Freight rates rise as companies expect further attacks in the Red Sea

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International transport costs have soared as companies prepare to ship goods for the holiday season much earlier than usual, a sign of the far-reaching impact of the disruption caused by the Red Sea attacks.

The average cost of transporting a 40-foot container on short notice between the Far East and Northern Europe, the figure most dependent on market prices, reached $4,343 last week, about three times higher than in the same period last year, according to freight market observer Xeneta.

Prices have not yet exceeded the peak reached immediately after Yemen’s Houthi militia began attacking ships in November, but they are recovering in the spring months, a normally quiet time for shipping.

The peak period is usually between late summer and fall, when retailers begin importing goods for the Black Friday sales in November and the Christmas shopping season.

“The peak season has been brought forward,” said Michael Aldwell, head of ocean logistics at Kuehne + Nagel, one of the major freight forwarders that handle goods and set shipping costs for retailers.

Industry officials said the renewed rise in transport costs had several causes, but they were largely due to the attacks in the Red Sea, which the Houthis said were in support of Palestinians in Gaza during Israel’s war with Hamas, they said.

These circumstances have limited the global supply of shipping space and containers, as shipowners travelling between Asia and Europe are forced to take a longer route around Africa.

Because of the war in Gaza, shipping companies are preparing for attacks that could disrupt global supply chains in the fall months, when retailers normally import Christmas gifts.

Aldwell said some of Kuehne + Nagel’s customers had already pre-ordered deliveries for the holiday shopping season in April, while others stocked up on summer items such as patio furniture and grills.

He added that demand had also been boosted by customers previously reducing inventories because they expected weak consumer demand this year. Now that consumer demand is not as weak as some companies expected, “they are very quickly paying higher prices to get access to the (limited shipping) capacity.”

Peter Sand, chief analyst at data provider Xeneta, said importers had learned the hard way during the pandemic that the best way to build resilience in their supply chains was to “stock up on supplies as quickly as possible.”

He said companies had told Xeneta that some of them had decided “to purchase Christmas goods now if possible because they may not have the capacity during the traditional peak season.”

“This is a direct response to the disruption caused by the Houthi attacks,” he added. “No one is really sure when they will stop.”

Given a weak global economy and an oversupply of ships last year, “all the major shipping companies were indicating that their financial outlook was going to be really quite subdued” before the attacks in the Red Sea began, said Marco Forgione, director general of the Institute of Export & International Trade, which represents British traders.

Now it is expected that the disruptions will continue later in the year, he said.

Even if the Red Sea disruption is resolved, “supply chains will be different in the future” as globalization is threatened by repeated geopolitical instability, Forgione added. “We will see inventory management become much more of a priority,” he said.