Red Sea Crisis Causes Higher Costs, Delays And Inflation Worries
According to Flexport, a platform that coordinates global logistics, says that as of January 8, 2024, there are “515 vessels accounting for 7 million TEUs (twenty-foot equivalent unit – a measure of volume in units of twenty-foot-long containers) of capacity that are diverting, will divert, or have diverted around Cape of Good Hope” near South Africa.
As the Houthi attacks on the container ships passing through Suez Canal and the retaliatory attack from US led coalition has increased freight rates, triggering warning of delayed goods and warnings of inflation.
To avoid the attacks from the Yemeni group, ships have already diverted more than $200 billion in trade by opting to pass through Cape of Good Hope and avoid crucial Middle East trade route, that is along the Suez Canal, connecting Mediterranean Sea to the Indian Ocean.
As per the logistic managers, freight rates are increasing daily along with additional surcharges and longer shipping times. The threat of spring and summer products will be late. Chief executive of global economic advisory firm the Lindsey Group, Larry Lindsey said that, “the supply chain pressures that caused the ‘transitory’ part of inflation in 2022 may be about to return if the problems in the Red Sea and Indian Ocean continue”, as quoted by CNBC.
Report said that about 20 percent of the vessel capacity is not being used due to the massive dip in manufacturing orders, as per the industry experts. The ocean traders continue to cut their sailings while tight capacity and longer trade route are adding fuel the shy rocketing rates.
The freight rate for traveling from Asia to northern Europe, has more than doubled in the past week. The rate has reached $4,000 per 40-foot-equivalent unit container. The price of Asia-Mediterranean has reached $5,175 per container. Some shippings 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 month.
The rate for route from Asia to North America’s East Coast has increased by 55 percentage, increased by $3,900 per 40-foot container. The West Coast prices has climbed to 63 percent to more than $2,700. More shipping containers are expected to start avoiding the East Coast and favour the West Coast ports. The rates are to be raised again starting from January 15, due to the previously announced increases.
The rerouting of shipping from shipping from Egypt’s Suez Canal that feeds into the Red Sea are hurting the capacity of the trade. The trade route via Cape of Good Hope may take two to four weeks, as per Honour Lane Shipping (HSL). Ocean alliances are in need of more ships on each Asia-East Coast route for maintaining the efficient network schedule.
The vessels are not only late in dropping the containers, they are late in getting back to Asia for further loading the containers. HSL are now urging their clients to book their container space four to five weeks in advance to secure a spot. Before, such scenario took place during the Covid-19 pandemic.
