European and American shipping prices soared, and the Red Sea crisis hit the cross-border circle

Cross-border logistics has been hit head-on.

This week, a MSC ship was attacked in the Red Sea, breaking the seemingly improving situation of the Red Sea crisis. Major shipping companies are divided over whether to bypass or enter the Red Sea. Maersk and CMA CGM plan to let some ships go through the Red Sea first, while MSC and Hapag-Lloyd choose to bypass. Regardless of which route is taken, freight rates are rising sharply, affecting routes from Asia to Europe, the Mediterranean and the East Coast of the United States.

Currently, the price of a 40HQ cabinet in Europe has risen to more than 4,000 US dollars, and will directly reach 6,000 US dollars in January. The European shipping quotes received by cross-border sellers will increase by at least 1 yuan /kg, and some companies have already increased their quotes by 2-3 yuan/ kg ; the US price is also expected to rise by 0.5 yuan /kg.

In addition to rising costs, ocean shipping also faces the risk of delays. Sellers who plan to prepare goods before the Spring Festival should consider shipping in advance. Under the current circumstances, whether to choose to ship through the Red Sea, bypass ships, or China-Europe trains, trucks and other channels has caused considerable discussion. Before the Red Sea crisis is resolved, the shipping difficulties will continue.

The Red Sea crisis escalates, and freight rates on European and American routes surge

After the outbreak of a new round of Palestinian-Israeli conflict, the Houthi armed forces in Yemen repeatedly attacked "Israeli-related" ships in the Red Sea in support of Palestine, triggering a crisis in many shipping routes such as Asia and Europe. Many shipping companies suspended the Red Sea route and diverted to the Cape of Good Hope. The shipping price soared sharply. Now the incident has escalated again. Let's quickly go through the whole process of the Red Sea crisis:

Since November, several cargo ships have been attacked by Houthi militants in the waters near the Bab el-Mandeb Strait and the Red Sea;

On December 15-16, Maersk, CMA CGM and other giants announced the suspension of the Red Sea route;

On December 18, the United States announced the establishment of an international alliance to protect navigation in the Red Sea;

On December 19, Maersk announced that it would abandon the Red Sea route and ship around the Cape of Good Hope in Africa, and many shipping companies followed suit;

On December 24, Maersk announced that a multinational escort alliance had been formed and plans to resume sailing in the Red Sea. Afterwards, several ships that had taken the detour turned around and returned to the Red Sea route.

On December 26, a MSC container ship was attacked while crossing the Red Sea, and tensions in the Red Sea escalated...

Last week, when hundreds of ships resigned themselves to their fate and diverted to the Cape of Good Hope, Maersk sent a positive signal by planning to resume sailing in the Red Sea. Afterwards, many ships under CMA CGM, Evergreen and other companies ended their detours and turned back to the Red Sea. But then an MSC ship was attacked, causing the Red Sea route to flash red lights again. Obviously, the role of the escort alliance (OPG) is limited, and European shipping is back to a dilemma.

Now, the voyage of the liner ships that take the detour has increased by more than 3,000 nautical miles, the turnover rate of ships has dropped by 30%, and the shipping capacity has been reduced; and crossing the Red Sea is not only risky, but also faces high escort fees. Therefore, various Red Sea surcharges have been introduced, and combined with the skyrocketing container prices, the freight rate changes almost every day.

Shenzhen freight forwarder Jack Chen said that the OOCL and COSCO ships are sailing around the Cape of Good Hope, and the price of shipping containers to the UK has risen to about 4,000 USD/40HQ, with a unit price of about 5 yuan/kg. According to the notice just received, the price will increase by 1,850 USD in the next batch, and the price increase for cross-border sellers will be close to 200 yuan per cubic meter, and more than 1 yuan per kilogram. Some quotations in the market have increased by 2-3 yuan, and the price has increased by half.

Not only the European route, but also the China-US route has been affected. In addition, shipowners have raised freight rates on the West and East Coast of the US since January . It is expected that the price on the US route will increase by 0.5 yuan per kilogram .

Why is the US route also involved? On the one hand, due to the severe blockage caused by water shortage in the Panama Canal, some ships have changed their route to the east coast of the United States via the Suez Canal. Now these ships have to go around the Cape of Good Hope, and the westbound US East Coast route has been lengthened again. However, most westbound US East Coast routes have cancelled the Suez Canal. On the other hand, after the European route was lengthened, some shipping companies may be forced to transfer some routes to Europe, resulting in a decrease in US route capacity and an increase in prices.

Overall, the overall growth of the European route is amazing. On December 22, the market freight rate for Shanghai exports to Europe was US$1,497/TEU, up 45.5% from last week and 111.7% from five weeks ago; the freight rate for the Shanghai-Mediterranean route was US$2,054/TEU, up 30.9% from the previous week and 79.1% from five weeks ago.

A freight forwarder lamented, "In the last few days of December, the price of a 40 HQ high cabinet on the European route has risen from more than 1,000 to more than 4,000, and in January it soared to more than 6,000." Freight rates have risen and shipping space is tight. A seller said that he had finally managed to get shipping space to Europe, and after the freight rate went crazy next month, the difference in price would be at least the price of an iPhone.

The price increase is acceptable, but it would be a headache if the goods were rejected. On the 26th, an emergency notice issued by Evergreen Shipping caused a brief panic in the industry.

The company said that in response to the attack on the container ship in the Red Sea, for the safety of the ship, cargo and crew, it has decided to suspend the collection of cargo that originally arrived in the Red Sea via the Bab el-Mandeb Strait. For containers that have been picked up and entered the port but not loaded onto the following ships, customers are requested to empty and return the containers themselves and bear the corresponding costs.

It seems that the goods that originally passed through the Red Sea were rejected, but the industry believes that this is more like an excuse for price increase. If the seller insists on continuing the transportation, he will have to bear the relevant responsibilities and risks. At the same time, Evergreen Shipping will charge an additional shipping fee of USD1700/20' and USD2600/40' on top of the original freight.

In fact, shipping companies have collectively started to raise prices. CMA CGM charges a Red Sea surcharge or Cape of Good Hope surcharge, with the Red Sea surcharge standard being USD 1,575/TEU, USD 2,700/FEU, and USD 3,000 per refrigerated container and special container; MSC charges an emergency operation surcharge, with the standard being USD 1,200/TEU, USD 1,500/FEU, and USD 2,000 per refrigerated container. Maersk, Hapag-Lloyd, etc. have also announced to charge additional freight.

Sellers' interest rates will be affected, and stocking up before the Spring Festival should be accelerated

The Red Sea-Suez Canal is the main channel for maritime trade between Asia and Europe , and the volume of goods passing through the Suez Canal each year accounts for about 10% of the world's total maritime trade. The Red Sea crisis has led to a sharp increase in freight rates on most routes such as the trans-Asia-Europe route and the Pacific, directly impacting domestic and foreign trade companies and cross-border sellers.

Home furnishing giant Zhiou said that the Red Sea incident was force majeure, and some airlines may increase fees, affecting the company's gross profit margin. If the route is detoured to the Cape of Good Hope, the freight cycle to Europe will be delayed by about 7-15 days. In the short term, it will mainly affect the company's containers scheduled to arrive in early February. The company will re-plan the freight cycle based on the latest situation.

From January to September this year , the shipping costs from domestic ports to destination ports accounted for about 2.26% of Zhiou's main business income. Zhiou's overseas transaction modes include CIF and FOB, and the shipping costs are mainly borne by itself. Although Zhiou has signed a long-term contract on the European line, it has encountered force majeure factors, and the freight forwarder and the company are negotiating the future settlement price.

In contrast, companies that follow the FOB model (buyer pays for freight) have it much easier. When Giant Star Technology responded to the impact of the Red Sea incident, it said that the company's export orders are mainly priced on FOB basis, and the shipping costs to Europe account for a very small proportion of the company's costs.

Rising costs affect profits, and route delays will disrupt the rhythm of stocking. For those who originally planned to ship on the last ship before the holiday, the delivery time will be even tighter. If the goods are piled up, it will further affect shipping after the New Year. Sellers who are tight on stocking may face the risk of out-of-stock.

After shipping companies began to suspend the Red Sea routes and start detouring, many sellers received news from freight forwarders: some of their cargo orders were affected by the Red Sea war, and shipping companies notified that all cargo from the Suez Canal to Europe would need to detour to the Cape of Good Hope, and the voyage would also be affected. The specific arrival time is subject to the official website of the shipping schedule.

For example, Evergreen Marine announced that container ships originally scheduled to sail through the Red Sea on long-distance routes connecting Asia to the Mediterranean, Europe and the east coast of the United States will be diverted to bypass the Cape of Good Hope and continue sailing to the destination port. After the detour, the delay time notified by the shipping company is basically around 10 days. For example, the cargo originally expected to arrive at the port on January 4 is expected to be delayed to January 13.

The peak period for shipments is before the Spring Festival, and most sellers will prepare several months' worth of goods before the festival. Therefore, for sellers who plan to ship before the festival, it is recommended to prepare goods in advance.

Logistics professionals in the industry analyzed that after the Spring Festival every year, there will be about two to three weeks of idle time because factories have not yet resumed work and the shipment volume is low. There may not be too much cargo in February this year, and there is a chance that freight rates will gradually return to normal. Therefore, sellers do not need to worry too much about rising freight rates. If they are not in a hurry to replenish stocks, they can postpone it until after the New Year, and the price will be relatively lower.

Detour VS Red Sea, what are the alternatives for European shipping?

In mid-December, after several shipping companies suspended their Red Sea routes, the United States announced the establishment of Operation Prosperity Defenders (OPG), claiming that it would join forces with Canada, France, Italy, the Netherlands, Norway, Spain and other countries to respond to security challenges in the southern Red Sea and the Gulf of Aden and ensure freedom of navigation for all countries.

Only after confirming that the multinational escort alliance had been formed and the escort force had been dispatched did Maersk express its intention to resume east-west transportation in the Red Sea. But can this escort team ensure safe navigation in the Red Sea? In a survey initiated by Sohang.com, 73% of people believed that OPG could not alleviate the Red Sea crisis.

Figure 1

This is indeed the case. On the 26th, MSC United VIII was attacked on its way from Saudi Arabia to Pakistan. Although there were no casualties, its company Mediterranean Shipping Company stated that "the top priority remains to protect the lives and safety of seafarers. Until their safety is guaranteed, MSC will continue to divert ships scheduled to transit the Suez Canal to the Cape of Good Hope."

The new attacks have forced many shipping companies to abandon their fluke mentality and honestly take detours. Under this situation, what channels should foreign trade companies and cross-border sellers who need to ship to Europe choose? Should they take detour ships or cross the Red Sea? Or should they use China-Europe trains or Qatar Airways to replace sea transportation?

The above survey shows that 46% chose "ships bypassing the Cape of Good Hope", 15% chose "OPG Alliance escort ships", and 38% chose alternatives such as the China-Europe Express.

In terms of timeliness, the voyage around the Cape of Good Hope takes 37-45 days, which is relatively long; the voyage through the Red Sea under escort takes about 30 days, but the problem is that it is risky and unstable; in comparison, the China-Europe express train takes 17-26 days, which is fast and time-efficient.

The industry believes that under the current situation, the China-Europe Express is the best solution, but the premise is that space can be booked. A freight forwarder said that the number of inquiries for China-Europe Express business has more than doubled during the Red Sea incident, and some trains are now out of stock and cannot be booked. Before the Red Sea crisis, the price of China-Europe Express was several times that of sea freight. As sea freight prices continue to rise, the price disadvantage of the train has gradually narrowed. However, once users turn to China-Europe Express, problems such as difficulty in grabbing space, queuing for shipments, and price increases will follow.

The most critical problem is that the China-Europe express trains have limited capacity and it is difficult to take on the huge volume of shipments transferred from sea transport.

A logistics expert said, "In terms of cargo volume, a fully loaded train only has 55*40HQ, or 110TEU of containers, while sea-going vessels range from ships with a capacity of several thousand TEUs to ultra-large container ships with a maximum cargo capacity of 24,000+TEUs. Such a large cargo volume cannot be fully handled by railways. But it would be good for the trains to get a share of the sea-borne cargo, as sea transport accounts for more than 90% of the current global trade volume (containers, dry bulk, oil and gas and others)." Therefore, the China-Europe Express can only serve as a supplementary channel for emergency replenishment or export of high-value goods.

There are other options, such as Qatar Airways. But a freight forwarder revealed that the current price of Qatar Airways has risen. "I shook my head when I saw the contract price signed by the company, thinking, 'Will the market accept this price? Will customers accept it? Is there a lot of cargo in China now?'" At the same time, Qatar Airways did not rule out the possibility of delays.

Specific issues require specific analysis. Shenzhen freight forwarder Dapeng believes that the choice of channel also depends on the product. For example, for goods sent to Germany, there is a big difference between shipping by sea and shipping by Qatar Airways, with the cost difference being about double. "Most sellers will still use Qatar Airways or air freight for some replenishment as an emergency measure, but they will not switch all of their inventory to Qatar Airways or other channels at once, as the cost will be unbearable. For old sellers, they already have a longer inventory preparation cycle, so the impact of time delays is limited for them, but they will still be troubled by price increases."

In any case, more cargo transportation will still rely on sea transportation. But next, will many ships bite the bullet and take the Red Sea route or simply take a detour? If they take a detour, delays and freight increases are a foregone conclusion, but going straight into the Red Sea will not only be expensive, but will also face huge safety risks.

On this issue, most people think that they should take a detour, and the attack on MSC has further confirmed their view. "Under the current situation, it is hard to say when we will be attacked again if we sail through the Red Sea, and it is not certain how much the escort fee will be, and it will not solve the problem of rising freight rates. We should just wait and see."

Escort fees are also a considerable expense. A freight forwarder pointed out that the escort fee for warships is very high. CMA's escort fee for Red Sea warships is USD3000/20' cabinet. In comparison, it is much cheaper to go around the Cape of Good Hope. The Red Sea route is not a wise choice. In addition, the insurance cost of ships crossing the Red Sea has soared last week to about 0.5% of the hull value. Earlier this month, this figure was 0.1% to 0.2%.

However, there are still boat operators going upstream.

On Tuesday, CMA CGM said it was increasing the number of ships passing through the Suez Canal, and that it would return to the area along with Maersk following the U.S.-led effort to prevent attacks. "We are currently developing plans to gradually increase the number of ships passing through the Suez Canal," CMA CGM said in its latest message. "We are constantly monitoring the situation and are ready to quickly reassess and adjust our plans as needed." It can be seen that although CMA CGM decided to try, it lacked confidence in safe passage.

Maersk also announced last night that it plans to arrange dozens of container ships to pass through the Suez Canal and the Red Sea in the coming weeks.

But not all shipping companies are so stubborn. Hapag-Lloyd said that even after the launch of the US-led task force escort operation, it will still keep its ships away from the Red Sea and choose to complete ocean cargo transportation by detouring around the Cape of Good Hope.

Ignoring the crux, the "escort alliance" cannot protect the Red Sea

Regarding the shipping problem, one netizen put it simply: "Going around the Cape of Good Hope increases the distance, time and freight. The most fundamental thing is to solve the actual cause. If the Israeli-Palestinian conflict ceases, the Houthis will stop intercepting in the Red Sea. The Americans are not looking at the fundamentals and are always trying to smooth things over in the Red Sea."

In fact, the United States is considered to have selfish motives in forming the escort alliance, and these "allies" are unwilling to follow. Although the United States previously announced that 20 countries have joined the so-called "Red Sea Escort Alliance", as of now, Spain, Italy and France have clearly stated that they are unwilling to act under the leadership of the United States. Most of the remaining countries are only willing to send a small number of personnel to participate symbolically, and at least 8 countries requested anonymity.

Most of the teammates are in name only, and Captain America's control over the ocean hegemony is no longer what it used to be. How can such a fragile alliance carry the banner and ensure the safety of ships through the Red Sea? Its escort role is bound to be discounted and cannot be guaranteed to be foolproof. Moreover, there are many opinions that the US move is of no help in easing the situation and may even exacerbate the conflict in the region.

After all, the Houthi armed forces that are confronting the United States are not a grassroots team.

According to reports, last September, the Yemeni Houthi armed forces held a large-scale military parade in the capital Sanaa, with a total of 35,000 Houthi armed personnel participating. The parade covered the army, navy and air force, and displayed a large number of weapons and equipment such as ballistic missiles, drones, helicopters, etc. At that time, the Houthi armed forces also had 6 new combat systems about to be put into use, including drones, missiles, naval ships, etc.

The Gaza conflict is the root cause of the current Red Sea crisis. A ceasefire between Palestine and Israel can be said to be the only way to ease tensions in the Red Sea. However, the two sides are as hostile as water and fire, and it may be difficult to end the war in a short period of time. The Red Sea issue cannot be resolved in the short term.

It is understood that after several shipping companies diverted due to the Red Sea crisis, Jordan and Egypt have agreed to operate a sea-land transport line connecting Aqaba and Egypt's Mediterranean ports as an alternative shipping route to the Red Sea. Arab Bridge Maritime Company has completed all international and technical requirements to operate this new route to meet land and sea transportation needs.

Other channels are also carrying the overflow of sea freight. Logistics experts analyzed that due to uncertainty about how long the Red Sea shipping crisis will last, coupled with the export boom before the Chinese New Year, global companies have begun to transfer some sea freight to airlines to ensure the supply of key goods. If the supply chain disruption in the Red Sea continues, it will also have a significant impact on air freight volume and prices.

What will be the trend of freight rates on European routes in the future? Huang Liunan, a senior researcher at Guotai Junan Futures Research Institute, believes that short-term market sentiment is volatile and recommends a rational view from the perspectives of the Red Sea situation, liner company capacity turnover, and off-season export demand. Cross-border logistics professionals believe that the surge in freight rates is not sustainable in the long term, but when it will end depends on the direction of the Red Sea crisis.