By K Raveendran
The shipping industry is keeping its fingers crossed till the Gaza-Houthi triggered crisis in Red Sea-Suez Canal areas lasts. The duration of the current situation is what matters. A temporary disturbance – a perceived bump in the road – and the industry may cope. But, if it lasts, with container vessels forced to divert around the Cape of Good Hope, and the inaccessibility of critical ports will add to the strain.
The Red Sea, especially with the Suez Canal, is like a superhighway for shipping containers, connecting different parts of the world, particularly Europe, Asia and Africa. However, ongoing disruptions will escalate operational costs, adding significant strain, while concurrently exerting downward pressure on profits. It marks a disheartening beginning to the strategic planning for the year 2024.
The Red Sea trade route is strategically significant due to its role in connecting the Mediterranean Sea to the Indian Ocean, providing a shortcut for ships traveling between Europe and the countries in Asia and Africa. The 193-km long canal accounts for 12 percent of global trade, including 30 percent of all container movement. A huge amount of Europe’s energy supply, palm oil and grain come through the Suez Canal Waterway which also gets impacted by these attacks and subsequently by the disruptions thereafter.
A lingering question is when naval forces, particularly from Egypt, Great Britain, France, and the US, will take control of security in the Red Sea.
It is significant that the crisis is at a time when shares of shipping lines have jumped in anticipation of a post-Covid disruption revival. It will all depend on how navies take this up. Egypt has a significant commercial interest in the functioning of the Suez Canal as it is one of the main revenue drivers and if the diversion happens then it will have a significant impact there.
According to Container Xchange, the platform for the logistics industry, a consistent pricing trend has been observed in the surge of freight rates, with increases of 20 to 30 percent on major East-West corridors in the spot prices. Up to 77 million TEU of capacity, accounting for 5 to 6 percent of the market’s total capacity, is affected.
Missile attacks by Houthi militants in the Red Sea have prompted leading shipping entities like CMA CGM, Hapag-Lloyd, Maersk, and Mediterranean Shipping Co. to temporarily halt transits through the Suez Canal. Additionally, the Panama Canal has been effectively closed to multipurpose shipping until at least May, leading carriers to explore alternative routes via the Cape of Good Hope and the Strait of Magellan.
According to the platform, the market anticipates that especially in Europe which is on the receiving end of import containers from the Middle East, India, Southeast Asia and China, that container scarcity will lead to an increase in container prices and the market. Ports at the receiving end of those import containers like the port of Rotterdam and Hamburg, are recording a significant increase in container prices over the last two weeks, since the situation in Red Sea started to escalate.
Some of the main ports in Germany like Rotterdam, Hamburg, Bremen are posting significant week on week price increases and of course the interpretation is that the situation in the Red Sea has contributed to this increase.
The situation in the Red Sea has been escalating quite significantly over the last two weeks where Houthi rebels have started to attack the commercial vessels by the big ocean liners. Subsequently the container liners are essentially instructing their vessels to avoid transiting through the Suez Canal and around the Cape of Good Hope adding quite a significant delay and time to their East to West trade journeys.
An additional 40 percent longer route, causing heavy upward pressure in the operating costs is expected to persist as the shipping time extends anywhere between one to four weeks due to the longer route.
Israel has been particularly affected due to the shipping crisis. About 30 percent of Israeli imports come through the Red Sea on container vessels that are booked two to three months in advance for consumer or other products, meaning that if the voyage will now be extended, products with a shelf life of two to three months will not be worthwhile importing from the Far East. (IPA Service)
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