Shipping costs jump as Red Sea impasse lingers

Bangladeshi exporters and importers are having to pay higher freight charges to the US and Europe following attacks last month on commercial vessels on the Red Sea, one of the world's busiest shipping routes.

The attacks were launched by Iran-backed Houthis, who control much of Yemen but are not recognised internationally and who said it was to put pressure on Israel over its devastating war with Palestinian Hamas militants in the Gaza Strip, reports the AFP.

It prompted the major shipping lines to suspend travel across the Red Sea and adjoining Suez Canal, which basically connects Africa and Asia.

Around 12 percent of the global trade of all goods, including 30 percent of the world's shipping container volume, especially from South Asia, relies on the Red Sea route to trade with parts of West Asia, Africa and Europe.

According to shipping executives, over 70 percent of Bangladesh's export-laden containers, which are destined for the EU, US East Coast and Canada, cross the Red Sea.

Meanwhile, 8 to 10 percent of the country's imports come through the route.

The shipping lines are now diverting to a much longer route, around Africa's Cape of Good Hope.

Danish shipping company AP Moller-Maersk on January 2 said, "An investigation into the incident is ongoing and we will continue to pause all cargo movement through the area while we further assess the constantly evolving situation."

"In cases where it makes most sense for our customers, vessels will be rerouted and continue their journey around the Cape of Good Hope," it said.

The threat remains high, even with efforts to protect commercial vessels, and analytics provider MarineTraffic has confirmed that commercial ships are increasingly opting for the diversion, according to the CNBC.

Global trade data provider Kpler said the number of ships doing that jumped to 124 this week from 55 last week, and from 18 a month ago.

At least $80 billion worth of cargo has already been diverted, the CNBC also said.

The total capacity is estimated at 4.5 million containers, or 20-foot equivalent units (TEUs). The value of a container bound for the Suez is $50,000, according to freight consultancy MDS Transmodal.

So far, the situation has affected $225 billion in trade, added the CNBC.

A number of media reports stated that freight rates from Asia have spiked by over 50 percent.

Major shipping lines announced to impose additional surcharges ranging from $700 to $1,500 per TEU container.

AP Moller-Maersk announced a "Transit Disruption Charge" (TDS) of $400 per 40-foot container for the route from Far East Asia to North Europe as well as to the east coast of North America.

This TDS is applicable for shipments "on the water", it stated in a customer advisory on December 21.

It also announced that it would charge a "Peak Season Surcharge" (PSS) of $1,000 per 40-foot box from January 1.

Mediterranean Shipping Company (MSC) announced a "Contingency Adjustment Charge" (CAC) of $1,000 per 20-foot container and $1,500 for a 40-foot container from January 1.

It will be applicable on all shipments from the Indian sub-continent (India, Pakistan, Bangladesh, and Sri Lanka) and the Middle East to European, Scandinavian, Baltic and Mediterranean destinations, it said.

French company CMA CGM imposed a PSS of $500 per TEU from January 1 to all European ports from all Asian ports, including Bangladesh.

Japanese shipping company Ocean Network Express in December announced that they would apply an "Emergency PSS" of $500 for all container types on Asia-Europe trade from January 1.

Hapag-Lloyd and HMM Company also announced similar charges.

A senior executive of a foreign shipping line told The Daily Star yesterday that most shipping lines were considering to impose more charges from mid-January if the crisis persists.

Usually, it takes 30 to 35 days for ships to reach European destinations through the Red Sea on departing transshipment ports in Sri Lanka, Singapore and Malaysia with Bangladeshi goods, said Faruque Hassan, president of the BGMEA.

"At least 10 more additional days will (now) be needed," he said.

This will raise freight costs, which domestic garment suppliers will have to ultimately bear, said the chief of the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

This might also necessitate use of expensive air shipments to meet deadlines of international clothing retailers and brands, he said.

The freight charge has already increased by $700 to $800 per container in case of import-laden vessels, said Mohammad Ali Khokon, president of Bangladesh Textile Mills Association (BTMA).

The BTMA is a platform of the primary textile millers who annually import nearly 10 million bales of cotton, a major portion of which arrive through the Suez Canal route.