Supply Chain Matters provides our latest update regarding the Red Sea Transport disruption impacting transport movements to and from European and Asian ports.

Our prior published update was on January 19th.  

As we have noted in this thread of updates, to a further extent, shipments from Asia eastward that traverse the Panama Canal are an important added backdrop to ocean transport disruption impacts.

Shipping Lines Warn Red Sea Security Continues to Deteriorate

Bloomberg reported last week that the CEO’s of two major shipping lines, which being Maersk and Norden, have both of the view that the security threat level of shipping traversing the Red Sea to and from the Suez Canal has continued to escalate.  Further, Japan based shipping line Mitsui OSK Lines indicated a belief that this disruption could extend thru the balance of 2024.

These assessments are despite continued joint nation naval and air military efforts to attack and neutralize believed Houthi rebel’s missile, drone, and small ship laden attack sites.

Container ships continue to be re-routed around Africa’s Cape of Good Hope toward European port destinations, adding upwards of two weeks or more transit time along with added operating costs.

Maersk CEO Vincent Clerc indicated in a Bloomberg television interview that: “The amount or the range of weapons that are being used for these attacks is expanding and there is no clear line of sight to when and how the international community will be able to mobilize itself and guarantee safe passage for us.” Clerc further indicated that Maersk Line would need to be “absolutely certain the Red Sea waterway was safe before sailing there again.”

Parallel to this disruption has been the continued rise of spot shipping rates.

Last week, the World Container Index compiled by Drewry Shipping Advisors had risen a reported 170 percent since early November, to a value of $3783 per 40-foot container. The spot rate for the routing Shanghai to Rotterdam stood at $4,426 per 40-foot container, declining slightly from the prior week.

Impact Implications- Maersk’s Financial Performance

Last week, shares of A.P. Moeller Maersk, operators of Maersk Line plummeted a reported 18 percent as the carrier and logistics services provider reported full year 2023 financial performance that disappointed investment markets.

In conjunction with the report, the carrier elected to suspend its share buyback program, and further indicated that the company’s 2024 profitability outlook could be as much as a 90 percent decline from that of 2023. Specifically, EBIDA is currently forecasted to be in a range of between $1 billion and $6 billion this year. That compares to $9.8 billion profitability in 2023, and an astounding $36.8 billion profitability performance during 2022.

According to the reporting by The Wall Street Journal (Paid subscription), Maersk’s profitability decline has more to do with new ship capacity coming into service this year as a result of ship acquisitions initiated during the prior 2-3 years.

These requirements for new ships were driven by both needs to convert the fleet to more efficient as well as sustainable fuel burning vessels, along with prior assumptions that overall shipping volumes would increase in 2024 and beyond.

Maersk is not the only global wide carrier bringing on added new ship capacity this year.

Maersk currently estimates container volumes will increase from 2.5 percent to 4.5 percent in 2024, but that appears to be rather high given a decline in global production volumes for the past 15 months.

Reportedly, executives made clear that the Red Sea disruption has affected slightly over one-third of the carrier’s shipping volumes. As the WSJ specifically noted in its reporting:

According to Maersk’s estimates, freight rates will revert to pre-disruption levels as record new-vessel deliveries make their way into service even if the Red Sea problems persist for the whole year.

The further aspect to the current disruption is the acknowledgement from Maersk’s CEO, along with other industry watchers that the industry’s oversupply of ship capacity will eventually lead to a downside effect for carrier operational and profitability performance for 2024.


Industry Supply Chain Network Impacts

The overall global wide impact of the Red Sea disruption thus far, as gauged by the January 2024 Federal Reserve Bank of New York’s Global Supply Chain Pressure Index (GSPI), was reported as a value of -0.11, from the December 2023 value of -0.15.

January’s slight dip has been noted as an indicator that the ongoing disruption has yet to manifest itself as a noteworthy impact across various global supply chain key indicators of added volatility activity levels. Once more, the January reading is well below the gauge of the December 2021 reading of 4.33, when cascading global-wide shipping disruptions began to manifest globally.

Reader Takeaways

As noted in our prior update, industry supply chain management planning and operational execution teams will continue to keep a keen eye on these unfolding maritime shipping events in relation to impacts for transit delays, container shortages and surging transportation costs. In parallel is the assessing of the related restricted ship transit volumes surrounding the Panama Canal because of low water levels.

As echoed in Maersk’s latest acknowledgement, the disruption is not of the magnitude of 2021-2022 global wide disruptions. Added ship capacity coming online can mitigate overall impacts if collective shipping lines act responsibly. An unknown remains as to whether hostilities across the Middle East widen into broader conflicts.

Applying Lessons, Actions and Learning

Once again we reiterate that global supply chain management teams instill the learning, lessons and successful actions garnered from the pandemic years, namely:

  • Broader material and finished goods supplier sourcing options across multiple regions.
  • Scenario and simulation based planning methods that quantify and weight various short and longer term impacts of global events toward key business metrics.
  • More real-time visibility to end-to-end material flows and clog points.
  • Accurate, timely and proper context of data and information supporting an integrated business-wide operating plan.
  • Technology tools that can identify risks and likely mitigation options before they become a significant impact.


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