Container Shipping Rates Reach Record High Due To Red Sea Disruption

Concerns over an ongoing disruption to international trade have led to a notable spike in container shipping prices on major global routes during a week characterised by rising tensions and military manoeuvres in the Red Sea. The U.S. and U.K. airstrikes in Yemen, which were intended to oppose the Houthi rebels backed by Iran and responsible for attacks on Red Sea shipping, served as the spark for this upsurge.

Being one of the busiest waterways in the world, the Red Sea is vital. The Suez Canal, a crucial route for nearly one-third of container ship freight from Asia to Europe, is being avoided by container ships more frequently due to military operations. There’s concern that bulk carriers and oil tankers would also avoid this bypass, increasing the possibility of another wave of worldwide inflation.

The benchmark Shanghai Containerized Freight Index reached 2,206 points on Friday, a startling 16% weekly increase. Since mid-December, this index—which gauges non-contract “spot” rates for container shipments out of Chinese ports—has seen an astounding 114% increase. Significant owners of container ships, such as the industry giants Maersk and Hapag-Lloyd, have rerouted vessels headed for the Suez Canal to take a longer path around Africa’s Cape of Good Hope. This tactical change has interfered with vessel schedules, resulting in delays in the delivery of goods and a significant increase in shipping expenses.

Experts caution that if the Red Sea issue continues, ocean freight shipping may be more severely disrupted, driving up expenses. The chief analyst at Xeneta, a freight platform, Peter Sand, stressed, “We are looking at months rather than weeks or days before this crisis reaches any kind of resolution.” Significant importers are already feeling impacts from the Red Sea situation. Tesla said that it would be temporarily stopping manufacturing of cars at its factory near Berlin because of component shortages brought on by delays related to the Red Sea issue. Global furniture retailer IKEA has also released alerts regarding possible product delays.

According to analyst Omar Nokta of Jefferies, rerouting ships across Africa adds almost $2 million in fuel expenses for each round-trip from Asia to Northern Europe. Carriers are adding surcharges to their fares to recover these extra costs, further driving shipping rates.

Consumers complain that ship operators are forcing some shipments into the more expensive spot market by limiting access to less expensive, contract-rate capacity. The China Containerized Freight Index rose by 21.7% to reach 1,140 points on Friday and saw its most significant increase ever.

Reference: Reuters

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