Freight & Trade Alliance (FTA) and the Australian Peak Shippers Association (APSA) have received the following from James Hookham, Director Global Shippers Forum (GSF), proving a reaction and expectations of the impacts following the air strikes in Yemen over-night.
The latest event that have dramatically shifted the calculations on the Red Sea situation – while avoiding commentary on the political and military aspects, James has provided the following points as to what it could mean for shippers and supply chains reliant on this route :
- The risks of retaliatory strikes on merchant shipping in the Red Sea area are now extreme, and all carriers can be expected to divert their ships away from the Red Sea and Suez Canal route, if they haven’t already;
- A working assumption must be that avoidance of the Red Sea and diversions around the Cape of Good Hope will now be the rule rather than the exception, unless or until there is a political settlement which specifically includes the cessation of actions against merchant shipping in the Red Sea;
- Therefore, all else being equal, shippers (i.e. importers in North America and Europe) should expect a one-off adjustment to schedules and port calls over the next few weeks but after that service patterns should settle into the new longer routes and adjusted port calls, with some stability returning to predicted arrival times of ships and delivery of containers;
- The same will apply to east-bound sailings, which may affect the availability of empty containers in Asia in the short-term. But, again, this should stabilize over time;
- Rates on affected trades will inevitably adjust to the higher costs incurred, bearing in mind the greater fuel burn, additional crewing time, insurance and chartering costs. But offsetting these to some extent will be the very substantial savings made in Suez Canal transit fees. These are of several hundreds of thousands of dollars for a typical container ship and these savings should be accounted for by shipping lines when justifying their surcharges and higher rates;
- The narrative now being heard is that because the Red Sea is effectively closed to shipping, Asia-Europe/USEC shipping rates are going to repeat the sustained spike of 2020-22 (and, by implication, shipping lines will get another big profit windfall). GSF does not believe this is supported by the circumstances. There is no chronic shortage of shipping capacity in the way there was during the Covid pandemic, and there is substantial new capacity expected to be delivered throughout the first half of 2024. Demand for shipping space is also stable, if not declining;
- Furthermore, the cost increases that will be incurred by shipping lines diverting around Africa are known and finite and should not be talked up into a second shipping crisis on the scale of the first one in 2021. Shippers should check demands for payment of additional surcharges, given that the first vessels affected by the diversion are only just arriving at their destination ports. (The first diversions commenced between 13-15 December, and not every vessel immediately diverted);
- There have already been substantial increases in quoted spot rates on Asia Europe/USEC trades, but it is important to distinguish between rates that are quoted in hope by carriers and those that are actually being paid in cash by shippers; and
- Shippers commencing contract renewal negotiations over the next few weeks should avoid being ‘locked-in’ to rates based on currently quoted spot prices. Following a satisfactory resolution of the situation, costs and rates on affected trades can be expected to ‘normalise’ even quicker than they did in 2022. Although it may seem a dim prospect today, this eventuality should be provided for in any agreements made with carriers for 2024-25.
The next few days are critical in whether the Red Sea situation is contained or develops into a much longer-term regional conflict, which would have much wider and profound consequences for international trade. GSF will continue to report and interpret events from a shipper’s perspective.
Paul Zalai – Director FTA | Secretariat APSA | Director GSF
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