One of the largest global shipping organizations, Maersk announced pausing all its operations on the Red Sea route, a passage that accounts over 10% of the global shipping trade.
Soon after, its counterparts MSC and CMA CGM too announced suspension of their operations. One of the MSC Vessels- MSC Palatium III was reportedly attacked over the weekend, but reported no casualties. The rising political turmoil in the region has affected the Suez Canal passages at a time when the other key gateway in Panama Canal has been on a chocabloc, thanks to low abysmally low water levels.
Most key liner services have set themselves to avoid the Suez Canal crossing both east and west-bound with the Cape of Good Hope, South Africa now posing itself as the preferred alternative. The region has now seen a bump-up in shipping activity (Ref: Fig 1). It must be noted that select shipping lines had envisaged the Cape of Good hope as an alternative passage to the Panama Canal, as well. The combined effect of two of the key gateways of the shipping world undergoing hurdles, would mean a bump-up in schedules and transit times, especially those from the Asia Pacific to Europe and South East Asia to North America. These could range anywhere from a week to three weeks.
The Panama Canal has had its own share of problems, with reduced water levels, reportedly, on back of climate change phenomena such as El-Nino. With limited slots for crossing over, the slots have been priced at exorbitant levels, a 6-figure mark (in USD) to start with, but often exceeding the 7-figure mark too, yet another add-on to costs. Certain shipping liners had imposed the Panama Surcharge to operate in an alternate route, so as to take care of the added cost effects- with the Cape of Good Hope, the Strait of Magellan and the Suez Canal seen as alternatives. With passages via the latter crippled, being a key gateway in its own right, the global supply chain is on the look out for alternative solutions for their critical equipment as well as catering to the holiday season and the winters- with a significant impact on costs and schedules. What should also not be discounted is the effect that it has on the shipping crew, in terms of mental health, fatigue and crew-plan schedules for operations.
There have been other minor pockets of disruption reported as well. For instance, the Rhine which had reported a drop in water levels in 2022, now sees the flip side owing to heavy rains and snow-melts. The weather has halted shipping/ barging operations in the region to a great extent.
The Global Supply Chain Pressure Index (GCSPI) reported a figure of 0.11 in November 2023, its first figure in the positive territory since January 2023 (Fig 2 attached). The freight prices seem to be catching up as the Drewry registered a 10% increase in the composite index, with the Asia-Europe and Asia-Mediterranean trades witnessing a rise in prices to the tune of 22-23% over the past couple of weeks. As the pauses and suspensions last going forward, this should affect the base prices of most sections of cargo.
It would require combined effort and planning from Shippers, Shipping Lines, Forwarders and other key stakeholders to address operational strategies in the interim.
Author of the article: Gautham Krishnan
Gautham Krishnan is a logistics professional with Fluor Corporation, in the area of project logistics and analytics, and has worked in the areas of Project Management, Business Development and Government Consulting. He has been bestowed the AntwerpXL 40-under-40 award for the year 2023, as one of the upcoming, future leaders in the project logistics space.