The Red Sea disruption to container shipping remains uncertain in terms of duration, according to Drewry Maritime Research.

The anticipation is that carriers might not resume Suez Canal transits until the elimination of the risk of attack, a process expected to take months rather than weeks. Despite this, Drewry’s analysis suggests that the impact on equipment shortages, port congestion, and ship schedules will likely be less severe than during the pandemic years. The supply chain is expected to reorganize around longer transit times, especially sailing around the southern tip of Africa.

While affected markets are expected to be tighter than usual, Drewry believes there is sufficient spare capacity in the system to manage the situation. Carriers are currently avoiding the Red Sea and the Suez Canal due to security concerns related to Houthi militants supporting Hamas in the conflict with Israel. Suez transits by container ships have decreased significantly, down 64% in the first two weeks of 2024 compared to the same period last year.

Ocean carriers are increasingly opting for the route around the Cape of Good Hope, resulting in a 168% increase in transits during the same period. Forwarders warn that these diversions may lead to ships clustering at European ports upon arrival, causing port congestion, exacerbating equipment shortages, and leading to canceled sailings.

Markus Panhauser, head of ocean freight/Europe at DHL Global Forwarding, highlighted delays on the westbound leg of vessels by nine to 20 days, with additional waiting time for berthing windows. This delay has led to a depletion of safety stock, as customers are ordering additional goods to replenish their stocks, contributing to a space shortage.

Carriers have injected idle vessels into service to compensate for delayed sailings, but this has dried up empty container stocks across Asia, India, and Europe. Shippers are rushing to get their cargo due to longer transit times, and with Chinese New Year approaching, there is an expectation of cargo rolling into February and March.

Tobias Burger, COO of Dachser Logistics, predicts continued equipment shortages after Chinese New Year, with extended transit times affecting container repositioning. Congestion at certain ports is also expected, potentially leading to the return of warehouse solutions like building up buffer stocks. Rates are likely to remain elevated beyond the first quarter due to increased operating costs for carriers, primarily driven by higher bunker consumption.

Drewry’s worst-case scenario envisions a full-year avoidance of the Suez in 2024, resulting in a 30% increase in trade distance for a significant portion of container ship capacity. This could reduce effective capacity by 9%, maintaining a heavily oversupplied market with a global supply-demand index reading of 82.

In the best-case scenario, if trade resumes through the Suez soon, normal market dynamics are expected to quickly return, leading to a decline in prices.


Source: JOC