The cost of transporting goods from Asia has soared more than 300% since Houthi militias began attacking container ships in the Red Sea last year, raising concerns that supply chain disruptions could once again roil the global economy.
The Iranian-backed Houthis, who control northern Yemen, continue to threaten shipping, forcing many to take the much longer route around the southern tip of Africa. But there are signs that the world will probably avoid a protracted shipping crisis.
One reason for optimism is that a huge number of container ships ordered two to three years ago are entering service. These additional vessels are expected to help shipping companies maintain regular services as vessels travel greater distances. The companies ordered the ships at a time when the massive surge in global trade that occurred during the pandemic created huge demand for their services.
“There’s a lot of capacity available, whether it’s in ports, ships or containers,” said Brian Whitlock, senior director and analyst at logistics research firm Gartner.
Shipping costs remain high, but some analysts expect shipping costs to fall later this year due to a strong supply of new ships.
Before the attack, Asian ships had crossed the Red Sea and the Suez Canal, which typically handles about 30% of global container traffic, to reach European ports. Most now travel around the Cape of Good Hope, making journeys 20 to 30 percent longer and increasing fuel use and crew costs.
Houthi rebels said they were attacking the ship in retaliation for Israel's invasion of Gaza. The United States, Britain and their allies have pushed back against the Houthis' stance.
Some analysts have raised concerns that longer trips could lead to higher costs for consumers. But shipping industry executives say they now expect their operations to adjust to the disruption in the Red Sea before the third quarter, their busiest season, when many retailers in Europe and the United States stock up on products for the winter holidays.
The new ships accounted for more than a third of the industry's capacity before the order boom began, and most of them will be delivered by the end of the year, Mr. Whitlock said.
The new vessels will increase Danish shipping giant Maersk's shipping capacity by 9%, according to Gartner, while some rivals plan to add even larger vessels. MSC, the largest ocean shipping company, plans to increase its fleet capacity by 39% by adding 132 vessels. And France's CMA CGM, the world's third-largest shipping company, will increase production by 24%, Mr. Whitlock said.
“It’s only a matter of time until the capacity issue is fully resolved,” Maersk CEO Vincent Clerc told investors this month.
The relatively quick adjustment reflects the fact that global supply chains are in much better shape than they were in 2021 and 2022. At the time, supplies of goods like appliances and gardening equipment were limited, but demand was strong from consumers stuck at home. . Ports and shipping companies were also experiencing difficulties due to a shortage of manpower, containers, and ships.
Shipping analysts and executives also note that not all ships take the long route around Africa to avoid the Red Sea and the Suez Canal. An average of 30 cargo ships have passed through the canal per day so far this year, compared with 48 in 2023, according to data compiled by the International Monetary Fund (IMF) and the University of Oxford.
However, the increase in shipping rates is causing great pain to small and medium-sized businesses that cannot sign long-term contracts with shipping companies, making them more vulnerable to rapid increases in container shipping rates.
They rely on what's called the spot market, where interest rates are much higher than they were for most of last year. By 2023, shipping costs will fall to pre-pandemic levels.
LSM Consumer & Office Products is a company based in central England that imports office supplies from China and India. Managing director Marcel Landau said the cost of transporting a container had jumped from about $1,000 before the Red Sea attacks to $3,000. He said because prices are set by contract, costs cannot be easily passed on to customers. As a result, he expects profits to be cut by half due to high transportation costs.
“Last year was really good. “It was exactly the way business should be,” he said. “And then things started to go wrong when the situation in the Middle East started to unfold.”
Lyndsay Hogg, director of Hogg Global Logistics, a company that arranges deliveries for small and medium-sized businesses based in Hartlepool, on England's northeast coast, said many customers were anxious about the surge in delivery costs and some were experiencing delays in deliveries.
“I think people are nervous.” she said “Bookings have decreased..”
The cost of shipping a 40-foot container from Asia to Northern Europe, one of the routes hardest hit by the Red Sea attacks, rose to $4,587 per container last week, up 350% from the end of September, according to spot market data from Freightos. Digital delivery market. (The average in 2021, when shipping lines were extremely strained, was $11,322.)
Stress in the Middle East has led to rising transport costs, even on distant routes. Costs from Asia to U.S. West Coast ports have increased 190% since September, according to Freightos.
The chaos in the Red Sea comes as far fewer ships can transit the Panama Canal due to low water levels. Problems with the canal have also caused delays and diversions.
Maritime experts say detours around Africa are the main reason for the surge in shipping costs.
Container ships traveling from Asia to Europe spend about 20 to 30 percent longer at sea than when transiting the Suez Canal. This has effectively reduced delivery capacity. And as production capacity shrinks to meet steady demand, prices have risen, analysts say.
Regulators are monitoring the situation.
They want shipping companies to make enough money to keep their supply chains running smoothly. But regulators say they also want to protect customers of shipping companies from price gouging.
Daniel Maffei, chairman of the US Federal Maritime Commission, said he was concerned about the fees and surcharges added by shipping companies as a result of the Red Sea attack and the current reduction in overall shipping capacity. But he added: “I’m less worried in the medium term because of all the ships coming online and increasing capacity.”