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Worries regarding rising container shipping costs following incidents in the Red Sea

    Ships facing the threat of Houthi attacks are confronted with the dilemma of either paying exorbitant insurance premiums or opting for an alternative route around Africa to avoid the risk. Over the past two months, a relentless series of missile and drone attacks by Houthi militants in the Red Sea has presented a challenging decision for shipowners utilizing the Suez Canal. This decision involves either risking elevated insurance costs due to the possibility of airborne strikes or choosing the longer route around Africa, disrupting schedules and incurring higher fuel expenses.

    The prevailing situation of freight rates can be attributed to the ongoing conflict in the Red Sea

    These attacks, occurring at a critical juncture responsible for managing 12 percent of global trade, including nearly one-third of the world's container ship traffic, have already led to shutdowns at European auto plants and sparked concerns about potential increases in consumer prices.

    The prevailing situation of freight rates can be attributed to the ongoing conflict in the Red Sea

    The extensive rerouting of container ships around Africa's Cape of Good Hope led to a surge in spot rates, but it appears that the impact from the Red Sea conflict may have reached its limit.

    The upward momentum has slowed down, with rates in most lanes stabilizing. Several indexes for European routes have even experienced a pullback. The Shanghai Containerized Freight Index (SCFI) recorded a 2.7% drop in the week ending Friday compared to the previous week, marking the first weekly decline since late November.

    According to Jefferies shipping analyst Omar Nokta, "The squeeze in freight rates into Europe continues to abate from high levels, though freight rates in other regions remain firm."

    The current dynamics in the freight rate landscape differ significantly from the pandemic-induced boom. The supply chain crisis of 2020-2022 was primarily driven by demand, as consumers increased their purchases during the pandemic. However, the current surge in rates is propelled by supply issues.

    The diversion of liners around the Cape of Good Hope prolongs voyage times, affecting the supply of ships and container equipment. Nevertheless, as liners adjust their schedules to accommodate these longer routes, rates should theoretically stabilize, unless there is a surge in demand.

    Container lines are set to receive a record number of new ships this year, providing additional vessel supply to handle the extended routes. Additionally, the upcoming Chinese New Year holiday in early February is expected to temporarily limit vessel demand, potentially easing the pressure on rates.

    👉 See more: Mounting delays and increased costs are putting pressure on Chinese exporters due to the recent shipping attacks in the Red Sea

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