The Red Sea is closed and shipping prices are skyrocketing in Europe

January 15, 2024 by
Frank Calviño

The Red Sea is currently closed to international maritime traffic, and its consequences for world trade are unpredictable. Houthi attacks on merchant ships blocked this vital shipping route between Asia and Europe through the Suez Canal at the end of November, and last week Thursday, the US and UK bombed targets in Yemen in retaliation. 

The Bab-el-Mandeb Strait has become a war zone, shipping lines are forced to bypass the African continent, and freight rates have skyrocketed.

"Six weeks ago, we were in a scenario where there was an oversupply of shipping because demand had contracted. Prices were at $1,500 per container for the Asia-Europe route, and there were fights between shipping lines to get customers. Now, prices have risen by 300%, are around $4,500, and will probably continue to rise. Sending a container from Spain to China costs three times as much," according to Jordi Espín, secretary general of Transprime, the Spanish employers' association of freight forwarders interviewed by the economy and business specialized media 20 Minutos in Spain. 

The Red Sea crisis will affect differently USA and EU

And the citation is dire indeed, for as The Guardian explains, ‘Some 15% of global trade passes through the Red Sea. Houthi attacks might claim to single out shipping bound for Israeli ports, but the reality is that they are indiscriminate and target whoever is passing’ 

For the USA the situation might differ widely from the one in EU. Their immediate consequence was a spike in container prices when shipping from China to USA. But according to multiple media, the shipping prices are being lowered by the carrier companies. 

‘Container rates have soared as high as $10,000 amid the Houthi attacks in the Red Sea, but new data shows that ocean carriers are reducing freight rates from China to the U.S. West Coast, contrary to expectations for price increases planned to go into effect next week’ - says CNBC

Going around Africa seems the only option 

"Circumnavigating all of Africa around the Cape of Good Hope to avoid the Red Sea means that, depending on the type of ship and its origin, the route is increased by 15 to 20 days, with an obvious increase in expenditure, for example in fuel, which can be 50%. This will end up having an impact on the consumer and also implies delays in deliveries, which can be particularly sensitive for industry in some sectors, such as wood, rubber or electronics," says Fernando Ibáñez, director of the Master's Degree in Maritime Security and Safety at CISDE.

The Red Sea crisis is also stifling the supply of shipping lines because their ships now take much longer to complete the Asia-Europe route. "The ships are two weeks late in arriving at port and that delay is accumulating, which causes a lower rotation of available ships and that affects the cost," explains Ramón Gascón, coordinator of the Spanish Exporters and Investors Club.

And the forecasts are not at all flattering, according to Espín, who cites data from Sea Intelligence, one of the main global transport analysts: "The availability of supply of shipping companies on January 8 was 40%, there was still oversupply, but their forecasts are that by January 22 we will be at -30%. There are already starting to be availability problems in Asia-Europe traffic and also in the Transpacific".

Gascón stresses that exporting or importing companies are already experiencing delays in deliveries, although he does not fear that there will be a shortage of products in Spain: "For now, problems of shortages are ruled out because supply and demand are balanced, but there may be delays in deliveries. Whoever produces something will be able to deliver it, but it may take a little longer to arrive.

"The punctuality of ships in delivering their goods was around 64% reliable at the end of the year, but in the last three weeks it has dropped four points. That creates great unease in the logistics chain, but after the tsunami that was the pandemic, when there was a disruption of global maritime traffic and panic on a planetary level, shippers know that fear should not spread," says Espín.

Redacted with information provided by 20 Minutos, The Guardian, Forbes 

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