Since the Covid-19 pandemic, supply chains have faced geopolitical tensions, environmental challenges and significant disruptions, like the bridge accident in Baltimore. Despite some recovery, the Red Sea remains a concern with persistent tensions and a slow trade volume rebound.
Global economic instability continues, increasing the risk of ship attacks, complicating rerouting and disrupting ETAs and lead times.
Red Sea vessel transit numbers
Once a vital trade route, the Red Sea is now perilous, forcing ships to take the longer, costlier route around South Africa’s Cape of Good Hope. This shift has disrupted global supply chains, increased transit times and freight rates and led to a surge in carbon emissions.
According to UNCTAD, Suez Canal and the Red Sea are crucial for global shipping, with the Red Sea handling 12% of global trade, 30% of container traffic and over $1 trillion in goods annually. In 2023, the Suez Canal saw around 26,000 vessels, but transits have since dropped 42% from the peak earlier this year. This decline coincides with a sharp rise in global container shipping costs, with spot rates jumping from between $850 and $1,000 to between $2,400 and $2,900, according to The Economic Times.
Shipping challenges
Geopolitical uncertainty and environmental issues have led to difficulties for shippers, including longer transit times, freight rates and increased carbon emissions.
Extended transit times
Rerouting vessels around the Cape of Good Hope to avoid the Red Sea significantly extends transit times, disrupting schedules and causing delays.
For instance, a Singapore to New York trip via the Cape is 15,609 nautical miles, versus 11,247 through the Suez Canal, which adds two to three weeks to shipments from Asia to Western Europe and the U.S. East Coast; seven days from South Asia to the U.S. and around 10 days from Asia to Europe.
Monthly transit times by POD arrival dates
The above graph shows that average transit times for shipping containers between China and the UK rose from 31 days in September 2023 to 41 days in June 2024, reflecting a 32.26% increase following the Red Sea crisis.
Above, we see that average transit times for shipping containers from China to Hamburg increased from 37 days in September 2023 to 49 days in June 2024, marking a 32.43% rise.
The graph above shows that average transit times for shipping containers from various Chinese ports to Rotterdam increased from 33 days in September 2023 to 45 days in June 2024, a 36.36% rise.
Increased freight rates
Shippers have faced a 25% rise in rates for east-west routes, adding $31 billion in overall costs. Maritime war risk premiums have increased from 0.7% to 1%, cutting into profits. For a vessel carrying $50 million in goods, this adds $350,000 in premiums when passing through the Red Sea.
Higher insurance and fuel costs further squeeze profits. A round trip between the Far East and North Europe via the Cape of Good Hope now adds $1 million in fuel costs. Shipping costs between Asia and Europe have surged 2.5 times, with container rates rising from $1,357.83 to $3,713.07 for Europe, and from $2,663.63 to $5,120.99 for North America.
Charges in USD for 20ft containers
Carbon emissions increases
Rerouting ships from the Red Sea to the Cape of Good Hope adds 4,000 nautical miles, significantly raising carbon emissions. Portcast reports a 50% rise in CO2 emissions on South Asia-Europe routes and a 20% increase on routes to the U.S. East Coast.
Impact of longer transit times and delays
Recent supply chain disruptions have increased costs and affected operations:
- Stock levels: The just-in-time strategy is now risky, prompting industries to maintain larger inventories.
- Vessel schedules: Frequent revisions are needed to manage future shipment flows.
- Rising costs: Reliance on expedited air freight adds unforeseen costs.
- In-transit stock: Delays heighten risks for perishables and increase tied-up capital.
- Unloading delays: Alternate ports prolong journeys and present infrastructure challenges.
- Container shortages: Scarcity leads to shipment delays, congestion and higher rental prices.
Strategies for supply chain preparation
In this challenging situation, supply chain professionals can ensure smoother operations by:
- Visibility and agility: Real-time tracking tools and flexible route planning offer quick adjustments in response to delays.
- Diversification: Spreading sourcing and logistics across regions and carriers minimizes risks.
- Collaboration: Strengthening communication with partners can help to manage disruptions and maintain smooth operations.
Implementing these strategies builds resilient supply chains capable of handling global market complexities.
Conclusion
Unforeseen events continue to disrupt supply chains, but technology helps manage these challenges. By staying vigilant and using real-time updates, shippers can minimize impacts and maintain smooth operations.
About the author
Gautam Jain is CEO at GoComet, a logistics resource management software platform that helps large enterprises transform their supply chain operations.
