The Maersk Sentosa container ship sails south to exit the Suez Canal in Suez, Egypt, Thursday, December 21, 2023.
Stringer | Bloomberg | Getty Images
Attacks on ships in the Red Sea continue to drive up sea freight rates, prompting warnings of inflation and delays for goods.
Airlines have already diverted more than $200 billion in trade from the Suez Canal and the key Middle East trade route linking Yemen to the Mediterranean Sea in the past few weeks to avoid attacks by Iran-backed Houthi militants based in Yemen. ing. Indian Ocean.
Logistics managers say this is causing multiple storms in global trade. These include daily rising freight rates, additional surcharges, longer transit times, and the threat of delays for spring and summer products due to delayed ships arriving in China. A long journey to the Cape of Good Hope in South Africa.
“If issues in the Red Sea and Indian Ocean continue, the supply chain pressures that caused the ‘blip’ part of inflation in 2022 could return,” said Larry Lindsay, chief executive officer of the Lindsay Group, a global economic advisory firm. There is a gender,” he said. The Federal Reserve and other central banks have been raising interest rates to combat high inflation, but the Fed is likely to start cutting rates soon.
“Neither the Fed nor the ECB can do anything about these policies and will likely ‘wait and see’ the inflation they cause, which could lead to rate cuts despite some rising inflation pressures,” Lindsay said. “There is,” he said.
The United States, Japan, Britain and nine other countries issued stern warnings on Wednesday as violence against merchant ships continues. “If the Houthis continue to threaten human lives, the global economy, and the free flow of commerce in the region’s vital waterways, they will bear responsibility for the consequences,” the countries said in a statement. Joint statement.
Meanwhile, around 20% of the ship’s capacity remains unused due to a significant drop in manufacturing orders, industry experts say. Instead, shipping companies continue to reduce their frequency, while tightening capacity and lengthening sailing times are accelerating the rise in freight rates.
Freight rates for cargo from Asia to Northern Europe more than doubled this week to more than $4,000 per 40-foot equivalent unit (container). Asia-Mediterranean prices rose to $5,175 per container. Some carriers have announced fees in excess of $6,000 per 40-foot container for shipments to the Mediterranean starting in mid-month, with additional charges ranging from $500 to $2,700 per container.
A cargo ship crosses the Suez Canal, one of the most important man-made waterways, in Ismailia, Egypt, on December 29, 2023.
Fareed Kotb | Anadolu | Getty Images
“Given the sudden rise in ocean freight prices, we expect these higher costs to trickle down the supply chain as the first quarter progresses,” said Alan Baer, CEO of shipping company OL-USA. “This is expected to have an impact on consumers.” He added that companies will reflect the lessons learned during the 2021-2022 supply chain disruptions and adjust prices sooner rather than later.
Rates from Asia to the East Coast of North America rose 55% to $3,900 per 40-foot container. West Coast prices rose 63% to more than $2,700. We expect more shippers to avoid the East Coast in favor of West Coast ports. Similarly, interest rates are on track to rise again from January 15 due to previously announced rate hikes.
“This is a big deal because it was primarily the decline in commodity prices that eased inflation tensions,” Peter Boockvar, head of investments at Bleakley Financial Group, told CNBC. “And while the fighting in the Red Sea could end at any time once the war in Gaza ends, this means the Fed is content to fight inflation if it doesn’t want to repeat the 1970s. It’s a reminder of what not to do.” ”
Impact of long-haul routes
Diversions from Egypt’s Suez Canal, which flows into the Red Sea, have disrupted shipping capacity. Honor Lane Shipping (HLS) said rerouting the ship around the Cape of Good Hope would take two to four weeks for a round-trip voyage. The Maritime Alliance needs more vessels on each route along Asia’s east coast to maintain an efficient network schedule.
“About 25% to 30% of the world’s container traffic passes through the Suez Canal (mainly for trade between Asia and Europe), and widespread rerouting around Africa would reduce the world’s available container traffic. It is estimated that capacity could be reduced by 10% to 15%,” the memo said. “During the disruption, airlines may need to reduce the number of port calls to offset the impact of long-haul routes.”
Excerpted from handout footage released by Yemen’s Houthi Ansarullah Media Center on November 19, 2023, depicting rebel groups seizing an Israeli-linked cargo ship at an unspecified location in the Red Sea. Members are reportedly seen in the video. Yemen’s Houthi rebels seized the Galaxy Leader and its 25-member international crew on November 20, following previous threats to target Israeli ships over the Israel-Hamas war. warned that Israeli ships were “legitimate targets.”
– | AFP | Getty Images
Longer travel times could also delay the arrival of spring goods, which are traditionally picked up before Lunar New Year in February, when factories close and employees go on vacation. Logistics managers say containers that were scheduled to arrive on the East Coast in December have now arrived. Items include spring/summer clothing, pool and pool supplies, Easter products, patio furniture, and home and garden products.
According to data from maritime intelligence firm eeSEA, ports on North America’s east coast “lost” several calls in December following Houthi attacks and were instead postponed to January. The ships are instead scheduled to arrive in January and February.
As a result, ships are not only delayed in offloading containers to their final destinations, but also in returning to Asia to load containers. As a result, HLS urges customers to reserve container space 4-5 weeks in advance to ensure container space.
This is reminiscent of what trucking companies experienced in the early days of COVID-19.
“During COVID-19, we were booking four to six weeks out,” OL-USA’s Baer said. “Due to COVID-19, there was so much cargo that all ships were full, so we had to anticipate bookings.Currently, we have the capacity, but ships are delayed, so We’re busy securing a container on that ship.”
Shipping companies are also expanding ground freight services for those using ports on the West Coast rather than the East Coast. This is a similar strategy that Hapag-Lloyd deployed during the COVID-19 pandemic, when it was faster to serve customers overland from the East Coast to the West Coast.
This shift in trade will create opportunities for West Coast railroads. union pacific and its subsidiary BNSF berkshire hathaway. The additional containers will also be a boost for trucking companies serving these ports.
“Since the holidays, a significant amount of ships have been heading from Asia to the U.S. West Coast and then to the U.S. East Coast via the Panama Canal, avoiding the Suez Canal,” said Paul Brasher, vice president of drayage and intermodal at ITS. You can see the route.” logistics. “We expect this activity to increase further as we approach the Lunar New Year peak season.”