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US and European importers have been significantly affected by the double shock of the Red Sea and Panama Canal trade crises, UN research shows, as firms continue to battle import delays, elevated shipping costs and working capital constraints.

Escalating attacks by Houthi rebels on commercial ships in the Red Sea have upended global trade since mid-December, forcing many container vessels and fuel tankers travelling to Europe and North America to re-route around South Africa’s Cape of Good Hope.

Data published by the United Nations Conference on Trade and Development (UNCTAD) in late February highlights the toll of the crisis, showing freight costs on the popular Shanghai to Europe route have surged by over 250% since early November and are up by 165% between China and the US East Coast.

Prices have tapered in recent weeks amid slowing trade activity linked to the Chinese New Year as well as efforts by the world’s largest shipping companies to boost container capacity in the market, analysts say.

Yet they remain elevated, UNCTAD finds in a report titled, ‘Navigating Troubled Waters’, which warns the Red Sea upheaval is compounding disruptions in the Black Sea and Panama Canal.

“The current overlapping disruptions to international shipping routes and maritime choke points are causing an exceptionally challenging operating landscape for shipping and trade,” it says.

Digging into the data, the cost for a twenty-foot equivalent unit (TEU) between the Chinese port and Europe has risen from US$756 in early November to US$2,648 in February.

Importers on the US East Coast are paying US$6,452 for a forty-foot container on the route between Shanghai – up from US$2,434.

UNCTAD says “ripple effects” have been felt on routes that do not use the Suez Canal, with rates between Shanghai and the US West Coast increasing by 130% from early November to February as importers shipped goods to West Coast ports – such as Los Angeles – before transporting them via rail.

 

Cashflow difficulties

Last week, the British Chambers of Commerce (BCC) revealed that over a third of companies it surveyed about the Red Sea crisis, out of a total of 1,000, had been affected, with exporters and manufacturers ranking as two of the worst affected groups.

According to the BCC, some businesses reported rises of 300% for container hire as well as logistical delays, adding up to three or four weeks to delivery times.

“Firms also said this was creating knock-on effects such as cashflow difficulties and component shortages on production lines,” it said.

North American importers are battling similar issues, says Michael Giambrone, a US-based logistics expert at global freight forwarder OEC Group.

Importers on the US East Coast that buy goods from Asia, largely China, have felt the “biggest impact” from the Red Sea crisis, Giambrone tells GTR. “This is primarily New York, as well as other East Coast ports – Savannah, Charleston.”

Sailing round South Africa’s Cape of Good Hope theoretically adds between 10 and 14 days of transit time, though it is “never how it is on paper… and ends up being a little bit more than that”.

Such delays have created an imbalance where there were “potentially six million TEUs not going back into rotation on time” and so everyone has been “fighting for available equipment”, he says.

“Shipping companies are also burning more money on fuel, on salaries, they have to bring other ships and containers into rotation to try to make up for it… Everything goes up, and we see [prices] passed down to importers,” Giambrone says.

Ocean freight rates have fallen to around US$6,000 in the weeks following the Chinese New Year holiday, with factories slowing their activity. Yet fears remain that shipping difficulties will persist in 2024 and businesses could suffer from working capital issues as a result.

“US importers all have deadlines to meet… If you are a seller to Walmart, and you don’t get your cargo to them on time, they charge you for that, they hit you with major fees,” Giambrone says. “It really is affecting a lot of customers right now.”

 

Emerging market squeeze

The UNCTAD research also highlights the significant toll the Red Sea disruptions are having on importers and exporters in emerging markets.

The Red Sea upheaval is having a triple impact on Egypt’s trade sector and economy, says Jan Hoffmann, chief of UNCTAD’s trade logistics branch.

According to the UN organisation, the crisis has triggered a 40% dip in Egypt’s revenues from the Suez Canal, a “large source” of foreign currency revenue worth US$9.4bn in the 2023 fiscal year, or about 2.3% of GDP.

“Secondly, there are ports in Egypt that benefit from their status as transshipment centres – such as Port Said, or Alexandria,” Hoffmann tells GTR. “Ships load and unload containers at the entry or exit of the canal and feed other regions, such as the Black Sea, Turkey, or Cyprus. They’re losing out.”

“And thirdly, Egypt is no longer at the crossroads [of global trade] and benefiting from a constant ship supply. It is at the end of a cul-de-sac, so the importers and exporters of Egypt are paying more for their trade,” he says.

In its report, UNCTAD warns a deteriorating situation in Egypt could have “negative spillover” effects for other countries in the region who rely on the Suez Canal, such as Ethiopia and the Sudan.

They too are exposed to higher shipping costs, as well as insurance. As reported by Reinsurance News in early February, war risk premiums for Red Sea transit have risen to as high as 1% of the vessel’s value, from under 0.1%.

Niels Rasmussen, chief shipping analyst at BIMCO, says in a February note that attacks on ships in the Red Sea are directly affecting the ability of countries in the region to import and export cargo.

“Even where alternative export routes exist, these often come at a higher cost, longer duration and with constraints to capacity.”

Several countries appear to lack “viable alternatives” and attempts to transport cargo overland would be “very difficult”, he said. “Consequently, shipments in Sudan, Somalia, Eritrea and Yemen have so far fallen 25% year-on-year in 2024.”