In December, the Shipping 40ft Container Index [Mintec Code: ZB99] increased by 8% month-on-month (m-o-m) to $1,548/unit after the Houthi attacks in the Red Sea. While the index is 27% lower than in December 2022, the situation has intensified significantly in the last two weeks, and industry participants expect that while the attacks persist, they will remain a significant driver of ocean freight prices.
Houthis from Yemen have launched attacks on passing ships since November 2023, resulting in a change in shipping routes, which previously passed through the Red Sea and the Suez Canal. Now, carriers delivering goods from Asia to Europe and North America bypass the African continent, increasing the delivery time by about 15 days on average. In addition, due to this change in the schedule of ship arrivals at the ports, market sources expect that the efficiency of port operations will be disrupted, resulting in large queues. Similarly, the return route is lengthened. Thus, the significant increase in overall shipping journey times and the apparent increase in transport costs will likely result in a shortage of available ships for loading in ports.
As a result of the attacks, shipping rates have skyrocketed in several directions, consequently impacting world trade dynamics. One trader reported to Mintec that the sea freight cost from India to Europe has increased approximately fourfold in the last two weeks. Furthermore, contract fulfilment deadlines will also be disrupted as the exact arrival of the cargo at the port is now challenging to estimate. Another trader reported that given the increase in the cost of sea freight, he would refuse export orders, as the amount by which the freight price has increased will make it unprofitable to export.
According to industry sources, the current problem in the Red Sea should be resolved soon and is a short-term impact market driver. However, uncertainty remains about when it will end, and given the extent of change in commodity flow paths, the impact on the shipping market could be felt for an extended period. Market sources therefore expect a rise in commodity prices globally due to the rising cost of shipping.
