by Lisa Baertlein
Recent hostilities in the Red Sea have disrupted global shippers of vital cargo, but that’s not the only problem facing major carriers as 2024 dawns.
Giants like Maersk MAERSKb.CO say the sector, which handles 90% of global trade, faces the possibility of significant disruption, from ongoing wars to droughts affecting key routes such as the Canal from Panama. Complex ship schedules risk being out of sync throughout the year for giant container ships, oil tankers and other cargo carriers.
This will increase delays and costs for retailers such as Walmart WMT.N, IKEA and Amazon AMZN.O, as well as food manufacturers such as Nestlé
NESN.S and grocers such as Lidl.
“This seems to be the new normal – these waves of chaos that seem to ebb and flow. Before we return to some level of normalcy, another event occurs that throws things into question,” said Jay Foreman, chief executive officer of Basic Fun, a Florida-based company that ships toys from factories in China to Europe and the United States.
Additional risks for 2024 include the possible extension of attacks from the Red Sea to the Persian Gulf, which could affect oil shipments, and worsening relations between China and Taiwan, which could also affect important trade lanes, said Peter Sand, chief analyst at freight data provider Xeneta. Russia’s war in Ukraine continues to affect grain trade since it invaded its neighbor in 2022.
Maersk on Friday joined other major shipping carriers in diverting ships from the Red Sea to avoid missile and drone attacks in an area that leads to the vital Suez Canal shortcut between Asia and Europe . This route accounts for more than 10% of total maritime shipments and almost a third of global container trade.
As tankers carrying oil and fuel to Europe continue to pass through the Suez Canal, most container ships are rerouting goods around the southern tip of Africa as Yemeni Houthis attack ships in Red Sea in a sign of support for the Palestinian Islamist group Hamas which is fighting against Israel in Gaza.
Shipowner fuel costs increased by $2 million per round trip for Suez Canal diversions and the Asia-Europe spot rate more than doubled from the 2023 average to $3,500 per container 40 feet. Rising costs could translate into higher prices for consumers, although Goldman Sachs said Friday that the inflationary shock is not expected to be as severe as the chaos of the 2020-22 pandemic.
“The first quarter is going to be a little crazy for everyone” when it comes to costs, said Alan Baer, chief executive of OL USA, which handles freight shipments for its clients.
Sailings through the Panama Canal, an alternative to the Suez Canal, have declined by 33% due to falling water levels, according to supply chain software provider project44. These restrictions have contributed to skyrocketing costs of transporting dry bulk commodities, such as wheat, soybeans, iron ore, coal and fertilizer, by the end of 2023.
Increasingly frequent severe weather events have a more immediate effect than political tensions. Brazil suffered a double whammy: a historic drought in the Amazon and excessive rains in the north of the country, which contributed to a longer queue of ships at the port of Paranagua at the end of 2023, a few months before the season peak for soybean shipping.
“You can always say it’s a one-time event, but if the one-time events happen every couple of months, they’re no longer a one-time event,” said John Kartsonas, managing partner at Breakwave Advisors, the transaction advisor for raw materials for the Breakwave Dry Bulk Shipping ETF BDRY.P.