Apparel and textile exporters, including those in Asia, now face another hurdle in rising freight rates due to the recent Red Sea-Suez Canal crisis. The countries had expected better prospects in 2024, but the recent crisis may prolong the slowdown in apparel and textile exports as goods cost more to ship to their main market, Europe.
Although the U.S. Defense Forces have stepped up security on the Red Sea-Suez Canal route, Houthi attacks remain a serious concern for liner companies. As a result, freight companies continue to avoid the Suez Canal, opting for longer routes around Africa to the West.
Shipping major Mediterranean Shipping Company has announced that it will impose a contingency surcharge of $1,500 per container on all cargo shipped from the Indian subcontinent to European and Black Sea destinations. CMA CGM also announced a $1,575 Red Sea surcharge for 20-foot dry cargo containers and up to $3,000 for refrigerated containers and special equipment. Other major shipping lines have announced similar surcharges.
It is worth noting that due to the chain effect of the surge in freight rates, Southeast Asia surged by 24.5% and the Persian Gulf line surged by 14.3%.
The Red Sea crisis has blocked traffic and forced detours, which will inevitably lengthen the transportation time. At the same time, the overall cost of transportation has also risen. A shipper said that there are four containers from China to Morocco, and the price quoted now is more than 100,000 yuan different from that in early December last year. Some freight forwarding companies have reported that the price of shipping a container used to be US$2,300-2,400, but now it is conservatively estimated to be around US$6,500.
As for the future freight rate trend, industry insiders believe that freight rates may remain at a high level in January before the Lunar New Year, but the room for increase is limited and mainly depends on the volume of cargo. If the factory stops shipping during the Spring Festival, freight rates may be adjusted. The key lies in China’s shipments and European and American orders in March.
A freight forwarder said on January 5 that “the shipping space in early January has been exhausted.” The quotations for late January are currently only updated by individual shipping companies. Some people in the industry believe that at the end of the year and the beginning of the year, many domestic foreign trade companies are trying to rush shipments in order to collect payment as soon as possible, which may lead to a situation where “a box is hard to find”. The freight forwarder said: “We have customers who want to ship goods from China to Italy. Now there are no good prices and shipping spaces, and the Mediterranean routes are all sold out.” According to the updated quotation, freight rates rose again in late January compared with the first ten days of the month. Among them, the price of small cabinets has increased by about 600 US dollars, and that of large cabinets has increased by about 1,000 US dollars. The overall increase range is between 500 and 1,000 US dollars.
Specifically, the freight forwarder pointed out that the freight rates on European routes in late January were US$3,150/TEU (small container) and US$6,050/FEU (large container), which was about twice as high as the price at the end of December last year. The freight rates on the Mediterranean route are US$4,400/TEU and US$6,250/FEU, which is an increase of about 1.2 to 1.3 times compared with the price at the end of December last year. A freight forwarder pointed out, “Most shipowners have not updated their quotations, but the news given is that the headquarters will have a relatively high desire to increase prices.”
According to the market dynamics from early January to mid-January released by freight forwarding giant Kuehne + Nagel on January 3, against the backdrop of continued tension in the Red Sea, freight rates are expected to remain high until mid-February and do not rule out the possibility of further increases. Among them, for the China-Europe and Mediterranean routes, in the first half of January, shipping companies generally pushed up the European basic port freight to 4,500-5,000 US dollars/large container, and pushed up the Mediterranean western route freight to 5,000-5,500 US dollars/large container.
Experts note that shipping lines have been looking to increase freight rates over the past six months but have been unable to do so due to slow international trade. However, the current geopolitical situation has prompted these companies to increase shipping costs.
Indian apparel and textile exporters have expressed concern over negotiating with buyers to adjust higher freight rates for FOB consignments. They are worried about new orders and pricing of goods. An exporter from Punjab commented that market conditions remain bearish, which means buyers may not be willing to accept higher prices amid rising freight costs, while exporters are unable to accept greater pressure on margins due to stable commodity prices. .
Overall, apparel and textile exporters, mainly in Asia, are worried about new orders from their main buyers, Europe and the United States. The Red Sea-Suez Canal is a vital passage for them to transport goods, and they worry that even if the crisis subsides in the coming months, freight rates may not return to normal levels.
</p
