East-West Trade Braces for Higher Freight Costs in 2024

East-West Trade Braces for Higher Freight Costs in 2024

Costs to surge for Europe bound energy supplies, palm oil and grains

The unfolding events in vital maritime passages such as the Red Sea, Suez Canal, and Panama Canal have prompted swift responses from major shipping companies, thereby impacting the container shipping sector.

An additional 40% longer route, causing heavy upward pressure in the operating costs is expected to persist as the shipping time extends anywhere between one to four weeks due to the longer route.

Recent missile attacks by Houthi militants in the Red Sea have prompted leading shipping entities like CMA CGM, Hapag-Lloyd, Maersk, and Mediterranean Shipping Co. to temporarily halt transits through the Suez Canal.

Additionally, the Panama Canal has been effectively closed to MPV (multipurpose) shipping until at least May, leading carriers to explore alternative routes via the Cape of Good Hope and the Strait of Magellan.

Christian Roeloffs, cofounder and CEO, Container xChange said: “The situation in the Red Sea has been escalating quite significantly over the last two weeks where Houthis have started to attack the commercial vessels by the big ocean liners.

"Subsequently the container liners are essentially instructing their vessels to avoid transiting through the Suez Canal and around the Cape of Good Hope adding quite a significant delay and time to their East to West trade journeys.”

Container xChange reported about the potential disruptions and implication on the Suez Canal in October this year right after the start of the Israel – Hamas – Palestine conflict.

Potential Impact on Container Shipping

  • Service Disruptions:

    • Vessel schedules may face disruptions due to route changes and heightened security measures.

    • Delays in shipments through both the Suez and Panama Canals could affect delivery timelines.

  • Increased Costs:

    • War risk premiums are likely to rise, affecting carriers and potentially leading to increased freight costs.

    • Alternative routes, such as the longer Cape of Good Hope, may incur higher operational expenses.

  • Trans-Pacific Trade Dynamics:

    • The closure of the Panama Canal may shift market dynamics, impacting routes and cargo volumes.

    • The West Coast is expected to regain market share as carriers adjust their strategies.

Christian Roeloffs adds: “The Red Sea, especially with the Suez Canal, is like a superhighway for shipping containers, connecting different parts of the world, particularly Europe, Asia and Africa.

"However, recent disruptions are poised to escalate operational costs, adding significant strain, while concurrently exerting downward pressure on profits. It marks a disheartening beginning to the strategic planning for the year 2024.”

The Red Sea trade route is strategically significant due to its role in connecting the Mediterranean Sea to the Indian Ocean, providing a shortcut for ships traveling between Europe and the countries in Asia and Africa.

The 193-km long canal accounts for 12% of global trade, including 30% of all container movement. A huge amount of Europe’s energy supply, palm oil and grain come through the Suez Canal Waterway which also gets impacted by these attacks and subsequently by the disruptions thereafter.

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Transport and Logistics ME