U.S. Navy to "secure" Red Sea passage, uncertainty increases
~920,000 TEUs have diverted south of Africa & another ~1,002,000 are delayed in Suez area: Anders Schulze, Flexport
With repeated attacks on container ships and tankers on the Red Sea, the U.S. Navy has announced Operation Prosperity Guardian, a new multinational security initiative "under the umbrella of the Combined Maritime Forces and the leadership of Task Force 153, which focuses on security in the Red Sea."
U.S. Secretary of Defense Lloyd J. Austin III, in a statement, says: "The recent escalation in reckless Houthi attacks originating from Yemen threatens the free flow of commerce, endangers innocent mariners, and violates international law. The Red Sea is a critical waterway that has been essential to freedom of navigation and a major commercial corridor that facilitates international trade. Countries that seek to uphold the foundational principle of freedom of navigation must come together to tackle the challenge posed by this non-state actor launching ballistic missiles and uncrewed aerial vehicles (UAVs) at merchant vessels from many nations lawfully transiting international waters.
"Operation Prosperity Guardian is bringing together multiple countries to include the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain, to jointly address security challenges in the southern Red Sea and the Gulf of Aden, with the goal of ensuring freedom of navigation for all countries and bolstering regional security and prosperity."
Anders Schulze, Senior Vice President, Head of Ocean Business, Flexport says: "By now already ~920,000 TEUs have diverted south of Africa, and another ~1,002,000 are delayed in the Suez area."
Christian Roeloffs, Co-Founder and CEO, Container xChange adds that the Red Sea, especially with the Suez Canal, is like a superhighway for shipping containers, connecting different parts of the world, particularly Europe, Asia and Africa. "However, recent disruptions are poised to escalate operational costs, adding significant strain, while concurrently exerting downward pressure on profits. It marks a disheartening beginning to the strategic planning for the year 2024."
The Red Sea trade route is strategically significant due to its role in connecting the Mediterranean Sea to the Indian Ocean, providing a shortcut for ships travelling between Europe and the countries in Asia and Africa. "The 193-km long canal accounts for 12 percent of global trade, including 30 percent of all container movement. A huge amount of Europe’s energy supply, palm oil and grain come through the Suez Canal waterway which also gets impacted by these attacks and subsequently by the disruptions thereafter," says the update from Container xChange.
“About 30 percent of Israeli imports come through the Red Sea on container vessels that are booked two to three months in advance for consumer or other products, meaning that if the voyage will now be extended, products with a shelf life of two to three months will not be worthwhile importing from the Far East,” says Yoni Essakov, Executive Committee Member, Israeli Chamber of Shipping, quoted by Container xChange in its update. “Importers will need to increase stock due to the uncertainty and pay much more and others will lose out on their markets as time to market is not competitive.”
For ships heading to Israel from Asia, the route around Africa is significantly longer –- about 7,000 nautical miles and 10-14 days – than via the Suez Canal, says Judah Levine, Head of Research, Freightos. "This route also incurs higher fuel costs but avoids Suez Canal fees which are between $400k-$700k per transit and are set to increase by 15 percent in January 2024. For Asia to North America’s East Coast, the diversion is only about 2,000nm and seven days longer."
bp turns away from Red Sea
After all major container carriers - Maersk, Hapag, MSC, CMA CGM - turned away from the Red Sea or halted services crossing it, oil major bp paused shipping through the Suez Canal. "In light of the deteriorating security situation for shipping in the Red Sea, bp has decided to temporarily pause all transits through the Red Sea. We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region."
In terms of impacts on container shipping prices, ZIM, Hapag and Maersk are charging a war risk surcharge of between $20 and $100 per container, says Levine of Freightos. "ZIM will increase rates for its Asia - Mediterranean service that will avoid the Red Sea in favour of the longer route around Africa, up to the $3,300-$3,400/FEU range. That being said, port operations remain about normal at Israel’s major ports of Ashdod and Haifa."
"The Red Sea attacks have shown the ability of Middle Eastern paramilitary forces backed by Iran to upset global trade at a time when Tehran and its proxies are positioning themselves against the United States and Israel," Reuters said in its report.
French carrier CMA, in its latest update, announced plans to "reroute some of its vessels currently sailing to and from the U.S., to and from North Europe and to and from Asia or Indian Subcontinent via the Cape of Good Hope at the southern tip of Africa.
"All other CMA CGM container ships in the area that are scheduled to pass through the Red Sea have already been instructed to reach safe areas and pause their journey until further notice."
Dominique von Orelli, CEO, Hillebrand Gori - a company of DHL, says in his LinkedIn post: "Everyone should feel safe at work, and seafarers are no exception. The recent attacks on ocean vessels along the Suez Canal has created an unsafe environment for seafarers to carry out their work. This is why carriers are suspending the journeys of some ships and re-routing others. I fully support our carrier partners' efforts to protect the seafarers working for them."
BIMCO, the world's largest international shipping association, has called for an immediate end to attacks on international shipping.
“BIMCO strongly calls for joint efforts by nations to protect international shipping. Seafarers should not be risking their lives while doing their job and keeping the world supplied,” says David Loosley, Secretary General & CEO, BIMCO.
BIMCO believes nation states must collaborate to remove the current threat to international shipping, and, if necessary, neutralise the threat by military means within the boundaries of international law. Around 12 percent of global trade passes through the Suez Canal, representing 30 percent of all global container traffic and over $1 trillion worth of goods per year. Since November 19, 2023, the Iran-aligned Houthi movement has increased the number of attacks on ships with no signs of abating, the statement added.
“These unlawful attacks represent a gross violation of the freedom of navigation as enshrined in the United Nations Convention on the Law of the Sea (UNCLOS) and undermine the rules-based international order on which international shipping is so dependent,” says Loosley.
Vessels sailing around the Cape of Good Hope in South Africa will likely add 10-14 days of travel time, according to the latest update from windward.ai, a maritime AI company offering risk management.
"If a vessel departs from a port in Southeast Asia instead of proceeding to the Red Sea, for example, it will need to navigate an older route used before the Suez Canal’s construction. This entails circumnavigating the entire African continent to access the Mediterranean."
What’s different this time? "The excess capacity available to address the disruption,” says Levine of Freightos. “In 2021, there were no extra available ships to take the place of delayed vessels at origin ports. This time there is a record level of excess capacity. So shippers could expect longer lead times due to longer voyages but operations should continue reasonably well. Freight rates will likely increase on these longer voyages too but due to carriers looking for ways to utilise excess capacity, it is unlikely that rates will spike to levels experienced during the pandemic."
Is air freight a good option?
With increasing uncertainty over sea, air freight offers a good option for shippers. "The options and prices will always depend on the individual customer requirements," says Ekaterina Andreeva, Head of Business Development - Cargo, Chapman Freeborn Airchartering. "We have already seen an increase in rates at the end of the year and we believe the rates may continue to go up."
The ease of shifting the freight from sea to air depends on the type of freight, adds Andreeva. "Normally even a small disruption has a long-lasting effect on the supply chains, and if we consider the upcoming holidays - I am sure that we will see this issue for quite some time."
Levine had this to say: "It may be a bit too early to tell but we will likely see some shift from ocean to air on the impacted lanes as the diversions will entail a longer transit time. However, the fact that we are entering a slow season for ocean freight and air cargo could mitigate the impact of this shift on air cargo rates in the short term."