The onslaught of cargo ships redirected away from the conflict-riddled Red Sea seems to be spiking ocean freight rates.
Drewry’s World Container Index (WCI), which measures ocean spot freight rates across eight major trade lanes, increased by 61 percent to $2,670 per 40-foot container week over week as of Thursday. Machine Roomless Passenger Elevator
The two Asia-to-Europe trade routes impacted directly by the rerouting saw the largest leaps in container prices. The Shanghai-to-Rotterdam lane skyrocketed 115 percent to $3,577 per container, while the Shanghai-to-Genoa route shot up 114 percent to $4,178 per container.
It’s getting more expensive to ship goods from from Asia to the U.S., too. Shanghai-to-Los Angeles cargo prices shot up 30 percent to $2,726 per container, and Shanghai-to-New York rates rose 26 percent to $3,858 per container.
Rising spot rates are likely to continue in the short term, said Jason Miller, interim chairperson for the department of supply chain management at Michigan State University’s Eli Broad College of Business.
“My guess is that we will see additional increases because many importers are rushing to get products out of China before Chinese New Year begins in February,” Miller told Sourcing Journal. “Once Chinese New Year begins, I anticipate upward rate pressure will slow.”
As of Thursday, 405 vessels have been impacted by the Red Sea situation, according to data from transport and logistics company Kuehne + Nagel. The total capacity impacted is estimated at 5.56 million 20-foot equivalent container units (TEU). Related Stories Topics Maersk Issues New Update on 'Volatile' Red Sea Topics CMA CGM Says Red Sea Ship Unharmed After Militants Claim Attack
Container shipping giants like Maersk, MSC and CMA CGM have rerouted vessels around southern Africa’s Cape of Good Hope to avoid the Suez Canal, where several missile attacks on commercial ships by Iran-backed Houthi militants based in Yemen in protest of the Israel-Hamas war in Gaza.
When asked during a White House press briefing Wednesday if the fallout from the Houthi attacks will become a “pocketbook issue” for Americans, National Security Council Coordinator for Strategic Communications John Kirby said the Biden administration isn’t seeing that yert.
“It would depend on how long this threat goes and on how much more energetic the Houthis think that they might become,” Kirby said. “I mean, right now, we haven’t seen an uptick or a specific effect on the U.S. economy.”
In a post on X, formerly known as Twitter, Flexport CEO Ryan Petersen stressed that rising freight rates reflect longer shipping times and lower capacity.
John McCown, non-resident senior fellow at the Center for Maritime Strategy, said the diversions are having a “quite real” impact on capacity.
“The simple math is that the Asia-Europe container trade lane represents 25 percent of worldwide container miles in terms of overall capacity. All of that typically goes through the Suez, and going the long way around Africa adds 1/3 to the distance,” McCown said. “That means to have the same capacity in the lane, you need to pull 8 percent from other places. If it’s vessels that are laid up, it doesn’t impact vessel capacity, but those vessels will still be drawing on worldwide container equipment capacity. Where vessels are pulled from other trade lanes, there is an impact on both vessel and equipment capacity.”
These changes tend to result in knock-on effects elsewhere, McCown told Sourcing Journal, adding that the network effects will quickly drive capacity concerns in other markets.
As more ships come online this year, Miller said the influx of container shipping capacity leaves the status of contract rate negotiations up in the air, particularly as container demand “growth in 2024 is likely to be quite weak.”
Almost two weeks after Ikea warned of product shortages and delays due to the rerouting, U.K.-based retailer Next said continued difficulties with Suez Canal access is likely to delay stock deliveries in the weeks ahead.
According to Bloomberg, Next expects deliveries delays of up to 2.5 weeks.
In an earnings call, Next Plc CEO Lord Simon Wolfson said the supply chain snafu is “an inconvenience” but “not a crisis,” noting that the fashion and home goods retailer has sufficient stock in warehouses and stores.
“We’re not going to suddenly go from having lots of stock in our shops to none,” Wolfson said. “Those stock levels might reduce by a couple of weeks, but it’s not going to leave us threadbare because of the nature of clothing retailers. We need to have quite a big stockholding at any one point in time.”
Currently, Next isn’t expecting to have to increase prices as a result of the supply chain issues. But if it does, the hike will be less than 1 percent, Wolfson told Bloomberg.
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