The Supply Chain Matters blog provides readers with a further update on the ongoing Red Sea shipping disruption including added context and implications.



Just before the Christmas holiday, Supply Chain Matters alerted our readers to rather troubling signs for another global-wide shipping disruption.

Fifteen days since our initial alert, industry and general business media have now echoed the importance that the Red Sea serves as a major shipping lane for transiting the Suez Canal, the globe’s most critical and vulnerable waterway. Business media has further reinforced that at same time, the Panama Canal, which is the globe’s other key transit route, continues to deal with restraining daily transit levels because of low water levels brought about by severe drought.

Since our original commentary indicating that the Houthis terrorist attacks on ships, believed to be linked to the ongoing Israel and Hamas conflict, the situation remains very active and troubling, but confusing at the same time.

Latest Developments

A multi-nation naval force has begun efforts for escorting ships in their transits of the Red Sea, but incidents of attacks have continued. The latest was a Masek Lines container vessel that came under attack, but was thwarted by naval escorts. None the less, Maersk, along with three other container lines have made the decision to temporarily discontinue Red Sea transits and again seek transits around Africa by the Cape of Good Hope, added days to shipment and estimated arrival times.

Meanwhile, with each passing day, there is a growing sense that tensions and concerns are escalating as to the risk of a broader conflict beyond Gaza, and with other nations. This week alone, there have been several other separate terrorist incidents in the Middle East area, and it appears unclear as to how they are related. What is clear is that tensions are rising, and so are the concern levels for a broader Middle East conflict.

Need for Clarity

Beyond the hype of media reports, multi-industry supply chain logistics and transportation management are seeking clarity as to the operational scope of these maritime disruptions, as well as the cost impacts.

Regarding the operational scope, we provide reference to a recently published Lloyd’s List report that we believe provides added clarity. In essence, Red Sea transit volumes are noted as being down 20 percent on a year-over-year basis, and that difference is directly attributed to container ship reduction. Specifically noted is that: “Passes around the Cape of Good Hope increased 27% in the final week of December when compared with the week prior, according to Lloyd’s List Intelligence data. Some 131 containerships sailed via this route between December 25 and 31, up from 35 over the same period in the past year and 51 during the week running December 18 to 24.”

Regarding viewpoints as to whether rebels are conducting wholesale or random attacks, this report cites analyst’s as indicating that: “security analysts say it is a combination of the Houthis trying to strike the most effective targets while not stoking regional tensions.” Regarding current bottom line assessment the report indicated: “While worsening Houthi attacks have pushed major container lines to halt Red Sea navigation, changes to activity levels for tankers and bulk carriers is negligible. This comes down to the risk appetite of shippers.”

Likewise, Christian Roeloffs, Co-Founder and CEO of Container xChange recently indicated: “The red sea situation is acute, but not chronic for shipping.”

Is There Evidence of a Replay

In our initial commentary we raised the question as to how global shipping lines will manage both the Red Sea and Panama Canal disruption conditions  and whether they elect to again raise shipping and demurrage rates to levels beyond market rate risk or baseline supply and demand levels.

We pointed out that with global shipping volumes expected to contract throughout 2024, this disruption provides ample motivation for keeping rates high.

Here are, from our lens are some early evidence points.

Bloomberg reported this week that shares of shipping and logistics services firm Maersk rose to a five-month high, as much as 3.7 percent, on a Bank of America upgrade of the stock. Shares of Hapag-Lloyd, Cosco and Israeli carrier Zim have rallied as well. Keep in mind that shares of container lines had previously declined on the news of expected dramatically reduced global shipping demand levels in 2024.

A Bloomberg Intelligence senior logistics analyst indicated this week that transpacific rates have already risen by 56 percent based on the Drewry Hong-Kong to Los Angeles benchmark.

Bloomberg also observed a related trend, namely that higher rates are now impacting related modes of transcontinental freight movements, specifically that rail rates from China to Europe with an expectation that Silk Road focused Europe bound rail rates are likely to have a spot-rate increase exceeding 20 percent.

Today, The Wall Street Journal provided a side panel statistic indicating that according to the latest Drewry Shipping Index for spot rates for the Shanghai to Rotterdam trade route for the recent week ending January 4 was $3,577 per forty foot container, up 115 percent on a weekly basis. At this time of year, shippers anticipate very little shipping volume from China with the Lunar New Year holiday occurring later this month.

A further evidence point comes from the January New Year’s Edition Container Forecaster from Container xChange which indicates that a majority of shipping professionals surveyed in the month of December were already indicating that their biggest concern stemmed from the risk of geopolitical upheaval: “The biggest ‘headache’ resulting from geopolitical upheaval is the ‘associated costs’ that they will have to bear on top of rising operating costs that they have to already face.”

Reader Takeaway

We share all of the above early evidence points that would seem to indicate that some shipping industry players seek to leverage the Red Sea disruption, along with the Suez and Panama Canal passage restrictions, with higher spot rate and perhaps contract rates in the weeks to come. That is in the light of expected excess shipping vessel capacity available in 2024.

More importantly, these are early stages with many unknowns yet to unfold regarding an escalation of Middle East tensions and/or hostilities, or other natural disaster related events that present themselves in the unfolding  months..

The takeaway for industry supply chain management teams is that any belief that the coming year will be more predictable in global transportation service and cost levels is already suspect. There are external and market  forces already at play and the notions of unpredictability and uncertainty loom large for risk and cost factors.

As we indicated in our initial 2024 Prediction for Industry and Global Supply Chains, economic, geopolitical and supply network disruption threats will indeed test the leadership and influence capabilities of supply chain leaders in 2024.  The year has already begun with a collection of added risks and considerations.


Bob Ferrari

© Copyright 2023, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.