to me?"
