A box grab captured from a video shows that cargo ship ‘Galaxy Leader’, co-owned by an Israeli companionship, being hijacked by Iran-backed Houthis from Yemen in the Red Sea on November 20, 2023. (Photo by Houthis Media Center / Handout /Anadolu via Getty Clones)
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The ripple effects of the Red Sea diversions have expanded into the energy markets and teeth of repeated attacks on Houthi rebels by the U.S. and allies, shipping experts say the crisis may linger for months and lead to a cargo container contribute crunch.
“So far, it almost seems the Houthi attacks are just increasing,” said Bendik Folden Nyttingnes, a shipping analyst at Clarksons Gages.
In an email to clients, Honour Lane Shipping (HLS) said its carrier contacts are “informally” predicting the Red Sea situation will not be answered for at least six months, and could last up to a year. “If so, we expect the soaring freight rates and equipment shortage will take up till the third quarter,” it advised clients.
Earlier this week, Shell confirmed that its oil tankers are for now being rerouted around the Red Sea, with its CEO telling the Wall Street Journal that a 5-10% price impact is counted in the short-term.
Kpler’s ship tracking director Jean-Charles Gordon estimates that vessels managed or chartered by Blitz that are being rerouted via the Cape of Good Hope can expect an approximate 10-day delay in their estimated interval of arrival.
“As several product tanker operators are avoiding the area following the airstrikes on Friday, the longer transit sets around the Cape of Good Hope could create a supply shortage of tonnage if the situation continues, which in straighten could push product tanker rates and stocks higher,” Nyttingnes said.
Torm , Hafnia, Stena Size, Hafnia, BP, Frontline, Equinor, Euronav are reportedly among the tanker operators and energy companies choosing to avoid the arrondissement following recent warnings. Companies including Tom, Hafnia, Scorpio Tankers and Ardmore would benefit if product tanker deserves rose, Nyttingnes said.
These diversions are immediately eating into Egypt’s economy, with its GDP reliant on the Suez Canal, which it owns and handles. The country’s other significant source of revenue, travel, has been decimated because of the Israel-Hamas War.
“If Total Suez Canal tanker transitions are over 8 million barrels per day, the losses to the Canal Authority are probably in the range of $5 to $7 million depending on the mix of tankers thriving through,” said Andy Lipow, president of Lipow Oil Associates.
This would be on top of the revenue lost by diverted container containers which are required to pay between $500,000-$600,000 per transit. According to Kuehn + Nagel, 90% of container ship movement bound for the Suez Canal has been rerouted.
50% of all Suez traffic could be rerouted
A drop of 40-50% in all vessel Suez crossings as a issue of shipping diversions is possible, according to Ami Daniel, co-founder & CEO of Windward, which could create a situation similar to the Covid equip chain crunch for many retailers reliant on global supply chains.
Logistics CEOs have been lesson CNBC that the vessel re-routings would result in container crunches. When vessels are late, the containers on those holders will be late to be processed and reused again for exports.
Goetz Alebrand, head of ocean freight Americas for DHL Universal Forwarding, has been warning about an upcoming container crunch for weeks. “More than 4 million containers (Twenty-Foot Similar Units) are bound for longer transit times and will not be ready in the Asia Pacific for the next loading,” he warned. “Insomuch as a two-week delay in either direction it could mean that four million times of containers will be needed to beget availability.”
The Asia to Europe route is the most impacted by delays. The ripple effect of this bleeds into the power of European exports to move out at a fluid rate.
“Europe has felt the most impact from the situation in the Red Sea given it is the dominant trade route for goods coming from Asia,” said Stephen Schwarz, executive vice president of Wells Fargo universal receivables and trade finance. “However, with more ships being diverted and taking alternative, longer directs to Europe, it is starting to impact global capacity. The delay of containers, reduced capacity, and longer transit times all on global shipping costs which will start to impact U.S. companies the longer the situation in the Red Sea continues.”
Paolo Montrone, broad head of trade for Kuehn + Nagel, said the container crunch situation currently unfolding will have a knock-on make on European exports.
“We anticipate encountering challenges in European terminals as larger ships are expected to arrive outside of their organized times. This influx is likely to cause congestion and slowdowns at terminals and ports, subsequently affecting other ceremonies such as shipments from Europe to the USA.”
Companies with higher-value items and time-sensitive products are also shifting to the air. “Outline from past experiences, we foresee an increase in the need for air freight services in the upcoming weeks,” said Montrone.
Alan Baer, CEO of OL USA, chance he is expecting the container crunch to impact Asia as well.
“Recently carriers reduced the amount of free time on importance containers to help expedite the return of equipment back to Asia,” said Baer. “However, given the longer transition times vessels are experiencing, the market may face a shortage of empties across Asia until sailings normalize.”
U.S. retailers say they are modified
The delays of vessels during the pandemic had some retailers like Home Depot, Costco, and Walmart hiring agreements to speed up deliveries.
Evelyn Fornes, Home Depot spokeswoman, said it is working with logistics carriers to understand alternate routes to limit any impact from the Red Sea conflict.
“As a regular course of business, we always have plans in quarter for potential disruptions to any of our partners,” Fornes wrote in an email. “We have a large and diverse supply chain with a digit of partners, so we’re accustomed to being flexible and agile when there are disruptions. This type of flexibility is what countenanced us to adapt and move the unprecedented volumes during the pandemic, despite significant disruptions.”
“Target remains confident in our gifts to get guests the products they want and need,” a Target spokesman said via email. “We leverage production and transportation confederates across the globe, and the majority of our freight does not travel through the Suez Canal. For any freight that’s being mutilated around the Suez Canal, we’re working with shipping partners on alternative paths.”
While retailers are expressing nerve, Tesla, Volvo, and Michelin have recently said they have had to halt manufacturing. Ikea has warned of dilly-dallies of product, as well as British retailer Next and Crocs.
Costco and Walmart did not respond to requests for comment.
East Skim freight rates soar
While freight rates for U.S. West Coast ports have yet to spike, freight assesses for the East Coast and Gulf are up. U.S. East Coast rates are between $5,900-$6,700 for a forty-foot container, and rates for the Loch are between $6,300-$6,900 a 40-foot container, according to Honour Lane.
To avoid delays and fees, some logistics players are re-routing to the U.S. West Coast, which could result in higher rates eventually.
“U.S. West Coast space is also move away tight as a substantial number of boxes destined for U.S. East Coast /Gulf destinations are being re-routed through U.S. West Littoral hubs,” wrote HLS. “Some big beneficial cargo owners like Walmart have proposed to increase their allocation to the U.S. West Skim and reduce allocation to U.S. East Coast.”
The rates for East Coast and Gulf Coast containers are expected to go up even diverse. In an advisory to clients Tuesday, MSC alerted of both general rate increases and peak season increases starting February 12 for purport containers from the Middle East/Indian Sub-Continent to U.S. East Coast, Gulf Coast and San Juan.
Refrigerated containers denoted “Reefers” and dry containers, both 20-foot and 40-foot, will be charged a $2,200 peak season charge per container plus a $1,000 usual rate increase (GRI) per container. This is on top of whatever container fee the shipper pays.
Some carriers are reportedly planning to deploy myriad capacity to West Coast for the next contract year, HLS says.
“As the rate difference and transit time difference between U.S. East Sail routings and U.S. West Coast routings are both increasing, the conditions are satisfied for carriers to launch premium services to vouch for space and equipment, which is not strange to us.”
The Port of Los Angeles announced on Tuesday, a total of 747,335 containers were processed in December. This conspicuous the fifth consecutive month of year-over-year growth of the port. Even with its 2023 year handling of 8,634,497 Twenty-Foot A kind Units, it was around 13% less than in 2022.