Rising freight costs may disrupt supply chains

KARACHI: The arrival of imported raw materials and finished goods, as well as export shipments to European countries and the United States, may face hardships due to rising freight charges following an extended travel time caused by intensifying attacks on shipping vessels by Houthi militants in the Red Sea.

As a result, consumers will bear the brunt of paying higher prices for various goods when stakeholders adjust to the rising freight costs on imported items, including raw materials and finished products.

Former chairman of the Pakistan Ship Agents Associa­tion, Mohammad Rajpar, stated that there is currently a significant impact on vessel freight rates due to attacks, prompting foreign shipping lines to consider new routes. A couple of major lines have imposed a $1,500 surcharge, leading to almost a 100 per cent increase in freight rates.

“If negative developments persist, freight rates could more than double or triple in the next six to 12 months, as witnessed during the Covid-19 pandemic,” he cautioned.

Attacks in Red Sea prompt shipping lines to consider new routes

Mr Rajpar mentioned that the arrival of goods and exports between Pakistan, China, and the Far East, holding a sizable volume, will remain unaffected, as these ships do not use the Red Sea. However, potential issues may arise in the import and export of goods being shipped via European and American shipping lines through the Red Sea.

He noted that Pakistan’s exports to Europe and America may slow down in December, given that most Christmas orders have already been sent to their respective destinations.

“We will assess the situation after mid-January 2024 in case the attacks intensify,” Mr Rajpar said, adding that the United States and its allies have taken steps to intercept the attacks.

Businessmen Group Chairman Zubair Motiwalla expressed concern that ocean freights may escalate to $5,000 per container, a substantial increase from the current $550-600. This could occur if commercial ships opt to redirect their routes to the southern tip of Africa instead of the Suez Canal, thereby extending the route by 3,500km for Europe and 6,000km for the US compared to the Suez Canal. Such a redirection could potentially double or triple the freight rates.

Mr Motiwalla emphasised that the Suez Canal has remained the shortest route for cargo movement between Asia and Europe. He recalled that shipping lines, in times of crisis, had historically taken longer routes to ensure two-way movements of goods.

“Upon intimation from foreign shipping lines, the arrival time of goods from Europe could be extended by up to 20 days if shipping lines choose the new routes via Cape Town, resulting in additional fuel costs.”

Due to delays in arrivals from Europe, exporters will need to maintain a three-month raw material inventory, compared to the previous one-and-a-half months’ stock level, he said.

In this scenario, prices of all goods — both imports and exports — will significantly increase, he said. A silver lining is that export/import trade from China and the Middle East is likely to remain safe.

Convener on Shipping Affairs of the Federation of Pakistan Chambers of Commerce and Industry, Abdullah Farrukh, said, “I think the cumulative impact on goods in a 40ft container will remain minimal after reports of a rise in freight rates by $200-1,000 per container by the shipping companies as a result of extended transit time.”

“So far, non-European vessels are safe in the Red Sea, and only European and American-bound carriers are facing attacks,” Mr Farukh said.

He mentioned that the route from Singapore to Rotterdam used to take 26 days for a ship covering 8,500 miles via the Suez Canal, now, it will take 36 days and cover 11,500 miles through the African route.

Chief Executive of the Pakistan Business Council (PBC), Ehsan Malik, said the attacks on shipping vessels would affect all sources of shipments east of the Red Sea and raise costs for customers in demand-constrained countries in the West. “It is not a favourable development, leaving aside the political objectives of the obstruction,” he added.

Former vice president of the Karachi Chamber of Commerce and Industry, Younus Soomro, expressed concerns that trade and industry worldwide may face an additional burden of $1.5 billion to $2 billion during January-March 2024 in terms of freight rate hikes by the shipping lines.