April 16th, 2026 – Rising energy prices tied to the war in Iran are creating new challenges for trans-Pacific service contract negotiations, as higher fuel costs ripple through the container shipping market. The disruption to oil supplies has driven bunker fuel prices sharply upward, in some cases doubling at major hubs within weeks. This sudden increase has forced both carriers and shippers to confront how these elevated operating costs will be reflected in freight rates, particularly through bunker adjustment factors (BAFs) and newly introduced emergency surcharges.
While this added complexity has slowed some negotiations, it has not derailed the broader process of finalizing 2026–27 service contracts, which are typically implemented on May 1st. Fuel costs have historically been treated as pass-through expenses, but the volatility introduced by the conflict has renewed focus on how these charges are structured. Similar concerns last emerged in 2019, ahead of low-sulfur fuel regulations, but the current situation is driven more by geopolitical instability than regulatory change.
The market dynamics this year have actually strengthened carriers’ pricing positions. Unlike previous years, when contract rates tended to soften early in the negotiation season, the ongoing conflict has supported higher rate levels. Even excluding fuel-related costs, carriers have been able to secure improved pricing compared to last year. However, these gains are largely offset by rising expenses across labor, port tariffs, and inland transportation, limiting the net benefit.
Spot rates have also climbed steadily since late February, accelerating further in early April as emergency fuel surcharges took effect following regulatory review periods. Shipping costs from Shanghai to Los Angeles, for example, have increased significantly in a matter of weeks. Despite these rising rates, carriers still face challenges in fully recovering their increased fuel expenses. BAF mechanisms often lag actual fuel price changes by up to 90 days, creating temporary cash flow pressure, while regulatory requirements prevent immediate implementation of new surcharges.
Although the war’s direct impact on container shipping routes is relatively limited—affecting only a small percentage of global capacity—the indirect effects are more substantial. Fuel shortages in Asia have forced vessels to alter routes to access alternative refueling hubs, increasing both fuel consumption and operational costs. At the same time, resistance from Chinese authorities to emergency surcharges has made it more difficult for carriers to pass on these costs to exporters, adding another layer of complexity.
These conditions have sparked renewed debate during contract negotiations about cost exposure and pricing structures. Some carriers are pushing for more frequent BAF adjustments, shifting from quarterly to monthly calculations, which has drawn resistance from shippers and forwarders concerned about losing rate stability and predictability.
The traditional BAF system, designed for relatively stable fuel markets, is proving less effective under current conditions. The sharp rise in oil prices since March has significantly increased carriers’ weekly expenses, underscoring the limitations of existing pricing mechanisms. However, there is broad expectation that fuel prices will eventually stabilize, which would bring rates back down toward pre-war levels.
In the near term, the impact on shippers will vary by quarter. Fuel surcharges for the second quarter are expected to remain relatively moderate, as they are based on earlier, more stable fuel prices. However, if elevated fuel costs persist, significantly higher BAF charges are likely in the third quarter. This has already led some shippers to consider accelerating shipments into the second quarter to avoid future cost increases.
Overall, the situation highlights how geopolitical events can quickly disrupt cost structures in global shipping, forcing both carriers and shippers to adapt in real time while navigating uncertainty in pricing and supply chains.
