With 158 vessels carrying an estimated $105 billion worth of cargo being diverted from the Red Sea due to the ongoing risk of Houthi attacks, the global supply chain is grappling with soaring freight rates and stranded cargo. This double whammy of challenges comes after years of inflationary pressures and Covid-related disruptions, which had recently been alleviated. However, logistics executives are expressing concerns over potential opportunistic price gouging as ocean freight rates surge by 40% on certain trade routes and container prices reach an exorbitant $10,000.

The diversions from the Red Sea, including major shipping companies like Maersk, have left global logistics managers in a precarious situation. Ocean and air freight prices are skyrocketing, posing a significant threat to the already fragile supply chain. Within a few hours, ocean freight prices rapidly climbed to $10,000 per 40-foot container from Shanghai to the U.K., compared to last week's rates of $1,900 for a 20-foot container and $2,400 for a 40-foot container. Truck rates in the Middle East have also more than doubled.

Discussing the unprecedented rate hikes, Alan Baer, CEO of OL USA, emphasizes the need to clarify these sudden increases, urging the shipping community, importers, exporters, and government regulators to understand the underlying drivers behind such inflated prices. Baer notes that while the Covid pandemic resulted in a gradual build-up of freight prices, the current situation is akin to a "light switch event." Freight rates are skyrocketing by 100 to 300% in certain trade lanes, which raises concerns as these spikes don't seem solely driven by changes in supply and demand.

As of Thursday morning, 158 vessels have diverted from the Red Sea, carrying over 2.1 million cargo containers, with an estimated value of $105 billion, according to Kuehne + Nagel. The attacks show no signs of abating, leading companies like IKEA to anticipate delays in product availability. Working with transportation partners, IKEA is reviewing alternative supply options to ensure products are accessible while prioritizing the safety of their value chain.

French dairy and plant-based products company Danone, on the other hand, disputes reports of short-term supply chain delays, stating that there have been no significant impacts on their operations. Danone is closely monitoring the situation in collaboration with suppliers and partners, refraining from providing further comments.

Logistics CEOs are actively working to mitigate the impact of stranded cargo. For cargo considered stranded in Europe or the Middle East, logistics companies are considering moving select products by air. U.S. shippers are also exploring alternative trade routes like the TransPacific and the Panama Canal to access ports on the Gulf and East Coast, weighing transit time and freight costs. Dubai and Aqaba have emerged as potential alternative Middle East ports.

Amid the crisis, ocean carriers like Maersk, CMA CGM, and Hapag Lloyd have invested in their logistics supply chain management, collaborating with other companies to take control of their clients' container destiny and respond promptly to crises. Maersk, for instance, utilizes its fleet of over 20 aircraft for global flights and leverages partnerships with major airlines for additional freight space. Furthermore, rail transport is also being considered as an alternative means of moving cargo.

To address delays on future orders, OL USA has provided a map outlining the disruptions along major ocean routes. European shippers, heavily reliant on the Suez Canal, have fewer options available and are increasingly turning to air freight to transport their products. This shift has contributed to a 13% increase in air freight prices from China to Northern Europe, reflecting a surge in demand as shippers switch from ocean to air transport.

The severity of the impact on the global supply chain relies heavily on the duration of the re-routing. Logistics experts predict that if the re-routing persists for over a month, inflationary pressures will reverberate throughout the supply chain, ultimately impacting consumers. Transparency in cost increases has become a pressing concern, as ocean carriers, no longer paying tolls to pass through the Suez Canal, are raising rates. Industry stakeholders, such as retailers in the American Apparel and Footwear Association, are closely monitoring the situation and urging the deployment of Operation Prosperity Guardian to safeguard the vital waterway.

As the disruptions continue, the shipping industry, government regulators, and supply chain partners are working together to find viable solutions and ensure the smooth flow of global trade. The consequences of these challenges, coupled with the ongoing pandemic, underscore the need for stability in pricing and robust economies to sustain demand.

Note: All information and figures mentioned in this article are based on the provided text.