ANALYSTS have reported a 20% spike in spot rates in the ocean-freight shipping market in less than a week, after major shipping lines announced they would steer clear of the Red Sea.

Ocean Network Express has joined the growing list of companies diverting their ships from the Suez Canal while merchant shipping is under fire in the region.

The threat escalated after Yemen’s Houthi militia announced it would no longer limit its attacks to ships affiliated with Israel.

ONE announced on 19 December it would immediately start to reroute its vessels as a safety measure for the seafarers on board.

“Instead, we will either navigate our vessels around the Cape of Good Hope or temporarily pause their journey and reposition them in a safe location,” it said in a statement.

“We will continue to closely monitor the situation and reinstate our services through the Suez Canal when we determine the area is safe and secure for our seafarers, our vessels and the cargo onboard.”

Maersk, MSC, CMA CGM and Hapag-Lloyd have made similar announcements in recent days.

Roughly 100 vessels had been rerouted by 18 December, according to a briefing paper issued on Wednesday by the International Forwarders and Customs Brokers Association of Australia and MPC International.

Shipping data intelligence firm Xeneta said re-routing ships via the Cape of Good Hope would add up to 10 days sailing time and cost up to US$1 million extra in fuel for every round trip between the Far East and North Europe.

“The region is essentially in a war situation because it is too dangerous for many vessels to sail through the Red Sea and therefore also the Suez Canal, which is the major artery for world trade,” Xeneta chief analyst Peter Sand said.

“If we look at container shipping alone, Xeneta estimate the diversion via Africa will also require additional shipping capacity in the region of one million TEU,” he said.  

“There is capacity in the market, but it will come at a cost, and we could see ocean freight shipping rates increase by 100%. This is a cost that will ultimately be passed on to consumers who are buying the goods.”

IFCBAA and MPC International expect the diversion of vessels around Africa to absorb excess vessel capacity, slightly increasing rates in other trades.

“Some shipping lines scramble to find suitable vessels to add to these services,” they said in their briefing paper.

“Diverting vessels from blank sailings to meet the new European schedule requirements may reduce Asia-Oceania trade capacity in the medium term.”

IFCBAA and MPC International also warned a shortage of containers would significantly affect the shipping industry.

“Shipping lines in Asia have only three weeks of container stock,” they said.

“The redirection of vessels around Africa will delay the return of empties from the EU. Bookings from Australia to the USA and South America are expected to be limited in favour of Asian exports. The priority will be given to moving empties from Australia to Asia due to shorter transit times.”

Joining forces

Earlier this week the United States launched Operation Prosperity Guardian, a multinational security operation set up to address security challenges in the Red Sea and Gulf of Aden.

The US-led task force also includes Bahrain, Canada, France, Italy, the Netherlands, Norway, Seychelles, Spain and the United Kingdom.

Australia, though recently invited to send a war ship to the Red Sea, is not part of the coalition.

The International Chamber of Shipping welcomed the “broad coalition of member states” and urged other nations with military assets in the region to follow its lead.

“Previously we saw assets in the region operating independently against the threat, whereas now we have a co-ordinated effort across a large number of military warships that will provide a significant suppressive response,” ICS said in a statement.

“We call on member states to use their diplomatic influence and bring pressure to bear on the Houthis to de-escalate the increasingly volatile situation in the region.”

Mr Sand from Xeneta said despite action from politicians, it is unknown how or when the coalition would be successful in opening safe passage for vessels through the Red Sea and Gulf of Aden.

“Everything is at stake here because free-flowing global trade effects almost every single human being on earth,” he said.

“The Suez Canal is absolutely critical with many billions of dollars in goods passing through every day from the Far East towards North Europe, Mediterranean and US East Coast.”

Mr Sand said ocean liner companies were taking “decisive action” in re-routing via the Cape of Good Hope but noted there were still many unknowns.

“The longer this disruption lasts the more expensive and painful it will be,” he said.

“Supply chains have still not fully recovered from the pandemic, with schedule reliability between Far East and North Europe standing at just 64%. This latest crisis could set that recovery back even further.

“For example, Maersk has stated it does not know when it will be safe to sail through the Bab-el-Mandeb Strait and CMA CGM Group has issued a notice of Force Majeure, which perhaps suggests they do not believe this situation will be resolved in the immediate future.

“We may also see this impact current negotiations between shippers and ocean freight carriers for long term contracts lasting the duration of 2024. Shippers may feel a level of concern that long term rates could follow the spot market and increase dramatically as a result of this crisis.”

Crew safety

International Maritime Organization secretary general Kitack Lim said rerouting commercial shipping was a direct response to the threat.

“These measures are aimed at protecting seafarers from harm and minimizing the potential economic impact on world trade, which is highly dependent on shipping,” he said.

The International Transport Workers’ Federation called for the safety of seafarers to be paramount as the situation deteriorates.

“We acknowledge the steps taken by a number of leading shipping companies including Maersk, Hapag Lloyd, and MSC to stop using the Red Sea, and many vessels have been rerouted to avoid putting seafarers’ lives at risk,” the ITF said.

The union welcomed the news that BP and oil tanker group Frontline had also temporarily halted traffic through the Red Sea.

“We recognise the Red Sea route including the Suez Canal is a critical part of the global supply chain and that taking the alternative route around the Cape of Good Hope extends the journey by over 3000 nautical miles – potentially adding weeks to the time seafarers will be at sea.

“Rerouting will have a significant impact on tours of duty in the global supply chain, but most importantly it will reduce the risks to seafarers that the Red Sea currently brings.”

ITF general secretary Stephen Cotton said he applauded the companies rerouting vessels.

“The focus at this time needs to be about the health and safety of the seafarers and less about the cost of oil and transport,” he said.

Mr Lim also urged member states to work together to ensure “unhindered and safe” global navigation and the well-being of crews.

“This is a prerequisite for maintaining the world’s supply chains and is in line with the framework of the Djibouti Code of Conduct,” he said.

An Extraordinary Meeting of Djibouti Code of Conduct National Focal Points was held on Monday 18 December to discuss how to deal with increasing threats against international shipping in the Red Sea Area.

Signatory states of the Djibouti Code of Conduct and its Jeddah Amendment attended the virtual meeting alongside international and regional naval forces, regional centres and maritime industry stakeholders.