Shipping industry faces turmoil amid conflict in 2024

The shipping industry, vital to 90% of global trade, is bracing for major disruption in 2024. Major airlines including Maersk are facing challenges from ongoing conflicts over climate-related issues that threaten to disrupt complex shipping schedules. The disruptions are expected to result in increased delays and costs for retailers like Walmart (NYSE: WMT ), IKEA and Amazon (NASDAQ: ), as well as food manufacturers like Nestlé and grocery chains like Lidl rise.

Potential risks in 2024 include an escalation of hostilities from the Red Sea to the Arabian Gulf, which could jeopardize oil shipments, and a deterioration in relations between China and Taiwan, which could affect key trade routes. The ongoing war in Ukraine initiated by Russia in 2022 continues to disrupt grain trade.

Maersk and other leading shipping companies decided on Friday to reroute ships out of the Red Sea to avoid missile and drone attacks near the Suez Canal, a vital passage that controls more than 10% of maritime shipping and nearly a third of all global container trade is crucial. . While oil tankers and oil tankers still pass through the Suez Canal, most container ships are now sailing on the southern tip of Africa due to attacks by Yemen’s Houthi rebels backing Hamas in Gaza.

The diversion of ships to the Suez Canal route has resulted in a significant increase in fuel costs for shipowners, with each round trip cost increasing by up to US$2 million. The spot freight rate for shipping a 40-foot container between Asia and Europe has more than doubled from the 2023 average price to $3,500. Goldman Sachs noted on Friday that while these costs could lead to higher consumer prices, the inflationary impact is not expected to be as severe as the disruption caused by the pandemic in 2020-2022.

Alan Baer, ​​CEO of freight management company OL USA, predicts that the first quarter of this year will be particularly difficult on the cost front.

The Panama Canal, an alternative route to the Suez Canal, has seen 33% fewer crossings due to lower water levels, according to a report by supply chain software provider Project44. This reduction has led to a sharp rise in dry bulk shipping costs for commodities such as wheat, soybeans, iron ore, coal and fertilizers by the end of 2023.

Extreme weather events also have a more direct impact on the industry than geopolitical tensions. For example, the Brazilian Amazon is experiencing a historic drought and excessive rainfall in the north, resulting in long queues at the port of Paranagua ahead of the peak soybean shipping season at the end of 2023. Breakwave Advisors managing partner John Kartsonas emphasized that what was once considered a one-off event is becoming more frequent, signaling a change in the industry’s operating landscape.

Reuters contributed to this article.

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