20240103 red sea
Shipping companies are taking to longer routes through Cape of Good Hope to offset risks from transit through Red Sea. Container costs are on the rise - and so too are insurance premium. Image Credit: Reuters

Dubai: Traders in the UAE are scrambling to place their orders with European suppliers and lock in shipping rates ahead of the crucial Ramadan and Eid sales period, even as container costs through the Red Sea start to spike.

Already, increased tensions and attacks by Yemen’s Houthis on commercial shipping through the crucial passageway between East and West have jacked up rates, anywhere from $300-$700 a TEU on average, according to shipping and logistics sources in the UAE. Some of the biggest shipping companies are re-directing their vessels to head for the UAE, Gulf and other ports in Asia through the longer Cape of Good Hope route.

What that does is lead to longer shipping times – and costs for the importer in the UAE and elsewhere. At some point, that also means more costs for the consumer.

This explains the urgency with which local importers are negotiating orders from Europe and for delivery during March and April, which is when Ramadan will be observed this year.

Shipping lines had no choice but increase the container rates, because insurers have already hiked their marine premiums and risk surcharges.

- Rosh Manoli at Consolidated Shipping Services Group

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“We want to ensure sufficient stocks are available and with the least price disruption to customers during the Ramadan/Eid promotions,” said a senior official with a leading car dealership in the UAE. “Price increases have to be kept to a minimum, if at all, because European makes have to stay competitive against brands from Asia.”

In each of the last 3 years, new car sale demand during Eid recorded strong double-digit gains in the UAE.

Hits other imports too

Car dealers representing European manufacturers are not the only ones seeking to lock in shipping costs well ahead of their March-April deliveries.

“Re-routing through the Cape of Good Hope adds 10-15 days extra (depending on the carrier service) for deliveries from Europe to the Jebel Ali Port and elsewhere in the UAE,” said Rosh Manoli, Vice-President for Freight Forwarding at Consolidated Shipping Services Group in Dubai.

“Shipping lines had no choice but increase the container rates, because insurers have already hiked their marine premiums and risk surcharges.

The situation is fluid, and carriers will act quickly following risk assessments as they assess on a vessel-by-vessel basis.

“The larger shipping companies are now going through Cape of Good Hope, while smaller shippers still use the Red Sea/Bab Al Mandab passage. But available container capacity is running short, and that too explains the TEU rate increases.”

On whether there could be more shipping charge hikes, Manoli said, “In recent days, rates had been shooting up by the day or week, depending on the shipping company. But the general rule is that any transit through Cape of Good Hope and avoiding the Red Sea comes with a higher cost for importers.”

Straining UAE importers' costs
That there would be a 'general rate increase' for shipping through Red Sea was always on after the first incidents of attacks on shipping lines was reported. UAE and Gulf importers had been bracing for it ever since, but the $300-$500 per TEU hike - and even more - can put significant strain on their operations.

What’s the current conflict status in Red Sea?

Last week, the US along with a few countries had issued warnings that more attacks on commercial shipping will not be tolerated. In the days since, there have not been any reported incidents, but shipping company sources in the UAE say they will continue to exercise maximum caution.

The rerouting through the Cape of Good Hope increases shipping times and costs by over 15%

- Usman Rehman of Time World Freight

Chinese New Year

Before the Ramadan and Eid demand rush, another major event in the shipping calendar is the demand generated for the Chinese New Year, which will be marked on February 10.

This too will have ripples in the local and Gulf trade, with Chinese goods coming into the local ports and being shipped to ports elsewhere in the region and to Europe. Here too, a mix of risk surcharges and scarcity in container capacity could jack up shipping costs during a peak demand phase.

"In Dubai, a key logistics hub, these developments have significant implications, reflecting the city’s strategic role in global trade," said Usman Rehman of Time World Freight. "A 65 per cent increase in rates for European routes highlights the need for agility and innovative solutions in the logistics sector.