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The Burden of Rough Seas

In the last 24 hours, many logistics and energy companies have announced rerouting ships from the Red Sea. This came after a few ships were attached by drones for which a radical group took responsibility. Though the group mentioned that they are targeting only Israel-related ships very few companies will be willing to take any chances for now.

This has forced shipping companies to introduce a surcharge on the cargo starting January 2024. Though the container costs are well below the peak during last month they have already increased by 10%.

It will be important to see the impact of such a cost increase during Q1 2024 because if such an issue lingers or intensifies the logistic costs might rise again. And this would put pressure on companies to go for price hikes from Q2 2024. Even the Global supply chain pressure index returned to positive after January 2023.

This situation has added pressure to the shipping industry which was already facing the impact of Panama Canal restrictions, the Black Sea conflict and higher than estimated demand for the current season.

Though for now it’s early to judge in which direction and to what extent this will impact logistical and energy costs but this might be a quarter where they bottom out for the short and medium term.


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