Hormuz and Bab el-Mandeb are under pressure at the same time. This is what it does to your price, your delivery date and your cash, and how to quote through it.
Most exporters follow the Yemen conflict as news. Very few read it as a line item on their costing sheet. It is one.
A buyer in Hamburg or Rotterdam is not tracking who fired at whom last week. They are tracking two things: the landed price you quoted and the date you promised. Right now both depend on a strip of water about 30 kilometres wide between Yemen and Djibouti.
I am using the India–Europe lane as the worked example because its numbers are the clearest. The same logic applies to any exporter moving cargo between Asia and Europe, the UK, North Africa or the US East Coast.
Two gates, both under pressure
Two narrow sea gates sit on the lanes west of India.
The Strait of Hormuz is the way in and out of the Gulf, for cargo and for most of the region’s oil and gas. It has been the centre of this year’s Iran conflict. At the end of September, crossings were still a trickle against normal traffic and the major container lines were still staying away.
Bab el-Mandeb is the southern door of the Red Sea, the passage that leads to the Suez Canal and on to Europe. Around 30% of the world’s container traffic normally moves this way. In late July the Houthis declared it closed to Saudi-linked shipping, and attacks on vessels and energy sites followed in August.
When Hormuz was choked earlier this year, Gulf oil was rerouted to Red Sea ports. With both gates under pressure together, there is no spare gate. That is the situation exporters are pricing today.
The numbers behind your freight quote
• India’s goods trade with Europe was estimated at close to US$14 billion a month when the attacks began. About 80% of it normally moves through the Red Sea–Suez corridor.
• The markets reached through this corridor take around half of India’s exports and supply about 30% of its imports.
• The crisis began in November 2023 with the seizure of a vehicle carrier on its way to India. Within about two months, around 95% of vessels on the lane were sailing around the Cape of Good Hope instead: 4,000 to 6,000 extra nautical miles and 14 to 20 extra days.
• At the peak, freight on some India–Europe and India–US routes rose 200% to 400%.
• This August, a thousand days in, freight was still running roughly 25% to 40% above normal, with war-risk insurance on top, and the Cape detour was still adding 10 to 14 days to many voyages.
The route is not shut. Several large carriers began bringing services back through Suez in July and August, and Red Sea traffic kept recovering through September. But a deadly attack on a merchant ship in August showed how fast that recovery can reverse.
So the route is open, and it is unreliable. For an exporter, unreliable is the harder condition. A closed route you can plan around. A route your carrier may or may not use next month, you cannot.
Where it hits your business
1. Margin. Freight and war-risk premiums move after your quote has gone out. On thin-margin goods such as textiles, garments, engineering goods, chemicals, leather, carpets, rice, spices, grapes and marine products, one freight revision can wipe out the profit on the order.
2. Delivery date. Two extra weeks at sea is an inconvenience for machinery. For fresh produce, seafood and seasonal goods it is the difference between a sale and a claim.
3. Cash. A longer voyage means later documents, later payment and money locked in transit. For a small exporter, two or three extra weeks on every shipment can be the working capital for the next order.
Importers feel the same squeeze in reverse: machinery, chemicals, components and medical equipment from Europe arrive later and cost more.
One order, worked out
Round numbers for illustration, not a client case. The freight jump is the one exporters on the India–Europe lane reported in the first two months of the crisis.
• The order. One 20-foot container sold CIF at US$20,000, with a planned net margin of 8%. Planned profit: US$1,600.
• The freight. About US$600 when the price was quoted. About US$1,500 when the container was booked. Extra cost: US$900.
• The delay. 15 extra days at sea. At a 10% annual cost of funds, that is about US$82 of interest on the order value.
• The result. Profit left: US$618. The margin falls from 8% to about 3%, and 61% of the profit is gone before any late-delivery claim from the buyer.
At today’s 25% to 40% freight premium the bite is smaller. It comes from the same place: a price that was fixed before the freight was.
Six moves that protect your order
1. Put a validity on freight. Quote CIF and CFR prices with a short freight validity, or show freight as a separate line that is confirmed at booking.
2. Choose Incoterms on purpose. Under FOB the buyer carries the freight swing. Under CIF you carry it. Decide who holds that risk on each order instead of repeating the last contract.
3. Write the route into the contract. Add a clause that passes through carrier surcharges and war-risk premiums, and extends the shipment window if the line reroutes. On a letter of credit, check the latest shipment date, the presentation period and whether transhipment is allowed before you accept it.
4. Confirm your cargo insurance. Standard marine cargo cover usually excludes war risk unless it is added. Ask your insurer in writing whether war and strikes cover is in place for this voyage.
5. Cost the cash, not just the freight. Add the extra transit days to your payment cycle and arrange bank limits and export credit cover before the cargo sails, not after.
6. Build a second lane. From South Asia, markets in Southeast Asia, East Asia, East Africa and Oceania can all be reached without crossing either gate. A second market on a different sea lane is the cheapest insurance an exporter can buy.
The part you control
No exporter decides when a war ends. Every exporter decides how the quote, the contract and the cash cycle are built. The ones who build for an unreliable route keep their buyers through it. The rest find out what the war cost them when the freight invoice arrives.
Which of the six is missing from your current export contract? Tell me in the comments.
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