The daily cost of transporting crude from the Middle East to Asia aboard a Very Large Crude Carrier, or VLCC, reportedly exceeded $1.2 million.
In January, that figure was around $30,000.
Think about that for a moment.
We are not talking about a modest increase in operating expenses. We are talking about a completely different economic reality.
Freight costs that previously represented around 3% of the delivered price of oil are now estimated to account for approximately 27%.
In logistics, we often talk about the importance of the total delivered cost. It is a concept that sounds rather dull until transport becomes more expensive than anyone ever imagined.
Plus prices are sticky, and the system has huge lags anyway. But I agree, has anything actually changed?
Yes, the cost of insuring shipping has entered an entirely different magnitude, which is the point the article is making. Also the “shipping” part of large industrial trade is no longer trivial details to be worked out later, now it determines the markets of the goods being traded more than ever before in the modern age of shipping.
I still think the article takes a very defensive pro-industry stance but it makes some good points about global costs being incurred by flashpoints in the strait of hormuz and red sea/gulf of aden.
Lags for thee, but not for me, as they say