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Global trade has faced immense pressure since last October when the war in the Near East erupted following the terrorist attack by the Palestinian group Hamas against Israel. The international trade sector now contends with higher transportation costs and increased spending on cargo insurance.
Shipowners are particularly dismayed by the rising insurance costs, as the risk of losing their vessels to Houthi rebel attacks from Yemen has dramatically increased. To avoid the Suez Canal and instead navigate around Africa, they must consider longer travel times and naturally higher fuel costs. Bloomberg has described this expense as "inevitable."
The Drewry World Container Index, which tracks the container market, has recorded staggering price hikes. According to the index, the average shipping cost for a large standard 40-foot container has surged by an astronomical 233% compared to 2023. On certain routes, prices have soared even higher.
Simon MacAdam, an economist at the independent financial advisory firm Capital Economics in London, assesses the significant rise in costs: “After a six-month crisis in the broader region, freight costs dropped in recent months after peaking in January,” he told DW. However, MacAdam does not see relief on the horizon: “They are once again on an upward trajectory.”
MacAdam points out that armed conflicts are not solely to blame for the price increases: “The trigger appears to be importers systematically placing larger orders to ensure they have enough stock for the current year. However, the fact that many ships are circumnavigating the Cape of Good Hope is pressuring global shipping and making further price increases likely.”
Jan Hoffmann, a trade expert at the UN Conference on Trade and Development (UNCTAD), explains to DW why freight rates have generally risen: “The main reason is the longer distances ships must travel. To maintain the same level of product supply, circumnavigating Africa requires more vessels. The average distance a container travels today is 9% greater than in 2022.”
According to Hoffmann, the environmental impact is significant: “Ships have increased their speeds. Higher speeds and longer distances have led to a rise in emissions. For example, emissions have increased by 70% on the Singapore-Rotterdam route.”
Meanwhile, the situation in the Red Sea remains tense. Bloomberg reports that approximately 70% of global trade continues to avoid the area, preferring the route around Africa. The deployment of new aircraft carriers by the U.S. Navy in the Red Sea underscores the military's long-term concerns about the situation.
Economist Simon MacAdam predicts that a prolonged crisis will further burden shipowners and lead to additional freight rate hikes. “It takes many years to build ships, and 90% of new containers are manufactured in China. Therefore, higher capacities cannot be secured overnight,” he says, warning, “The situation may well worsen.”
