The impact of the Red Sea Crisis on ocean freight shipping is unfolding at a faster pace compared to the onset of Covid-19.

The Red Sea crisis is causing a more rapid increase in ocean freight rates than witnessed during the early months of the Covid-19 pandemic. According to data from Xeneta, a leading ocean freight rate benchmarking and intelligence platform, shipping costs on key trades from the Far East to Europe surged by more than 200% in the first 52 days of the Red Sea crisis, outpacing the rate increase seen during the initial phase of the pandemic.

Emily Stausbøll, a Xeneta Market Analyst, noted that while rates have not reached the levels observed during Covid-19, the sudden nature of the Red Sea crisis has led to a faster rate increase, causing even more disruption than in the early months of the pandemic. The crisis is expected to have a more immediate impact but is not anticipated to be as prolonged as the pandemic.

A poll of hundreds of Xeneta customers revealed that nearly two-thirds of shippers have been informed that their minimum quantity commitments (MQCs) are not being honored under existing contract agreements. Carriers are redirecting them to the freight all kinds (FAK) market with higher rates. This situation has led to increasing impatience and suspicion among shippers, who believe carriers are trying to keep rates elevated for as long as possible.

Peter Sand, Xeneta Chief Analyst, acknowledged the accusations being exchanged in the market during this period of uncertainty. He emphasized that while ocean freight carriers did not cause the crisis, it takes time for them to establish new shipping networks to manage the disruption caused by diverting away from the Suez Canal.

Looking forward, it remains to be seen how long shippers’ patience will last. Stausbøll mentioned that as carriers deal with the capacity crunch in the Far East due to delayed ships returning from Europe via the Cape of Good Hope, rates may eventually flatten or decline. The market is expected to peak in February, and the Xeneta Crisis in the Red Sea live webinar will provide the latest analysis on the crisis, including rate spikes, surcharges, capacity crunches in the Far East, and long-term rates in 2024.