Note: Assume a containership cruising speed of 16 knots, no ports of call, and waiting times at Panama and Suez.
Global maritime shipping is constrained by strategic locations commonly defined as chokepoints. In October 2023, a major conflict between Israel and anti-Israel groups, such as Hamas (Gaza Strip) and Hezbollah (southern Lebanon), became regionalized. By late November, other Iranian proxy groups, particularly the Houthi movement, initiated from their controlled areas in West Yemen attacks on ships transiting the Strait of Bab el-Mandeb into the Red Sea using missiles, drones, and even attempts at boarding ships. In light of these attacks and the risk involved, Asia-Europe freight and insurance rates surged. By December 2023, major shipping lines such as Maersk started deviating their Asia-Europe traffic through the Cape of Good Hope route. By early 2024, the number of transits through Bab el-Mandeb dropped to about half of the previously observed volumes.
Since the Red Sea and the Suez Canal account for about 15% of global trade and twice for global container traffic, this deviation comes with substantial costs, disruptions, and delays, mostly for European supply chains. Using the case between Shanghai, the world’s largest container port, and Rotterdam, the largest container port in Europe, a container shipping service using the Suez Route covers about 10,600 nautical miles in about 27 days if a speed of 16 knots is assumed, and with no ports of call. In reality, a typical Asia-Europe sequence can take 35 days with 5 to 10 ports of call. The alternative, the Cape Route, involves a distance of 13,800 nautical miles in about 35 days at a speed of 16 knots, adding a minimum of 7 days of transit, but figures of 10 to 14 days are more common due to ports of call. The risk is also reflected in cargo and ship insurance rates, which have increased up to 1% of the total cargo value, from the usual 0.1%.
The Eurasian Landribge offers an alternative of limited capacity that could accommodate express container cargo in about 14 days but cannot compensate for the large volumes being carried at sea. Further, the conflict in Ukraine creates additional uncertainties in using the route. The Northern Sea Route is not an alternative even if it appears as an attractive proposition, with a transit time of 20 days only available for a few months during the summer (July to September). However, there are no container shipping lines using this route, and its commercial potential is negligible at this point.
On the positive side, economies of scale for the Asia-Europe route have remained intact, and there is shipping capacity to absorb the Good Hope deviation, at least in the short term. Carriers get a rate increase, which should compensate for the costs of the deviation. On the negative side, the synchronism of many Asia-Europe supply chains has been disrupted. The deviation incurs unnecessary additional costs and higher fuel consumption/emissions that will be passed on to the end consumer. The Suez Canal/Egypt may lose significant revenue and create additional geopolitical complications. Many Med transshipment hubs and gateways (e.g., Pireaus, Gioia Tauro, Marsalokk) could lose some traffic as it gets diverted to Northern European ports, which could reinforce the hinterland advantage of Northern European ports.
Shipping routes between Shanghai and New York, the largest container ports on the Eastern Seaboard, are more marginally impacted. First, the transpacific route offers the option of either calling a West Coast port such as Los Angeles/Long Beach (after a 14-day transit time) and using the double-stacked rail landbridge (5 to 8 days) or using the Panama Canal route, which totals about 28 days. However, in the last year, the Panama Canal has been impacted by water shortages and was forced to temporarily reduce its daily number of transit and the capacity of the Post Panamax ships transiting the canal. Disruptions on the Red Sea impact a share of the North American East Coast traffic using the Asia-Suez route, which has been growing in recent years. The Cape Route deviation may add about 5 days to the transit from Shanghai to New York.