The current conflict in the Red Sea has caused chaos in global shipping and created a multi-front storm for global trade. The situation has forced ships to sail the long way around South Africa’s Cape of Good Hope.
Diversions from Egypt’s Suez Canal, which feeds into the Red Sea, are reducing capacity. Rerouting vessels around the Cape of Good Hope adds two to four weeks to a round-trip voyage, according to Honour Lane Shipping (HLS). Ocean alliances need more ships on each Asia-East Coast route to maintain an efficient network schedule.
Approximately 25%-30% of global container shipping volumes pass through the Suez Canal, mainly on Asia-Europe trade routes. It is estimated that widespread rerouting around Africa could reduce effective global container shipping capacity by 10%-15%, according to some analysts.
As a result, freight rates have been increasing daily due to additional surcharges and longer shipping times. Will freight rates continue to increase and skyrocket as they did in 2022? Probably. Indicators suggest so, though the causes are different.
The chaos in 2022 that triggered the skyrocketing freight rates was mostly due to the effects of the global pandemic, Covid-19. The impact of Covid-19 was widespread, affecting global shipping, while the ongoing chaos in the Red Sea primarily affected Asia-Europe shipping, which constitutes more than 25-30% of global shipping.
However, its effects have already taken hold. Rates for freight traveling from Asia to northern Europe more than doubled in the last week of December 2023 to above $4,000 per 40-foot-equivalent unit (container). Asia-Mediterranean prices climbed to $5,175 per container. Some carriers have announced rates above $6,000 per 40-foot container for Mediterranean shipments starting mid-month, with surcharges ranging from $500 to $2,700 per container.
Rates from Asia to North America’s East Coast have risen by 55% to $3,900 per 40-foot container, while West Coast prices climbed 63% to more than $2,700. More shippers are expected to start avoiding the East Coast and favor the West Coast ports. Likewise, rates are on track to rise again starting Jan. 15 due to previously announced increases.
Will these freight rates continue to increase and skyrocket just like in 2022? Time will prove it. However, anticipative steps are needed for logistics and cargo owners.
Buy & Read ISG January 2024: https://sociabuzz.com/isgct/p/isg-january-2024
