The unfolding events in vital maritime passages such as the Red Sea, Suez Canal, and Panama Canal have prompted swift responses from major shipping companies, thereby impacting the container shipping sector. An additional 40% longer route, causing heavy upward pressure in the operating costs is expected to persist as the shipping time extends anywhere between one to four weeks due to the longer route.
Recent missile attacks by Houthi militants in the Red Sea have prompted leading shipping entities like CMA CGM, Hapag-Lloyd, Maersk, and Mediterranean Shipping Co. to temporarily halt transits through the Suez Canal. Additionally, the Panama Canal has been effectively closed to MPV (multipurpose) shipping until at least May, leading carriers to explore alternative routes via the Cape of Good Hope and the Strait of Magellan.
“The situation in the Red Sea has been escalating quite significantly over the last two weeks where Houthi rebels have started to attack the commercial vessels by the big ocean liners. Subsequently the container liners are essentially instructing their vessels to avoid transiting through the Suez Canal and around the Cape of Good Hope adding quite a significant delay and time to their East to West trade journeys.” said Christian Roeloffs, cofounder and CEO, Container xChange, a prominent online container logistics platform for container trading and leasing.
Container xChange reported about the potential disruptions and implication on the Suez Canal in October this year right after the start of the Israel – Hamas – Palestine conflict.
“Now the shares of shipping lines have jumped in anticipation of a post-COVID disruption revival. It will all depend on how navies take this up. Egypt has a significant commercial interest in the functioning of the Suez Canal as it is one of the main revenue drivers and if the diversion happens then it will have a significant impact there.” Roeloffs added.
“As of now, the traffic at the Suez Canal and the Red Sea looks healthy but that can turn around very quickly. If we go by history, then the situation of the Ever Given did create a lot of traffic jam a few years ago, the repercussions of which were felt for months.” added Roeloffs.
Potential Impact on Container Shipping
“About 30% of Israeli imports come through the Red Sea on container vessels that are booked two to three months in advance for consumer or other products, meaning that if the voyage will now be extended, products with a shelf life of two to three months will not be worthwhile importing from the Far East,” said Yoni Essakov, who sits on the executive committee of the Israeli Chamber of Shipping. “Importers will need to increase stock due to the uncertainty and pay much more and others will lose out on their markets as time to market is not competitive.” Essakov added.
Service Disruptions:Vessel schedules may face disruptions due to route changes and heightened security measures.Delays in shipments through both the Suez and Panama Canals could affect delivery timelines.Increased Costs:War risk premiums are likely to rise, affecting carriers and potentially leading to increased freight costs.Alternative routes, such as the longer Cape of Good Hope, may incur higher operational expenses.Trans-Pacific Trade Dynamics:The closure of the Panama Canal may shift market dynamics, impacting routes and cargo volumes.The West Coast is expected to regain market share as carriers adjust their strategies.
“The Red Sea, especially with the Suez Canal, is like a superhighway for shipping containers, connecting different parts of the world, particularly Europe, Asia and Africa. However, recent disruptions are poised to escalate operational costs, adding significant strain, while concurrently exerting downward pressure on profits. It marks a disheartening beginning to the strategic planning for the year 2024,” expressed Christian Roeloffs.
The Red Sea trade route is strategically significant due to its role in connecting the Mediterranean Sea to the Indian Ocean, providing a shortcut for ships traveling between Europe and the countries in Asia and Africa. The 193-km long canal accounts for 12 percent of global trade, including 30 percent of all container movement. A huge amount of Europe’s energy supply, palm oil and grain come through the Suez Canal Waterway which also gets impacted by these attacks and subsequently by the disruptions thereafter.
Recommendations for Container xChange Users:
Monitor Shipments Closely:Stay updated on the status of your shipments and vessel schedules.Be prepared for potential delays and adjustments to delivery timelines.Evaluate Cost Implications:Assess the potential impact of rising war risk premiums on freight costs (freight rates have already shot up by 20% as reported by Xeneta).Consider alternative routes and their associated operational expenses.Communication with Partners:Maintain open communication with shipping partners to stay informed about changes.Collaborate closely with carriers to address any specific concerns or requirements.
