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The diversion of container vessels away from the risk of attacks in the Red Sea is pushing up air freight costs as shippers try to keep Asian-produced goods on shelves despite delays to sea traffic.
Logistics providers said the rerouting of ships from the Suez Canal to longer passages between Asia and the west following Houthi missile and drone attacks had generated intense interest in moving goods by a mixture of sea and air. One company said demand for this method was 25 to 30 per cent higher than normal for January.
The shift in transport mode, mainly a result of decisions by big container shipping line to send ships around the Cape of Good Hope, has helped push up air freight costs. The average cost to fly 1kg of cargo from the Middle East to Europe has increased 35 per cent in the last month to $2.03, according to Freightos, a logistics information service.
Eytan Buchman, Freightos’s chief marketing officer, said shippers were resorting to air because of the delays from the extended transit times via the Cape. “One strong argument for bridging part of a supply chain by air would be to avoid the delays and uncertainties,” Buchman said.
He said supply chains that could be disrupted included those for the manufacture of computers and cars and even for the making of sauces that needed a single key ingredient sourced from Asia.
Container ships are the main means of worldwide transport for finished and semi-finished goods.
Mads Drejer, chief operating officer of Denmark-based logistics company Scan Global Logistics, said his company was “increasingly seeing” higher air freight demand. Such cargo can travel either on specialist freighter aircraft or in the holds of passenger aeroplanes.
“While air freight remains significantly more expensive than ocean freight . . . our clear view based on dialogue with our customers is that the consequence of empty shelves or a halt to production far exceeds the additional cost of utilising airfreight,” Drejer said.
Container shipping lines started diverting to the Cape route in late November, when Yemen’s Iranian-backed Houthi rebels began attacking ships travelling through the Red Sea on their way to and from the Suez Canal. The diversions have mainly affected services between Asia and Europe, although some services from Asia to the US east coast are also affected.
Container ship traffic through the mouth of the Red Sea in the first week of January was 90 per cent down on a year before.
There have also been big cuts to the capacity of the Panama Canal, a key route between Asia and the US East Coast, as a result of a drought that has lowered water levels in that canal.
The Red Sea diversions have added up to two weeks to each journey between Asia and northern Europe, on top of the normal journey time of about 35 days.
The re-routings and the Panama Canal delays have created the most severe disruption to international supply chains since the Covid-19 pandemic and raised the costs of moving goods by sea to the highest levels recorded outside that period.
Several logistics providers said customers were showing particular interest in sea-air options, whereby goods move by sea to a big air freight hub and are then flown onwards.
Kuehne & Nagel, the Switzerland-based logistics company, said it had used Dubai to move seaborne goods onwards by air to Europe, and was sending Asian goods destined for the Americas by sea to Los Angeles instead of using the Panama Canal to reach the US east coast.
“We see much higher interest from our customers,” Kuehne & Nagel said of sea-air solutions.
It said one customer had moved a shipment of flowers harvested in Kenya by sea to Dubai, from where it was flown to Rotterdam, in the Netherlands. The shipment had originally been due to make the whole journey by sea, via the Suez Canal.
“Considering that your typical journey from the Chinese ports to the Northern European ports will now take between 40 and 50 days, some of the customers are now indeed looking at alternatives which include flying,” Kuehne & Nagel said.
Moving goods part of the way by sea reduces overall airfreight costs. Freightos puts the current average cost to fly goods from Shanghai to Europe at $3.76/kg, 85 per cent higher than the cost from Dubai.
There have been some concerns that the shipping disruption could raise inflation. Isabel Schnabel, a member of the European Central Bank’s executive board, said on Wednesday in a question-and-answer session on social media site X that geopolitical tensions were one of the “upside risks to inflation”.
“They could drive up energy prices or freight costs,” she said. “That’s why we need to remain vigilant.”
Additional reporting by Martin Arnold in Frankfurt