“It was supposed to be the off-season, but it felt like the peak season,” said Zhang Jiulin, a sales manager at an international logistics company in Shenzhen. He mentioned that although it’s not the traditional peak season for the shipping industry (usually from June to September), the Red Sea crisis has significantly increased shipping costs, making the off-season feel like the peak season.
Specifically, the freight cost for the United States East Coast (from China to the eastern United States) increased from $3,000 per 40-foot container in December last year to $7,500 in early February. However, it fell back to $5,000 after the Chinese New Year, and the impact of the Red Sea crisis still exists.
Timelines of the Red Sea Shipping Crisis
The Red Sea crisis began with the Israel-Hamas war in October 2023, notably when the Houthi armed forces seized a car transport ship operated by NYK Line and owned by an Israeli businessman.
Following this, shipping giants like Maersk and Hapag-Lloyd suspended all routes passing through the area due to attacks in the Red Sea, leading to a significant reduction in the Asia-Europe route capacity and a notable increase in freight rates.
In 2023:
- November 19: The car carrier Galaxy Leader, operated by NYK (Nippon Yusen Kaisha) and owned by an Israeli businessman, was detained by the Houthi armed forces in the Red Sea while en route from Turkey to India.
- December 9: The Houthi armed forces declared support for ships of all countries to trade through the Red Sea and the Arabian Sea but prohibited Israeli ships and all ships heading to Israel from navigating in the Red Sea and the Arabian Sea.
- December 12-15: Ships from two shipping companies, Maersk and Hapag-Lloyd, which together account for 27% of the capacity on the Asia-Europe route, were attacked in the Red Sea and announced the suspension of all container ship routes passing through the Red Sea.
- December 16: Two of the world’s top five shipping companies, CMA CGM and MSC, stated that their ships would temporarily avoid the Red Sea-Suez Canal route, with some routes being diverted around the Cape of Good Hope.
- December 18: COSCO Shipping and Evergreen Marine suspended services through the Red Sea route. The United States initiated the “Operation Prosperity Guardian” military escort for ships on the Asia-Europe route.
In 2024:
- January 2: After briefly announcing a resumption of service for one week at the end of the year, Maersk once again revealed the suspension of all navigation through the Red Sea and the Gulf of Aden.
- January 7: The Houthi armed forces proposed that each ship passing through the Red Sea, the Mandeb Strait, or the Arabian Sea could declare in advance “no relation with Israel” to ensure it would not be attacked.
- January 11: Maersk stated that reopening the Red Sea trade routes might take several months, and detouring around the Cape of Good Hope would add hundreds of dollars to the freight rate of each container.
- January 12: Areas under the control of the Houthi armed forces were subjected to joint airstrikes by the US and British military.
- February 18: The British cargo ship carrying fertilizer, “Ruby,” was attacked by Houthi rebels on February 18 and completely sank in early March.
- February 19: The European Union announced the launch of a one-year escort operation for the Red Sea and Gulf region.
Challenges
Maersk’s announcement of the suspension of Red Sea navigation has led to a sharp rise in global average transportation costs, forcing foreign trade enterprises to increase their logistics budgets and extend the payment cycle.
As the main shipping route between Asia and Europe, the Suez Canal sees about 30% of container goods passing through each year. Security issues leading to detours have increased transportation costs and time, especially when routes are forced to divert around the Cape of Good Hope.
The Asia to East Coast USA route has also been affected, with two options: passing through the Suez Canal or crossing the Pacific through the Panama Canal. However, the drought in the Panama Canal has reduced its capacity, further increasing transportation costs and complexity.
Large enterprises are affected, and small and medium-sized enterprises feel more pressure. They are susceptible to changes in freight rates, with some having stopped placing orders or shipping due to high costs.
Furthermore, some companies have had to offer price discounts to maintain customer relationships and cope with rising costs, sacrificing profits.
The Red Sea crisis has also forced companies to adjust their logistics strategies, such as increasing investment in overseas warehousing and considering rail transport as an alternative to sea freight.
At the same time, some businesses have started to plan to address potential shortages of goods and challenges in spring sales, including inventory requirements faced by sellers on the Amazon platform.
Opportunities
Despite declining foreign trade orders, freight forwarders and shipping companies face different pressures and opportunities. Some freight forwarders suffer losses due to fixed-rate contracts or reduced shipping volumes, but others see the Red Sea crisis as an opportunity to increase freight rates.
Some freight forwarders believed that the price increase benefited the sluggish market, as it could help absorb the previously excess capacity. They thought, “With higher prices, there’s always an opportunity to make money.”
Some Chinese-funded and Russian-funded shipping companies focused on Sino-Russian trade and discovered new business opportunities due to the Red Sea crisis. These companies have seen business growth in recent years due to the Russo-Ukrainian conflict. During the Red Sea crisis, they boldly launched a “Red Sea Express Line” between Asia and Europe, utilizing reduced capacity and high-risk routes to increase freight rates. While this increased their risk, it also brought them the opportunity for high returns.
Uncertainty
How long the Red Sea crisis will last remains uncertain, accelerating the reshuffling of the domestic freight forwarding industry—a consensus among all interviewees.
Therefore, it’s even more crucial for foreign trade merchants and the shipping industry to conduct rational analysis and take measures.
Amidst the overall slump in foreign trade business, the abnormal peak season triggered by the Red Sea crisis is concerning, as the short-term high freight rates could deplete the long-term budgets of foreign trade customers.
For international logistics companies, finding relatively stable ways to survive amidst turmoil is necessary, with transporting high-value goods as one way to mitigate risks. When a single transportation channel is at risk of disruption, finding alternative solutions, such as offering rail and air freight services and sea freight logistics, is vital.
Although the pre-holiday cargo peak faced by Chinese companies has temporarily subsided, the crisis continues. Much like the pandemic a few years ago, its duration is unknown, yet it continuously reshapes the foreign trade and international logistics industries.