The knock-on effects of the U.S.-Israeli attack on Iran could trickle down to Canadian consumers purchasing imported food, tech and clothes if the conflict continues, but analysts say the situation is far from a supply chain crisis yet.
While the Strait of Hormuz has been a focal point of the war in the Middle East, choking off the passage of about 20 per cent of the world’s oil, violence in the region has also had ripple effects on the shipment of everything from high fashion to food and electronics, and even on interprovincial trade within Canada.
“Carriers are de-risking,” said David Nagy, founder of eCommerce Canada, a Toronto-based consultancy. “Time is money, so they’re applying things like a war-risk surcharge, just to buffer themselves if a shipment’s got to sit in the water or add fuel.”
Ocean freight carrying final shipments of summer patio furniture as well as perishable food and a host of commodities and manufacturing parts now face a fuel surcharge of roughly 5 to 15 per cent combined with a 2-to–5-per-cent “war risk” insurance a ship, said Steve Bozicevic, chief executive officer of A&A Customs Brokers.
“In total, we’re seeing an increase of around $200 to $600 per container between fuel, insurance and risk.”
Those numbers can be even higher.
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Julia Kuzeljevich, director of policy at the Canadian International Freight Forwarders Association, said a carrier recently announced an “end of voyage” notice along with a US$800 surcharge a container. Ms. Kuzeljevich said that meant shipments in transport were diverted, offloaded and stuck at the next safe port.
Around 10 to 15 per cent of global seaborne trade passes through or near the Red Sea, the Persian Gulf and the Strait of Hormuz, according to Clayton Castelino, vice-president at Orbit Brokers.
“It’s a critical route linking Asia, Europe and the Mediterranean through the Suez Canal,” he said. “All of the effective shipments originating from there would now get affected.”
The most severe disruption is on Asia-to-Europe routes. In addition to seaborne traffic, 13 per cent of all air freight passes through the Gulf, according to the Airforwarders Association. And most of the goods travelling through the Middle East are there for a pit stop to refuel on the way to Europe from Asia.
On the water, vessels are being rerouted around Africa, adding 10–14 days to transit times, Mr. Bozicevic said, increasing distances by roughly 40 per cent and significantly raising fuel consumption at a time when fuel itself is 15 to 20 per cent more expensive.
The result is that freight rates are jumping about 30 to 60 per cent, “and continuing to rise,” he said.
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According to Michael Rochon, a spokesperson for FreightCom, businesses most exposed to the current disruptions are those sending products with tight delivery windows.
“Pharmaceuticals, medical supplies, electronics components and high-value manufacturing parts often move by priority services – when fuel surcharges or security risk premiums increase, these shipments become more expensive.”
The most immediate and disruptive impact for Canadian businesses is in air freight, however. “Airspace is way more significant than the shipping impact,” Mr. Nagy said.
It’s often used for urgent, high-value goods. “Homewares and hardwares … advanced technologies.”
Food imports, including specialty ingredients and seafood, also depend on predictable transit times. “If shipping lanes change or vessels reroute, transit times increase; that raises refrigeration costs and increases spoilage risk,” Mr. Rochon said. “Businesses often shift to faster but more expensive air freight.”
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Carriers operating within Canada also need to adjust their fuel surcharge weekly based on diesel price indexes. “When global events push oil prices up, those increases move into carrier fuel within one or two billing cycles,” Mr. Rochon said.
But Mr. Nagy cautions against panic. Businesses that have learned from past supply chain shocks during events like COVID-19 are now better positioned and usually have extra stock on hand.
“There is almost a readiness mindset,” he said. The pressure is also turned down a notch because, in most industries, orders for spring and summer goods are placed many months in advance and spring inventory would already be on Canadian soil by now.
But the story will be different if the conflict lasts for months. Canada–U.S. bilateral trade has also declined somewhat recently, but the vast majority of goods between the two countries still move duty-free under the United States-Mexico-Canada Agreement.
“I’m not trying to draw a silver lining out of any of this, but any time that there is constraint globally, intra-North American trade increases and picks up the slack,” Mr. Bozicevic said.