Increased Shipping Costs to Compensate for Red Sea Route Changes

Fitch Ratings reports that recent attacks on merchant ships in the Red Sea are causing shipping companies to incur increased costs due to longer voyages around the Cape of Good Hope. However, the report also suggests that rising freight rates could more than offset these additional costs if disruptions last for more than a few days. Container shipping is expected to see the highest increase in freight rates, followed closely by bulk carriers. However, limited growth is expected for tankers, as they already achieve high rates.

The diversion of shipping routes within Africa may significantly increase travel time and reduce effective global container shipping capacity. Despite this, disruptions are not expected to have a significant impact on the supply-demand balance of global shipping in the medium term, with container ship supply still projected to exceed demand growth in 2024. Fitch estimates that a diversion around Africa could potentially reduce global container shipping capacity by 10-15%, but they do not expect significant long-term disruptions to the global shipping supply-demand balance.

Fitch Ratings believes that disruptions are unlikely to last longer than two quarters, noting similarities between the current disruptions and previous port congestion issues. However, they also highlight differences such as higher operating costs and weaker demand for goods in North America and Europe. Combined with drought restrictions in the Panama Canal, the disruptions in the Red Sea are amplifying the impact on global trade and highlighting bottlenecks in global supply chains that may have a significant impact on various industries.

Source .