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Red Sea incident, freight rates double! Shippers face enormous pressure

With global shipping giants avoiding the Red Sea route, container transportation between Asia, Europe, and the United States faces significant challenges. The outbreak of the Red Sea crisis has led to frequent attacks on ships, forcing vessels to take detours and significantly prolonging travel times. This change not only affects the logistical efficiency of global trade but also triggers soaring freight rates, putting immense cost pressure on shippers.

According to data from Freightos on Wednesday night, the spot freight rate for shipping a 40-foot container from Asia to Northern Europe has surpassed $4,000, a 173% increase since the mid of last month when the Red Sea crisis escalated. This steep rise in freight rates is not an isolated case but rather a widespread phenomenon worldwide. The 40-foot container freight rate from Asia to the Mediterranean has climbed to $5,175. What’s more shocking is that some carriers have announced that freight rates on the Mediterranean route will exceed $6,000, with additional fees pushing the total price even higher.

In the past few days, the shipping volume through the Suez Canal has decreased by over a quarter due to ships choosing to bypass the Suez Canal to avoid attacks from Houthi rebels. The route around the Cape of Good Hope, instead of going directly through the Suez Canal, takes an additional 25% more time. This undoubtedly exacerbates transportation delays and further disrupts the global trade network.

Faced with this challenging situation, shippers are encountering significant risks and pressures. They not only have to cope with skyrocketing freight costs but also deal with the risk of delayed shipments. For companies that rely heavily on global shipping, they have to reconsider their supply chain strategies to address this unprecedented crisis.

Take the UK family business Boxer Gifts as an example, which specializes in designing games and seasonal gift production primarily done in mainland China. Due to transport delays and price increases caused by the Red Sea crisis, a portion of the company’s product costs has surged by 250%. Thomas O’Brien, the owner of Boxer Gifts, said their company heavily relies on global shipping but is now facing the risk of exorbitant shipping costs and delays in product shipments. He points out that the extended transit time could result in shipment delays of 2 to 3 weeks, causing them to miss critical sales periods such as Valentine’s Day and Mother’s Day.

It is not just Boxer Gifts; many UK business owners express similar concerns. They face massive cost pressures and sales risks, forcing them to reconsider supply chain strategies and business models. The Red Sea crisis has had far-reaching impacts on global shipping, reshaping trade patterns and logistics networks.

Under the pressure of surging freight rates and transportation delays, shippers have begun to reevaluate their collaboration with shipping companies. They hope to establish closer partnerships to ensure transportation stability and reliability. Moreover, shippers also aim to negotiate better terms and conditions in long-term contracts to ensure stability and predictability in freight costs.

However, despite the significant challenges and pressures, shippers need to remain calm and rational. They must carefully analyze market conditions and their own situations to develop reasonable response strategies. At the same time, they need to enhance communication and collaboration with shipping companies to jointly address this crisis.

In conclusion, the Red Sea crisis has had profound impacts on global shipping, causing soaring freight rates and transportation delays. Shippers face tremendous cost pressures and sales risks, necessitating a review of supply chain strategies and business models. Strengthening collaboration and communication with shipping companies are crucial at this critical moment. Only through collective efforts and cooperation can we overcome this crisis and restore stability and development to global trade.

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