The Iran war is pushing bunker fuel prices back toward mid-year levels, setting a higher cost floor for container shipping even as trans-Pacific spot rates show early signs of cooling from peak-season highs.

Rising fuel costs are likely establishing an elevated floor for container rates, but ocean prices remain largely driven by demand trends and disruptions to capacity availability.

Tensions between Iran and the U.S. continue to escalate around the Strait of Hormuz, a chokepoint that handles a significant share of globally traded oil, with Iran now announcing plans to impose a wider exclusion zone on areas near the strait, said shipping analyst and SONAR data contributor Freightos (NASDAQ: CRGO) in an update. Fuel rates have trended upward since the ceasefire collapse in July, but recent escalations, along with an increase in Chinese crude imports, have pushed bunker fuel prices back up to levels last seen in June.

Trans-Pacific ocean rates declined slightly last week, suggesting there will not be additional rate increases in what is likely the final few weeks of peak season. However, elevated demand that began in late May has kept prices at peak levels since early July.

Current rates of about $7,600 per unit to the West Coast and $9,500 to the East Coast are roughly back to levels last seen during peak season in 2024, when seasonal demand, Red Sea disruptions to capacity, and some frontloading ahead of a possible East Coast labor strike combined to push rates sharply higher. For retailers and other importers, trans-Pacific spot rates are a key input into landed cargo costs, and swings of this magnitude can materially affect freight budgets heading into the holiday stocking season.

Severe typhoon-driven congestion at Asia container hubs is also likely contributing to current rate levels. Carriers have increased blanked sailings — canceled vessel departures that reduce effective capacity on a route — for this week, possibly to recover schedules disrupted by the storms, which could also help keep prices elevated even if demand has started to ease.

Panama Canal trims transits, delays deeper draft cut

The Panama Canal Authority has postponed an additional half-foot draft reduction for Neopanamax transits until further notice, though it is still bracing for drought conditions from the expected El Niño this year. The authority reduced daily transits by four, to 32, this month, though Neopanamax daily slots used by long-haul container vessels have only been reduced by one. The canal, which handles a portion of Asia-to-U.S. East Coast container traffic, saw similar drought-driven transit restrictions in 2023-24 that contributed to higher rates and rerouted voyages.

Mediterranean lanes ease faster than North Europe

Asia-Europe container rates ticked down slightly last week to $4,500 to North Europe and $4,700 to the Mediterranean, though Mediterranean prices have declined further this week to about even with North Europe. Going back to 2017, Asia-Mediterranean rates have on average been 17% higher than Asia-North Europe prices, though at times they have been lower.

The sharper decline from peak-season highs for Mediterranean rates — a $2,600/37% drop compared with $1,300 and 23% for North Europe lanes — may reflect both the recent increase in Red Sea transits for some Mediterranean services and congestion at North Europe hubs keeping upward pressure on rates for those lanes even after peak-season demand. Still, rates for both lanes remain $1,000–$1,700 above pre-peak-season levels, likely due to Far East congestion as well. Recent port worker strikes in Germany and the Netherlands are also now contributing to some of the backlog.

Source: FreightWaves