Sea Freight to Europe and US to Shoot Up

Sending cargo to Europe and the US by ship will become more expensive starting in June, as shipping lines are introducing surcharges to cover the additional costs of routing vessels through the Cape of Good Hope. This adjustment in routing has been in effect since November, when shipping companies decided to avoid the Suez Canal due to increased risks of attacks on ships by Houthi terrorists in the region.

German shipping line Hapag Lloyd will impose a Peak Season Surcharge (PSS) of $1,000 per container from the Indian Subcontinent and the Middle East to the North American West Coast. The Indian Subcontinent and Middle East include India, Pakistan, Bangladesh, Sri Lanka, UAE, Qatar, Bahrain, Oman, Kuwait, Iraq, Saudi Arabia, and Jordan. Additionally, the PSS from India, Bangladesh, and Sri Lanka to the US East Coast and Gulf Coast will be $500 per container. These charges will apply to all containers gated in full from June 17, 2024, and will remain in effect until further notice.

Denmark’s Maersk will impose a surcharge of $540 per twenty-foot equivalent unit from India to the US and Canada. These rates are also subject to other applicable surcharges, including local charges and contingency charges.

Similarly, the French line CMA-CGM will, from June 14 (loading date), impose a surcharge of $500 per container from the Indian Subcontinent (excluding Bangladesh), the Middle East Gulf, the Red Sea, and Egypt to the US East Coast and Gulf.

The Suez Canal, a narrow strip of water connecting the Red Sea and the Mediterranean Sea, is a vital trade route. Approximately 19,000 ships—one every half hour—pass through the 193-km-long, man-made canal each year. The decision to reroute via the Cape of Good Hope adds about 6,000 nautical miles to a typical voyage from Asia to Europe, doubling the travel time to over a fortnight, according to J Krishnan of S Natesa Iyer Logistics LLP, one of Chennai’s oldest custom house agents. These ships burn an additional million dollars' worth of fuel per trip compared to using the Suez Canal.

An official from a leading leather exporting unit noted that the increase in costs will severely impact trade. Since last October, shipping rates to the US have more than doubled.

Research firm Xeneta reported that ocean freight container spot rates have risen sharply on the world’s top trade routes since the start of May, suggesting an early peak season for 2024. The most significant increase is on the Far East to North Europe trade, which saw a 30% rise from April 1 ($3,349) to $4,343 per FEU on May 16, marking a 198% increase compared to 12 months ago ($1,456). Rates from the Far East to the US West Coast have increased by 29% since the start of April ($3,456), reaching $4,468 per FEU on May 16, which is 214% higher than 12 months ago ($1,422). Rates from the Far East to the Mediterranean have increased by 22% since April 1 ($4,144) to $5,044 on May 16, doubling the rates from 12 months ago ($2,521). Rates from the Far East to the US East Coast have increased by 21% since April 1 ($4,617) to $5,584 on May 16, up 129% from 12 months ago ($2,434).

Emily Stausb?ll, Xeneta Senior Shipping Analyst, explained that multiple factors contribute to these rate increases, and the rapid pace of these changes has caused nervousness in the market. The demand reached record levels in the first quarter of 2024, up 9.2% compared to Q1 2023, amidst the ongoing pressures on shipping capacity due to the Red Sea situation.

“Many US shippers used 2023 to bring down inventory levels from the pandemic highs, meaning there is likely space in newly built warehouses to frontload imports ahead of peak season and build a buffer into supply chains. The risk of having too high inventories is more acceptable than the risk of having goods arrive too late,” she said.

The shift from the Suez Canal to the Cape of Good Hope represents a significant change in global shipping patterns. Its economic repercussions will be felt across multiple sectors, highlighting the vulnerability of global trade routes to geopolitical instability and terrorist activities, and underscoring the need for enhanced security measures and alternative shipping strategies. Stakeholders are closely monitoring the situation, hoping for a resolution that will allow a safe and efficient return to the Suez Canal in the future. Until then, the added surcharges and extended shipping times will remain a challenge for international trade.