The ongoing war in the Middle East has significantly affected air freight prices, which have seen sharp increases due to reduced available capacity and rising fuel and insurance costs. With major airspaces closed and transit disrupted in key hubs like Dubai and Doha, companies have begun shifting from sea freight to air freight, despite the higher costs, further increasing pressure on supply chains and plunging global markets into a wave of inflation.
Data from World ACID shows that air freight prices have experienced substantial increases on several major routes, reflecting the widening impact from a regional crisis to a disruption affecting global supply chains. This rise does not reflect a normal increase in demand; rather, it is a result of a shock to capacity, as the closure of airspaces over several Gulf countries has withdrawn a significant portion of globally available capacity, forcing companies to cancel or reroute flights through longer and more expensive paths.
Details of the Event
Nadine Aitani, a professor of aviation management at Surrey University, states that the sharp decline in capacity among Gulf airlines has been one of the main reasons for the rise in air freight prices, as airlines in the Middle East account for about 13% of global air freight capacity. Therefore, any widespread disruption in these airlines immediately reflects on the international market.
Aitani adds that alternative routes require greater fuel consumption, which reduces the available space for goods while simultaneously increasing costs. Avoiding the conflict zone has altered the air traffic map on several major trade routes, particularly between Asia and Europe, where many companies have been forced to operate longer flights with less efficient and flexible stops.
Background & Context
The capacity of the China-Europe air corridor has been significantly affected, dropping by more than 35% due to the closure of Gulf distribution centers. Additionally, resorting to maritime routes around the Cape of Good Hope adds between 10 and 15 days to transit times, which is unacceptable for perishable goods or shipments that rely on quick delivery.
In this context, Ronald Lam, CEO of Cathay Pacific, noted that the airline has started bypassing Dubai for refueling, leading to cargo restrictions due to the inability to refuel en route. With part of maritime shipping in the Gulf disrupted, some companies have turned to shifting part of their goods to air freight, even though this option is several times more expensive than sea freight.
Impact & Consequences
Markets show that this shift particularly affects the pharmaceuticals, food, and electronics sectors. Several companies have started transporting generic drugs and pharmaceutical ingredients from India by air to avoid delays and maritime disruptions. The closure of the Strait of Hormuz has rendered Gulf ports unavailable for direct maritime shipping from Asia, making air transport the available option despite the high costs.
Companies face a difficult equation, as they must either absorb the increased costs or pass them on to the end consumer. The pressures on air freight have not only stemmed from capacity shortages but also from rising operating costs, with jet fuel prices increasing by 11% weekly, now approximately 94% higher than pre-war levels.
Regional Significance
Economist Ahmed Aql points out that the war and military tensions have raised oil prices by about 45% since the beginning of the crisis, which has automatically reflected on shipping costs. Additionally, route changes, increased insurance, and the closure of some air and sea ports are all factors explaining the current price surge.
Estimates indicate that insurance costs have risen to about five times in some cases, meaning that companies face a larger risk bill associated with passing through a conflict zone. Major shipping companies like Maersk have begun imposing additional charges for fuel and war risks, while companies like FedEx and UPS have resorted to temporary increases and fees on shipments related to the Middle East.
Despite recording some signs of partial recovery in shipping volumes from the Middle East and South Asia, the overall picture remains highly volatile. Some airports and airspaces have returned to limited operations, but capacity restrictions, delays, and bottlenecks still persist.