Significant Transformation In Container Shipping Due To The Closure Of The Suez Route

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  • The container shipping outlook for 2024 has undergone a significant transformation.
  • An estimated 780,000 TEU of empty containers are anticipated to arrive in Asia.
  • Carriers will re-allocate more vessels to Asia-Europe services

In just a month, the container shipping outlook for 2024 has undergone a significant transformation, primarily due to the unexpected closure of the Suez routing, reports Baltic Exchange

Capacity Crunch in Asia

Immediate repercussions include a potential capacity crunch in Asia, particularly concerning empty containers. Delays of approximately two weeks and, in extreme cases, up to 40 days, have disrupted vessel schedules.

Empty Container Shortage

An estimated 780,000 TEU of empty containers is anticipated to arrive in Asia just before Chinese New Year, intensifying spot rates. The shortage will extend to all export trades out of Asia, not solely those circumventing Africa.

Shift to COGH

 Over the medium term, the baseline outlook suggests a continued reliance on the route around the Cape of Good Hope. This will absorb 5 to 6% of global capacity, alleviating the overcapacity issue.

Extended Transit Times

Supply chains will experience longer transit times, with Asia-North Europe up by 7 to 8 days and Asia-Med up by 10 to 12 days. Carriers are expected to become profitable again, but rates will peak in the next four weeks before stabilizing.

Equipment and Vessel Equilibrium

After Chinese New Year, a seasonal drop in demand is expected, allowing equipment and vessels to reach a normal equilibrium within a few weeks.

Network Adjustment

Carriers will re-allocate more vessels to Asia-Europe services, leading to vessels being removed from low-paying trades such as the Atlantic. This will cause increasing freight rates in those trades.

Houthi Actions

The success of the Houthis in targeting vessels makes carriers hesitant to revert to the Suez routing. A military response may be insufficient to eliminate the threat.

Operational Uncertainty

Carriers, exemplified by Maersk’s operational flip-flop, are reluctant to switch routes without assurance against a return to the Cape of Good Hope.

Shippers’ Demand for Predictability

Shippers are advocating for predictability and reduced risk in sailing schedules, favoring the stability provided by the Cape of Good Hope route.

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Source: Baltic Exchange

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