The first element is the port impact in Europe. Right now we are facing a rapid decline in export capacity as the vessels caught in the queue do not arrive. Then this will be followed by an effect resembling ketchup coming out of a bottle. A substantial amount of vessels and cargo will arrive at the same time in the European ports, temporarily placing significant strain on the infrastructure, likely leading to congestion issues. This will be followed by another round of missed sailings as the vessels already taking the long route around Africa will be a week delayed. Followed by yet another spike as the vessels round-Africa arrive at the same time as the normalised flow coming in from Asia.

The second element is the impact this will have on equipment repositioning. The re-balancing of empty container flows was a process already being hampered especially by the port congestion off the Californian coastline, and now we will have a significant pool of empty containers which got stuck north of Suez being delayed into Asia.

All in all, these two elements are by nature temporary. But as the carriers need to gradually re-establish their normal sailing schedules, this will likely take 2-3 months before the ripples from the closure can be reasonably normalised.

And this leads to the third and most important element related to freight rates: The shipper behaviour. We are faced with a Suez Canal disruption coming on top of an already strained supply chain. This means there is a very high risk for shippers that in the coming months not everyone will be able to move all the cargo they want to. Some might have to wait a very long time before getting the product moved.

As a consequence, shippers are now faced with an acute competitive pressure within their own respective industries. Securing capacity in the supply chain becomes a key competitive advantage as this secures the ability to get the product to the market. Failing to secure capacity could lead to product not moving at all and, at worst, financial ruin for the shippers impacted by such.

To perhaps simplify and popularise the effect a bit too much: from a consumer perspective we might face a period where instead of having 500 different shoes to choose from in the store, we might now only have 480 different shoes to choose from. From a consumer perspective, not a massive impact. But if you are a producer of shoes it is absolutely critical that your 20 types of shoes are amongst the 480 that actually get shipped and not the 20 which do not make it to market.

Hence, even though freight rates remain at very high levels, despite have come down slightly over the past month, we might see another upwards pressure. This time the pressure will come from shippers who in the present situation will prioritise equipment and vessel capacity higher than pricing for the competitive reasons outlined above.

Source:Baltic Exchange