Global logistics companies are sounding the alarm over the disruptions of shipping resulting from the conflicts in the Red Sea, which are causing ocean and air freight prices to skyrocket, and for cargo to become stranded, according to a Dec. 21 CNBC report.
The report details how the diversions of shipping from the Red Sea are having a ripple effect around the world.
“As of Thursday morning [Dec. 21], 158 vessels are currently re-routing away from the Red Sea carrying over 2.1 million cargo containers, [global logistics firm] Kuehne+Nagel tells CNBC. The value of this cargo based on MDS Transmodal estimates of $50,000 per container is $105 billion.”
Last week, a 40-foot container from Shanghai to the U.K. had an ocean freight rate of $2,400; that rate has now jumped to $10,000.
Alan Baer, CEO of OL USA global shipping company told CNBC, “while pricing is undergoing rapid adjustments as ocean carriers work to recover the added costs of diverting their vessels, these massive jumps in rates need to be clarified as the shipping community of importers and exporters, along with government regulators seek to better understand the overall drivers of these large increases.
“‘During Covid, we had a slower build-up in freight prices due to the impact the pandemic had on the global supply chain,’ Baer said. ‘What we are experiencing here is a light switch event where vessels are being redirected in real time. But, that said, in certain trade lanes you are seeing freight rates going up between 100 to 300%. This does not appear to be totally driven by changes in supply and demand.’”
Additionally, although U.S. shippers have several options for ocean routes, the EU does not—its trade depends upon the Suez Canal, and so some shipping companies are scrambling to arrange transport of cargo via air freight. But, this move has now pushed up air freight pricing, which increased from $3.95/kg to $4.45/kg (13%) in one week, as more and more shipping companies announced diversion of shipping.
“Brian Bourke, chief growth officer of SEKO Logistics, says the severity of a Red Sea impact on the global supply chain all depends on the length of time of the re-routing.
“‘Every day this continues it escalates, starting with Europe and then the U.S. East Coast, you will start to see more conversion from ocean freight to air,’ said Bourke. ‘Starting with higher value goods like consumer electronics, high-value consumer product goods and fashion apparel. This is due to the longer lead times that will increase inventory carrying costs and working capital which justifies the higher cost to move goods much faster.’”
