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Supply Chain disruptions continue in the Red Sea

Container rates soar, fuel inflation to continue

Supply Chain disruption in Red Sea to continue in 2024 - Celerity Supply Chain Tribe

This week, shipping rates for major global trade routes have surged due to heightened tensions. The U.S. and UK have launched air strikes in Yemen, targeting Iran-backed Houthi forces responsible for attacks on Red Sea shipping. This escalation in the ongoing regional conflict, which includes Israel's war in Gaza, has sparked concerns about sustained disruptions in the Red Sea, a critical global trade artery.

The situation has led most container ships to avoid the Suez Canal, a key Asia-Europe shortcut handling 12% of global trade. With the U.S. and UK advising ships to avoid the conflict zone, there's an increased likelihood of rising costs for oil tankers and bulk carriers transporting essential goods, potentially triggering another wave of global inflation.

The Shanghai Containerized Freight Index, a benchmark for container shipment rates from China, rose over 16% in a week to 2,206 points, marking a 114% increase since mid-December. Major container shipping companies, such as Maersk and Hapag-Lloyd, are diverting their Suez Canal-bound vessels to the longer route around Africa's Cape of Good Hope, causing delays and doubling rates on affected routes, although these remain lower than pandemic peaks.

Diverting a ship to this longer route adds about 10 days and $1 million in fuel costs per one-way trip between Asia and Europe.