The Impact of Suez Canal Diversions on Container Shipping Costs

The ongoing diversions in the Suez Canal are expected to lead to increased container shipping costs as long as shipping risks persist. Due to Houthi attacks in the Red Sea and Gulf of Aden, companies are facing challenges in rerouting Asia-North Europe services to minimize additional time, disruption, and costs. The diversion through the Cape of Good Hope involves more nautical miles, leading to higher fuel and shipping costs. Drewry’s analysis shows that maintaining similar transit times via the Cape diversion can result in significant additional costs.

The consultancy suggests that operators may adopt strategies between scenarios to mitigate the additional costs of the diversion. They also point out ways to keep transit times competitive between major ports, such as cutting smaller ports and changing the order of stops. Despite the minimal projected increase in round-trip costs, market freight rates on Asia-Europe routes have increased drastically. However, the impact is expected to ease as ships are repositioned and liner networks realigned.

In a worst-case scenario where the Suez Canal is avoided for the entire year, effective capacity could fall by about 9%. However, the impact will vary by industry and the global supply and demand dynamics will not be completely reversed. Drewry emphasizes that the biggest unknown is the duration of the crisis, and normal market dynamics will only return once the risk of an attack is eliminated. The complete analysis and outlook for the container shipping market are available in Drewry’s Container Forecast Report.

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