Freight rates soar as shipping companies skip Red Sea lanes
07 Jan 2024
Shipping rates between Asia and the West have soared on reduced freight capacity as shipping companies change route amidst rising attacks on merchant ships in the Red Sea region.
Reports say short-term freight rates between India and Europe via the Red Sea region have almost doubled due to rising attacks by Houthi rebels along the crucial shipping route.
The spot rate for a 40-foot container from Asia to northern Europe has shot up by 173 per cent from the December 23 levels to $4,000, as route diversions pushed up operating costs for shipping companies.
Similarly, container freight rate between Asia and the Mediterranean has increased to $5,175 and to $6,000 for shipments starting mid-January, in some cases, say reports.
Freight rate between Asia and the US East Coast has risen 55 per cent to $3,900 per container.
The spike in shipping rates comes after shipping giant Maersk on Friday announced an extension of its route diversion from the Red Sea, giving rise to fears of a surge in freight and insurance costs.
India, which is heavily reliant on the Bab-el-Mandeb Strait – the strait between Yemen on the Arabian Peninsula and Djibouti and Eritrea in the Horn of Africa - for crude oil and LNG imports and trade with Europe, faces major risks from disruption in this area.
According to reports, nearly 65 per cent of India’s crude oil imports, valued at $105 billion in FY 2022-23, from West Asian countries like Iraq, Saudi Arabia passed through the Suez Canal.
Over 50 per cent of India’s merchandise trade with Europe and North America also passes through this route.
The alternative route involves going round Arica via the Cape of Good Hope, which could multiply shipping costs, forcing India to diversify crude oil and LNG sources and reduce dependency on the Red Sea route.
The Baltic Freight Index for bulk cargo rose on Friday as shipping costs rose across vessel segments. The overall index, which factors in rates for capesize, panamax and supramax shipping vessels, rose 45 points, or 2.8 per cent, to 1,643. The index gained 12.4 per cent this week.