Doubling of sea freight rates by up to 150%

January 2024

18 shipping companies are currently avoiding the Red Sea because of fears of attacks by the Houthi rebels.

The detour via South Africa is time-consuming. This is now also reflected in freight rates.

Due to attacks on cargo ships in the Red Sea, 18 shipping companies are diverting their vessels, according to the United Nations, and rerouting them to circumnavigate Africa. The rerouting of ships via South Africa means an extension of the journey time by ten days and "negative impacts on trade and rising freight rates," said Arsenio Dominguez, head of the International Maritime Organization (IMO). The supply chain management technology company project44 even spoke of an extension of seven to 20 days.

According to the international freight booking platform Freightos, freight rates more than doubled this week to over $4,000 per container. Between Asia and the Mediterranean, rates rose to $5,175. Several major shipping companies announced rates exceeding $6,000 for Mediterranean shipments by mid-month. Surcharges of $500 to $2,700 per container could drive overall prices even higher, Freightos explained.

The Suez Canal in Egypt connects the Red Sea to the Mediterranean Sea and is the fastest way to transport fuel, food, and consumer goods from Asia and the Middle East to Europe. Approximately one-third of the world's containerized freight, including electronics, pharmaceuticals, furniture, and machine parts, is shipped via this route.

In Yemen, the Iranian-backed Houthi rebels have declared solidarity with the radical Islamist Hamas in the Gaza Strip and have repeatedly attacked ships off their coast with drones and missiles. Maersk, Hapag-Lloyd, and other shipping companies have announced they will therefore avoid the Red Sea. By Wednesday, more than 180 ships had already been rerouted around the Cape of Good Hope in South Africa. Although rates have surged, they are still far below the pandemic-driven record highs of $14,000 per container for shipments from Asia to Northern Europe and the Mediterranean.

To protect merchant shipping, the US announced the formation of an international military coalition in mid-December. According to the US Department of Defense, this coalition now includes more than 20 countries. Germany is not yet a member, but according to the German Federal Ministry of Defense, it is considering joining.

In response to attacks by Houthi rebels on ships in the Red Sea, the French shipping company CMA CGM is raising its freight rates for container transport from Asia to the Mediterranean by 100 percent. The transport of a 40-foot container between Asia and the western Mediterranean will cost $6,000 from January 15th, up from the previous $3,000, the group announced. Prices to the eastern Mediterranean, the Adriatic, the Black Sea, and Syria have also been drastically increased. A spokesperson declined to provide further details.

Since the attacks on cargo ships in the Red Sea, some shipping companies have been avoiding the Suez Canal with some of their vessels. They are rerouting these ships around the Cape of Good Hope at the tip of South Africa. This route is significantly longer than the Suez Canal, resulting in higher fuel and personnel costs. Furthermore, insurance costs have increased for passages through the Red Sea.

Following an attack on one of its freighters over the weekend, the major Danish shipping company Maersk announced it is suspending all Red Sea transports until further notice. Where it makes sense for customers, ships will be rerouted around the Cape of Good Hope. Maersk is thus following the lead of its German competitor Hapag-Lloyd, which is also continuing to route its shipments around the African continent.

Germany's largest container shipping company had previously stated that it would continue to avoid the Middle Eastern sea area due to the uncertain situation in the Red Sea. "We are monitoring the situation very closely on a daily basis, but will reroute our ships until January 9th."

Shares of the companies involved have risen since the attacks, in anticipation that longer shipping routes will lead to higher freight rates. On Tuesday alone, Hapag-Lloyd shares climbed another five percent to €143. Within three weeks, the share price has thus risen by around 40 percent. The attacks in the Red Sea have been ongoing for several weeks, following the declaration of solidarity by the Iranian-backed Houthi rebels in Yemen with the radical Islamist group Hamas.