Lots More on the Seaborne Chaos Around the Strait of Hormuz

What It Covers

Freight logistics experts Margo Brock and Anton Posner of Mercury Group analyze the Strait of Hormuz disruption following the US-Iran conflict, examining how war risk insurance cancellations, aluminum supply chain rerouting, and diesel price spikes are creating cascading effects across global and North American freight markets.

Key Questions Answered

• •War Risk Insurance Collapse: War risk premiums have surged 30x overnight, from roughly 0.0055% of declared cargo value to between 0.5% and 1.5%. Policies include cancellation clauses of just two to seven days, meaning coverage can vanish almost immediately after conflict begins. Cargo owners and ship operators must independently renew at these elevated rates with no alternatives.
• •Dual Insurance Layers: Ships carry two separate insurance structures: the ship owner holds Protection and Indemnity plus hull coverage, while cargo owners must carry all-risk cargo insurance separately. US law under COGSA limits ship owner liability to just $500 per package or per ton, making independent cargo insurance essential for any shipper moving goods through conflict zones.
• •Aluminum Supply Chain Rerouting: Gulf aluminum producers including Emirates Global Aluminum, Quatalum, and Alba Bahrain cannot ship outbound product, triggering a spike in global aluminum prices. Emirates Global Aluminum is fulfilling orders using stockpiles held elsewhere. Traders sourcing aluminum from the Gulf should immediately identify alternate suppliers or stockpile locations to maintain supply continuity.
• •Domestic Freight Fuel Surcharges Incoming: US diesel prices jumped significantly within days of the conflict starting. Freight contracts for truck, barge, and rail typically contain fuel surcharge clauses that activate automatically when diesel crosses threshold prices. Businesses with North American logistics contracts should review those clauses now and model cost scenarios based on sustained elevated diesel prices.
• •Threat Alone Reroutes Ships: Container lines are already diverting vessels around Africa's Cape of Good Hope in response to Houthi threats to restart Red Sea attacks, even though no new attacks have occurred. This threat-driven rerouting extends voyage times, reduces available vessel capacity, and raises baseline freight rates, compounding disruptions already caused by the Hormuz situation.