Since December 9, 2023, the Red Sea has become a hotspot for terrorist attacks on commercial vessels orchestrated by Houthi rebels in retaliation against Israel’s military campaign in Gaza. These escalating assaults raise concerns about safety, disrupted shipping routes, potential economic turmoil, and more.
JANUARY 3 UPDATE
Our carrier contacts tell us to expect, and plan for, sustained disruptions. Also, we expect Suez Canal–related disruptions to trigger chain reaction impacts on other trade lanes, causing higher rates across the board. Here are key facts to consider as you plan freight shipments that had been moving via the Suez Canal:
- Expect more blank sailings during the 2nd half of January. The re-routing of ocean freight from the Suez via the Cape of Good Hope will diminish carriers’ E&W capacity by about 25-33%. Most of this capacity shortfall will come right before the pre-Chinese New Year cargo rush.
- The Red Sea disruptions have happened so suddenly that carriers are incapable of rerouting vessels from other trade lanes fast enough to mitigate the problem.
- Expect port congestion on both the Europe and Asia sides as equipment/containers are idled again. This will compound the capacity shortfall and elevate rates significantly.
- Diverting shipping around the Cape of Good Hope will add 10–14 days for the Asia-Europe, US East Coast westbound route and 15–19 days for the Asia-Mediterranean westbound route. This is primarily due to the added distance, but lately weather conditions and longer queuing time for vessels to refuel are making the trips even longer than initially expected.
- Carriers are reviewing rates on weekly basis and may soon shift to a daily evaluation. Carriers can impose surcharges with very short notice by declaring their Force Majeure, stipulated clearly on the backside of their Bills of Lading.
- When going rates for Europe/Med WB are pushed up to > USD6000/FEU, most carriers will consider redeploying vessels from trade lanes where rates are relatively low.
Dimerco is busy working with many customers on alternate shipping solutions to overcome Red Sea disruptions. These alternatives can include:
- Sea-Air solution via Jebel Ali in Dubai.
- China-to-Europe rail solution.
- Container shipping to the US West Coast combined with trucking or a carrier’s IPI service.
- Straight airfreight service which, in some cases (e.g., PVG/Shanghai to JFK) is cheaper than Sea-Air service.
The options will differ depending on your situation. Please contact your Dimerco freight specialist to further discuss options and costs. Or reach out to Dimerco to start a conversation.
Check out the recent Freight Buyers’ Club podcast interview during which host Mike King interviews Dimerco’s Alvin Fuh on the Red Sea shipping crisis.
The Significance of the Red Sea
Extending from the Bab al-Mandab Strait off Yemen’s coast to the Suez Canal in northern Egypt, the Red Sea serves as a vital maritime corridor for 12% of global trade and 30% of global container traffic. This narrow stretch plays a pivotal role in global commerce, with ships typically taking this route from the south to reach Egypt’s Suez Canal further north.
While it’s too early to determine the duration of these terrorist threats in the Red Sea, interruptions to the global supply chain are likely to be extensive. The attacks have created an atmosphere of uncertainty, affecting the safety of crew members and disrupting the flow of essential goods for the over 44 impacted countries.
Navigating Shipping Impacts and Rate Escalations Amidst Disruptions
Rerouting and Escalating Costs
To mitigate the risks posed by the attacks, major shipping lines like CMA CGM Group, Evergreen, Hapag-Lloyd, and Maersk are opting to reroute vessels around the Cape of Good Hope, bypassing the Red Sea. However, this alternative route presents a new challenge: a significant increase in shipping timeframe.
The extended journey will also result in a 15 to 20% surge in shipping costs, even when factoring in the current Suez Canal toll fees, which are set to rise by 15% in January 2024. This heightened cost is anticipated to impact businesses and shippers.
Capacity Crunch and Reduced Efficiency
The decision to reroute vessels, combined with existing limitations at the Panama Canal due to a severe drought, might create a 17–25% reduction in overall carrier capacity between Asia-Mediterranean & Europe. This capacity crunch exacerbates challenges in maintaining the smooth flow of goods across critical shipping routes, leading to inefficiencies and delays.
Surging Shipping Rates and Adjustments
Reduced capacity, heightened risks, and the need for rerouting have collectively contributed to a surge in shipping rates. Xeneta reports a staggering 20% surge in spot rates since December 15. This signals a notable upswing in shipping rates, posing challenges for shippers grappling with higher transportation costs.
We expect additional rate increases and a substantial General Rate Increase (GRI) adjustment extending into January due to the ongoing turmoil.
Blank Sailings and Space Issues
Major carriers, including EMC, YML, CMA CGM, THE, OA, and 2M, are grappling with logistical challenges. Blank sailings are becoming more prevalent, leading to space constraints for cargo––particularly right before the Chinese New Year cargo rush. These issues are further complicating an already complicated situation, with carriers struggling to deploy additional vessels quickly.
In response to the attacks, the United States has initiated an international naval operation to safeguard vessels along the Red Sea route. Countries such as the UK, Canada, France, Bahrain, Norway, and Spain have actively joined the effort so far. The multinational force aims to secure trade routes in the Red Sea. However, despite enhanced security measures, some shipping companies remain cautious, hesitating to promptly resume operations on the route.
Agile Response Needed
The current situation points up the importance of an agile logistics response to keep supply lines flowing. Dimerco is working with customers on alternate shipping solutions that, depending on the situation, could include alternate modes (e.g., deferred air, China-to-Europe rail), multiple modes (e.g., sea/air via Korea/Dubai) or a different routing. As space will likely be tight in January before the Chinese New Year, it’s plan ahead, keep informed and stay ahead of the curve in this evolving situation. Rest assured that Dimerco will continue to work feverishly to keep customer supply lines flowing despite disruptions in these critical maritime corridors.