Business Bayani PH

In the face of persistent attacks in the Red Sea, six major container carriers, including Maersk, MSC, Hapag-Lloyd, ZIM, ONE, and CMA CGM, are diverting their routes. This redirection accounts for a significant 62% of global shipping capacity. The attacks, orchestrated by the Houthi rebels, have prompted this strategic shift as a defensive measure against potential threats.

Most Asian carriers, like Evergreen, HMM, Yang Ming, OOCL, and COSCO, are sticking to the Suez route. This impacts global shipping significantly, causing more fuel use, longer travel times, and higher container rates for shippers, as noted by Judah Levine, head of research from Freightos Group.

Levine highlighted the escalating costs, saying, “The diversions are leading to higher costs for carriers using more fuel and more ships for the longer journeys around the south of Africa, and higher container rates for shippers.”

The geopolitical tension has further prompted COSCO to join OOCL in ceasing Israeli port calls, potentially as a strategic move to avoid becoming a target of Houthi attacks.

These diversions are translating into surging freight rates. According to Levine, the Freightos Baltic Index daily rates for Monday revealed a 69% increase in ex-Asia lanes to North America East Coast, reaching $4,234/FEU since diversions began in mid-December. Similarly, Asia to North Europe rates surged by 226% to $4,789/FEU, and Mediterranean prices spiked by 116% to $5,202/FEU.

Levine emphasized the impact on prices, saying, “Prices are likely to continue climbing in the near term as mid-month GRIs and additional surcharges come into effect.”

As a result of the Red Sea diversions, backhaul rates on these lanes have doubled or more as carriers attempt to offset rising costs. Meanwhile, Asia to North America West Coast rates have risen by 74% to $2,713/FEU since mid-December.

Reports suggest that shippers may be shifting volumes to the West Coast to avoid delays on the East Coast, with anticipated rates climbing to $5,000/FEU next week.

Scheduled rate hikes on unaffected lanes signal tightening market capacity. For instance, a substantial increase to at least $5,000/FEU for transatlantic routes in February implies potential schedule disruptions and port congestion at import hubs.

Shippers are increasing demand by shipping earlier to handle longer transit times. Also, due to the upcoming Lunar New Year holiday starting on February 10th, Chinese manufacturers are hurrying to send out orders before the slowdown.

Analysts predict that the next couple of weeks will likely witness the worst in terms of capacity shortages and possible congestion. As demand eases in late January, the industry may experience a reprieve, but elevated freight rates are expected to persist until container traffic fully resumes in the Red Sea.

Even with potential rate climbs to the $6k-$8k/FEU range, these figures would still be significantly lower than the peak levels seen during the pandemic. Rates reaching $15k/FEU for Europe and the Mediterranean and $22k/FEU for North America East Coast containers were driven by an extreme surge in volumes and port congestion.

Levine mentioned that Jeffries, an investment bank, upgraded its outlook for container carriers in 2024, expecting better profits with shifting rate conditions. Carrier stocks, sensitive to signs of Red Sea traffic improvement, mirror these expectations.

Recent reports suggesting carrier negotiations with the Houthis for safe passage led to a drop in carrier shares. However, companies like Maersk and Hapag-Lloyd denied engaging in talks with the Houthis.

In response to longer ocean transits, some volumes are expected to shift to air cargo. Freightos Air Index rates for Asia to North America remained steady, while rates to North Europe continued to decline. However, China to North Europe rates on Monday rose to $4.11/kg, a 38% increase compared to the end of the year, possibly indicating an uptick in demand resulting from disruptions in the Red Sea.◼