• Thursday, May 23, 2024
businessday logo

BusinessDay

Shipping liners divert over $80bn in cargo from the Red Sea

Shipping liners divert over $80bn in cargo from the Red Sea

Shipping companies have diverted about $80 billion worth of cargo away from the Red Sea due to the threat of attacks from Houthi militants in Yemen.

Carriers are re-routing vessels as a direct result of strikes in the Middle Eastern body of water since the start of the Israel-Hamas war in October.

As of last Wednesday, 121 container vessels were sailing the long way around Africa instead of cutting through the Red Sea and the Suez Canal, according to Kuehne+Nagel.

“That number will increase as more will take this route. The total container capacity of these vessels is 700,000 twenty-foot equivalent units (TEUs.),” Paolo Montrone, senior vice president and global head of trade sea logistics at Kuehne+Nagel, told CNBC.

Carriers could deploy additional vessels since fleet capacity has grown by more than 20 percent in the last 12 months, according to Antonella Teodoro, senior consultant for MDS Transmodal.

“Ocean carriers could also start making adjustments to their networks in addition to the diversions. The diversions/adjustments will require time and won’t come for free. One can hope we won’t see the high rates seen in the recent past,” Teodoro told CNBC.

The Panama Canal, located in Central America, has struggled with low water levels for months.

Port authorities are expecting congestion as a result of updated arrival times and planning needs, according to Montrone.

“The situation is very volatile, and the reconfiguration of these networks is very complex, so we can expect a certain level of disruption. In Asia, the lack of empty equipment (containers) will become a potential issue as the repositioning of empty containers into demand areas will take 10-20 days longer,” Montrone told CNBC.

Maersk, one of the carriers who paused operations in the Red Sea, expects two to four weeks of delays, according to CEO Vincent Clerc.

Europe is more dependent on the Suez. The delays will be more pronounced in Europe.

For U.S. shippers, there are a variety of ways for trade to move, either from Asia to the West Coast ports or traversing through the Panama Canal to the Gulf and East Coast ports. Delays from the Panama Canal had shippers opting to book vessels using the Suez Canal as a way to get to the East Coast instead.

Shippers anticipate delays of approximately 10-14 days for East Coast cargo, with potential further delays at ports if a lot of ships arrive at similar times outside of their respective berthing windows.

A diversion around the Cape of Good Hope at Africa’s southernmost point adds around 3,400 nautical miles, or about 14 extra days, depending on speed, according to Matthew Burgess, VP of global ocean services at C.H. Robinson.

Maersk, CMA CGM, Hapag-Lloyd impose surcharge over Red Sea attacks

The world’s largest container shipping line, including Maersk, CMA CGM and Hapag-Lloyd said they will impose extra charges after they re-routed ships in response to attacks on vessels in the Red Sea, as worries about disruption to global trade grow.

The surcharges, designed to cover longer voyages around Africa compared with routes via the Suez Canal, will add to rising costs for sea transport since Yemen’s Houthi militant group started targeting vessels.

Maersk and CMA CGM were the first to introduce the fees, followed by Germany’s Hapag-Lloyd later on Friday.

The three are among leading shipping lines to have suspended the passage of vessels through the Red Sea that connects with the Suez Canal, the quickest sea route between Asia and Europe. Instead, they are directing ships around the Cape of Good Hope at the southern tip of Africa, adding about 10 days to a journey that would normally take about 27 days from China to northern Europe.

Maersk said late on Thursday it was imposing an immediate transit disruption surcharge (TDS) to cover extra costs associated with the longer journey, plus a peak season surcharge (PSS) from Jan. 1.

Hapag-Lloyd has said it would redirect 25 ships by the end of the year to avoid the area.

Maersk said a standard 20-foot container travelling from China to Northern Europe now faced total extra charges of $700, consisting of a $200 TDS and $500 PSS. Containers bound for the east coast of North America will be charged $500 each, consisting of the $200 TDS payment and a $300 PSS.

Maersk also said routes in other parts of its network would be affected by the disruption, triggering emergency contingency surcharges on a wide range of journeys.

CMA CGM announced surcharges late on Thursday including an extra $325 per TEU on the North Europe to Asia route and $500 per TEU for Asia to the Mediterranean. It said the charges were part of its contingency plan to re-route vessels around the Cape of Good Hope.