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January 19, 2024

Latest Advisory on Red Sea Crisis: Global Supply Chains Brace for Uncertainties 

Service Transportation

As the Red Sea crisis continues to unfold, its far-reaching impact on global supply chains has become more pronounced, surpassing even the initial disruptions caused by the COVID-19 pandemic. The Red Sea attacks are causing significant disruptions in service networks.

There are ambiguities surrounding services connecting Asia to Europe and the Mediterranean. The extended transit route around the Cape of Good Hope is significantly affecting the availability and timeliness of vessels for equipment positioning, in addition to adding additional time for transits. 

Changes in Surcharges and Regulatory Permissions

In the United States, carriers are typically required to announce surcharge changes with a 30-day notice period. However, due to the escalating Red Sea crisis, multiple shipping lines have received special permission from the Federal Maritime Commission (FMC) to make announcements with much shorter notice periods. Furthermore, Freight Forwarding Companies (FFWs) have been authorized to pass on cost increments citing the Red Sea crisis. 

Surge in Freight Rates

  • Freight rates have experienced a notable surge. The Drewry composite index has risen by 23% to reach $3,777 per 40ft container this week, marking an 82% increase compared to the previous year.
  • The Harpex index has seen a 12% rise since mid-December, impacting the availability of ships for charter.

Disruptions in Access to Empty Equipment

Service disruptions are not limited to freight rates. Carriers are also grappling with challenges in accessing empty equipment. To address this, carriers have introduced Empty Equipment Imbalance charges on backhaul lanes.

Recommendations from WeFreight to Customers

WeFreight offers several recommendations to its customers in light of the ongoing challenges:

  • Evaluate alternative routes, services, and modes of transport.
  • Prioritise orders, items, and SKUs at a granular level.
  • Plan ahead, taking into account extended lead times.
  • Collaborate with supply chain partners by sharing transport forecasts.
  • Allocate a budget for air-freight options.

WeFreight’s Multi-Modal Solutions

WeFreight provides a range of multi-modal solutions to connect the Asia Pacific region to Europe via the United Arab Emirates. These solutions include:

  • Sea-Air Connectivity, ensuring seamless and efficient transportation for goods between APAC and the EU.
  • Rail Freight options for European destinations originating from APAC.

Red Sea Disruptions: Key Points and Latest Updates

Impact on Vessel Capacity

Impact on Vessel Capacity
( Image source: Sea-Intelligence)

  • Sea-Intelligence reports that longer transit routes around the Cape of Good Hope are reducing vessel capacity for container pickup at ports.
  • The vessel capacity drop is the second largest in recent years, following the Ever Given incident in the Suez Canal in March 2021.

Map Via Cogh Animation Services

Shipping Rates Fluctuate Across Routes

  • The rates for shipping from Asia to North Europe and the Mediterranean experienced a weekly increase of 12% and 21%, respectively. It’s worth noting that these increases, while notable, are relatively modest when compared to the sharp spike observed two weeks ago.
  • Conversely, the back haul from Europe to Asia witnessed a significant weekly surge of 50%.
  • Furthermore, the spot rates for shipping from Asia to the U.S. West Coast (USWC) and the U.S. East Coast (USEC) registered increases of 38% and 35%, respectively. This comes after a week where these rates remained virtually unchanged.

Impact on Companies and Industries

  • Major companies such as Tesla, Volvo, Michelin, IKEA, Next, Crocs, and others are experiencing delays and disruptions in their supply chains due to the Red Sea shipping crisis.
  • Delays in container arrivals are affecting manufacturing and product availability.

Economic and Global Implications

  • Chinese exporters are facing increased shipping costs, impacting their profitability.
  • The disruptions highlight China’s vulnerability to supply chain disruptions and external shocks.
  • Some companies are considering diversifying their production sources and “near-shoring” strategies.

The Red Sea shipping disruptions continues to have far-reaching consequences for global supply chains, affecting vessel capacity, increasing shipping costs, and causing disruptions across various industries. Companies are grappling with the need to adapt to these challenges, and the situation remains dynamic as stakeholders seek solutions to mitigate the impact.

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