Recently, the shipping channels in the Red Sea have been blocked, forcing all goods destined for Europe from Asia to divert around the Cape of Good Hope. On December 20, major container shipping giants raised additional fees to compensate for the increased costs.
Affected by multiple factors, the shipping index has surged. According to data from the Shanghai Shipping Exchange, on December 22, the Shanghai Export Container Freight Index rose by 161.47 points compared to the previous period (December 15, updated weekly).
A Shanghai freight forwarder told the Securities Daily, “Recently, the spot freight rates to Europe have been rising, mainly because shipping companies are increasing prices. On December 22, the highest price for a small container is now $3,960 (excluding IMO surcharges), and it will continue to rise next week. We are out of available slots, and the spot rates for small containers to Europe were previously over $1,000.”
Impact of the Shipping “Black Swan” Continues: Major Players collectively raise additional fees
Currently, the top 10 global shipping giants are either halting operations in the Red Sea or diverting around the Cape of Good Hope. This alternative route increases the transit time to Europe by 10 days, leading to additional fuel consumption and higher transportation costs for bulk goods.
According to Clarkson’s statistics, nearly 10% of global maritime goods are transported through the Red Sea and the Suez Canal. The Red Sea plays a crucial role in global shipping routes as a mandatory passage through the Suez Canal.
“The impact of the Panama Canal’s dry season and the situation in the Red Sea on shipping may lead to a short-term contraction of shipping capacity, decreased efficiency, increased costs, and upward pressure on freight rates. If rerouting around the Cape of Good Hope continues in the long term, it will significantly increase the distance and ton-miles of shipping demand,” the aforementioned freight forwarder added. “Rerouting, leading to extended transit times, will tighten dynamic shipping capacity supply, but shipping companies can rebalance capacity through increased deployment and speed adjustments.”
Major shipping giants, including Maersk, CMA CGM, MSC, are attempting to offset their additional costs through surcharges ranging from $250 to $3,000.
MSC announced that, starting January 1, 2024, the company will charge an additional $500/TEU (20-foot container), $1,000/FEU (40-foot container), and $1,500 for each refrigerated container exported from Europe to the Far East and the Middle East, avoiding the Suez Canal.
To recover carrier costs, Maersk is adding $200 to $450 per container for shipments from the Far East to Northern Europe and the Mediterranean. Additionally, Maersk has decided to impose a peak season surcharge on selected markets starting January 1, 2024, ranging from $300 to $2,000.
Hapag-Lloyd has renamed its new surcharge as “Operational Recovery Surcharge,” which will take effect on January 1, with additional fees ranging from $500 to $1,500 per container. An additional peak season surcharge of $500 will also be applied.
Regarding the shipping “Black Swan” event, A-share listed companies have provided explanations on the Shanghai Stock Exchange E Interactive. Ruimaotong stated in response to investors that the situation in the Red Sea has a significant impact on container shipping operations on surrounding routes but has limited impact on bulk cargo transportation.
Haitong Development responded to investors, stating that, currently, due to geopolitical influences, shipping capacity to Europe is tight, and freight rates have increased. In terms of international ocean shipping, the freight rates for each route vary, determined through negotiations between the company and lessees, referencing shipping market rates and relevant indices.
Rise in Oil Surcharges: Global Shipping Prices Expected to Surge Again in the Short Term
“The Suez Canal and the Panama Canal in the Red Sea region are the two most important shipping channels globally. Bulk dry goods from the Gulf of Mexico generally reach Asia through the Panama Canal. However, since April this year, the Panama Canal has been experiencing a rare and severe drought in the past 70 years, severely impeding its navigation capacity. Subsequently, bulk dry goods from the Gulf of Mexico generally choose to be shipped to Asia through the Suez Canal, which is also one of the two traditional routes from Asia to Northern European ports,” said an insider at China Ocean Shipping Company to the Securities Daily.
“Because everyone is afraid of price increases, they place orders in advance. With the detour, longer transit times, fewer flights, it indirectly intensifies the rise in freight rates,” said Yang Hong, Chairman of Shanghai Yulang Logistics Technology Co., Ltd., to the Securities Daily.
Shanghai Securities stated that about 30% of the cargo volume carried by the Red Sea route is container trade, and 10% is crude oil trade, making container and oil shipping prices most affected.
A few days after some shipowners considered the Cape of Good Hope as an alternative route, the freight rates for oil tankers surged to the highest level this year. The additional fee for an LR2-type oil tanker carrying 90,000 tons of cargo reached $950,000, nearly doubling within a week.
Clarkson Securities analyst Mrkedal believes that the current stock prices of crude oil and oil tankers do not yet reflect the disruption caused by the situation in the Red Sea. If the Suez Canal is completely closed, the market freight rates for clean oil tankers may increase by 12%. The freight rates for Suezmax tankers may soar to around $200,000 per day.
Under the catalysis of the Red Sea crisis, some shipping companies plan to raise prices again in the second half of January next year.
Quotations leaked internally from Evergreen Marine Corp. (EMC) show that the early prices for next year are $3,694/TEU and $5,988/FEU, and with surcharges, container prices have multiplied.
Galaxy Futures stated that in the short term, combined with the catalyzing effect of the Red Sea crisis and price increases, freight rates are expected to rise in the short term. If the circumnavigation factor is eliminated before the Spring Festival, the supply and demand pattern of container transportation next year is expected to continue to be weak. Nomura Securities analyst Masaharu Hirokane stated that in January next year, when annual freight contracts for the Asia-Europe route are renewed, freight rates may generally rise. The severity of the current situation may be similar to the supply chain disruptions from 2020 to 2022, and it would not be surprising if sea freight prices on the Asia-Europe route doubled or more.