How the Red Sea crisis is impacting supply chains
For more than three months, vessels in the Red Sea have been targeted by the Houthi Group in Yemen. This has disrupted traffic surrounding the Suez Canal – a vital link between the Red Sea and the Mediterranean Sea – which accommodates more than 30% of ocean traffic every year.
Find out how the Red Sea crisis affects your supply chains, and what is being done about it, in this article.
Understanding the importance of the Suez Canal
The Suez Canal is an artificial waterway between the Red Sea and the Mediterranean Sea, lying across the divide between the African and Asian continents. The route to take the Suez Canal is approximately 8,500 nautical miles, and takes an average of 26 days for a vessel to transit.
Despite the long transit time, this key link is the fastest route for vessels to take when travelling between Europe and the Indian, Southeast Asian, or West Pacific regions. If vessels were to take the alternative route around the southern tip of Africa, then there are more than 3,000 additional miles to be transited over a course of 10 more days.
When you consider the average transit time for a vessel from Ningbo, China to the Port of Felixstowe, UK is 33 day using the Suez Canal, an additional 10 days is a 30% increase.
For a single shipment, the delay is frustrating. However, the impact on carriers and supply chains is much bigger over time when you consider liner schedules and equipment.
The knock-on effects of extended transit times with the Red Sea crisis
If you take the Ningbo to Felixstowe trade route again, consider that the average transit time East to West is 33 days. On the return journey, the transit time is approximately 38 days. It is higher on the return because the vessel will call in at Rotterdam or another Northeast European port before departing for Ningbo.
This makes a whole liner schedule approximately 71 days long, with five complete rotations per year.
If 20 days are added to this schedule, then the complete rotation of ports takes an average of 91 days. This means four rotations per year, a 20% loss in annual capacity.
If the vessel is large, then this can mean a loss of more than 20,000 TEUs each way.
However, the loss in capacity is not the only problem with extended transit times.
Ocean freight relies on units being available for loading, and there is a delicate balance maintained throughout the globe by carriers to ensure that this is the case.
With the Red Sea crisis causing extended transit times, it is taking longer for empty equipment to become available for shippers to use as units are on the water for longer. This results in a further reduction in capacity for vessels.
The current situation
The five largest shipping lines in the world, which represent more than 65% of all ocean freight, have suspended transit through the Suez Canal due to the Red Sea conflict. Instead, they are diverting their vessels around the southern coast of Africa. Additionally, some vessels have needed to cut port calls as delays and rescheduling creates problems with berthing availability.
This has caused an increase in ocean freight rates due to the extended transit and fuel costs, with shipping costs doubling since early December.
Equipment in Southeast Asia is not currently a concern due to the slow down for Lunar New Year; however, it may become an issue as the region returns to operational capacity towards the end of February.
Shippers in India have reported that there is a lack of equipment, particularly 40’HCs. This has led to an increase in costs as carriers forgo NAC (named account) tariffs in favour of spot rates, and a rollover of bookings as shipments are left unfulfilled.
Vessels transporting live animals and other exceptional cargos are needing to revise their routes amidst additional concerns for animal welfare and biosecurity. In one extraordinary scenario, a vessel from Perth, Australia returned after 15 days because it was unable to safely navigate to Israel.
As global economies face increasing costs amidst the energy crisis and inflation, additional rises in costs from prolonged issues with supply chains is far from ideal – but could be on the horizon.
How will shippers resolve problems caused by the Red Sea crisis?
With no end in sight for the Red Sea conflict, carriers are exploring their options for stabilising supply chains.
One of the proposed solutions is to speed up the vessels as they transit around Africa, closing the gap in transit time despite the extra distance. However, the additional fuel spend will both incur additional costs for shippers and create a greater impact on the environment – something that carriers are keen to avoid.
Another solution is for carriers to add another vessel or two to their rotations, thereby offsetting the extended transit time with an increase in vessel calls and overall capacity. Dozens of new container ships are released every year from shipyards, and this change in the global dynamic would absorb all of this year’s new vessels.
Additionally, some liner vessels may cut some of the smaller ports from their rotation, allowing them to reduce transit times between major ports whilst other vessels pick up the slack.
Is your supply chain affected by the Red Sea crisis?
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