A Red Sea crisis is stirring the foreign trade market !

As a result of the recent Red Sea-Suez Canal crisis, garment and textile exporters, including in Asia, are now faced with another hurdle of rising freight rates. These countries had expected a better outlook in 2024, but the recent crisis is likely to prolong the slowdown in clothing and textile exports because of the higher cost of goods shipped to Europe, their main market.

Although the U.S. Defense Forces have increased their vigilance on the Red Sea-Suez Canal route, Houthi attacks remain a serious concern for liner companies.

Global shipping giant Maersk announced on the 5th that the evolving situation in the Red Sea region remains highly tense and uncertain, and all available intelligence confirms that the security risk remains at a significantly elevated level. As a result, all of the company's vessels will no longer pass through the Red Sea for the foreseeable future, and customers are warned to be prepared for serious supply disruptions.

Industry sources said that because a large number of ships chose to bypass the Red Sea and go to the Cape of Good Hope, the voyage was extended by three to four weeks. That means ships and empty containers may not be able to return to Asia in time to load their cargo. The worst impact of the Red Sea crisis on the shipping industry is expected to be in the fourth to sixth week, around the second half of January, when there may be shortages of vessels and containers.

A freight forwarder said on January 5, "The shipping space in early January has been exploded." Quotations from late January are currently updated only by individual shipping lines. Some insiders believe that at the end of the year and the beginning of the year, many domestic foreign trade enterprises are thinking of shipping quickly, in order to receive payments as soon as possible, which may prompt the emergence of a "box difficult to find" situation. "We have customers who want to ship goods from China to Italy," the forwarder said. "Now we don't have a good price and space, and the Mediterranean routes are all out of stock." According to the updated quotation, the freight rate in late January rose again compared with the previous ten days, of which the small cabinet rose by about $600, the large cabinet rose by about $1,000, and the overall increase range was 500 to $1,000.

Specifically, the freight forwarder pointed out that the freight rate of the European route in late January was $3,150 /TEU(small container) and $6,050 /FEU(large container), which increased by about 2 times compared with the price at the end of December last year. The freight rates for the Mediterranean route are $4,400 /TEU and $6,250 /FEU, up about 1.2 to 1.3 times compared to the prices at the end of December last year. A freight forwarder pointed out that "most shipowners have not updated the quotation, but the news is that the headquarters will have a relatively high desire to raise prices."

According to the market dynamics from early January to mid-January released by freight forwarding giant Kuehne & Nagel on January 3, in the context of continued tension in the Red Sea, freight is expected to remain at a high level before mid-February and further increases are not excluded. Among them, China to Europe, the Mediterranean route, the first half of January, shipping companies generally push up the European base of Hong Kong freight to 4500-5000 US dollars/large container, push up the western Mediterranean freight to 5000-5500 US dollars/large container.

The crisis in the Red Sea has caused traffic to be blocked and forced to detour, which will inevitably lengthen the transportation time. At the same time, the overall cost of transport has also risen. Some shippers said that there are four containers from China to Morocco, and now the price is more than 100,000 yuan less than in early December last year. Some freight forwarders have feedbacks that the price of a container sent before is $2,300 - $2,400, and now it is conservatively estimated to be about $6,500.

Experts noted that shipping companies have been looking to raise freight rates over the past six months but have not been able to do so due to slow international trade. However, the current geopolitical situation has prompted these companies to raise freight rates.

Many Asian garment and textile exporters have expressed concern about negotiating higher freight rates for FOB shipments with buyers, as well as about new orders and pricing of goods. An exporter in Punjab commented that market conditions remain bearish, meaning that buyers may not be willing to accept higher prices in the event of higher freight rates, while exporters are not able to accept greater profit pressure due to stable commodity prices.

Meanwhile, garment 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 conduit for their goods, and they fear that even if the crisis subsides in the next few months, freight rates may not return to normal levels.

As for the future freight rate trend, the industry believes that in January before the lunar year, freight rates may remain at a high level, but the room for increase is limited, mainly depending on the volume of goods. If the factory stops shipping during the Spring Festival, the freight rate may be adjusted. The key will be March shipments from China and orders from the U.S. and Europe.