Shipping's Route Canal Problem
After attacks on tankers, as well as MSC, Hapag-Lloyd, and Maersk container vessels, major vessel operators have paused transit of the Bab el-Mandeb (the straits at the southern end of the Red Sea). The attacks stem from Yemen, with Iranian-sponsored Houthi separatists seeking to support Hamas in its conflict with Israel.
There has also been a resumption of piracy in the region; a Bulgarian bulk vessel and an automobile carrier have been taken hostage.
A few carriers have rerouted some vessels via the Cape of Good Hope, lengthening the trip between Europe and Asia by about 10 days. British Petroleum and Equinor (operating large oil tankers) are also taking the longer route.
The United States announced a multi-national naval coalition including the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain. It remains to be seen whether this will resolve the fears of the shipping world.
On the other side of the globe, persistent drought in Panama has significantly reduced the daily capacity of the Panama Canal. A lack of the freshwater used in the locks initially reduced vessel draft (how deep the vessels are loaded) as well. Due to increased rain, Panama has just announced it will accept additional daily transits beginning in January.
One of the major impacts of COVID was the acute capacity shortage leading to record freight rates. As vessel operators racked up record revenues they spent massive sums on new ships. New vessel capacity on order equates to about 30% of the deployed fleet. Up to half of those ships will have joined their fleets in 2023.
The primary East-West trades have seen dramatic drops in shipping costs between main ports. Other trades have also benefited from lower rates, but not as significant.
Other factors continue to impact costs in developing countries, including fuel and congestion issues.
The bottom line is that the new capacity can absorb the cargo impacted by longer transit times.
So, If ten ships were serving a given route, there is ample capacity to serve the same ports via a longer route.
This will be the initial result: longer transit times. A secondary impact will be cost as the carriers will use whatever situations they can to bring rates up.
For cargoes destined for East Africa and the sub-continent – expect delays as these are typically transhipped at Mediterranean and Arabian Gulf ports. US West Coast cargoes have been hampered for a while due to the Panama restrictions. Again, expect longer transits.
For those with shipments currently moving on SLG bills of lading – please check your weekly shipment report. Jordan monitors every shipment every week to keep you informed. Check those and your Notices of Arrival for the latest information. Some shipments will be delayed.
Our entire team is keeping watch over these, and a multitude of other obstacles.