Red Sea location

The Red Sea is the only way for ships to travel between the Atlantic and Indian Oceans. It is located at the junction of the two continents of Asia and Africa. Its southern end connects the Arabian Sea and the Indian Ocean through the Bab el-Mandeb Strait, and its northern end connects with the Mediterranean Sea and the Atlantic Ocean through the Suez Canal. The route through the Bab el-Mandeb Strait, the Red Sea and the Suez Canal is one of the busiest shipping routes in the world. The Suez Canal should currently be the largest transportation artery in the world, especially when the Panama Canal is currently facing severe water shortages and reduced navigation capacity. As the main navigation channel for Asia-Europe, Asia-Mediterranean, and Asia-Eastern United States routes, the Suez Canal, its impact on global trade and shipping is increasingly important. According to the Neue Zürcher Zeitung, approximately 12% of global cargo transportation passes through the Red Sea and Suez Canal.

Cause of crisis

Since the outbreak of a new round of Palestinian-Israeli conflict, Yemen's Houthi armed forces have frequently launched missile and drone attacks on Israel on the grounds of "supporting Palestine" and have continuously attacked ships "associated with Israel" in the Red Sea. In view of the increasingly frequent news of commercial ships being attacked near the Red Sea-Mandeb Strait, many shipping giants around the world - Swiss Mediterranean, Danish Maersk, French CMA CGM, German Hapag-Lloyd, etc. have announced to avoid the Red Sea route. As of December 18, 2023, the world's top five international shipping companies have announced the suspension of sailings on the Red Sea-Suez waterway. In addition, COSCO, Orient Overseas Shipping (OOCL) and Evergreen Marine Corporation (EMC) also said that their container ships will suspend sailings in the Red Sea. At this point, the world's major container shipping companies have started or are about to suspend sailings on the Red Sea-Suez route.

The Red Sea crisis has restricted bookings on all westbound routes in East Asia, including to the Middle East, Red Sea, North Africa, Black Sea, eastern Mediterranean, western Mediterranean and northwest Europe.

Impact on container transport

The common problem currently faced, in addition to rising costs, is the lack of space. Shipping company capacity is tight, ocean freight has skyrocketed, and the huge gap in empty containers has resulted in a large number of dangerous goods (containing lithium battery cargo) being refused bookings. Priority is given to general cargo on board. Shipping lines have begun requiring cargo originally destined for the Red Sea to be rerouted around the Cape of Good Hope. This means that the original freight consignment needs to be adjusted and the transportation time needs to be extended.

If the customer does not agree to the diversion, they will be asked to empty the cargo and return the container. If the container remains occupied, additional charges for extended use must be paid. It is understood that an additional US$1,700 will be charged for every 20-foot container, and an additional US$2,600 will be charged for every 40-foot container.

Solution

1. Detouring around the Cape of Good Hope at the southern tip of Africa will add about 7-10 days. Detouring means increased navigation costs, longer shipping days, and corresponding delay in delivery time.

2. Waiting for the Red Sea to open. However, in view of the uncertainty of resumption of sailing, the shipping company has issued a notice asking customers to make a choice, either to return the container or agree to change the route. If the container is not returned, additional container usage fees must be paid. And merchant ships entering the southern Red Sea or Gulf of Aden routes need to purchase additional war insurance. Nearly 1 million TEUs are currently stranded in the Red Sea awaiting instructions. Once the ship's arrival time is delayed, it will have an impact on subsequent ships' arrival at the port, and traffic jams, cargo backlogs, etc. may occur.

3. China-Europe train. Starting from Yiwu and passing through Kazakhstan, Russia, Belarus, Poland, Germany, France, and Spain, the China-Europe freight train can solve the urgent need. The freight for a container is about 6,000 US dollars. Although it is slightly higher than sea freight, it is faster and only takes 18 to 20 days to be delivered to Europe, which saves time. At present, the number of inquiries about the China-Europe freight train business has more than doubled, and some trains are now out of stock and cannot be booked.

4.Arctic sea lanes. With the Asia-Europe route blocked, some experts interviewed mentioned the Arctic passage, the shortest sea voyage connecting China and European countries. The Arctic Sea Route is a navigation route from northern Russia to the North Pole. Once it is opened to navigation, it will be the third east-west route between Asia and Europe. China, Russia and other Arctic countries are discussing jointly developing an Arctic waterway that would allow East Asian countries to reach other countries' ports closer than through the Suez and Panama Canals. However, because the waterway is close to the North Pole, you must pay attention to the possible risks of ice, extreme winds, and storms in the waterway. "

Tips

In view of the current situation of the Red Sea, it is expected that the volume and price of subsequent rail and air freight will increase. It is recommended that customers discuss and deploy solutions with freight forwarding companies as soon as possible based on their respective needs and respond early.