Trade cost surge due to rising shipping charges

Mahfuz Emran: The significance of the Red Sea shipping route for global trade is immense. But for more than six months now, Yemen’s Houthi militias have been attacking ships in the region, over Israeli ties to ship owners or operators. Israel continues its war against armed Hamas fighters in Gaza after the “massacre” of Israeli citizens on October 7 last year. At such a time, the Houthis are carrying out this attack. For example, on June 20, the Houthis, who say they are fighting for Palestine, sank a coal ship in a drone strike. In response to Houthi attacks, US and British warships have repeatedly targeted militia positions in Yemen over the past few months. Additionally, two international coalition warships are operating in the region to secure maritime traffic off the Yemeni coast. German Navy, this is part of the EU naval mission Aspides.
Shipping costs increasing again
Global trade has been under severe pressure since the Israel-Hamas war broke out in October. Conflict in the Red Sea means increased freight costs and increased costs to insure trade goods. Shipowners face higher insurance premiums as the risk of shipwrecks in the Red Sea increases.
Furthermore, moves to avoid the Suez Canal for safety reasons and instead navigate around the Cape of Good Hope greatly increased voyage times and significantly increased fuel costs.
The Drewry World Container Index, which tracks the freight market, reported that shipping prices for a 40-foot standard container rose 7% in the third week of June alone – up 233% from the same period a year ago.
Finding a safe route
“Shipping companies are being forced to be more flexible,” said Simon McAdam, an analyst at Capital Economics, a London-based financial consultancy. Considering the limitations of using the Suez Canal, ship owners were forced to adapt to the situation. Importers are currently ramping up orders to ensure they have enough stock throughout the year. But further price increases are likely if ships are rerouted around the Cape of Good Hope.
More ships needed
Jan Hoffman, a trade expert at the United Nations Conference on Trade and Development (UNCTAD), also blamed long travel times around Africa for rising costs. “Going around South Africa requires more ships to maintain supplies,” he told DW. The average travel distance for a container in 2024 will increase by 9% compared to 2022.’ According to Hoffman, as ships spend more time at sea, more shipping space is needed. That means shipping companies need to charter or buy more ships and hire more workers. As these vessels do not yet exist, freight costs will increase.’ Hoffman also points to another unintended side-effect of longer shipping routes: increasing greenhouse gas emissions. Ships have increased their speed, thereby increasing emissions. For example, emissions increased by 70% on the Singapore-Rotterdam route.”
Trouble in Central America
In addition to security concerns in the Middle East, low water levels in the Panama Canal are also disrupting global trade, Hoffman said. That means the waterways are not fully utilized. As a result, U.S. shippers must transport goods to the U.S. by rail or road from ports on the West Coast to ports on the U.S. East Coast. Transporting bulk goods such as wheat or liquefied natural gas (LNG) across the United States is economically problematic. Shippers therefore have no choice but to take the very long and dangerous route around Cape Horn at the southern tip of South America. But Simon McAdam sees a glimmer of hope. “Water levels in the Panama Canal have recovered somewhat in recent months and may soon return to normal due to La Nina weather,” he told DW. McAdam added that the slight increase in water levels in the Panama Canal has already increased freight traffic there.
Red Sea will remain dangerous, increasing global shipping crisis
According to Bloomberg, efforts are underway to recover about 70% of the Red Sea’s trade around Africa. Simon McAdam believes that a prolonged crisis will put shipping companies in jeopardy and significantly increase freight costs. It takes years to build a ship, and 90% of new containers are made in China, capital economics expert DW said. A ship can’t be built overnight. So, the crisis in this industry may increase. ‘