Navigating Shipping Challenges

Navigating Shipping Challenges: A Look at Port Congestion and Red Sea Disruptions

25 May 2024

Introduction

The global freight industry has weathered storms, both literal and metaphorical, over the past few years. From trade wars to pandemic-related disruptions, supply chains have faced unprecedented challenges. As we step into 2024, let’s delve into two critical issues affecting shipping: port congestion and Red Sea disruptions.

Port Congestion: Causes and Impact

Port congestion is a major hurdle in global shipping. It occurs when a port has more ships waiting to load or unload than it can efficiently handle. Imagine those colossal mega-ports with colorful containers stacked like Legos. Now picture ships carrying those containers stuck offshore, unable to dock due to limited berths. The consequences are delays, cost escalation, and supply chain ripples.

Causes of Port Congestion

Demand Surges: Seasonal rushes or sudden shifts in consumer behavior (like the e-commerce boom) overwhelm port capacity.

Labor Issues: Labor shortages, disputes, or strikes slow down operations.

Extreme Weather: Hurricanes and typhoons can close ports or damage critical infrastructure.

Equipment Shortages: Short supply of chassis (specialized trailers for container transport) leads to container pile-ups.

Insufficient Storage: Full warehouses near the port leave containers with nowhere to go.

Red Sea Disruptions: A New Challenge

In 2024, the Red Sea faces a unique challenge: Houthi attacks on vessels. These attacks began in mid-November, initially targeting Israeli-owned ships but soon expanding to others. An international force led by the United States aims to protect vessels navigating this critical waterway. However, the threat persists, leading carriers to divert containers away from the Red Sea. Longer routes mean longer transit times and delayed deliveries.

While shippers may have been prepared to pay more for faster transit times, recent years have shown that as schedule reliability has gone down due to market volatility, the spot market has responded with higher rates. This means that on occasion, shippers have been faced with USD 13,192 per FEU rates, while schedule reliability sat at just 18.1% (China Main to Mediterranean Main corridor, 14th December 2021). In the past 6 months alone (since 5th October 2023), shippers experienced a 241% increase in spot rates, contrasted with a 49% decrease in reliability.

Although this is an inherent dynamic of the market, selling a level of service that shippers will never get (2/10 ships arriving on time) may encourage shippers to vote with their feet, or change mode altogether – as we’ve seen with airfreight increases since the Red Sea Crisis.

Forecast for June 2024

Route Diversions: Expect increased transit times due to rerouting away from the Suez Canal.

Tightening Capacity: Longer voyages tighten available market capacity.

Container Availability: Delayed return of empty containers affects availability.

Mitigating Impact and Looking Ahead

Nationwide Ceasefire: Yemen needs a nationwide ceasefire, improved living conditions, and an inclusive political process.

Resourcefulness and Resilience: The industry must continue adapting to challenges.

Stay Informed: Monitor real-time data and expert insights to make proactive shipping decisions.

Remember, the consequences of escalation could be catastrophic for Yemen and the wider region. Let’s prioritize peace and efficient logistics for a smoother global supply chain.