Red Sea conflict: 40% freight charge hike hits exporters hard

The current turmoil in the Red Sea has hit businesses hard with higher freight charges, longer lead times and  shortage of containers for exporters and importers. Additionally, exporters are reporting already losing apparel orders. 

Freight charges for container transport from Bangladesh to Europe and America have already gone up by at least 40% as shipping companies imposed surcharges citing rerouting because of the Houthi attacks in the Red Sea.

The charges may go up by another 20-25% due to the impact of the attack in the Red Sea, said shipping companies operating on this route. 

Order cancellations

Meanwhile, some apparel exporters said buyers have started cancelling orders as they have already started to face delays and higher freight cost. 

Sparrow Group Managing Director Shovon Islam told TBS on Saturday he so far lost six orders due to the crisis which he had booked a month back.

"Friday I lost a big volume of orders from an iconic US brand due to calculation of longer lead time," he added.

He said his Indonesian fabrics supplier had informed that it would not be able to meet the shipment deadline due to the container shortage created by the war, and sought a three-day extension. 

As a result, this order will now go to an Indonesian factory, Shovon said, adding that due to this crisis some orders may go to Indonesia and China just for a shorter lead time. 

"Every day is important for the buyers as they are already losing at least two weeks due to the Red Sea crisis. That is why my buyer cancelled the order and shifted to a competitive country," he said.

Another container shortage ahead 

TAD Group Managing Director Ashikur Rahman Tuhin said the Red Sea conflict already disrupted the global supply chain and may create another container shortage across the globe as lead time will increase.

Because of this, freight cost is increasing every day, said Tuhin, who is also involved with logistics business.

Sparrow Group's Shovon Islam said the crisis has not only hit Europe-bound orders. Orders to other countries are being affected as well. Exporters are losing orders across the world, he added.

Sheikh HM Mustafiz, managing director of Cute Dress Industry Ltd, said due to the Red Sea conflict freight cost has increased by another $1,200 per container, while it was only $1,500 to $1,700 for Hamburg port or a Denmark port.

On the other hand, the lead time also increased between 10 days to 12 days, he added.

Bangladesh's economy is still struggling with high inflation that stemmed from disruptions in the supply chain through the Black Sea since the Russia-Ukraine war in February 2022. Now, further disruption in trade through the Red Sea due to the Houthi attacks on shipping lines could intensify challenges for the government.

Shipping costs soared and oil prices marked a jump as four of the world's five major shipping firms – Maersk, Hapag-Lloyd, CMA CGM Group and Evergreen – along with oil giants like BP suspended shipping through the Red Sea.

Bangladesh's export trade has already started to feel the pinch as local shipping agents here have decided to hike freight charges for the second time in January.  

The year 2024 started with global inflation easing, but a fear of wider regional conflict after Friday's joint military response of USA and UK on Houthi targets pushed oil prices up by 4.3% to top $80 a barrel, reviving inflation worries further, global media suggest.

Freight rates between Asia and Europe have more than doubled in a month since the Houthi strikes intensified in the Red Sea, which is a major shipping route through the Suez Canal.

Vice Chairman of Bangladesh Shipping Agents Association Mohammad Shafiqul Alam Jewel said that the impact of the attack in the Red Sea has started to have a negative impact on the global supply chain. 

"Increases in freight charges may shoot up to as much as that during the Corona period. As a result, importers will not be able to take delivery of the products on time. Similarly, exports will not reach on time. There will be a major impact on commodity prices," he warned.

Freight charges from Chittagong port to Colombo, Singapore, Port Kelang, Tanjum Pelepas ports are $300-350 per container, which may increase up to $500 due to increases in ship insurance and freight, several shipping companies told TBS.

Red flag for export

Skipping the Red Sea, shipping companies are rerouting their ships around Africa and the Cape of Good Hope, adding one to two weeks to voyages. At least 90% of the container ships that had been going through the Suez Canal are now sailing around the tip of Africa, causing freight cost for a standard 40-foot container from China to northern Europe to go up from $1,500 to $4,000, AP reports quoting Kiel Institute for the World Economy in Germany.

If the situation is not resolved quickly, the shipping stakeholders are expecting the supply chain to be disrupted like during the Corona period. At the same time, the shortage of slots in the mother vessel will intensify with the shortage of 40-foot containers in the export of Bangladesh products.

Vice President of Bangladesh Freight Forwarders Association Khairul Alam Sujan said that due to the attack on the ship in the Red Sea, there is a delay of 11 days in the sea route. 

This has caused a shortage of 40-foot containers in Bangladesh. At the same time, a crisis of container slots on the mothership has developed. 

According to the Bangladesh Inland Container Depots Association (Bicda), 75% of the goods exported from Bangladesh are in 40-foot containers. The remaining 25% is in 20-foot containers. Most of the readymade garment exports use the 40-foot size.

Bicda ​​Secretary General Mohammad Ruhul Amin Sikder told TBS that there is a shortage of 40-foot containers in various depots.

The conflict in the Red Sea has already increased freight cost and if it is not resolved immediately, it will affect both imports and exports, as every vessel will have to sail a longer alternative route, said Faruque Hassan, president of Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

"During exports, buyers are paying freight but this additional cost might affect our product prices," he feared.

BGMEA vice president Rakibul Alam Chowdhury said already some buyers are asking to ship their goods through air freight, which is a costlier option.

He fears that some buyers may move to China again to maintain a shorter lead time.