Strait of Hormuz Opened, Prices of Goods Not Necessarily Decreasing
JAKARTA - The reopening of shipping through the Strait of Hormuz does not automatically make the price of goods in the United Arab Emirates fall. Oil costs and shipping costs are indeed likely to be lower. However, prices in stores do not always move as quickly as the cost of logistics.
Launching a report from Gulf News on Thursday, June 25, industry players estimate that the impact of declining oil and shipping costs will begin to be seen in a few weeks. However, the benefits can only be felt at the consumer level several months later because it is still influenced by old stocks, contracts that are still valid, and distribution processes.
The Strait of Hormuz is one of the world's most important shipping lanes. Oil, gas, and various goods pass through this area. When the line is disrupted, shipping costs, insurance premiums, and trade risks increase.
Haris Shaikh, CEO of Gallop Shipping in Dubai, said the reopening of the Strait of Hormuz made the flow of oil, gas, and goods move more normally so that concerns about supply disruptions began to subside.
"The impact of lower oil and shipping costs can begin to be seen in a few weeks. However, these savings may take several months before being fully passed on to retail prices and consumer goods, depending on the supply chain and existing contracts," said Shaikh, quoted by Gulf News.
The supply chain is the process of distributing goods, from manufacturers, shipping, warehouses, to arriving at the store. Because many retailers are still selling stocks purchased when the shipping cost is high, the decline in logistics costs has not been directly reflected in the selling price.
If conditions remain stable, the first impact is expected to be seen on fuel costs and shipping costs. After that, adjustments can spread to the prices of goods that are highly dependent on energy and transportation costs, such as food, transportation services, and travel.
Shaikh assessed that consumers should first expect stable prices, not a large decline in a short time.
Opportunities are also open for the UAE's trade and logistics sector. A safer shipping lane is expected to increase cargo flows through the country's ports.
Hiba Alemadi, CEO and founder of Queen Gulf Capital as quoted by Gulf News, said that condition could help reduce shipping costs. However, shipping companies, insurers, and business actors still need time to ensure that the situation is really stable before returning to full operation.
"This agreement is good news for the UAE as it makes the shipping route in the Gulf safer and more reliable. This should help reduce shipping costs and increase the number of cargo moving through UAE ports," said Alemadi.
In the long term, according to Alemadi, the UAE is in a favorable position because it has a strong port and logistics network. The increase in trade volume will drive port activities, warehousing, distribution, and re-export, i.e. the re-export of imported goods to other countries.
Gulf News also reported that freight rates have increased sharply since March due to regional uncertainty, risk costs, and additional operational costs. Even though the Strait of Hormuz has reopened, industry players expect freight rates to remain unchanged in the near future.
Alemadi said that some additional operational costs could be reduced gradually if the situation continued to improve. However, a significant reduction in transportation rates is still unlikely.
This condition makes it difficult for prices at the consumer level to change. Importers and retailers still need several delivery cycles before lower logistics costs are reflected in selling prices.
"The reopening of the Strait of Hormuz is good news for retailers and buyers in the UAE, but the benefits will not be felt immediately," said Alemadi.
Meanwhile, DP World GCC said the easing of regional tensions was a positive signal for trade. DP World GCC CEO and Managing Director Ahmad Yousef Al-Hassan said Jebel Ali Port was ready to face an increase in ship visits once the shipping schedule returned to normal.
On the diplomatic side, Oman and Iran also confirmed their commitment to maintaining safe navigation in the Strait of Hormuz in accordance with international law. Both countries agreed to continue discussions on navigation management through a joint working group.
According to Gulf News, the benefits most likely to be felt by UAE residents in the coming months are more stable prices and better-maintained supplies of imported goods. A greater reduction in prices still depends on route stability, adjustments to transport tariffs, and the replacement of old stock with new goods shipped at lower logistics costs.