Most of the world’s major container shipping lines have announced that they will be pausing operations in the Red Sea and through the Suez Canal until safe passage for commercial vessels can be guaranteed.
This comes after several attacks in recent weeks by Houthi militants in the region.
Shipping lines are therefore re-routing ships sailing between Asia and the USA and Europe around the Cape of Good Hope in southern Africa. This is increasing both costs for shippers, as well as transit times for cargo.
We issued an initial advisory on this earlier this week. But the situation is fluid, and there have been some updates on how shipping lines are managing the situation, along with analysis by several industry experts on the implications of this challenge.
Why does this matter?
The Suez Canal and Red Sea are critical pathways for ocean freight. About 15 per cent of world shipping traffic, including roughly 30 per cent of global container trade, passes through the Suez Canal. When Evergreen’s Ever Given vessel became stuck in the canal in 2021, economists estimated that daily trade worth up to $10 billion came to a halt.
Insurance claims from that incident could eventually end up north of $2 billion, reinsurer SCOR estimates.
This Reuters article assesses the importance of the canal and Red Sea to global trade.
Evidently, ships unable to use this route – a shortcut linking the Arabian Sea to the Mediterranean and thus, key markets in the west and the east – will need to travel further, taking longer and costing more.
Given the intricacies of global trade, the disruption caused by an inability to utilize this route has a domino effect on just about everything – from the availability of consumer goods to the cost of fuel.
How long will this last?
Firstly, it remains unclear as to how long shipping lines will be required to divert their vessels – and therefore how long the impacts of this will be felt.
The USA announced this week that it was establishing a “naval coalition” to safeguard commerce in the Red Sea, with Britain, Bahrain, Canada, France, Italy, the Netherlands, Norway, Seychelles and Spain among nations involved.
The group, widely dubbed in media reports a “task force” called “Operation Prosperity Guardian”, will conduct joint patrols in the southern Red Sea and the adjacent Gulf of Aden.
But analysts have pointed out that this will take time to have an effect. Analysts at Xeneta have said that warships forming part of this taskforce will need time to determine the best ways to defend merchant ships, given the way in which Houthi militia are conducting attacks.
Transit times
Inevitably this is going to increase transit times. The route between Asia and Europe around southern Africa is 40 per cent longer on average.
But there are two issues at play with transit times.
One is the re-routing of vessels already in the Red Sea. In this respect, The Loadstar is reporting that that impact on supply chains is “sizeable”, but “not mind-blowing”. It had been reported that approximately one million TEU (twenty-foot equivalent units) containers were stuck on ships off the coast of Yemen. But this has now been discredited.
The second is the re-routing of vessels that are on paths that ordinarily transit the Suez Canal.
Flexport has estimated that re-routing via the Cape of Good Hope will prolong transit times by 7-10 days, but that depends on where the vessel is when the re-routing decision has been made. Depending on the vessel’s location, some may experience an even longer delay of 2-4 weeks if they’ve had to detour from the Red Sea.
Data published by Portcast and reported by The Loadstar is showing that rerouting via Africa would add seven days to South Asia-US sailings and 10 days to Asia-Europe sailings.
Equipment shortages
One of the other impacts of this crisis on the supply chain is the displacement of empty shipping containers, which could cause additional disruption.
The Loadstar has reported that congestion at ports – as a result of changes to vessel schedules – is likely. Furthermore, empty containers may end up in the wrong places. This could be exacerbated by the Chinese New Year.
The impact of this will become more pronounced in January and we will convey this to customers should it be an issue affecting them directly.
The cost implications
More generally, however, increased transit distance, shortages of equipment and congestion in ports, all means costs are going to rise.
MSC has already issued an Emergency Operation Surcharge which become effective next month. It says: “To maintain our continued level of service, from 20 January 2024 we will implement an Emergency Operation Surcharge (EOS) of 1200 USD / 20’, 1500 USD / 40’ and 2000 USD for reefer units applicable for all containers to cover additional costs.”
CMA CGM and Hapag Lloyd have also announced surcharges. So far these cost increases are well below pandemic peaks.
What can you do?
Some of the general advice being offered by leading analysts at the moment includes:
- Booking cargo to vessels up to four to six weeks in advance of planned departure, to secure a container and spot on a vessel.
- Bake additional lead time into plans as far as possible.
- Budget for increased transport costs.
- Explore alternative routings, modes and services.
Talk to us! Contact your corporate mobility team, move manager or mobility advisor, and we can work through the challenges together.
