Freight rates across the Red Sea increase by nearly 250%

According to the Drewry World Container Index, which tracks container shipping rates on eight major routes to and from the US, Europe and Asia, the cost of shipping a 40-foot container from China to Europe via the Red Sea is now around $4,000, up 248% from $1,148 on November 21, 2023, and up 140% from December 23, 2023.

Some of the world's largest shipping lines have been forced to suspend operations through the Red Sea and divert vessels, including Europe-based MSC, Maersk, CMA CGM and Hapag-Lloyd; Asia-based Cosco Shipping, HMM and Evergreen Line; as well as oil and gas tanker operators.

An alternative route to this East-West trade route would be around the Cape of Good Hope at the southern tip of Africa. However, this would increase travel times between Europe and Asia.

Rahul Sharan, senior director of research at Drewry (London, UK), commented that this strategic change not only increases the travel time of ships by 10-14 days, but also increases fuel costs. According to Mr. Sharan, some shipping companies have applied surcharges to compensate for the additional costs.

Meanwhile, expert Christian Roeloffs, co-founder and CEO of Hamburg-based Container xChange, said the situation has become difficult as ancillary costs and insurance premiums have increased.

Container shipping rates on the Asia-Europe trade route have been hit hardest by tensions in the Red Sea, with journeys to Mediterranean ports in particular set to get significantly longer, said Rico Luman, senior economist for transport, logistics and automotive at Amsterdam-based ING Research. Port-to-port container shipping rates on the Asia-Europe route have now increased by 130% compared to early November 2023.

The closure of the Red Sea shipping route or any related disruption to this shipping route would have significant consequences, especially for international shipping companies, said Ali Abouda, CFO of Dubai Financial Market.

"The Bab El-Mandeb Strait is a vital route for global trade, especially for crude oil shipments from the Middle East to Europe and the United States. The closure of the route through the Red Sea could lead to delays in deliveries, increase shipping costs and potentially lead to shortages of goods," he said.

Houthi attacks on commercial vessels transiting the Red Sea have significantly increased the risks for shipping companies and raised concerns about the safety and welfare of seafarers. A senior US official said last week that Houthi forces have carried out 25 attacks on merchant vessels transiting the Red Sea and Gulf of Aden since November 18.

The Red Sea plays a vital role in the global trade system. As one of the world's largest trade routes, the Red Sea transports approximately 9 million barrels of oil per day, accounting for approximately 10% of global oil demand. In addition, the route also accounts for nearly one-third of total container traffic and approximately 12% of world merchandise trade.

Analysts say that if left unchecked, the worsening security situation will have a major impact on the global supply chain. Shipments will be delayed due to longer transit times, while the cost of transporting energy and non-energy goods between Europe, the Middle East and Asia will increase./.

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