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Updated December 29th, 2023 at 16:53 IST

Shipping challenges escalate as Red Sea attacks force suppliers, retailers to seek alternatives

Major shipping companies like Mitsui OSK Lines and Nippon Yusen are actively monitoring the situation and diverting vessels away from the affected area.

Business Desk
Oil tanker attacked Red Sea
The ship came under attack hours after another ship was attacked off the Gujarat coast. Image used for representative purposes only. | Image: Unspalsh
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In response to militant attacks on vessels in the Red Sea, suppliers and retailers are grappling with increased costs and delays in their shipping operations. Basic Fun, a toymaker responsible for shipping products like Tonka trucks and Care Bears to Walmart and other retailers, is urgently redirecting cargo away from the Suez Canal. This strategic shift comes as businesses, including major players like IKEA, Home Depot, and Amazon, navigate the most significant shipping disruption since the COVID-19 pandemic.

Traditionally, Basic Fun used the Suez Canal for its Europe-bound shipments due to its efficiency. 

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However, with the recent unrest in the Red Sea, particularly drone and missile attacks by Yemeni Houthis supporting the Palestinian group Hamas, the company is now rerouting shipments to the UK and Rotterdam via the longer southern tip of Africa route. Some goods destined for the US East Coast are also being redirected to the drought-choked Panama Canal or the West Coast via the Pacific Ocean.

The shift in routes is expected to come at a significant cost, with estimates suggesting up to an extra $1 million in fuel expenses for each round trip between Asia and Northern Europe. Basic Fun's CEO, Jay Foreman, notes that the extended travel times will inevitably lead to increased expenses. 

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Freight rates for certain China-UK routes have already more than doubled since the onset of the Israel-Hamas conflict in October.

Despite efforts by shipping companies like Maersk and CMA CGM to resume voyages through the Red Sea with military escorts, the full impact of the situation is expected over the next six weeks. 

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Michael Aldwell, executive vice president of sea logistics for Kuehne + Nagel, anticipates a shortage of vessel space, misplacement of containers, and a sharp rise in short-term transport prices.

Estimates from freight platform Xeneta reveal a notable increase in shipping costs. For instance, the cost to ship a 40-foot equivalent unit (FEU) container from the Far East to the Mediterranean has risen from $1,865 per FEU in early December to $2,320 "post escalation." 

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Additional charges such as risk surcharges and Emergency Recovery Costs further contribute to the financial strain on the shipping industry.

As of the latest data, nearly 20 per cent of the global container fleet, comprising 364 vessels capable of carrying over 2.5 million full-sized containers, has been rerouted due to the Red Sea attacks. 

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Major shipping companies like Mitsui OSK Lines and Nippon Yusen are actively monitoring the situation and diverting vessels away from the affected area.

Vessel owners are already rationing the more affordable contract-rate space, leading to a scramble among shippers to secure spots before the early February deadline, coinciding with the Lunar New Year factory closures in China. 

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This situation poses a particular challenge for small shippers, as space becomes increasingly limited and subject to higher spot market rates.

Amid this shipping upheaval, concerns are raised about the additional costs incurred by suppliers and retailers. Small shippers like Marco Castelli, based in Shanghai, are grappling with rebooking containers and navigating the complex logistics landscape. 

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The uncertainty and challenges in confirming bookings, potential date and routing changes, and the overall increase in shipping costs create a complex scenario for businesses, who may bear the brunt of these unexpected expenses as contracts may not provide a mechanism for cost recovery.

(With Reuters Inputs)

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Published December 29th, 2023 at 08:06 IST

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