Businesses worried as shipping costs surge due to Suez route changes

Yemen's Houthi militant group's attacks on Red Sea vessels are causing a ripple effect in global trade, forcing commercial ships between Bangladesh and the West to detour around Africa, resulting in a 14-15-day increase in travel time and rising costs.

Since 18 November, 25 commercial vessels operating in the southern Red Sea and Gulf of Aden have come under attack.

On Friday, like other major global companies, shipping giant Maersk said it would avoid using the Red Sea and Suez Canal for the "foreseeable future" due to the attacks.

This has sparked concerns among businesses, shipping companies, and logistics providers, with some reporting doubled freight expenses, including insurance and fuel costs, and fear of further increases.

They expressed concern that the development may trigger a major disaster in the raw material import and ready-made garment export sectors.

The freight charges for shipping a 20-foot container between Chattogram and Europe or the US have already skyrocketed by 20%-40%, they said. In some cases, freight costs, including insurance and high fuel costs, have doubled.

Shahed Sarwar, former director of the Bangladesh Shipping Agents Association, said sending a 20-foot container to Europe rose from $2,500 to $12,500 during the pandemic but dropped to $2,000 by late 2023 due to reduced demand. "It has now surged to $4,000 after the Red Sea attack," he added.

Besides, the cost for shipping a 20-foot container to the US, with the fare from the west coast ports, has jumped from $1,500 to $3,000 due to the disruption, said Shahed Sarwar.

MSC, Maersk, CMA-CGM, COSCO, and Hapag Lloyd are among the shipping companies that have decided to stop sailing through the Red Sea. These companies transport almost half of Bangladesh's import-export goods in containers.

Mohammed Shafiqul Alam Jewel, vice-chairman of the Bangladesh Shipping Agents' Association, said the impact of the attack in the Red Sea has already started.

"Freight charges keep increasing. Due to this, the importers of our country will not be able to take delivery of the products as per schedule. Similarly, export products will not arrive on time. There will be a major impact on commodity prices," he added.

The 120-mile canal between the Red Sea and the Mediterranean separates Africa from the Middle East and Asia and is also the shortest route between Asia and Europe.

Oil, natural gas, grain, and consumer goods are imported and exported through this route. About 12% of global trade and 30% of container traffic are transported through this route.

According to Export Promotion Bureau (EPB) data, 63% of exports from Bangladesh are destined for Europe and the US. According to Bangladesh Bank data, 8% of Bangladesh's imported goods come from Europe and the US.

Effects on apparel exports

For Bangladeshi exports of apparel products – reaching over $46.99 billion in the fiscal 2022-23 – the Suez Canal acts as a gateway to Europe.

The journey to Europe takes 18-20 days from Colombo, 20-23 days from Singapore, and around 27 days from Port Klang. Every month, 45,000-50,000 containers (TEUs) from Chattogram port to Europe pass through the canal via hub ports like Colombo, Singapore, and Port Klang, according to data from Chattogram Port.

Shipping-related stakeholders said around 60% of Bangladesh's RMG cargoes go to Europe using the canal.

Rakibul Alam Chowdhury, vice president of the Bangladesh Garment Manufacturers and Exporters Association, told TBS that they are deeply concerned about the negative impact on the supply chain due to the Red Sea attack.

"The Russia-Ukraine war is already having a negative impact on global trade. This new crisis on the sea route will create a new crisis in the garment sector," he added.

Maersk diverting route

Shipping giant Maersk issued its first directive on 15 December in response to the ongoing attacks on commercial shipping on the route. The company fixed three types of surcharges due to alternative routes.

The Danish shipping company announced the resumption of shipping in the Red Sea in late December after a US-led multinational naval patrol began operating.

However, as the attacks on the ships in the Red Sea did not stop, on 5 January, Maersk announced a stop to all its ships operating on this route.

It said all Maersk vessels due to transit the Red Sea/Gulf of Aden will be diverted south around the Cape of Good Hope for the foreseeable future.

The previously announced Transit Disruption Surcharge (TDS), Peak Season Surcharge (PSS), and Emergency Contingency Surcharge (ECS) for all cargo on vessels affected by the disruptions around the Red Sea/Gulf of Aden remain in effect, Maersk said.