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January 12, 2024

Advisory: Red Sea Shipping Crisis Threatens Economic Growth and Disrupts Major Trade Routes

Red Sea Shipping Crisis

WCI Spot Rate Index: Drewry’s WCI spot rate index shows a substantial increase in shipping rates from Asia to Europe, rising by over 200% since the onset of the Red Sea Crisis, although still below the peaks seen during the pandemic.

Mediterranean to North Europe Rates: Shipping premiums from the Mediterranean to North Europe have surged to $800 per FFE, a stark increase from the previous rate of $250.

Backhaul Rates: Backhaul rates from North Europe to Asia have also increased by 44%.

Far East-Persian Gulf Route: Reflecting economic growth in the Middle East, the Far East-Persian Gulf route has seen a 20% increase, with approximately 150 ships now using this route.

Shift from Suez Canal: Due to security threats, 80% of vessels have shifted from using the Suez Canal to the Cape of Good Hope route.

Activity in Red Sea: Despite the challenges posed by the crisis, smaller shipping lines are still active in the Red Sea.

Far East-Persian Gulf Rates: Rates on the Far East-Persian Gulf route have doubled year-over-year to $2,340 per TEU.

WeFreight Recommendation

In light of these shifts and the upcoming Chinese New Year, WeFreight recommends early booking, preferably at least two weeks in advance, and encourages customers to contact local offices for supply chain planning.

Red Sea Disruptions: Key Points and Latest Updates

UN Security Council’s Stance

  • In more Red Sea crisis news, the UN Security Council has called for an immediate halt to attacks in the Red Sea region.

Impact on Global Trade and Economy

  • Vincent Clerc, CEO of Maersk, warns of uncertain resumption times, ranging from days to months due to the Red Sea attacks.
  • With the Red Sea shipping route becoming dangerous to traverse, Maersk, MSC, and CMA CGM are among the major shipping companies who are rerouting vessels away from the Red Sea to circumnavigate Africa, significantly increasing journey times and freight rates.
  • This ongoing disruption poses a serious risk to global economic growth.
  • Maersk has decided to avoid the Red Sea for the foreseeable future, impacting the fastest route between Europe and Asia through Egypt’s Suez Canal.

Red Sea route

Alternative Routes and Delays

  • Ships are now taking a longer route around the southern coast of Africa, adding two to four weeks to Europe-Asia voyages.
  • Strikes in Germany are causing additional delays in inland transportations.

Security Concerns and Operational Changes

  • The Red Sea shipping disruptions has led to a drastic reduction in vessels using the Suez Canal route, a major artery for global trade.
  • The US-led naval operation ‘Prosperity Guardian’ has not yet been able to secure safe passage for resumed transit.

Additional Impact on Shipping Rates

Recent data from Xeneta, released on 9 January, indicates a dramatic surge in ocean freight shipping rates due to the crisis.

  • Rates between the Far East and North Europe have soared by 124% since mid-December 2023.
  • Shipping rates from the Far East to the US East Coast have risen by 45%.
  • Rates into the Mediterranean have escalated by 118%.

Experts view Maersk’s announcement on indefinite suspension of all transit through the region, extending “for the foreseeable future as a pivotal moment in the crisis, signalling a major shift as shippers strive to safeguard their supply chains”.

Trade Flow Disruption

  • The number of vessels entering the Red Sea has nearly halved since mid-December.
  • Container vessels, particularly those carrying general cargo, are most affected by these reroutes.
  • Container rates on the Asia-Europe route have more than tripled, and global average rates have doubled.

Comparison with Pandemic Disruption

  • The current disruption is different from the pandemic-related supply chain issues.
  • It is masking underlying overcapacity in the shipping industry.
  • Shippers are considering alternative transport methods, including airfreight, though airfreight rates have not yet significantly increased.

Long-Term Outlook

  • The duration of the disruption is uncertain, with potential long-term effects on freight rates and global supply chains.
  • The situation remains dynamic, with the industry exploring various options to mitigate delays and cost increases.

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