Shipping Challenges in the Red Sea/Suez Canal

Shipping Challenges in the Red Sea/Suez Canal

As I’m sure you’re all aware, tensions in the Middle East are escalating, and there is a growing risk of a conflict between the US and Iran. The Houthi militia group’s continuous attacks on the Red Sea route, a major route for global container traffic, have forced shipping companies like Maersk, Mediterranean Shipping Company, Flexport, and Hapag-Lloyd to find alternate routes through Africa’s Cape of Good Hope.

The escalation can be traced back to the attack on Gaza on October 7th, 2023. Following this attack, the US chose not to engage in direct confrontation and instead launched Operation Prosperity Guardian to protect sea lanes. Maersk and other companies were able to resume using the Red Sea and Suez Canal temporarily.

However, on December 31st, 2023, the Houthi militia group attacked a Maersk commercial shipping vessel on the Red Sea route. This prompted defensive retaliation from the US, resulting in the destruction of three Houthi ships and the death of 10 militants. As a result, Maersk has halted its ships from passing through the Red Sea until at least January 9th, 2024. The company will then decide whether to continue re-routing ships through the Cape of Good Hope.

The impact on the supply chain has been significant. Around 350 ships have been forced to re-route through the Cape of Good Hope, resulting in an additional 10 to 14 days of shipment time and £1.6 million in extra costs for those scheduled to port in Asia and Europe. Flexport has reported a surcharge of approximately £3,927 per 40ft container for those avoiding the Red Sea route. The Shanghai Containerised Freight Index has also shown a significant increase in container costs.

Insurance premiums have skyrocketed, with a £50 million shipment now incurring an additional £250,000 in premiums if cargo chooses to go through the Red Sea and Suez Canal.

These rising costs and disruptions to the supply chain have not been seen since the Ever Given blocked the Suez Canal for six days in 2021. The backlog of commodities, including food, household goods, and more, combined with the rise in costs, will have a significant impact on businesses affected by increased oil prices and container prices.

At Rerum Ingredients, we prioritise providing our customers with timely and relevant information. We understand the importance of agility during times of crisis. Due to the Red Sea attack and the increased shipping container costs resulting from the diversion through the Cape of Good Hope, we must take action.

We have spoken to our suppliers, and we now know that the situation remains highly volatile. Transit times will be extended by 10 to 20 days, with additional delays when refuelling at African ports, leading to congestion. There is also a container imbalance, resulting in a lack of equipment ahead of the Lunar New Year peak season.

While we have protected our customers from price increases since the start of the attacks, it has become increasingly challenging to manage. Starting from the week commencing January 2nd, 2024, prices for our raw materials and food ingredients will increase to support our business costs when shipping commodities from the US and Asia into Europe.

However, we are actively exploring alternative ways to support our customers. This includes bringing in larger volumes under a single shipment and holding stock locally. We encourage our customers to reach out to us with any questions or concerns, and our customer service team will be happy to assist.