An Update on Logistics Amidst the Red Sea Crisis

As the Red Sea Crisis persists, we would like to keep you informed about the ongoing developments that may affect your shipments and logistics operations.

Red Sea Disruptions

Following the recent announcements by the carriers regarding the suspension of voyages through the Red Sea/Gulf of Aden, tensions continue to disrupt passage through the Suez Canal. Shipping lines are diverting vessels around the Cape of Good Hope for the foreseeable future due to the volatile situation.

Despite Operation Prosperity Guardian (OPG), a US-led Naval operation in coalition with 20 other countries, efforts to ease the situation have not been successful. The carriers' hopes to resume transit through the Red Sea and the Suez Canal are hampered by the ongoing volatility.

Recent Developments

Maersk, having recently announced that they would resume services, has re-suspended to transit the Red Sea/Gulf of Aden, diverting vessels around the Cape of Good Hope. This follows the attack on their 15,000 x TEU container ship 'Hangzhou' on December 30th, marking the 25th attack on merchant vessels in the Red Sea since November. It is reported however that 1,500 merchant ships have safely transited the Red Sea since following the launch of OPG on the 19th of December. 

Global Impact

Out of the major ocean carriers, it would appear that CMA CGM is willing to allow the 'occasional' vessel to transit the Red Sea. However, it has been reported that this would only be when a French warship is on hand to offer security.

With 25-30% of global container shipping volumes passing through the Suez Canal, mainly on the Asia-Europe Trade, the impact of these attacks is widespread. Rerouting cargo around Africa is estimated to reduce effective global container capacity by 10-15%, as carriers look to reduce the number of ports of calls to offset the longer routing of cargo. The situation is resulting in the following consequences:

Consequences of the Crisis

1. Extended transit times: Transit times are expected to lengthen by an average of 7-14 days, compromising schedule integrity. 

2. Freight Rate Increases: Freight rates on key trade lanes, such as Asia-Europe, are on the rise. Chinese exports were reported to have grown for the first time in six months, last November and in the wake of the historic Chinese New Year (CNY) Peak season. The plethora of 'Blank Sailing' programs and the turmoil of this crisis have only aided the carrier's plight to increase and maintain higher freight costs. The Shanghai Container Freight Index (SCFI) reported an 80% increase in freight cost from the previous week on the 29th of December, 2023, at USD 2694.00, followed by a further increase on the 5th of January, 2024, to USD 2871.00 per TEU.

3. Additional Surcharges: The diversion of vessels via longer routes, administration and operating costs, and increased insurance premiums have resulted in multiple surcharges being applied. At the moment, no separate Surcharge has been applied for the diversion of cargo on the Asia-Europe trade lane, which is seeing inflated freight rates following the application of a 'General Rate Restoration' (GRI) and 'Peak Season' Surcharges (PSS). 'Contingency' and 'Emergency' Surcharges, however, are being applied to those export lanes affected, including all cargo on the Europe to Asia trade lane. Carriers are unwilling to accept any mitigation in these surcharges for the carriage of cargo to reach its final destination. 

4. Space and Equipment Shortages: Disruption has further exacerbated the space situation on key lanes, such as the Asia-Europe trade lane, with the majority of vessels fully booked for January sailings. Equipment shortages are expected to be seen in key areas as lead times for the evacuation of empties for re-export face compromise.

NNR is closely monitoring the situation and actively seeking and supporting contingencies to maintain service continuity. We recommend making the earliest bookings in light of these trade challenges. We appreciate your continued support and will keep you informed of any new developments as the situation unfolds.

For further information and support, please get in touch with our team of trusted advisors: oceanprocurement@nnruk.com, or your local NNR office.