The recent escalation of tensions in the Red Sea region has forced shipping companies to reroute their vessels, leading to an unprecedented surge in container shipping rates. New reports show that logistics managers now face a daunting rate of $10,000 per 40-foot container for shipments from Shanghai to the United Kingdom, a massive jump from last week’s rates of $1,900 to $2,400.
OL USA CEO Alan Baer explains that the recent violence in the region is a “light switch event,” unlike the gradual increase experienced in the industry during the early stages of the COVID-19 pandemic. He described a situation where the usual ebb and flow of supply and demand do not solely dictate market dynamics. Instead, these rates reflect the immediate necessity to divert vessels in real time.
Attacks in the Red Sea linked to the Israel-Hamas war will cause shipping delays and drive up the price of goods, bringing a new inflation risk to the economy https://t.co/1KZrJ0mbVD
— Bloomberg Markets (@markets) December 20, 2023
Swiss shipping firm Kuehne + Nagel has diverted 158 vessels in its fleet away from their regular routes through the Red Sea. The displaced ships typically carry 2.1 million cargo containers, carrying up to $105 billion in goods.
Other companies like IKEA and French dairy giant Danone have expressed cautious optimism about how rerouting away from the Red Sea will affect their supply chains. However, the uncertainty of the military situation has virtually every industry that ships cargo in the Eastern hemisphere gravely concerned with the looming uncertainty.
This week, Logistics managers are scrambling to find solutions for moving “stranded” cargo in Europe and the Middle East. However, every alternate shipping route or air cargo transport comes with substantial extra cost that has not been factored into existing contracts.
An immediate secondary effect of the shipping crisis is a spike in the cost of air freight shipping.
The more expensive nature of air shipping is likely to drive more expensive consumer goods in that direction before cheaper goods with lower inventory costs. In all events, the end price to consumers worldwide will eventually have to absorb the additional costs of supply chain modifications, both in higher prices and slower deliveries.
The Red Sea crisis is more than a simple logistical challenge — it’s a sobering reminder of the fragile interconnectivity of global trade and the ripple effects of even regional war on the global economy.