Recent vessel diversions are causing significant disruptions in ocean shipping, largely due to escalating attacks in the Red Sea. These attacks, primarily carried out by the Houthis, a Yemeni political and armed movement, have made ocean shipping slower and more dangerous. The peak ocean shipping season is escalating these issues, driving up demand and costs.
Containerships are experiencing severe delays, particularly in the South China Sea. The congestion in this region is preventing ships from reaching crucial markets, such as Spain and other Western European countries, causing widespread disruptions. The Houthis’ attacks on commercial ships in the Red Sea are a major factor in these delays, introducing more risk and slower movement.
As the peak ocean shipping season begins, backups are expected to worsen. Shipping rates are approaching levels seen during the pandemic. According to Drewry’s World Container Index, the cost to ship a 40-foot container averaged $5,318 USD in June 2024, a large increase from the $2,500 USD cost in 2023. This 113% rise over the past year highlights the growing financial burden on the shipping industry.
The situation is also causing significant inventory issues. Container ships stuck in certain areas are unable to deliver goods, leaving importing countries with excess inventory. The Panama Canal has added to the slowdown, with recent drought conditions further hindering ship movement. U.S. importers are bringing in goods early to avoid new tariffs on Chinese imports, adding to the congestion.
This disruption is impacting the earnings of importing companies and causing delays in customer deliveries. Before the peak season, ocean carriers managed to avoid Houthi attacks and Red Sea stoppages by taking a 10-day detour around the Cape of Good Hope in southern Africa. However, as the peak season approached, this detour became less feasible. The diversion around Africa has thrown the ships off schedule, leading some ocean carriers to cancel sailings and divert ships, resulting in stranded containers at various ports and a shortage in some export hubs.
The cost of leasing sea containers has also increased due to the extended travel time around the Cape of Good Hope. Many containers are stuck on ships taking this longer route, furthering the shortage.
It is expected that trade routes will return to normal once the conflict in Gaza is resolved. However, until then, the industry will continue to face significant challenges, with high costs and delays likely to persist.
Sources
Berger, P., & Paris, C. (2024, June 24). Ocean shipping prices are pushing toward pandemic-era ... The Wall Street Journal. https://www.wsj.com/articles/ocean-shipping-prices-are-pushing-toward-pandemic-era-highs-as-congestion-swells-c94459a8
Wright, I. (2024, July 1). International Container Shipping rates chart: July 2024. MoverDB.com. https://moverdb.com/container-shipping/
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