Maritime freight costs: danger ahead?BALTIC DRY INDEXINDEX:BDISwissquoteThe negative macroeconomic effects of the geopolitical situation in the Middle East since the end of February are well known: closure (or near-closure) of the Strait of Hormuz, supply difficulties for oil, liquefied natural gas, and urea fertilizer, a sharp rise in the market prices of these three commodities, and maximum macroeconomic pressure on the major emerging economies of Asia. However, other potential adverse effects on international trade must now be closely monitored. These include the cost of global trade itself, particularly maritime freight and marine insurance. It is important to remember that the vast majority of world trade is transported by sea, and the increase in energy prices combined with rising geopolitical risk premiums has pushed up both shipping costs and marine insurance costs. And this trend could persist even if the geopolitical situation between the United States and Iran improves. Strait of Hormuz, Bab el-Mandeb Strait — the geopolitical risk premium for insurance is likely to remain structurally high. The table below reminds you of the most important maritime chokepoints for global trade. How can maritime freight costs be measured? There are two major benchmarks you can follow: • The Baltic Dry Index (TradingView ticker: BDI) • The Shanghai Containerized Freight Index The Baltic Dry Index mainly measures the cost of transporting bulk raw materials such as iron ore, coal, and grains. It is therefore an excellent leading indicator of global industrial activity and stress on supply chains. The Shanghai Containerized Freight Index measures container shipping costs from China to the major global economic regions. It is particularly useful for tracking international trade in manufactured goods. If these two indices continue to rise sharply in the coming weeks, it would mean that geopolitical tensions are beginning to durably contaminate global logistics costs. The risk is then twofold: a slowdown in international trade on one side and renewed inflationary pressures on the other. The chart below shows the weekly curve of the Baltic Dry Index. As you can see, the Baltic Dry Index is rising but has not yet reached the levels seen in 2021 during the inflationary shock of the pandemic crisis. The same applies to the Shanghai Containerized Freight Index. However, it is essential that both indices decline in order to envision easing freight costs — a necessary condition to preserve the long-term bullish trend of global equity markets. The chart below shows the latest data for the Shanghai Containerized Freight Index, the main benchmark for Chinese maritime shipping costs. DISCLAIMER: This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions. This content is not intended to manipulate the market or encourage any specific financial behavior. Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results. Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content. The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services. Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA. Products and services of Swissquote are only intended for those permitted to receive them under local law. All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade. Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties. The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.