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For decades, companies believed that geography no longer mattered. Factories could be thousands of miles away from customers because global trade made the world seem small. A product could be manufactured in Asia, assembled elsewhere, and sold in Europe or America without transportation costs significantly affecting the price.

But that assumption only holds true when shipping is cheap. When shipping gets expensive, distance matters again.

And last week, shipping rates for LNG (Liquefied Natural Gas) shippers increased more than 650% in just a few days, reaching approximately $300,000 per day. Thanks to the current conflict in the Middle East. This may seem like a niche industry headline, but it highlights something much bigger: behind almost every product that crosses borders lies a vast and largely invisible logistics system.

For decades, this system worked so efficiently that companies stopped worrying about geography. A smartphone could be assembled in China, shipped across oceans, and sold in Europe at freight costs that would not significantly affect its price.

Cheap and reliable shipping made distance almost irrelevant. And as a result, more 80% of today’s world trade moves by sea, transported by container ships, bulk carriers, tankers and specialized vessels such as LNG carriers.

However, as fundamental as shipping is to global trade, the industry itself is notoriously unstable. Shipping rates can remain low for years and then increase dramatically in a matter of weeks when supply chains are disrupted. A sudden shortage of ships, geopolitical tensions or even a change in trade routes can cause freight prices to skyrocket almost overnight.

In fact, shipping companies often make their biggest profits during periods of global disruption. When conflicts break out or major shipping routes become unsafe, ships are forced to take longer routes. As a result, the ship stays at sea longer, burns more fuel and is not available for new business. So in those moments, the same instability that disrupts global trade can be extraordinarily profitable for them.

Let’s understand this with examples. Below is a chart of the Shanghai Containerized Freight Index (SCFI). Tracks weekly spot rates for containerized cargo leaving Shanghai to 15 major global ports. You could say that it is the de facto index of shipping prices worldwide.

If you look closely, the biggest increases in shipping prices rarely coincide with economic booms. They usually coincide with global crises. It spiked between 2020 and 2022, when economies around the world were unstable due to the COVID-19 pandemic and the Russian-Ukrainian war. Then, from late 2022 to 2023, when there were no major disruptions, prices cooled significantly.

Sidebar: This is one of the reasons why the Indian government changed the baseline for measuring GDP growth from 2012 to 2022. You can read about it. here.

Then, in October 2023, the Israel-Palestine war and the Red Sea crisis began, slowly driving the index up once again.

So when the availability of a ship or container reduces, or routes become longer due to geopolitical tensions, freight costs can multiply overnight. For energy-importing countries like India, that is much more important.

Take, for example, the recent LNG loading increase. LNG shipping is an unusually tight market. there is only around 820 specialized LNG carriers in the world, compared to more 50,000 merchant ships. So when even a small portion of them are tied up, freight prices can skyrocket, and this is exactly what happened last week.

And for countries that import large amounts of energy from abroad, these fluctuations have direct economic consequences.

India, for example, is one of the largest importers of liquefied natural gas in the world. In fact, a significant portion of India’s LNG imports come from the Middle East, particularly countries like Qatar and the United Arab Emirates. Much of this supply travels through the strait of hormuzone of the most critical energy bottlenecks in the world. Even if Indian cargo ships could safely pass through the strait during periods of tension, a regional conflict can still disrupt production, delay shipments, increase insurance premiums and restrict the availability of LNG vessels. In such situations, the cost of transporting energy often increases sharply long before the physical supply of gas actually decreases.

So when shipping costs increase, the delivered price of that gas increases regardless of whether the price of the underlying commodity has changed.

This is important because LNG is deeply rooted in several sectors of The Indian economy. It powers power plants, fuels fertilizer production, and supports industrial processes across multiple industries. When the cost of importing LNG increases unexpectedly, those costs will eventually affect you and me. And over time, this starts to increase inflation.

Another unusual feature of maritime markets arises during periods of extreme volatility. Ships stop behaving merely as transport vehicles and begin to function as floating storage facilities. When freight rates increase or raw material prices fluctuate, traders can keep cargoes at sea temporarily, waiting for better market conditions. The ship effectively becomes a warehouse on the water and the ocean becomes one of the most expensive storage spaces in the world.

Episodes like the current rebound also reveal a broader structural shift in global trade. Rising shipping costs tend to hurt long-distance trade routes more than regional ones. If transporting goods from East Asia to Europe suddenly becomes much more expensive, companies begin to reconsider where factories should be located. Supply chains are gradually moving closer to end markets to reduce transportation risk.

Now, in theory, this kind of change could benefit India.

Because geographically, the country is at a crossroads between Europe, the Middle East and Southeast Asia. That location offers advantages for trade if companies are looking for alternatives to long transcontinental shipping routes.

However, geography alone does not determine competitiveness. Port efficiency, logistics infrastructure and transport capacity play an equally important role. Sure, we have improved our logistics networks in recent years. But port turnaround times, cargo handling efficiency and fleet capacity still lag behind those of our East Asian peers such as Singapore and China.

And this is precisely where the competitive race begins.

Therefore, if this shipping volatility becomes more common while India’s logistics bottlenecks remain unresolved, the advantage of geography may not translate into real economic gains. Manufacturers will avoid India and choose places where goods can move more quickly through ports and supply chains.

Shipping rarely captures the public’s attention because it usually operates in the background. However, the entire global economy depends on a huge maritime system that most consumers never see. Episodes like this reveal how central that system is to modern economic life.

After all, maritime transport influences energy security, industrial competitiveness and, ultimately, the prices households pay for goods. For countries like India, where imported energy plays a major role and supply chains stretch across continents, changes in freight transportation markets have consequences far beyond the shipping industry.

Therefore, understanding the economics of shipping is more important than it seems. When freight markets change dramatically, the effects are rarely limited to ports. They often filter through the entire economy, as we have just seen in the case of India.

Until next time…

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