In recent weeks, short-term rates for container shipping between Asia, Europe, and the United States have experienced a significant surge. The increased costs are a result of reduced capacity caused by security threats to cargo vessels in the Red Sea. Freightos.com, a cargo booking and payment platform, reported that spot rates for shipping goods in a 40-foot container from Asia to northern Europe have skyrocketed by 173%, now exceeding $4,000. Similar rate hikes were observed for shipments from Asia to the Mediterranean, with costs reaching $5,175. Furthermore, carriers have announced prices above $6,000 for this route starting in mid-January. Rates for shipments from Asia to North America's East Coast have also risen by 55%, now standing at $3,900 for a 40-foot container.

According to Judah Levine, head of research at Freightos, these surging rates for services from Asia to northern Europe and the Mediterranean still remain below their levels during the Covid-19 pandemic but have more than doubled compared to January 2019. The rise in rates is attributed to the slowdown in Suez Canal traffic, which has diminished by over a quarter in recent days as vessels navigate longer routes to avoid missile strikes from Yemen's Iran-backed Houthi militants. The Houthis have claimed to be targeting vessels with connections to Israel, although these alleged links have been increasingly doubted.

When capacity is stretched, shipping lines tend to increase their prices, and additional surcharges are imposed to account for longer delivery times and busier-than-normal periods. The recent surge in shipping rates can also be attributed to the blasts near the grave of Iranian commander Qassem Soleimani, which killed nearly 100 people. These attacks threaten to escalate the Middle East conflict, with Tehran claiming the attacks were carried out to retaliate against Israel, although the United States has denied any involvement from either itself or Israel.

The increasing demand and potential congestion risk have prompted shippers to pull forward volumes, compensating for longer transit times and preparing for China's Lunar New Year holiday in early February. PortWatch, a platform produced by the International Monetary Fund in collaboration with Oxford University, reported a 28% decrease in Suez Canal transits during the 10 days leading up to January 2 compared to the previous year. This diversion accounts for approximately 3.1% of global commerce, as indicated by the data.

The Red Sea, referred to as a "systemically important" shipping lane by the IMF, handles over 19,000 vessel transits annually. The reduced traffic since mid-December has raised concerns within the shipping industry. The rising spot rates pose a risk for cargo owners, as they may have less leverage when negotiating long-term contracts, typically occurring between March and May. The majority of ocean freight depends on rates established in these contracts.

The impact of disrupted traffic extends beyond the container shipping sector. Shipbroker Braemar notes that oil tanker markets have experienced gains, particularly for vessels transporting refined fuels like gasoline and diesel. Earnings for ships transporting refined fuels from the Mediterranean to Japan via the canal have surged from around $8,000 per day in early December to $26,000 per day this week.

The situation in the Red Sea remains uncertain, and with rising costs and potential supply chain disruptions, stakeholders across various industries will closely monitor developments in the region.