After the Houthi militia began attacking container ships in the Red Sea last year, the cost of shipping goods from Asia soared more than 300 percent, prompting fears that supply chain disruptions could again roil the global economy.
The Iran-backed Houthis, who control northern Yemen, continue to threaten ships, forcing many to take a much longer route around the southern tip of Africa. But there are signs that the world will likely avoid a protracted shipping crisis.
One reason for optimism is that a huge number of container ships, ordered two to three years ago, are entering service. These additional ships are expected to help shipping companies maintain regular services as their ships travel longer distances. The companies ordered the ships when the phenomenal increase in global trade that occurred during the pandemic created huge demand for their services.
“There’s a lot of available capacity out there, in ports, ships and containers,” said Brian Whitlock, senior director and analyst at Gartner, a logistics research firm.
Shipping costs remain elevated, but some analysts expect strong new ship supply to lower rates later this year.
Before the attacks, ships from Asia would cross the Red Sea and the Suez Canal, which normally handles about 30 percent of the world’s container traffic, to reach European ports. Now, most go around the Cape of Good Hope, making those trips 20 to 30 percent longer, increasing fuel use and crew costs.
The Houthis say they are attacking ships in retaliation for Israel’s invasion of Gaza. The United States, Britain and their allies are striking back at Houthi positions.
Some analysts worry that longer trips could increase costs for consumers. But shipping executives now say they expect their operations to adjust to the Red Sea disruption before the third quarter – their busiest season, when many retailers in Europe and the United States stock up for the winter holidays.
The new ships represent more than a third of the industry’s capacity before the order boom begins, Mr Whitlock said, and most will be delivered by the end of this year.
The new ships will increase Danish shipping giant Maersk’s shipping capacity by 9%, according to Gartner, and some of its rivals are planning much larger additions. MSC, the largest ocean carrier, is adding 132 ships, boosting its fleet capacity by 39%. And France’s CMA CGM, the world’s third-largest shipping company, will increase capacity by 24%, according to Mr Whitlock.
“It is therefore only a matter of time,” Maersk chief executive Vincent Clerc told investors this month, “until the capacity issue is fully resolved.”
This relatively quick adjustment reflects the fact that global supply chains are in much better shape than they were in 2021 and 2022. Back then, supply of goods such as appliances and gardening equipment was tight while demand from stay-at-home consumers she was strong. Ports, shipping companies and others also struggled with shortages of workers, containers and ships.
Analysts and shipping executives also note that not every ship takes the long route around Africa to avoid the Red Sea and the Suez Canal. So far this year, an average of 30 cargo ships a day have passed through the canal, compared with 48 in 2023, according to data compiled by the International Monetary Fund and the University of Oxford.
That said, rising shipping rates cause real pain for smaller businesses that don’t have long-term contracts with shipping companies, making them more vulnerable to a sudden increase in container rates.
They rely on what is called the spot market, where prices are much higher than they have been for most of the past year. In 2023, shipping rates had fallen to pre-pandemic levels.
LSM Consumer & Office Products, a company based in central England, imports office supplies from China and India. Marcel Landau, its chief executive, said the cost of shipping a container had jumped to $3,000 from about $1,000 before the Red Sea attacks. He can’t easily pass the cost on to his customers, he said, because his prices are fixed in contracts. As a result, he expects higher shipping costs to eat up about half of his profits.
“Last year was great. It was just the way business should be,” he said. “And then it started to go wrong when the situation in the Middle East started blowing up.”
Lyndsay Hogg, director at Hogg Global Logistics, a business in Hartlepool on England’s north-east coast that arranges shipping for small and medium-sized companies, said many of her customers were frustrated by rising shipping costs and some were delaying shipments. .
“We feel like people are nervous,” he said. “We have seen a decline in bookings.”
Shipping a 40-foot container from Asia to northern Europe, one of the routes hardest hit by the Red Sea attacks, cost $4,587 per container last week, 350 percent more than at the end of September, according to with spot market data from Freightos. digital shipping market. (The average for 2021, when shipping lines were extremely busy, was $11,322.)
Stress in the Middle East has contributed to increased shipping costs even on long-haul routes. The cost of going from Asia to West Coast ports in the United States is up 190 percent since September, according to Freightos.
The turmoil in the Red Sea comes as far fewer ships have been able to pass through the Panama Canal, which is suffering from low water levels. This channel’s problems also caused delays and detours.
Shipping experts say the detour around Africa is the main cause of rising shipping costs.
Container ships traveling from Asia to Europe are at sea about 20 to 30 percent longer than they would be if they were going through the Suez Canal. This has actually reduced carrying capacity. And with less capacity trying to meet steady demand, prices have risen, analysts say.
Regulatory authorities are monitoring the situation.
They want shipping companies to make enough money to keep supply chains running smoothly. But regulators also say they want to protect shipping companies’ customers from price fluctuations.
Daniel Maffei, chairman of the United States Federal Maritime Commission, said he was concerned about the fees and surcharges shipping companies had added because of the Red Sea attacks and the drop in overall shipping capacity at the moment. But he added, “In the medium term, I’m less worried because of all these ships that are going to come online and then increase capacity.”
