The global shipping industry is gearing up for a tumultuous ride this year, with recent conflicts in the Red Sea just one among several hurdles on the horizon. Big players like Maersk are sounding the alarm, pointing to a potential cascade of disruptions affecting 90% of global trade.
A Sea of Challenges
Warfare in the Red Sea and unpredictable weather patterns are threatening to throw a wrench into the gears of complex vessel schedules. From major container ships to fuel tankers, disruptions are expected to ripple through the year, causing delays and driving up costs for retail giants like Walmart, IKEA, and Amazon, as well as food manufacturers including Nestle and grocers like Lidl.
Jay Foreman, CEO of Basic Fun, based in Florida, reflects on the current state of affairs, noting, “This is seemingly the new normal — these waves of chaos that seem to rise and fall. Before you get back to some level of normalcy, another event happens that sort of throws things out of whack.”
2024 Risks on the Horizon
Beyond the ongoing Red Sea tensions, additional risks loom large. The potential expansion of attacks in the Red Sea to the Arabian Gulf could impact oil shipments, and deteriorating China-Taiwan relations may further disrupt crucial trade routes. Meanwhile, Russia’s ongoing conflict in Ukraine continues to cast a shadow over the grains trade.
Maersk and other major ocean carriers are already taking evasive action, rerouting ships away from the Red Sea to avoid missile and drone attacks. The Suez Canal, a vital shortcut for Asia-Europe trade, is particularly affected, handling over 10% of total ocean shipments and nearly one-third of the world’s container trade.
The Economic Ripple Effect
The rerouting comes at a significant cost, with ship owners facing up to $2 million in increased fuel expenses for each round trip due to Suez Canal diversions. The Asia-Europe spot rate has more than doubled from 2023, reaching $3,500 per 40-foot container. While these increased costs could translate into higher prices for consumers, analysts believe the impact won’t be as severe as the chaos witnessed during the 2020-22 pandemic.
Crossings through the Panama Canal, seen as an alternative to the Suez Canal, have also been hit, down 33% due to lower water levels. This, coupled with increasingly severe weather events, has immediate repercussions. Brazil’s historic drought in the Amazon and excessive rains in the north caused shipping delays, especially affecting soybean shipments.
“You can always say, ‘It’s a one-off event,’ but if the one-off events happen every other month, they’re not anymore one-off events,” remarks John Kartsonas, managing partner at Breakwave Advisors, emphasizing the growing impact of frequent and severe weather events on the shipping industry.