Planning for success by getting our ports up and running
On January 2 global shipping firm Maersk announced that all of its transits through the Gulf of Aden and the Red Sea would remain suspended “until further notice”.
Houthi attacks on ships throughout December resulted in Maersk, along with other companies such as MSC, pausing operations through the area — and, most importantly for global shipping trade, being unable to use the Suez Canal. In its statement Maersk also said: “In cases where it makes most sense for our customers, vessels will be rerouted and continue their journey around the Cape of Good Hope.”
Consumers and businesses around the world, especially in Europe, India, China and the US, should prepare for higher costs and likely delivery delays. The risk of higher international oil prices hovers in the background, dependent on whether Iran becomes directly involved in the Israel-Hamas conflict.
The crucial lesson for SA to realise and implement is getting its ports back to an adequate level of operation, such that the country can place itself in a position to take advantage of times when global trade patterns shift due to unforeseen events and conflicts.
According to Freightos, by January 4 the spot rate for a 40-foot container en route from Asia to northern Europe topped $4,000. This represented a 173% increase from midDecember 2023. For containers from Asia to the East Coast of the US rates had increased 55%. Cost per container from Asia to the Mediterranean rose above $5,000, with some carriers already announcing midJanuary prices above $6,000.
According to the International Chamber of Shipping, 12% of world trade passes through the Suez Canal; put differently, about 20,000 ships move through the canal every year. Much of the goods and materials that pass through the canal will not be intended for SA. But with shipping forced to divert around the Cape of Good Hope there are numerous opportunities to provide maintenance, offshore refuelling, bunkering services and more. The ultimate takeaway is that, as a consequence of the required focus on clearing backlogs and improving operations (necessary steps, but also things that were self-inflicted), SA lost out on a potentially highly lucrative few months.
With ships unable to rely on SA ports, the alternative ports of call in Namibia, Mozambique and Mauritius would have become even more pronounced in shipping companies’ future planning — and it’s not only shipping companies that will adapt, meaning SA could lose out even more over the long-term.
The difficulties developing in another major global trade route, the Panama Canal, reinforce just how important it is for SA to get its port house in order. According to Bloomberg, this waterway handles “$270bn a year in global trade,” or 3%. For Panama itself the canal brought in $4.3bn in revenue in 2022.
Water levels are 1.8m below normal, and as a consequence authorities have capped the number of vessels that are allowed to traverse the canal. As with the Suez Canal disruptions, the restrictions in place in the Panama Canal will cause delays, and increased costs for shipping companies, businesses and consumers all around the globe. Whereas daily capacity in the latter canal is usually about 38 ships, the number dropped to 24 per day in November and December. Because the canal is reliant on artificial lakes, it is more vulnerable should droughts strike.
The challenging operating conditions around the Suez and Panama canals are worrying enough for global trade; with tensions rising between Ethiopia and Somalia, yet another crucial trade area could be disrupted. With Ethiopia signing a pact with Somaliland to grant the former Red Sea access, direct conflict between Ethiopia and Somalia affecting trade around the Horn of Africa cannot be ruled out.
In a statement Somalia stated that the pact was “an act of aggression against Somalia’s sovereignty and territorial integrity.” Fortunately, outright conflict has not yet materialised.