20 December 2023 6:44AM
The abrupt and significant surge in supply chain inflation, triggered by the Red Sea crisis and continuous assaults on shipping vessels by rebels, appears to have reached its zenith on crucial global trade routes. This assessment is drawn from the analysis of the most recent data provided by Xeneta, a prominent benchmarking platform for ocean and air freight. It reveals that rates on maritime routes connecting Asia to Europe and the Mediterranean are starting to decrease.
Shipping Rates in February vs January
Freight Charges for Shipping from East Asia to the Mediterranean
Prices for Shipments Bound for the United States Continue to Climb
Congestion and Dwell Times Anticipated Following Chinese New Year
Conclusion
However, for trade bound for the United States, prices continue to rise.
Shipping Rates in February vs January
The short-term rates for forty-foot containers in February, when compared to the previous round of general rate increases implemented on January 16, indicate a slight decrease.
In February, the rates for forty-foot containers shipped from the Far East to the Mediterranean are projected to be $5,950, reflecting a decrease from the recent peak of $6,050 on January 16. Similarly, on the trade route from the Far East to North Europe, rates for 40-foot containers are expected to start at $4,820 in February, slightly below the peak of $4,850 observed on January 16.
The overall rates are derived from an average of all transactions within each trade route. Ocean shipping contracts are not standardized, and this variation is one of the factors contributing to the slight decrease.
Freight Charges for Shipping from East Asia to the Mediterranean
Peter Sand, the chief analyst at Xeneta, highlighted the diversity of outcomes in individual negotiations between shippers and ocean service providers. According to Sand, the impact varies for each shipper, contributing to considerable uncertainty in the market due to the absence of a one-size-fits-all solution.
During the crisis, certain shippers have had their existing contracts honored, while others have faced additional surcharges. Moreover, some shippers have experienced the cancellation of their contracts altogether. Sand observed distinctions in how freight forwarders and ocean carriers handle their largest customers, emphasizing that the influence has consistently remained with these exceptionally large volume shippers.
Prices for Shipments Bound for the United States Continue to Climb
However, for U.S. companies, despite some having negotiating power, shipping rates are not showing any signs of relief. According to Sand, rates for the trade route from the Far East to the U.S. East Coast are still on the rise.
Amidst the recent surges in freight rates, which led to spot container prices soaring to as high as $10,000 and prompted some shippers to shift more cargo to air freight, concerns have arisen about ocean carriers potentially exploiting the crisis to significantly raise prices.
Sand claims that accusations are being thrown around in every direction at the moment, which is typical during situations of such market uncertainty. He says ocean freight shippers did not create this crisis, and it takes time for them to establish new shipping networks to cope with the disruption caused by diverting away from the Suez Canal. However, he acknowledges that from the shippers’ perspective, they may perceive the rate increases as carriers seizing opportunistic moments to maximize their profits.
Congestion and Dwell Times Anticipated Following Chinese New Year
Additional challenges in the supply chain are also emerging. According to Jon Gold, Vice President of Supply Chain and Customs Policy at the National Retail Federation, the NRF has been receiving feedback from its members about an increase in dwell times for rail-bound containers.
He forecasts that rail car imbalances and heightened demand may lead to more congestion and extended dwell times, adding that they need to ensure there is sufficient chassis availability. This is because the scarcity of available chassis was one of the major contributors to congestion during the pandemic.
The NRF has also been informed by its members about challenges related to terminal appointments for truck pickups. This congestion is anticipated to commence within the next four to six weeks, following the Lunar New Year, when trade volumes are usually seen to rise again.
Conclusion
According to zesilinc, a company specializing in supply chain mapping, disruption sensing, and analytics, the implications of the Red Sea crisis are profound when viewed through the lens of supply chain dynamics.
Bindiya Vakil, CEO and co-founder of Resilinc, notes that organizations with greater financial resources are poised to navigate this disruption more successfully. He claims that the repercussions of canceled or delayed orders, along with rising costs, will likely impact smaller companies and suppliers situated in the lower tiers of the supply chain.
However, as with any geopolitical situation affecting the world of logistics and supply chain, only time will tell. Do you need tailored freight rates that will help you navigate through the Red Sea crisis? Request a quote now!
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