Navigating Turbulence: Red Sea Disruptions and Shipping Companies

Manufacturers and Companies have been severely affected by disruptions in the Red Sea shipping routes. Disruptions in the Red Sea region has caused production delays,

leading to decreased output and substantial revenue losses for companies.

The ongoing conflict involving the Houthis in the Red Sea has had profound impacts on maritime activities, global trade, and maritime security

Major Shipping companies are circumventing the Red Sea due to ongoing attacks. Instead, they are opting for longer alternative routes that involve navigating around Africa's Cape of Good Hope. This extended route is significantly extending travel distances by several thousand miles and add two to three weeks of travel time. Also, shipping companies are facing prolonged transit times, elevated insurance premiums, and logistical challenges, affecting global supply chains reliant on efficient maritime routes through the Red Sea.

Alternative Routes considered by shipping companies

Cape of Good hope route involves ships traveling around the southern tip of Africa instead of passing through the Red Sea and Suez Canal. While this route is significantly longer, it avoids the high-risk areas in the Red Sea and the Gulf of Aden. The additional distance can lead to increased fuel costs and longer transit times

Some ships may take routes along the eastern coast of Africa before heading toward their destinations in Europe or the Americas. For vessels traveling between Asia and the Americas, navigating through the South Atlantic Ocean provides a safer alternative to transiting through the Red Sea

Key Impact on Shipping companies

1. Disruption of Shipping Routes

Due to the threat of attacks in the Red Sea and the Gulf of Aden, shipping companies have been rerouting vessels. Routes around the Cape of Good Hope or through the Arctic have become more attractive despite longer transit times and higher costs. Ports along alternative routes, such as those in Southeast Asia, experience increased congestion as they accommodate diverted traffic, leading to longer waiting times for ships.

2. Economic Impact

Rerouting ships and implementing enhanced security measures contribute to higher operational costs for shipping companies. This includes increased fuel costs from longer voyages and higher insurance premiums due to heightened risks. Delays in transit times and congestion at ports disrupt supply chains, impacting industries reliant on timely delivery of goods leading to increased costs and potential shortages of critical goods.

3. Maritime Security Concerns.

The presence of naval mines, explosive-laden boats, drones, and missiles in the Red Sea poses significant security risks. The heightened risk environment increases insurance premiums for ships transiting the region. Insurance providers assess the increased threat level and adjust premiums accordingly.

Impact on Singapore & Hong Kong

With ongoing Houthi attacks and ships avoiding the Red Sea and Suez Canal, taking longer routes around the Cape of Good Hope, leading to increased traffic at major transhipipmet hubs in Southeast Asia, including Singapore & Hongkong. The surge in vessel traffic results in congestion at the Port of Singapore, leading to longer waiting times for ships to dock and unload their cargo. The increased volume of ships strains the port's infrastructure, causing logistical bottlenecks. This impacts the efficiency of cargo handling and the timely movement of goods. Ships experience extended turnaround times due to the high volume of traffic, affecting schedules and the overall supply chain.

Conclusion

As of recent reports, congestion at the Singapore port has reached critical levels. The severe congestion is causing berthing delays of up to seven days, whereas under normal circumstances, vessels typically berth at the port within half a day.

Port congestion and delayed vessel schedules in Singapore are exacerbating issues related to the availability of empty containers. The backlog of vessels and extended waiting times at the port have disrupted the timely return and redistribution of empty containers, crucial for maintaining smooth operations in global supply chains. This shortage is causing logistical challenges for exporters and importers alike, impacting cargo handling efficiency and contributing to overall supply chain disruptions.

According to their Linerlytica analysis of the latest congestion data, Southeast Asia emerges as the most severe bottleneck, accounting for over a quarter (26 percent) of the congestion, closely followed by North-Eastern Asia at 23 percent. As these pressures mount, they are leading to abrupt rises in shipping expenses.