Political Tensions, Strikes & Shipping Delays: Will 2024 Be A Pandemic Déjà Vu?

As the industry starts to somewhat normalize after the effects of COVID-19, the world has introduced to us a score of new challenges as we welcome 2024.

Australia, heavily reliant on international trade, faces a challenging situation with political tensions, strikes, and shipping delays threatening to create a sense of déjà vu reminiscent of the pandemic disruptions.

The ongoing state of international shipping

International shipping has been riding choppy waters for years now, and those waters are only getting choppier. 

The persistent disruptions in the global supply chain have been further intensified by political conflicts and labour disputes.

A war in the Red Sea

One of the major geopolitical concerns impacting international shipping is the conflict in the Red Sea region.

The Bab al-Mandab Strait between Yemen and North Africa is one of the world’s busiest oil transit points, and it’s currently embroiled in a security nightmare.

An Iran-backed Houthi militia (Ansar Allah) has been working to overthrow the Government of Yemen, backed by Saudi Arabia and the UAE. The Houthis have been responsible for attacking commercial vessels in the Red Sea, launching at least 27 assaults on merchant ships since November 2023.

The West is fighting back, with Australia now having expressly spoken in support of U.S. and UK airstrikes on the Houthis.

All of this his has led to increased naval presence, heightened security measures, and a palpable sense of unease among shipping companies. Maersk says it could take months before trade route is safe to traverse.

Global trade has fallen by 1.3% since December, with the number of containers travelling daily through the Red Sea dropping by 60% from November to December.

Strikes across port terminals

While missiles aren’t flying across Australian skies, tensions loom at DP World port terminals in Sydney, Melbourne, Fremantle and Brisbane.

Stevedores demands and disputes over pay have significantly disrupted the smooth flow of goods, with members of the Maritime Union of Australia (MUA) having reportedly walked away from negotiations with DP World in December 2023 over the terms of their enterprise agreement, demanding a 27.5% pay rise on salaries.

DP World estimates industrial action is costing the Australian economy $84 million a week, with a backlog of 44,000 containers that could take two months to clear.

Freight rates volatility

The conflict in the Red Sea is having an unfortunate impact on freight rates, which continue to rise among the uncertainty.

Analysts have suggested that the crisis (as well as the Panama Canal water level crisis brought on by severe drought) are causing a spike in rates as capacity is swallowed up by the much longer African Cape route.

We expect that rates will remain higher throughout January and February as the capacity remains tight.

It comes as no surprise that the Shanghai Containerized Freight Index (SCFI) spiked 40% at the end of December 2023, reaching its highest level since October 2022.

This was only the fourth time since 2009 that the SCFI increased 40% or more in a single week.

CMA CGM also announced sharp increases in Freight All Kinds (FAK) rates from Asia to the Mediterranean from 15 January 2024.

We’ve also seen Shipments to the East Mediterranean, the Adriatic, the Black Sea, and Syria experiencing significant price increases.

It is worth noting that only 16% of Australia’s container imports come from Europe. The impacts have been more significant for China, India, Vietnam, Thailand and Indonesia as well as European countries including the United Kingdom, Germany, France, Spain and Italy. 

Despite the delays and extra costs that this conflict will incur for the Australia-Europe trade lane, the current DP World port dispute is much more damaging to Australia’s economy and supply chains in general, with “disruptions costing importers and exporters about 20% more in logistics costs, purely from the land transport side of things”, according to Niel Chambers from CTAA.

New technology

While so far we have painted a grim look at shipping, we are seeing the growth of new forms of technology – largely related to automation.

A global industry report by CyberOwl underscores that more than 95% of maritime cyber incidents originate from inadvertent human errors.

To mitigate this risk, automation has largely come into play, elevating operational precision, consistency and accuracy.

Unmanned vessels and autonomous ships are becoming increasingly popular in the industry. Both require minimal or no crew, but autonomous vessels stand out as they use advanced self-governing technology to make independent decisions.

Communication platforms powered by AI are also working to enhance team collaboration by intelligently organising and prioritising messages, leading to a decrease in email overload.

Using big data to optimise routes is also becoming more and more important. The integration of AI in weather prediction and voyage planning is a prime example.

Sophisticated algorithms analyse extensive datasets to provide accurate weather forecasts and determine the best routes, ensuring safer journeys and minimising fuel usage and emissions.

2024 Predictions and the Impact on Importers & Exporters

For the lack of a crystal ball, we have some assumptions based on recent events and general commentary from industry.

Uncertainty and risk

We’ve already seen the unexpected rerouting of ships in the Middle East.

And we’ve seen the delays and unanticipated costs with the industrial action brought on by the MUA.

This uncertainty requires businesses to closely monitor geopolitical developments and diversify their supply chain strategies to mitigate potential risks.

Costs of shipping will rise, but shippers should question surcharges

The costs of shipping rose by 250% due to the attacks on the Red Sea, with the price of transporting a 40-foot container from China to Europe soaring from $1,481 in November 2023 to $4,000 in January 2024.

“Rates on affected trades will inevitably adjust to the higher costs incurred, bearing in mind the greater fuel burn, additional crewing time, insurance and chartering costs. But offsetting these to some extent will be the very substantial savings made in Suez Canal transit fees. These are of several hundreds of thousands of dollars for a typical container ship and these savings should be accounted for by shipping lines when justifying their surcharges and higher rates” says James Hookham, Director Global Shippers Forum (GSF).

The narrative being heard is that because the Red Sea is effectively closed to shipping, Asia-Europe/USEC shipping rates are going to repeat the sustained spike of 2020-22 (and, by implication, shipping lines will get another big profit windfall). GSF does not believe this is supported by the circumstances. There is no chronic shortage of shipping capacity in the way there was during the Covid pandemic, and there is substantial new capacity expected to be delivered throughout the first half of 2024. Demand for shipping space is also stable, if not declining;

Furthermore, the cost increases that will be incurred by shipping lines diverting around Africa are known and finite and should not be talked up into a second shipping crisis on the scale of the first one in 2021. Shippers should check demands for payment of additional surcharges, given that the first vessels affected by the diversion are only just arriving at their destination ports. (The first diversions commenced between 13-15 December, and not every vessel immediately diverted).

Importers in North America and Europe should expect a one-off adjustment to schedules and port calls over the next few weeks but after that service patterns should settle into the new longer routes and adjusted port calls, with some stability returning to predicted arrival times of ships and delivery of containers. The same will apply to east-bound sailings, which may affect the availability of empty containers in Asia in the short-term. But, again, this should stabilize over time”, adds James.

Therefore, shippers commencing contract renewal negotiations over the next few weeks should avoid being ‘locked-in’ to rates based on currently quoted spot prices, as rates on affected trades may ‘normalise’ quickly should the world come to a resolution of the Red Sea conflict.

Opportunities for improvement

However 2024 is also going to be the year that importers and exporters will take advantage of new technologies to streamline their supply chains and perhaps even offset (at least partially) the high cost of shipping.

Despite a lot of reluctance to embrace artificial intelligence, it can be the saving grace for many of us.

The integration of artificial intelligence, blockchain, and other innovative technologies promises to enhance operational efficiency, such as:

• Improved visibility into supply chain processes
• Streamlined documentation procedures
• Higher-quality risk management tools

Businesses that embrace and leverage these technological advancements will likely gain a competitive edge in navigating the challenges of the year.

How businesses can navigate 2024

• Leave room for delays and unexpected costs when planning your supply chain operations as much as possible.
  
• Lean on your business partners and service providers to ensure you still have the best arrangements in place. If you’ve been shipping for a while, for example, you can start by asking your freight forwarder for a shipping review to ensure your goods are being moved through the best route and shipping method available. Or, you can ask for a customs brokerage audit to check if you are eligible for an import duty refund or any tariff concessions.

ICE remains ready to help Australian importers and exporters to navigate the complexities of international freight in 2024 and beyond. We’ve been doing it for over 35 years.

Are you ready to ride this wave with us?