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ASCM Insights

Supply Chains Confront Yet Another Shipping Reroute

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This week in the news, supply chain organizations around the world continue to face skyrocketing shipping prices and extensive delivery delays. If this gives you a sense of déjà vu, you’re not alone. With seemingly constant disruption, uncertainty is a constant these days. Now, it’s the violence in the Red Sea, which I wrote about just a few weeks ago and continues to cause chaos as shipping companies divert their cargo from the region.

The Wall Street Journal reports that ocean carriers are being forced to raise prices and add extra fees to cover the costs of navigating their container ships around the Horn of Africa: “Average worldwide costs to ship 40-foot-long containers have nearly doubled since late November. ... The spot-market price to move containers between China and Rotterdam in the Netherlands reached $3,577 in the week ending January 4, a 115% increase from the week before.”

Some analysts worry that the rapid increase in prices could lead to another wave of inflation, according to Business Insider. “Many expect the shipping delays to drive up the Brent and West Texas Intermediate oil benchmarks,” similar to the effect the supply chain disruptions during pandemic had on global economy. The Governor of the Bank of England agrees, notes the Telegraph: “A surge in shipping prices triggered by chaos in the Red Sea poses a threat to interest rates.”

Avoiding the Red Sea and the Suez Canal is a big challenge for shipping companies, with 15% of the world's total shipping traffic passing through the canal each year. Furthermore, the Red Sea crisis coincides with drought restrictions in the Panama Canal. Asian cargo bound for East and Gulf Coast ports had previously been switched from Panama to the Suez Canal and is now being rerouted on even longer voyages around the Cape of Good Hope, per FreightWaves.

The Journal notes that surcharges are running hundreds of dollars to more than $1,000 per box to account for the longer shipping routes, increased fuel prices, reduced containership availability and higher insurance rates. However, some experts believe these high costs will not continue for too long. “While the current situation may be positive for freight rates in the short term, this is happening against a larger backdrop of a weaker container freight market,” FreightWaves predicts — which is good news for supply chain professionals who are averse to reliving the pandemic roller coaster.

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About the Author

Abe Eshkenazi, CSCP, CPA, CAE CEO, ASCM

Abe Eshkenazi is chief executive officer of the Association for Supply Chain Management (ASCM), the largest organization for supply chain and the global pacesetter of organizational transformation, talent development and supply chain innovation. During his tenure, ASCM has significantly expanded its services to corporations, individuals and communities. Its revenue has more than doubled, and the association successfully completed three mergers in response to both heightened industry awareness and the vast and ongoing global impact driven by supply chains. Previously, Eshkenazi was the managing director of the Operations Consulting Group of American Express Tax and Business Services. He may be contacted through ascm.org.

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