Tiếng ViệtIf the unrest in the Red Sea persists and remains unresolved, the consequences for the maritime transportation industry could escalate significantly during the second and third quarters, which are considered peak periods. The second quarter is characterized by heightened imports of raw materials, while the third and fourth quarters are peak periods for exporting goods.
The increasing tensions in the Red Sea are causing a significant surge in container freight rates
Recent disputes in the Red Sea have raised substantial worries among international shipping firms. Nevertheless, this appears to be just one of the challenges that major transportation companies must confront as the year 2024 commences.
Prominent players in the maritime transport sector, including Maersk, suggest that the industry is at risk of encountering substantial disruptions.
Consequently, the drought has impeded the flow through the Panama Canal. Specifically, the recent increase in tensions in the Red Sea has compelled shipping companies to change their routes, opting for the Cape of Good Hope. This results in a prolonged transit time ranging from 8 to 21 days for shipping routes linking Asia and the Middle East to Europe, thereby leading to increased transportation expenses.
At present, the Suez Canal serves as the route for 80% of goods destined for the East Coast of North America and the European Union. Moreover, a report by Clarksons reveals that the containers transported through this canal constitute 23% of the global sea container shipments.
According to MacroMicro’s data, Drewry’s World Container Index (WCI) recorded a value of $2,670 per forty-foot equivalent unit (FEU) as of January 4th. This reflects a notable surge, with a 61% increase from the previous week and an 82% rise compared to one month earlier.
Rates for shipping from Asia to Europe and the Americas have experienced substantial increases. As of January 4th, the freight cost from Shanghai to New York reached $3,858 per Forty-foot Equivalent Unit (FEU), showing a significant rise from approximately $3,000 per FEU just a week earlier. Compared to early December 2023, this represents an approximate 50% increase in price.
Conversely, the shipping rates from Shanghai to the port of Rotterdam (Netherlands) have more than doubled in a span of 14 days, reaching $3,577 per FEU.
Concerns are being voiced by export businesses regarding the recent upswing in shipping rates. The Association of Seafood Processing and Export (VASEP) has recently highlighted that, due to decreased cargo volume in 2023, numerous shipping lines have downsized their primary vessels. The elongated journeys have led to a turnaround time of approximately two weeks for a single ship. Certain routes have had to trim the number of weekly trips, causing shortages in space or necessitating the deployment of additional ships in operations, consequently escalating costs.
VASEP has mentioned that this might present a new challenge for seafood businesses in 2024. If the tension in the Red Sea persists or escalates, it could lead to repercussions like increased transportation costs and rising input prices for aquaculture and seafood processing, affecting the competitiveness and profitability of seafood businesses.
There is a possibility of further increases in shipping rates
Export businesses have been caught off guard by the recent fluctuations in shipping rates. Nevertheless, the expectation is that the upward trend will persist.
In our discussion, Mr. Nguyen Hoang Giang, Head of Stock Analysis overseeing the transport sector at the Analysis and Investment Advisory Center of SSI Securities Corporation, conveyed the viewpoint that if the tension in the Red Sea endures, the impact on shipping rates will intensify, particularly during the second and third quarters.
In the current analysis by Mr. Giang, the prevailing conditions are considered to be the low season, with an ample supply of containers and ships stemming from extensive shipbuilding and new container orders between 2020 and 2022. Despite this surplus, shipping rates persist, doubling due to the necessity for shipping companies to navigate through the Cape of Good Hope.
Mr. Giang emphasized, “If the tension in the Red Sea remains unresolved, we may observe even more substantial impacts on the maritime transport industry in the second and third quarters, given that these are peak periods. The second quarter is characterized by heightened imports of raw materials, while the third and fourth quarters are peak periods for exporting goods.”
\Mr. Giang draws a comparison between the sea freight supply chain and the rotation of a clock. Typically, shipping fleets’ containers take 1-3 months to complete a full circle, moving from the export point to the import point and then returning. However, extending this “rotation” by an additional third can result in a container and supply chain imbalance. The increased travel time for shipping companies, due to circumnavigating, plays a role in extending the “rotation” of containers.
Moreover, despite the recent notable increase, container freight rates remain relatively low, even surpassing some pre-COVID-19 periods. This is influenced by the weakened global economy and reduced demand for goods, given the absence of a peak season this year compared to previous years.
Consequently, Mr. Giang proposes that should the tension in the Red Sea persist, international container shipping rates in the second and third quarters might continue to experience a significant surge from the current low levels. This has the potential to reshape the global container transport landscape in 2024 in a more positive direction than previously anticipated.
However, Mr. Giang also advises against anticipating a surge in container freight rates by 4-5 times, as observed in the 2020–2022 period, citing a markedly different context. During 2020–2022, the global supply chain encountered disruptions at various points due to the impact of COVID-19, including U.S. ports facing shortages of dockworkers and factories being sealed off due to pandemic-related concerns.
Additionally, the Suez Canal blockage event in May 2021 heightened tensions further. During that period, the supply of ships and containers was insufficient to compensate for the shortage caused by the extended rotation of containers. This created a ripple effect, exerting significant pressure on the supply chain at that particular moment.
The present context differs; the primary factor contributing to the rise in shipping rates is the extended journey in both distance and time as ships navigate around the Cape of Good Hope. Therefore, the addition of ship and container supply during the current period (anticipated to increase by approximately 10% of total capacity in 2024) may partially alleviate disruptions in the supply chain. Nevertheless, avoiding an impact on freight rates remains challenging.
In a recent statement, the Import-Export Department (Ministry of Industry and Trade) has called on industry associations and logistics associations to intensify monitoring and provide regular updates to businesses in the sector, ensuring they are well-informed. This proactive approach is designed to assist companies in planning their production and import/export activities, mitigating congestion and potential issues.
Moreover, this agency suggests that businesses should actively seek and diversify their supply sources to minimize the impact on the supply chain. Exploring railway transportation methods offers an alternative delivery option.
For businesses entering into trade and transportation contracts, it is recommended to incorporate clauses related to compensation and exemption of responsibility in emergency situations. Obtaining comprehensive insurance is crucial to mitigating risks and losses in the event of extended transit times or incidents occurring along this route.
