Soaring costs in Red Sea shipping create challenges for cross-border merchants
The world's second largest container port, Singapore, has seen a significant surge in the number of containers waiting to dock, reaching a peak of 480,600 twenty-foot equivalent units (TEUs) in late May. This congestion at major Asian ports, including Singapore, is driving up container shipping prices, according to a S&P Global report.
Meanwhile, shipping costs for routes connecting Asia to the east coast of the US via the Cape of Good Hope are ten days longer and more expensive than those through the Suez Canal or Panama Canal. This is due in part to the ongoing Red Sea shipping crisis, which has reduced container traffic through the Suez Canal by about 80%. As a result, shipping rates for routes to and from the west coast have increased by 18.9%, and by 11.2% for those connecting to the east coast.
The Red Sea shipping crisis is causing shipping costs to skyrocket, and the fastest growing region for Chinese exports in the first half of the year is Latin America, directly driving up shipping prices to the region. Since the beginning of 2024, China's total exports to Latin America increased by 11.4% year-on-year from January to April. This growth is mainly driven by the markets of Mexico and Brazil, with exports to Mexico growing by 15.1% and to Brazil by 24.6% year-on-year.
Another factor contributing to the increased demand for shipping from China to Latin America is the US entering a restocking phase last year. This restocking phase has led to a significant shortage of containers at ports, forcing some companies to purchase their own containers.
In response to these challenges, global shipping giant Maersk has raised its annual profit forecast due to the impact of the Red Sea shipping crisis on the global shipping supply chain. French shipping and logistics company CMA CGM has also adapted, adding a new M2X route from China to Mexico, deploying eight container ships each with a capacity of over 4,000 TEUs.
Despite the challenges, China's international container throughput at ports has maintained steady growth since 2023, growing 10.3% year-on-year in the first four months. This growth is reflected in the Shanghai Containerized Freight Index (SCFI), which has risen for eight consecutive weeks, increasing over 50% in the past month.
However, as of May 31, no specific companies were identified in the search results as establishing new shipping routes from China to Latin America to handle the surge in exports. Nevertheless, the Chinese company Hutchison Ports operates major container ports at the Panama Canal entrances, which are strategic for shipping between China and Latin America.
In conclusion, the ongoing Red Sea shipping crisis, restocking phase in the US, and growing demand for Chinese exports to Latin America are causing container shipping prices to soar. Companies are adapting to these challenges by raising profits, adding new routes, and even purchasing their own containers. Despite these challenges, China's container throughput at ports continues to grow, reflecting the resilience of the global shipping industry.
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