The ongoing shipping crisis in the Red Sea, sparked by Houthi missile attacks in retaliation to Israel’s war in Gaza, will deteriorate before it improves according to Freightos, the cargo rate data terminal.
In a briefing webinar on 18 January, the freight rate tracker’s head of research Judah Levine explained the knock-on issues for shipping companies and ports would continue, but could ease after Lunar New Year.
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“The next few weeks will be the worst but should improve after that,” Levine predicted.
There are two major factors leading to that prediction: the ongoing impact on ships and containers that have been diverted from the Red Sea/Suez route to the Cape of Good Hope, and the usual busy period at Asian export ports in the weeks before the Lunar (Chinese) New Year.
“[The industry is] still in this transition to this new reality,” which explains the sky-high prices for container shipping from Asia to Europe.
The longer lead time (an average of between seven and 14 days) forced by the route around Southern Africa means that ships and empty containers are not making it back to export ports in Asia on time, leading to either build-up or the costly redistribution of other ships to complete orders.
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By GlobalDataThis is then passed on to customers, resulting in prices upwards of $4,000 per container on routes which only months ago were under $1,000 per TEU.
Levine explained that this would take time, but would return to more usual pricing in 2024: “In some cases we’re seeing carriers chartering vessels. Because even the overall market… capacity is an excess, it’s not necessarily true for individual carriers or services.
“So this is also going to take time to get these the vessels in position, get them integrated into the loops and therefore keep better to departure schedules and also even out arrival schedules, so we don’t have vessel bunching or arriving at the same time.”
The timing of the crisis on the global freight calendar has also made the delays and expense increases more noticeable, Levine said. Because the industry is at a high-demand moment, with export rates increasing before much of China’s production slows or even stops for the New Year Spring Festival, Levine said fluctuations are being felt more keenly than if the violence off the coast of Yemen occurred in a slower moment.
“That’s very likely that after the Lunar New Year period, and maybe an additional couple weeks as these as carriers get these additional vessels into position, that will start to see an easing of some of these factors,” he said.
“Though, of course, transit times will remain longer and freight rates will remain above the norm, but it’s possible that these types of disruptions will subside somewhat after.”
But Frieghtos also had good news for shippers and distributors, as Levine predicted the rates would not hit the pandemic peaks seen on some routes of $20,000 per container.
“I think that it’s likely that rates won’t go up to those levels or much past $8,000, but not to the level we saw during the pandemic. Because I think operationally we’re not heading to that same degree of disruption,” he explained.
Last week the US and UK, with allies, began airstrikes on Houthi targets in Yemen.
Releasing sparse statements on 11 January, the US and UK stated that the naval and air strikes were intended to degrade Houthi military capabilities and attempt to ensure the free flow of trade through the Red Sea, a key body of water to the south of the Suez Canal through which some 15% of the world’s shipping passes.
