Even with an international naval force in place, Houthi attacks on commercial vessels in the Red Sea continue. As a result, widespread reroutings of ocean container traffic away from the Suez Canal continue, and ocean freight rates have begun to spike. This dispatch includes an update on the attacks and the ensuing implications for global freight.
Red Sea Task Force Still Proving Insufficient
The US-led international naval task force – Operational Prosperity Guardian, which was unveiled in mid-December, now has member vessels in place in the Red Sea. But even so, the Houthis seem undeterred as attacks continued last week and as recently as Saturday, marking 23 commercial vessels targeted since mid-November, with the latest targeted vessels having no apparent ties to Israeli ownership or trade.
Saturday’s attack on a Maersk container vessel – significant because the carrier had recently announced it would reroute back through the Suez Canal – marked an escalation as, in addition to being struck by a rocket and attacked by drones, several Houthi small boats approached and fired on the vessel in an apparent hijacking attempt.
The US response was escalated too; a Navy helicopter sunk three Houthi boats, reportedly killing ten. The UK says it is considering targeting Houthi positions in Yemen in response to the continued aggression. Regional tensions continue to grow, with an Iranian warship entering the Red Sea on Sunday and Iran’s news agency stating that Iranian naval vessels have periodically been in the Red Sea “” to secure shipping lanes, repel pirates, among other purposes since 2009.” And Houthi missile attacks have continued into the New Year even after the US response and UK threats.
Suez Canal Freight Shipping Update
Most container carriers are continuing to divert their vessels away from the Red Sea even with the force patrolling. Two – Maersk and CMA CGM – had resumed some Red Sea sailings as of late last week, and announced that they would gradually return in full when possible. Following the attack on their vessel on Saturday, though, Maersk first suspended all Red Sea transits for 48 hours, and then extended the suspensions until further notice.
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Long transit time and Potential Congestion Looms
The longer voyages for diverted services – ranging from 7-14 days of additional sailing depending on the lane – mean longer lead times for importers and some threat of port congestion if updated schedules can’t be maintained and multiple vessels arrive at once, though so far there have not been reports of backlogs.
This impacts more than just the one-way trip.
Carriers are adding additional vessels to their rotations and are sailing faster to keep up with regular departure schedules in Asia, but the longer return trips will mean more time required to repatriate empty containers and could lead to shortages at Asian origin ports. MSC is changing “free time” requirements for North American importers to try and get empty containers returned more quickly.
If carriers begin to omit port calls and offload containers at alternate destination ports to keep up, it could contribute to delays for shippers and the possibility of congestion at larger hubs. This is no longer taking place during the holiday lull either; demand may be increasing as shippers start to pull forward volumes to make up for longer transit times and in preparation for China’s Lunar New Year holiday in early February. Together, this could increase the risk of congestion.
The number of impacted Asia – N. America vessels will also be higher than usual as several carriers had already rerouted some services – that normally transit the Panama Canal on their way to the East Coast – to the Suez to avoid possible Panama Canal drought-driven delays and extra costs. The US West Coast may also be impacted in the form of an increase in volumes as some shippers are considering shifting away from the East Coast to avoid the increase in transit times for time-sensitive shipments.
But, even with the threat of some congestion and equipment shortages, carriers are much better-positioned to accommodate operationally for these diversions when compared to the disruptions seen during the pandemic. In 2021 and 2022 an extreme surge in demand for goods that overwhelmed ports was the main culprit of disruptions and spiking rates. With the industry already facing significant overcapacity as new vessels continue to be delivered, carriers are aiming to activate those idle ships to maintain updated schedules and keep container traffic flowing.
Impact on Container Rates
The longer, more expensive, journey for Asian container trade with European, Mediterranean and N. America East Coast destinations is leading to spiking freight rates as new base prices and surcharges are being introduced in January.
Freightos Terminal data shows that Asia – N. Europe rates have increased 173% compared to just before the diversion announcements, to more than $4,000/FEU. Asia – Mediterranean prices have doubled to more than $5,000/FEU. These rates are more than double prices in January 2019. Carriers have also announced surcharges ranging from $500 to as much as $2,700 per container which could push the all-in prices paid by shippers even higher.
Rates to N. America’s East Coast have climbed 52% to $3,900/FEU, 30% higher than in 2019. Some carriers have added significant surcharges for India – N. America containers, and $500/FEU surcharges for all Asia – N. America shipments starting in mid-January, though surcharge announcements for N. America have not been widespread so far. Prices to the West Coast have also increased sharply, climbing more than $1,000 per container to $2,713/FEU, possibly reflecting some anticipated shift in demand to the West Coast to avoid the increased transit time to the East Coast.
With surcharges, if all-in prices reached the $5k – $8k per container range for these major ex-Asia tradelanes, those rate levels would be 2.5 to 4 times above normal levels for this time of year.
But, again, compared to the pandemic years, carriers have the available capacity to address diversions and demand will remain at about pre-pandemic levels. The additional costs and capacity taken up by the longer transits will push rates up significantly, but even at $5,000 – $8,000/FEU, Asia – N. Europe and Mediterranean prices would be 45% – 65% lower than their $14k/FEU pandemic peak in late 2021, and 65% – 75% lower compared to the Asia – N. America East Coast peak of $22k/FEU.
Still No Major Air Cargo Ramifications
In air cargo, some analysts are expecting the delays in ocean freight to lead to some shift of more urgent volumes to sea-air services or air cargo alternatives. So far there have not been reports of any significant air cargo bump, though. Freightos Air Index rates for Asia – N. America were level last week, while Asia – N. Europe prices decreased.
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