The Red Sea Crisis: The Data Points
With Lunar New Year just around the corner, the global shipping industry is still contending with the challenge of Houthi attacks in the Red Sea, with effects including rising freight rates, longer transit times, increased emissions, container shortages, and potential import hub congestion.
Let’s dive into the current state of Red Sea crisis. First, a visual overview:
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The Security Situation in Yemen
The Pentagon is closely monitoring the situation in Yemen and believes that the joint US and UK military strikes in the region have been effective in weakening the Houthi rebel group. These strikes are primarily aimed at reducing the Houthi’s ability to carry out attacks on ships in the Red Sea. However, despite these efforts and ongoing diplomatic pressure, the attacks persist, causing significant disruptions to container traffic in the Suez Canal region.
Impact on Ocean Carriers and Ports
Operational challenges for ocean carriers
The ongoing security concerns in the Red Sea and Middle East have forced ocean carriers to make adjustments to their operations. They are now omitting some port calls in these regions, as well as at certain Mediterranean ports. As a result, there have been reports of inventory shortages for European importers as a result of delays and longer shipment transit times.
Congestion in Asian export hubs
While there have been reports of tight space and equipment availability at Asian export hubs, congestion levels have remained relatively low. In fact, there are signs that space and equipment availability may already be improving, which is positive news.
Rising Ocean Freight Rates
Impact on freight rates
Due to the Red Sea challenges and the approaching logistics slowdown of Lunar New Year celebrations, ocean freight rates from Asia to North America have surged. Rates to the West Coast increased by 38% to surpass $4,000 per 40-ft container, while rates to the East Coast rose by 21% to reach $6,000. Rates for Asia to North Europe and the Mediterranean have stabilized at $5,500 and $6,500 per container, respectively.
Efforts to Improve Reliability
To address the longer voyages and enhance reliability, carriers are actively working to add more vessels and adjust their ongoing schedules. It is expected that demand-side pressure will ease after the Lunar New Year, which may contribute to stabilizing or even reducing freight rates.
Shift to Alternative Shipping Methods
Alternative Shipping Methods
The delays in ocean freight have prompted some shippers to explore alternative transportation options such as rail or land-bridge routes. While there were expectations of a significant shift to air and sea-air logistics, the transition appears to be moderate, with sea-air logistics being more affected than air cargo. Similar to ocean freight, demand for these alternatives is anticipated to decrease after the Lunar New Year.
Air Cargo Rates
Freightos Air Index data shows that air cargo rates from China to North America increased by 11% last week, reaching $5.33 per kilogram. However, these rates are still below the levels at the end of December. Conversely, China to North Europe prices have declined over the past two weeks. Notably, Middle East to North Europe prices have surged by 24% in the last two weeks, possibly indicating a shift from ocean to sea-air transport in response to the ongoing challenges in maritime shipping.