In the past two months, there have been a number attacks on commercial shipping vessels by so-called Houthi militants operating out of Yemen on the southern end of the Red Sea, which connects to the Suez Canal, a key global trade artery.
No serious damage has been sustained by any ships thus far. Nevertheless, a number of major container shipping lines have stopped sailing through the Red Sea, as have several oil carriers, reacting to the risks to ships and cargo, but also sailors demanding double pay and insurance rates skyrocketing for those taking a Red Sea passage.
Over the last six months, some 500 ships have that would have gone through the Red Sea and the canal have instead taken the extra 2-3 weeks to sail instead around the southern tip of Africa and the Cape of Good Hope.
According to a new report from Bloomberg.com, this is sending global logistics costs soaring.
Bloomberg says that the cost of shipping containers from China to the Mediterranean Sea and on to Europe has more than quadrupled since late November, according to Freightos, a cargo-booking company.
The chaos isn’t likely to end any time soon. Bloomberg says ships many vessels for the route around Africa are booked as far out as the summer. Last week, Maersk, second largest container carrier by capacity, warned last week that disruptions will last for a few months at least.
“That means every company sending goods has more inventory tied up in transit and needs yet more in case containers get scarce,” Bloomberg observes.
In fact, container manufacturers are working flat out already, according to Container xChange, an on-line container service, with ports as far away as Halifax, Nova Scotia reporting delays in getting ships to call.
That is sending costs soaring – and bringing back the supply chain disruptions that had almost disappeared in 2023.
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For example, car makers Volvo and Tesla have announced production suspensions at plants in Europe, citing the inability to get components from suppliers in Asia.
Though having little impact on cooling inflation yet, some observers are warning the risk is real.
Bloomberg reports, for example, that British retailers Tesco and, Marks & Spencer Group have cited the risk of higher costs coming.
“So far, many executives and investors have consistently undershot the potential for this risk to emerge,” Alexis Crow, who specializes in geopolitics and long-term investing at PricewaterhouseCoopers, told Bloomberg.
Bloomberg Intelligence estimates the diverting around Africa adds about 40% to the distance of the voyage. For importers that means delays, higher costs, key components late in arriving, and air freight offering a limited alternative, with costs soaring there as well.
Still, the volume of shipments moving by air from Vietnam to Europe , a major route for clothing, rose 62% in the week ended Jan. 14, according to maritime data firm Xeneta.
So the global logistics drama continues, just after a year of relative calm.
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