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  • Writer's pictureJeremy Conradie.

Importers Face Surging Shipping Costs, Delays as Red Sea Diversions Pile Up

Western importers are reporting a steep increase in ocean-shipping rates and significant delays as carriers divert ships from the Red Sea to avoid Houthi rebel attacks.

Some companies shipping goods on the crucial trade lane are starting to chafe at the rising prices and extra fees that ocean carriers are imposing for the higher cost of routing containerships on longer voyages around the Horn of Africa following drone and missile attacks by Houthi rebels in Yemen. 

Average worldwide costs to ship 40-foot-long containers have nearly doubled since late November, according to London-based Drewry Shipping Consultants. 

The increases have also worsened in the past two weeks on routes that traditionally use the Suez. The spot-market price to move containers between China and Rotterdam in the Netherlands reached $3,577 in the week ending Jan. 4, a 115% increase from the week before.

“What every shipper is trying to figure out is if the current proposals are in line with the carrier’s added costs, and not simply a move to offset softer rates in other lanes or raise rates across the board,” - Colin Yankee, chief supply chain officer at Brentwood, US-based retailer Tractor Supply

Houthi rebels, since November, have launched roughly two dozen attacks on commercial ships navigating the Red Sea, which provides access to the Suez and trade routes to Western Europe and the U.S.

The group launched its largest barrage so far of missiles and drones into the crucial Red Sea shipping lane late last week. The attacks, including 18 drones, two cruise missiles and a ballistic missile, caused no damage or injuries, said U.S. Central Command, which oversees U.S. military operations in the Middle East.

British security consulting firm Ambrey said nine merchant vessels had been forced to adjust course away from the Yemeni coastline after the barrage from Houthi-held territory.

The Suez is used by about one-third of global container cargo and about 30% of freight bound for U.S. East Coast ports, according to Everstream Analytics, a supply-chain risk-management company.

The rebels have said their attacks are a response to the fighting between Israel and Hamas in Gaza. The attacks have triggered warnings from a U.S.-led naval coalition and military responses from the U.S. and other countries. Ship operators including A.P. Moller-Maersk and Hapag-Lloyd have said their vessels would continue avoiding the region. 

Shipping executives estimate that the 10 largest box-ship operators have shifted around $200 billion in cargo away from the Red Sea since early December.

We will not put our crews and ships in harm’s way under any circumstances,” - Nils Haupt (spokesman for Hapag-Lloyd)

The new cost increases are renewing tensions between importers and ocean carriers after shipping rates skyrocketed during the pandemic, when freight demand outstripped the supply of ships and helped fuel record profits for carriers. The recent increases still leave prices far below those pandemic-era levels. 

There is a certain element of mistrust given where we have come from,” - Goetz Alebrand (head of ocean freight at DHL Global Forwarding Americas)

The shift to longer shipping routes around Africa is raising fuel and insurance costs and reducing containership availability, said Lars Jensen, chief executive of Denmark-based consulting firm Vespucci Maritime. But Jensen said the rate increases are “substantially above” what is needed to cover the extra costs.

Overall Red Sea containership crossings were down by around 20% in December compared with November, according to Singapore and London brokers. 

Services will continue to have to run late and with longer transit times in the short term. As a consequence freight rates on the whole will remain elevated and volatile.”- Nathan Strang (director of ocean freight at US based freight forwarder Flexport)

Source: Wall Street Journal

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