War, weather put ocean shippers on notice for rough seas in 2024

Freightos

06/01/2024 06:00

By Lisa Baertlein
       LOS ANGELES, Jan 6 (Reuters) - Recent hostilities in the
Red Sea have thrown global shippers of vital goods for a loop -
but it is hardly the only issue that big carriers are facing as
2024 kicks off. 
    Giants like Maersk  MAERSKb.CO  say the industry, which
handles 90% of global trade, faces the possibility of
significant disruptions, from ongoing wars to droughts affecting
key routes like the Panama Canal. Complex vessel schedules are
likely to be knocked out of sync for giant container ships, fuel
tankers and other commodity haulers throughout the year.
    That will increase delays and raise costs for retailers like
Walmart  WMT.N , IKEA and Amazon  AMZN.O , as well as food
makers such as Nestle  NESN.S  and grocers including Lidl.
    "This is seemingly the new normal - these waves of chaos
that seem to rise and fall. Before you get back to some level of
normalcy another event happens that sort of throws things out of
whack," said Jay Foreman, CEO of Florida-based Basic Fun, who
sends toys from factories in China to Europe and the United
States. 
    Added 2024 risks include a possible expansion of Red Sea
attacks to the Arabian Gulf, which could affect oil shipments,
and further souring of China-Taiwan relations that could also
affect important trade lanes, said Peter Sand, chief analyst at
freight data provider Xeneta. Russia's war in Ukraine continues
to affect the grains trade since it invaded its neighbor in
2022.
    Maersk on Friday joined other major ocean carriers in 
rerouting ships away from the Red Sea to avoid missile and drone
attacks in an area that leads to the vital Asia-Europe Suez
Canal shortcut. That route handles more than 10% of total ocean
shipments and nearly one-third of the world's container trade. 
    While tankers carrying oil and fuel supplies for Europe
continue to pass through the Suez Canal, most container ships
are rerouting goods around Africa's southern tip as Yemeni
Houthis attack vessels in the Red Sea in a show of support for
Palestinian Islamist group Hamas fighting Israel in Gaza. 
    Ship owners' fuel costs are up as much as $2 million per
round trip for Suez Canal diversions and the Asia-Europe spot
rate has more than doubled from 2023's average to $3,500 per
40-foot container. The increased costs could translate into
higher prices for consumers, though Goldman Sachs said on Friday
that the inflation shock should not be as bad as the 2020-22
pandemic chaos. 
    "The first quarter is gonna be a little crazy for
everybody's books" when it comes to costs, said Alan Baer, CEO
of OL USA, which handles freight shipments for clients.
    Crossings through the Panama Canal, a Suez Canal
alternative, are down 33% due to lower water levels, according
to supply chain software provider project44. Such restrictions
helped send dry bulk shipping costs for commodities like wheat,
soybeans, iron ore, coal and fertilizer sharply higher in late
2023. 
    Increasingly frequent severe weather events are having a
more immediate effect than political tensions. Brazil suffered a
double-whammy of a historic drought on the Amazon and excessive
rains in the north of the country that contributed to a
longer-than-usual ship queue at the port of Paranagua in late
2023 just months ahead of peak soybean shipping season. 
    "You can always say, 'It's a one-off event,' but if the
one-off events happen every other month, they're not anymore
one-off events," said John Kartsonas, managing partner at
Breakwave Advisors, the commodity trading advisor for the
Breakwave Dry Bulk Shipping ETF  BDRY.P . 

 (Reporting by Lisa Baertlein in Los Angeles; Karl Plume in
Chicago; Marcelo Teixeira in New York and Ana Mano in Sao Paulo;
Editing by Alistair Bell)
 ((lisa.baertlein@thomsonreuters.com; +1 310-491-7241; Reuters
Messaging: lisa.baertlein.thomsonreuters.com@reuters.net))