Oil prices surge due to US-Israel war on Iran, impacting automotive logistics and supply chains
Global oil prices have surged to more than $100 per barrel in light of the US-Iran conflict, creating a knock-on effect for automotive logistics and supply chains around the world in terms of costs, with the possibility for further disruption to vehicle production and distribution long-term.
The rising energy prices, which are at the highest levels since 2022, are increasing costs for logistics, pushing up FVL distribution costs for road transport, rail and ocean and ro-ro logistics, and raising inbound logistics costs for components moving to plants, leading to increased surcharges from logistics service providers (LSPs).
While these costs are rising, there are increased threats to major logistics corridors. The Strait of Hormuz is currently facing disruption due to the conflict, while some vessels have halted or rerouted shipments in the region. For automotive logistics, this could mean longer shipping routes between Asia, Europe and the Middle East, higher insurance premiums and war-risk charges, and further congestion at alternative ports and routes, as we previously saw during the Red Sea crisis.
Rising energy costs are likely to ripple through energy-intensive upstream sectors such as steel and aluminium production and battery materials processing.
Further down the line, the war could even have an influence over EV demand, according to a report by S&P Global Mobility, which said: “The duration of the war is the critical factor, with potential impacts ranging from immediate supply chain disruptions and rising fuel costs to long-term shifts in vehicle production and consumer demand toward EVs.”
As a result of the disruption, the G7 will hold an emergency meeting today (9 March) to discuss a joint release of petroleum from reserves.
The Association of European Vehicle Logistics (ECG) has warned that LSPs won’t be able to reflect these rising costs immediately in contracts, which often operate on quarterly updates for fuel price adjustments. Given the current volatility in energy markets, this creates a growing time gap between the fuel costs logistics providers must pay and the point at which contracts allow those costs to be adjusted, according to the ECG.
Frank Schnelle, executive director, ECG said: “Fuel price increases affect operating costs immediately. When adjustment mechanisms only apply several months later, logistics companies are forced to absorb these costs in the meantime, which can place considerable pressure on liquidity and cash flow.”
The group’s recommendation to shippers and logistics providers in the sector is to temporarily increase the frequency of fuel price reviews during this market volatility.
“Finished vehicle logistics is built on long-term partnerships between manufacturers and logistics providers. In times of exceptional fuel price volatility, closer and more frequent coordination is essential to ensure that sudden cost increases do not destabilise logistics operations,” Schnelle said.
