Attacks in the Red Sea Continue
Global supply chains continue to face disruption after another wave of attacks in the Red Sea.
This week, US and UK Warships repelled a barrage of 21 Houthi rockets, drones and cruise missiles fired at western warships patrolling the area in the largest scale attack we have seen since the start of the aggression by the Houthi Rebels.
The resulting disruptions to international supply chains since the attacks begun has been swift with an expected 10 million teu capacity affected out of the 28 million teu that operate in the Red Sea. This represents approximately 35% of teu capacity that is now being diverted around the Cape of Good Hope to avoid the escalating tensions.
The next 4-5 weeks and the lead up to Chinese New Year (February 10th 2024) will be critical and challenging for global shipping as current market conditions are causing bottlenecks in global supply chains. Once again shippers are grappling with limited capacity causing space constraints, port congestion at all major hubs (Australian terminals also contending with DPW industrial unrest) and displaced equipment creating a “shortage” of containers to use for import and export.
Shipping lines were quick to create a wave of new surcharges to deal with higher fuel costs as carriers re-route vessels to continue to support trade. Besides increase to costs, the new routing is causing significant commercial implications for shippers, with an additional 10 – 15 days added to voyages from Europe and the Middle East, not factoring in delays at origin for space and equipment.
On average, this represents increases to transit times as follows:
- Asia to US EC (New York) 17% longer
- Asia to Nth Europe ( Rotterdam) 30% longer
- Asia to Med (Genoa) 57% longer
There is ample capacity to deal with the resulting congestion, equipment shortages and gaps to schedules; however delays are inevitable and container equipment is likely to remain displaced for some weeks to come, affecting service schedules and causing inflationary pressure on freight rates with limited flexibility to mitigate these.
CMA CGM Group advise that the Red Sea situation has only impacted their direct NEMO service from Europe to Australia, however schedule changes to re-route via Cape of Good Hope were announced a few weeks ago to ensure services would still be operational.
NEMO direct service will continue to go via the Cape with no vessels going through the Suez Canal. CMA also advise there will also be some disruption to feeder services from MED/Nth Europe to SIN/Port Kelang as these feeder services are now diverting via the Cape of Good Hope as well, adding significant delays (10-14 days) to each service.
As the rates on the Asia to North Europe and Mediterranean skyrocket by 115% and 114% respectively, it is expected that carriers will look to place capacity and vessels into these higher yielding trades.
Therefore, the future risks to the Oceania Trade could stem from a shortage of vessels between Europe and Asia, thus requiring additional vessels to be deployed from Oceania to these trades, meaning less vessels and space available for Australian shippers. Currently, we have successfully managed to mitigate ocean freight rate increases from Europe in Q1 with only additional surcharges that the market has been advised of being implemented.
Panama Canal low water levels
Based on projected water levels in Gatun Lake, The Panama Canal Authority (ACP) has made reductions to the number and maximum weight of vessels that can pass through the drought-hit canal.
Gatun Lake is the rainfall-fed principal reservoir that floats ships through the canal’s lock system and low water levels have impacted cargo movements resulting in some carriers like Maersk having to make drastic service changes to alleviate the situation.
The vessels that utilised the Panama Canal before will now omit the passage, instead using a “land bridge” that utilises rail to transport cargo from one side of Panama to the other.
Instead of going through the Panama Canal, the vessels would call the Ports of Balboa, Panama, on the Pacific side — dropping off cargo heading for Latin America and North America and picking up cargo heading for Australia and New Zealand. The Port of Manzanillo, Panama, on the Atlantic side, will be used for dropping off cargo heading for Australia and New Zealand and picking up cargo heading for Latin and North America. Once at the port, containers would be loaded or unloaded and would then move via an existing rail over a distance of 80 kilometers across Panama to be picked up by another vessel. These changes have been made to minimise delays on the Maersk OC1 services that operate between Oceania and the Americas.
Hapag Lloyd said it will not follow Maersk using rail to get goods through the Panama canal, saying it used larger ships of up to 13,000 TEU, for which there isn’t enough rail capacity. The group said the only planned change was to let its EC2 service, which links Asia with North America, run via the Panama Canal again after it was rerouted via the Cape of Good Hope.
The situation is constantly evolving, and our team will continue to advise as carriers adjust their services to mitigate delays.
DP World Grinds to a Halt Across Australia
Earlier this week, DP World announced that from today, they would no longer tolerate partial work bans as part of the ongoing Protected Industrial Actions (PIA) being taken.
The notice went on to say:
“Effective Friday 12 January 2024, DP World Australia will no longer tolerate partial work bans. As a result, employees participating in these actions will not be entitled to any payment until they are ready and willing to perform all of their normal duties. This decision comes after exhaustive negotiations with the Maritime Union of Australia (MUA), with the assistance of the Fair Work Commission.”
It was hoped that this stance would force workers back into performing their full functions or help the Maritime Union and DPW reach a faster settlement in their contract negotiations. Unfortunately this morning, the opposite outcome has played out resulting in full work bans at DP World Sydney, Brisbane an Fremantle, while limited work is being performed at DP World Melbourne’s terminal resulting in highly disrupted operations.
DP World released a statement this morning, writing:
“We are once again calling on the Australian Federal Government to intervene in our dispute with the Maritime Union of Australia (MUA) following a severe escalation of industrial action. Ongoing industrial action despite the non-acceptance of partial work bans is set to further damage the nation’s supply chain with delays on essential items, which are already between two and eight weeks behind schedule, to now widen further.
The impact will also be felt by employees who are set to forgo wages, further exacerbating the negative impact of months of industrial action. Our economic modelling shows the Industrial Action taken to date has cost the nation $34 million in lost productivity per day, building on an average impact of $84 million per week since the MUA’s protected industrial action commenced in September 2023.
The backlog of containers across Australian ports now exceeds 48,000 and will take months to recover from. From today, employees who choose to engage in the work bans at DP World’s Australian terminals will not receive wages until they return to their full normal duties. This is in line with a new stance introduced on 8 January 2024 in a bid to stop the MUA from accelerating and prolonging industrial action”
The issues are giving further ammunition for shipping lines to roll out additional General Rate Increases for the 2H of January to deal with the ongoing costs and delays caused by the work bans. It is hoped that this escalation will force the Australian Federal Government to intervene to avoid a prolonged lockout of the terminals.
Please reach out to your Key Account Manager to understand more on how your current shipments will be impacted. More updates to follow soon as they become available.