Freight spot rates rocket for international shipping following Red Sea attacks

Triple digit rises have been recorded on several key routes as rerouting and surcharges hits freight rates following attacks on ships transiting the Red Sea by Houthi Rebels

Repeated attacks on shipping in the Red Sea are driving soaring spot rates for freight on several routes, with the biggest increase seen on cargo from Shanghai to Rotterdam where prices rocketed 115% week-on-week according to the Drewry Shipping Index for January 4th.

Big jumps in spot markets across major routes

Overall, the spot price for a 40-foot container rose by 61% in the Index’s composite for all global container routes, which is a 25% rise compared to the same week last year.

Another tracker of container freight pricing from Freightos, measured an even higher 88% leap in its Global Container Freight Index, led by a 228% rise in spot prices for the week ending 5th January from the Mediterranean to East Asia, as well as and a 176% climb for the East Asia-to-North Europe route.

It isn’t just Europe-Asia routes affected, with spot prices heading upwards for North American sailings to both seaboards. East Coast arrivals from Asia often transit the Suez Canal and therefore are in the most direct firing line of the current crisis. This is pushing more to choose West Coast ports and then overland transshipment to destinations throughout North America. Freightos recorded over 50% week-on-week increases for 40-foot containers heading to both East and West Coasts, while Drewry noted that the Shanghai to Los Angeles route was 30% more expensive than a week prior.

Shipping lines weigh up the risks and the costs

These substantial increases are a result of actions by Houthi rebels off the coast of Yemen. Repeated attacks on ships through a wide variety of means, including missiles, helicopter assaults, drones and manned and unmanned boats, have created concern among major lines and prompted an international naval response.

For more on how this situation came to be and the rise of Houthi rebels to a local naval power, check out our story from December.

The result of this has been increased insurance rates, delayed shipments, rerouted vessels, and surcharges from many major lines.

Many carriers are choosing to take the much longer route south, passing by the Cape of Good Hope, which adds multiple days to journey times, typically ranging from around a week to two weeks, depending on the destination, as well as significant fuel costs.

Most major carriers at the time of writing had selected to halt shipments through the Bab al-Mandab strait, which then leads to the Suez Canal, due to the risk to ships, cargoes and crews. Maersk, for example, announced that it would resume shipments through the Red Sea in late December, but after an attack on January 1st it reversed this decision, illustrating the danger and the potential for Houthi rebels to strategically target assets.

The IMF’s Portwatch underlined this shift. Comparing a rolling seven-day average, the number of ships transiting the Suez Canal on 7th January 2024 had fallen -46% compared to the same time in 2023. Even more starkly, carriers were choosing to move their largest and most valuable cargoes by different routes, as the daily transit trade volume was down 52% year-on-year.

Far from record pricing, but be prepared for a bumpy ride to start 2024

It should be noted that spot prices remain far off the incredible highs seen during the pandemic. Drewry said that its global composite of $2,670 per 40ft container “is $3 lower than the 10-year average”.

Furthermore, the majority of the shipping market is conducted via longer-term contracts, which are less volatile and lower priced than spot markets, which are typically used for more urgent and smaller shipments.

Nonetheless, the rates recorded in the first week of 2024 are 88% higher than the average seen in 2019 according to Drewry.

This crisis seems unlikely to suddenly abate either, as Houthi forces are well armed and supported by a large regional power in Iran, while the naval taskforce in the area is still coming to grips with tackling the threat and coordinating between different international partners.

A further element that is reminiscent of the pandemic is the potential for knock-on effects as containers and ships adjust to schedule adjustments, leading to vessels and containers being out of sync with the expected flows of global trade. This became a huge issue throughout the period 2020 to 2022, where containers took significantly longer than usual to be turned around and empties began to pile up in ports. In that period, a 20% increase in turnaround times for containers was associated with massive additional costs.

Adjustments to routes so that container vessels avoid Suez and head around the southern tip of Africa would extend transit times by more than 20% for European-Asian routes, and therefore a similar effect may well take place.

While supply chains continue to have slack capacity to open the year, and inventories are still being run down by many companies, the indicative rises in spot prices show that this will have a ripple effect on global goods and is yet another major crisis for supply chain managers to navigate.

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