Red Sea Crisis
We are facing a major threat on safety, transit, price and availability of cargo shipping from Asia to the United States as a result of the escalating crisis occurring in the Red Sea. You may have seen news reports or read posts from logistics providers about a growing situation in the Red Sea. I would like to provide a bit more clarity and big picture summary of the issue at hand.
Cargo to the United States (East Coast) typically utilizes one of two passages; the major one being Panama Canal, and the less prevalent route, The Suez Canal. Ships have been heavily diverted to the Suez Canal (located in Egypt) because of long-term drought issues plaguing Panama. The issue at hand, today, is that access to the Suez Canal requires vessels to transit the Red Sea coming from Asia. Militant groups have begun extremely aggressive offensive attacks of vessels in the Red Sea, including oil tankers and cargo vessels. The primary group is Houthi Militants backed by Iran, based in Yemen launching attacks from an area called Bab-el-Mandeb. Thus far, there have been widespread reports of drone and light missile attacks launched at vessels making transit through the region. Yesterday, there were four new attacks, one including a missile fired upon MSC Clara (missed the vessel) and later a Houthi ballistic missile successfully struck the oil tanker Swan Atlantic.
The US Navy is routing the USS Dwight D. Eisenhower and a strike Group towards the Gulf of Aden from its current position in the Arabian Sea. Other countries including France, Britain and Japan have joined the coalition and promised to ramp up presence and protection to vessels in the area, however the current impact to cargo vessels is not positive. These three countries already have vessels present in the region attempting to eliminate threats. All ships have been turned around and no ships will continue on this route at this time. As of yesterday, 55 cargo vessels in route to Suez turned and are now making their way to the Cape of Good Hope.
The result of this is going to impact transit times, pricing, congestion and availability of vessels. With Panama Canal nearly out of service and Suez unavailable, carries have only one option. Ships must transit around the Cape of Africa (Cape of Good Hope) making transit to USEC. This adds at minimum, about 12-14 days. As a result of the +12-14 day timeline, ships will not be able to make regular weekly calls of ports on both the North American and Asian side. Overall, delays are approaching 30 days per vessel on end-to-end service.
The timeline for correction and the overall market impact is impossible to determine at this point with the issue so fresh. However, we urge all clients to adjust supply chain fulfillment timelines immediately. We recommend shipping goods an extra 30 days ahead of time if there are critical receiving dates. We also recommend considering US west coast + rail routings for any immediately urgent cargo. It is extremely likely that steamship lines will use this situation as a mechanism to increase freight rates as well. While we don’t anticipate any “COVID” similar price hikes, it is well within reason to see Peak surcharges in the range of $500-$1500 short term.
Please feel free to contact Chain Logic with any questions.
