The Red Sea crisis continues to exert substantial influence on global supply chains, introducing notable disturbances to major container shipping companies and driving up shipping expenses. The ramifications of this ongoing conflict stretch beyond geopolitics, instigating a reassessment of the interplay between maritime and air transport. In this narrative, we delve into the diverse consequences of the crisis, endeavoring to discern how the shipping industry’s ability to adapt will mould the enduring equilibrium between maritime and air cargo within the intricate web of global supply chains.
The Houthi movement, a Shia militant group supported by Iran in the Yemeni civil conflict against Saudi Arabia and its allies, with a primary objective of targeting vessels affiliated with Israel and its allies, aims to exert pressure for the cessation of the conflict in Gaza. This position has resulted in multiple incidents of attacks, causing disruptions to commercial ships in the vital maritime route spanning from the Suez Canal in Egypt through the Red Sea to the Bab al-Mandab Strait, making it a perilous zone for cargo ships.
This perfect storm of disruptions has forced four of the world’s five largest container shipping companies – AP Moller-Maersk, Hapag-Lloyd, CMA-CGM, and MSC to take strict measures, from nitially suspending their services in the Red Sea to now eventually looking at rerouting the maritime traffic. This has led to a sharp increase in shipping costs, with ocean freight rates between various regions increasing substantially.
About 15% of world’s shipping traffic, including 30% of global container trade, passes through the Suez Canal to and from the Red Sea. However, reports suggest that with rising tensions at the Red Sea about 95% of vessels have rerouted around the Cape of Good Hope, adding nearly 4000-5000 nautical miles and 15-20 days to their journey. As of January 18th, 2024, 158 vessels have rerouted away from the Red Sea, carrying over 2.1 million cargo containers.
The implications are far-reaching, impacting freight costs, delayed deliveries, and potentially disrupting global supply chains.
The latest data from Freightos Terminal released as of 19th of January 2024 shows rates for shipping goods from Asia to Northern Europe surged 461% compared to midOctober before the diversion of vessels in the region began. Rates on the route from Asia to the North American East Coast and to the North American West Coast have also skyrocketed, climbing a respective 130% and 97% since the end of October. It further suggests that carriers have also announced surcharges that range from USD 500 to as much as USS 2,700 per container.
As per news reports, as of 19th January 2024, logistics managers were quoted freight rates of USD 10,000 per 40- foot container from Shanghai to the U.K. Last week, rates were USD 1,900 for a 20-foot container, to USD 2,400 for a 40-foot container.
In addition to this, the delays caused by the Red Sea attacks and rerouting have also affected the availability of containers returning to Asia. Experts believe that the only relief will come from new vessel deliveries.
Additionally, a multinational defense force, Operation Prosperity Guardian, has been set up to safeguard commercial shipping, which has further impacted the shipping industry.
Navigating the situation at hand, Ruby Abidi (Director-Air Cargo, Cargo Partner Logistics) shares that they have been considering their routes carefully, and the choice of shipping lines, while also keeping all their customers up to date with advisories and market newsflashes.
Where on other hand, Pratul Shekhar (Senior Director-Airfreight, DSV) shares how they have been meeting consumer needs with multi- modal transportation in the wake of the crisis.
“The leadership team is engaging with relevant authorities, and stakeholders to get real-time updates and assessments. We are constantly evaluating alternative routes and providing solutions using a mix of all modes Land, Rail, Sea, and Air; keeping in mind security during transit. Safety and security of both personnel and cargo is always our top priority,” he says.
Red Sea Crisis: Impact on Indian Trade
The Red Sea crisis threatens India’s trade, especially since 80% of India’s exports to Europe travel via Red Sea. Shipping costs have surged, leading to longer routes or delays. Mediterranean Shipping Company (MSC) and CMA CGM have suspended/blanked sailings from India.
The detour via Cape of Good Hope impacts reliability and necessitates service realignment. Rerouting affects 25% of India’s trade, particularly to Europe, US East Coast, North Africa, and Russia.
Hardest-hit sectors include refined petroleum, chemicals, plastics. These products, known for their slim profit margins, present a challenge for companies in absorbing additional shipping costs. High-value, low-volume items like diamonds can use air transport to mitigate the impact.
The Russia-Ukraine war and the Red Sea crisis compound challenges for Indian exports to the EU. Basmati rice exports face quality degradation and higher freight costs due to longer transit times.
Delays threaten India’s manufacturing sector, which relies on components from Europe, Korea, Japan, and other regions. The crisis also impacts oil-importing countries like India, as supply routes for some suppliers are disrupted.
BMI, a unit of Fitch Group, warns that India’s economic forecast faces significant risk if disruptions persist, while World Economic Forum (WEF) President Borge Brende also sounded alarm on the negative impact of increasing oil prices (in the light of the crisis) on the oil-importing nations. He said it would lead to a USD 10-20 increase in oil prices in India, which could have negative effects on its economy.
“Around 95% of vessels are being rerouted to the Cape of Good Hope, which adds up to 6,000 nautical miles and about 20 extra days to the overall journey. While the sea route has been deeply affected, the air route is seeing an upsurge in demand. Some customers are opting to ship the containers to the Middle East and then to Europe via air,” CK Govil, President Air Cargo Agents Association of India (ACAAI)
This is an abridged version of the special feature story published in the February edition of the Logistics Insider Magazine. To read the complete story, click here.
Logistics Insider Magazine: February issue 2024 (Digital issue)