New Freedom, PA.– January 4, 2024 – Nexterus, a world-class supply chain management and third-party logistics (3PL) services provider, is helping its international clients understand the recent challenges of shipping in the Red Sea due to geopolitical issues. Many container shipping companies are diverting ships from the Red Sea due to recent attacks by Houthi militants. Nexterus will help clients find alternative shipping routes to move their goods.
“The closure of the Red Sea, a vital trade route, initiates a cascade of repercussions with significant implications for the Transpacific trade lane,” says Lisa Flohr, Director of Operations at Nexterus. “As uncertainties unfold, Nexterus will provide opportunities to conquer the ever-evolving landscape of the shipping market.”
The Houthis in Yemen have sworn to attack any ships destined for Israel in the Red Sea. All vessels wanting to use Egypt's Suez Canal to cut between Europe and Asia are in danger zones and rerouting carriers around the Cape of Good Hope in Africa. The diverting of ships from the Red Sea will cause backups at other ports, shortages of vessels not in the right location, and 10 – 14 extra days to voyage times.
Significant challenges for international trade include:
Impact on Westbound Routes
- Immediate consequences: Restricted bookings on westbound routes.
- Affected regions: Middle East, Red Sea, North Africa, Europe, the East, the Black Sea, and the West.
- Domino effect: Triggered a surge in freight rates.
- Potential crisis: Indicates the onset of a potentially prolonged crisis.
- Broader westbound routes: The article primarily addresses the implications for these routes.
- Attention to the U.S. market: Highlights the interconnected nature of global trade.
- Interconnected nature: Disruptions in one region can influence distant markets.
Impact on the Eastern United States
- Initial diversion: Due to Panama Canal congestion, the route initially diverted to the Suez Canal will go towards the Cape of Good Hope.
- Suboptimal choices: Now faces a dilemma between bypassing the Cape of Good Hope or returning to the Panama Canal with potential queuing delays.
- Increased costs: Both options entail increased costs.
- Panama Canal's commitment: Despite the commitment to enhance traffic capacity in January, it falls short of providing a fundamental solution.
- Extended transit time: The travel time to reach the East United States is poised to increase by 10 – 14 days.
- Potential freight rate hikes: This increase is likely, especially given the persistent traffic constraints at the Panama Canal, with the estimated GRI of $800/$1,000 of 20GP/40'/HQ.
Indirect Effects and Global Shipping Dynamics
- Cape of Good Hope Impact: Circumnavigating the Cape of Good Hope elongates voyage distances and subtly absorbs transportation capacity.
- Global Shipping Capacity Reduction: Sea-Intelligence estimates a 5.1%-6% reduction in global shipping capacity, equivalent to 1.45-1.7 million TEU.
- European Shipping Schedules: Companies may need to increase ship numbers on each route to maintain schedules.
- Strategic Reshuffling: The crisis prompts strategic reshuffling, reminiscent of past trends redirecting ships from European to U.S. routes during surges in freight prices.
- Rising Freight Rates on the European Route: Coupled with rising freight rates on the European route, companies face critical decisions.
- Impact on U.S. Line: The unfolding crisis poses crucial decisions for shipping companies, influencing the delicate balance of supply and demand on the U.S. line.
- Potential Uptick in Freight Rates: Decisions made during the crisis may lead to a significant uptick in freight rates on the U.S. line.
Additional Challenges for the Eastern United States
- Labor Relations Turning Point: Traditionally, harmonious labor relations face a turning point in both East and West unions.
- U.S.-Western Union Contract: A new U.S.-Western Union contract, negotiated over a year, promises substantial wage increases.
- Ripple Effect on East American ILA Union: The ripple effect of wage increases extends to the East American ILA union, prompting discussions of a strike in October 2024.
- Unique Challenge for Shipping Companies: The timing of negotiations, concluding in August this year, presents a unique challenge for shipping companies.
Seizing Opportunities Amid Uncertainties
- The Red Sea crisis and potential strikes and labor negotiations create a complex scenario.
- Every challenge presents an opportunity, with shifting dynamics offering risks and rewards.
- The looming strike threat in the Eastern United States could expedite the return of cargo volume to the US-West Terminal.
- Large importers may consider advanced shipment plans or opt for the West Coast route to mitigate potential strike risks.
- The rising demand for fast ships, for example, ZEX of ZIM/ CLX of Matson/EXX of CMA, in August and September, emphasizes the importance of timely and reliable shipping.
“This is a monitor, update type of situation, and Nexterus will stay up on the current events and work with and update our clients continuously to help them move their goods,” adds Flohr. "The only alternative route would be rail from the West Coast as air is too cost prohibitive. There will be port delays in the West Coast region again, which will back up the rail. Then, we are going into the winter months, further delaying rail traffic due to weather. This is the 'perfect storm' in ocean shipping, and the steamship lines have the upper hand again. We already hear in the marketplace that steamship lines have added many GRIs and re-instated a peak season surcharge before Chinese New Year.”
About Nexterus
Nexterus solves urgent and complex supply chain issues, applying expertise and technology to manage and optimize global supply chains. As America's oldest private, non-asset-based, 3PL, Nexterus helps small & medium-sized companies better compete.
