The global supply chain is feeling the consequences of attacks by Iran-backed Houthi rebels in the Red Sea. Freight prices are expected to rise on Monday, while longer transit times in Africa are disrupting and delaying product deliveries.
Ships are unable to return to Asia on time and ocean carriers are canceling voyages at short notice as a result of ship diversions, Honor Lane Shipping told its customers in an email.
Spring clothing, footwear, housewares, electronics, patio furniture and pool supplies are just some of the products on these diverted vessels. British clothing retailer Next recently warned of stock delays as a result of longer sea transit. Ikea also warned in December about crises in its own supply chain as a result of the Red Sea.
“Rerouting vessels is causing longer transit times and higher costs,” Jon Gold, vice president of supply chain at the National Retail Federation, told CNBC. “Unfortunately, the longer disruptions last, the more challenges will arise in ensuring supply chain reliability and efficiency.”
Gold said retailers are working on implementing mitigation strategies to avoid further disruption by increasing key shipping orders and diverting shipments to the West Coast.
Longer trips also increase the cost of freight.
“This creates strong motivations for ocean carriers to increase rates by establishing general rate increases (GRI), peak season surcharges (PSS), and other contingency or emergency surcharges,” the company said. “HLS warned that trans-Pacific freight rates could reach levels not seen since early 2022, with the Suez Canal route suspended and the Panama Canal route restricted.”
MSC, the largest shipping company in the world, was the first shipping company to publish rates for the second half of January. Starting Monday, container rates for MSC customers will be $5,000 for US West Coast routes, $6,900 for the East Coast and $7,300 for routes to the Gulf of Mexico.
“This is truly an unexpectedly huge rate increase,” HLS wrote.
Under the US Shipping Act, all ocean carriers must provide 30 days' notice before surcharges or GRIs can be imposed, but the Federal Maritime Commission has exempted shipments from Asia to the US from this requirement. .which detour around South Africa's Cape of Good Hope. .
Kuehne + Nagel analysts told CNBC that 419 vessels are currently being diverted due to the Red Sea situation. Total container capacity is estimated at 5.65 million twenty-foot equivalent units (TEUs or containers), with a total value of $282.5 billion, according to calculations based on MDS Transmodal estimates that the trade of a single TEU It is valued at 50 million dollars.
Ship volume in the Suez Canal has fallen 61% to an average of 5.8 ships per day, compared to volumes before the Houthi attacks, according to logistics data firm Project44. Egypt, which owns and operates the Suez Canal, charges between $500,000 and $600,000 per ship transit. This is causing huge losses for a country already plagued by a declining tourism industry and soaring inflation.
Meanwhile, Tuesday's large-scale attack by the Houthis is fueling expectations that the detour route around the Horn of Africa will further stabilize.
“With most carriers still completely rerouting their routes, we don't see any more divisions than before,” Franziska Bietke, global maritime logistics communications manager at Kuehne + Nagel, told CNBC on Wednesday. “The magnitude of yesterday's attack will likely reinforce global carriers' position that the step is too risky.”
According to Bietke, ship route changes currently occur daily.
“The situation is extremely fluid and volatile,” he said.
Logistics companies are also warning their customers about container shortages. This is something shippers have not experienced since Covid. Due to shipping delays, containers are not located where they should be.
Mark Rhodes, regional director of ocean products for Asia-Pacific at Crane Worldwide Logistics, explained to CNBC that containers arriving in Europe via the diverted route will need to return to manufacturing hot spots in Asia.
“The container shortage remains fresh in our minds from the COVID pandemic,” Rhodes said. “The outbound leg from Asia to Europe is just the beginning of what could be more turbulent times in 2024.”
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