Container rates hit $10,000 as ocean freight inflation soars in Red Sea crisis

With
the
Red
Sea
diversions
by

shipping
companies
including
Maersk
continuing
amid
the

risk
of
attacks
by
the
Houthis,
global
logistics
managers
are
faced
with
a
two-front
storm
of
rising
ocean
and
air
freight
prices
and
stranded
cargo.
Both
are
threats
to
the
global
supply
chain
after
three
tumultuous
years
of
inflationary
pressures
and
delays
from
Covid
disruptions
which
recently
seemed
to
finally
have
been
vanquished.

The
ceiling
in
ocean
freight
prices
shot
up
in
a
matter
of
hours
on
Thursday
as
a
result
of
more
vessels
diverting
from
the
Red
Sea.
CNBC
has
learned
that
logistics
managers
were
quoted
this
morning
an
ocean
freight
rate
of
$10,000
per
40-foot
container
from
Shanghai
to
the
U.K.
Last
week,
rates
were
$1,900
for
a
20-foot
container,
to
$2,400
for
a
40-foot
container.
Truck
rates
in
the
Middle
East
now
being
quoted
are
more
than
double.

Alan
Baer,
CEO
of
OL
USA
tells
CNBC
while
pricing
is
undergoing
rapid
adjustments
as
ocean
carriers
work
to
recover
the
added
costs
of
diverting
their
vessels,
these
massive
jumps
in
rates
need
to
be
clarified
as
the
shipping
community
of
importers
and
exporters,
along
with
government
regulators
seek
to
better
understand
the
overall
drivers
of
these
large
increases. 

“During
Covid,
we
had
a
slower
build-up
in
freight
prices
due
to
the
impact
the
pandemic
had
on
the
global
supply
chain,”
Baer
said.
“What
we
are
experiencing
here
is
a
light
switch
event
where
vessels
are
being
redirected
in
real
time.
But,
that
said,
in
certain
trade
lanes
you
are
seeing
freight
rates
going
up
between
100
to
300
percent.
This
does
not
appear
to
be
totally
driven
by
changes
in
supply
and
demand.”

158
vessels
diverted
from
Red
Sea
holding
$105
billion
in
trade

As
of
Thursday
morning,
158
vessels
are
currently
re-routing
away
from
the
Rea
Sea
carrying
over
2.1
million
cargo
containers,
Kuehne
+
Nagel
tells
CNBC.
The
value
of
this
cargo
based
on
MDS
Transmodal
estimates
of
$50,000
per
container
is
$105
billion.

There
is

no
short-term
end
to
the
attacks
in
sight.

IKEA
is
among
the
companies
to
indicate
that
the

trade
diversions
will
impact
product
availability.
It
told
CNBC
that
while
it
does
not
own
any
container
vessels,
it
is
working
with
transportation
partners
to
manage
shipments
and
to
ensure
the
safety
of
the
people
working
in
the
IKEA
value
chain.

“What
we
can
share
for
now
is
that
the
situation
in
the
Suez
Canal
will
result
in
delays
and
may
cause
availability
constraints
for
certain
IKEA
products,”
said
an
IKEA
spokesman.
“This
is
our
main
priority.
In
the
meantime,
we
are
evaluating
other
supply
options
to
secure
the
availability
of
our
products,
and
we
continue
to
monitor
the
situation
closely
going
forward.”

French
dairy
and
plant-based
products
company


Danone
is
disputing
reports
of
impacts
on
its
supply
chain,
with
a
spokesperson
emailing
CNBC,
“There
has
been
no
significant
short-term
impact
reported
on
Danone’s
activity.
We
are
closely
monitoring
the
situation,
in
relationship
with
our
suppliers
and
partners.
We
will
not
be
making
any
further
comments.”

Vessels
move
on
global
water
routes
called
“strings,”
and
containers
from
around
the
world
can
be
on
a
single
vessel
as
a
result
of
the
different
ports
a
vessel
will
visit
on
its
string.
When
a
vessel
is
delayed
because
of
re-routing
that
means
all
shippers
from
a
multitude
of
countries
who
have
cargo
on
that
vessel,
or
are
waiting
for
that
vessel
to
pick
up
their
containers,
are
faced
with
delays.

While
logistics
managers
have
no
control
over
containers
presently
on
the
re-routed
vessels,
they
do
have
control
over
stranded
containers
that
are
not
being
picked
up
in
European
or
Middle
Eastern
ports,
and
import
containers
in
Asia
getting
ready
to
be
loaded
on
vessels.

Options
for
‘stranded’
cargo

Logistics
CEOs
tell
CNBC
they
are
presently
sorting
out
this
cargo,
and
for
the
cargo
considered
“stranded”
in
Europe
or
the
Middle
East,
they
are
looking
to
move
select
products
by
air
as
a
possible
solution.
U.S.
shippers
are
also
assessing
alternative
trade
routes
like
the
TransPacific
to
the
West
Coast,
and
even
the
Panama
Canal,
to
access
Gulf
and
East
Coast
ports,
with
decisions
coming
down
to
analysis
of
transit
time
and
freight
costs.

Ports
like
Dubai
and
Aqaba
are
being
reviewed
as
possible
Middle
East
alternatives.

Being
nimble
is
key
for
logistics
to
keep
trade
moving.
Ocean
carriers
including


Maersk,
CMA
CGM,
and

Hapag
Lloyd
have
invested
in
their
logistics
supply
chain
management
and
have
collaborated
with
other
logistics
companies
to
better
control
their
clients’
container
destiny
and
be
able
to
respond
to
crises
quickly.

Maersk
has
more
than
20
aircraft
with
regular
global
flights
around
the
world
and
just
like
other
carriers,
has
access
to
place
freight
in
the
belly
space
of
the
major
airlines.
There
is
also
the
ability
to
move
the
cargo
by
rail.

CNBC
has
learned
that
for
cargo
in
ports
where
re-routed
ships
cannot
call,
smaller
feeder
vessels
will
be
deployed
to
pick
up
those
containers
and
those
vessels
will
then
travel
to
a
larger
port.
Once
there,
the
containers
will
be
loaded
onto
container
vessels
with
more
carrying
capacity
and
continue
on
the
longer
ocean
journey.
 

To
help
clients
decide
what
shipping
routes
to
use,
OL
USA
has
supplied
a
map
to
break
out
the
delays
on
the
ocean
routes
for
future
orders.

Air
freight
price
spikes

U.S.
shippers
have
several
ocean
route
options,
but
European
shippers
do
not.
Europe
heavily
depends
on
the
Suez.
The
re-routing
for
Europe
has
a
longer
transit
time
than
the
United
States
and
as
a
result,
European
shippers
are
looking
to
the
air
to
move
their
products.

Judah
Levine,
Freightos
head
of
research,
said
while
the


Freightos
Air
Index
daily
rates
for
China
to
N.
Europe
shipments
had
been
declining
since
late
November,
the
push
to
air
this
week
has
fueled
air
freight
prices.

“This
week
they’ve
increased
13%
from
$3.95/kg
to
$4.45/kg
since
ocean
carriers
made
widespread
diversion
announcements,
possibly
reflecting
an
increase
in
air
cargo
demand
from
ocean
to
air
shifts,”
said
Levine.

Brian
Bourke,
chief
growth
officer
of
SEKO
Logistics,
says
the
severity
of
a
Red
Sea
impact
on
the
global
supply
chain
all
depends
on
the
length
of
time
of
the
re-routing.

“Every
day
this
continues
it
escalates,
starting
with
Europe
and
then
the
U.S.
East
Coast,
you
will
start
to
see
more
conversion
from
ocean
freight
to
air,”
said
Bourke.
“Starting
with
higher
value
goods
like
consumer
electronics,
high-value
consumer
product
goods
and
fashion
apparel.
This
is
due
to
the
longer
lead
times
that
will
increase
inventory
carrying
costs
and
working
capital
which
justifies
the
higher
cost
to
move
goods
much
faster.”

In
an
advisory
to
clients,
shipping
company
HMM
wrote,
“Given
the
intricate
nature
of
the
current
circumstances,
HMM
faces
the
decision
of
implementing
a
waiting
period
of
undetermined
duration
or
exploring
alternative
routes
with
additional
costs.”

A
global
inflation
warning

The
sudden
jump
in
ocean
freight
and
its
inflationary
impact
also
depends
on
the
duration
of
the
vessel
re-routing
and
the
length
of
time
shippers
pay
the
higher
freight
costs.
Logistics
CEOs
tell
CNBC
once
the
timeline
hits
the
one-month
mark,
inflationary
pressures
will
be
felt
and
seen
in
the
supply
chain
and
eventually
at
the
consumer
level.

CNBC

previously
reported
that
MSC,
the
world’s
largest
ocean
carrier,
was
the
first
ocean
carrier
to
increase
rates
from
India
by
30-40%.

“To
many,
the
jump
in
rates
from
India
to
the
USEC
[U.S.
East
Coast]]
from
approximately
$2,000
per
40-foot
container
to
$7,000
per
40-foot
container
in
just
30
days
appears
egregious,”
Baer
said. “Is
this
rate
increase
really
the
level
required
to
recover
costs,
or
are
they
simply
taking
advantage
of
an
unfortunate
situation
for
the
entire
global
community?”

Baer
said
shippers
need
stable
pricing
and
vibrant
economies
to
generate
demand.
MSC
did
not
immediately
respond
to
a
request
from
CNBC
for
a
comment
on
its
rate
increases.
Traditionally,
ocean
carriers
do
not
expand
upon
information
released
in
their
client
advisories.

Logistics
CEOs
who
have
spoken
with
CNBC
say
they
would
like
more
transparency
on
cost
increases
since
the
ocean
carriers
are
no
longer
paying
the
$500,000-$600,000
toll
to
pass
through
the
Suez
Canal
but
are
increasing
rates.

Retailers
in
the
American
Apparel
and
Footwear
Association
are
closely
watching
the
situation
in
the
Red
Sea
and
they
are
urging
the
full
and
immediate
deployment
of

Operation
Prosperity
Guardian
to
ensure
the
protection
of
the
vital
waterway.
 

“With
98%
of
apparel
imported,
it
is
absolutely
essential
to
have
safe
and
affordable
shipping,”
said
Steve
Lamar,
CEO
of
AAFA.
“Members
are
already
being
forced
to
divert
goods
and
are
encountering
surcharges.”

He
alluded
to
the
2021
Suez
Canal
obstruction
as
an
example
of
how
any
disruption
in
the
trade
gateway
has
immediate
implications
for
the
delivery
and
cost
of
goods.

Federal
Maritime
Commission
Chairman

Daniel
Maffei
told
CNBC
earlier
this
week
that
it
is
monitoring
the
situation
and
are
aware
of
shipper
concerns.

Jon
Gold,
vice
president
of
supply
chain
and
customs
policy
for
the
National
Retail
Federation,
said
its
members
continue
to
work
with
ocean
carrier
partners
to
address
the
ongoing
situation
in
the
Red
Sea
and
Suez
Canal.

“These
disruptions
are
adding
two
or
more
weeks
to
transit
times
for
retailers,
resulting
in
increased
rates,”
said
Gold.
“As
supply
chains
have
begun
to
normalize
again,
the
added
pressure
from
these
additional
costs
and
delays
could
have
a
significant
impact.”