Red Sea turmoil roils through freight sector

For recyclers in scrap-surplus nations such as the United States, a factor in overseas trading thus far in 2024 has involved attacks on ocean freight ships in the Red Sea and the subsequent rerouting of vessels, adding time and costs to once routine shipping patterns.

At the 2024 Material Recycling Association of India (MRAI) convention in Kolkata, India, in late January, two panelists indicated India-based scrap buyers in the meantime are looking toward Australia and Japan as a way of avoiding the Suez Canal/Red Sea trade route.

While European exporters could face the biggest hurdles for as long as the Red Sea attacks continue, scrap exporters everywhere, including in North America, are facing freight rate hikes and potential container shortages that are poised to become a bigger headache, according to a report from a freight services firm.

“As attacks on cargo ships in the Middle East continue and vessels are rerouted around southern Africa, we anticipate equipment shortages due to the lack of container repositioning in Asia for eastbound goods,” a California-based freight forwarder tells Container xChange Solutions GmbH, an online platform for container shippers.

In the U.S., West Coast port operators could be potential beneficiaries. “Disruptions in the Suez, Red Sea passage and Panama Canal [where there are drought conditions] will likely lead to increased demand for routing through the West Coast,” the report says.

“Three months into this crisis, container leasing rates on the China-U.S. trade route have surged dramatically, rising by a staggering 223 percent, or [nearly] threefold, compared to preincident levels,” the report continues on the ripple effects taking place well beyond the Suez Canal.

Container xChange says the rate hike and potential equipment shortage hit just as demand for containers is expected to recover in the coming months as the U.S. economy exhibits signs of resilience.

That resilience is reflected in gross domestic product, or GDP, rising at a 3.3 percent annual rate in the fourth quarter of last year, with Container xChange citing gains in consumer spending, nonresidential fixed investment, exports and government spending as factors.

While favorable economic conditions are good for recyclers as well, those who ship recovered paper, recycled-content plastic and nonferrous and ferrous scrap overseas will not like the balance sheet impacts of container shipping demand recovery.

At the other end of the U.S.-China trade route, despite economic concerns, “China is experiencing a surge in demand for ocean container freight to the U.S.,” according to Container xChange.

The economic and Red Sea-related impacts are not notional but have already started, Container xChange says, citing Port of Los Angeles PortOptimizer figures. In the second week of February, 20-foot equivalent units (TEUs) volumes were up by more than 38 percent compared with the comparable week in 2023 (105,076 TEUs this year versus 75,801 TEUs last year).

Container xChange cites another freight forwarder saying its offices have been reporting massive rate spikes, surging almost to COVID crisis levels. “I wouldn't be surprised if those levels are reached by the middle of the second quarter," the source says.