Predictions as we moved towards the New Year were that worldwide buying would rebound in 2024 following a subdued 2023, bringing a state of normality back to the shipping world. Globally, businesses crafted P&Ls using rates similar to those last seen in 2019, following which there was more turbulence in the market than we’d seen in years. Hopes of a more profitable year were high.

That was, until war broke out in the Middle East and Iranian rebel group Houthi began attacking cargo ships heading for Israel. In response, to protect workers and equipment, carriers rerouted their ships away from the Red Sea to instead travel around the Cape of Good Hope, adding mileage, time and fuel to every shipment.

In turn, we’ve witnessed a seismic shift in how shipping rates are being calculated and sailings are being scheduled. So how does this type of geopolitical conflict and the other socioeconomic conditions we’re facing look set to impact your business, and millions of others worldwide?

Reaction across the network

 

Reroutes around the Cape

The conflict in Israel and Gaza is highly sensitive, politically charged and steeped in ethical debate around genocide and war crimes, so we’re unlikely to see the issue resolved soon. As such, the longer cargo ships are unable to pass through the Suez Canal, the longer you’ll be forced to pay the higher charges that come with increased fuel usage. In many cases, the shipping costs that had been factored into companies’ plans for the year have increased anywhere between 300% and 500% as carriers try to recoup what the redirection is costing them in fuel.

Upcoming Chinese New Year

As another direct result of the Middle Eastern conflict, blanked shipments have increased globally as carriers suddenly have to factor an additional 7-10 days into each leg of their journey around the Cape of Good Hope. This means the deliveries many businesses were relying on to arrive before Chinese New Year – which brings two weeks of limited operations, labour shortages and delayed shipping annually – simply won’t materialise. This will cause businesses to have to manage their relationships with customers, communicating potential delays ahead of an uplift in service once celebrations have completed.

Equipment requirements

Once Chinese New Year is over, carriers will also need to lease additional equipment to meet the pent-up demand, brought about by the blanked sailings prior to the festivities. Carriers will need to invest in additional containers, for example, to prevent shortages. This, on top of the added fuel usage, will add further costs to global shipping – which is likely to pass on to customers in the form of higher prices.

Ongoing increases

Although experts predict shipping prices will come down in due course – although unlikely until Q2 – this will be at a much slower pace than they spiked. Carriers, suffering from the after-effects of a slow 2023, will want to maintain higher rates for as long as they can. However, rates are determined by the free market, so they will have to present that back to customers in their prices.

Planning for the unforeseen

 

Though some sensible predictions can be made as to what will happen in coming weeks and months, what we’re facing is an example of a particularly extreme scenario, with multiple factors at play. And while we hope what’s happened at the beginning of the year is an anomaly, it goes to show that global shipping is a reactive market and things can change almost overnight.

As such, it’s wise to know how to react in similar eventualities – be it war or conflict, an economic crisis, freak climate conditions and more. To prepare as best you can, ask yourself these key questions about today’s situation to try and mitigate future price hikes:

  • Which is the bigger risk to your business – absorbing the additional cost of increased shipping rates or risking losing valuable customers?
  • Do you need to ship as much as you originally thought? Could you cut your order down in order to balance costs?
  • How vital is your product to customers? Does it have to be readily available and on time? Or could you afford to have the shipment delayed slightly and manage the situation with your customers with some clear and effective communication?

What’s key in a situation of this nature is to focus more on what you can do to control your business and reputation, rather than how freight is changing day to day. For this, you need a partner in your crow’s nest who can act and advise on your behalf, with a full view of shipping availability, clear awareness of rates and solid experience of how to act in a disruptive market. And we’re here to support every step of the way.