Sedgwick: Another Turbulent Summer Ahead for Shipping

It’s been a pretty tumultuous few years for shipping and the wider supply chain space, to say the least. 

COVID-19 severely impacted the shipping industry and, therefore, the global economy, on a vast scale. Illness caused by the virus dramatically reduced the number of available port staff and slowed down the speed at which cargo could be processed. 

Shipping lines had little option but to cut down their number of operating ships, leading to container shortages and causing lengthy delays – ultimately sending freight rates sky high.

Just as global trade was seemingly beginning to cover, the 2021 blockage of the Suez Canal – one of the world’s busiest freight cut-throughs – delayed the transportation of billions of dollars’ worth of goods and significantly slowed trade between Europe, Asia and the Middle East.

The ongoing era of disruption has been compounded in recent months by militant attacks on merchant vessels in the Red Sea, which began in light of the Israel-Hamas war.

Hundreds of commercial vessels have been forced to detour thousands of miles around the Cape of Good Hope, close to the southern tip of Africa, in a bid to avoid attacks from Houthi rebels. 

While not as serious from a supply chain perspective, vulnerabilities were further exposed following the tragic collapse of the Francis Scott Key Bridge in Baltimore in March.

Increased costs set to reach end users

With conflict in the Red Sea ongoing and many global supply chains remaining fragile, another turbulent summer is on the cards. 

Darin Miller, National Director for Marine at Sedgwick, a leading global provider of technology-enabled risk, benefits and integrated business solutions, paints a picture of the present situation.

“Container rates, which dropped last year, have now skyrocketed, nearly doubling over the past six months from roughly US$3,000 to US$6,000,” he says.

“These increased costs will inevitably be passed on to the end user.

“A major factor driving this rate fluctuation is the disruption in the Red Sea, forcing reroutes around Africa and causing significant delays.

This has led to container congestion in Asian ports, with some delays in Singapore extending up to a week. 

“Even if the Middle Eastern turmoil were resolved today, it would still take months for shipping congestion and high container rates to stabilise, suggesting these conditions will persist throughout the summer.”

US could experience ‘invisible inflation’

Darin highlights that a silver lining exists from the perspective of US businesses and consumers. 

While extended shipping timelines have a more direct impact on the UK, France, Northern Europe and the Middle East, most deliveries to the West Coast of the US remain unaffected despite some delays due to Asian port congestion. 

Darin’s take is that the US will likely experience “invisible inflation”, with increased costs impacting lower-value goods more than high-value items.

“Consumers buying from small businesses will feel the US$3,000 container rate increase more acutely than those purchasing high-value items like iPhones,” he continues. 

“This discrepancy is partly because big-box retailers have ongoing contracts with container shipping lines at lower rates, whereas smaller businesses will face inflated rates to fulfil orders. Consequently, while big-box retailers might withstand these pressures, smaller retailers are at greater risk of lowered profitability.”

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