27 Feb Red Sea Disruptions Persist
As we enter the third month of attacks on commercial vessels, there remains no sign of an end to the deteriorating security situation across the Red Sea.
With the situation expected to remain volatile for months, shipping lines are settling into their “new normal” of longer routes and adjusting their services through adopting strategies such as shortening journeys and increasing sailing speed in an attempt to mitigate the disruption caused by Red Sea diversions.
However, the new longer route, which entails rerouting ships around Africa’s Cape of Good Hope, equates to approximately a 30% increase in transit times. This has seen the schedule reliability fall 9.2% from November 2023 to 46.4% in December 2023, which is the lowest reliability since October 2022 when severe congestion impacted ports at both ends of the trade lane. This situation is likely to deteriorate further as shipping lines continue to divert around southern Africa in order to avoid further attacks.
Furthermore, as a result of the additional constraints, transit times and fuel requirements, ocean spot rates have soared. For example, during the week of 25th January spot rates from China > USA (West and East Coast) saw significant spikes of 140% and 120% respectively. In addition, prices along routes that typically go through the Suez Canal, particularly from Asia to Europe, have surged nearly five-fold.
These increases have been further compounded with the introduction of “Contingency Surcharges” which shipping lines are charging to cover any incidental costs arising from the Red Sea disruption.
It’s worthwhile noting that the lengthy diversions for ocean freight have resulted in increased demands for air freight. Whilst the cost of air freight has not experienced a significant increase to date, it remains to be seen whether this will change if the Red Sea remains an untenable trade route and air freight becomes an increasingly feasible alternative.
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