Global logistics managers are grappling with rising ocean and air freight prices due to the diversion of shipping routes from the Red Sea amid the risk of continuing Houthi attacks. CNBC reports that logistics managers were quoted an ocean freight rate of US$10,000 per 40-foot container from Shanghai to the United Kingdom, a significant increase from last week's rates of US$1,900 to US$2,400.
US Defence Secretary Lloyd Austin said on Tuesday (December 19) that in the last month, Houthi militants from Yemen have attacked or seized commercial ships 12 times. Major shipping fleet operator AP Møller-Maersk and oil and gas giant British Petroleum are some of the companies that have halted their movements through this route in light of the attacks.
Alan Baer, Chief Executive Officer of OL USA, highlighted the rapid adjustments in pricing as shipping companies attempt to cover the costs of rerouting their vessels. He noted a stark contrast to the gradual increase in freight prices during Covid, describing the current situation as a "light switch event." Baer mentioned that freight rates in some trade lanes have risen by 100 to 300%.
As per Kuehne + Nagel, 158 vessels, carrying over 2.1 million cargo containers, are currently avoiding the Red Sea. The estimated value of this cargo, based on MDS Transmodal estimates, is ~US$105 billion.
Potential for further delays
Companies like IKEA have acknowledged the impact of these trade diversions on product availability. An IKEA spokesperson stated that the company is working with transportation partners to manage shipments and ensure the safety of individuals within its value chain. They also mentioned the potential for delays and availability constraints for certain IKEA products due to the situation in the Suez Canal.
On the other hand, Danone (OTCQX:DANOY), a French dairy and plant-based products company, refuted reports of significant impacts on its supply chain. A spokesperson stated that they are closely monitoring the situation with their suppliers and partners.
The delay in shipping due to rerouting affects various shippers globally, as containers from multiple countries are often on a single vessel. Logistics managers are striving to manage the situation, especially with stranded containers in European and Middle Eastern ports and Asia-bound shipments.