Red Sea Crisis

January 29, 2024

We are 29 days into 2024 and a month has gone by since the major carriers began re-routing around Africa due to the Red Sea crisis.

The new year has unsurprisingly started with a continuation of the uncertainty created by the attacks on the vessels of the leading container lines Maersk & Hapag-Lloyd on December 15th.

Since then, a significant number of container vessels are still on hold in the Red Sea not going anywhere. Going south continues to pose risks, whereas going around Africa would be a costly transit to get back north to the Mediterranean.

Several ultra-large containerships, previously stranded in the Red Sea due to the conflict between the Houthis in the south and the costly transit through the Suez Canal to the north, have begun to resume their journeys.

But let’s bear in mind the challenges the carriers are facing:

  1. Waiting for a safe southbound transit – postpone operations until it is deemed safe to proceed southbound. The duration of this wait remains uncertain,
  2. revert north through Suez and navigate Africa – opt for a northern route through the Suez Canal, sailing across the Mediterranean, and then circumnavigating the African continent. The associated transit costs and fuel expenses alone are anticipated to surpass 2 million USD per vessel.

Let us try to get some proportions into the discussion surrounding the cost of avoiding the Red Sea.

Headlines create the impression that global trade itself is under threat which is not the case. While it’s evident that some shippers are facing significant challenges, resulting in high freight rates, it’s essential to recognize that these extremes do not represent the overall market. Globally, world trade has become more expensive, but not at a destructive level.

Shipping costs rise in major trade lanes

Source: Freightos

The escalation in shipping costs caused by longer routes prompted by attacks in the Red Sea can be attributed to various factors. When vessels are compelled to adopt extended routes, several elements contribute to the rise in expenses, including:

Red Sea Crisis

It is evident that some of the price increases carriers are pushing for surpass the added costs linked to sailing around Africa. But before shippers take offense by this, it is worth noting that pricing strategies in most industries, and not just container shipping, are typically based on the supply/demand situation and the customers’ willingness to pay.

Recent attacks have caused significant disruptions to shipping through the important route that connects to the Mediterranean Sea. The latest Houthi attack occurred shortly after the United States and Britain carried out airstrikes on about 30 Houthi targets in western Yemen in response to the threats in the Red Sea.

The US has also announced a 10-country coalition to protect shipping in the area. But this still raises two unanswered questions: When will such a coalition have sufficient naval assets in the area to reassure shipping lines to start going through the channels again? And how do they plan to address the issue of Houthis still being able to launch missiles and drones at will from land?

Just a month ago hardly anyone was prepping their contingency plans for rerouting shipments around Africa. Not that anyone could have made tangible plans, however, it’s worth reflecting on how well-prepared your organization is to suddenly deal with such a problem. With that in mind, you might want to be prepared for additional contingencies if the crisis escalates further.

As the supply chain navigates through these challenges, we are always looking for optimal solutions for our customers.

We continue to monitor the situation closely and keep you informed of any developments that may impact your shipments.

A few of the increases imposed by lines:

Back in late December, Hapag-Lloyd had announced a 500 USD contingency charge for the Atlantic trade. 

MSC announced a new FAK rate from Asia to Med at 7100-7300 USD/FFE valid from 15 JAN.

Maersk has announced a new PSS for East Med to North Europe at a level of 200 USD per container.

CMA CGM has announced an increase in the FAK rate from Asia to North Europe at 3000 USD/FFE on the 1st of January and further up to 6000 USD/FFE on 15th January.

Let’s take a look at some examples from the online schedules of the global who are diverting main vessels around Africa:

Hapag-Lloyd offering Jeddah to Aden in Yemen onboard the feeder services from X-press Feeders. 

CMA CGM using the same feeder also serving Hodeidah port. 

ONE’s online schedule offers Jeddah to Djibouti onboard a Global Feeder Shipping vessel.

Maersk issued an advisory stating that to keep providing us with their global services, they are introducing the Congestion Fee Origin (CFO) for all containers for the scope of: Yemen to World and Maersk is also revising the Congestion Fee Destination (CFD) for the scope: World to Yemen for all containers effective 10th January, 2024.

Did you know?

The first ever ‘cargo only’ flight was recorded in November 1910 in the USA, using a Wright Model B aeroplane that flew 65 miles carrying a package of silk. The business owner used the pioneering transport more as a PR stunt to celebrate the opening of his store, with the bundle of silk cut into individual pieces and glued onto souvenir postcards.

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