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Recently, there have been several attacks on container ships in the Red Sea due to which the 5 largest shipping companies in the world have decided to skip shipping through the Suez Canal. As a consequence, container ships will have to circumnavigate the African coast, which actually results in an extension of the container route to Europe by about 10-15 days. Shipowners have issued statements saying that the decision is due to security reasons and is in force until the situation stabilises. This is all due to attacks by the militant group Huti, which has committed attacks on container ships. Prices in sea freight from China to Poland have risen by almost three times and are very likely to rise further.
What does this mean in practice?
In practice, a 3-fold increase in sea freight will translate into an increase in the price of final products, and all this will have a big impact on many industries. The economy works like an interconnected vessel and if we disrupt the element responsible for the flow of goods we will disrupt a large part of the economy. Many manufacturing companies use semi-finished products imported mainly from China, but also from countries such as Taiwan, India, Thailand and Vietnam. Due to the current perturbations in shipping caused by the blockade of the Suez Canal, consumers may experience price increases in certain sectors and industries. The suspension of shipping by major shipowners affects supply chains and hinders the smooth distribution of goods to global markets. Increased costs of alternative routes and transport may pass on to final product prices, which could result in higher prices for consumers.
The route that container ships currently have to take:
Yemen is currently in the midst of a civil war and it is the Huti fighters from that country who are carrying out the attacks. If we look at the map, we can see that Yemen is an important place in terms of onward shipping to the Suez Canal.
Currently, traffic in the Suez Canal is very limited as the live photo below shows:
Predictions
Already we have information from the market that shows an increase in freight rates from China to Poland by almost 3 times, and this is not the end of the increases. Similar increases also took place during COVID-19 and the blockade of the container ship Ever Given. In this context, we can expect similar results. At that time, rates ranged from USD 10 000 to even USD 15 000 per 40 HC container. In this case, prices currently stand at around USD 4 000. In February, however, China will be celebrating the Chinese New Year. Rates have historically skyrocketed around this period, so we can expect further increases in the current quarter.
