The markets are assuming that the crisis unleashed by the attacks by the Houthi militia on cargo ships trying to cross the Red Sea can last for a long time. First, the shares of shipping companies rose sharply on the stock market, as investors interpreted that the announcement by many of them that they will take longer routes to avoid the Yemeni rebels will generate juicy extra income from their clients. Now, the indices that measure route prices are already beginning to show substantial price increases. The World Container Index published this Thursday by the maritime consultancy Drewry calculates an average weekly increase of 9% in the cost of transporting a 40-foot container, a maximum of three months, and that percentage rises to 16% on the Shanghai-Shanghai route. Rotterdam, the largest port in Europe and the main entry and exit point for goods to and from China.
A handful of European and Asian companies move the bulk of maritime trade. The Italian-Swiss MSC, the Danish Maersk, the French CMA CGM, the Chinese COSCO, the German Hapag-Lloyd and the Taiwanese Evergreen are, in that order, the main actors. All have announced that there will be ship diversions to the Cape of Good Hope, in southern Africa, a route that lengthens freight traffic between Asia and Europe by between 9 and 14 days. Does that mean that the commercial situation is critical and prices are going to rise? Not yet. Orders for the Christmas campaign were placed well in advance and are already in warehouses and shelves. And on Monday, the Suez Canal Authority reported in a statement that between November 19 and December 17, only 55 ships had chosen the longest route around Africa, compared to the 2,128 that crossed through Suez.
It is true that the shipping companies made public their intention to change routes on December 15, so its consequences will probably be more noticeable in the coming weeks. Hapag has warned that by the end of the year there will be 25 of its container ships that will bypass the area, and in its most recent statement Maersk states that they will study “case by case” what direction future ships sailing through there will take. If the United States, which heads the international Guardian of Prosperity mission to stop the attacks, manages to pacify the area, everything could be a scare, but the operation is not yet fully deployed.
For this reason, Jordi Espín, responsible for Strategic Relations of the European Shippers Council, that is, of the companies that pay shipping companies to carry their cargo, says on the phone that panic has not yet spread, although he does admit a tense calm and costs additional. “We are on pre-alert. Things happen, there are diversions, shipping companies ask for surcharges, there is more transit time and more instability, but companies have learned the lesson of the pandemic and are not asking for more out of panic at not having their product, which is why it is not being produced. the so-called bullwhip effect.”
From here, there are several possible scenarios. In the best of cases, the Houthi militia is satisfied with the global resonance of its action in support of Palestine, or it avoids the clash with the United States and its allies, and stops the attacks, which would gradually return normality. to global maritime trade. But there are other more negative ones, as Carsten Brzeski, an economist at ING, warns by email. “If the situation worsens, it would lead to further tensions in global trade, higher prices and a partial return of what we saw when the Suez Canal was blocked by the Ever Given oil tanker. “This is not a return of supply chain problems like those of 2020 or 2021, but simply another unwanted event heading into 2024.” In short, one of those black swans so common lately, which flies over the end of the course and the beginning of the new year.
The price escalation must be put into context. The average price of transporting a container is 17% higher than in 2019, before the pandemic, but despite this week's increase, they are still far below the crazy years of 2020 and 2021, when the current prices were multiplied almost by 10. . So shipping companies made more money than ever: anything that floated and was capable of transporting something was a cash-generating machine.
Ole Hansen, head of commodity strategy at Saxobank, explains why they deflated. “High prices normally cure high prices and the strength of recent years has led to a container market with excess capacity due to the arrival of newly built ships, which is also compounded by the current economic weakness that has reduced the volumes transported. It is a very common phenomenon in other fields, for example oil: when its prices rose, new deposits proliferated, and when the crude oil market was flooded, prices fell.
20,000 ships
Jacob K. Clasen, former CEO of Danish Shipping, the powerful Danish shipping company association, and now an analyst for the entity, remembers the importance of the Suez route. “Considering that more than 20,000 ships, approximately 12% of global trade, transit the Suez Canal annually, any disruption, such as avoiding the Red Sea route, can cause delays for businesses and consumers.”
In his opinion, this will not translate into a relevant inflationary escalation. “Sea freight costs constitute only a fraction of the final price of most products. Consequently, even if there were an increase in container spot rates of, say, 20-30%, the resulting impact on the price of most consumer products would be relatively minor,” he reassures.
It must also be taken into account that the price that fluctuates is that of hiring a load at the last minute, but many companies sign long-term contracts with shipping companies, which prevents them from exposing themselves to the volatility of rates if any unexpected disruption arises, as it happens now.
What will happen next? For Hansen, prices may continue to become more expensive, but they will tend to stabilize. “In the short term, rates may rise further, but given the aforementioned overcapacity, I foresee a spike once carriers have adapted and incorporated the increased costs of longer travel times.”
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