Disrupted schedules, higher costs for project cargo movement

Disrupted schedules, higher costs for project cargo movement

AAL Singapore loading rubber in Abidjan, West Africa; Photo AAL Shipping

The ongoing issues in the Red Sea have created a complex situation for project cargo transport and all the parties involved, shippers, carriers, and freight forwarders. The situation comes with both opportunities and challenges arising from rerouting the multipurpose (MPP) fleet around the Cape of Good Hope.

The disruption can be seen as a double-edged sword for carriers. According to Yorck Niclas Prehm, Head of Research at Toepfer Transport, the situation boosts ton-miles, leading to increased utilisation and higher freight rates. “Additionally, it generates demand from container markets grappling with port congestion and capacity issues,” Prehm said.

However, he stresses that on the flip side, carriers’ scheduling flexibility is impacted as it reduces the time available to seek parcels in weaker trade regions. “To maintain a regular semi-liner service between Europe and Asia at pre-crisis frequencies, carriers must either allocate approximately 15-20 per cent more capacity to this trade or eliminate opportunistic port calls along the route. Both options significantly diminish operational flexibility and earnings potential,” Prehm said.

Additionally, competition in the time charter market from the container sector is driving up costs for a portion of the MPP carrier fleet.

Extended voyages, less effective fleet

Scheduling flexibility issues are confirmed by one of the major heavy lift project cargo carriers, AAL Shipping. In addition to extended transit times, which can be an issue for some project cargoes and their deadlines, rerouting is also reducing the effectiveness of one’s fleet. “As the vessels are deployed for a longer period of time, their availability to perform more voyages is restricted. This is being felt in terms of tonnage availability in the MPP/heavy lift sector. This imbalance – with effective supply reduced, and demand slightly on the rise – is driving freight prices up,” says Christophe Grammare, Managing Director at AAL Shipping.

Read more: Rising container rates bump up MPP index, but bubble is expected to burst

On top of adding 10 days to the voyages from Asia to North Europe, and 20 days to voyages from the Middle East to the Mediterranean, carriers are facing more adverse weather conditions due to rerouting. The additional sailing time also translates to a 20 per cent rise in operating costs and a 15 per cent increase in freight rates.

Weighing options, working on resilience

In the current situation, shippers are facing a difficult choice. According to Marko Buneta, Key Account and Project Logistics Manager at Ahlers, some carriers and shippers still opt to use the Red Sea. “We are receiving different guidances from shippers. Some would prefer to route their cargo via Suez, due to possibly more favourable freight rates or urgency for delivering their cargo to the destination,” Buneta said.

The decision to use the Red Sea or Cape route can vary by carrier, with some liner services choosing on a per-sailing basis depending on cargo, ports, and risk assessment.

Mohamed Medhat El-Kady, Marketing and Contracts Manager at Egyptian Global Logistics (EGL), stresses that the Red Sea attacks as a major disruption have also highlighted the need for diversified shipping routes and supply chain resilience.

“The long-term impact on project cargo transport will depend on how quickly the world will respond and whether similar incidents occur in the future,” El-Kady said.

Shipping companies and logistics providers are adapting. Proactive communication with clients, route optimisation based on project needs, and contingency planning are key strategies employed by EGL to mitigate delays.

Long-term uncertainty

The long-term impact on project cargo transport remains unclear. The speed of resolving the Red Sea situation and the potential for future incidents will play a significant role. However, one thing is certain: the disruption has significantly reshaped the landscape.

The initial impact and delays of project cargo arrivals in Europe were inevitable according to Grammare. It was not a planned change and some cargoes have been affected. “Nevertheless, following the initial change in trading routes, we have been able to schedule our fleet and work with our customers to mitigate the impact of the additional sailing time and deliver on time,” he said.

Buneta adds that the situation indeed was ‘quite chaotic’ at the start. However, “shippers have accepted this as a new normal” and now they can make educated decisions on the best route for their cargo, considering freight differences, urgency, and risk.

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Author: Adnan Bajic

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