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Updated: Asia-Europe freight: amid the Red Sea crisis, what options do shippers have?
Photo: container ships docked at the port of Durban in Sotuth Africa. Credit: Axel Bührmann / Flickr / CC BY 2.0 DEED

Updated: Asia-Europe freight: amid the Red Sea crisis, what options do shippers have?

The continuing dangers presented by the actions of the Houthi Rebels in the Red Sea has led to most major carriers deciding to sail around Africa instead of going through the Suez Canal route. This inevitably means longer delivery times, while container freight rates have also shot up due to the crisis. Amid this disruption, what are the alternatives? Unfortunately, the picture is far from simple, with no option being absolutely foolproof.

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Gregor Gowans

Gregor Gowans

Journalist Trans.INFO

16.01.2024

The continuing dangers presented by the actions of the Houthi Rebels in the Red Sea has led to most major carriers deciding to sail around Africa instead of going through the Suez Canal route. This inevitably means longer delivery times, while container freight rates have also shot up due to the crisis. Amid this disruption, what are the alternatives? Unfortunately, the picture is far from simple, with no option being absolutely foolproof.

Updated: Asia-Europe freight: amid the Red Sea crisis, what options do shippers have?
Photo: container ships docked at the port of Durban in Sotuth Africa. Credit: Axel Bührmann / Flickr / CC BY 2.0 DEED

Here, we summarise the current situation in the maritime sector and look at the various options available for Asia-Europe freight, including sea freight services around Africa as well as numerous other alternatives.

The situation as it stands

At the time of writing, pretty much all major shipping lines are avoiding the Red Sea due to the danger presented by the Houthi Rebels in Yemen.

This decision comes despite some Western nations participating in the Operation Prosperity Guardian initiative designed to protect container shipping in the Red Sea.

Before the events in the Red Sea unfolded last month, forecasters had predicted 2024 would be a year of low freight rates – particularly due to the oversupply of capacity.

In its latest ‘Freight Loop’ update, Drewry said it believes there is “ample capacity to deal with the resulting congestion, equipment shortages and gaps to schedules”.

Nevertheless, Philip Damas, Group Managing Director and Head of Drewry Supply Chain Advisors, added in the update that there is currently “very limited capacity available from Asia to Europe and even less capacity available to the Red Sea from Asia, Europe or the US.”

Damas even went on to say that there is “something of a panic” in China at the moment when it comes to capacity.

Moreover, Damas noted that longer sailing times would “create supply chain difficulties for Mediterranean exporters and importers, and even longer delays for shippers moving cargo, for example, from the Mediterranean to the Red Sea”.

According to Drewry’s Head of Supply Chain Advisors, the Red Sea delays and ship diversions “will also cause ships to cluster at ports, leading to port congestion, worsening equipment shortages and gaps in sailing”.

This, in turn, may significantly impact global supply chains in Damas’ opinion. Therefore, he argues carriers must adjust schedules and networks, and may have to add more ships to achieve weekly or nearly weekly service frequency.

Elaborating on the topic this morning via LinkedIn, Vespucci Maritime CEO Lars Jensen said:

“Every week there is approximately 390,000 TEU loaded from Europe and USEC going to Far East as a mix off full and empties. The impact of the round-Africa change means that 780,000 TEU of containers less will arrive in Far East in time for the beginning Chinese New Year peak over the next 4 weeks. This can create shortages in key locations. The supply/demand crunch is therefore less a matter of ships and more a matter of equipment. In turn this also means that all export trades out of Far East will feel this impact and not just those who usually go through Suez.”

The good news, says Jensen, is that things are expected to stabilise following the Lunar New Year on February 10th.

Meanwhile, there have been reports that the shipping lines are trying to communicate with the Houthis in order to have safe passage through the Red Sea, while some shipping lines have reportedly decided to avoid Israeli ports so as to reduce their risk exposure.

However, as it stands, few large container ships are passing through the Red Sea than normally would be the case.

Sea freight around the Cape of Good Hope

The first and most obvious option is simply to snub alternative routes and accept that it will take significantly longer for cargo from Asia to reach Europe.

The diversion around the Cape of Good Hope is estimated to see goods arrive in Europe 10-12 days later than is normally possible through the Suez route. This is on top of the 30-45 day transit time Maersk says one should allow for goods shipped from China to Europe.

The longer sailing times are not the only problem either. Shipping lines will have to deal with the dangers of the Indian Ocean, which presents rougher seas, and the threat of pirates in some areas on the African coastline. Insurance costs will also be higher than the old-status quo just a few weeks ago.

The crisis means Asia-Europe sea freight will cost more too. This was illustrated again yesterday when MsC updated its prices for Asia-Europe freight. Back on December 11th, the company announced prices of $,2900 per 40ft container transported from Asia to ports in the Western Mediterranean. The new price has been announced as $7,100 – more than double the amount that one would have anticipated prior to the crisis.

The recent expansion of the EU ETS system to include maritime emissions is another inflationary factor. According to recent analysis by Forto, the ETS charges on vessels sailing between Shanghai and Rotterdam will be over 80% higher for the Cape of Good Hope route than the Suez one (€34,142.75 compared to €18,823.23).

Despite all this, transporting goods via sea rather than air is still noticeably cheaper than by other transport modes. For those transporting large volumes, sea freight also has the upper hand over the air freight sector, which is more limited in terms of capacity.

Sea freight via the Red Sea and the Suez Canal

CMA CGM Arkansas (ship, 2015) 001

Photo credit: Ahmed Helal from Ismailia, Egypt, CC BY 2.0, via Wikimedia Commons

Given all of the above, one could understand the temptation to cut cargo transit times by transporting cargo via a carrier that’s still sailing through the Red Sea.

Shipping lines are constantly weighing up the risks of returning to route, though Maersk most recently reversed its decision to begin routing its ships through the Red Sea again. MsC and Hapag-Lloyd are also avoiding the route.

On the other hand, French shipping line CMA-CGM does still have a few vessels going through the Red Sea, largely thanks to the presence of France’s Navy. Moreover, some Asian shipping lines including Cosco also have some vessels still using the route.

However, the use of the Red Sea route entails significant insurance costs – not to mention the risk of cargo being on a ship that’s attacked or hijacked.

“If cargo does transit the Red Sea area, shippers need to make sure they understand to which degree their cargo insurance is valid,” stresses renowned shipping expert Lars Jensen.

Writing on LinkedIn just over a week ago, Jensen added:

“What if the worst happens and a vessel is lost due to an attack? (let us hope not, but this does have a non-zero likelihood). It is highly likely that this will cause the impacted carrier to declare General Average – which in turn would imply that the financial risk of such an event is placed more on the shippers (and their insurance companies) than on the carriers.”

To add to the complexity of the situation, Jensen also warned that shippers need to “carefully think through the actual operational realities on the ground, and their own insurance exposure.”

According to Jensen, some shippers could have cargo booked via a carrier that’s avoiding the Red Sea route, but has an arrangement with another carrier still sailing through Suez. Therefore, he states that there “is no practical way shippers can avoid such possible change in risk exposure for their cargo”. In his view, the onus is therefore on ensuring correct insurance coverage.

There is also the possibility that a container ship bound for the Red Sea may have to change course due to an escalation in security risk, leading to the kind of significant delays that affected vessels in the first few days of the service.

Additionally, besides the insurance issues and added risk, there is also the problem of limited capacity due to the significantly lower number of large vessels passing through the Red Sea.

UPDATE 16/01/2024:  due to the continuation of attacks by the Houthi Rebels, almost all container ships are now avoiding the Red Sea.

Rail freight – Northern and Western Corridors

Taking into account the delays encountered in maritime shipping at the moment, the option of rail freight and intermodal solutions has arguably become more attractive.

“In view of the recent challenges in maritime transport disruption, there has been a dramatic increase in customer inquiries about the train service from China and Europe. Most exporters are now using the rail route – a more reliable and efficient alternative to the sea route with a shorter lead time of about 16 to 18 days. The transport time with the China-Europe train is one-third of ocean freight while the price is just one-sixth of air freight. Customers can enjoy daily high-frequency rail connections between 217 cities in China to Central Asia and major 25 European countries through the New Silk Road,” an OOCL spokesperson told Trans.INFO.

Indeed, even before the events of the last few weeks, there has been evidence of China-Europe rail freight volumes rising again.

According to China State Railway Group, 16,145 freight trains ran between China and Europe between January and November 2023, carrying 1.75 million containers. The figures represent year-on-year increases of 7% and 19% respectively.

Transit times from China to Western Europe can be anything from 12-26 days depending on the operator and the route – significantly less than with sea freight.

On the flip side, the rail freight alternative means additional costs compared to sea freight, while there are capacity challenges too.

“The use of China-Europe freight trains is an option, but they run less often and often mean higher costs compared with ships,” said Gao Yangjiang, general manager of Ningbo Rapid International Freight Agency Co, in a recent piece by Chinese publication the Global Times.

Although more freight has moved towards the Middle Corridor due to Russia’s invasion of Ukraine, many trains are still operating on the Northern and Western Corridors.

The Northern Corridor sees freight pass directly from China into Russia at the Manzhouli-Zabaikalsk border. The shorter Western Corridor crosses the border from China into Kazakhstan at the Alashankou/Dostyk and Kohrgas/Altynkol crossings. The map above, produced by the Polish Institute of Road Transport (hence with Polish place names) illustrates some of the possibilities. 

One example is the service offered by Davies Turner. Active since 2019, it goes on the Western Corridor through Kazakhstan, Russia and Belarus before entering Poland and going on to Duisburg in Germany.

DHL Forwarding also offers a service on the same route, as well as on the Northern Corridor (via Russia, Belarus and into Poland).

In its 2023 Rail Freight Market Review, DHL Forwarding states transit times on its Xi’an-Duisberg Western Corridor rail freight service at 13 days. The company’s Chengdu-Duisberg service takes 20 days. Approximately 5.5 days of this are spent at border crossings.

As for pricing, an update published on January 3rd by China-based New Silk Road Intermodal Co.,Ltd stated that spot freight from Yiwu to European terminals such as Duiburg and Hamburg had rapidly risen to around $6,200, with few spaces available for booking in the first ten days.

Intermodal – Middle Corridor

Port of Baku in 2022

The Port of Baku – Asif Masimov (masimovasif.net), CC BY-SA 4.0, via Wikimedia Commons

For those who wish to avoid Russia in light of its conflict with Ukraine, the Middle Corridor has emerged as a more viable option.

According to a World Bank report on the Middle Corridor published in November, between March and October 2022, container traffic on this route increased substantially, totaling an increase of 33% in 2022 compared to 2021.

However, the research added that by March of last year, a significant proportion of this increase had been lost due “to operational inefficiencies and high cost along the corridor”.

The route varies depending on the operator. In the case of DHL forwarding, the Middle Corridor intermodal route passes through China and Kazakhstan before crossing the Caspian sea into Azerbaijan and reaching the EU via Georgia and Turkey. This service in particular takes 50-60 days.

What are the inefficiencies responsible for these longer transit times? The aforementioned World Bank report stated the shortcomings of the Middle Corridor include a lack of coordination and management, poor operational efficiency of the ports on the Caspian Sea, end-to-end railway infrastructure issues, delays at border crossings, and modern IT systems not uniformly being used or integrated.

Some of these problems were also referred to by Jakub Lewczuk, head of the railway department for the EU and China regions at Asstra, an international transport and logistics company, during a recent interview with Trans.INFO.

On the topic of the Middle Corridor, Lewczuk said:

“Moving the route south [to the Middle Corridor] requires significant investments in infrastructure and time for new international agreements regarding the transit of goods through these countries. If the infrastructure is improved, customs and formal issues between the Caucasian countries: Armenia, Azerbaijan and Georgia are sorted out, and more ships are built in the Caspian Sea, then perhaps this route will become popular. Additional investments are required from the European Union to avoid bottlenecks between the Black Sea and the EU. In particular, the port of Constanta in Romania and the railway and road lines in this region require expansion.”

Heinrich Kerstgens, Corporate Representative on the Director Board Projects at Rhenus, is another who sees potential in the Middle Corridor.

Kerstgens recently told Trans.INFO:

“I firmly believe that, in 10-12 years, 1 million TEU can be transported via the middle corridor in the medium term. It’s a viable option, especially for companies in western China. However, it should be seen as a complement to the northern corridor, just as the northern corridor complements the sea route. The Silk Road needs to increase its capacities due to the rapidly growing economies in Central Asia, crucial for Europe in diversification and resilience strategies for raw material supply and future markets.”

Therefore, one can conclude that although the Middle Corridor remains an option, its attractiveness will be limited by the aforementioned shortcomings for some time to come.

Air freight

Another alternative option is to invest in air freight to get goods from China into Europe very quickly. However, as we referred to earlier, the costs are significant.

“Some retailers choose to ship cargo directly by air from Fast East to Europe in terms of speed. Regular routes and destinations from Asia to Europe allow shippers to capitalize on the speed of air transportation for perishable goods, high-value commodities, or time-sensitive products in around 3 to 4 days. However, the cost of air freight is high, including weight, volume, fuel, security surcharges, or other charges factors, almost 3 to 4 times of sea and rail transport,” OOCL Logistics told Trans.INFO.

That said, although demand for air freight is forecast to rise, there has yet to be a boom in the sector.

In a recent press release, Xeneta, an Ocean and Air Freight Rate Analytics Platform, noted that the weekly market data for December showed the global average air cargo spot rate peaking at $2.60 per kg, up +6% on its November level, boosted by a +9% annual growth in demand.

The company nonetheless added that the general air cargo spot rate continued to record a double-digit year-on-year fall of -18%. This compares to a growth ratio of -25% in November compared to the previous year.

Commenting on the figures, Xeneta’s Chief Airfreight Officer, Niall van de Wouw, said:

“December 2023 data shows the market was slightly busier than anticipated, but we shouldn’t be tempted to draw too many conclusions from what happens in the final month of the year because the Christmas and New Year holidays make it an odd month.

Regarding how things could play out this year, Niall van de Wouw added:

“There’s still a lot of friction in the global supply chain market and that means there will be opportunities for some sectors. If big ocean carriers are not going through the Red Sea, it might delay a million or more containers, with all the knock-on effects. And the fact that you don’t know how long this situation will continue means some shippers will pay for the predictability of air cargo to lessen the impact of the current ocean freight disruption.”

When it comes to pricing this year, Freightos’ FAX Air Freight Index on January 7th was showing Southern Asia to Europe at $1.80 per kg, the same price as on Christmas Eve 2023.

Meanwhile, in another market analysis piece published on Friday, Bolloré Logistics said that ocean carriers who have air cargo aspirations will persist with their plans.

“To capitalise on the opportunities within this faster transport mode, shipping giants including CMA CGM, Maersk, and MSC continue to encroach on the downstream market for cargo canvassing,” read the company’s update.

Air and sea freight combination

Finally, one possibility that appears to be attracting more interest is the combined use of air and sea freight.

The multimodal solution allows for some reduction in cost courtesy of a significant part of the cargo transit being undertaken by ship. The second leg of the transit is then done via air, avoiding the Red Sea problems and reducing transit times significantly.

Speaking to Trans.INFO last month, Forto CCO Dr. Fabian Struck referred to India and UAE as possible locations where the modal switch could take place.

Moreover, Joacim Zetterdahl, Global Air Logistics Communications Manager at Kuehne+Nagel, believes that in the current climate, “multimodal transport solutions such as Sea-Air Logistics is a good way for shippers to avoid delays between Asia and Europe”.

Commenting to Trans.INFO, Zetterdahl even said that some freight from Asia could reach Europe via the US:

“By going via Dubai or Los Angeles by sea freight and from there into Europe by air freight, it is possible to avoid passing the red sea altogether. Many of our customers are increasing the use of this solution, or newly introducing it alongside their pure sea and air options, to avoid disruptions. We believe that multimodal transports should also be considered to be a natural part of any supply chain (where possible) due to the increased resilience and flexibility in case of disruptions, and the lower carbon footprint compared to regular air freight.”

According to OOCL Logistics, consumer goods companies such as apparel or electronics have raised inquiries on sea-air multimodal transport solution. The company states that cargo between the Far East and Europe would be first transported by sea to Dubai port and transferred by air freight.

However, OOCL Logistics adds that pricing is an issue here:

“At this moment, the sea-air option is less popular when compared to transit time and price. The rail freight from Asia to Germany costs around $4,200 within 16 days only whereas it takes approximately 19 days (including the customs process) on average at $4,600 for sea-air transportation. Also, complexity and accuracy have increased as there will be a need for trans-loading containers and handling customs clearance in Dubai, adding uncertainty to the process.”

Sea-Land Transportation in the Middle East

OOCL Logistics adds that another option businesses are now considering is combining ocean with inland transportation in the Middle East.

“As the Red Sea maritime crisis continues into 2024, vessels have been stopped calling at Jeddah Islamic Seaport, Saudi Arabia. Shippers can transport cargo to Khalifa Port in Abu Dhabi, United Arab Emirates, and then transit by truck at various destinations like Saudi Arabia, Jordan and Egypt,” an OOCL Logistics spokesperson told Trans.INFO.

The spokesperson added:

“Combining ocean and inland transportation via the Middle East can avoid the danger zone in the Red Sea as well as shorten the transit time to 3 to 7 days than re-routing by pure ocean model via the Cape of Good Hope. Additionally, it can provide higher flexibility in selecting various land routes in Middle East regions for transit options.”

Weighing up risks and value propositions

Despite the Red Sea crisis having wide-reaching consequences for logistics and the global economy, some things remain the same. Sea freight is still the least costly, followed by rail freight and air freight. All modes of transport will nonetheless increase in price as a result of the Red Sea route being out of play.

The main motivating factors for changing modes will likely be how much extra value can be derived from having cargo arrive much quicker. In some cases, choosing a faster mode may be economically viable. Fashion, for example, is believed to be one sector that will seek to utilise air freight due to the Red Sea crisis.

This is where the rail freight and intermodal options could have a role to play, as the additional cost may still prove worth paying for some cargo items providing the transit times are adequate.


Featured image photo credit: / Flickr / CC BY 2.0 DEED

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