January 16, 2024

Crisis in the Red Sea: A Survival Guide for BCOs and Shippers

In recent months, various shipping vessels carrying thousands of containers have been openly attacked by Houthi rebels as they traveled through the Red Sea shipping lanes. The attacks have continued throughout the holidays despite the presence of a US-led military force in place to protect commercial vessels. Aggression has been thwarted, but the threat to container ships remains real. Many big shipping lines like Maersk and MSC have made the difficult decision to suspend operations or reroute their vessels away from the Red Sea due to escalating geopolitical tensions and security threats.

The Red Sea is a vital maritime route connecting Europe, Asia, and the Middle East, handling a substantial portion of global trade. The Suez Canal has provided a safe, efficient passageway to the west, but now, shipping lines are diverting vessels around the Cape of Good Hope to safely navigate to U.S. ports. This adds ten days minimum time and 3,300 miles to the vessel’s journey, causing a late arrival into port and a detrimental domino effect in the supply chain.

Effects of the Red Sea Conflict on Shipping Containers

When shipping container vessels are late into port, the containers face the unavoidable risk of incurring higher detention and demurrage charges. Container per diem refers to the fees imposed on shippers or consignees for holding containers longer than the agreed-upon free time at ports or terminals. Demurrage is incurred when cargo remains within the port beyond the allotted time for loading or unloading. Both charges accumulate rapidly and will significantly impact costs if not managed correctly.

Shipping lines are responding to mitigate the circumstances.
 They are tightening up free time to reduce equipment shortages. This means shippers are more likely to accrue per diem charges because it will take longer to return empty containers to Asia. Shipping lines are also routing eastbound cargo through west coast ports meaning shippers must then use rail to deliver containers to their distribution centers across the country. The extra time it takes may delay the return of the container and result in per diem.
With fewer available routes and options for shipping goods, delays in vessel arrivals and departures are likely, as is more significant congestion at the ports. Port congestion delays container unloading and outgate while increasing the likelihood of exceeding the stipulated free time at the port and running up demurrage. The inability to berth and unload shipping containers on time ultimately impacts businesses that rely on the timely and cost-effective transportation of goods.

How to Survive the Crisis

You may be one of the many shippers or BCOS who are feeling the heat of the situation and the stress of rising shipping costs. You may also wonder what you can do to mitigate a situation you have no control over.
There are actually four things you can do to help you weather this crisis and control costs as well as possible. Each solution is like a puzzle piece that works together to shape a picture of survival in these turbulent times.  Together, they create a guide to not only surviving, but thriving in the face of the crisis.
  • Increase Visibility. Now more than ever, customers must have accurate visibility of their freight. As events unfold daily in the Red Sea region, you can eliminate surprises if you can check the status of your shipping containers and the important milestones to inform their ETAs. AV Logistics offers Coreviz, a proprietary supply chain visibility platform with industry-leading accuracy that provides a sense of control in a volatile environment. The platform tracks most-wanted milestones and offers on-demand reporting of container status. While you may not be able to control when the ship gets into port, you can view an accurate picture of when it does and understand what will happen next simply by logging into Coreviz.
  • Employ Demurrage Management. As shipping lines shorten their free time for containers at the port, shippers must reduce their shipment dwell time. One way to do it is through demurrage management, for example, by moving your shipping containers at port to a more efficient storage area to avoid demurrage charges. We have relationships with more than 1,500 partner carriers and drayage specialists, as well as storage facilities and container yards that can provide safe refuge for your containers as they wait for the next leg of their journey.
  • Monitor Per Diem Management. Your container’s contracted return date is unaffected by on-the-water delays. In other words, equipment must be returned on time, despite unavoidable delays, unless they are renegotiated. Otherwise, the owner or lessor of the container will assess per diem. We monitor our customers’ shipping containers and find ways to reduce their per diem by returning equipment through collaborative solutions with our supply chain partners. We also offer an industry-leading per diem reconciliation tool, which slashes the time it takes to submit, verify, process, and pay invoices for per diem charges.
  • Consider Drayage Management. With Red Sea shipping routes closed, rerouted cargo may arrive at a different port than expected. You may need drayage to the rail or cross country to the distribution center. We are drayage management specialists who approach such challenges proactively by helping you find the resources you need to get your shipping containers where they need to go.
  • Explore Chassis Management. Delays in port arrival times can compromise chassis availability and bottleneck your drayage. The time to arrange chassis to help you through logistics entanglements is before they occur. Chassis solutions include dedicated chassis, leasing, and drawing from a pool. Being proactive about your chassis needs means being prepared when the unexpected happens!
As of this writing, tensions remain high in the Red Sea area, and there are no organized naval escorts or convoys in place. According to the Journal of Commerce, rates from North Asia to Europe in the past few weeks have more than doubled from $1,900 to $4,500 per FEU (forty-foot equivalent unit). Rates to the Mediterranean ports have risen from $2,300 per FEU just a few weeks ago to $5,000 per FEU. As we continue to monitor the situation in the Red Sea, we continue to help our customers control their costs as best we can as they make their way through this seemingly uncontrollable situation.

At AV Logistics, our mission is to manage and minimize your costs with our resources and expertise. If we can help you revise your logistics strategy for your shipping containers during this time, please contact us at 888-209-3524 to discuss your needs.