Red Sea attacks putting global supply chain under strain
Shipping container rates are spiking, as tariffs increase and shipping lines look for alternative routes after six weeks of attacks on commercial ships in the Red Sea by Iran-backed Houthi militants.
"The main issue today is the Red Sea conflict because ships have to take longer routes to reach their destination, especially when heading to Europe. Because of this, shipping companies are imposing extra charges to cover additional costs," Philip Gray, r
On Jan. 4, Drewry shared a report showing that the world container index for dry products on spot increased 61% to $2,670 per 40-foot container in the first week of the year.
"There's a lot of uncertainty at the moment, and whenever this happens there are surcharges involved. These can remain or may be diluted progressively. However, as long as the Red Sea conflict is not resolved, shipping companies will have to impose surcharges," says Gray.
Gray says the situation will stabilize again, and tariffs may even go down afterward, but there is no certainty as to when this will happen.
Effects on fresh produce
Gray indicated that for fruit moving from South America to North America, there will be no consequence because reefer tariffs and contracts have already been negotiated previously.
"The Panama Canal is a big concern for this region because, with the restrictions imposed, there are surcharges, and even worse, there is uncertainty on whether the ships will go through at the reserved slot," says Gray.
When ships lose their reserved slots, the fruit is at high risk of having to spend more days at sea, which puts exporters in a complicated situation because essentially with every shipment they are assuming a high risk.
"Last week I spoke with some Peruvian exporters who had a shipment of mango and grapes scheduled to arrive in Europe for Christmas. However, the ship sailed late, missed its slot in the Canal, committed a few ports, and all the fruit arrived after Christmas. That is the concern for all exporters," says Gray.
Shipping to the Middle East has become particularly challenging because shipping companies are giving no guarantees of time, so exporters have to reconsider the movement of their products.
"It's complex, and it's very hard to plan something out, so sometimes it's better to wait a little bit and see how the situation evolves," Gray suggests.
Outlook
Gray believes the situation in the Red Sea will continue for some time, so the entire supply chain will have to adapt and plan accordingly for a few more months.
"If this lasts for way longer, there are certain routes that could be reconsidered. For example, one that used to exist which went through the southern line, which prevents you from having to go through any of the canals," Gray suggests.
Building these new routes is complicated, and would require a lot of ships, but Gray believes there is always a possibility of doing alternative routes for certain products.
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