Yemen’s Houthi armed group attacks on Red Sea shipping have led to a rise in freight rates, impacting global import and export trade. Importers worldwide, including those in the United States, are feeling uneasy about the shipping situation. Some Chinese manufacturers have stated that this year is shaping up to be the worst since they started their businesses.
According to a report by the Financial Times on July 2nd, Richard Chan, the manager of Golden Arts Gifts & Decor, a Christmas tree manufacturer located in southern China, said, “We are not talking about profits this year. We just need to survive,” and “The Red Sea crisis is really giving us a headache.”
Chan mentioned that this year will be the worst in his over twenty years in the industry. Their clients, including Walmart, see about 80% of their products exported to the US and Europe. The company reported shipment delays due to the Red Sea attacks, causing customers to request orders to be delivered a month earlier than usual.
The challenges faced by Chan’s factory are similar to those across China. Manufacturers express difficulties in meeting shortened schedules as US and European buyers demand early orders to ensure timely delivery during peak holiday seasons like Christmas and New Year.
The Red Sea attacks have led to extended shipping times, causing a shortage of container capacity and cancellations of Asian flights, thereby driving up spot ocean freight prices.
Since November 2023, the Houthi armed group’s attacks on commercial ships in the Red Sea and the Indian Ocean have continued, prompting many commercial shipping companies, vessels, and insurance companies to avoid crossing the Bab el-Mandeb Strait to the Suez Canal. Instead, they have changed shipping routes, circumventing the longer Cape of Good Hope route around Africa, increasing costs, extending transportation times, and escalating the global trade crisis.
According to a report by the US Defense Intelligence Agency on the economic impact of Houthi armed group’s Red Sea attacks, from December 2023 to mid-February, Red Sea container shipping volume dropped by about 90%. Alternative routes around Africa not only increased by around 11,000 nautical miles (one to two weeks of shipping time) but also added about $1 million in fuel costs per voyage.
Analysis by the logistics platform Project 44 shows that in May 2024, container ship sailings through the Red Sea decreased by 78% compared to the same month last year.
According to shipping market tracking agency Xeneta, by the end of June, the average cost of transporting a 40-foot container between Asia and Northern Europe reached $6,855, more than a 110% increase within two months, which is about five times higher than the same period last year.
CNBC reported on June 13 that based on a CNBC Supply Chain Heat Map, spot ocean freight prices from the Far East to the US surged by 36% to 41%, with carriers raising additional charges (general rate increases) by about 140%. These costs pushed the price of a 40-foot container to around $12,000.
The report stated that according to data from Denmark-based maritime consultancy Sea-Intelligence, if the rates paid per nautical mile reach levels seen during the pandemic, spot freight rates from Shanghai to Rotterdam could reach $18,900 per 40-foot container, and to Genoa, Italy, around $21,600 per 40-foot container. The return journey from Rotterdam to Shanghai could also reach $21,200 per 40-foot container.
Alan Murphy, CEO of Sea-Intelligence, remarked, “As long as enough carriers are willing to pay this price, spot freight rates will keep rising.” He added, “While spot rates are unlikely to exceed pandemic levels, there is no guarantee.”
Murphy noted that on the Trans-Pacific route (Asia to the US West Coast/East Coast), the highest spot rates are estimated to be the same as during the pandemic when some rates reached $30,000 per container.
Simon Heaney, Senior Manager of Container Research at maritime consultancy Drewry, stated, “Global importers, including those in the US, are feeling nervous due to all the uncertainty and chaos brought about by the Red Sea crisis.”
“The crisis seems to be ongoing, and there is no end in sight,” he said.
A salvage company confirmed on June 19th that the Greek-owned, Liberian-flagged bulk carrier M/V Tutor was struck and sunk by two Houthi cruise missiles on June 12th. This attack resulted in the death of a Filipino crew member.
On June 13th, the Houthis launched another attack in the Gulf of Aden, causing severe injuries to a crew member aboard the Ukrainian vessel “Verbena.”
Heaney mentioned that in a survey of US customers conducted by Drewry in May, around 19% of US customers and 26% of European customers indicated that they were making transportation plans in advance due to concerns over supply chain disruptions.
According to the Financial Times, Michael Lu, Chairman of the Chinese gift box manufacturer Brothersbox, reported that in some cases where the company exports goods to clients like Marks and Spencer, shipping costs to the West are 40% higher than last year. Not all these costs can be passed on to customers.
The factory has begun operating on weekends to meet the demand of some Western clients who require shipments to be dispatched two weeks earlier than planned.
Anny Cheung, Senior Director of Hong Kong-based toy company Wah Lung Toys, which produces in mainland China, mentioned that this year’s rise in transportation costs and extended delivery times could potentially lead to increased import product prices and delays in product supply to the US and Europe.
The Red Sea attacks have not only contributed to continuously rising sea freight rates but also caused port congestion and container shortages. Maersk, the Danish shipping group, stated that the Mediterranean and Asian ports are experiencing severe congestion, resulting in significant flight delays.
The ocean serves as a cornerstone of global trade, with over 80% of global trade flowing through sea transport. The Suez Canal, spanning 193 kilometers, sees roughly 30% of global containers pass through daily, accounting for about 12% of total global trade volume, making it vital for global trade.
After the Houthis sank the bulk carrier M/V Tutor, major shipping associations worldwide issued a statement urging influential countries in the region to protect innocent seafarers and swiftly ease the situation in the Red Sea region.