The container shipping industry is encountering another obstacle with the diminishing viability of the Suez Canal as a preferred route for cargo transportation. In recent weeks, attacks on ships navigating the Red Sea route to the Suez Canal have prompted several shipping companies to redirect vessels or suspend their transit. Despite ongoing international efforts to ensure the secure passage of commercial ships, logistics managers are currently evaluating contingency plans until the situation is effectively addressed. In today’s blog we are going to talk about the ongoing problems in the Suez Canal and how the ocean freight shipping sector can mitigate the disruption.
Over 100 container ships rerouted from the Suez Canal
The Suez Canal, a vital maritime passage, sees approximately 19,000 ships traversing its waters annually. This canal serves as a crucial route for the transportation of commodities, especially fossil fuels and goods, facilitating the movement of trade between Asia and Europe on a global scale. However, over 100 container ships have been redirected around southern Africa, circumventing the Suez Canal, as a consequence of Houthi rebels targeting vessels along the western coast of Yemen. The shipping company Kuehne and Nagel reported that over 100 ships have already altered their routes, and additional vessels are anticipated to take the longer journey around South Africa’s Cape of Good Hope. This development underscores the significant disruption to global trade resulting from the attacks on maritime traffic in the region.
Nevertheless, the rerouting of ships, circumventing the Suez Canal and opting for the longer journey around southern Africa’s Cape of Good Hope, introduces an additional 6,000 nautical miles to the typical route from Asia to Europe. This extended route has the potential to lengthen product delivery times by three or four weeks, further emphasizing the considerable impact of the disruptions on the efficiency of the container shipping industry.
The repercussions of the troubles in Suez Canal in the container shipping industry
According to Kuehne and Nagel ships that have already diverted have a combined capacity to carry 1.3 million 20ft containers. Notably, oil and gas tankers, have altered their routes, contributing to disruptions that have impacted oil prices. This rise in oil prices could potentially lead to increased consumer energy tariffs, contributing to inflationary pressures. Companies worldwide, including major carmakers, are closely monitoring the situation to assess potential impacts on their supply chains.
Impact of the crisis on the rates in the ocean freight industry
According to a weekly update from Freightos, it is anticipated that rates from Asia to Northern Europe will likely increase in the wake of disruptions in the Suez Canal.
ZIM, an ocean carrier that redirected its vessels away from the Red Sea last month, has already raised rates for its Asia to Mediterranean service. As reported by Freightos, shippers are now facing costs ranging between $3,300 and $3,400 per forty-foot equivalent unit for this particular service. Spot rates are also experiencing an upward trend. Lars Jensen, CEO and partner at Vespucci Maritime, noted that rates from Asia to the U.S. East Coast and West Coast have seen slight increases, with expectations for further rises.
Despite the rising rates, experts caution that the increase may not be as severe as the one experienced during the prolonged blockage of the Suez Canal in 2021. The industry is likely to see adjustments, but the impact is expected to be less pronounced this time around.
The alternative shipping routes to avoid the Suez Canal
Shipping lines, opting for the Cape of Good Hope in South Africa as an alternative to the Suez Canal, encounter additional costs and prolonged transit times. According to Michael Zimmerman, a partner at Kearney, a global management consulting firm, the extra distance traveled by container ship from Singapore to Rotterdam around the Cape amounts to an additional 3,500 kilometers. This alternative route incurs extra fuel costs ranging from $500,000 to $1,000,000, and shippers need to account for an additional 20-30 days on their books for inventory. The increased distance and time add complexities and financial burdens to shipping operations.
Matthew Burgess, the Operations Supervisor of CH Robinson, outlined their contingency plans, which involve a strategic combination of sea and air solutions through routes such as Colombo, Dubai, or the U.S. West Coast. Additionally, they are considering traditional airfreight options and expedited inland services upon cargo arrival at the port. This diversified approach aims to provide flexibility and efficiency amid disruptions.
On the other hand, a spokesperson from Kuehne+Nagel revealed that the company is encouraging its customers to adopt a sea-to-air solution. Under this approach, shipments from Asia would initially travel by sea, arriving in Dubai, and then completing the transit by air. This strategy is designed to offer a faster transit time compared to sea freight while maintaining a more sustainable and cost-effective solution than direct air freight. The emphasis is on providing customers with alternatives that balance speed, sustainability, and cost-effectiveness in response to the challenges in global shipping routes.