The Red Sea crisis has caused ocean freight rates to surge at a faster pace than the initial months of the Covid-19 pandemic, with numerous shippers being informed that certain contract terms will not be honored. Xeneta, a prominent ocean freight intelligence platform, released evidence demonstrating that shipping costs on key routes from the Far East to Europe surged by over 200% in the first 52 days of the Red Sea crisis, surpassing the rate increases observed during the same period of the pandemic.
While rates have not reached the levels seen during Covid-19, the sudden escalation of the Red Sea crisis has led to a more rapid rate increase, resulting in significant disruption compared to the early pandemic months. Although the impact of the Red Sea crisis is expected to be more immediate, it is anticipated to be less prolonged than the pandemic.
A survey of hundreds of Xeneta customers revealed that nearly two-thirds of shippers have been informed that their minimum quantity commitments (MQCs) will not be honored under existing contract agreements. Carriers are redirecting them to the freight all kinds (FAK) market and charging higher rates. While carriers require time to establish new shipping networks to address the disruption caused by avoiding the Suez Canal, shippers may perceive the rate hikes as carriers capitalizing on the situation.
As the market is expected to peak in February, the duration of shippers’ patience remains to be seen. Rates are likely to decrease once carriers resolve the capacity crunch in the Far East resulting from delayed ship returns via the Cape of Good Hope.
