Red Sea Crisis Causes Surge in Air Freight Volumes and Shipping Costs
The recent crisis in the Red Sea, caused by Houthi rebel attacks, has had a significant impact on the international shipping industry. As a result of the lengthy diversions for ocean cargo vessels, air freight volumes have soared, leading to a surge in shipping costs. Companies are becoming increasingly anxious about the situation and are turning to air freight as an alternative.
The spike in air freight usage is primarily seen in cargo volumes bound for Europe. Many companies are avoiding the longer Red Sea diversions around Africa’s Cape of Good Hope, opting for air transportation instead. Xeneta, a leading ocean and air freight rate benchmarking platform, has reported a significant increase in air freight volumes.
Niall van de Wouw, Chief Air Freight Officer for Xeneta, explains that air freight is usually quieter during the last week of December and the first week of January. However, recent data and anecdotal information from clients suggest that this period is different. Retailers, in particular, are considering air freight as a way to deliver their products directly to customers. The Red Sea crisis has heightened fears of supply chain inflation, but what is even more compelling is the spike in volumes. Van de Wouw states that the increase in demand is unprecedented and could lead to a further increase in air freight rates.
Flights are already operating at 93% capacity from a cargo perspective, and if the current increase in demand continues, air freight rates are likely to rise by more than 10%. Van de Wouw warns that if the Red Sea crisis persists, more companies will become nervous about their supply chains.
The situation is being compared to the supply chain shocks experienced during the pandemic, which led to ocean and port bottlenecks and rate spikes. However, there are key differences between the two situations. Unlike during the pandemic, there has been a return of passengers and a lower overall level of consumer demand. The current spike in air freight is driven by companies’ need to move products and mitigate ocean transit delays.
Xeneta’s data reveals that air cargo volumes on the major apparel route from Vietnam to Europe have increased by 62% in the week ending January 14. This is 6% higher than the peak week in October 2023 and a significant increase compared to the same week last year, which saw a 16% rise.
While air freight rates have not yet reached the levels seen during the pandemic, the sudden nature of the Red Sea crisis has led to a more rapid increase in rates. This is causing even more disruption than during the early months of the pandemic, according to Xeneta data analyst Emily Stausbøll.
The Suez Canal/Red Sea route accounts for around 28% of the world’s container trade. Bank of America reports that almost 30% of the goods transported through this route are furniture, household goods, clothing, apparel, and general electrical appliances. Brands with significant exposure to Europe, due to longer transits from Asia, include Phillips-Van Heusen Corporation, Birkenstock, Capri Holdings Limited, Nike, Ralph Lauren, VF Corp, and Levi Strauss & Co.
The longer transits from Asia to Europe have led to delays in product delivery and manufacturing impacts for companies like Suzuki Motors, Tesla, and Volvo. Ford has been using alternate routes and shipping methods to minimize the impact on its operations. Retailers such as Ikea, Next, and Crocs have also warned of delays in product availability.
Brian Bourke, Global Chief Commercial Officer for SEKO Logistics, confirms that there has been a conversion to air freight for various products, including fashion apparel and automotive parts. While it may not be as extreme as during the height of the pandemic, the additional delays and the rush before Lunar New Year have created a sense of urgency for European importers who do not want to be left without stock or with idle factories.
In conclusion, the Red Sea crisis has caused a surge in air freight volumes and shipping costs. Companies are turning to air transportation as a way to mitigate the delays caused by diversions in the Red Sea. The increase in demand for air freight has led to higher rates and concerns about supply chain inflation. Brands with exposure to Europe are particularly affected by the longer transits from Asia. As the crisis continues, it is likely that more companies will opt for air freight, leading to further disruptions in the shipping industry.
