As 2023 draws to a close, what follows is some important news likely to impact shipping logistics certainly into the first quarter of 2024.
Panama Canal Drought
As previously advised, the Panama Canal region is currently experiencing a drought, resulting in significant shipping delays and elevated shipping rates. Water levels in Gatún Lake, which holds the water supply needed to operate the Canal’s lock systems, are the lowest that they’ve been since 1995.
In order to conserve water, the Panama Canal Authority (ACP) have enacted transit restrictions. In August, more than 160 vessels had to wait in order to transit the Canal, with some having to sit tight for at least 17 days.
Unfortunately, water levels in Gatún Lake are continuing to drop: the recorded precipitation for October is the lowest on record since 1950. Consequently, on 7th November, the ACP reduced the number of vessels permitted to transit the Canal per day from 36 to 24. On 1st December, the number of transit slots was reduced to 22; on 1st January 2024, it will be reduced to 20; and on 1st February, it will be reduced to 18.
In order to guarantee a transit slot and reduce the possibility of extensive delays, the ACP strongly advise vessels to make use of the Transit Reservation System.
In addition to reducing the number of transit slots available, on 15th December, the ACP introduced a surcharge. As a result, all vessels transiting the Panama Canal via the Asia to USEC/Gulf route are now subject to a surcharge of $297 per container.
At this stage, we foresee shipments routing through the canal, and via close alternative trade routes could be impacted. As we saw with the Suez canal issues and also at the time of the backlog of containers due to Covid traffic, cargo liners carrying household good items often face delays (with limited notice to any changes), with consumer goods and urgent medical supplies taking priority.
Red Sea Drone Attacks
As a result of Houthi rebels in Yemen launching a series of drone attacks on vessels in the Red Sea, many major shipping companies have suspended passage through one of the most travelled waterways in the world.
On 15th December, two of the world’s largest shipping companies, Maersk and Hapag-Lloyd, suspended passage through the Red Sea until further notice. On 16th December, shipping and logistics company CMA CGM and the Mediterranean Shipping Company did the same.
The US have announced a 10-country coalition to protect shipping in the Red Sea, but it is unclear how long it will take the coalition to amass sufficient assets in the region, as well as how they are going to respond to the fact that Houthis have the ability to attack from the land.
Currently, around 15 large container vessels, plus a range of smaller ones, are stuck in a holding pattern in the Red Sea. In order to avoid getting stuck, some companies, including Maersk and Hapag-Lloyd, are re-routing their vessels around Africa via the Cape of Good Hope.
The Asia to Northern Europe and Mediterranean routes are those that are most affected by the Red Sea situation, but in the event of escalation or passage suspension continuing for a prolonged period of time, other regions will begin to suffer. In terms of the impact spreading through the supply chain, inevitable diversions could add up to 10 days to transit times, and shipping companies will attempt to recover the cost of the delays through additional surcharges and cargoes.
Whilst to date, the US and the British Military have shot down 15 attack drones, the Iran-aligned Houthis of Yemen have vowed to continue launching strikes with the aim of supporting the Palestinians in the Gaza War.
Movement to Global Freight Rates
Some positive news to share is since 2023, Sea and Air freight rates have generally decreased compared to the previous year.
- Freight rates from APAC, which was the most impacted by the pandemic crisis, have dropped considerably when compared to all other regions.
- We have also seen a reduction from EMEA to the Americas and APAC.
- Freight rates from North America, where freight increases were not as dramatic during the pandemic, remain stable.
- However, we may still experience high costs on specific lanes due to external factors as outlined above, as well as high demand, container shortages, and flight availability. These can result in GRI (General Rate Increase).
Although we have seen an overall reduction, freight rates remain generally higher than pre-pandemic.
In addition, there are cost elements which form part of a door-to-door rate which have increased. These include : packing materials, trucking costs (fuel increase), labour costs (inflation / cost of living).
