"Freight Rates Quadruple"...Growing Concerns Over Logistics Crisis Amid Soaring Shipping Costs

Sea Freight Rates Soar 41%
Short-Term Rates on Some Routes Surge Up to 4 Times

Concerns that a global logistics crisis could occur due to soaring freight rates caused by the paralysis of the Red Sea are becoming a reality. Some financially strong shippers are paying premiums, further driving up freight rates, with some routes seeing rates increase by up to four times.

According to US economic media CNBC on the 21st (local time), sea freight rates on Asia-to-Europe routes rose 41% month-on-month for a 40-foot container. On this day, short-term freight rates on the Shanghai-to-UK route exceeded $10,000. This is about four times higher than the $2,400 level last week within just one week. Allen Bear, CEO of AllUSA, said, "Shippers with cargo stuck at ports are paying premiums, causing freight rates on certain routes to jump 100-300%." Short-term freight rates on routes from Asia to the US West Coast surged 145%.

[Image source=AFP Yonhap News]

As indiscriminate attacks on civilian vessels in the Red Sea connecting Asia and Europe have expanded, global shipping companies and energy firms have recently decided to suspend navigation one after another. The world's largest shipping company, Swiss MSC, along with Denmark's Maersk, France's CMA CGM, and Germany's Hapag-Lloyd, announced they would either stop passing through the Red Sea or take detours around the African continent until safety is secured. British Petroleum (BP), the UK's largest oil company, also decided on the 18th to temporarily suspend navigation in the Red Sea. Following the Panama Canal, which connects Asia and the US and has restricted ship passage due to low water levels caused by an abnormal drought, the paralysis of the Red Sea route has led to continued logistics chaos.

Meanwhile, cargo volumes are increasing ahead of the peak Lunar New Year season in February next year. Swiss logistics company Kuehne+Nagel reported that as of this morning, 158 container ships are detouring around the African continent instead of passing through the Red Sea and the Suez Canal. According to MDS Transmodal, the total value of cargo, estimated at $50,000 per container, reaches $105 billion. Bloomberg pointed out, "As the use of the Red Sea route is disrupted, consumer goods companies that have experienced the COVID-19 pandemic and the worst inflation in 40 years are facing another supply chain crisis," adding, "(Due to sea logistics disruptions) the global economy is facing another storm of crisis."

S&P Global identified consumer goods as the sector most affected if this disruption prolongs. Consumer goods companies and large retailers, which are urgently securing inventory ahead of the peak season, are busy preparing countermeasures. US retailers with production bases in Asia and other regions rely on sea transport for 98% of their total sales volume, so the impact of logistics disruptions is expected to be significant. Companies expected to be affected by this transport disruption include Walmart, Target, Adidas, Nike, H&M, Zara, Macy's, and Puma, spanning all consumer goods sectors such as toys, clothing, white goods, and auto parts.

Bloomberg noted, "With growing expectations that the US Federal Reserve and central banks worldwide will cut interest rates next year, many US and European companies were in the process of normalizing inventory levels. In this situation, the sea logistics disruption increases management uncertainty, making it difficult for companies to revise their business plans for next year."

Companies are struggling with whether to pay additional freight charges or delay shipments. Swedish furniture company IKEA has warned of delivery delays due to logistics chaos, and Abercrombie & Fitch announced plans to switch to air freight to avoid confusion caused by sea logistics disruptions. As some shippers shift from delayed sea transport to air transport, air freight rates are also rising. Air freight rates increased 13% from $3.95 to $4.45 per kg on this day.

However, the prevailing view is that the pressure from rising freight rates will not lead to product price increases. Ma?va Cousin, Bloomberg's chief economist for the Eurozone, said, "Since transportation costs account for a small portion of consumer prices, unless sea transport disruptions last for several months, the impact will be limited."

This content was produced with the assistance of AI translation services.