Mar Rosso

Freight flight and search for alternatives: Red Sea crisis disrupts global trade

Disrupted value chains, deconstructed trade routes, frantic search for new access routes for freight transport: the Red Sea crisis linked to the great war in the Middle East, its Yemeni spillover, the anti-Israeli and anti-Western ban of the Houthi rebels and Western raids against Shiite forces is already a factor of global relevance.
Global logistics is in chaos.
The axis that makes the Mediterranean and the Red Sea the hub of trade on the Europe-Asia axis is broken and shippers from all over the world are careful to look for solutions.
The most obvious choice, due to a cost factor, was the rediscovery of the Cape of Good Hope route.
“Reject modernity, embrace tradition”, say the disconsolate top managers of logistics companies called to lead their companies to a broad effort with the rediscovery of Vasco da Gama and the dubbing of Africa.
These routes add several days to Asia-North Europe voyages and two weeks to Asia-Mediterranean voyages.
Ocean carriers have temporarily stopped listing long-term agreements in the Asia-Europe market, as the disruption of shipping routes in the Red Sea makes it difficult to assess factors influencing fixed contract rate levels.
Freight forwarders are keen to point out, as reported by sources close to the sector with which has dealt, that it is not, however, a question of insurance on timing and risks simply because to date the big names, from Lloyd to MSC, simply in the area hotter they don't go through it anymore.
Operators under pressure A spokesperson for Hapag-Lloyd told the Journal of Commerce that no long-term deals will be offered “until the situation in the Red Sea is resolved”.
Lack of clarity on the duration of diversions, the unknown effect on equipment availability and the impact of diverted vessels on port usage are considered contributing factors.
At this stage, clearly, the potential resolution of the situation in the Red Sea is still uncertain, given that airstrikes by US and British forces have been conducted on targets in Yemen, from where Houthi militants have launched attacks on commercial ships from last December without, however, prohibiting the disturbance operations.
Michael Amri, head of ocean freight at Hellmann Worldwide Logistics, suggested that given the market uncertainty, some shippers should consider quarterly contracts rather than committing to long-term deals.
And if the data speaks of container prices exploding on the Asia-Europe axis, Freightos reminds us that the disruption also affects other routes such as the China-USA route, which sees the average price of a container rise from 1,600 dollars to just under 3 thousand from November to today.
Are trains and planes coming back? Meanwhile, the bottleneck of the ocean route is having a far-reaching effect on transportation.
In general, global trade is increasingly seeing an increase in demand for air and rail shipments from Asia to Europe.
Rising air freight rates and volumes are evident, with a significant increase in air cargo volume from Vietnam to Europe and an increase in bookings for China-Europe rail services.
In the past week, data from broker Freightos showed that air freight rates on a route from the Far East to Europe increased by 91% on a weekly basis on Sunday.
On the rail transportation front, the Journal of Commerce notes, “Igor Tambaca, CEO of Asia-Europe-focused Rail Bridge Cargo, said he has noticed a 68% increase in rail requests from shippers this year and a 43% increase in actual bookings.” Al Joc Tambaca said: “Average rail rates from China to Northern Europe are currently between $2,500 and $3,000 per FEU [76 cubic metres, the size of the standard container, ed.] compared to sea rates that the various indices have set between 4,500 and 5,500 dollars per FEU” on the same route.
The rail route has less space available, for now, but greater convenience.
Reflections on globalization All this happens as the crisis impacts what is traditionally the most chaotic period for global transport: delays in transit times on the China-Europe network, caused by greater demand before the Chinese Lunar New Year holidays, are leading carriers to try in every way to maximize delivery capacity and revenues in the sector.
In particular, faced with the proliferation of spot purchases of seats on container ships, planes and trains that follow routes from East to West, many freight forwarders are willing to reactivate paid services that impose tariffs to guarantee space for those requesting rapid transport and safe, a process similar to that which took place during the port congestion following the Covid-19 pandemic.
This, according to Flexport, can impose a growth in freight rates of $400 to $1,500 per route depending on whether it is sea or air freight.
Therefore, the global turning point imposed by the Houthi raids definitely signals a hot front for trade.
But it also imposes on operators the need to evaluate other factors beyond that of mere economic convenience which, as seen, can jump in the face of geopolitical waves.
The old saying "never waste a good crisis" must be applied in the face of such a disrupted global context to remind operators in the sector, companies and governments that the complexity of globalization requires them to think about a mix of safe choices in terms of costs and more strategic choices to guarantee the resilience of the routes.
Globalization has repeatedly shown itself to be less than robust to crises.
The current chaos can help us think about the plurality of transport modes for the businesses that represent its lifeblood.
And to think of a way of economic planning that avoids placing the stability of entire systems solely on logistics, its times and costs.

Author: Hermes A.I.

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