Red Sea diversions push up freight rates
Prices rise on China-Europe route as ships take detour amid Houthi attacks
As global shipping giants are forced to divert container ships via the Cape of Good Hope at the southern tip of Africa in the wake of attacks by Houthi militants in the Red Sea, shipping prices between China and Europe have shot up amid concerns over supply chain disruptions.
“The price of the Mediterranean route is soaring now,” Xia Xiaoqiang, a Tianjin-based freight forwarder, said.
“The freight rate of early January may double that of early December.”
The Iran-aligned Yemeni anti-government group has stepped up their involvement in the Israel-Gaza war, and has increasingly targeted vessels navigating the Red Sea in recent months, warning of attacks on all Israel-bound ships.
Major freight firms, including Europe’s CMA CGM, Maersk and Mediterranean Shipping, as well as Chinese state-owned giant Cosco and Taiwan’s Evergreen Marine, have suspended transits through Egypt’s Suez Canal, according to media reports.
The 193km canal, which is one of the world’s busiest waterways and the shortest shipping route between Europe and Asia, accounts for 12 per cent of global trade, including 30 per cent of all container movement, according to Egypt’s State Information Service.
Taking the alternative route via the Cape of Good Hope would add around 10 days to the westbound trips on the Asia-North Europe route, and lead to further rises in shipping costs, according to industry insiders.
“It will all depend on how navies take this up,” said Christian Roeloffs, co-founder and CEO of Container xChange.
“Egypt has a significant commercial interest in the functioning of the Suez Canal as it is one of the main revenue drivers and if the diversion happens then it will have a significant impact there.”
The Suez Canal Authority on Sunday said 55 ships had been diverted via the Cape of Good Hope since November 19, while 2,128 ships had travelled through the waterway during the same period.
On Monday, the United States announced a 10-nation coalition to quell the attacks in the Red Sea.
“We are closely monitoring the impact of the current tensions in the Red Sea and studying their impact on navigation via the canal,” Suez Canal Authority chairman Osama Rabie said.
But Roeloffs said that while the traffic in the Suez Canal and on the Red Sea looked healthy, it could turn around very quickly.
“If we go by history, then the situation of the Ever Given did create a lot of traffic jams a few years ago, the repercussions of which were felt for months,” Roeloffs said.
In March 2021, the Suez Canal was blocked for six days after the 400m container ship ran aground.
Ocean freight rates between China and Europe had already been on the rise in recent months, reflecting a traditional uptick at the end of the year as Chinese exporters rush to send out goods ahead of Lunar New Year and ocean carriers push up prices during long-term contract negotiations.
The spot rate for sending a 40-foot container from China to the Mediterranean increased by more than 70 per cent in the past month to US$2,414 as of Friday, according to the Freightos Baltic Index.
The rate for routes from China to Northern Europe also increased by 55 per cent compared to a month earlier to US$1,467, the index showed.
But despite the increase in shipping prices, Chinese exports to Europe have remained subdued recently amid weak demand.
The number of inquiries about the China-Europe Railway Express have increased significantly in the past few days, according to Lois Mo, commercial manager at New Silk Road Intermodal, a Sichuan-based railway freight forwarder.
The intercontinental railway network, which serves as an alternative to sea and air freight, has been shunned by European traders since the Ukraine war began amid fears of sanctions or being perceived as friendly with Russia.
“In fact, there is no need to worry too much about the extra 10 days for ships to go around the Cape of Good Hope,” Mo said.
“Judging from the current high inventory level and weak consumption in Europe, [the disruption in Red Sea] will not cause another exponential growth in demand for China-Europe freight trains, like the one in 2021.”