The climate of turmoil that has overshadowed the flow of trade between Asia, Europe and the US in recent weeks is likely to weigh on global ocean shippers all through 2024.
Shipping giants like Maersk are expecting significant disruptions — from wars to droughts — to affect key routes like the Panama Canal and knock complex vessel schedules out of sync.
The disruptions will affect giant container ships, fuel tankers and other commodity haulers, resulting in longer delays and higher costs for retailers like Walmart, IKEA and Amazon, as well as food makers such as Nestle.
“This is seemingly the new normal,” said Jay Foreman, CEO of Florida-based Basic Fun, who sends toys from factories in China to Europe and the United States.
“These waves of chaos that seem to rise and fall. Before you get back to some level of normalcy another event happens that sort of throws things out of whack.”
The sea leads to the vital Asia-Europe Suez Canal route, which handles more than 10% of total ocean shipments and nearly one-third of the world’s container trade.
Iranian militants have been attacking vessels in the area in a show of support for Palestinian Islamist group Hamas fighting Israel in Gaza.
But as the conflict continues to deepen, freight carriers face the risk of a possible expansion of Red Sea attacks to the Arabian Gulf, which could affect oil shipments.
Further souring of China-Taiwan relations could also affect important trade lanes, said Peter Sand, chief analyst at freight data provider Xeneta.
Meanwhile, Russia’s war in Ukraine continues to affect the grains trade since it invaded its neighbour in 2022.
Spiking shipping costs
While tankers carrying oil and fuel supplies for Europe continue to pass through the Suez Canal, most container ships are rerouting goods around Africa’s southern tip — a much longer and costlier route.
Suez Canal diversions have sent ship owners’ fuel costs up by as much as $2 million per round trip.
The Asia-Europe spot rate has also more than doubled from 2023’s average to $3,500 per 40-foot container.
The increased costs could translate into higher prices for consumers, considering the shipping industry handles 90% of global trade.
Goldman Sachs said on Friday, however, that the inflation shock should not be as bad as the 2020-22 pandemic chaos.
“The first quarter is gonna be a little crazy for everybody’s books” when it comes to costs, said Alan Baer, CEO of OL USA, which handles freight shipments for clients.
Climate change in the mix
Meanwhile, increasingly frequent severe weather events are having a more immediate effect on the shipping industry than political tensions.
Crossings through the Panama Canal — a Suez Canal alternative — are down 33% due to lower water levels, according to supply chain software provider project44.
Such restrictions helped send dry bulk shipping costs for commodities like wheat, soybeans, iron ore, coal and fertilizer sharply higher in late 2023.
Brazil also suffered a double-whammy of a historic drought on the Amazon and excessive rains in the north of the country that contributed to a longer-than-usual ship queue at the port of Paranagua in late 2023 just months ahead of peak soybean shipping season.
“You can always say, ‘It’s a one-off event,’” said John Kartsonas, managing partner at Breakwave Advisors, the commodity trading advisor for the Breakwave Dry Bulk Shipping ETF.
“But if the one-off events happen every other month, they’re not anymore one-off events.”
- Reuters, with additional editing by Vishakha Saxena