Impact of Red Sea Crisis on New Zealand’s Trade Route
4-minute read
Amidst the ongoing conflict in Gaza and Houthi rebel attacks in the Red Sea, a substantial impact on global shipping is unfolding.
As vessels steer away from the conflict zone, opting for a lengthier journey around Africa to avoid the Suez Canal, freight costs soar, and transit times extend.
In this article, we unravel the insights shared by Rabobank researcher Stefan Vogel in an interview with Heather du Pleassis-Allan, shedding light on how this maritime predicament is affecting New Zealand’s trade landscape.
Heather du Plessis-Allan: The war in GAZA is starting to take a toll on our freight costs. With Houthi rebels in Yemen attacking ships in the Red Sea, international shipping has got slower and more expensive.
Can you please explain what’s happening? To avoid the Suez Canal, a whole bunch of ships are basically going around Africa to get to Asia and to Europe?
Stefan Vogel: Exactly, and that basically means they need longer transit time.
And if you need a longer time, it reduces the availability of those ships to pick up the next load, so we’re actually reducing quite a bit of capacity, especially container availability.
Goods getting into New Zealand or getting out of New Zealand need those containers.
If we’re looking at container freight rates, they pretty much doubled just in the last six weeks because of the incident, so it’s getting pricier for us to bring goods into Australia and New Zealand.
Heather du Plessis-Allan: How much longer does it take to go all the way around Africa?
Stefan Vogel: It depends on where you’re coming from, but you can roughly say it takes about 9 to 15 days longer.
If you look at the route between Asia and Europe, for example, you could basically only do four runs rather than five runs a year with such vessels, so going around Africa reduces the capacity easily by 20%.
Heather du Plessis-Allan: If you were to compare what’s going on right now and the disruption that this is causing the supply chains to the disruption caused by COVID, is it the same scale or less?
Stefan Vogel: We’re not anywhere yet at that scale. If you think about prices, even after having doubled for container freight, they are still about three times lower than they were in very high periods seen in 2021 after COVID screwed up the whole logistics.
So, we’re not there yet, but we also don’t see that the Red Sea crisis is at its peak right now.
We still feel that this will be an ongoing issue for quite a while in 2024 and will continue to impact the shipping side.
Heather du Plessis-Allan: How much longer and how much worse?
Stefan Vogel: That’s the big question. Right now, we haven’t found a solution. The US and the UK are trying to protect the area.
However, it’s a big area in the Red Sea with a lot of vessels passing through.
We have seen more and more ships going around Africa, but that also means they may have to refuel somewhere halfway along the way.
African ports might struggle to accommodate all these vessels within the 9 to 15-day timeframe I mentioned earlier.
It may take longer due to the necessity of waiting to refuel. It’s not as simple as filling up at a gas station like we do with our cars.
Heather du Plessis-Allan: So, the silver lining for New Zealand is that, in some instances, there will be countries that find it easier to obtain goods from us, picking Asia here, rather than going for the longer route from Europe via Africa.
What kind of industries are we talking about here, and what exporters are likely to benefit from this?
Stefan Vogel: So, if you think about many of the dairy products and a significant amount of meat that we export, go to Asian markets. So we don’t have to go through the Suez Canal.
But those coming from Europe or the East Coast of the US usually go through the canal, so given that they have a longer way, that’s a little bit better for us than for them. But we still have to pay those higher costs.
The other thing to keep in mind is that in a post-COVID scenario, when freight rates were high, a lot of the big shipping companies with containers prioritized their prime routes because that’s where they made money, going from China to Europe or to the US.
They didn’t really want to come down as happily into New Zealand and Australia because they didn’t make too much money on that route.
We may see a similar situation evolving at some point in the future. Therefore, our exporters may want to keep a close eye on the availability of containers and have a close connection with their export partners to make sure we still get all the shipping done that we need.
Heather du Plessis-Allan: If an exporter suddenly finds an interest from one of these markets, opting for them instead of Europe, could they expect that this is a short-term rather than a long-term thing?
Stefan Vogel: Overall, it will only put us slightly at a price advantage.
A lot of the products originating in Europe and what comes from here are rather different, so I don’t see the Asia markets swapping everything over to us.
However, for products in direct competition, there might be a slight advantage.
But as I said, if we’re struggling to find containers, we may actually have an issue on that side that costs us as much as it may cost the Europeans or the Americans who have to go a longer route over to Asia.
So, there might be some silver lining, but let’s see. I hope it actually plays out this year.
Source: Heather du Plessis-Allan Drive, Newstalk ZB. This interview transcript was edited for clarity.
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