Asian suppliers for global retail chains have been racing to reroute cargo away from the Suez Canal after attacks on vessels in the Red Sea, despite US moves to counter the threat from militant groups in Yemen and the Middle East.
Some major shippers such as Maersk and France’s CMA CGM said this week they are looking to increase the number of vessels sailing through the canal, after the deployment of a US-led operation to protect vessels.
But other groups such as Germany’s Hapag-Lloyd are waiting to see if the international response to Houthi attacks on Red Sea shipping is effective.
Hapag-Lloyd still considers the situation too dangerous to pass through the Suez Canal, a spokesperson for the company said on Wednesday, adding that it would continue to reroute its vessels via the Cape of Good Hope.
“We continuously assess the situation and plan a next review on Friday,” the spokesperson said.
US allies uneasy about involvement in task force
The status of the US-led maritime force has been clouded by the fact that some US allies appear reluctant to acknowledge they are part of Operation Prosperity Guardian.
The Pentagon says the force is a defensive coalition of more than 20 nations to ensure billions of dollars’ worth of commerce can flow freely through a vital shipping chokepoint in Red Sea waters off Yemen.
But nearly half of those countries have so far not come forward to acknowledge their contributions or allowed the US to do so. Those contributions can range from dispatching warships to merely sending a staff officer.
The EU signalled its support for the maritime task force with a joint statement condemning the Houthi attacks. And while Britain, Greece and others have publicly embraced the US operation, several mentioned in the US announcement were quick to say they are not directly involved.
Italy and Spain issued statements appearing to distance themselves from the maritime force. This partly reflects the division created by the conflict in Gaza, amid harsh international criticism over Israel’s military offensive, which Gaza’s health ministry says has killed more than 21,000 Palestinians.
The Iran-backed Houthis have attacked or seized a dozen ships with missiles and drones since November 19, trying to inflict an international cost over Israel’s campaign, which followed the October 7 rampage in southern Israel by Hamas militants that killed 1,200 people and took 240 hostage.
A third of container ships affected
The impact on hundreds of companies has been notable. The US-based Basic Fun, which usually ships toys from its factories in China to Europe via the canal – the quickest route for container vessels from Asia, is one supplier prepared to pay additional cost for products shipped from China on vessels that will travel around Africa to Europe or the UK.
The toymaker’s team that oversees shipments of Tonka trucks and Care Bears for Walmart and other retailers has opted to route cargo away from the Suez Canal.
And suppliers for the likes of IKEA, Home Depot, Amazon and retailers around the world are doing the same as businesses grapple with the biggest shipping upheaval since the Covid pandemic threw global supply chains into disarray, sources in the logistics industry said.
Florida-based Basic Fun usually ships all Europe-bound toys from its China factories via the Suez Canal, CEO Jay Foreman said in a telephone interview from his Hong Kong office.
That trade route is used by roughly one-third of global container ship cargo, and re-directing ships around the southern tip of Africa is expected to cost up to $1 million extra in fuel for every round trip between Asia and Northern Europe.
Yemeni Houthis’ drone and missile attacks in the Red Sea to show their support for Palestinian Islamist group Hamas fighting Israel in Gaza have upended the plans of multiple suppliers and the cargo sector.
Other vessels have allegedly been targeted by drones from Iran for the same reason, the US has alleged. That incident led to India saying it will send three guided-missile destroyers to the Arabian Sea to deter any further attacks.
Scramble for space as shipping rates shoot up
Basic Fun is now working through the holidays to send toys from China to ports in the UK and Rotterdam via the the longer route.
It is also diverting some goods bound for ports on the US East Coast from the Suez Canal to the drought-choked Panama Canal, while switching others to the West Coast via the direct route across the Pacific Ocean.
“It’s just going to take longer and it’s going to cost more,” said Foreman, who added that rates for some China-UK freight have more than doubled to around $4,400 per container since the Israel-Hamas conflict began in October.
The Suez Canal situation remains fast changing, and shippers Maersk and CMA CGM are moving to resume voyages with military escorts through the Red Sea.
The biggest impact likely will come over the next six weeks, said Michael Aldwell, executive vice president of sea logistics for Switzerland’s Kuehne + Nagel.
“You can’t flick a switch” and reorganize global shipping, said Aldwell, who expects the diversions to cause a shortage of vessel space, strand empty containers needed for China exports in wrong places and send short-term transport price indexes sharply higher.
364 vessels had to change course
As of Wednesday, nearly 20% of the global container fleet – or 364 container vessels capable of carrying just over 2.5 million full-sized containers – had been set on a new course due to the Red Sea attacks, according to Kuehne + Nagel data.
Vessel owners already have begun rationing the less expensive, contract-rate space they reserve for customers, said Anders Schulze, head of the ocean business at digital freight forwarder Flexport.
For example, he said, a customer who delivers five containers a month versus the 10 promised in their contract may only get five containers at contract rates. The remainder would be subject to expensive spot market rates.
This has set off a scramble to reserve space ahead of the early February deadline to get goods out of China before factories there close for the extended Lunar New Year celebrations, logistics experts said.
“Every single booking (out of China) now needs to be reconfirmed. The dates could change, the routing may change,” said Alan Baer, CEO of OL USA, which handles freight shipments for clients. OL has contracts with ship owners and is part of the rush to secure spots on ships.
Small shippers are most at risk of being elbowed out.
Marco Castelli, who has an import/export business in Shanghai, has been trying to rebook three containers of Chinese-made machinery components bound for Italy after the shipments were cancelled due to the crisis.
“Transfer my situation to a large corporation and you get what’s going on,” he said.
Foreman at Basic Fun, which plans to have about 40 containers on the water before the Lunar New Year, said the company’s contracts with customers don’t include a way to recover the extra expense. “The price is fixed. (Most suppliers) are going to have to eat those costs.”
- Reuters with additional editing by Jim Pollard
NOTE: Additional details were added on December 28, 2023 (re Indian warships).