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Global News Container lines unleash surcharges linked to Red Sea diversions as spot rates jump

Registration dateJAN 09, 2024

Greg Knowler, Senior Editor EuropeDec 21, 2023, 11:25 AM EST
Articles reproduced by permission of Journal of Commerce.

Greg Knowler, Senior Editor Europe
Dec 21, 2023, 11:25 AM EST
Articles reproduced by permission of Journal of Commerce.

Container lines unleash surcharges linked to Red Sea diversions as spot rates jump Eight of the world’s top 10 container shipping lines are now rerouting their vessels around the Cape of Good Hope. Photo credit: CMA CGM.
European cargo owners are about to be hit hard in the wallet as spot rates surge and ocean carriers begin imposing additional charges to cover the costs of rerouting vessels around the southern tip of Africa to avoid attacks in the Red Sea.

Eight of the world’s top 10 container carriers are now sailing around the Cape of Good Hope, with Cosco, parent of Cosco Shipping, and OOCL becoming the latest to announce suspensions through the Suez Canal.

As of Thursday, 121 container ships with a capacity of 1.6 million TEUs were taking the longer route, according to Kuehne+Nagel, and that number is expected to grow significantly as more ships are diverted. With an additional 6,000 nautical miles and at least 10 days tacked on to a standard Asia-Europe transit of about 40 days — and carriers speeding up vessels to mitigate the impact on schedules — the costs of diverting are believed to be as high as $2 million per ship.

What is clear is that carriers will pass those costs on to customers.

Mediterranean Shipping Co. from Jan. 1 will impose what it calls a “contingency adjustment charge” of $500 per TEU and $1,000 per FEU on shipments from Europe to Asia and the Middle East. Hapag-Lloyd said it will levy an “operational recovery surcharge” of $500 per TEU from Europe to Asia and Oceania.

CMA CGM has already implemented a “Red Sea charge” of $2,700 per FEU for all cargo being shipped to or from Red Sea ports.

“The rerouting of these vessels is a precautionary measure taken to navigate away from potentially unsafe areas,” CMA CGM said in a customer advisory this week. “...[W]hile we understand it may impact your logistics and supply chain operations, it is a necessary step which comes with a cost.”

That “necessary step” is being driven by accelerating attacks against commercial shipping in the form of missiles and drones launched by Houthi rebels from southern Yemen, an extension of the Israel-Hamas war in Gaza. The US this week announced the creation of a multinational naval force to thwart the attacks and restore security to the Red Sea and Gulf of Aden.

CMA CGM is the first carrier to implement a Red Sea-related surcharge for Asia to Mediterranean shipments and as of Dec. 20 has introduced a "contingency charge" of $1,000/FEU on the westbound trade lane, and a $525/FEU charge for eastbound North Europe and Mediterranean shipments to Asia. Carriers have also lined up a range of freight-all-kinds (FAK) rate increases and peak season surcharges for the headhaul trade lane from Jan. 1. The “peak season” relates to a traditional rush to ship cargo out of China before factories close for the Lunar New Year that begins Feb. 10.

CMA CGM and Hapag-Lloyd starting Jan. 1 will impose a $1,000-per-FEU peak season surcharge on cargo from all main Asian ports to the Mediterranean and North Africa. On Asia-North Europe, MSC, CMA CGM and Hapag-Lloyd will set FAK rates at $3,000 per FEU.

Zim Integrated Shipping Services last week set its FAK rates for Asia to Israel and Turkey at $3,260 per FEU. Several ocean carriers, including Zim, also have “war risk” surcharges in place for shipments to and from Israel. Sharp rise in rates The FAK rates are set at levels significantly higher than the current spot market, despite sharp increases in spot rates over the past two weeks. Average spot rates from North Asia to the Mediterranean have risen 25% since mid-December to $2,300 per FEU, according to Platts, a sister company of the Journal of Commerce within S&P Global.
Red Sea attacks drive spike in Asia-Europe rates
Rate benchmarking platform Xeneta shows spot rates from Asia to the Mediterranean are up 22% to $2,284 per FEU since mid-December, with Asia-North Europe rates up approximately 13% at $1,714 per FEU. Drewry’s World Container Index shows Shanghai to Rotterdam rates rising 16% this week to $1,667 per FEU, with rates from Shanghai to Genoa up 15% to $1,956 per FEU.

On the Asia to US East Coast trade, average rates assessed by Drewry have increased 8% in the past week to $3,074 per FEU. Platts data shows rates on that trade lane up 16% over the same period to $2,900 per FEU.

Given current circumstances, the Jan. 1 rate increases on Asia-Europe are likely to stick, with shippers — fresh off paying record-high rate levels in 2021 and 2022 — resigned to the fact prices are on the rise again.

“We expect carriers to somewhat exploit the situation and call for all sorts of emergency additionals ... [T]hey will do whatever it takes to push rates up for as long as they can,” the logistics director for a European retailer told the Journal of Commerce Thursday.

Michael Aldwell, board member for sea logistics at Kuehne+Nagel, said container shipping’s response to the Red Sea attacks was exacerbating a trend of declining schedule reliability on the part of carriers.

“The on-time performance of carrier schedules has decreased by 8 percentage points, reaching 60.8% [in November],” Aldwell said in a statement this week, adding that the trend could be seen across all major trade lanes except for the trans-Pacific.

A spokesperson for Hapag-Lloyd told the Journal of Commerce the carrier’s vessels were sailing “significantly faster,” but voyages would still take one to three weeks longer given the diversions around southern Africa. Contingency plans dusted off Delays at European ports are already being anticipated as diverted westbound ships cause changes to arrival times, forcing shippers and forwarders to dust off contingency plans filed away for much of the year.

The European retailer logistics director has asked carriers for the earliest possible departure slots once cargo is ready for shipment from factories in Asia to reduce the risk of late deliveries, but he said that service came at a higher rate.

“We are considering some ad hoc rerouting, such as discharging in Barcelona instead of Rotterdam and then priority trucking with on-carriage at a higher cost, but at least we will be on the shelves in time which is always the priority,” the source said.

“We are suffering somewhat from lack of information from shipping companies – predominantly ... which ship will arrive where and when,” he added. “We have some info on some vessels and nothing on others so it’s a mixed bag.”

The extended time that vessels spend on the water will absorb an estimated 20% of the global fleet capacity, according to Aldwell, leading to potential delays in the availability of shipping resources.

“Delays in returning empty equipment to Asia are likely to pose challenges, further impacting the overall reliability of supply chains,” he said. “We anticipate issues at some discharging terminals due to updated arrival dates and the complexity of replanning needs. The situation is dynamic, and we expect a certain level of disruption in the reconfiguration of these networks.”

A spokesperson for Hellmann Worldwide Logistics also highlighted the challenges that would be experienced in the coming weeks.

“We will probably see further supply chain disruptions such as capacity shortages due to the longer transit times and port omissions, and longer transit time also means more containers are needed on very short notice,” the spokesperson said.
· Contact Greg Knowler at greg.knowler@spglobal.com.