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         Since mid-December, the crisis in the shipping industry has escalated, inevitably leading to delayed shipments. With the impending surge in raw material costs in 2024, the situation demands attention.

         In the current scenario, several major shipping companies have announced suspensions or alternative routes. The combined capacity of these four major companies constitutes over 50% of the global total capacity. Prolonged detours are causing a strain on capacity, resulting in a projected 10% reduction in market supply. Consequently, product prices are anticipated to surge in response.

         As of now, significant players such as COSCO Shipping, Maersk, China COSCO Shipping, OOCL, Evergreen, ONE, HMM, Wan Hai, Yang Ming, NileDutch, APL, among others, have opted for alternative routes.

        The crisis in the shipping industry, triggered by events in the Red Sea, has led to a substantial repositioning of maritime routes. Vessels operating on routes from Asia to Europe and Asia to the U.S. East Coast are circumventing the Cape of Good Hope in Africa, resulting in extended voyages, increased operational costs, and a roughly 30% surge in fuel expenses. The SCFI index surged last week by 161.47 points, reaching 1254.99 points, marking the highest in a year and a half since June 2022. The weekly increase expanded further to 14.76%, the largest single-week gain since 2016. All four major long-haul routes are experiencing a comprehensive surge, with freight rates for the European route soaring close to $1500.

        The elongated route has increased the shipping distance by approximately 30%, extending the transaction time for goods by 7-15 days, consequently elevating transportation costs. In the short term, the surge in detours is expected to further reduce available capacity. The immediate freight rates are predicted to continue rising over the next few weeks, and this trend is anticipated to persist until the end of January.

red sea incident

Incident escalation

            Amidst the ongoing global shipping crisis sparked by repeated attacks on commercial vessels in the Strait of Mandeb by Houthi militants from Yemen, the security of global maritime and supply chain operations is under severe threat. This crisis poses a significant risk to the already fragile state of the world economy, grappling with persistent inflationary pressures.

            At a time when the world’s attention is focused on the situation in the Strait of Mandeb, another ominous development unfolds in the waters of the Arabian Sea, guarding the Persian Gulf in the Middle East.

Merchant ship attacked for first time in Arabian Sea

Merchant ship attacked for first time in Arabian Sea

Iran Issues Warning: “Mediterranean Could Face Blockade”

         According to reports from CCTV News, Iran’s Tasnim News Agency stated on the 23rd local time that a commander from the Islamic Revolutionary Guard Corps in Iran expressed a warning. The commander stated that if the United States and its allies persist in committing offenses in the Gaza Strip, it could trigger the emergence of new resistance forces. He indicated that the “Mediterranean, the Strait of Gibraltar, and other waterways” might be subject to closure.

Raw Material Constraints: Anticipating a Surge in 2024?

        It has come to light that the limitations on various raw materials might lead to an increase in costs in 2024.

       Annually, over 20,000 vessels navigate through the Suez Canal, constituting 14% of global maritime trade. Notably, the Red Sea corridor, handling about 30% of its cargo volume in container trade and 10% in crude oil trade, plays a pivotal role. Ongoing conflicts in the Israel-Palestine region and the Russia-Ukraine conflict, coupled with transportation constraints, may contribute to a modest uptick in crude oil prices in the short term.

       Of particular concern is the historical significance of the Suez Canal as a nexus for international freight. Previous congestions resulting in shipping price surges have led to an upward trend in the prices of various raw materials. The recent attack on the canal is yet to determine its full impact, but it is anticipated to disrupt the supply chains of multiple raw materials, affecting various industries within the chemical sector.

        This situation underscores the need for vigilance as we navigate potential challenges in the raw material supply chain. As geopolitical tensions persist and transportation hurdles endure, industries reliant on diverse raw materials may experience fluctuations in costs, warranting strategic planning and adaptability in the coming year.

        Keep a watchful eye on industry developments as we navigate these uncertainties, and stay prepared for potential shifts in the raw material landscape.

Massive Disruption to Global Supply Chains

       The recent “Red Sea Attack” has the potential to wreak havoc on the global supply chains that traverse the Red Sea region and the Suez Canal. It’s worth noting that the Suez Canal accounts for 30% of all container ship traffic and serves as a crucial route for the transportation of crude oil.

       According to data from the freight market platform Freightos, vessels passing through the Red Sea area are facing increased risks. Simultaneously, Maersk Line has stated that insurance premiums for vessels bound for Israel will continue to rise in 2024. The company has officially implemented Emergency Risk Surcharge (ERS) for all cargo discharged at Israeli ports, effective from January 8, 2024. The surcharge is set at $50 for 20-foot containers and $100 for 40-foot and 45-foot containers, applicable to Israeli import bookings until further notice.

       In response to these developments, ZIM Integrated Shipping Services Ltd (ZIM) has announced a rate hike for its Asia-Mediterranean route. The adjusted route will circumvent the Red Sea area, opting for the longer route around Africa.

      Two major shipping companies, Mediterranean Shipping Company (MSC) and CMA CGM Group, the third-largest globally, announced the suspension of operations on the Red Sea route on December 17, 2023. Maersk Line, the second-largest shipping company globally, and Hapag-Lloyd, ranked fifth, had made the decision to halt Red Sea operations earlier on December 15.

      A spokesperson from Maersk commented, “We are deeply concerned about the tense situation in the southern Red Sea and the Gulf of Aden.” He added that Houthi attacks on merchant vessels posed a “significant threat” to the company’s crew.

      Simultaneously, shipping companies have provided detailed information about the measures taken and the attacks endured. CMA CGM, in a statement addressing issues in the Strait of Mandeb, mentioned, “The situation in the Red Sea is continuously deteriorating, and concerns about safety are escalating.”

     “In the past two weeks (first half of December 2023), tensions in the Red Sea have significantly escalated, with Houthi forces initiating attacks on large ocean-going merchant vessels,” noted Christian Roeloffs, Co-founder and CEO of the container logistics platform Container xChange. “Following the ‘Red Sea Attack,’ container shipping companies have essentially instructed their vessels to bypass the Suez Canal and the Cape of Good Hope. This measure significantly increases delays and transit times for their East-West trade.”

Red Sea Global Statistics Report

Summary: Global Supply Chain Under Siege

          The recent “Red Sea Attack” has unleashed a wave of disruption that threatens to cripple the intricate web of global supply chains navigating the Red Sea region and the vital Suez Canal. As a lifeline for over 30% of all container ship traffic and a critical conduit for transporting crude oil, the Suez Canal’s vulnerability has sent shockwaves through industries reliant on timely and secure shipments.

           As the “Red Sea Attack” continues to reverberate, businesses worldwide must remain vigilant and adaptive to the evolving landscape of maritime trade. The unfolding events serve as a stark reminder of the fragility of global supply chains and the imperative for strategic planning to mitigate risks in an ever-changing geopolitical environment.

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