Rising Maritime Freight Rates Due to Houthi Attacks... Growing Supply Chain Concerns

Freight Rates Soar from $1,200 to $7,000
Panama Canal Drought, US-China Tensions, and Strikes Combine

Global maritime freight rates are rising due to attacks on Red Sea vessels by Yemen's Houthi rebels.

On the 24th (local time), The New York Times (NYT) reported, citing freight analysis company Xeneta, that the cost of transporting a standard 40-foot container from China to Europe has surged from $1,200 in October last year to recently $7,000.

British destroyer operating in the Red Sea
[Photo by Yonhap News]

Although this is lower than the $15,000 recorded at the end of 2021 during the COVID-19 pandemic, it is about five times the pre-pandemic price.

Rates for transporting goods across the Pacific are similarly expensive. Freight from Shanghai, China, to Los Angeles, USA, is $6,700, and to New York, $8,000. Until December last year, it was $2,000, meaning it has tripled in six months.

The Wall Street Journal (WSJ), citing Freightos, reported that the cost of transporting a 40-foot container has more than tripled compared to a year ago and is the highest since September 2022. WSJ stated, "As companies compete for scarce vessel space, the price of transporting a 40-foot container could surge close to the pandemic levels when freight rates exceeded $20,000."

Peter Sand, Xeneta's chief analyst, predicted further increases in freight rates, saying, "I do not think we have reached the peak yet."

The biggest recent factor driving up maritime freight rates is that Yemen's Houthi rebels, who support Palestine in the Gaza conflict, have targeted vessels passing through the Red Sea. Recently, two ships passing through the area, including a Greek-owned vessel carrying coal, sank. As a result, instead of passing through the Suez Canal?the shortest route between Asia and Europe?ships are detouring around the African continent, increasing fuel consumption and extending transit times. This has made freight cost increases inevitable.

Additionally, the Panama Canal, located between North and South America, experienced reduced water levels due to drought, temporarily decreasing the number of vessels passing through and increasing waiting times. Although restrictions have eased due to recent monsoon rains, concerns remain.

Trade conflicts have also compounded the situation. The Biden administration's significant tariff hikes on Chinese products have led some U.S. importers to greatly increase orders. Furthermore, concerns have grown over potential strikes by port workers on the U.S. East and Southeast coasts.

With these overlapping issues, importers who experienced supply chain disruptions during the pandemic are securing inventory early, fearing further freight rate increases. WSJ noted, "Importers and exporters are most concerned that demand will rise in the coming months ahead of the peak season, increasing the volume of reserve stock."

Jonathan Roach, a container shipping analyst at Braemar, said, "Shippers are booking earlier and reserving more containers than usual, causing a surge in cargo volume. If congestion worsens, more cargo bookings could exacerbate the situation."

Rising freight rates are also impacting corporate earnings. UK-based DFS Furniture halved its profit forecast this month. The company stated, "Ongoing issues with the Red Sea route have delayed customer deliveries and increased freight costs," adding that nearly $18 million worth of goods have been delayed.

Along with rising freight rates, shipping companies are canceling bookings or demanding additional fees such as special handling charges or premium service fees to load containers, intensifying the pain for exporters and importers.

NYT said, "The pandemic's outcomes were hard to grasp, and the impact on product demand was miscalculated, but everyone understood that the pandemic would eventually end. In contrast, the impact of Houthi rebel attacks on the Suez Canal involves unpredictable and enormous geopolitical variables."

Shipping companies expect logistics and freight rates to normalize once geopolitical tensions ease. Nils Haupt, spokesperson for Hapag-Lloyd, said, "Once the Gaza conflict is resolved and vessels return to the Red Sea, trade flows will return to normal," adding, "There is additional capacity, so freight rates will fall."