Since November, Yemen-based Houthi militants have been attacking high-value cargo ships in the Red Sea in support of the Palestinian Islamist group Hamas, which is fighting Israel in Gaza. It has forced ships to reroute around Africa’s southern tip, increasing the cost of the longer voyage, though rates are still far below pandemic levels reached in 2021.
The Suez Canal in Egypt connects the Red Sea to the Mediterranean Sea and is the quickest way to transport fuel, food, and consumer goods from Asia and the Middle East to Europe. The route is used by shippers to transport up to one-third of all global container cargo, including toys, tennis shoes, furniture, and frozen food.
Because the Suez route is used by companies such as IKEA, Walmart (WMT.N), and Amazon (AMZN.O), the attacks are already causing delays in product delivery.
According to Freightos (CRGO.O), an international freight booking and payment platform, rates from Asia to North Europe more than doubled this week to more than $4,000 per 40-foot container, with rates from Asia to the Mediterranean rising to $5,175.
Some carriers have announced rates above $6,000 per 40-foot container for Mediterranean shipments beginning in mid-month, and surcharges ranging from $500 to $2,700 per container could drive up overall prices even further, according to Judah Levine, Freightos’ head of research, in an email.
Hundreds of container ships and other vessels have been rerouted around Africa’s southern Cape of Good Hope to avoid the attacks as of Wednesday, adding 7 to 20 days to their journeys.
According to logistics executives, these so-called one-time “spot” rates are roughly double the rates for freight that moves on the contract market.
“People desperate to get space (on ships), are going to pay,” said Christian Sur, executive vice president for ocean freight at Unique Logistics.
Rates to less-affected North American ports are also rising.
The Suez Canal transports up to 30% of cargo arriving on the East Coast of the United States. Some of those imports are expected to be diverted to the United States’ West Coast, which is a straight shot across the Pacific Ocean from China and other Asian exporters.
Rates for shipments from Asia to the East Coast of North America increased 55% to $3,900 per 40-foot container. West Coast prices increased 63% to more than $2,700 ahead of anticipated cargo diversions to avoid Red Sea-related issues, according to Levine.
While rates have risen, they are still far below the pandemic-fueled record highs of $14,000 per 40-foot container from Asia to North Europe and the Mediterranean set in 2021, and $22,000 from Asia to North America’s East Coast.