Concerns of Port Congestion and Rising Shipping Rates in the Red Sea Crisis

HSBC Global Research is warning that the ongoing crisis in the Red Sea could lead to congestion at ports due to uncertain vessel schedules and equipment shortages triggered by the displacement of empty containers. These challenges could be further exacerbated by the approaching Chinese/Lunar New Year.

If the crisis remains unresolved in the coming weeks, it could lead to spot rates rising even higher and subsequently higher contract rates as shipping liners negotiate their annual contracts with retailers. While this may prevent a significant decline in sector profits compared to the expectations prior to the disruptions, it also adds to the growing concerns in the industry.

The Shanghai Containerised Freight rates (SCFI) surged nearly 8% week-on-week last week to reach its highest level since October 2022 and almost double what it was at the end of November. In fact, excluding the COVID-19 period, both the SCFI and the SCFI Shanghai-Europe rates are currently at their peak levels on record.

The rally in rates is primarily driven by the Asia-Europe routes, but HSBC observes that spot rates in other routes, including the transpacific, are also experiencing an upward trend in the aftermath of the crisis.

This all comes as the Houthis have carried out around 25 attacks on merchant shipping since November, causing most container lines to reroute ships around the Cape of Good Hope. If the Red Sea situation persists, shippers may consider alternative options like air freight or rail due to longer voyages via the Cape of Good Hope, HSBC said.