Iran conflict could lead Australian retailers to face freight cost pressures

Investing.com – Macquarie analysts warned on Tuesday that ongoing conflicts in Iran could impose significant freight cost pressures on Australian home retailers, especially those reliant on furniture imports.

The conflict in the Persian Gulf has disrupted about 29% of global oil production through the Strait of Hormuz, while Houthi proxy forces have further disrupted shipping routes through the Suez Canal. Macquarie’s analysis shows that if current conditions persist, retailers’ after-tax net profit for fiscal year 2027 could be immediately negatively impacted by more than 2%.

The analysts highlighted three direct impacts of the Iran situation. First, the closure of the Strait of Hormuz has led to rising fuel costs, and rerouting through the Cape of Good Hope via the Suez Canal has reduced container availability, potentially increasing freight costs. Second, shipping times to the UK have lengthened. Third, inflation triggered by the Iran conflict has driven up rates, affecting demand and the ability to pass on costs.

Home retailers face particularly large risks because furniture is bulky and has low retail price density, with freight costs accounting for about 8% of sales costs. The analysis mentions two companies that are about to renew freight contracts; if disruptions related to Iran cause the closure of the Strait of Hormuz and the Suez Canal to last more than three weeks, they will face risks.

Since the attacks, stock price movements have reflected market concerns over fuel and freight costs. Macquarie states that in an environment of rising interest rates and inflation, spending on large home furnishings faces challenges, and passing on higher freight costs will prove very difficult.

Data on home furniture and durable consumer goods show that furniture spending fell to 0% in February 2025, down from 5% in January 2025. Rising fuel costs priced in US dollars are putting downward pressure on the USD/AUD exchange rate, making the previously expected margin benefits from a higher AUD/USD rate in fiscal year 2027 less certain.

Macquarie’s scenario analysis indicates that if current fuel cost surges persist into FY2027, this alone could reduce a retailer’s after-tax net profit by 2% to 18%, and another by 3% to 28%. Further spikes in fuel prices or shipping availability issues could lead to declines of 26% to 105%. This analysis does not include potential impacts from last-mile freight cost increases, demand effects, or bankruptcies of carriers and freight forwarders.

The analysts noted that if disruptions last more than three weeks, they could have exponential effects on oil supply and prices, requiring mitigation measures. Macquarie said it will wait for further developments before adjusting its outlook.

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