A recent series of U.S. and British airstrikes on Houthi targets in Yemen is sparking new concerns about the impact of container shipping in the Red Sea. This has led to shippers exploring alternative routes to navigate the crisis. The strikes, carried out on Saturday, triggered threats from Houthi leaders and a caution from Jake Sullivan, national security advisor to President Joe Biden, warning of a swift and forceful response to any direct Iranian retaliation.
Prior to the attacks, approximately 28% of container ship volumes passed through the Suez Canal. However, in the aftermath, these volumes have decreased by 90%. Container shipping fundamentals have tightened as trade is being redirected away from the Red Sea. The Freightos Baltic Daily Index (FBX) for China-Europe rates peaked in mid-January at nearly $5,800 per forty-foot equivalent unit, representing a 260% increase since the start of 2024. Despite heightened tensions and military actions, these rates are now declining.
In response to the disruptions, some Chinese exporters are opting for the China-Europe Railway Express as an alternative to lengthy and costly reroutes around Africa’s Cape of Good Hope. This shift to intermodal transportation has shown promise, with a 30% increase in rail volumes reported by Dimerco, a Taiwanese logistics provider.
As China’s Lunar New Year approaches, the surge in container rates out of China is expected to ease. Lars Jensen, CEO of consultancy Vespucci Maritime, predicts a normalization of operations post-holiday. However, the Red Sea disruptions may have long-term consequences for container shipping profitability. Analysts, such as Omar Nokta from Jefferies, highlight a rise in capacity utilization among container ships due to the crisis, giving liners more pricing power.
On the U.S. West Coast, ports like Los Angeles and Long Beach are experiencing significant growth compared to their East Coast counterparts. The West Coast’s appeal has been boosted by struggles in trade routes to the East Coast, caused by issues in the Panama Canal and the Red Sea. With resolved labor disputes and improved supply chain resilience, the West Coast ports have regained popularity among shippers.
Overall, industry experts anticipate this trend to continue throughout 2024, with the growth in Southern California’s ports, warehouses, and distribution centers leading the way out of the current freight recession.
