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Red Sea Crisis

Spiralling cost in ocean freight shipping rates is becoming a reality as Suez Canal remains out of bounds

US East Coast to North Europe | Carbon Emissions Index

The crisis in the Red Sea region has sent the cost of ocean freight shipping spiralling as the market continues to react to vessels being forced to avoid the Suez Canal.

Analysts at Xeneta, the leading ocean and air freight rate benchmarking and intelligence platform, predicted rates could increase by 100% following Houthi militia missile attacks on merchant ships in the Bab-el-Mandeb Strait - a gateway to the Red Sea and Suez Canal.

That prediction is now becoming a reality.

Peter Sand, Xeneta Chief Analyst, said: “The massive spike is already here. Ocean freight carriers are desperately trying to recoup the cost of sending vessels from the Far East to the Mediterranean, North Europe and US East Coast via the Cape of Good Hope rather than heading through the Suez Canal.

“As we saw during the Covid years when there were huge disruptions in supply chains, if there is still an urgent need to get shipments moving, then businesses will have to pay an awful lot more to do so.”

Data on the Xeneta platform indicates rates per FEU (40ft-equivalent shipping container) stood at USD 1 875 between the Far East and Mediterranean on 14 December – already an increase of 25% on the previous week.

However, shippers are being quoted upwards of USD 6 500 for high priority shipments on Mediterranean Shipping Company’s (MSC) Diamond Tier service.

Sand added: “This price is not the market average yet, but it is what businesses will have to pay for urgent shipments. In the next 10 days or so, it may well become the market average. 

“The Suez Canal is a critical artery for global trade so disruption caused by the missile attacks will not be solved quickly or easily and ocean freight shipping rates will continue to rise.”

Ocean freight liner companies have already introduced a series of surcharges in response to avoiding the Suez Canal. Yesterday, Thursday, A.P. Moller announced a Transit Disruption Surcharge (TDS), effective immediately, and an Emergency Contingency Surcharge (ECS) which will come into effect on 1 January pending negotiation.

On Wednesday, MSC announced a similar raft of surcharges.

Shippers will also face Peak Season Surcharges (PSS) of USD 2 000 per FEU for Mediterranean bound cargoes from the Far East, while North Europe and US East Coast will command USD 1 000 and USD 600 respectively.

Sand said: “The spike in rates is already here as a result of the Suez Canal diversion, but with Chinese Lunar New Year also on the way and the traditional increases in demand that brings, the cost of ocean freight shipping could grow even more dramatically.

“Shippers should be aware that rates on all major trades could be impacted – even if they ordinarily would not transit the Suez Canal. Ocean freight carriers will announce all kinds of ‘recovery cost surcharges’ even for trades which are only indirectly impacted.”

 

 

Xeneta's team of expert analysts joined a webinar this week to discuss the potential impact of the situation in the Red Sea across both ocean and air freight. You can hear what Peter Sand, Chief Data Analyst; Niall van de Wouw, Chief Air Freight Officer; and Michael Braun, VP of Customer Success & Solutions, had to say during the webinar by watching the video here

 

 

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