As Red Sea Crisis Sustains, Shipping Companies’ Struggles Protract – The ONE View

In the intricate web of global trade logistics, container shipping lines find themselves entangled in a perfect storm of challenges, grappling with port congestion and ship shortages exacerbated by COVID initially, and now the prolonged crisis in the Red Sea. Things don’t seem to get better as the turmoil enters its third month.

The crisis, ignited by attacks from Yemen’s Houthis since December 2023, has compelled most carriers to divert from the customary Asia to Europe route through the Red Sea and Suez Canal. This deviation has thrown off vessel schedules, causing ships to arrive at ports on unscheduled days, triggering berthing clashes and compounding the existing congestion woes.

Diversions to alternative routes, such as circumventing the Cape of Good Hope, have elongated voyages between Asia and North Europe by 10 days to two weeks, presenting logistical nightmares for supply chain managers. Key hub ports in Asia and the Mediterranean, including Singapore, Dubai, and those around the Gibraltar strait, bear the brunt of intensified pressure due to surging volumes seeking alternative routes.

Despite the formidable challenges, Jeremy Nixon (CEO of Ocean Network Express (ONE) in Japan) dismisses notions of industry overcapacity, asserting that ONE, boasting the world’s sixth-largest container ship fleet, grapples with a shortage of ships to uphold its regular weekly services. This perspective stands in contrast to recent concerns raised by Denmark’s AP Møller-Maersk, operator of the second-largest container ship fleet globally, whose shares plummeted following warnings of earnings pressure stemming from industry overcapacity.

The discrepancy arises as world fleet capacity is poised to expand by approximately 8% in 2024, outstripping the projected demand growth of around 3%. This surplus capacity exerts downward pressure on shipping rates, constraining revenue streams for carriers. Nixon attributes the shortage of vessels partly to investments in cleaner fuel-powered ships, in anticipation of forthcoming emissions regulations from 2027.

In the midst of the Red Sea diversions, ONE faces a daunting shortage of vessels, necessitating approximately 16 ships for a weekly service instead of the customary 12, owing to extended transit times. Despite efforts to alleviate delays by ramping up vessel speeds by 10 to 15%, the shortage persists due to inadequate global ship availability to adequately cover the prolonged transit times.

The challenges besieging container shipping lines underscore the intricate nature of maritime logistics amid geopolitical crises and regulatory transitions, underscoring the imperative for agile strategies to navigate disruptions effectively. As the industry grapples with port congestion, ship shortages, and geopolitical uncertainties, the resilience and adaptability of shipping lines will be put to the test in steering through turbulent waters toward smoother sailing ahead.

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