Supply Chain Disruptions Following Closure of the Strait of Hormuz and Regional Airspace (01-Apr)

Dear Valued Customer,

Following our previous Customer Advisories, we are providing an updated consolidated view on the ongoing geopolitical escalation in the Middle East and its continued, very critical impact on global air and ocean supply chains. As widely reported in the news, the situation has further deteriorated in recent days. What initially began as a regional disruption has clearly evolved into a global supply chain crisis, affecting capacity, congestion, transit times, service reliability, and logistics costs worldwide. The environment remains highly volatile, fluid, and subject to sudden change.

Employee Safety and Operational Status:

Employee safety remains our highest priority. At this time, all Pentagon employees in the affected areas remain safe. As a precautionary measure and in line with local authority guidance, Pentagon continues to operate work-from-home arrangements in the UAE and Iraq, with our yard and warehouse teams operating on as required basis while office attendance in Oman and Qatar remains normal. Pentagon remains fully operational across the region, with teams closely following all local safety instructions and protocols.

Global Energy Impact and Carrier Surcharges (Air & Ocean):

Global energy markets remain under extreme pressure. Oil prices have risen sharply following the escalation of hostilities and ongoing uncertainty around critical maritime corridors, particularly the Strait of Hormuz. As a direct consequence, all major air and ocean carriers continue to announce and expand cost recovery measures across their global networks, including but not limited to:

• Emergency Fuel Surcharges and Emergency Bunker Adjustment Factors (EBAF)
• War Risk, Security, Congestion, and Market Disruption surcharges
• Peak-type surcharges and general rate increases
• Expanded surcharge applicability beyond traditional Middle East trade lanes

It is important to emphasize that these surcharges are not driven solely by fuel increases. They also reflect:

• Loss of effective capacity due to rerouting and longer transit times
• Higher insurance and war risk premiums
• Network imbalances, equipment shortages, and congestion
• Increased operational and security costs

These measures are global in nature and are impacting shipments worldwide, not only those moving to, from, or via the Middle East.

Air Freight – Current Impact and Global Implications:

Air freight conditions remain extremely challenging. Despite short periods of partial stabilization, capacity to and from the Middle East has tightened again, with several carriers announcing further service suspensions, reductions, or last-minute schedule changes.

Current conditions include:

• Severely constrained capacity on Middle East trade lanes
• Ongoing cancellations and short-notice schedule changes
• Payload restrictions due to longer routings and higher fuel uplift
• Elevated risk of delays, rollovers, and backlog accumulation

The continued loss of Gulf hub transit capacity—particularly impacting Asia–Europe and Asia–Americas flows—is generating significant global knock-on effects. Cargo from Southeast Asia, the Indian Subcontinent, and Oceania is increasingly being rerouted via China and Hong Kong, leading to:

• Further tightening of global air freight capacity
• Increased congestion at alternative hubs
• Sustained upward pressure on air freight rates

All major airlines have announced global Fuel Surcharge (FSC) increases, reflecting both rising fuel prices and broader market disruption.

Middle East Airport Updates

Ocean Freight – Current Impact and Maritime Developments:

Ocean freight continues to face structural and escalating challenges. Heightened security risks across key maritime corridors—including the Strait of Hormuz, Red Sea, Bab el Mandeb, and the broader Suez Canal corridor—are materially disrupting vessel operations.

• Following recent war risk insurance decisions:
• Multiple ocean carriers have suspended or restricted services to the Arabian Gulf
• Booking acceptance remains limited and subject to frequent change
• Containers already released for export stuffing may no longer be accepted
• Vessels enroute may be diverted to alternative safe ports

While ports such as Salalah have partially reopened, operations remain constrained. Congestion and slower handling continue across several regional hubs.

As carriers increasingly reroute vessels via the Cape of Good Hope, the market is experiencing:

• Significantly extended transit times
• Reduced effective vessel and equipment capacity
• Substantial additional fuel and operational costs

These effects are now creating global ripple impacts well beyond the Middle East region.

Strait of Hormuz – Ongoing Risk and Uncertainty

Iran has communicated that non-hostile vessels may transit the Strait of Hormuz under specific conditions; however, restrictions based on perceived vessel affiliation remain subject to interpretation. Given the strategic importance of the Strait—through which a significant share of global oil and LNG normally transits—any further escalation or restriction continues to represent a major risk to global trade, energy markets, and freight costs. Advance coordination, risk assessment, and contingency planning remain essential.

What This Means for Your Shipments

• Ocean shipments to the Middle East and Gulf region require explicit and updated carrier booking confirmations
• Shipments already loaded or positioned will be managed case by case to mitigate unnecessary cost exposure
• Cargo already at sea may be diverted, requiring revised onward instructions
• Temporary storage solutions can be arranged where appropriate to limit demurrage and detention
• End-of-Voyage Declarations may be issued by carriers.

Ocean Freight – War Risk and Emergency BAF

• All major ocean carriers continue to expand Emergency BAF applicability across global networks

These surcharges reflect fuel, security, insurance, rerouting, and operational cost increases and are not limited solely to Middle East routes.

Middle East Port Updates

Inland Transportation:

Sustained high energy prices are also impacting inland transportation globally. Trucking, rail, and feeder services continue to adjust fuel indices, resulting in higher first- and last-mile costs, drayage charges, and inland haulage rates across multiple regions. Within the Middle East in addition to rising fuel costs there is dramatic increased demand for trucks given the increase in

Pentagon Mitigation Measures and Customer Guidance:

Pentagon remains fully mobilized globally to:

• Monitor carrier, port, airspace, insurance, and regulatory developments in real time
• Deploy alternative routings and multimodal solutions where feasible
• Secure and prioritize capacity for critical shipments
• Support customer contingency planning through clear and timely communication

Recommended customer actions:

• Share updated shipment forecasts where possible
• Confirm bookings as early as feasible
• Review insurance coverage, including war risk provisions
• Consider flexible routing and transit time alternatives
• Factor ongoing congestion and cost volatility into planning

We strongly recommend remaining in close contact with your Pentagon account representative to review shipment-specific risks, mitigation options, routing alternatives, and potential cost implications prior to execution.

This situation remains highly fluid. Pentagon will continue to monitor developments closely and will issue further updates as conditions evolve.

Your supply chain continuity—and the safety of our people—remain our top priorities.

Yours Sincerely,

Pentagon Middle East & India Management Team.