Global shipping costs, particularly the cost of servicing European markets, are once again on the rise. As shipping companies continue to avoid the Red Sea, seaborne freight capacity has become finely balanced, making freight prices more responsive to shifts in the market. And shipping costs are currently responding to a recovery in global trade, a shortage of containers, and congestion at some major ports. These current developments have raised concerns of disruptions to New Zealand’s trade flows and upside risks to inflation. However, as explained below, there are reasons to believe that the current jump in shipping costs may prove more transitory in nature and have less impact on inflation than experienced during COVID.
The threat of attacks by Houthi rebels in the Red Sea continues to weigh on global shipping...
In the opening months of 2024, commercial shipping between Asia and Europe faced significant disruption in the Red Sea because of Houthi attacks on vessels transiting the area. For the most part, commercial shipping companies decided to divert shipping away from the most direct route, via the Suez Canal, and instead sail around the African continent. Data from IMF’s PortWatch reveals that since December last year sailings of commercial shipping via the Suez Canal fell by around 40 per day or 52% (Figure 1a). At the same time daily sailings around the Cape of Good Hope gained an average 35 sailings or 71% (Figure 1b). The move added around 40% in voyage distance, causing shipping delays of 2-5 weeks, and raising costs of trade to and from Europe.