Renewed Escalation in the Red Sea Crisis, Imminent Surge in Freight Costs
On the 26th of December, a Mediterranean Shipping Company container vessel was subjected to an attack while transiting the Red Sea in the afternoon. This incident marks a further escalation of the ongoing Red Sea crisis. As a result, major global shipping companies have been forced to reroute their vessels around the Cape of Good Hope, inevitably leading to increased transport costs and notable delays.
Prior to this incident, it was reported that both Maersk and Hapag-Lloyd were in the process of drafting plans to reestablish their navigation routes through the Red Sea. However, in light of this recent attack, the decision by Maersk and Hapag-Lloyd to resume their operations via the Suez Canal will depend on further official updates and the evolving situation on the ground.
Currently, for these shipping firms, resuming normal transit routes is a complex challenge, with route safety being their utmost priority.
The Red Sea-Suez Canal corridor serves as a pivotal maritime route linking China and various Asian nations with Europe, its strategic geographical significance goes without saying. The current dynamics in the Red Sea have markedly influenced the shipping markets on routes such as Asia to Europe, particularly manifesting in substantial freight rate fluctuations.
A report from CNBC highlights this impact, revealing that the cost for transporting a 40-foot container from Shanghai to the UK has escalated dramatically, reaching a staggering $10,000 – a sharp increase from the $2,400 just a week earlier. Concurrently, the freight rates for trucking in the Middle East have surged, doubling at the very least.
A freight forwarder dealing in bulk imports from China to the UK reported that shipping companies are declining to take on his heavier containers, even though he has been quoted a rate of $3,000 per 20-foot container.
A mere month ago, the rate was just $435 for the same size,’ he remarked.
Peter Sand, the lead analyst at Xeneta, a firm specializing in freight rate analytics, observed, “The onset of the Lunar New Year, combined with the anticipated surge in seasonal demand, is exacerbating the already strained circumstances for all stakeholders involved.
Data published by DEXUN reveals that, as of December 22nd, the Red Sea turmoil has impacted a total of 313 vessels. These ships collectively boast a capacity of approximately 4.2 million TEUs. MDS Transmodal, a specialist in maritime transportation data, has valued the rerouted cargo at around $105 billion.
This development is exerting additional cost pressures on the Chinese trading sector. The Shanghai Export Containerized Freight Index, specifically for the Europe route, recorded a value of 1204.81 points as of December 25, 2023, marking a 21.7% hike from its preceding value. Notably, this surge in container freight rates is not a consequence of renewed external demand. In fact, with the ongoing slump in external orders, this increase in freight costs could potentially further dampen external demand.