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Assessing the Impact: The Red Sea Crisis Three Months on"

Over 100 days from the start of what news outlets quickly labelled the ‘Red Sea Crisis’, our shipping specialists review how the situation has developed and the impact it is having on traders. 


Following the first Houthi attacks on ships transiting the Red Sea, carriers quickly announced their intention to avoid the area and reroute vessels around Africa and the Cape of Good Hope. Increased attacks, leading to the sinking of a vessel that had to be abandoned prior and fatalities aboard the Barbados-flagged True Confidence, have done little to increase carrier confidence in this route. Most recently, major player Maersk has said it’s too soon to return to the Red Sea route, though, their counterpart, CMA GCM, has indicated it would consider continuing Red Sea voyages on a case by case basis.

 

As we reported previously, this alternative route is adding, on average, ten days to transit time, together with the increase in fuel surcharge and freight rates concomitant with this longer route. Rate increases, however, have since stabilised, with the World Container Index decreasing 5% from almost $4,000 for a 40 ft container at the height of the crisis in January to $3,010 in March.  


An increase in demand for air and rail freight, often as part of hybrid sea-air and sea-land solutions, has been a key consequence of the crisis. As a result of this demand, airfreight rates have increased by around 8% according to WorldACD.  


In January we predicted that marine cargo insurance would increase, both for consignments continuing to transit the Red Sea and those travelling on the alternative lane, which skirts Somalia and presents its own piracy risk. Lloyd’s insurers reported that War Risk premiums have increased by about 900% a month.   


These increased costs have unavoidably had impacts on traders and their customers alike. In their recent Global Trade Update, the United Nations (2024) reported that the inflationary pressures of these increased costs continue to drive up costs throughout the supply chain.    

Despite these shifts, though, there are clear signs that the situation is stabilising. Alternative routes have begun to bed in, with extra new-build tonnage easing the capacity concerns presented by longer voyages and leading to less supply chain disruption. As reported above, inflated ocean-freight rates have also begun to stabilise, leading some industry experts to suggest we are seeing a ‘new normal.’ Moreover, UNCTAD’s (United Nations Conference on Trade and Development) view that these disruptions remain far short of those experienced during the ‘logistics crunch’ of 2021-2022 should be some reassurance to traders still scarred by the unprecedented impact of the pandemic on global supply chains.


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