The long and more expensive way is around the Cape of Good Hope. Photo: iStock.com/Felipe Meneses
The diversion of cargo ships to avoid Houthi attacks in the Red Sea will likely cause a spike in shipping rates, experts say. Air Freight Delivery
Meanwhile, a naval coalition being assembled by the U.S. to combat the Houthis’ Red Sea and Suez Canal attacks is still “a few weeks” away from being able to restore security to the region, according to Maersk.
Ocean carrier ONE has joined the list of now six of the ten largest container carriers, together representing 62% of global capacity, that will be avoiding the Red Sea passage into and out of the Suez Canal, according to a Freightos Freight Market Update published December 20. Nineteen percent of the world’s container trade — or more than 100 vessels — has already been diverted away from the Suez Canal and Red Sea in favor of an alternate route around the Cape of Good Hope, adding up to 14 additional days of transit time to ships’ journeys.
The diversions are expected to cause a general increase in freight rates. “This is likely to affect the entire industry, regardless of the contractual or spot rates of individual carriers,” said Mario Veraldo, CEO of MTM Logix. Adding 2,200 miles to a Singapore to Rotterdam trip, for example, will add fuel costs of $500,000 to $1,000,000, and shippers will also have the inventory on their books an extra 20 to 30 days, said Michael Zimmerman, partner in the strategic operations practice of management consulting firm Kearney.
“The market anticipates that especially in Europe, which is on the receiving end of import containers from the Middle East, India, southeast Asia and China, container scarcity will lead to an increase in container prices and the market,” said Christian Roeloffs, co-founder and CEO of the German vessel tracking software company Container xChange, noting a spot rate increase of 20 to 30% on major East-West corridors. “The key question for the industry is the duration of the current situation. Is it a temporary disturbance, a perceived bump in the road or are carriers capitalizing on the situation?”
Still, shippers will have to grin and bear the extra costs, said Patrick Lepperhoff, principal at Inverto. “Companies waiting for goods from East Asia should consider alternative means of transportation,” he said December 20. “The costs may be higher, but a loss of production or empty shelves would be far more expensive.”
Since the middle of November 2023, Houthi militants have been firing rockets at vessels in the Red Sea as a show of support for Hamas, who has been entangled in a military conflict with Israel for more than two months.
Israeli Prime Minister Benjamin Netanyahu declared war on Hamas — an Islamist militant movement and one of the Palestinian territories' two major political parties — on October 8 following a surprise assault by militants on October 7, one day after the 50th anniversary of the start of the 1973 Yom Kippur War.
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