Freight forwarders in Singapore see profits fall 20% as Middle East conflict drives up costs

SINGAPORE: Freight forwarders in Singapore say their profits have fallen by about 20 per cent as the ongoing conflict in the Middle East pushes up fuel and freight costs.

In some cases, costs have doubled, while shipments are taking longer to reach their destinations as companies reroute cargo to avoid high-risk areas in the region.

Some industry players are also adjusting their operations, saying disruptions could continue.

LONGER ROUTES, HIGHER COSTS

One major impact has been the disruption to routes passing through the Suez Canal, a critical artery linking Asia and Europe, which typically handles about 12 per cent of global trade.

Since the Iran war began at the end of February, local freight forwarder Penanshin Air Express has begun diverting more shipments around the Cape of Good Hope in South Africa, rather than taking the shorter route through the canal.

This has added weeks to delivery times, the company’s executive director Bernard Chan told CNA. 

A shipment from Europe to Singapore through the Suez Canal usually takes around 21 days, he said. Detouring around the African continent takes 45 to 55 days.

“With the longer transit time, (it) means they burn more fuel. So then it leads to the cost increase,” Mr Chan added.

He noted that diesel prices have surged sharply, in some cases reaching about twice the usual levels.

For cargo moving in and out of the Middle East, the impact has been severe, said Mr Chan, adding that shipments from Dubai to Singapore have at times been restricted, with cargo unable to leave by sea.

Freight rates for shipments to the Middle East have also skyrocketed, in some cases rising by as much as 10 times, Mr Chan added.

Penanshin has started imposing a flat fee of between S$30 (US$24) and S$50 per shipment to offset rising expenses.

Another freight forwarder, Dimerco Express Group, said some shipping lines had already been using the Cape of Good Hope route before the current conflict, after earlier attacks on commercial vessels in the Red Sea made the Suez Canal a high-risk option. 

Even so, freight rates have risen by about 30 per cent in recent weeks amid the latest conflict, said Mr Bryann Lim, the Taiwan-based firm’s global sales and marketing specialist.

PRIORITISING HIGH-VALUE CARGO

Air travel across the Middle East was also severely disrupted at the height of the conflict, including at major hubs such as Dubai, which was among the locations targeted in Iranian missile and drone attacks.

The United Arab Emirates, along with several other countries, closed airspace while airlines suspended or rerouted flights.

Vessel seizures and higher insurance costs for ships traversing the Strait of Hormuz have added to shipping firms’ concerns.

Dimerco’s Mr Lim added that many shipping lines are skipping ports in the Middle East such as Dubai and heading straight towards Europe and the United States.

But for urgent shipments – particularly for electronic goods like semiconductors – air freight has become a temporary workaround as air travel partially resumes following a ceasefire in early April between the United States and Iran.

This option is typically reserved for urgent or high-value goods, while less time-sensitive cargo may be held back until conditions improve, Mr Lim said. 

Industry players say there is no clear timeline for when conditions in the Middle East will stabilise.

Until then, freight forwarders expect continued pressure on margins and longer delivery schedules.