On Wednesday (September 23), what surprised me most was that freight rates finally came to the forefront, with even mainstream media and major institutions getting involved. Once the hype builds, it's no longer just a cost issue, but a macroeconomic variable that can be repeatedly priced. However, on the market, forward freight agreements (FFAs) faltered yesterday, with all routes and maturities declining simultaneously. This synchronized decline seems more like macroeconomic investors leaving the market than a weakening of fundamentals.

Why did the market falter as soon as the hype started?

The spot market is ridiculously tight, yet yesterday's Forward Freight Agreements (FFAs) tightened their grip, even affecting major routes like TD3C from the Middle East to China. I've seen this pattern far too many times—when clean and dirty freight rates, all routes and maturities, move in the same direction, it's often not due to fundamentals, but rather macro-level players in the FFA market moving in and out. They're trading on "peaceful expectations": when news of negotiations in the Hormuz emerges, funds immediately exit to observe. But freight rates don't loosen after just one meeting, nor does capacity. The increased hype essentially means the same thing is being priced repeatedly, making the direction harder to predict and leading to more back-and-forth movements. What we should be watching is whether this hype can spread from the shipping sector to the broader macro-level sectors.

A balance of one million dollars a day is inherently unstable.

The curve from September 18th projected spot charter rates all the way to the end of January, translating to nearly $1.2 million per day. However, this equilibrium is essentially precarious: it's built on the premise that the Strait of Hormuz is "partially open"—shipowners dare to ask for this price because no one dares to bet that the strait will be fully open. If this situation persists, the volume of cargo flowing out of the Middle East will decrease, and global inventories will be reduced by approximately 100 million barrels per month for the next four months. The costs to oil prices and the macroeconomy will accumulate until spring, at which point the situation will likely become unsustainable. Conversely, if the strait does open, the hedging logic supporting million-dollar daily charter rates will instantly fail. Therefore, the market is essentially pricing in two worlds simultaneously, and this contradiction will eventually have to be resolved by the FFA (Free Shipping Authority).

The goods are moving, but they haven't crossed the strait.

Analyzing today's shipping schedule reveals a stark contrast. On Tuesday, only three commodity ships passed through Hormuz, compared to a ten-day average of nearly fifteen. However, on September 21st, six VLCCs loaded nearly 12 million barrels at Rastanura and Juamah, marking the busiest day since the conflict began. Saudi Arabia sold nearly 20 million barrels in a single transaction, with buyers ranging from Unipec to SK, HPCL, MRPL, and BPCL, all destined for Asia. A large volume of cargo awaits loading in the Persian Gulf, yet ships prefer to remain offshore Oman for ship-to-ship transshipment rather than enter the strait. Consequently, insurance premiums and waiting time become hidden costs, with freight accounting for about 20% of the landed cost. Once a quote is issued, it essentially determines the delivery price to Asia, while spot prices are relegated to a secondary position.

Shipping costs are no longer just shipping costs; they have become variables related to inflation and central bank policies.

When freight rates can push Asian CIF prices to $150 per barrel, becoming a key driver of delivery prices, it's no longer just a matter for the shipping industry. A persistently high freight rate environment means that energy delivery costs are systematically increased—this is itself an input to inflation. Currently, institutions are watching Indian refineries scouting for oil in Brazil, West Africa, and the North Sea, with voyages stretching to 30-40 days. On the market, this means demand hasn't collapsed, but is being forced to take longer routes due to high freight rates, with costs piling up layer by layer. For the Federal Reserve and the European Central Bank, this will be a new clue for observing price pressures. If freight rates remain high into the spring, this input will be transmitted from the shipping sector to the CPI readings. The real turning point to watch out for is when freight rate discussions shift from shipping to macroeconomics —that's when the theme will be repriced.

Trend Outlook

If the Strait of Hormuz remains partially open, shipping capacity will continue to be tied up, the narrative of tight spot prices will continue, freight rates and CIF prices will be repeatedly driven up, and inflation trading will have reason to resurface time and again—what needs to be monitored is refinery utilization rates, freight volume, and the number of ships passing through the strait daily. If the negotiations do open the strait, the safe-haven premium supporting millions of dollars in daily charter rates will instantly become invalid, and freight rates and oil prices are likely to be repriced together—what needs to be guarded against is the concentrated withdrawal of long positions in FFAs. If the combination of "heating up the market, but the market retreating first" continues, the theme will be torn between sentiment and reality, and the direction of fluctuation is more worthy of monitoring than a one-sided trend—what needs to be guarded against is the risk of chasing high prices and then being left behind at the highest point by macro-market speculators.

[Further Reading]

Why should we be more cautious when the media hype intensifies? Once a topic attracts the attention of large funds and institutions, the price reflects not only fundamentals but also sentiment and position sizing. The higher the hype, the more frequent the fluctuations, making it harder to pinpoint the direction, and those who chase the highs are most vulnerable to losses. With such high freight rates, will the market collapse on its own? High freight rates themselves will suppress demand, and refineries are already reducing production. Once high prices suppress procurement, both freight rates and oil prices may fall, but this depends on whether supply can flow smoothly. So, what numbers should we focus on? First, look at the number of ships passing through the Hormuz daily; then, look at ship-to-ship transshipment and waiting times for loading; finally, look at freight rate quotes and transactions. These three factors are more indicative of the situation than focusing solely on oil prices.