The inability of the world's ships to navigate the two canals, which serve as international logistics hubs, has thrown global shipping into chaos. Due to persistent water shortages, the Panama Canal in Central America is not expected to be fully open to traffic until 2025. Businesses are being forced to abandon Egypt's Suez Canal as chaos continues in the Middle East. It is impossible to predict when normal will return.

Misfortunes never come singly! Two major shipping "arteries" crisis at the same time!

The Panama Canal is a vital waterway for transporting food and energy from the east coast of North America and the Gulf of Mexico to Asia. After the Panama Canal restrictions were imposed, the alternative route was from North America to Asia via the Mediterranean and Suez Canal. However, the conflict between Israel and Hamas in October 2023 dealt a heavy blow to the world's shipping industry, which relies on the "Suez Canal route."

Since mid-December last year, the Houthi organization has attacked foreign merchant ships from time to time, and the world's shipping companies have canceled routes through the Suez Canal. The risk of increased conflict has increased, and there is still no prospect of resuming the route. Due to the simultaneous crisis in the two canals, most ships were forced to bypass the Cape of Good Hope in Africa. That could lead to a shortage of cargo ships and a spike in transport costs.

A 40-foot container from Shanghai to the East Coast of the United States costs $6,652, 2.9 times the rate at the end of November 2023. At one point during the coronavirus pandemic, supply chain disruptions pushed up the cost of a 40-foot container to about $12,000. While freight rates are now below their peak during the pandemic, the risk of poor shipping is once again before the world.

According to UNCTAD, the average distance travelled by container ships and tankers will increase by 2% in 2024 compared to the previous year due to factors such as detachments. As the distance travelled increases, so does the cost of fuel and manpower. Shipping companies expect shippers to bear the cost, but as shipping costs are passed on to commodity prices, consumers will eventually be affected.

High freight rates are also a risk factor for countries looking to curb inflation. According to the International Monetary Fund analysis, the worsening situation in the Middle East has caused oil prices to rise by 15%, and container ship freight rates will increase by 2.5 times between 2024 and 2025.

According to the latest data released by the Shanghai HNA Exchange on April 26, the SCFI index rose for four consecutive weeks, and the Shanghai Export Container Freight Index (SCFI) rose 171.09 points to 1,940.63 points last week, a weekly increase of 9.67%. The freight rates of the four major ocean routes rose, of which the European and American lines rose by more than 10%.

Encounter the double test of cost delivery time

In the context of the high internal volume of the market, the textile industry at this stage has long been running at a small profit, even if it is a foreign trade industry, profits have fallen a lot. The continuous rise in shipping costs in the short term is bound to further increase the rigid cost of textile foreign trade enterprises and compress profits.

But on the other hand, even if the profit is reduced, it is better than the default to lose money, and now because the two major arteries of global shipping are delayed, the available shipping space on the market is tight, even if it is a day to receive several price notices, as long as the goods can be delivered in time, the extra money or to increase the money.

In the long run, the Red Sea crisis is not over, overseas demand is picking up, and there are geopolitical conflicts in the Middle East. It is expected that freight rates will continue to rise rather than fall. In the end, consumers in developed countries in Europe and the United States foot the bill for these high shipping costs, which could further fuel their inflation and continue to hit their purchasing power.

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