Due to the continued diversion of shipping companies, including Maersk, to the Red Sea route in the face of the risk of Houthis attacks, global logistics management companies are facing a dual blow from rising sea and air freight prices and cargo detention. After three years of turbulent inflationary pressure and the delay caused by the COVID-19 epidemic (which seems to have been overcome recently), both of them are threats to the global supply chain.On Thursday, as more ships diverted from the Red Sea, the upper limit of sea freight prices skyrocketed within a few hours. It is reported that the sea freight price from Shanghai to the UK is $10000 per 40 foot container. Last week, the price of a 20 foot container was $1900, and the price of a 40 foot container was $2400. The truck freight rates in the Middle East are now more than twice as high as before.Alan Baer, CEO of a US oil company, stated in an interview with CNBC that as shipping companies strive to recoup the increased costs of transferring ships, prices are rapidly adjusting. As shipping importers and exporters, as well as government regulatory agencies seek a better understanding of the overall drivers of these significant price increases, these significant price increases need to be clarified.Red Sea diversionBell said: “During the COVID-19 epidemic, freight prices rose slowly due to the impact of the epidemic on the global supply chain.” “What we are experiencing here is a light switch event, and the ships are redirecting in real time. However, even though that is said, on some trade routes, you will see freight rates rise by 100% to 300%. It seems that this is not entirely driven by supply and demand changes.”158 ships diverted from the Red Sea, with a total trade volume of 105 billion US dollarsKuehne+Nagel stated that as of Thursday morning, there are currently 158 ships redirecting from the Raya Sea, carrying over 2.1 million containers. According to MDS Transmodal, the value of these goods is estimated to be $50000 per container, which is $105 billion.These attacks will not end in the short term.IKEA and other companies have stated that trade transfer will affect the supply of products. IKEA told CNBC that although it does not own any container ships, it is working with transportation partners to manage goods and ensure the safety of personnel in the IKEA value chain.IKEA spokesperson said, “What we can currently tell everyone is that the situation with the Suez Canal will lead to delays and may limit the supply of certain IKEA products.” “This is our top priority. At the same time, we are evaluating other supply options to ensure the availability of our products, and we will continue to closely monitor the future situation.”Danone, a French dairy and plant-based product companyDanone questioned reports of its supply chain being affected, and a spokesperson said in an email to CNBC, “Danone’s activities have not been significantly affected in the short term. We are closely monitoring this situation with suppliers and partners. We will not make any further comments.”A screenshot taken from a video shows that on November 20, 2023, the cargo ship “Galactic Leader” jointly owned by Israeli companies was hijacked by Yemeni Hussein armed groups supported by Iran in the Red Sea. (Image provided by Husai Media Center/Lectures/Anadolu through Getty Images)Ships move along global waterways known as “stringing”, and containers from all over the world can be loaded onto one ship as it will access different ports through its stringing. When a ship is delayed due to a diversion, it means that all carriers from many countries who have cargo on that ship or are waiting for that ship to pick up containers are facing delays.Although logistics managers are unable to control the containers currently on diverted vessels, they can control the containers that are stranded at ports in Europe or the Middle East that have not been picked up, as well as the imported containers that are being loaded into Asia.Selection of “stranded” goodsThe CEOs of logistics companies told CNBC that they are currently categorizing these goods and are seeking a possible solution to transport some products by air for those deemed “stranded” in Europe or the Middle East. American shippers are also evaluating other trade routes, such as crossing the Pacific to the West Coast, and even the Panama Canal, to enter ports in the Gulf of Mexico and the East Coast, and their decisions depend on an analysis of transportation time and freight costs.Ports like Dubai and Aqaba are being evaluated as potential Middle Eastern alternatives.Flexibility is the key to maintaining smooth trade in logistics. Shipping companies including MaerskCMA CGM and Hapag Lloyd have both invested in their own logistics supply chain management and collaborated with other logistics companies to better control the fate of customers’ containers and respond quickly to crises.Maersk has over 20 aircraft that regularly fly around the world, and like other airlines, it can store cargo in the belly space of major airlines. It also has the ability to transport goods by railway.CNBC has learned that smaller feeder ships will be deployed to pick up containers from ports where diverted vessels cannot dock, and these ships will then proceed to larger ports. After arriving at the destination, the container will be loaded onto a larger container ship to continue longer sea trips.In order to assist customers in deciding which shipping route to use, OL USA has provided a map to list delays in ocean routes in future orders.Skyrocketing air freight pricesAmerican shippers have several sea routes to choose from, but European shippers do not. Europe heavily relies on the Suez Canal. The diversion of European routes takes longer than the transportation time of American routes, so European shippers are looking to transport their products by air.Since late November last year, the daily air freight rates from China to Europe have been decreasing, and this week’s air freight actions have pushed up air freight prices.Levin said, “This week, due to the widespread announcement of route changes by shipping companies, it may reflect an increase in demand for air cargo from sea to air, with prices rising from $3.95 per kilogram to $4.45 per kilogram, a 13% increase.”Brian Bourke, Chief Growth Officer of SEKO Logistics, stated that the severity of the impact of the Red Sea on global supply chains depends entirely on the duration of the diversion.”This situation is escalating every day, starting from Europe and then the East Coast of the United States, and you will start to see more sea freight shifting towards air freight,” Burke said. “Starting with high-value goods, such as consumer electronics, high-value consumer goods, and fashionable clothing. This is because longer delivery times will increase inventory holding costs and operating capital, which proves that the higher costs of transporting goods faster are reasonable.”In a consultation with clients, shipping company HMM wrote, “Given the complexity of the current situation, HMM is facing the decision to implement an uncertain waiting period or explore alternative routes with additional costs.”
