Executive Takeaways

Global trade rerouting remains prolonged and costly. Over 80% of world goods trade moves by sea, and continuing Red Sea disruptions have increased average transit times by 10-14 days and freight costs by up to 30%, reflecting structural congestion and higher insurance premiums. ( Atradius Collections, Gulfnews, CNN )

Freight and bunker fuel volatility will persist. Despite temporary rerouting boosts, projects bunker fuel demand to remain flat at 5 million b/d through 2030, constrained by IMO and weak trade growth. ( UNCTAD, Reuters, Ship & Bunkers )

Inflationary pressure from logistics remains a key macro risk. Rerouting via the Cape of Good Hope adds $1-1.5 billion in monthly trade losses, directly feeding into higher consumer prices and global CPI volatility. ( CNBC, CNN )

Long-term shift toward cleaner fuels and efficiency gains. IMO decarbonization policies and emerging GHG pricing (2028) will accelerate the transition to alternative fuels such as biofuels, ammonia, and hydrogen, reshaping investment across energy and logistics sectors. ( Ship & Bunkers, Reuters )

Policy Snapshot (Global)

After 690 consecutive days of Houthi attacks in the Red Sea, global shipping remains unstable despite the Israel-Hamas ceasefire. The Bab- el-Mandeb-Suez Canal corridor, which handles roughly 12% of world trade, remains a conflict zone as the Houthis persist in targeting vessels linked to Israel and Western Allies ( CNBC ). In response, coordinated actions between the US, EU, China, and Australia have been established to regulate the container shipping behaviour and stabilize freight markets disrupted by rerouting through longer, costlier paths ( ITF ).

The EU’s Regional Maritime Security Programme-operational since 2021 across Djibouti, Somalia, Sudan, Ethiopia, and Yemen-works with International Maritime Organization (IMO), International Criminal Police Organization (INTERPOL), the United Nations Office on Drugs and Crime (UNODC), and the Intergovernmental Authority on Development (IGAD) to enhance regional port security and maritime domain awareness, reflecting a broader policy effort to secure critical energy and goods corridors ( IMO ). Concurrently, US sanctions may remove 500,000-600,000 barrels per day of Iranian oil by mid-2025, potentially prompting retaliatory drone and missile attacks in the Arabian Sea and Indian Ocean, extending the risk zone beyond the Red Sea ( Washington Institute ).

Heightened naval exercises by Western and Indo-Pacific allies underscore a growing securitization of global shipping, with cyber threats and maritime crimes further amplifying route instability ( Dryad Global ). The IMO sulphur cap lowered fuel sulphur limits from 3.5% to 0.5%, initially weakening high-sulphur fuel oil (HSFO) demand. Fuel oil demand falling to 6.1 million bpd by 2030, resistance to environmental regulation, US Trump administration, could delay emission policy enforcement. ( Reuters )

Current Outlook

Global trade routes remain heavily disrupted as the Houthi conflict enters its third year. The August 2025 missile attack on the Scarlet Ray near Yanbu, Saudi Arabia, marked the first confirmed strike in the Upper Red Sea, forcing major carriers like Maersk and MSC to keep rerouting via the Cape of Good Hope. This detour has driven Suez Canal revenues down 40% since 2023-costing Egypt $ 7 billion in 2024-and pushed freight and insurance costs to multi-year highs ( Dryad Global, Gulfnews ).

Maritime trade growth is set to slow sharply from 2.2% in 2024 to just 0.5% in 2025, despite ton-miles rising 6%, triple trade volume growth ( UNCTAD ). Suez Canal throughput remains 70% below 2023, while disruptions also threaten the Strait of Hormuz, which carries a third of seaborne oil ( UNCTAD ).

Oil prices have stayed relatively stable as 80% of Gulf exports flow east to Asia, bypassing the Suez, cushioning inflation risk in Western markets ( Atradius Collections ). Meanwhile, container freight rates eased to $ 1,669 per 40-foot box due to vessel oversupply, though war-risk insurance remained elevated 0.7% of hull value. Strikingly, 63% of Houthi attacks since 2024 hit ships with no clear U.S. or Israeli link, underscoring widespread transit risk ( Gulfnews ).

Amid these conditions, Asian operators are testing the Arctic’s Northern Sea Route, halving travel time and emissions by 50%, but facing hazards from sea ice and low visibility. ( CNN )

Demand Composition

The ongoing Red Sea disruptions have radically reshaped global fuel and trade demand flows. With vessels diverting via the Cape of Good Hope, bunker fuel consumption has surged at African and Mediterranean ports, straining infrastructure and pushing prices higher. Low-sulphur bunker fuel in Cape Town climbed 15% to nearly $800/mt, while bunker calls in South Africa rose 30%, creating congestion at Durban, Port Louis and Gibraltar. Mauritius’s Port Louis saw bunker sales double to 1 million mt in 2024, up from 500,000 mt in 2023, benefiting from the closure of Algoa Bay’s offshore bunkering operations. ( Reuters, Ship & Bunker )

Tanker freight rates remain elevated following incidents such as the attack on the Magic Seas, with longer voyages, insurance, surcharges, and reduced fleet availability tightening supply. Alternative bunkering hubs like Sohar, Dammam, and Colombo have seen rising ship-to-ship transfers, while Oman’s VLSFO supply constraints pushed local premiums to $33/mt above sohar prices. Although Strait of Hormuz traffic remains stable under heavy naval presence, tensions between Israel and Iran continue to weigh on tanker movements and regional pricing. ( S&P Global )

Globally ship diversions have added roughly 100,000 bpd of fuel oil demand, equivalent to 2% of total bunker demand, according to FGE, while the IEA reported a smaller 140,000 bpd annual increase in 2024 due to high freight costs and weak trade growth. Despite these short-term boosts, the IEA projects global bunker demand to plateau at 5 million bpd through 2030, constrained by IMO decarbonisation rules and sluggish globalisation.The newly established Mediterranean SECA zone (May2025) and upcoming global GG pricing system (2028) are expected to accelerate the shift from conventional marine fuels toward biofuels, ammonia, and hydrogen,gradually eroding demand for traditional fuel oil. ( Reuters, Ship & Bunker )

In 2024, vessels rerouted Africa due to the Red Sea Crisis coupled with the offshore bunkering shutdown in Algoa Bay. led to a significant surge in bunker sales at Port Louis, Mauritius. Bunker Fuel sales in Port Louis neared 1 million mt in 2024, doubling 500,000 mt in 2023 and more than triple the 300,000 mt recorded in 2015, Durban-based Linsen Nambi shared in its linkedin post from a presentation at maritime week africa, taking place in mauritius. VLSFO accounted for 65% of the total bunker sales in 2024, followed by 23% HSFO and 12% MGO. HSFO share doubled from 12% in 2023, indicating increased demand from scrubber-fitted vessels. The presentation mentioned that the closure of offshore bunkering in Algoa Bay benefited Port Louis to cater to increased demand from vessel diversions. Offshore bunkering in Algoa Bay was shut down in mid-September 2023 after the South African Revenue Services (SARS) detained five vessels, including bunker barges, for customs duty disputes. ( Ship & Bunker )

Why This Matters

Global maritime chokepoints underpin commodity price stability. The Red Sea-Suez Canal corridor, carrying 15% of global trade and 30% of container traffic, and the Strait of Hormuz, which moves 20.9 million b/d (20% of global oil), have seen major disruptions since late 2023. Suez crude and product flows fell 50% YoY (from 7.9 to 3.9 million b/d), forcing diversions around the Cape of Good Hope, adding 10-14 days and $1-1.5 million in additional voyage costs per vessel. ( CNBC, CNN )

These diversions lifted VLCC freight rates by + 154WoW, LR2 tanker rates by +148%, and marine insurance premiums by +60%, while bunker prices at Cape Town surged 15% to $800/mt. The rerouting added 100,000 b/d of global bunker fuel demand (+2%) but reduced Red Sea transits from 70/day to 28/day, according to IMF PortWatch. ( S&P Global )

Operational risk is climbing as older vessels with unverified insurance dominate rerouted lanes, increasing spill and accident exposure. Naval deployments and higher security costs are now embedded in global freight pricing models, creating a sustained premium on maritime trade. In effect, shipping disruptions are not temporary shocks but structural cost amplifiers across energy, manufacturing, and consumer goods supply chains. ( Bloomberg, Dryad Global, Resilinc )

Impact To Stakeholders

The Red Sea crisis has amplified logistics risk at a time when 80% of global trade depends on maritime routes. Since late 2023, diversions from the Suez Canal to the Cape of Good Hope have extended voyages by 10-14 days and raised freight costs by 25-30%, with war risk premiums up from 0.3% to 0.7% of hull value. Insurance surcharges averaging $5,000 per voyage and higher bunker consumption (+15%) have directly filtered into final import prices. ( CNN )

As of mid-2025, over 100 vessels have rerouted around Africa compared to fewer than 60 in December 2023. Freight rates on the European-Mediterranean route doubled to $3,700/FEU, while the Israeli and Red Sea routes exceeded $6,000/FEU. Transit times from China to Europe rose 25%, and to the U.S. East Coast 47%, pressuring just-in-time manufacturing and retail supply chains. ( Resilinc )

Container turnaround inefficiencies now extend average TEU-miles by 16%, according to Sea-Intelligence, tightening global container availability despite subdued manufacturing demand. Simultaneously, port congestion surged at alternative hubs-bunker sales in Port Louis nearly doubled to 1 million mt, while Djibouti activity fell 58%. ( Freight Mango, S&P Global )

Fuel logistics and freight capacity have realigned: ship-to-ship transfers increased by 88% in Mumbai and 47% in Sohar, reflecting regional adaptation but infrastructure strain. In parallel, Panama Canal drought constraints compound global delays, creating a dual chokepoint shock that limits rerouting flexibility and raises macro-supply risk. (Project44)

Signals To Track

Suez & Bab el-Mandeb Transit Volumes

Track monthly crude + petroleum product flows through the Suez Canal: dropped from 7.9 million b/d in 2023 to 3.9 million b/dd in 2024. Bab el-Mandeb Strait transit shipments fell from 70 vessels/day pre-war to 28 vessels/day in July 2025. If drop above 40% compared to the previous year signals major rerouting pressure. ( S&P Global )

War-Risk Insurance Premiums

Hull war-risk surcharges rising from 0.3% of hull value before peak attacks to 0.7% during intense attack periods. Fixed voyage surcharges reaching $5,000+ per transit for U.S./Israeli-affiliated ships in Red Sea areas. If above 0.5% signals a high cost regime; doubling indicates extreme perceived risk. ( CNN )

Bunker Fuel Price Spikes & Demand Volumes at Alternate Ports

Cape Town low-sulphur bunker price jumped 15% to nearly $800/mt since mid-November 2024. Port Louis bunker sales doubles: 1,000,000 mt in 2024 vs 500,000 mt in 2023.VLSFO and HSFO share shifts: in Port Louis, VLSFO = 65% of sales in 2024, HSFO up from 12% to 23%. If Price spikes above 10% and port sales volumes rises above 50% signal demand shift. ( Reuters, Ship & Bunker )

Freight Rate Indices & Transit Time Increases

Container freight: Shanghai-Europe / Mediterranean routes doubling in price to $3,700-6,000 FEU for some rerouted lanes. VLCC and LR2 tanker spot rates up 154% and 148% WoW on certain Middle East -> Asia or Japan routes. Transit times from China to Europe increased by 25%, China to the U.S. East Coast by 47%. If freight rate increases above 100% WoW or transit time increases above 25% vs baseline indicate serious cost pressure. ( S&P Global, Resilinc )

TEU-Miles / Ton-Miles Growth vs Trade Volume Growth

Ton-miles (total cargo distance x weight) up to 6% in 2024, nearly three times the trade volumes in 2023 (2.2%). TEU-miles increased by 16% per Sea-Intelligence reports, indicating containers are spending more time & distance in transit (reduced availability). If TEU/ton-mile growth exceeding trade volume growth by factor above 2 signals structural inefficiency. ( UNCTAD, Freight Mango, S&P Global )

Scenario Analysis

Base Case (Most Likely to Happen)

Assumptions:

• Maritime experts and shipping operators do not expect a full return to Red Sea lanes soon, even with Israel-Hamas ceasefire. Houthis continue to target vessels linked to western allies, sustaining a conflict environment.
• U.S. and EU sanctions on Iran reduce export volumes by 500,000-600,000b/d by mid 2025, sustaining retaliatory risk in the Arabian Sea.
• Freight markets remain elevated, but route normalization begins after Golden Week 2026, supported by stronger naval coordination and partial reopening of low-risk corridors

Outcome:

• Gradual resumption of Red Sea traffic from Q4 2026, reaching 60% of pre-war transits by mid-2027.
• Freight rates normalize 15-20% above pre-crisis averages as insurers maintain war-risk pricing buffers.
• Fuel oil demand grows modestly at +0.8% YoY through 2026, supported by lingering rerouting distance (Cape of Good Hope).
• Suez Canal revenue partially recovers to $5 billion in 2026 $4 billion in 2025
• Global bunker consumption stabilizes at 5 million b/d, in line with IEA baseline projections, as IMO sulfur and SECA regulations cap upside growth.
• The Red Sea remains a semi-restricted corridor under UN-backed maritime security monitoring rather than a full normalization.

( Ship & Bunker, UNCTAD, CNBC, Washington Institute, Reuters )

Low Case

• Supply-chain fragmentation intensifies as global production slows and geopolitical tensions persist.
• Prolonged port congestion at transshipment hubs (Durban, Port Louis, Gibraltar) limits turnaround efficiency
• Insurance premiums stay near 0.7% of hull value, deterring small operators from Red Sea passage.
• Limited cooperation between regional navies leads to sporadic attacks across the Bab el-Mandeb and Northern Arabian Sea.
• IMO’s upcoming GHG pricing (2028) and Mediterranean SECA zone (May 2025) further constrain fuel-oil demand growth.

• Artificial vessel shortages emerge as fleets are immobilized or rerouted, pushing container freight rates $6,000 – 7,000 / FEU on Europe-Asia lanes
• Global trade growth stagnates below 0.5% in 2025-2026 and turns negative (-0.3%) in 2027 per UNCTAD projections.
• IEA estimates suggest maritime CO2 pricing adds to voyage costs by 2028, accelerating decarbonization investment but suppressing bunker oil sales.
• Red Sea transits remain under 40% of pre-war averages through 2027, with full recovery delayed to 2028.
• Structural freight inflation contributes to global CPI through imported goods costs.

( CNN, Atradius Collections, CNBC, Reuters, Resilinc, Dryad Global, Gulfnews )

High Case

• Sustained Israel-Hamas ceasefire and diplomatic engagement between Iran, Saudi Arabia, and the U.S. under UN-mediated frameworks reduce regional hostility.
• Operation Prosperity Guardian and allied naval taskforces neutralize drone and missile threats along the Bab el-Mandeb by Q4 2025.
• Freight markets adjust efficiently through dynamic rerouting algorithms and digital logistics integration, minimizing idle vessel time.

• Partial reopening of Red Sea lanes by Chinese New Year 2026, restoring up to 80% of pre-crisis container and tanker traffic.
• Freight rates declined sharply (-40% YoY) by mid-2026.
• Global trade growth rebounds to +2% in 2026-2030
• Bunker fuel consumption stabilizes at 5.2 million b/d, supported by rerouting efficiency but offset by cleaner fuel transition.
• IMO regulatory milestones (Mediterranean SECA 2025; global GHG pricing 2028) maintain environmental compliance but no longer inhibit shipping throughput.
• Suez Canal revenue rebounds to $7 billion by 2027, approaching pre-crisis levels.

( CNBC, Ship & Bunker, Reuters, UNCTAD, CNBC, CNN )

Investment Views & Action

For Commodity Investors / Funds:

• Freight and insurance volatility are now structural risks. With Bunker fuel demand at 6.1 million b/d (2030) and Red Sea rerouting adding up to $1-1.5 billion monthly trade losses, investors should hedge exposure to freight-dependent assets. Focus should shift toward oil,coal, and LNG routes less reliant on Suez, while selectively adding logistics and insurance equities that benefit from rerouting premiums. ( Ship & Bunker, CNBC, CNN )

For Traders / Procurement:

• Traders / Procurement must digitalize supply-chain monitoring to handle prolonged Red Sea instability. AI and blockchain enabled systems help predict bottlenecks and authenticate cargo movement, while GPS and AIS integration. Diversifying sourcing and contracting freight in advance can limit cost shocks as premiums rise up to 0.7% of vessel value. ( S7Risk, Allianz, Atlas Institute, CNN )

For Policymakers:

• Governments must treat maritime disruptions as macroeconomic risks. Policy focus must shift war-risk insurance support, maritime security cooperation, and green shipping incentives to stabilize trade flows. Coordinated protection of critical trade corridors and digital infrastructure investment are essential to reduce inflationary pass-through from shipping costs. ( UNCTAD, Pole Star Global, Reuters )