Global Shipping Crisis Deepens as Red Sea Tensions Continue to Escalate

Shippers Fearful Amidst Container Shortage and Disruption in Supply Chains

January 25th, 2024

In the wake of the ongoing Red Sea crisis, global shipping faces heightened uncertainty, leaving shippers increasingly anxious about the availability of empty containers. This potential supply chain headache, reminiscent of challenges witnessed during the COVID-19 pandemic, is sparking concerns across the maritime industry.

The newly appointed Secretary General of the International Maritime Organisation (IMO) opened the first subcommittee meeting under his tenure, emphasising the need for peace. He reiterated three key messages: prioritising the safety of seafarers, upholding the principle of freedom of navigation for safe trade of essential goods, and calling for de-escalation of the situation.

Highlighting a specific concern, he called for the immediate release of the Galaxy Leader car carrier and its crew, who were abducted by the Houthis two months ago.

Container shipping has experienced unprecedented disruption, with 90% of all box ships opting for longer routes around the African continent for voyages between Asia and Europe. This diversion has led to a surge in freight rates, causing importers to scramble for access to containers at the origin.

The Container Price Sentiment Index (xCPSI), developed by Container xChange, indicates historic highs as of January. Christian Roeloffs, CEO of Container xChange, noted that supply chains currently hold a surplus capacity of over 6 million TEU accumulated over the last two years due to a demand deficit. This surplus capacity acts as a “vital cushion” to absorb potential shocks in the supply chain.

Roeloffs warned, “The degree of impact hinges on the duration of the Red Sea crisis. Should it persist, and the excess capacity continues to be absorbed, we could potentially face serious challenges.” Drawing parallels to the Ever Given situation, where disruption occurred during a period of extreme difficulty in securing capacity, rates skyrocketed to ten times pre-pandemic levels.

CMA CGM has responded to the crisis by announcing an empty container imbalance surcharge of $100 per unit on top of the equipment surcharges from Turkey to the Mediterranean and North Africa. Meanwhile, Hapag-Lloyd detailed a new land bridge box service through Saudi Arabia, offering land connections from Jebel Ali, Dammam, and Jubail to its ocean shuttle service out of Jeddah.

As the crisis unfolds, industry experts warn that the situation is expected to worsen in the coming weeks, particularly towards the Chinese Lunar New Year. The global shipping community remains on edge, closely monitoring developments in the Red Sea region and bracing for potential challenges ahead.

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