Transportation & Logistics Analysis

Container traffic disruption set to continue in Red Sea

April 12 2024

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BAROMETER. Traffic is still being disrupted in the Red Sea, but this has not prevented freight rates between Asia and Europe from flattening out.

Thierry Blein, supply chain risk manager at the Renault automobile group, who was invited to speak at a conference entitled "Fifty shades of risk : what strategies should be adopted in an era of uncertainty" at the SITL 2024 transport and logistics trade fair in Paris on 19 March, came up with a powerful expression which spoke volumes about the current situation. "We are certain that the chaotic world that we have known during the last three or four years, with major crises coming one after another, is going to exist for a long time yet," he said. "It is what we at Renault call the New Never Normal." The automobile group has adapted to the situation by taking three major decisions. It has attached its supply chain department to the group's general management structure, created the post of supply chain risk manager and invested massively in digitalisation and artificial intelligence.

The least one can say is that the container shipping sector is very much part of the new reality, with its crises and uncertainty. The most recent example has been the resurgence of conflict in the Middle East, with its consequences for the ocean freight rate market following the start of the Houthi attacks on shipping in the Red Sea. Just as the sector was preparing for a period of low rates and weak demand, this sudden and unexpected event occurred, completely changing the situation during the final part of the fourth quarter of 2023 and the first quarter of 2024.

Freight rates no longer overheating

The month of March completed a first quarter which turned out to be as positive as it was unexpected for the financial results of the shipping companies and the big international forwarders. The break in the clouds was a surprise, since the financial results of the big shipping companies in the fourth quarter of 2023 had deteriorated markedly, even if the profits earned at the start of the year were enough to keep full-year results positive.

At the end of March, however, the rates boom came to an end, even though the cape routes, particularly the route round the Cape of Good Hope, have become the normal mode of operation in the ongoing geopolitical situation.

New sailing conditions

The "new normal" involves longer voyages but with a lower number of breaks. The journey round the Cape of Good Hope also brings with it sailing conditions which involve greater variations of climate, given that it repeatedly switches from one hemisphere to another. This needs to be taken into account in several ways:

  • Crew management needs to change, given the impact on working conditions.
  • Engines are having to function at different temperature and hygrometry levels.
  • Goods in dry containers need to be better protected according to their sensitivity to the risk of condensation. Shippers need to rethink the conditioning of certain cargoes to take account of variations in temperature and hygrometry levels.

If the route changes last, they are going to have an impact which goes well beyond increases in freight rates, transit times and ship fuel consumption. For the time being, these issues are little known about, since there has only been limited feedback, but the points raised above should not be neglected (...)

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Expert in Ocean shipping for 25 years, Jerome puts all his knowledge of the industry to contribution for Upply. Ship captain at heart, he has written the English-French Lexicon of Containerized Shipping (Paris: CELSE, 2001).
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