The price of very large crude carriers (VLCC) passing through the Middle East has surged significantly due to Israel's airstrikes on Iran, but with the increase in insurance and risk surcharges, it is expected that this will not greatly aid in improving the profitability of shipping companies.
According to the shipping industry on the 19th, as of the 16th, the VLCC freight index, known as WS (World Scale), rose by 20.5% compared to the previous week, reaching 53.85. The daily charter equivalent (TEC) reflecting ship daily revenue recorded $33,489, up 36.9% during the same period.
The VLCC freight index had fallen to a yearly low of 44.7 at one point due to public holiday effects in China and the Middle East, but it surged sharply immediately after Israel's airstrikes on Iran. According to foreign media, the spot freight for the Middle East to East Asia route soared from $10.28 per ton on the 12th to $15.78 within four days.
The shipping industry anticipates that market volatility in the Middle East will increase due to the conflict between Israel and Iran. Although the likelihood is low, if the Strait of Hormuz is blocked, VLCC freight rates are expected to rise sharply.
Despite the rise in VLCC freight rates, it is analyzed that the profitability of HMM, SK Shipping, and Sinokor Merchant Marine operating crude oil carriers will not be significantly affected due to the increase in expenses such as risk surcharges and insurance. According to Reuters, the insurance cost for a seven-day voyage to an Israeli port has risen to 0.7-1.0% of the vessel's value, compared to a maximum of five times higher than the pre-conflict level of 0.2%. Considering that the new VLCC price is $126 million (approximately 173 billion won), this means that the insurance cost per voyage has increased by up to $1 million.
A source in the shipping industry said, “It seems difficult for shipping companies to pass on all the increases in risk expenses. We will have to wait and see if the rise in freight rates leads to improved revenue.”