Global shipping costs are rising due to Houthi rebel attacks on cargo ships near the Red Sea, impacting the Suez Canal and supply chains in Europe and the U.S. Shipments are delayed, and transportation costs are increasing.
In the week ending January 18, the average cost of shipping a 40-foot container worldwide rose by 23% to $3,777, more than doubling from the previous month, according to a report from London-based Drewry Shipping Consultants.
These issues extend beyond trade routes between China, Europe, and the U.S. Shipping rates from China to Los Angeles increased by 38% in the same week, reaching $3,860.
Philip Damas from Drewry Shipping Consultants notes growing unpredictability in international shipping. While big companies with long-term contracts are somewhat protected, many are paying extra fees, like a 20% surcharge, to cover higher expenses.
In Yemen, Houthi rebels attack commercial ships amid the Israel-Hamas conflict. Despite U.S.-led protection efforts, attacks persist, causing damage to cargo ships.
The International Monetary Fund reports a 37% drop in Suez Canal traffic in 2024 compared to the previous year. Major shipping companies, including A.P. Moller-Maersk and Hapag-Lloyd, reroute ships around Africa, adding over a week to travel times.
The Suez Canal is crucial to reducing international shipping disruptions due to its strategic location, providing a vital and time-saving maritime route that connects the Mediterranean Sea to the Red Sea, allowing ships to bypass the lengthy and perilous trip around the southern tip of Africa.
Amidst the avoidance of the Suez and Red Sea by major shipping lines and the preference for rail transport across Panama, retailers assert their ability to handle delays. Nevertheless, Brian Bourke, SEKO Logistics’ global chief commercial officer, highlights that apparel companies, keen on timely spring fashion arrivals, are resorting to airfreight. Maersk and Hapag Lloyd, significant international containerised shipping lines, have suspended ship movements through the Bab-al Mandab Strait, linking the Red Sea to the Gulf of Aden and the Indian Ocean.
Although primarily impacting Asia to North Europe and Mediterranean routes, historical incidents suggest potential serious consequences in other regions if the situation persists.
Paul Zalai, the Director of Freight & Trade Alliance (FTA) and Secretariat of the Australian Peak Shippers Association (APSA), refers to events from March 2021 when the mega-vessel Ever Given ran aground in the Suez Canal “The impact of the waterway closure for six days threw vessel schedules internationally into disarray – this may fade into insignificance compared to the current conditions that are likely to continue for a significant period with other shipping lines likely to follow, understandably not wanting to endanger the lives of seafarers, the safety of vessels and the cargoes they carry.”
“We are likely to know more in coming days – should marine insurers withdraw policies for ships passing through the area or declare the Red Sea a ”war zone”, shipping lines will be commercially left with little option but to abandon this key waterway,” Zalai said.
Zalai says the withdrawal of vessel services from the route will mean their diversion via the Cape of Good Hope. “This will add about ten days to transit times and estimated arrival dates in North Europe and Mediterranean ports – we can again expect that shipping lines will recover these costs through additional surcharges on cargoes.”
Suez Canal problems compound with challenges at the Panama Canal, limiting ship passage due to a drought.
Party City in New Jersey, facing delays of up to a week and extra charges of $300 to $500 per container from Asia to U.S. ports, strives to ensure timely store deliveries despite setbacks.