Global maritime trade sails into geopolitical storm | Inquirer News
Red Sea attacks cause diversions, longer journeys, higher freight costs

Global maritime trade sails into geopolitical storm

/ 05:32 AM January 07, 2024

Maersk says sending cargo vesselsaround Africa will lead to shipping delays and higher costs. But investors see higher earnings for shipping companies due to higher freight rates.

BAD NEWS, GOOD NEWS | Maersk says sending cargo vessels around Africa will lead to shipping delays and higher costs. But investors see higher earnings for shipping companies due to
higher freight rates. (REUTERS)

PARIS — International maritime trade has hit stormy waters as attacks by Yemen’s Huthi rebels on ships in the Red Sea has reduced the availability of ships, causing freight rates to surge.

Most large international shipping companies have decided to reroute trading to avoid the Red Sea and Suez Canal through which 12 percent of world trade usually passes.


The Huthis say the strikes are in solidarity with Palestinians in war-ravaged Gaza, which Israel has bombarded relentlessly for three months, in what it says is a campaign to destroy militant group Hamas.


Danish shipping giant Maersk said Friday that it would divert all vessels around Africa instead of using the Red Sea and Suez Canal for the “foreseeable future” after Yemeni rebels attacked its merchant ships. Vessels are circumnavigating Africa via the Cape of Good Hope, which extends the journey between Asia and Europe by 10 days to 20 days on average, according to Arthur Barillas, general manager of Ovrsea, a freight organizer.

Shipping companies have already announced significant price increases to cover the costs associated with the detour.

French shipping group CMA CGM has doubled the price of a 40-foot container between Asia and the Mediterranean to $6,000.

Italian-Swiss peer and sector leader MSC has hiked its prices to $5,900 from $2,900 for the same offering.

The United States says there have been more than 20 Red Sea attacks by Huthi rebels since Oct. 19.

READ: UN Security Council members call for Houthis to stop attacks on shipping


Chinese New Year

The industry is suffering from a shortage of containers in Asia owing to longer journey times, causing a headache ahead of the Chinese New Year next month.

“There is a real influx (of goods) from Asia,” Barillas said.

In the run-up to the Chinese New Year on Feb. 10, “all the ships are full,” causing freight rates to rise, he added.

Customers are rushing to have their goods shipped before the celebrations bring China, the world’s biggest exporter, to a weeklong standstill.

A benchmark indicator for measuring the freight tariff rate of goods transported from China—the Shanghai Containerized Freight Index—has almost doubled in a few weeks.

Such a sudden increase is reminiscent of what occurred during the Covid-19 pandemic, when freight rates reached unprecedented heights on disruptions to supply chains.

“Many people, they focus on the spot rate. And yes, it has doubled. And, of course, it speaks about how desperate the situation is,” Niels Rasmussen, chief shipping analyst at Bimco, told Agence France-Presse (AFP).

He added, however, that some shippers would have negotiated better deals.

“If you look at the average rate for everything out of China through most of Europe and the Mediterranean, the increase is 15 percent to 20 percent,” Rasmussen said.

Taiwan elections

Attacks in the Red Sea are not the only ones disrupting international trade. The worst drought in decades to hit the Panama Canal has forced authorities to slow transits.

A potential further hazard could be the outcome of presidential elections in Taiwan due on Jan. 13, should it lead to another crisis with China, according to analysts.

However, “even with the threat of some congestion and equipment shortages, carriers are much better-positioned to accommodate operationally for these diversions when compared to the disruptions seen during the pandemic,” Israeli freight reservation and payment platform, Freightos, said in a weekly note to clients.

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Shipping companies have used recent huge profits to order hundreds of new ships which are beginning to be delivered.

TAGS: global maritime trade, Huthis, international shipping, Ovrsee

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