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  • Sea freight rates jumped to 10,000 USD due to instability in the Red Sea, inflationary pressure is at risk of swelling again 12/22/2023

    Dec 22nd, 2023

    In the context of many cargo ships diverting away from the Red Sea due to fears of being attacked by Houthi rebels, sea and air freight rates have increased rapidly. At the same time, hundreds of billions of dollars in goods are stuck. Both pose a threat to global supply chains and the inflation outlook. Sea freight rates increased rapidly On December 21, the sea freight price ceiling jumped in just a few hours. According to information obtained by CNBC , logistics managers have been informed that the freight rate for a 40-foot container traveling from Shanghai to the UK has reached $10,000. Last week, rates were $1,900 for a 20-foot container and $2,400 for a 40-foot container. In addition, the cost of transporting goods by truck in the Middle East is currently reported to be twice as high as last week. Shippers in the US have many options for shipping routes, but European businesses do not because they rely heavily on the Suez Canal. Rerouting cargo ships to Europe will take more time and therefore business owners here are turning to planes to transport their products. Judah Levin, head of research at Freightos, said daily freight rates according to the Freightos Air Index have dropped significantly since the end of November, but this week's push for businesses to look to air freight has prompted Price goes up again. According to the expert, air freight rates increased 13% this week, from 3.95 USD/kg to 4.45 USD/kg. The accident caused a loss of up to 10,000 USD because of the accident caused by the sudden increase in the risk of future collapse. 158 ships left the Red Sea, carrying $105 billion worth of goods Sharing with CNBC , international shipping company Kuehne + Nagel said that as of the morning of December 21, 158 ships had diverted from the Red Sea. These ships carry more than 2.1 million containers of goods and according to estimates by MDS Transmodal, the value of the goods is about 105 billion USD. There are currently no signs that the attacks by Houthi forces will stop. IKEA is one of the businesses that warned that ship diversions would affect the company's available goods. Talking to CNBC , IKEA said the furniture company is working with transportation partners to control orders and ensure the safety of employees working in its value chain. "What we can share now is that the situation in the Suez Canal will cause delays and supply constraints for some of the company's products," an IKEA spokesman said. Options for stranded goods Logistics CEOs say they are sorting through stranded goods and, in the case of Europe or the Middle East, are looking to airlift select products. Shippers in the US are also considering a number of alternative trade routes such as the trans-Pacific to the West Coast and even the Panama Canal. Their considerations are mainly related to shipping time and costs. Besides, ports such as Dubai and Aqaba are also being considered as viable alternatives in the Middle East. Also according to CNBC , for goods at ports that cargo ships cannot access, smaller feeder ships will be responsible for picking up the goods and bringing them to a larger port. Once there, the containers will be loaded onto ships with larger capacity and continue their longer journey at sea. Inflation outlook The sudden increase in shipping rates and the impact this has on inflation also depends on the time it takes for ships to change direction and how long ship owners have to pay higher shipping costs. Logistics CEOs say that as the standoff lasts a month, global supply chains and consumers will begin to feel inflationary pressures. American Apparel and Footwear Association (AAFA) member retailers are closely monitoring the situation in the Red Sea. They urged the government to immediately and comprehensively launch Operation Prosperity Guardian to ensure the safety of the vital waterway. Mr. Steve Lamar, CEO of AAFA, said: “98% of our garments are imported from abroad. Therefore, maintaining safe and affordable transportation operations is extremely necessary for us. Members have been forced to divert goods and are being charged additional fees." The CEO mentioned the Suez Canal incident, emphasizing this as an example of how any disruption in this trade gateway has an immediate impact on freight rates and commodity prices.