Despite facing high freight costs, maritime companies are signaling a return to voyages through the Red Sea in the East Africa region following an incident in December attributed to attacks by Houthi rebels.
Cape of Good Hope : Emerging as a preferred maritime route
In response to the ongoing threat posed by Houthi rebel attacks supported by Iran in Yemen, targeting ships bound for Israel, major maritime players such as the Mediterranean Shipping Company (MSC) and Maersk, a leading container carrier, are opting to circumvent the Red Sea and the Suez Canal.
MSC, for instance, has announced the suspension of vessel transits through the Suez Canal, both eastbound and westbound, until deemed safe to navigate the Red Sea, with services redirected to traverse the Cape of Good Hope instead. « To prioritize the safety of seafarers, some services will be rerouted », MSC confirmed. These operational adjustments have led to disruptions in the sailing schedules of numerous vessels initially slated for Suez transit.
Highly disrupted maritime transportation
Maersk has halted all voyages through the Red Sea in response to the recent attacks and repeated warnings from the Houthis. Their vessel, the Maersk Gibraltar, was targeted by a missile while en route from Salalah, Oman, to Jeddah, Saudi Arabia. This development has rippled through Salalah, a pivotal transshipment hub serving ports along the Indian Ocean coast, including Kenya and Dar es Salaam.
Following suit, other industry giants such as the French company CMA CGM and the German transport company Hapag-Lloyd have adopted a similar stance. The Red Sea is a critical artery for oil and fuel shipments globally. By bypassing the Suez Canal, an essential conduit for journeys to Mombasa and the East African coast, vessels face longer routes and increased transit times, leading to elevated freight costs.
Instability in the Red Sea : Expected surge in freight rates
The 193 km-long Suez Canal, bridging the Mediterranean and the Red Sea, is the shortest maritime link between Asia and Europe, providing expedited access to East Africa compared to alternative routes around West Africa (Atlantic) or South Africa.
Roughly 30 % of vessels traversing international waters rely on the Suez Canal. The East Africa Shippers’ Council (EASC) recently cautioned that this disruption could have far-reaching consequences. « This poses a significant challenge as vessels may be compelled to reroute through the West African maritime route, while others may opt to dock at Djibouti to bypass the Suez », stated the Council. Consequently, freight rates are anticipated to surge, accompanied by potential delays.
Price surges stemming from security issues in the Red Sea
Recent events in the Red Sea region are poised to trigger a surge in freight costs across Africa, reminiscent of the challenges experienced in 2021 when prices escalated by up to 30 % following a week-long disruption of the Suez Canal. The canal’s closure between March 23 and 29 was attributed to the grounding of the massive cargo ship Ever Given, operated by global maritime company Evergreen, blocking a crucial waterway responsible for facilitating approximately 12 % of international trade.
Amidst the blockade and against the backdrop of the COVID-19 pandemic, the shipping expenses for a standard 40-foot container from various ports to Mombasa surged from an average of 1,400 USD to 3,600 USD, consequently leading to an inflationary trend in the cost of goods. As a result, rising inflation in Africa is being seen in several countries.
Observations of import and export delays
Local manufacturers are grappling with operational challenges due to delays in transporting raw materials and finished products, adversely impacting production cycles. The Kenyan Manufacturers Association (KAM) has highlighted an average delay of one to two weeks, particularly affecting shipping entities utilizing the Suez Canal. These delays substantially impact shipping operations from Europe and Asia, impeding Kenyan imports regarding vessel availability, transshipments, and overall cost adjustments, as per KAM’s findings.
Furthermore, the recent introduction of an alternative route, approximately 40 % longer, has exerted significant upward pressure on operational expenditures. According to Container xChange, a technology firm specializing in container trading and leasing, recent developments precipitate rate hikes, consequently driving freight costs to elevated levels.
Global Impact
China, serving as the primary source of imports for Kenya, is grappling with soaring container rental rates, surging to a pinnacle of 1,750 USD. In Europe, expenses hover around 1,340 USD, a notable increase from 1 200 USD in August 2023.
Christian Roeloffs, co-founder and CEO of Container xChange, underscores the swift repercussions observed in critical maritime corridors like the Red Sea, Suez Canal, and Panama Canal, which swiftly reverberate throughout the container transportation sector.
Yoni Essakov, representing the Israeli Chamber of Shipping executive committee, underscores the potential ramifications of extended voyages, particularly on products boasting a shelf life of two to three months originating from Africa and the Far East.
Importers may be compelled to augment their stockpiles amidst prevailing uncertainty, incurring elevated costs. Meanwhile, others risk facing market displacement and competitiveness challenges due to delivery delays, potentially compromising their standing within markets.
The Kenya Ports Authority (KPA) is actively allaying concerns regarding potential repercussions on the port of Mombasa from Red Sea developments. Captain William Ruto, the Director-General of KPA, has emphatically stated that there is no cause for alarm.
« I want to assure you that our operations at this port remain unaffected by the recent events in the Red Sea. Furthermore, I thank the shipping companies operating within the port of Mombasa for their unwavering confidence and commitment. They have assured us of their continued operations, backed by comprehensive insurance coverage, further bolstering our confidence in the port’s sustained growth », affirmed Ruto.
