Trade Disruptions To Lead to Higher Shipping Rates

The Red Sea crisis is persisting for a second straight month, which is slowly expected to make an impact on the global supply chain and world trade alike. In its latest weekly report, shipbroker Xclusiv said that “2023 is gone, however, economic uncertainty and mounting geopolitical risks from Ukraine and Russia to Israel and the broader Middle East still dominate the beginning of 2024. Rising tensions in the Red Sea have prompted shipowners to avoid transiting the Suez Canal, significantly decreasing the number of vessels passing through the Canal, as the average number of transits has decreased by 14% since mid-December 2023, to around 50 daily transits, which is almost 17% lower compared to the same period of last year”.

According to Xclusiv, “after a recent attack, container shipping company Maersk, in its latest announcement said, that it will reroute all its vessels away from Red Sea routes, opting to navigate around Africa’s Cape of Good Hope for the foreseeable future, increasing significantly tonne-miles. For instance, a trip from Shanghai to Piraeus via Suez is 7,844 nautical miles, while via Cape of Good Hope is 14,253 nautical miles. Extra nautical miles add a very significant time and cost addition to each trip, which in turn will increase the vessel utilisation, affecting the availability of tonnage”.

“The Red Sea crisis has a positive impact on the container rates, with the FBX index climbing to 2,606 points, the highest level since late November 2022 and almost 105% up since 5th December 2023. More specifically, short-term rates for container shipping between Asia, Europe, and the US are on the rise due to reduced capacity caused by threats to cargo vessels in the Red Sea. The spot rate from Shanghai to Europe has now surpassed USD 2,870/ TEU reflecting a 237% increase since early December 2023. Moreover, the spot rate from Shanghai to Med has risen to USD 3,620/TEU, 187% up compared to early December’s rates, while rates from Shanghai to East Coast America have experienced an almost 61% increase, reaching USD 3,931/ FEU. It’s not only the container market’s freight rates that have been benefitted, but also tanker rates on Red Sea routes are on an upward trend during the last month. Suezmax TD23 route (Basrah to Lavera – 4,878 nautical miles via Suez or 10,977 nautical miles via Cape of Good Hope) pays USD 30,958/day almost double compared to a month ago, when it paid USD 17,592/day. Time charter equivalent rates on the LR2 TC15 (Med/Far East) and TC20 (Middle East to UK Cont) routes have increased from USD 8,129/day and USD 20,988/day on 4th December to USD 25,996/day and USD 57,422/day respectively. Moreover, the LR1 TC8 route (Middle East to UK Cont) pays today USD 49,143/day, while one month ago paid USD 21,055/day”, Xclusiv said.

The shipbroker concluded that “apart from geopolitical risks, changes to fuel costs, green transition, supply chain disruptions will put pressure on shipping costs in 2024. But industry members are moderately optimistic as there are many positive signs for increased demand for commodities and the potential for a recovery in consumer spending. Overall, the key will be for shipping companies to manage their costs effectively and to adapt to the changing global economic environment”.
Nikos Roussanoglou, Hellenic Shipping News Worldwide