Rising geopolitical tensions around the Strait of Hormuz are contributing to elevated freight costs for bulk carriers and adding strain to global coal shipping markets.

While coal cargoes move largely along routes that do not normally use Hormuz, the spillover effects from tanker risk premiums, higher insurance, and rerouting pressures are feeding through into dry bulk freight markets.

The Baltic Dry Index (BDI), a benchmark that reflects coal, iron ore and grain freight costs, is expected to rise further this week. The index once jumped more than 40% month on month in mid-2025, reaching around 1,975 points, as tensions flared in the Middle East and dry bulk demand remained solid.

The latest BDI touched 2,140 points on February 27, up 1.09% from the day prior and 6.15% from the month before, substantially above long-term averages and well above the sub-1,000 readings seen during industry downturns.

Jumped shipping insurance costs and re-routing decisions would be main factors behind this time's surge. War-risk premiums on vessels operating in the region have risen by as much as 40–60% in some cases, according to industry sources. Some carriers chose to detour vessels around Africa's Cape of Good Hope rather than risk Hormuz transits, adding roughly 10-14 or plus days to travelled distances.

Although major coal exporters, Indonesia and Australia, which supply coal mainly to Asian markets such as China, India, Japan and South Korea, do not utilize the Strait of Hormuz, freight rates also rose in tandem with broader dry bulk markets. Panamax and Capesize vessels commanded higher time charter values due to constrained effective capacity and broader risk pricing.

For importing countries those near the Gulf, including the United Arab Emirates (roughly 584,000 tonnes of coal imports in 2024) and other GCC countries, receive coal shipments that would normally pass through Hormuz on their way from Southeast Asian and African ports.

While those volumes are modest relative to global trade, droughts and congestion in other regions make Gulf demand visible in wholesale freight markets.

"Even if the tonnage is small, insurers and charterers behave as if the entire freight market is at risk," said a London-based dry bulk broker.

In a long run, coal importing countries may seek to diversify their supply sources, with buyers in South and Southeast Asia exploring alternative suppliers to reduce reliance on freight routes under pressure.

At the same time, many shippers lock in forward freight contracts to manage the heightened volatility in spot rates. Longer-term charters are being arranged as a precaution against sudden spikes in daily hire costs, allowing buyers to stabilize logistics and cost planning amid ongoing geopolitical uncertainty.