Red Sea attacks see exporters turn to China-Europe Railway Express ahead of Lunar New Year

01.26.2024

Many shipping companies have pulled their vessels from the Suez Canal route as Houthi rebels in Yemen continue to fire at cargo ships. Some exporters are now using the overland rail route between China and Europe, with enquiries doubling since the Red Sea attacks began.

With major disruptions already hitting global supply chains due to Houthi rebel attacks in the Red Sea, the situation is now set to worsen as shipping companies face the extra pressure of the coming Lunar New Year.

But one possible solution to the current shipping crisis may have been found as some exporters switch to the overland route provided by the China-Europe Railway Express.

Since November, Iranian-backed Houthi rebels, who control much of Yemen including most of the Red Sea coast, have been using exploding drones and missiles to attack commercial vessels using the vital trade route, as they protest Israel’s military operations in Gaza.

Their actions have forced major shipping lines, including Danish shipping giant Maersk, Chinese state-owned shipping company Cosco and energy giant BP, to stop using the Suez Canal and Red Sea route.

But now the headaches being experienced by shipping companies are set to get even worse as they deal with the extra pressure traditionally felt in the lead-up to Lunar New Year.

China, known as the factory of the world, produces a lot of goods for export before factories close for the annual holiday. But with ships being paused or diverted around the Cape of Good Hope, many are not expected to reach Chinese ports in time.

The Suez Canal provides the shortest shipping route between Europe and Asia. Having to divert around the South African seaboard adds an extra 3,500 nautical miles to a ship’s voyage — up to two more weeks. This will delay the return of empty containers back to China, with a knock-on effect that will be felt around the world.

The current detours and longer trip durations will lead to further port issues in January and February, which in turn will affect supply chains.

With the shipping situation in disarray, some Chinese exporters have now turned to the China-Europe Railway Express, which connects China and Europe through an extensive network of rail services. The railway to Europe is a viable alternative which runs through more than 100 cities in 11 Asian countries and regions and reaches 217 cities across 25 European nations.

The expectation is that the use of rail could even double in the next few weeks as an alternative to sea freight.

Although sending freight by rail is more expensive than by sea, the trains from China to Europe would take about 12 days compared with the usual sea transit time of 35 to 45 days.

In the first 11 months of 2023, the China-Europe Railway Express operated a total of 16,145 trains, transporting the equivalent of nearly 1.75 million 20-foot containers, according to data from the China State Railway Group. The total volume of goods transported during this period exceeded the total volume recorded in the whole of 2022.

But as exporters look to alternative routes and modes of transport, the move will also see a shift in who wears the extra costs — and who loses revenue.

Lars Jensen, founder of Vespucci Maritime and former Maersk director, said the Red Sea attacks would lead to increases in freight rates, as well as causing a significant loss of revenue for Egypt due to the reduction in canal transits. Avoiding the Red Sea would add around US$2 million to a ship’s journey in terms of fuel and other costs. This means for a full round-trip journey between Asia and Europe, each vessel could have an extra US$4 million in costs.

Christian Roeloffs, co-founder and CEO of Container xChange, an online platform for container logistics, said freight rates through the Red Sea had already increased by 20 to 30 per cent. Similarly, average container prices have also risen, he said.

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