Red Sea Crisis: ITF issues report

Date Added: 10 April 2024

Red Sea Crisis: ITF issues report

In the wake of ongoing tensions in the Red Sea, Davies Turner notes that the International Transport Forum has published a background paper on the impact of the Red Sea crisis on shipping, supply chains and the environment. The paper also details policy considerations and calls for better cooperation between national authorities to ensure connectivity and transparency of surcharges.

The paper reveals that the number of ships transiting the Bab-el-Mandeb Strait decreased by around 55%, and up to 75% regarding container carriers. Despite some alternatives via land routes, most of the traffic was redirected via the Cape of Good Hope, resulting in increase of transit times and reduced schedule reliability. The need for more ships to ensure a Far East-Europe weekly service had led to a shift of ship capacity, mostly form Pacific services, resulting in cascading effects of disruptions to other non-affected routes.

The authors complied the different costs of the crisis for shipping companies (extra fuel, insurance and maritime security costs but without Suez canal fees) and came to the conclusion that the additional costs for an Asia-Europe roundtrip by a median sized container ship are up to USD 1 million if the ship continues to take the Suez Canal route and USD 1.7 million if the ship takes the Cape of Good Hope route. This represents an additional cost per 40-ft container into Europe of up to USD160 via the Suez Canal or USD272 via the Cape of Good Hope. However, the increase in costs for users of maritime services has largely increased beyond these extra costs, due to higher freight rates and the imposition of surcharges: the container freight rates on the Asia-Europe and Asia-North America routes have increased by around USD 1 800-4 200 per container.

Finally, the paper outlines some policy considerations, highlighting that “the increased occurrence of crises and interconnectedness of transport systems calls for increased global coordination to ensure that freight transport systems continue to be a backbone of global supply chains.” The authors also call to increase transparency of surcharges, by considering governments establishing list of accepted surcharges or setting up a surcharge assessment tool for example. These surcharges should only cover incurred costs, be calculated in a transparent way and carriers should carry the burden of proof for the need of the surcharge.

Davies Turner is committed to helping clients manage this difficult situation and mitigate where possible additional costs incurred. Our oceanfreight team will endeavour to keep in close contact with all clients to provide up-dates on specific movements.

For more information about Davies Turner’s ocean freight forwarding and logistics services, please contact ocean@daviesturner.co.uk or visit the relevant pages of this website.