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No Smooth Sailing Ahead
Shipping freight rates are likely to sustain upward trend due to Red Sea disruptions and geopolitical tensions
The shipping industry still faces challenges heading into the peak season.
THE shipping industry is passing through a challenging phase and unlikely to see smooth sailing in the second half of 2024 due to Red Sea disruptions and geopolitical tensions, according to reports.
S&P Global Market Intelligence latest data shows that freight rates have continued to climb, up 59.7 per cent on North Asia-to-Northern Europe routes since April 19 and up 87.9 per cent on North Asia-to-East Coast routes in the same period.
“Rate increases will likely spread to other routes as carriers look to reallocate capacity around disruptions,” according to the report.
The shipping industry still faces challenges heading into the peak season. A.P. Moler-Maersk A/S notes that there is an ‘industry-wide capacity loss of 15-20 per cent on the Far East to North Europe and Mediterranean market the second quarter’ caused by Red Sea disruption.
Other carriers like ZIM Integrated Shipping Services Limited have elaborated on the prevailing situation, saying that the disruptions are “absorbing some of the overcapacity in the market and driving freight rates”.
Container xChange, the world’s leading platform for container trading and leasing pointed out another important issue causing higher freight rates. Its latest data shows that container leasing rates Ex China to the world’s largest economy US and to Europe continued to rise through April as ‘containers depot owners’ reported increased costs in two major heads since Red Sea disruption — equipment usage fees and storage space rentals. “Other overheads that have witnessed cost increase over the past five months include administrative fees, container handling charges, daily and monthly storage fees, demurrage fees, and security and surcharges fees,” according to Container xChange survey.
UNCERTAINTY CONTINUES
Sreekumar Sivasankaran, Director-Commercial at Dubai-based Globelink West Star Shipping, said some customers may also experience shortage of containers and space availability issues for the short term due to longer transit time.
Sreekumar Sivasankaran, Director-Commercial at Dubai-based Globelink West Star Shipping, said spike in ocean freight rates started with disruptions in the Red Sea region.
“Diversions pushed up the cost and turnaround cycle for containers and ships increased anywhere between 20 to 30 days additional to the usual transit time especially to Europe and US trade. Most of the trans-shipment hubs are reporting congestion also triggering the freight increases,” Sivasankaran told BTR.
He said some customers may also experience shortage of containers and space availability issues for the short term due to longer transit time.
In reply to a question, he said volatility may continue throughout the year as the situation in the Middle East and the West Asia is still unstable.
“Stability in the market or shipping industry is purely dependent on the geopolitical situation. At present this seems to be unpredictable, and this un-predictability can also bring more opportunities for the stakeholders,” he said.
About the challenges for freight forwarders in the UAE, he said severe competition is predicted for the second half due to Red Sea disruptions and geopolitical tensions.
In reply to a question, he said the UAE’s strategic location benefits the shipping lines and freight companies in terms of building a strong network connecting East and West.
“Dubai has always been a beneficiary of its location, where the government supports ease of doing business, new ideas and security. The UAE being a champion on inclusiveness, with more than 140 nationalities working together, everyone who invest is promised with growth,” Sivasankaran said.
Industry experts said volatility in freight rates will continue in the second half of 2024, and the industry as a whole is unlikely to see stable pricing trends despite the recovery in global economy. They said the impact of rising shipping freight rates on inflation can be significant.
“When the cost of shipping goods increases, businesses are likely to pass those costs onto consumers in the form of higher prices. This can trigger a chain reaction of rising prices throughout the economy, leading to increased inflation,” says an analyst.
He said consumers may end up paying more for everyday products, which can reduce their purchasing power and overall economic well-being. “Additionally, businesses may struggle to absorb the higher costs, leading to lower profits and potentially job losses. Ultimately, the rise in shipping freight rates can contribute to a cycle of inflation that affects everyone in the economy,” he said.
— muzaffarrizvi@khaleejtimes.com
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