If tensions in the Red Sea are not resolved and persist, the impacts on the shipping industry could be even greater in the second and third quarters, because these are peak quarters. The second quarter is the peak for importing raw materials and the third and fourth quarters are the peak for exporting goods.
Container freight rates have skyrocketed because of Red Sea tensions
Recent conflicts in the Red Sea have caused companies freight global giants have to worry about. But this is unlikely to be the only problem facing major carriers as 2024 begins.
Shipping giants such as Maersk say the industry faces the possibility of significant disruption.
Accordingly, drought causes travel through the Panama Canal to slow down. In particular, escalating tensions in the Red Sea area recently have forced shipping lines to change routes, passing through the Cape of Good Hope. This leads to longer travel times of 8 – 21 days for train routes connecting Asia and the Middle East to Europe, leading to higher transportation costs.
Currently, 80% of goods going to the East Coast of the US/Canada and the EU go through the Suez Canal. Simultaneously, number of containers Transport through this canal takes up 23% total number of containers Shipping by sea around the world Clarksons reports.
According to data from MacroMicro, the Drewry WCI world container freight rate index as of January 4 was at 2,670 USD/FEU (40-foot Container), 61% higher than a week earlier and 82% higher. compared to 1 month ago.
Train fares on routes from Asia to Europe and the US have increased sharply. Typically, the train fare from Shanghai to New York on January 4 was 3,858 USD/FEU, up from about 3,000 USD/FEU a week ago. If compared with the beginning of December 2023, this price increased by about 50%.
Or ship freight from Shanghai to Rotterdam port (Netherlands) more than doubled in just 14 days to 3,577 USD/FEU.
World container ship freight index (black), freight from Shanghai to US (green) and from Shanghai to Netherlands (Blue) over the past year (Unit USD/FEU, Source: MacroMicro)
Businesses export expressed concern about the increase in train fares. Recently, the Association of Seafood Exporters and Producers (VASEP) said that due to low cargo traffic in 2023, many routes will cut mother ships. When the journey is long, it takes about 2 weeks to turn around a ship. Some routes have to cut a number of weekly trips, leading to lack of seats or put more ships into operation, increasing costs.
“This could be a new challenge for seafood businesses in 2024. If tensions in the Red Sea region continue or escalate, it could lead to increased transportation costs and input product prices for seafood. Aquaculture and seafood processing increase, affecting the competitiveness and profits of seafood enterprises,” VASEP said.
Train fares may increase further
Recent developments in ship freight prices have surprised export businesses. However, the upward momentum is forecast to not stop.
Talking to us, Mr. Nguyen Hoang Giang, Head of Stock Analysis Department, in charge of the Transportation industry group under the Center for Analysis and Investment Consulting of SSI Securities Company said that if the tension at As the Red Sea continues, the impact on shipping rates will become increasingly serious, especially in the second and third quarters.
Mr. Giang analyzed that at the present time, it is the low season, while the supply of containers and ships is still abundant due to many orders for building new ships and containers in the period 2020-2022. However, shipping rates still doubled because shipping companies had to go around the Cape of Good Hope.
“If tensions in the Red Sea are not resolved, we could see an even greater impact on the shipping industry in the second and third quarters, as these are peak quarters. The second quarter is the peak for importing raw materials and the third and fourth quarters are the peak for exporting goods,” Mr. Giang said.
Mr. Giang compared the chain of transporting goods by sea to a clock cycle. Normally, a fleet’s containers can take 1-3 months to complete a circle, from the export point to the import point, then back. But if that “rotation” lasts 1/3 more, there will be an imbalance in containers and the supply chain. The fact that shipping lines take more time to move (due to detours) will be the factor causing the container “turnaround” to be extended.
In addition, despite a sharp increase in recent times, container freight rates are still at a low base, even lower than some times before the COVID-19 pandemic, affected by the weak world economy and trade demand. Goods have decreased so this year there is no peak period like every year.
Therefore, Mr. Giang said: “If Red Sea tensions persist, international container shipping rates in the second and third quarters may continue to increase sharply from the current low rates, and will change the picture.” of the global container shipping industry in 2024 in a more positive direction than previous forecasts.”
However, Mr. Giang also said that it is not possible to expect container ship freight rates to increase 4-5 times as rapidly as in the 2020-2022 period because the context is very different. In 2020-2022, due to the impact of COVID-19, the global supply chain was broken at many points, for example, many ports in the US had no loading workers, factories were blocked because of COVID-19… .
In addition, the Suez Canal blockage event in May 2021 further increased tensions. At that time, the supply of ships and containers was not enough to compensate for the shortage due to the stretched container turnover. This caused a ripple effect and created huge pressure on the supply chain at that time.
The current context is different, the increase in ship freight is mainly due to the longer journey in both distance and time when the ship has to go around the Cape of Good Hope. Therefore, the additional supply of ships and containers in the current period (an increase of about 10% of total capacity in 2024) will likely help partially offset supply chain disruptions. However, the impacts on freight rates are still difficult to avoid.
In a recent announcement, the Export Department import (Ministry of Industry and Trade) requests industry associations and associations in the field of logistics to strengthen monitoring and regularly update the situation so that businesses in the industry can firmly grasp the information to proactively plan production and import and export. importing goods, avoiding congestion and other adverse impacts.
In addition, the agency recommends that businesses seek and diversify supply sources to limit the impact on the supply chain. Learn about rail shipping for different delivery options.
When signing and negotiating commercial contracts and transportation contracts, businesses should have provisions on compensation and liability exemption in emergency situations. It is necessary to purchase full insurance to prevent risks and losses when goods have to be transported for extended periods of time or encounter problems while traveling through this route.
According to VietnamBiz.vn
