US, allies continue strikes in Yemen

U.S. Central Command forces and allies (including U.K, Australia and Bahrain) conducted strikes on eight Houthi targets in Iranian-backed Houthi terrorist-controlled areas of Yemen on January 22, 2024.

The strikes, at approximately 11:59 p.m. (Sanaa / Yemen time), by the coalition targeted areas in Houthi-controlled Yemen used to attack international merchant vessels and U.S. Navy ships in the region, says an update by the U.S. Central Command on X.

"These strikes are intended to degrade Houthi capability to continue their reckless and unlawful attacks on U.S. and U.K. ships as well as international commercial shipping in the Red Sea, Bab El-Mandeb Strait, and the Gulf of Aden. These strikes are separate and distinct from the multinational freedom of navigation actions performed under Operation Prosperity Guardian."

Nightmare for shippers but only short-term impact
“This is a nightmare situation for shippers and exporters as freight rates, container prices and insurance costs have escalated," says Christian Roeloffs, CEO, Container xChange. "The impact has been significantly deterrent for container vessels since last month, 70-80 percent of container traffic has been rerouted, especially the larger carriers.

"As Chinese New Year approaches amid ongoing disruptions in the Red Sea, we anticipate a tightening of container availability and vessel space in the pre-Chinese New Year phase. The rerouting via the Cape of Good Hope adds complexity to the situation. We expect freight rates to remain elevated, and supply chain managers will need to navigate ongoing schedule disruptions.

"Looking beyond Chinese New Year, we project blank sailings and capacity reduction by carriers. The industry is witnessing a focused effort on resetting networks, leading to tightening of container availability and vessel space. While high freight rates and increased costs pose mid-term challenges, our analysis indicates that these disruptions are not likely to be long-term. Rate reductions are anticipated on the horizon due to the structural overcapacity resulting from a severe market imbalance."

Since mid-December when the major containers lines began to deviate around Africa, there have been two other periods where there was also five days between reported attacks on merchant vessels whereafter the attacks intensified again, writes Lars Jensen in his LinkedIn update.

Air cheaper than sea?
By the week ending January 14, China to Europe air freight spot rate for general cargo stood at $2.95 per kg, which was down 43 percent from its peak in early December, according to the latest update from Xeneta.

This is in stark contrast to the ocean freight market where the spot rate from China to Europe on January 14 climbed to $4,138 per FEU dry container (or $0.52 per kg if converted to a per kg basis assuming 8,000 kg per FEU). This is more than double (+121 percent) its level from early December, the update added.

"In addition to its impact on the Asia to Europe market, the Red Sea crisis will also likely spark interest in sea-air modes via Dubai and Los Angeles.

"On January 14, the ocean spot rate from China to Dubai was $3,485 per FEU dry container, which was $653 cheaper than the ocean spot rate from China to Europe. Dubai to Europe air spot rate for general cargo in the same week stood at $1.17 per kg, a level similar to the same period in 2019.

"This translates into a Dubai transit sea-air cost of $1.61 per kg, just over three times the pure ocean freight rate from China to Europe ($0.52 per kg). The one-way transit time is approximately three weeks shorter than pure ocean transport."

The potential increased demand from sea-air mode could see Dubai to Europe air cargo spot rates soon climb above pre-pandemic levels, the update added.