THERE is no doubt that the situation in the Red Sea is having an impact on shippers, but the rerouting of voyages around the Cape of Good Hope will not lead to a rerun of the supply chain disruption seen during the pandemic.

Even the overnight attack on Houthi forces by the US and the UK is unlikely to further exacerbate the situation, as the vast majority of container shipments are now already taking the long route around the Cape of Good Hope.

“From an industry view, it has been going on for a while now,” Flexport Europe head of ocean Trine Storgaard Nielsen told Lloyd’s List in an interview.

“We are getting updated schedules from carriers and seeing carriers moving capacity to ensure they have space available.”

The initially chaotic situation seen in recent weeks was now more stable, she added.

Concerns remain, however, over both vessel capacity and equipment availability.

“What we are seeing now is capacity not being available out of Asia as planned because ships are delayed coming back from Europe,” Nielsen said.

“We are also seeing the impact on equipment repositioning. Having capacity available on a vessel is great, but if you do not have the equipment in the right place, it does not matter.”

Capacity was the main issue now, but there were a few carriers that were struggling to find equipment.

“It is very carrier and location dependent,” Nielsen said. “There is no specific port where we are having trouble getting stuff out, but that will come over the next couple of weeks.”

But the capacity shortages needed to be viewed in the context of the wider market dynamic, particularly that which existed before the crisis began in mid-December.

“Leading up to the Red Sea issues, we did see a lot of capacity being blanked out of Asia,” Nielsen said.

“Some weeks, this was up to 30%. If we take that and look at how sailing south of the Cape, we estimate there will be a 25% capacity impact. As such, I do not really see a capacity constraint, especially knowing how much capacity will flow into the market.”

The impact, she suggests, is likely to be short term. Eventually, carriers will insert enough tonnage into loops to restore regular sailing schedules, making more slots available for cargo. The equipment issue would also be resolved when regular flows began again, even if taking the longer route.

This differs from the lockdown era, which saw containers stuck at inland depots or at terminals due to disruptions in hinterland transport, and ships unable to sail as they waited to discharge at congested ports.

Weaker demand backdrop

Another key factor that is different this time is that demand is far weaker. As Lloyd’s List reported last week, demand levels in the traditional pre-Chinese New Year period is weaker than usual. By comparison, the pandemic led to a surge in demand for physical goods as consumers, unable to spend on services, changed their habits.

“The big unknown is the demand going into 2024,” Nielsen said. “Overall we do have indications that demand is not going to be strong.”

Speaking to the Financial Times, Maersk chief executive Vincent Clerc painted a more pessimistic picture. He suggested that the reopening of the Suez Canal route could take months, adding to global economic and inflationary pressures, and affecting global growth.

Peter Sand, chief analyst at freight rate platform Xeneta has also said that shippers need to take decisive action, warning the situation will get worse before it gets better.

“Shippers will be urgently looking to secure capacity with freight forwarders and carriers,” Sand said.

“They must also look at availability of equipment. You need the box as well as space on board the ship, otherwise you are in trouble.”

Another priority for shippers was to get more goods moving because the disruption would result in much higher floating inventories.

“If a shipper had bookings on 14 vessels before the crisis, that will now be 17,” Sand said.

“They need to get their act together quickly, especially with the traditional squeeze on capacity in the run up to Chinese New Year on the way.”

But Nielsen is less concerned on both the inflationary pressures of higher shipping costs and the urgency of shipments.

“In terms of inflation, there are a lot of things impacting it,” she said.

“Depending on the goods you ship, the additional cost per item can be minimal from additional transport costs. This will not drive massive inflation. The relative cost is not huge.”

Moreover, cargo owners did learn some lessons from the pandemic.

“Inventory levels have normalised, but no one was saying they have too little inventory,” Nielsen said.

“If we look at an additional two weeks’ lead time, managing that is not necessarily difficult if you can get you containers on the vessels.”

Most companies operate with some level of “safety stock” in place. The few that have just-in-time supply chains would start looking to expedited services and sea-air links, but to date there had been little increase in airfreight costs.

“The majority are willing to pay to get their goods out of Asia at the moment,” Nielsen said.

“A small portion are willing to pay for additional security, then there are some that are delaying shipments where there is no urgency. But I am not seeing a massive shift to airfreight at the moment.”

Analysts at HSBC noted that the disruptions in the Red Sea have brought back debates around fragile supply chains and comparisons with the Ever Given (IMO: 9811000) Suez Canal blockage.

“Our base case is that given the overcapacity and lack of container demand, a re-run of the Covid-19 situation is less likely but could keep rates elevated for at least the first half of 2024,” it said. “If resolved in the coming days, freight rates would collapse back to December levels.”

Safety stock calculation

But Nielsen said that following Ever Given, many companies were now expecting the unexpected.

“These situations are the ones that are the most painful to your supply chain,” she said. “I would assume that that safety stock calculation has increased slightly.”

Nielsen reckons the disruption from the Red Sea will be temporary at worst.

“With the usual seasonal peak leading up to Lunar New Year, we will have a short-term impact, and a slightly prolonged peak following Lunar New Year,” she said.

This was because shippers were looking at rates now and anticipating a normalisation and were delaying shipping if they could.

“In week two, we are seeing a significant reduction in departures out of Asia, so there is an isolated short-term congestion issue,” she said.

“But it is not structural and consistent capacity constraint. It is simply that we need everything to start normalising.”

Even assuming there is no resolution to the attacks on shipping, freight rates would come down following Chinese New Year as networks stabilised and demand tailed off.

Rates would still be higher than their pre-crisis lows, however, due to the additional costs of taking the longer route.

Should the situation be resolved and ships start to transit freely again, then after a period of catching up following Chinese New Year, 2024 would likely proceed as it had been expected to do before the attacks began.

“We would see a lot of rate increases being pushed, more blank sailings being activated, slower steaming being introduced to ease in additional capacity, but at similar rate levels to what we saw recently.”