Trade

Shipping rates rise sharply in response to Red Sea Crisis

Beef Central 15/02/2024

THE global shipping industry has experienced a significant surge in rates over the past couple of months, as a result of the Red Sea crisis.

Three months into this crisis, container leasing rates on the China-US trade route have surged dramatically – in some cases tripling in cost.

The significant spikes in shipping rates signal a notable shift in the supply-demand dynamics for freight services and containers, with demand recovery and capacity being increasingly tied up as the longer shipping transit times between the US and the Asia Pacific via the Cape of Good Hope increase by two to three weeks.

Some rates between China and the US have risen a staggering 223pc (threefold), between this month and prior to the Red Sea incident (February 2023), online container logistics platform Container xChange reported this week.

Additionally, demand for containers is expected to recover in coming months as the US economy exhibits signs of resilience. Fuelled by gains in consumer spending, non-residential fixed investment, exports and government spending, the US economy has seen GDP rising at a 3.3pc annual rate in the fourth quarter last year.

Despite economic concerns, China is experiencing a surge in demand for ocean container freight to the US, Container xChange reported. Australian chilled container shipping charges are inevitably tied to trade activity between the US and China, the world’s two largest trading nations.

A spokesman from a global logistics and freight forwarding company in California told Container xChange that as attacks on cargo ships in the Middle East continued and vessels are re-routed around southern Africa, he anticipated equipment shortages due to the lack of container repositioning in the Asia-Pacific for eastbound goods.

West coast US ports being favoured

Furthermore, disruptions in the Suez, Red Sea passage, and Panama Canal would likely lead to increased demand for routing through the US West Coast. Many US importers are already re-routing cargo via west coast US ports, trans-loading and trucking or railing freight across the country to customers on the East Coast, adding pressure on railways and domestic carriers, Container xChange said.

While the prospects of better container demand in the rest of 2024 have improved, shippers are struggling with issues like container crunch in China, and tripling leasing rates on key trade routes.

“While the pre-Chinese New Year trade surge contributed, it was the disruptions caused by the Red Sea re-routing that served as the primary catalyst for the shooting up of leasing rates for containers,” Christian Reoloffs from Container xChange said.

On the China to North America east Coast trade route, freight rates doubled between 15 December 2023 to 19 January 2024, from around US$2500 to roughly US$5000.

Shipping lines and carriers may benefit from higher leasing rates in the short term, Container xChange said.

However in the long run, if these elevated costs are maintained, it will increase the cost of exporting goods, potentially squeezing profit margins for manufacturers and exporters. They may need to pass these increased costs onto consumers, leading to higher prices for imported goods.

 

 

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