Suez Incident Deepens Capacity and Cost Pressures

Chinese New Year provided light relief to supply chain pressures back in March, but the effect wasn’t long-lasting and the recent suspension of traffic through the Suez canal has deepened problems for shippers already grappling with higher freight costs, delayed cargo and capacity fluctuations.

As a result of the seven day blockage on the movement of vessels, companies are expected to feel the impact far into the second half of the year. An unwelcome issue for the industry already challenged with the issues caused by the pandemic and a surge in demand as a result of more retail goods being purchased during periods of lockdown.

Now more than ever, shippers must focus on flexibility, planning for the unexpected and allowing lead-time for vessel delays.

If you have any questions in regards to your Far East Westbound Trade and you would like to speak to an expert, reach out here.

Asia to Europe trade lane (FEWB) capacity outlook

1. Spot Rates Remain High

SCFI (Spot rate Index) has increased drastically due to the Suez Canal incident. Levels are expected to rise further in the May timeframe as a result of continued capacity fluctuations.

2. Capacity Fluctuations

The Suez Canal incident accelerated the expected capacity reductions in week 16 & 17 and 21 till 23. There will be 200.000 TEUs less capacity in week 16 and 17 and in weeks 21 till 23 there will be an estimated 150.000 TEUs less.

3. Increased delays to EDT

On average, shipments are arriving 7.1 days later than the stated Expected Delivery Time (EDT).

These delays are expected to drastically increase by the end of the month as companies feel the ripple effects of Suez.

Global Container Crunch Worsens

Companies are now facing the first wave of a capacity crunch, with a second wave expected by the Mid of May. Expect more blank sailings to be announced at short notice as carriers are not yet aware of the full impact of Suez and are still reviewing which of their vessels will arrive at the expected time.

Port congestions in the USA and Europe also continue to have an impact. With ships unable to dock, cargo can miss its connecting ships or trucks to different destinations, resulting in scheduling problems and further exacerbating the capacity crunch.

While May is traditionally a quieter season for shippers, doubt remains as to whether demand will weaken across the month. As carriers look to balance supply and demand, shippers are also facing the risk of further capacity reductions.

Spot rate spikes here to stay

Spot rates continue to reach high levels, defying the usual rate of decline following Chinese New Year. While there has been some erosion of rates since March, this will start to level out due to capacity fluctuations. Looking ahead, the expectation is that these rates will start to rise again.

Due to the elevated spot rates, shippers should also prepare for the prospect of the potential addition of the Peak Season Surcharge (PPS) which also remains in the market.

What are your options

We continue to advise you to look for ways to build resilience into your supply chain. Carefully assess any bottlenecks and budget for fluctuating spot rates.

To navigate the additional issues caused by Suez, now more than ever prioritising shipment of products and adding lead time for the vessel delays will be crucial. If this lead time is built into your supply chain then you are in a much better position to wait for lower rates.

As nations accelerate their vaccination programmes, there may be more positive news on the horizon, but for now...planning as ever will be key to navigating these challenges.

Let us help

We offer a host of solutions to support you in the end-to-end execution of your freight forwarding. To discover alternatives to help you respond to the current market conditions, talk to your Flexport team.

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