Maritime Shipping Disaster Unfolds in Red Sea

95% of container ships that would’ve transited the Red Sea are now going around the Southern Tip of Africa. The ships diverting from their ordinary course are marked orange on the Flexport map below.

Even if you’re not in Europe, you will begin to feel this. It will delay vessels everywhere. Costs will go up, and there will be inventory issues.

Ocean freight prices to the US west coast are already up 50%. East Coast even more.

As of January 5, carriers maintain their routing south of Africa for almost their entire fleet except CMA which has continued using the Red Sea. Maersk, who previously elected to return to Red Sea transits and then paused, is now turning vessels away from the risk areas to transit the Cape of Good Hope. The Shanghai Containerized Freight Index’s (SCFI) publication shows rate increases, but not to the magnitude seen in the market.

Callouts:

• As of January 5, 389 container vessels accounting for 5.4 million TEUs of capacity (~22% of global capacity) are actively diverting, will divert, or have already diverted the Suez Canal. This is out of ~664 vessels that typically transit the Suez Canal.
• When considering carrier stances on Red Sea transits, it is important to note that vessel decisions are ultimately made by the vessel operator, and cargo with other carriers with slots on the vessel will be impacted by the decision. However, vessel-sharing agreements between carriers can influence the routing decisions of vessel operators as vessel utilization is key. For example, a vessel operator may be influenced by vessel-sharing agreements to use Cape Of Good Hope to maximize vessel utilization if their partners refuse to load on Red Sea vessels due to risk.
• The January 5th publication of the Shanghai Containerized Freight Index (SCFI) showcases the following increases:
  • Shanghai to North Europe: +7% since Dec 29 and +179% since Dec 15
  • Shanghai to the Mediterranean: +4% since Dec 29 and +131% since Dec 15
  • Shanghai to U.S. West Coast: +9% since Dec 29 and +53% since Dec 15
  • Shanghai to U.S. East Coast: +10% since Dec 29 and +40% since Dec 15
• While the SCFI shows increases, the magnitude is lower than what we see in the market. In times of high volatility, it is difficult for indices to keep up with the market freight rate changes. This was particularly apparent during the COVID economy. For example, the Drewry Container Index saw week-over-week increases of 115% from Asia to Europe and 25-30% from Asia to the U.S.
• Premium rates will come at higher levels to guarantee equipment and loading. We’re hearing about some carriers announcing premium levels at over $10,000 per 40-foot container into the U.S. West Coast for the second half of January.
• Rate increases have cascaded into the Transatlantic trade as well as we saw Maersk announce a peak season surcharge and CMA announce a rate restoration initiative.
• To a certain extent, shippers have their hands tied if they need goods in the next three months. They can either accept high rates now or delay cargo and have to navigate equipment shortages post-Lunar New Year which will also lead to elevated rate levels.

Updates on the Suez Canal: Carriers Continue to Reroute Vessels To Avoid Attacks

1 pm ET / 10 am PT, Thursday, January 4th

Attacks on vessels in the Red Sea, Gulf of Aden, and coast of Somalia continue. On January 2, Houthi forces launched two missiles at CMA CGM Tage in the Red Sea. On January 4 at 10:25 AM EST, the United Kingdom Maritime Trade Operations reported that “5 to 6 unauthorized armed persons have boarded a merchant vessel” 460 nautical miles east of Somalia. Carrier routings continue to fluctuate with most avoiding the at-risk areas.

Callouts:

• As of today, 389 carrier vessels accounting for 5.4 million TEUs of capacity are actively diverting, will divert, or have already diverted from the Suez Canal as a direct result of these attacks.
• After Maersk’s decision on December 31 to re-pause transits through the high-risk areas, they are now diverting vessels that were idling south of the Gulf of Aden towards the southern tip of Africa.
• COSCO is also now routing most vessels around the Cape of Good Hope but continues to assess on a vessel-by-vessel basis. See the below visual in which COSCO’s vessels are in yellow.
• Some carriers are deploying vessels that typically service other trades like Asia to North America and LATAM to Asia to Europe trades to compensate for service disruptions. Today alone, we saw 4 vessels across HMM and Hapag-Lloyd accounting for 33k TEUs of capacity that will be deployed on the Asia to North Europe and Mediterranean trades.
• Vessel deployment will help, but not solve capacity constraints. Equipment shortages at origin ports are expected to rise in the coming weeks as the impacts of service disruptions make their way downstream.
• The military coalition aimed at protecting the risk areas now consists of 12 nations. On Wednesday, the coalition warned Houthis of ‘consequences’ for continued attacks in the region. From the White House, “The Houthis will bear the responsibility of the consequences should they continue to threaten lives, the global economy, and free flow of commerce in the region’s critical waterways.”