Red sea shipping disruption rages on and the impact will continue well into 2024
The Red Sea shipping crisis is still growing as almost half of vessels have been rerouted around the Cape of Good Hope in January. This has already more than tripled container rates, and delays and knock-on effects may drag on to the second quarter.
No quick fix for Red Sea shipping risks, impact potentially drags on to 2Q
2023 ended with new disruptions for trade and supply chains following the security crisis in the Red Sea and there’s no end in sight yet. To avoid Houthi militant attacks on their vessels in the Gulf of Aden and the Red Sea, shipping companies and their clients continue to avoid the major Suez Canal route - handling some 12% of global trade - and are rerouting their vessels around the Cape of Good Hope.
Sailing around the Cape saves Suez Canal fees but adds some 3,000-3,500 nautical miles (around 6,000 km) to the journeys connecting Europe with Asia. At a speed of 14 knots, this means over 10 days is added to the length of the trip, potentially running up to two weeks.
The disruption has raged on for almost four weeks now, and the US-led naval operation ‘Prosperity Guardian’ has not yet succeeded in removing threats and providing a corridor safe enough to resume transit. And risks are unlikely to disappear anytime soon amid intensified incidents, the ongoing war in Gaza and associated geopolitical tensions in the Middle East. This is rattling the shipping sector as well as shippers and supply chain partners down the line, and the knock-on effects could take us well into 2024.
Number of vessels entering the Red Sea has almost halved in the first week of January compared to last year
Daily* number of vessels crossing Bab el Mandeb strait end of 2023-early 2024 year-on-year
Vessel crossings nearly cut in half as number of rerouted vessels mounts
From mid-December onwards, shipping companies and their clients and charterers started to avoid the risky Gulf of Aden and Bab al Mandeb sea strait (30 km), which is the entrance to the Red Sea and the route to the Suez Canal. And these numbers are still increasing. In the first week of January 2024, around 220 fewer vessels took this route compared to the previous year (-41%) and the figure is on a downward track, meaning the rerouting of vessels is still mounting. As many ultra-large vessels are among those being redirected, the impact on trade volumes is even bigger (-47%).
Roughly half of the shipped tonnage crossing the canal are containerised goods making it the most important artery for container trade. The trade lane is also a vital corridor for shipping oil and oil products from the Persian Gulf to Europe and the US (some 20-25%).
Container vessels most at risk from Red Sea troubles
Most of the rerouted vessels carry general cargo and particularly containers. Car carriers sailing from Asia are also being diverted, but these make up a small cargo fraction. In the three weeks after mid-December, some 80% of the container vessels on the route have been forced to change course, a level which reached 90% in the first week of January (according to Clarksons). Market leaders MSC and Maersk have diverted over 60 container vessels around the Cape in just three weeks. Other larger container liners, Hapag Lloyd, Cosco, ONE, Evergreen, HMM and ZIM have followed suit. CMA-CGM continues to use the route but is also opting for detours. All in all, this effectively means that 9 out of 10 containers on the Suez Canal route are currently sailing a longer way. As a result, global container capacity depletion could potentially go up by 20-25%.
The number of Red Sea sailings has dropped the most for general cargo vessels (including especially container ships)
Daily number of vessels crossing Bal el Mandeb strait per type (rolling seven-day average)