Red Sea woes will trigger surge in freight costs and export delays: Centrum
Centrum suggests that if the tensions in the Red Sea persist, businesses will likely face higher freight costs, leading to increased ancillary expenses such as insurance.
The ongoing problems in the Red Sea continue to haunt the shipping sector, resulting in a considerable spike in freight rates globally. A note issued by Centrum Broking note emphasises the potential consequences, foreseeing higher freight rates, elevated transportation expenses, rising insurance costs, and extended voyage times.
To illustrate the impact, let's consider specific examples. The freight rates from Shanghai to Los Angeles have risen sharply, jumping from approximately $2,000 in December to nearly $2,700 in just one week into January.
Similarly, the freight from Shanghai to Rotterdam has more than doubled from around $1,700 to nearly $3,600 between December and January. Shanghai to New York has experienced a significant increase as well, climbing from $3,000 to about $3,800 during the same period, marking a 25-30% surge.
Centrum suggests that if tensions in the Red Sea persist, businesses will likely face higher freight costs, leading to increased ancillary expenses such as insurance.
Read Here | Red Sea attacks disrupt global trade, experts weigh in on potential impact on freight costs
So, what does this mean for companies like GE Shipping and All Cargo operating in the sea freight business? While higher freight rates could translate to increased revenue, it's crucial to discern whether this surge is a result of elevated operational costs or merely a reflection of heightened freight rates due to the prevailing tensions.
If the increase is due to higher operational costs, the expanded revenues may be offset by increased expenses, resulting in no positive impact on EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation). On the other hand, if the rise is primarily due to heightened freight rates related to the ongoing tensions, it could potentially lead to an improvement in EBITDA.
The prevailing opinion is that the situation may result in higher expenses, given the longer travel and transit times redirected away from the Red Sea to the Cape of Good Hope. As the industry navigates these challenges, businesses must carefully evaluate the dynamics of higher freight rates to make informed decisions in this complex environment.
Also Read | Suez Canal crisis: GE Shipping says tanker rates stable so far but may spike if situation worsens
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