Container costs rise because of Houthi attacks

Freight costs have increased dramatically as a result of the Houthi attacks on ships in the Red Sea, with some ships now going round the Cape of Good Hope to reach Europe, despite the higher cost.

Shipping executives describe the situation as critical, with 18 shipping companies, primarily container carriers, opting to reroute their vessels around southern Africa. This decision has led to a significant increase in freight costs, impacting the final prices of products. Linerlytica reports that, by 31st December, 262 container ships with a total capacity of 3.4 million TEUs had used to the Cape of Good Hope route.

Because of the changes in trans-African containership routes, the Freightos Baltic Index (FBX) recorded an 86 per cent increase in prices from Asia to Europe in the spot market by 2nd January. The transportation cost of a 40-foot container has surged from $2,452 to $4,042. Additionally, prices on the Asia-Mediterranean route rose by $2,774 to $5,175 per container.

The volatile situation in the Red Sea has prompted AP Moller-Maersk, a major British shipping company, to suspend all Red Sea/Gulf of Aden crossings until further notice. This decision follows the recent attack on the Maersk container ship Hangzhou on 30th December. The company cites concerns for the safety of sailors and cargo, prompting the rerouting of ships around the Cape of Good Hope.

Companies insisting on using the faster Red Sea route through the Suez Canal have faced a significant rise in insurance premiums for their vessels. AP Moller-Maersk’s decision to suspend Red Sea crossings and reroute ships may have also been influenced by this.

Despite fears of attacks on shipping, tanker traffic through the Red Sea is being maintained, with some routes experiencing increased fares. Tanker owners are reluctant to reschedule through the Cape of Good Hope due to the associated extra cost, estimated at $1.1 million for an LR tanker.

The Suez Canal, a critical waterway for global maritime trade, continues to witness a steady flow of tanker traffic, maintaining pre-attack levels. Almost 15 per cent of the world’s maritime trade, including 8 per cent of the world’s grain trade, 12 per cent of seaborne oil, and 8 per cent of the world’s liquefied natural gas trade, passes through the Red Sea.

In a joint statement, 12 nations, including the United States, Australia, and the United Kingdom, have called for an immediate end to Houthi attacks, emphasising the severe consequences if the threats to lives, the global economy, and the free flow of trade persist. The World Maritime Council, the International Chamber of Shipping, and BIMCO expressed gratitude to these nations for condemning the ongoing illegal attacks on ships.

International Maritime Organization Secretary-General Arsenio Dominguez condemned the recent attacks on merchant ships in the Red Sea and underlined the IMO’s commitment to closely monitoring the situation and collaborating with representatives of the shipping industry,

“Ensuring the security and protection of global supply chains is of the utmost importance,” said Dominguez.