Red Sea shipping risks will likely continue to exacerbate supply chain disruptions and keep freight rates elevated, despite the recent retaliatory intervention by the West against Iranian-backed Houthis in Yemen, as the market awaits more clarity, shipping sources in Asia said Jan. 12.
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Cadastre-se agora"These events show how volatile the situation in the Red Sea is and will likely remain for the foreseeable future," Rahul Kapoor, vice president and head of Shipping Analytics Research at S&P Global Commodity Insights said.
"We do not expect any normalization of vessels transiting the Red Sea to pre-December levels any time soon and the markets will be on tenterhooks awaiting further clarity in coming days," Kapoor said.
An executive at a shipping company involved in chartering out tankers noted that some charterers and owners were still digesting the development of the US airstrikes in Yemen.
As a result, not many ships were set to be taken or given today in the spot market, the executive said.
There was little reprieve as the Red Sea crisis lingered, an industry source in Singapore said. "Anything can happen ... as long as the US continues to support Israel, the Houthis will likely continue attacking ships," the source said.
Safety of the crew and cargo on board stays a prime concern, said a source at an Asian-based shipping company that has at least one ship transiting the Red Sea waters.
"I can't predict how long this situation [heightened Red Sea shipping risks] would last ... but the jitters are not going to go away that easily," he said.
Another Singapore-based shipping source noted that considering the recent airstrikes and the Houthi's continued commitment to prevent Israeli ships or those heading to the ports of occupied Palestine from navigation in the Arab and Red Seas, it would be prudent to expect a continued escalation of the conflict.
Spiraling costs
Around 12% of global trade passes through the Suez Canal, representing 30% of all global container traffic and over $1 trillion worth of goods annually.
Diverted ships have taken the longer Cape of Good Hope route, which adds about 14-21 days to voyage times, sources said.
The cost of bunker fuel per ton has ratcheted up for shippers because of the extra sailing time, with these expenses already indirectly getting manifested in higher prices of goods including food, a third shipping source in Singapore said.
The situation needs a fast resolution, he said. Compounded with the Panama Canal issue, risks of delayed shipments are likely to stay elevated although some shippers are trying to mitigate risks, he said.
Maersk on Jan. 10 in a statement said it was amending its OC1 service — operating between Oceania and the Americas — as based on current and projected water levels in Gatun Lake, the Panama Canal Authority, or ACP, has made reductions to the amount and weight of vessels that can pass through the canal.
Mounting complexity for container shipping
The world's biggest container shippers, Mediterranean Shipping Company (MSC), CMA CGM, Maersk, Hapag-Lloyd AG, and Evergreen, have all suspended shipping via the chokepoint.
"Container shipping is a web of complex networks, and this kind of unprecedented rerouting via the Cape of Good Hope will certainly lead to the supply chain disruptions, slowing the delivery of cargo to businesses across the UK and Europe," Kapoor said.
"Billions of dollars of cargo will be spending extended time at sea and that is higher inventory costs," Kapoor said, noting that eventually these costs will be passed on to the consumers.
The effect is not only going to be felt immediately but will also have repercussions several months down the line for the supply chain, Kapoor said.
"Retailers must get used to keeping higher inventories as Supply Chain disruptions become a norm" Christian Roeloffs, cofounder and CEO of Container xChange, an online container logistics platform for container trading and container leasing, said in a statement Jan, 12.
The company said that Latin America (East and West), Japan and Korea, and Mediterranean Europe had witnessed the highest increase in container trading spot rates over the last 30 days, tracking the Red Sea turmoil.
"Average rate on China-Europe quoted this week is about $5,400/40-foot HC, up from $1,500 (3X) just the week before," it noted.
Shipping and leasing companies have placed more than 750,000 TEU ISO container orders out of China in the last two months as they demand more containers to avoid the Red Sea, it said.
Platts Container Rate 1 -- PCR 1 -- North Asia-North Europe Westbound spot cargoes were assessed at $6,000/FEU on Jan. 9, a 20% increase on the day and the highest since Sept. 22, 2022, S&P Global reported Jan. 12. The same rate was assessed at $5,750/FEU on Jan. 11 by Platts, part of S&P Global.