(Yicai) April 17 -- Against the backdrop of unstable traffic through the Strait of Hormuz, the Middle Eastern business of Chinese freight forward companies has experienced a significant demand decline, while their costs have nearly tripled.

The company’s Middle East business volume has been at least halved due to the closure of the Strait of Hormuz, which is something unseen in the past decade, Li Hao, sales manager at an international freight forwarder in Guangdong province, told Yicai.

However, while demand for non-essential consumer goods has significantly contracted, that for essential goods, such as daily necessities and basic building materials, remains strong, Li pointed out.

As a result, many consumer goods factories in Yiwu, a Chinese city known as the world’s small commodity capital, are facing a shortage of orders. “In the past month, some businesses have seen their orders from the Middle East drop by 50 percent compared with the same period last year, said Xu Yan, president of the Yiwu Cross-Border E-Commerce Association.

The shipping partners of Li’s company come from all over the world, but they all face the same issue, which is rerouting goods exported from China to the Middle East through other ports, such as Khor Fakkan and Fujairah in the United Arab Emirates, to avoid conflict zones and ensure the smooth transportation of cargo.

Leading shipping companies, such as Mediterranean Shipping, Maersk, and CMA CGM, have suspended or adjusted their Middle East routes, resulting in a surge in freight and insurance costs. Moreover, a large number of vessels are stuck in the Persian Gulf.

Sea-land intermodal transportation via the UAE is one of the main alternative routes for Chinese goods entering the Middle East, according to freight forwarding experts. However, this emergency route comes with high costs, poor efficiency, and long-standing challenges, such as port congestion.

Shipping a standard container from Shanghai to the Middle East was only around USD3,000 to USD4,000 before, a route manager at a large Chinese freight forwarder surnamed Chen told Yicai. The basic shipping cost has now risen to USD5,000 to USD6,000, which can reach as much as USD11,000 with surcharges, he noted.

In fact, shipping costs have surged not only due to the increase in international oil prices but also the inclusion of surcharges, such as the war risk surcharge, because of uncertainties caused by the conflict, Chen explained.

According to data from shipping companies, they are passing most of the extra costs to their clients, placing even more pressure on merchants, who are already dealing with the lack of orders.

It is crucial for freight forwarders and foreign trade companies to proactively assess the potential chain reaction caused by the increase in port and route changes, transshipment, and other additional fees to mitigate current shipping risks, industry insiders suggested.

Meanwhile, they should also strengthen communication and coordination with shipping companies and agents, reserve adequate logistics budgets, and flexibly adjust delivery plans to cope with the ongoing shipping crisis and reduce operational losses, the insiders added.

Editor: Futura Costaglione