THE worst consequences of the Red Sea diversions by containerships may almost be over as the market begins to regain its composure.

The disruption for cargo owners has been real. Vessels taking the Cape of Good Hope route take an extra seven to 10 days to reach their destination, or up to 20 days if they have already routed across the Arabian Sea before heading south.

More than 500 vessels comprising a quarter of the world fleet capacity have, to date, opted to avoid the Suez routing. With insurance rates skyrocketing for Red Sea passages, there is little likelihood of a quick return to voyages via the Suez Canal until the threat of attack has been eliminated.

“With the area of attacks expanding and costs increasing, we expect the situation will last longer term around the Cape,” said Flexport senior ocean freight manager Lasse Daene.

The last time vessels were forced to reroute around Africa instead of take the shorter route was when the Suez Canal was blocked for a week by Ever Given (IMO: 9811000).

But the consequences this time around were far less severe, Daene said.

“During Covid and the Ever Given crisis, demand was constantly outpacing the effective available capacity,” he said.

“But in 2023 this was reversed. The effective space outstripped expected demand, which drove freight rates down.”

The latest events were seeing more capacity being utilised — carriers needed an extra 30% of capacity to maintain the same capacity on a weekly basis from Asia to Europe — but demand is far weaker.

“There is not an additional demand compared to the available capacity,” Daene said.

Moreover, in most cases inventory levels are high enough to absorb a period of delay in supply.

That had not stopped a surge in freight rates, as a short-term capacity crunch due to vessels not returning to Asia on time led to a shortage of slots. Asia-Europe spot rates are up by over 250% since the start of December.

But while rates are higher than a few months ago, they remain less than half the peaks they reached in early 2022, and may already have gone as high as they are going to.

“Spot rates on the Asia-Europe route, which had spiked from $2,000 per feu in mid-December to $5,500 per feu by the start of this week, appear to be easing slightly to around $5,250 per feu,” noted Jefferies analyst Omar Nokta.

“This is a strong level but indicates a near-term peak on the route.”

Daene also believes a peak has been reached in terms of rates.

“We saw in the past weeks that capacity was down because vessels were not returning on time, but this is stabilising. Our prediction at the moment is that we are reaching the top. We do not expect a substantial rates push anymore.”

Cargo was is now shifting to shipment dates after Chinese New Year, and more regular patterns of blank sailings for after CNY were emerging as more vessels were due to arrive back from Europe, he added.

“Freight rates were sub-$1,000 before the crisis began and will likely settle higher than that, although the exact level is still to be determined,” he said.

“The key takeaway based on what we are seeing is that we have reached the top.”

Vespucci Maritime chief executive also noted that disruptions to supply chains were now at the maximum now.

“The changeover from Suez to round-Africa has caused significantly larger detours for many vessels as well as the need to discharge some cargo in transhipment hubs with no immediate solution of how to move the cargo onwards,” he said.

“As networks settle into regular, and predictable, schedules around Africa these disruptions will lessen, but of course not disappear as the voyage is longer.”

Daene added that the imminent closure of factories for the Chinese New Year would lead to the traditional fall in demand, further taking pressure off capacity.

But he warned shippers that this could lead carriers to remove capacity themselves.

“There will be rolling and shifting of cargo to different services to align capacity to the demand carriers are seeing,” he said. “Blank sailings will increase.”

He advised shippers to be prepared to procure alternative options for their cargo.

“Take a certain amount of your bookings on more flexible terms as that will help you maintain a regular supply chain,” he said. “Do not rely on a single service or carrier.”