To get an immediate reaction to these developments, we talked to Dr. Fabian Struck, Chief Commercial Officer of transportation and technology solutions provider Forto.
First off, we quizzed Struck on what actions carriers have taken since the events that unfolded late last week.
Although live tracking data has shown a significant re-routing of container ship traffic around the African continent, Struck told Trans.INFO that diverse range of options are being taken into consideration:
“The carriers are reacting differently with some of them rerouting all their vessels while others are adopting a “wait and see” position. And it is not so that every carrier applies a “one fit all” policy; rather, they decide on a vessel per vessel basis, probably anticipating the consequences each rerouting might have on capacity and equipment in the coming weeks.”
What will carriers and shippers have been deliberating since last week’s events? According to Struck, they’ll have been keen to visualise the situation and then take appropriate action – possibly looking into alternatives to the longer shipping route around Africa.
“At the moment, the absolute priority for carriers and their customers is to have visibility over the situation. In the last 72 hours getting this right has been one of the biggest challenges. Only with visibility on where your vessel and / or your shipment is, can you decide which one you should prioritise. Alternative transport options include rail freight, or a sea-air combination. The latter option comes with higher costs and emissions but it also allows for critical cargo to be delivered to Europe within 2-3 weeks,” said the Forto CCO.
In those instances when a combination of air and sea freight is attractive, where could the modal switch more commonly take place?
Struck believes India could be a strong candidate:
“UAE is one option, but another that is even faster and also easier from a geopolitical standpoint is to ship to India and then fly goods into Europe from there.”
Another inevitable consequence of the problems in the Red Sea, as emphasised by Struck, will be higher shipping costs:
“I think we’ll see rate increases in the upcoming weeks stemming from a combination of higher operating costs for the vessels that detour eg fuel and insurance, as well as a reduction in supply .For the operating costs, we’re talking seven-figure amounts for just one vessel,” said Forto’s CCO:
As for the supply situation, Struck said:
“When it comes to supply, a reduction here will drive the prices up too – especially ahead of peak season ahead of the Chinese New Year..”
Rowing-back on blank sailings and slow-steaming
In recent weeks, the widely-accepted anticipation among sea freight analysts had been that 2024 would see shipping lines increase blank sailings and slow steaming, thereby reducing supply and operating costs respectively.
However, the Forto CCO now anticipates that the opposite could actually happen:
“My expectation is that besides prices rising, there will also be a drive to bring back capacity as much as possible. So that could mean things like we don’t have the same amount of blank sailings we typically see after the Chinese New Year. Another development we may see is that due to the better rates, vessels going around Africa may be taken off slow steam mode to save 3-4 days and be back in Asia sooner.”
Comparisons to the Evergiven accident
Is what we are seeing now similar to the Evergiven situation? “I think there are arguments to say it is,” Struck told Trans.INFO.
“The Evergiven blocked the Suez for 6 days. Now with this, we’re already on day 5 [Thursday, December 21st]. As a result of the disruption, there’s higher transit times and more stress on the supply side – not only vessels but also containers. We also know that it often only takes one or two bottlenecks in the ecosystem of the supply chains to bring the entire system into instability,” added Struck.
However, one major difference, as highlighted by Struck, is today’s global economic situation compared to March 2021:
“During COVID, we had a significantly higher demand for cargo as consumers were buying everything they could use for their households.This is not the case anymore,” said Struck.
Just how severe will the impact of the Red Sea crisis be? Struck wouldn’t be drawn on a definitive answer, stressing that it is “too early to say”. The key determining factors, according to Forto CCO, will be how long passage through the Red Sea remains an issue, and how much operating costs increase as a result.
Photo: jgmorard / Flickr / CC BY 2.0 DEED