RED SEA UNREST CAUSES SHIPPING COSTS TO SOAR

RED SEA UNREST CAUSES SHIPPING COSTS TO SOAR

 

 

Container shipping rates for key global trade routes have soared this week, with U.S. and UK air strikes on Yemen stirring fears of a prolonged disruption to global trade in Red Sea, one of the world's busiest routes.

 

U.S. and British warplanes, ships and submarines launched dozens of strikes across Yemen overnight, retaliating against Iran-backed Houthi forces for attacks on Red Sea shipping, widening regional conflicts.

 

Most container ships already were avoiding the nearby Suez Canal, a shortcut between Asia and Europe that handles 12% of global trade. Now, U.S. and UK militaries have advised all ships to steer clear of the conflict zone. That stoked fears that rates for oil tankers and bulk carriers that ferry vital commodities could surge, raising the risk of a new round of global inflation.

 

The benchmark Shanghai Containerized Freight Index was up over 16% week-on-week to 2,206 points on Friday. The index, which measures non-contract "spot" rates for container shipments out of China's ports, has gained 114% since mid-December.

 

Rates on the Shanghai-Europe route rose 8.1% to $3,103 per 20-foot container on Friday from a week earlier, while the rate for containers to the unaffected U.S. West Coast soared 43.2% to $3,974 per 40-foot containers week on week.

 

Major players in the ocean shipping industry that handles upwards of 90% of global trade are bracing for months of cost-stoking upheaval.

 

Even if from today forward the Bab al-Mandeb Strait was to become safe and secure for transit, It is still widely expected it will take a minimum two months before vessels can assume normal rotational patterns.

 

Major container ship owners such as MAERSK and HAPAG-LLOYD have switched Suez Canal-bound ships to the longer route around Africa's Cape of Good Hope. That has sent delays cascading through complex vessel schedules. Rates have at least doubled from a month ago on the most affected routes but remain below the pandemic's record highs.

 

On Friday, four oil tankers turned around mid-voyage to avoid the Red Sea and five others either made diversions or paused navigation.

Rerouting a ship around Africa adds roughly 10 days and $1 million in fuel costs for each one-way voyage between Asia and Europe.

The situation is expected to last or intensify for the next few months unless a solution is reached in the Middle East conflict, and cooler heads in the region prevail.

 

In the meantime, the cost of commodities and goods around the world will be highly effected and it wouldn't bode well for developing economies around the world. The chain of reaction may cause slugging demand and delay of orders and shipments from clients around the world.

 

Ambition will work closely with our clients through the current situation and monitor the shipping rates closely.