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Red Sea Security Threat Update - Global Supply Chain Impact

Lately, numerous geopolitical and natural events have been challenging global supply chains by disrupting operations. From air strikes at the Red Sea to drought at the Panama Canal, significant supply chain complications are anticipated in this first quarter of 2024 as we approach the Chinese New Year.

The latest updates on the Red Sea situation reported the largest attack on international shipping since the attacks began in November, occurring last Tuesday. U.S. and UK forces intercepted the threats, and no damage was reported. This ongoing security threat has led several countries to urge the United Nations to address the attacks on commercial vessels.

Recent reports indicate that COSCO has suspended shipping to Israel, while Maersk and Hapag-Lloyd have denied a presumed safe passage pact with Houthis. Additionally, Maersk recently announced that all their vessels will now be rerouted from the Suez Canal towards the Cape of Good Hope, meaning that all the previously paused journeys will resume. Delays of up to two weeks are expected on shipments. Similar dynamics have been observed on Asia to US East Coast shipments, which are now more frequently rerouted to West Coast ports and then transported via intermodal rail service.

The reroutings, requiring increased fuel, crew time, and operational resources, have triggered a 60% surge in container spot freight rates, significantly impacting Asia to U.S. West Coast routes. The diversions have also resulted in capacity shortfalls of up to 40%, prompting global retailers to rush into stocking up and explore alternative transportation routes ahead of the Chinese New Year. However, it is expected that post-mid-January, capacity will meet demand, and spot rates will decline. .

Simultaneously, the ongoing Panama Canal drought persists, contributing to disruptions in global trade. Restrictions on the daily number of vessels allowed to transit are still in place, with a further reduction to 18 vessels per day expected by February. Waiting times for ships without reservations are set to increase.

The combined effects of the Red Sea attacks and the Panama Canal restrictions are anticipated to increase air freight rates as demand for an effective alternative to ocean freight rises. Concrete impacts are yet to be defined. Further disruptions to global supply chains are expected as the Chinese New Year approaches. Equipment shortages due to longer transit times and congestion at ports have already been registered across the main Chinese locations, and effects on the shipping market are expected.

We will continue to provide updates as the situation evolves. For any immediate questions or concerns, please contact us here.

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