IMPORTANT CLIENT NOTIFICATION – RED SEA/SUEZ SITUATION

What is happening? Houthi militants in Yemen who are supporting the Palestinian Islamist group Hamas in the war and conflict between Hamas and Israel (which began on 7 October 2023) are targeting shipping passing through the Red Sea. This has led to war like hostilities by the Houthis launching missile attacks, actual and attempted hijackings and piracy incidents, drone and underwater attacks on ships transiting through the Red Sea.

What is being targeted? Predominantly container ships but some oil tankers as well. At first, ships that had a connection with Israel and/or which have called at Israeli ports were targeted. However, now it appears to be indiscriminate and/or any shipping lines and/or operators that have not agreed to cease to trade with Israel.

Which performing carriers have been targeted? Most major container lines have been targeted and have re-routed their vessels to avoid the Red Sea by not transiting the Suez Canal. Maersk, MSC, Hapag Lloyd, CMA CGM and Evergreen amongst others have all issued announcements that they are pausing or re-routing their ships around the Cape of Good Hope. There have been reports that some carriers have reached an agreement with the Houthis in return for safe passage, but this has not been officially confirmed.

How long will it last? Uncertain, as it will depend on how long the conflict lasts and/or how it develops. It is an evolving situation as we have seen overnight that US and UK militaries have launched strikes in Yemen. Most container lines have now announced that they will not transit the Suez Canal for the foreseeable future.

Will it affect my shipment? Over 10% of world trade goes through the Suez Canal with 40% of the trade between Europe and the Far East and therefore if your cargo has been booked on a container line for a trade between Europe and the Far East or from northern US East Coast ports to the Far East or vice versa then it will be affected.

Impact on shipments: Predominantly delays and additional costs. Delays as vessels on trades between the Far East and Europe/US are re-routing the long way round the Cape of Good Hope. This leads to additional cost and delay to delivery times. Clearly this will be a concern for clients.

Can you quantify this for us?

DELAY

• For transits between Europe and the Far East or vice versa, this entails an additional 3,000nm which, depending on a vessel’s speed, bunkering, and crewing rotations, will add a further 2-3 weeks additional sailing time. For other routes such as the North US East Coast ports to the Far East or vice versa, you can expect a further minimum week’s delay. For discharge ports within the Red Sea, some shipping lines have ordered their vessels to reach safe areas and pause until further orders are provided and we have no time estimates for this.

COSTS

• The additional costs will relate to fuel/bunkers (more fuel will be burned on the long route and the price of oil has increased in response to these events), crewing and victualling costs, additional war risk premium and other operating expenses for having a vessel engaged in a transit for 2-3 weeks longer than the usual route. Some container lines will charge a surcharge and others will roll the charge into their ocean freight rates. Maersk are for example calling this the ‘transit disruption surcharge’ and are charging an additional USD1,400 (once the Peak Season Surcharge “PSS” is included) for a 40ft dry container from the Far East Asia to North Europe and USD700 for a 40ft dry container from the Far East Asia to East Coast North America. As some shipping lines would have already booked their Suez Canal passage in advance, we do not anticipate that they will offset the transit fee from the additional fuel/bunker costs as yet. 
• In addition to these surcharges, the ETS (EU’s Emissions Trading Scheme) which came into force from 1 Jan 2024 will also increase from previously advertised prices. While some container lines announced tariffs for each route at the end of last year, this did not account for re-routing around the Cape of Good Hope. As the ETS tariffs are linked to the emissions on a particular route, there will be an additional charge or increased rates to account for the re-routing. We expect that most if not all ocean freight rates will increase because of the reduction in capacity as ships are engaged in longer passages for the same voyage, containers being the wrong place and, oil price rises.

RATES

• In autumn 2023, we were seeing rates hovering around the USD1,500 mark for a 40ft container from the Far East to Northern Europe. We are now seeing rates in the region of USD5,000 to USD6,000 once you include a premium of around USD1,500 to get your container on a vessel as all vessels are fully booked up to Chinese New Year.
• For the Far East to the northern ports of the US East Coast, we are seeing similar rates but with a lower premium of ca. USD500 to USD1,000 to get a container onto a vessel.
• Once we are beyond the Chinese New Year, we would typically see the PSS falling away. Whether that will happen this year or whether the PSS will be extended or rolled into another surcharge is yet to be seen.

Who is liable for the additional costs? Typically, a deviation from the intended route would usually give rise to a claim against the carrier. However, as most shipowners carry cargo in accordance with international conventions such as the terms of the Hague Visby Rules, any deviation in saving or attempting to save life or property at sea, will not breach the contract of carriage and therefore the carrier will not be liable for any loss, damage, or delay as a result. Unfortunately, the increased costs will therefore be passed on to the customer.

When will container rates go back to normal? Container rates have been at an all-time low since the end of the pandemic. The increased volatility in the market may mean that rates will be sustained at a higher level even if and/or when tensions ease between Israel and Hamas. In addition, war risk insurance underwriters will need to see a sustained period of calm before they remove the widened area of the Red Sea from the high-risk area and reduce the additional
premium payable.

How is the US and other allies responding? As with the Gulf of Aden where a maritime safe transit corridor was set up for vessel transits, the US and allies are considering similar measures with naval protection for merchant ships. However, the Houthis have warned that cooperation with the US will escalate their action further. In addition, the mitigation tactics used in the Gulf of Aden of having armed guards on vessels will not be effective against missile attacks. A coordinated international response will take time to broker and implement effectively.

What is Bertling Logistics doing to mitigate these issues? Firstly, we are contacting affected customers to problem solve these issues. We are carrying out risk assessments for voyages that were intending to transit the Suez Canal and/or were intending to deliver to a port within the Red Sea. Transits which go the long way round can be subject to increased risk as the longer that cargo is in motion, the greater the probability that damage could occur. This is particularly true for the trip around the Cape of Good Hope as navigating the seas of the Southern Ocean off the coast of South Africa can increase the possibility for damage to ships and cargo.

Even if certain shipowners have reached private agreements with the Houthi’s to ensure safe passage, we still expect the rates to be higher as they will still have to pay increased war risk premium, increased bunker costs as the oil price has risen and other costs that the shipowners will not readily absorb. In addition, while those ships may not be a direct target, they could still be involved and/or delayed by an incident.

We can also consider mixed modal routes with delivery to alternative ports and utilise overland or inland waterway carriage to the final destination. However, this may also present some challenges where cargo is to be carried through countries with poor infrastructure or other geopolitical issues are existing. Additional import/export fees may also be incurred. Utilisation of air freight will be worth considering for time critical shipments to avoid unplanned shutdowns or plant closures and we can assist with expedited air freights.

Where possible, we will negotiate with carriers to minimise or eliminate any additional or opportunistic costs.

Recommendations: If you have any queries regarding your shipments that would normally berouted via Suez, please reach out to your account manager to discuss mitigation strategies.

contacts for more information

For air freight inquiries:

For sea freight inquiries:

Let's connect to stay informed

CONTACT US            BERTLING ON LINKEDIN            ALL NEWS