UPDATE: Global Trade at Risk & Ocean Freight Surges due to Red Sea Situation

In the interest of security, major shipping lines including MSC, Maersk, CMA CGM and Hapag Lloyd have announced their vessels will pause the journey passing through Bab al-Mandab Strait – Red Sea – Suez Canal, the chokepoint for global seaborne trade, to avoid repeated Houthis attacks impacting container ship traffic in the Red Sea.

 

The Israeli-Palestinian conflict occurred at a difficult time for the global trade when Panama Canal draught issue has yet been resolved, further disrupting international container shipping transiting the Suez Canal, which accounts for approximately 30% of global volumes by TEU and will impact the supply chain from manufacturers to end users.

 

Panama Canal drought caused delays and diversions to Suez Canal

Since the beginning of the 2023 dry season, Panama Canal Authority (ACP) has significantly reduced daily transit capacity, resulting in much longer waiting time and serious delays for shipment from Far East Asia to US East Coast using the Panama Canal. In response, multiple Asia-USEC services have already diverted from Panama to Suez Canal routes due to the unprecedented drought.

 

Although ACP just updated their projection and adjusted the number of booking slots from 20 to 24 vessels per day in January 2024, it’s still much lower than regular scenario.

 

Cape transport option adds 40% to voyage distance

The suspension to transit the Red Sea by liners and re-routing ships via the longer Cape of Good Hope instead, almost add 40% to the voyage distance. An estimated additional 10-15 days for delivery times could be seen in the market, i.e. additional 20-30 days per ship rotation further stripping out supply of effective capacity and equipment for traditional peak season prior the Chinese Lunar New Year (CNY) period starting from Feb 9, 2024 where demand increases.

 

 

Peak Season Surcharge (PSS) & General Rate Increase (GRI) with effect from 1 Jan 2024

Longer routes do not only mean longer transit time and rising shipping costs by 15% to 20% according to assessment by S&P Global, but also require more ships to maintain weekly service, which can offset some of pressure on freight rates caused by excess nominal capacity and newbuilding deliveries on the supply side. Almost all carriers have begun to increase freight rates on key shipping lanes from Asia westbound which transits through the Red Sea and Suez Canal, such as North Europe, Mediterranean West / East, Middle East & Red Sea and US East Coast trade lanes.

Rate increases are often announced but not usually successful in a loose market. However, if the ongoing security situation in the Red Sea can’t be relieved in short term, the market could easily tighten enough to support the PSS or GRI w.e.f 1 Jan 2024 and another round of GRI following for the 2nd half of January prior CNY.

 

It’s time to book slots for your containers!

To get your business ready for the coming peak season prior CNY, especially amid current challenging times full of volatility and uncertainty, we suggest you make your shipping plan and secure space in advance considering capacity constraints and constant increase of shipping cost. Last but not least, please also expect a late arrivals at destination compared to normal circumstances.

 

We appreciate your continued support and trust. Should you have any questions or enquiries, please don’t hesitate to reach out to us.

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