3AUG

The freight bill VLCC indices can't see

2 min read

15:23UTC

Substituting two Suezmax tankers for one VLCC on the abandoned Bab el-Mandeb run costs roughly $2 million more per voyage and stretches transit to 54 days, a cost the Baltic's headline VLCC benchmark never prints.

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ConflictDeveloping

Key takeaway

The Baltic's VLCC benchmark prices the wrong ship, hiding the Suezmax cost Saudi shippers now pay.

Chartering two Suezmax tankers to stand in for one VLCC on the Bab el-Mandeb run costs roughly $2 million more per voyage, and the passage stretches from 24 days to 54 by way of Suez or the Cape ¹. A VLCC, or Very Large Crude Carrier, hauls about two million barrels; a Suezmax carries around a million, so replacing one with two roughly doubles the vessels tied up per barrel moved.

TD3C, the Baltic Exchange assessment for The Gulf-to-China VLCC route that most desks read for this conflict, captures none of that cost, because it prices a different ship on a different stretch of water. When the Baltic assessed TD3C at WS372 on 17 July , it was quoting the direct VLCC voyage, not the Yanbu-Suez Suezmax pair-up that Saudi shippers now pay for. The marginal freight on the rerouted flow never reaches the screen the market watches.

That gap is the structural point. Mediterranean aframax rates had already jumped 198% month-on-month to $151,308 a day , so the freight complex was tightening before the reroute added a second Suezmax leg on top. A desk hedging its landed cost on VLCC indices alone is left exposed to a Suezmax basis it cannot see moving, on the majority of Saudi export volume now leaving through the Red Sea. The cost is small against a large flat-price swing, but it is durable and route-specific, and it accrues on every cargo for as long as the strait stays shut.

Deep Analysis

In plain English

Big oil tankers called VLCCs are too large to use some alternate routes easily, so when the direct route through Bab el-Mandeb closes, shippers use two smaller Suezmax tankers instead. That costs about $2 million more per trip and takes over twice as long. The trouble is that the market's main price gauge for this shipping route, called TD3C, was built to track the old direct route and doesn't count this extra cost at all, so traders relying on it may be underestimating true shipping expenses.

Deep Analysis

Root Causes

TD3C prices a single VLCC on the direct Gulf-to-China route; it was built before Bab el-Mandeb closures were a standing feature of the market and has no mechanism to price a two-vessel Suezmax substitution.

Rebuilding a benchmark requires enough historical fixture data to backtest a new route definition, which takes the Baltic Exchange months to assemble and certify, so the pricing gap persists structurally even after the physical rerouting becomes routine.

What could happen next?

Risk
Freight desks hedged purely against TD3C carry unrecognised basis risk on cargo actually moving via the Suezmax substitution route.
Opportunity
A Baltic Exchange sub-index for the Suezmax substitution route would close the pricing gap once enough fixture data accumulates.

Source Landscape

This story draws on centre-right-leaning sources from United Arab Emirates

United Arab Emirates

Primary parallel: The Suez Canal's 1967-1975 closure after the Six-Day War forced the tanker fleet onto the Cape route and made the old Worldscale flat rates obsolete overnight, requiring a full benchmark redefinition rather than a patch; the 2026 Bab el-Mandeb shift is producing the same benchmark-lag problem at smaller scale.

Counter-parallel: The 2011 Libyan civil war disrupted Mediterranean sweet crude loadings but left the existing Dated Brent benchmark structurally intact, since the substitute barrels (Nigerian, Algerian grades) traded on the same basket rather than requiring a new route-cost proxy.

Consensus view: Clarksons Research flags that desks hedging Saudi freight exposure against the TD3C VLCC index now carry basis risk, because the index prices a single-vessel Gulf-to-China voyage while the actual cargo moves on two Suezmax charters at a $2m premium the benchmark cannot register.

Counter-view: Baltic Exchange panellists counter that TD3C was never designed to price rerouted cargo, only the standard Hormuz-Gulf run, so the mismatch is a hedging-instrument gap rather than a flaw in the index itself.

Key tension: Whether a new Suezmax-substitution sub-index gets published before enough desks build unhedged freight losses to force one.

Sources:The National

Mentions:Saudi Arabia →Suez Canal →TD3C →Baltic Exchange →VLCC →China →Worldscale →Mediterranean →Red Sea →Dated Brent →Yanbu →Clarksons Research →Bab al-Mandeb →Brent-WTI →

First Reported In

Update #20 · Saudi crude reroutes to Suez, freight bites

The National· 27 Jul 2026

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Causes and effects

Caused by

Saudi crude abandons its Red Sea route

The Suez reroute created the Suezmax freight penalty and transit-time cost this event quantifies.

Occurred 24 Jul 2026

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Med aframax freight doubles in a week

Med aframax freight rallying 198% month-on-month set the freight backdrop the Suezmax substitution cost extends.

Occurred 20 Jul 2026

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TD3C hits WS372 as hull cover reaches 5%

TD3C's Gulf-to-China VLCC pricing structurally excludes the Suezmax leg this event covers.

Occurred 16 Jul 2026

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This Event

The freight bill VLCC indices can't see

A crude book hedged on VLCC freight indices alone carries an unhedged Suezmax basis on the bulk of Saudi export volume, because the benchmark most desks watch prices a different ship on a different sea.

Different Perspectives

Lloyd's Market Association

War-risk underwriters price the Houthis' Red Sea attacks because the group announces its targets in advance, but the unclaimed Damietta drone gives insurers a hit with no author to price against. An attack nobody claims costs shipping more than one that is claimed, since premiums are set against a known pattern, not raw damage.

US Central Command

CENTCOM has announced no strike on Iran since resuming bombing on 30 July within hours of an IRGC salvo on Jordan, and centcom.mil did not respond to requests to confirm any pause. The command has gone quiet before while a larger operation was being weighed, so silence alone proves nothing about what it has or has not done.

Hengaw

Hengaw recorded at least 67 executions in Iran during July, of which the state acknowledged only eight, and reported the 1 August execution of protest detainee Arvin Kheirkhahan at Shahrud with no advance notice to his family. A family's first notice of a death sentence is now usually the instruction to collect a body.

Egypt

Egypt's government asked media on 2 August to report the Damietta attack accurately, named no author, and said no findings will be published before its own investigation concludes. Cairo holds the debris and jurisdiction over an attack on its own soil, and naming a culprit now would pull it into a dispute it has avoided for five months.

Iran's Foreign Ministry

Araghchi called the Hormuz talks with Oman final-stage on 2 August, four days after his own deputy rejected Oman's lane proposal, and denied the Damietta drone strike as an Israeli false flag while two Iranian officials privately claimed it for Tehran. Iran's public position now contradicts itself on both files at once.

Bahrain and Kuwait

Bahraini and Kuwaiti aircraft flew their own strikes on Iranian depots in July with Emirati air cover behind them, and Ynetnews reports some Gulf capitals wanted the 2 August strike to proceed rather than stop. States that have already taken fire see a closing window on Iranian weakness, not a reason to pause.