Monday, February 26, 2024

Red Sea tensions push up freight costs

Avatar photo
But shipping disruptions could also give NZ ag exports an edge in Asia.
Reading Time: 3 minutes

Escalating tensions in the Red Sea mean trade logistics are becoming increasingly challenging for New Zealand’s agricultural sector.

However, there are also potential upsides for the nation’s export competitiveness into the Asian market, RaboResearch general manager Stefan Vogel said.

Ocean shipping companies are now diverting more vessels away from the Suez Canal to avoid attacks by Houthi militants and the escalating military action against them in the Red Sea.

“New Zealand may have to deal with some increased costs for imported goods – such as day-to-day household articles and agricultural inputs, including certain fertilisers, ag chemicals and machinery parts – as importers face higher freight costs, as a result of diverting around the canal and impacted areas.

“However, the elevated freight costs are not expected to reach the covid-related highs seen in 2021,” he said.

“Globally, for containerised and bulk goods, the shipping industry has to make tough decisions at the moment – either to navigate the Suez Canal and risk severe attacks by Iran-backed Houthi rebels or to take a nine- to 15-day detour around Africa’s Cape of Good Hope.

Every vessel that is longer at sea is slower to load its next cargo. This limits the available shipping capacity and drives freight costs up, he said.

“Initial attacks by the Houthi on cargo ships caused bulk freight rates for vessels used also to transport fertilisers to spike in December, though these have now settled back closer to 2023 average prices.” 

The shipping industry faces tough decisions at the moment – either to navigate the Suez Canal and risk severe attacks by Houthi rebels or to take a nine- to 15-day detour around Africa’s Cape of Good Hope (pictured). Photo: Wikimedia Commons

Vogel said the impact of the Suez/Red Sea crisis on agricultural fertiliser and other farm input imports is likely to be mixed. 

“Fertilisers used on farm in New Zealand are largely imported or rely on imported raw materials. And, at least for nitrogen and compound fertiliser supplies, they should not be impacted much as they mostly derive from Asia and the Middle East and don’t pass through the Suez Canal. 

“Phosphate rock, however, stems to a significant share from Morocco. And potash largely comes to New Zealand from North America and Europe, and some of those shipments could be impacted by the attacks and re-routing of vessels.” 

Containerised shipments – both to and from NZ – will also be affected. This is likely to have time and cost impacts on plant protection chemicals and machinery parts coming into NZ as well as NZ’s dairy and meat exports.

“During the 2021 freight crisis, New Zealand struggled sometimes to find sufficient containers for exports as shipping companies gave preference to their major global routes and somewhat neglected Oceania or they tried to quickly take empty containers back from New Zealand to China rather than adding in shipping time to export New Zealand goods.

“And a similar struggle for containers could materialise again if the Red Sea issues tighten global container freight capacity further.” 

The FBX global ocean freight container index has more than doubled from early December to mid-January, to reach the highest price level seen since October 2022. However, container freight rates are still three to four times below covid’s massively inflated levels, Vogel said.

“Imported goods into New Zealand will have to bear the higher freight costs, but container freight is unlikely to get as expensive as in 2021.” 

A potential upside for NZ of the Red Sea tensions is increased export competitiveness into the Asian market. 

“Several of New Zealand’s key agricultural export competitors usually ship products into Asia through the Red Sea, and if tensions in the area remain heightened, they may be forced to divert more of their product into Asia via the longer and more costly route around Africa.” 

Total
0
Shares
People are also reading