Source: Wall Street News
Author: Chang Jiashuai
Nomura said that the severity of the current situation is probably similar to the supply chain disruptions in 2020-22, so it is not surprising that shipping prices on routes between Asia and Europe have more than doubled.
Unable to cope with attacks by the Houthis in Yemen, several of the world's largest container shipping companies, Maersk, MSC, etc. announced in December that their ships would no longer pass through the Red Sea-Suez Canal and instead bypass the Cape of Good Hope at the southern end of Africa.
As attacks on passing merchant ships by the Houthis continue, a total of 158 ships carrying about 105 billion US dollars of maritime cargo have now been forced to leave the Red Sea, and the price of goods is soaring.
Through tracking the ship's navigation trajectory, CITIC Futures discovered that more than 75% of westbound ships in the Indian Ocean region have circumvented. The proportion of westbound detours in the Indian Ocean region has reached 75.9%, and the return voyage of ships arriving in Europe and the Mediterranean has begun.
The current normal round-trip travel time for the Asian-European route is about 77 days, and the increased travel time for one-way detours requires 9 days, so the overall flight time after detour increases by about 3 weeks. At the same time, considering the decline in ship turnover efficiency, the actual round-trip time may reach 95 days or more, considering that shipping companies can remedy ways such as speeding up ships, reducing idleness, and increasing efficiency in collaboration with ports, the overall efficiency loss of the market is over 10%.
Masaharu Hirokane, an analyst at Nomura Securities, pointed out in a report released on December 20 that abandoning the Red Sea-Suez route and taking a detour through the Cape of Good Hope will lead to a sharp increase in shipping distance and costs, and a sharp decline in the capacity of the Asian-European route, bringing the risk of global inflation rising again.
Taking a detour to the Cape of Good Hope, the capacity of the Asian-European route will be drastically reduced by 30%
Analysts pointed out that after detouring the Cape of Good Hope in Africa, the shipping distance of these container ships will increase by about 30%, and the one-way shipping time will increase by about 7-10 days.
If all shipping companies collectively divert routes, then the capacity of routes between Asia and Europe will be reduced by about 30%.
Nomura believes that the blockage of the Suez Canal route may cause the market to worry about repeated disruptions in the global supply chain in 2020-22, and that immediate freight charges and annual contracts may both rise.
Price increases are already underway. According to media reports on December 21, the price of a 40-foot container from Shanghai to the UK rose from 2,400 US dollars last week to 10,000 US dollars in just a few days.
A number of logistics companies plan to handle goods stranded due to the interruption of Suez routes through air transportation and other means. Ports such as Dubai and Aqaba are seen as possible alternative ports in the Middle East.
It's not surprising that the freight rate for the Asian-European route has doubled
More importantly, although at present, the shipping company's collective route change is only a temporary measure to deal with Houthi attacks, even if future escort formations can be put in place to stop the attack, considering that a single voyage from Asia to Europe takes at least one month, the change in shipping routes will continue for at least one month; if cargo handling and return trips are taken into account, it may continue for three months; and if the risk of being attacked increases, the route changes may continue for longer. Higher freight rates are an inevitable result.
Analysts stressed that in January next year, the annual fare contract for routes between Asia and Europe will be renewed, and the freight rate may generally rise at that time:
We think customers will notice the risk of capacity shortages and shipping delays due to detours to the Cape of Good Hope, and will pay higher rates to ensure cargo space.
Nomura said that the severity of the current situation is probably similar to the supply chain disruptions in 2020-22, so it is not surprising that shipping prices on routes between Asia and Europe have more than doubled.
editor/tolk