Red Sea attacks to have ripple effect on shippers — and consumers — in Canada
The Canadian Press
Canadian shippers and consumers could soon be feeling the ripple effect of attacks on cargo vessels in the Red Sea.
Shipping companies across the globe are turning away from the key trade corridor after Houthi militants in Yemen stepped up attacks on commercial boats in the region in protest against Israel's military campaign in the Gaza Strip.
Shipping giant Maersk said Friday it plans to continue rerouting all vessels bound for the Suez Canal around Africa's Cape of Good Hope "for the foreseeable future," following an earlier pause through the waterway that links Asia and Europe.
The route change adds 10 days and hundreds of thousands of dollars in extra fuel and crew costs per trip, resulting in potential price increases for wholesale and retail products.
Université Laval business professor Yan Cimon says Europe will feel the impact most directly, but that consumer goods and some manufacturing parts destined for Canada also come via the canal, which carries roughly a third of global container traffic.
Data from Drewry, a maritime industry research firm, shows that global container shipping rates surged 61 per cent in the past week alone, with hikes on routes between Asia and North America as well.
This report by The Canadian Press was first published Jan. 5, 2024.
Repercussions of Red Sea Turmoil Mount as Box Rates Jump 60% in One Week
Spot freight rates are the leading indicator of the mounting repercussions from the ongoing disruptions to the shipping industry due to the security problems in the Red Sea. With the attacks continuing, nearly 20 major carriers have reported that they are rerouting vessels adding to the travel time and expense which is quickly being reflected in the spot price for shipping as well as the growing concerns of impacts to supply chains and a renewal of port congestion.
Analytics firm Drewry provided its first report of 2024 on its closely watched World Container Index and to no surprise rates have skyrocketed. In one week, Drewey calculates the composite index is up by two-thirds (61 percent) per 40-foot container and stands 25 percent above the end of 2022/start of 2023. The latest Drewry World Container Index composite is 88 percent higher than the 2019 average.
Predictability, the highest increases are on the routes most directly impacted, i.e. those using the Suez Canal. Freight rates from Shanghai to Rotterdam, for example, are up by 115 percent. The increases for shipping containers to the Mediterranean are also up more than 100 percent, while rates from Asia to North America are up a more modest 26 to 30 percent.
Last week’s rate jump was fueled in part by Maersk’s decision to reverse course and again divert all shipments scheduled to transit the Red Sea. There had been an emerging hope that the international coalition might stabilize the security situation with Maersk previously reporting it was planning to send some ships back through the Red Sea while CMA CGM also said it was increasing the number of transits.
Freightos, a global freight booking and payment platform, highlights the longer-term impact on rates which began to jump after the first diversion programs were announced in mid-December. They are reporting that rates from Asia to Northern Europe are up 173 percent to more than $4,000 per FEU since just before the first diversions, while rates to the Mediterranean have doubled to over $5,000 per FEU.
Judah Levine, Head of Research for Freightos Group however believes that additional repercussions are likely in the near term, especially with the container carriers. Freightos reports that some carriers are already shortening up return times for empty boxes in North America as fears mount of equipment shortages.
“The longer voyages for diverted services mean longer lead times for importers and some threat of port congestion if updated schedules can’t be maintained and multiple vessels arrive at once, though so far there have not been reports of backlogs,” writes Levine in his weekly market analysis. “The excess capacity that carriers were contending with before the Red Sea disruptions will now be activated to use more ships than usual per service to try and keep up with departure schedules and keep containers moving.”
Commenting on the longer-term outlook, however, Christian Roeloffs, co-founder and CEO of Container xChange, a platform for container leasing, notes that trade will not stop as the diversions provide ways to circumvent the challenges in the Red Sea. “The Red Sea situation is acute, but not chronic in the long term for the shipping industry,” comments Roeloffs.
Container xChange interviewed leading industry players and surveyed customers as it prepared its 2024 Market Forecast. In the analysis, they report, that in response to these geopolitical risks, the majority of shipping professionals surveyed in December 2023, reported they are “gearing up to enhance resilience through strategic initiatives like - ‘risk assessment and scenario planning’, ‘diversification of routes’ and ‘suppliers and regulatory compliance’,” reports Container xChange. “The biggest ‘headache’ resulting from geopolitical upheaval is the ‘associated costs’ that they will have to bear on top of the rising operating costs that they have to already face.”
Analysts have begun to warn that consumers could experience some supply disruptions especially near-term as the shipping companies adjust schedules. However, the bigger concern is that increased shipping costs will be passed on to consumers. There are fears that the pass-along in shipping costs could fuel a resurgence in global inflation rates after much of the world had been able to reign in the rates created as a result of the supply problems from the pandemic.
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