New ships may ease troubles
Shipping costs still elevated, but analysts expect supply of vessels to push down rates
After the Houthi militia started attacking container ships in the Red Sea last year, the cost of shipping goods from Asia soared by over 300%, prompting fears that supply chain disruptions might once again roil the global economy.
The Houthis, who are backed by Iran and control northern Yemen, continue to threaten ships, forcing many to take a much longer route around Africa’s southern tip. But there are signs that the world will probably avoid a drawn-out shipping crisis.
One reason for the optimism is that a huge number of container ships, ordered two to three years ago, are entering service. Those extra 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 world trade that occurred during the pandemic created enormous demand for their services.
“There’s a lot of available capacity out there, in ports and ships and containers,” said Brian Whitlock, a senior director and analyst at Gartner, a research firm.
Shipping costs remain elevated, but some analysts expect the robust supply of new ships to push down rates later this year.
Before the attacks, ships from Asia would traverse the Red Sea and the Suez Canal, which typically handles an estimated 30% of global container traffic, to reach European ports. Now, most go around the Cape of Good Hope, making those trips 20% to 30% longer, increasing fuel use and crew costs.
The Houthis say they are attacking ships in retaliation for Israel’s invasion of the Gaza Strip. The U.S., Britain and their allies have been striking back against Houthi positions.
Some analysts have worried that the longer journeys could push up 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 U.S. are stocking up for the winter holidays.
The new ships account for more than one-third of the industry’s capacity before the order boom began, Whitlock said. Most will be delivered by the end of this year.
New vessels will increase the shipping capacity of the Danish shipping giant Maersk by 9%, according to Gartner, and some of its competitors are planning much bigger additions. MSC, the largest ocean carrier, is adding 132 ships, bolstering its fleet’s capacity by 39%. CMA CGM of France, the world’s third-largest shipping company, will raise its capacity by 24%, according to Whitlock.
“It is, therefore, just a matter of time,” Vincent Clerc, Maersk’s CEO, told investors this month, “until the capacity issue is fully resolved.”
That relatively quick adjustment reflects the fact that the global supply chains are in much better shape than they were in 2021 and 2022.
Shipping analysts and executives also note that not every ship is 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 gone through the canal, compared with 48 in 2023, according to data collected by the International Monetary Fund and Oxford University.
The Red Sea disruption comes as far fewer vessels have been able to pass through the Panama Canal, which has been suffering from low water levels.