Japan's Crude Imports Become World's Most Expensive Due to Soaring Freight Costs

Freight costs are soaring and making Japan's crude imports the most expensive in the world. The cost of shipping oil is now accounting for roughly a fifth of the total price of a crude cargo, making it a significant factor in determining the final cost to buyers.

The main culprit behind this increase is the Very Large Crude Carrier (VLCC), which can carry about 2 million barrels of oil per voyage. These vessels are spending more time at sea due to the search for supplies beyond the Gulf and Red Sea, resulting in longer journeys and higher costs.

For instance, Indian buyers are now reaching into Guyana and Brazil, committing ships to journeys of 30 to 40 days. Meanwhile, smaller tankers offer little substitute for moving large volumes over such distances.

The Strait of Hormuz is also drawing some VLCCs into short, expensive shuttle runs. Around 60 vessels are carrying crude through the strait to the Gulf of Oman, where it is ship-to-ship transferred to other tankers for the onward journey. This process adds around $15-20/bbl to the cost, or $20 million for a fully loaded VLCC.

VLCCs waiting for STS transfers reportedly spend around 10 days in queues, tying up capacity that would otherwise serve the wider market.