Uncertainty over a key route linking Asia and Europe has been pushing shipping costs higher

Global logistics companies have been hit with rising ocean and air freight prices and stranded cargo as a result of vessels being diverted from the Red Sea amid the risk of attacks from Houthi militants in Yemen.

According to a CNBC report this week citing industry experts, the situation threatens global supply chains, which are already struggling after three tumultuous years of inflationary pressures and delays from Covid disruptions.

Logistics companies reportedly say the ocean freight rate for a 40-foot container from Shanghai to the UK has soared from $2,400 last week to the current $10,000. Rates for a 20-foot container stood at $1,900 as of last week. Truck rates in the Middle East are now reportedly more than double.

“During Covid, we had a slower build-up in freight prices due to the impact the pandemic had on the global supply chain,” OL USA CEO Alan Baer told the outlet.

“What we are experiencing here is a light switch event where vessels are being redirected in real time. But, that said, in certain trade lanes you are seeing freight rates going up between 100% to 300%,” Baer added, noting, “This does not appear to be totally driven by changes in supply and demand.”

The report said that 158 vessels carrying over 2.1 million cargo containers have re-routed away from the Rea Sea as of Thursday morning. The value of this cargo based on MDS Transmodal estimates of $50,000 per container is reportedly $105 billion.

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Billions in cargo diverted amid Red Sea disruptions – CNBC

According to a previous CNBC report, the world’s largest ocean carrier, MSC, was the first to hike rates from India by 30-40%.

“To many, the jump in rates from India to the USEC [US East Coast] from approximately $2,000 per 40-foot container to $7,000 per 40-foot container in just 30 days appears egregious,” Baer said. “Is this rate increase really the level required to recover costs, or are they simply taking advantage of an unfortunate situation for the entire global community?” 

International companies have been warning that the trade diversions could impact product availability. Swedish furniture giant IKEA told CNBC that while it does not own any container vessels, it is working with transportation partners to manage shipments.

Global carriers have started diverting vessels following travel suspensions over reports of at least two ships being targeted with projectiles on Monday. They now have to sail the long way around the southern tip of Africa instead of passing through the Red Sea and the Suez Canal. Houthi leaders have said they are pursuing all Israel-bound vessels due to the ongoing hostilities in Gaza.

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