Red Sea Attacks Disrupt Brazilian Logistics Chain; Executives Report Surge in Freight Costs

AGL Cargo Director reveals a fourfold increase in freight costs for cargo from India in the last 60 days.
IBL notes a rise in average container transport prices from $1,520 to $3,500 between December and January.

Jackson Campos, Director of Institutional Relations at AGL Cargo | Photo: Disclosure

By: SiiLA News

02/06/2024

One of the planet's major trade routes, the Red Sea, has witnessed a decline in ship traffic, particularly in the Suez Canal, with Clarksons' research indicating a 90% reduction in transport vessels. This is a consequence of attacks by Yemeni rebels, the Houthis, targeting vessels from Israel, the U.S., and the U.K.

Despite the geographical distance, these attacks are triggered by the ongoing conflicts between Israel and Hamas in Gaza since October. The primary targets for the Houthis are Israeli vessels, allegedly providing logistical support to the military conflict.

With attacks by the U.S. and British navies on the rebels, tension in the region has escalated further. As a consequence, Petrobras has announced its avoidance of ship transit in the area. "As of now, Petrobras is avoiding the transit of contracted oil tanker ships through the Suez Canal, the Red Sea, and the Horn of Africa coast. This is not affecting the costs for oil exportation, which is directed to other regions. Similarly, imports are not being impacted as they originate from ports far away from conflict zones," reveals the company in a statement to REsource.

Jackson Campos, Director of Institutional Relations at AGL Cargo, a company focused on international logistics, explains that, in addition to the detour, the situation acts as a domino effect, likely triggering increased ship traffic, bottlenecks, and container shortages.

"The cargo journey starts from India, goes to Europe through the Suez Canal, and then comes to Brazil. We have ships that need to avoid that region, causing a decrease in container availability. They spend more time in transit, more time at sea. Consequently, this delays the transit time of cargo more than it should, affecting planning and cargo arrival," Campos states.

In the last 60 days, the freight cost for cargo from India has quadrupled. Campos believes that the pharmaceutical and textile sectors, especially industries relying on raw materials from India, Sri Lanka, and Bangladesh, will feel the most significant impact.

Cancellations

Ship Marlin Luanda after being hit by a Houthi missile | Photo: Reuters

When the first attacks occurred, shipowners, responsible for maritime operations, issued warning alerts to maritime agents. As tensions escalated and attacks on civilian vessels increased, many shipowners announced the cessation of operations in the region, according to Fernando Balbino, IBL World's International Director.

"The shipowners, the maritime companies, issued the initial official communications to the agents. The first we received was a warning of possible delays, and shortly after, they issued a second communication announcing the route cancellation," recalls Balbino.

No official communication explicitly directed to maritime agents and companies was issued by any governmental body.

For Balbino, the crisis surrounding the Red Sea is far from over and lacks a simple resolution. According to IBL, an integrated logistics solutions company, the average container transport price surged from $1,520 to $3,500 between December and January. If the problem persists, a significant increase in import costs may impact inflation and lead to shortages in certain chains.

On Wednesday (31), the Houthis declared that attacks on vessels will continue until a ceasefire in the Gaza conflict, and Palestinians receive humanitarian aid, food, and medicine. Also on Wednesday, in a joint operation with the U.K., the U.S. conducted an airstrike against Houthi forces, according to Reuters.

Impact on Real Estate

To address shortages, the strategy involves increasing stocks of products and inputs from China and Asia, says André Romano, JLL Brazil's Industrial, Logistics, and Data Center Manager.

"This demand surge will likely be led not by the industries themselves but by logistics operators providing services to them, either by occupying the shadow space they have in already leased warehouses or by expanding current distribution centers to accommodate this new demand. This is because industries generally perceive this situation as an outlier, temporary," explains Romano.

Similar to the crisis generated by the COVID-19 pandemic, during which maritime freight prices reached $11,000 at its peak, according to the Global Container Freight Index, Romano explains that this highlights the West's dependence on products and inputs from the East, primarily due to the deindustrialization of Latin American powers, like Mexico and Brazil.

"Pandemic, War in Russia, Red Sea Crisis - these are different situations that have opened the eyes of major industries to the dependence on the East for Western market supply, generating a crisis in the global Supply Chain. In this context, countries with production capacity and abundant and/or specialized labor have once again garnered attention from major companies as potential mitigators of this risk," Romano concludes.

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