The Shanghai Containerized Freight Index (SCFI), the leading indicator of worldwide freight costs, posted on Friday a cost per container of $3,101 — an increase of about 310 percent since the Iran-backed Houthi terrorists of Yemen began attacking cargo ships in the Red Sea.
The SCFI price for a 20-foot shipping container stood at $2,871 the Friday before, so costs are rising steadily week-by-week as shippers abandon the vital Red Sea trade route for slower and more expensive alternatives.
Sky News noted insurance costs for shipping companies are rising, along with payroll costs for ship crews and fuel allocations for the longer alternative route around the Cape of Good Hope. Furthermore, the Houthi disruptions are hitting just before China’s Spring Festival and Lunar New Year, a season when high demand would have pushed up shipping costs even without Iran’s proxies in Yemen shutting down the Red Sea.
A few major retailers have begun informing customers that shipping disruptions will increase costs, delay product deliveries, or both. On Thursday, electric car maker Tesla shut down its “Gigafactory” in Brandenburg, Germany, for at least two weeks because the Houthi disruptions have cut off its supply of components from Asia.
Germany’s Volvo also announced it will suspend some production at its European facilities due to component shortages. Volvo, specifically, said it will shut down its plant in Gent, Belgium, for three days because the delivery of gearboxes has been delayed.
British clothing retailer Next warned that “difficulties with access to the Suez Canal, if they continue, are likely to cause some delays to stock deliveries in the early part of the year.”
Swedish furniture giant Ikea was among the first major retailers to warn of product shortages due to the Red Sea crisis. Ikea said before Christmas that there could be “availability constraints” on some items. The company pledged to evaluate “other supply options” while taking “all the necessary precautions” to keep people working in its supply chain safe.
“If the Red Sea disruption lasts another 2-3 weeks, I expect to see product shortages on shelves in April and May,” cautioned Seth Frederickson, vice president of product management at supply chain analyst FourKites.
Oil prices rose over one percent on Friday as tankers were diverted from the Red Sea passage following U.S. and British airstrikes against the Houthis. At least three major oil tanker lines have announced they will suspend all routes through the Red Sea.
BOK Financial Senior Vice President of Trading Dennis Kissler predicted the “escalation of tensions in the Middle East” could disrupt the current “equilibrium” between supply and demand, pushing prices up by $5 to $7 per barrel.
Oil industry analysts are especially worried about problems developing on the far side of the Arabian Peninsula, where Iran seized a tanker full of Iraqi crude oil on Thursday and could be preparing to disrupt shipping through the Strait of Hormuz.
The Suez Canal Authority (SCA) announced Thursday that revenues are down 40 percent since the beginning of 2024 compared to the same period in 2023. Ship traffic is down 30 percent year-on-year.
The loss of revenue is a major blow to Egypt since Suez Canal fees are among its primary sources of foreign currency. The Egyptian government recently invested in a new expansion of the Canal to boost revenues, adding to a previous extension completed in 2015.
SCA chief Osama Rabie said Egypt tried to persuade shippers to continue using the Red Sea route through the Suez Canal by offering discounts and other incentives, to no avail. He anticipated a “very large portion of the goods” normally shipped through the Canal would resume once the Red Sea Crisis was resolved.
London-based business daily CityAM was not so sure that things would return to normal so quickly, calculating that the total decline in ship traffic through the Suez since the Houthi attacks began is closer to 90 percent year-on-year, and the attendant surge in shipping costs could be a “new catalyst for global inflation.”
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