Global Trade Marred With Rising Shipping Costs

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The effects of restrictions on shipping in the Red Sea and Panama Canal are being felt around the world. Global trade is under immense strain amid rising freight costs, sources Drewry. 

Shipping costs rising again

Global trade has been under immense pressure since the Israeli-Hamas war broke out in October. The offshoot conflict in the Red Sea has meant higher freight costs and increased expenses for insuring commercial trade goods.

Shipowners are confronted with higher insurance premiums as the risk of losing a vessel has dramatically increased, above all, in the Red Sea. Moreover, moves to avoid the Suez Canal for safety reasons and instead navigate around the Cape of Good Hope, have greatly increased travel times and led to significantly higher fuel consumption.

The Drewry World Container Index, which monitors the freight market, reported that within the third week of June alone shipping prices for a 40-foot standard container jumped 7% — up a staggering 233% compared with the same time a year ago.

Searching for safer routes

Simon MacAdam, an analyst at the London-based financial consulting firm Capital Economics, says shipping companies are being forced to become more flexible.

The shipowners have seemingly adapted quite well to the situation, considering the limitations on using the Suez Canal,” he told DW, adding that costs briefly dropped this spring “after skyrocketing in January.”

But now “they are starting to rise again,” suggesting there is no reason to expect any cost relief.

“Another driver seems to be that importers are currently moving up orders to ensure they have enough goods in stock throughout the year. But with ships being rerouted around the Cape of Good Hope further price spikes are more likely,” the Capital Economics expert said.

More ships needed

Jan Hoffmann, a trade expert at the United Nations Conference on Trade and Development (UNCTAD), also blames longer travel times around Africa for rising costs.

The detour around South Africa requires more ships to maintain supply. The average travel distance for a container in 2024 is 9% further than it was in 2022,” he told DW.

As ships spend more time at sea, more shipping space is needed, he said. That means shipping companies have to charter or buy more vessels and hire more personnel. “And since these ships do not yet exist, freight prices will rise.”

Hoffmann also pointed to another unwelcome side-effect of longer shipping routes: rising greenhouse gas emissions. “Ships have increased their speeds, which has led to a rise in emissions, for example, by 70% on the Singapore-Rotterdam route.”

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Source: DrewryWorld