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Car shippers bear the brunt of Red Sea cost hikes

[ February 23, 2024   //   ]

Increased costs due to the Houthi rebel attacks on Red Sea shipping are being felt most acutely in the car carrying sector of the market, European Commission shipping specialist Annika Kroon told a seminar on 23 February.

Kroon, from the Move directorate’s maritime transport and logistics arm, told the event organised by the European Shippers’ Council (ESC) that the car carrier sector had less spare capacity than other segments of the shipping market and consequently was more badly affected by the need to reroute vessels around the coast of Africa, which has added 10-15 days to voyages.

However, in the container sector, the current situation was not directly comparable to the events of the Covid crisis and the Ever Given grounding in the Suez Canal. More capacity is available now and carriers cannot increase rates unconditionally, she said. Nevertheless, the increased cost of shipping was having a small but discernible effect on the cost of delivered goods of between 0.2% to 0.7%.

Various efforts were being made to restore freedom of navigation. The US military has attacked rebel positions on land in Yemen as part of its Prosperity Guardian mission while European forces have also mounted a defence force, though this has a defensive rather than an offensive role and would not be carrying out land strikes.

However, Kroon pointed out, even if the attacks were to end tomorrow, it would still take some time before ship operators were convinced that the Red Sea was safe to navigate and also to restore their schedules.

Kroon added that there had also been reports of increased activity by pirates on ships rerouted via the southern coast of Africa.

ESC secretary general, Godfried Smit, said that a study by the organisation suggested that ship operators’ costs resulting from the diversion were of the order of €200 per teu whereas the actual increased costs charged by lines was considerably higher, in some cases up to €1,000 per teu.

“Surcharges in our view should only cover unexpected events. There should be more transparency on how any increased costs will be spent by carriers,” he said.

Smit added that increased shipping costs were already hitting shippers in low-value sectors.

Attempts to discuss the issue with liner shipper operators had not so far been successful, he added, with the World Shipping Council arguing that rates were outside its mandate.

Sofia Bournou, a senior advisor to employers’ group, Business Europe said that its own survey of members suggested that the main issues encountered were cost increases and also shortages of some materials and components.

Companies had coped either by accepting the longer voyage times, delaying non-urgent orders, advancing container booking and passing cost increases on to consumers. Companies operating in low margin sectors and those relying on just-in-time production methods had been most seriously affected.

Some firms were trying to near source material from Europe, but changing suppliers was difficult and European costs were also higher than in countries in Asia, Bournou said.

A seminar participant meanwhile pointed out that countries closest to the crisis area had been most severely affected. The price of many commodities in Syria went up sharply immediately after the Houthi attacks and prices of goods in Gaza were also increased.

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