Conflict and adverse weather threaten shipping industry

Changing routes to avoid military conflicts or extreme weather could become the "new normal" for global shipping.

Recent conflicts in the Red Sea have caused concern for global shipping companies. This week, Maersk and other major shipping lines decided to reroute their vessels to avoid missile and drone attacks in the Red Sea.

“While we continue to hope for a sustainable solution in the near future and do everything we can, we encourage our customers to prepare for complex situations in the region and possible significant disruptions to the global shipping network,” Maersk said.

On December 19, the US launched a multinational operation to try to protect trade in the Red Sea. But many shipping companies and shippers are still rerouting their vessels around Africa as attacks continue.

While oil tankers and fuel supplies to Europe continue to pass through the Red Sea to the Suez Canal, most container ships have changed their routes, bypassing the southern tip of Africa to avoid attacks on ships in the Red Sea by Yemeni Houthi forces in support of Hamas.

A ship crosses the Gulf of Suez towards the Red Sea before entering the Suez Canal. Photo: Reuters — A ship crosses the Gulf of Suez towards the Red Sea before entering the Suez Canal. Photo: *Reuters*

Jay Foreman, CEO of Florida-based toy company Basic Fun, said the chaos seems to have become the new normal. "Before we get back to normal, something else happens and everything goes haywire again," he said.

Ship owners’ fuel costs have risen to as much as $2 million per trip through the Suez Canal. Freight rates from Asia to Europe have more than doubled from 2023 levels, to as much as $3,500 per 40-foot container.

Retailers like Walmart, IKEA, Amazon, Lidl, and food manufacturers like Nestle will spend more time and money on shipping. Higher costs could lead to higher prices. “The first quarter is going to be a little crazy on everyone’s books,” said Alan Baer, CEO of logistics company OL USA.

Higher costs are also raising inflation concerns, especially in the eurozone. Goldman Sachs raised its eurozone core inflation forecast on Jan. 5 due to soaring shipping costs. The financial firm said that the prolonged rerouting of cargoes away from the Red Sea could have a negative impact on inflation. However, the inflation shock is not expected to be as bad as the pandemic chaos of 2020-2022 thanks to increased ship supply and no port congestion.

Geopolitical risks to watch this year include the potential for attacks in the Red Sea to extend to the Arabian Gulf, said Peter Sand, chief analyst at shipping data company Xeneta. A deterioration in China-Taiwan relations could also impact key trade routes. Meanwhile, the conflict in Ukraine continues to impact grain trade.

Additionally, severe weather events are having a more immediate impact than political tensions. Ship transits through the Panama Canal, an alternative to the Suez Canal, are down 33% due to lower water levels, according to supply chain software provider project44. These restrictions have pushed up prices for dry bulk commodities such as rice, soybeans, iron ore, coal, and fertilizer through late 2023.

Also late last year, Brazil suffered a double blow when a historic drought in the Amazon region and heavy rains in the north of the country contributed to a buildup of ship queues at the port of Paranagua, just months before the peak soybean shipping season.

“You can always say it’s an isolated event, but when isolated events happen once a month, they’re not isolated events anymore,” said John Kartsonas, managing partner at Breakwave Advisors, a commodity trading advisor for Breakwave Dry Bulk Shipping.

Phien An ( according to Reuters )

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