Shipping costs are more than 300% up as Suez crisis deepens
Shipping costs have risen by more than 300% since November amid the disruption caused to freight in the Red Sea from attacks, according to fresh data.
Just hours after US and UK-led attacks on Yemen aimed at preventing renewed assaults on shipping by Iran-aligned Houthi rebels, it was revealed that freight prices continued to rise over the past week.
The most widely used measure of freight cost, the Shanghai Containerised Freight Index (SCFI), hit $3,101 (£2,429) per container from $2,871 (£2,249) last Friday, according to data given to Sky News by global logistics company DSV.
It meant that the SCFI, which measures the average cost of a 20ft-long container being shipped from Shanghai to Europe, was 310% up on the level seen at the start of November.
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Marked increases started to be felt in the second half of that month as the Red Sea crisis intensified.
There have been more than two dozen attacks by Houthis on shipping, forcing major container and energy firms to re-route around Africa, avoiding the Suez Canal.
That adds many costs to freight.
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Minister: Houthi strikes were ‘self-defence’
Insurance bills are up as a result while journeys can take more than 10 days extra.
Staff wage costs have risen as a result and additional fuel must be burned.
Another factor at play is an increase in demand for goods ahead of disruption caused by the Chinese Spring Festival – the country’s New Year holiday which gets under way next month.
Yemen’s Houthi rebels have stepped up attacks on vessels it believes are heading into and out of Israel, claiming they are aimed at ending the air and ground offensive on the Gaza Strip following the 7 October attacks by Hamas.
US and UK forces attacked several targets in an air operation on Thursday night in a bid to prevent further boat and drone-led attacks on shipping.
They fear damage to the global economy due to the delays and additional costs associated with avoiding the Suez Canal.
Many of the world’s largest shipping companies – including MSC, Maersk, CMA CGM, and Hapag-Lloyd – are still diverting many if not all planned Red Sea journeys via South Africa.
While many major companies, including Tesco in the UK, have said they are not experiencing damage from the disruption, other firms have been more vocal about the challenges.
IKEA, for example, has admitted that some products may not be available while Tesla revealed on Friday that it was pausing production at its factory in Germany for two weeks due to a shortage of parts.
While shipping costs are up markedly, they remain below the highs seen in March 2021 when the Ever Given container ship blocked the Suez Canal.
Nevertheless, the disruption has caught the eye of the governor of the Bank of England, who is charged with keeping the pace of price rises in check.
Read more:
What do Houthi attacks mean for inflation?
Andrew Bailey will be mindful that raised shipping prices are an inflation risk as higher shipping costs are likely to be reflected in consumer bills as they are passed down the supply chain.
Map of Middle East
It’s a headwind he could do without as the inflation rate has been brought down substantially from 40-year highs in the wake of the price spike caused by Russia’s invasion of Ukraine.
He told a committee of MPs this week: “We’ve certainly seen, as best we can tell from the monitoring, shipping traffic is being affected and is being rerouted.
“That will increase shipping prices and shipping costs. I think initially that will be an issue in the monetary policy world.”
Oil costs rose by 2% on Friday following news of the US/UK-led action on speculation of the implications for Middle East stability.
Rosalie Chen, analyst at Third Bridge, said of the situation: “Our experts estimate that the current freight rates on the Europe route have reached their peak, as they already reflect the additional costs of bypassing.
“Even if all Europe route shipping companies choose to bypass the Cape of Good Hope, our experts do not believe it will cause a significant supply-demand gap.”
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The average two-year mortgage rate has fallen below 5% for the first time since the Liz Truss mini-budget.
The interest rate charged on a typical two-year fixed mortgage deal is now 4.99%, according to financial information company Moneyfacts.
It means there are more expensive and also cheaper two-year mortgage products on the market, but the average has fallen to a near three-year low.
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Not since September 2022 has the average been at this level, before former prime minister Liz Truss announced her so-called mini-budget.
The programme of unfunded spending and tax cuts, done without the commentary of independent watchdog the Office for Budget Responsibility, led to a steep rise in the cost of government borrowing and necessitated an intervention by monetary regulator the Bank of England to prevent a collapse of pension funds.
It was also a key reason mortgage costs rose as high as they did – up to 6% for a typical two-year deal in the weeks after the mini-budget.
Why?
The mortgage borrowing rate dropped on Wednesday as the base interest rate – set by the Bank of England – was cut last week to 4%. The reduction made borrowing less expensive, as signs of a struggling economy were evident to the rate-setting central bankers and despite inflation forecast to rise further.
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Bank of England cuts interest rate
It’s that expectation of elevated price rises that has stopped mortgage rates from falling further. The Bank had raised interest rates and has kept them comparatively high as inflation is anticipated to rise faster due to poor harvests and increased employer costs, making goods more expensive.
The group behind the figures, Moneyfacts, said “While the cost of borrowing is still well above the rock-bottom rates of the years immediately preceding that fiscal event, this milestone shows lenders are competing more aggressively for business.”
In turn, mortgage providers are reluctant to offer cheaper products.
A further cut to the base interest rate is expected before the end of 2025, according to London Stock Exchange Group (LSEG) data. Traders currently bet the rate will be brought to 3.75% in December.
This expectation can influence what rates lenders offer.
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