New cargo ships could ease Red Sea cargo disruptions


After the Houthi militia began attacking container ships in the Red Sea last year, the cost of shipping goods from Asia soared by more than 300 percent, raising fears that disruptions in the chain supply could once again affect the global economy.

The Iran-backed Houthis, who control northern Yemen, continue to threaten ships, forcing many to take a much longer route around the southern tip of Africa. But there are signs that the world will likely avoid a prolonged shipping crisis.

One of the reasons for optimism is that a large number of container ships, ordered two or three years ago, are entering service. Those additional vessels are expected to help shipping companies maintain regular service as their ships travel longer distances. The companies ordered the ships when the extraordinary surge in global trade that occurred during the pandemic created enormous demand for their services.

“There is a lot of available capacity in ports, ships and containers,” said Brian Whitlock, senior director and analyst at Gartner, a research firm that specializes in logistics.

Shipping costs remain high, but some analysts expect strong supply of new ships to push rates down later this year.

Before the attacks, ships from Asia were passing through the Red Sea and the Suez Canal, which normally handles an estimated 30 percent of the world’s container traffic, to reach European ports. Now, most go around the Cape of Good Hope, making those trips 20 to 30 percent longer, increasing fuel use and crew costs.

The Houthis say they are attacking ships in retaliation for the Israeli invasion of Gaza. The United States, Britain and their allies have been counterattacking Houthi positions.

Some analysts worry that longer trips could increase costs for consumers. But shipping executives now say they expect their operations to adapt to the Red Sea disruption before the third quarter, their busiest season, when many retailers in Europe and the United States are stocking up for the winter holidays.

The new ships represent more than a third of the industry’s capacity before the order boom began, Whitlock said, and most will be delivered by the end of this year.

The new vessels will increase Danish shipping giant Maersk’s shipping capacity by 9 percent, according to Gartner, and some of its competitors are planning much larger additions. MSC, the largest ocean carrier, is adding 132 ships, boosting its fleet capacity by 39 percent. And France’s CMA CGM, the world’s third-largest shipping company, will increase its capacity by 24 percent, according to Whitlock.

“It is therefore only a matter of time,” Vincent Clerc, Maersk’s chief executive, told investors this month, “until the capacity issue is completely resolved.”

That relatively rapid adjustment reflects the fact that global supply chains are in much better shape than in 2021 and 2022. Back then, the supply of goods such as household appliances and gardening equipment was limited, while demand from confined consumers in their homes it was strong. . Ports, shipping companies and others were also struggling with shortages of workers, containers and ships.

Shipping analysts and executives also point out that not all ships are taking the long route around Africa to avoid the Red Sea and the Suez Canal. So far this year, an average of 30 cargo ships a day have passed through the canal, compared to 48 in 2023, according to data collected by the International Monetary Fund and the University of Oxford.

That said, rising shipping rates are causing real pain for smaller companies that lack long-term contracts with shipping companies, leaving them more vulnerable to a sudden increase in container shipping rates.

They depend on what is called the spot market, where rates are well above where they were for most of last year. By 2023, shipping rates had fallen to pre-pandemic levels.

LSM Consumer & Office Products, a company based in central England, imports office supplies from China and India. Marcel Landau, its managing director, said the cost of shipping a container had risen to $3,000 from about $1,000 before the Red Sea attacks. According to him, he cannot easily pass on costs to his clients because his prices are fixed in the contracts. As a result, he expects higher shipping costs to eat up about half of his profits.

“Last year was wonderful. It was the way business should be,” she said. “And then everything started to go wrong when the situation in the Middle East started to explode.”

Lyndsay Hogg, director of Hogg Global Logistics, a company in Hartlepool on the northeast coast of England that organizes shipments for small and medium-sized businesses, said many of her customers were nervous about rising shipping costs and some were delaying shipments.

“We feel like people are nervous,” he said. “We have seen a drop in reserves.”

Shipping a 40-foot container from Asia to northern Europe, one of the routes hardest hit by the Red Sea attacks, cost $4,587 per container last week, up 350 percent from the end of September, according to market data. Freightos spot, a digital shipping marketplace. (The average for 2021, when shipping lines were extremely strained, was $11,322.)

Tension in the Middle East has helped raise the cost of shipping even on distant routes. The cost of going from Asia to U.S. West Coast ports has risen 190 percent since September, according to Freightos.

The Red Sea disruption comes as far fewer ships have been able to pass through the Panama Canal, which has been suffering from low water levels. The problems with that channel have also caused delays and diversions.

Maritime experts say diversion around Africa is the main cause of rising shipping costs.

Container ships traveling from Asia to Europe stay at sea 20 to 30 percent longer than if they passed through the Suez Canal. In fact, this has reduced shipping capacity. And with less capacity trying to meet stable demand, prices rose, analysts say.

Regulators are watching the situation.

They want shipping companies to make enough money to keep supply chains running smoothly. But regulators also say they want to protect shipping companies’ customers from price gouging.

Daniel Maffei, chairman of the US Federal Maritime Commission, said he was concerned about the tariffs and surcharges that shipping companies had added due to the Red Sea attacks and the drop in total shipping capacity at this time. But he added: “In the medium term, I’m less worried about all these ships coming online and then increasing capacity.”

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