With Red Sea and Panama Canal Delays, 80% of Cargo Now Routing Around Cape of Good Hope

More than 80% of cargo is now moving around the Cape of Good Hope due to Houthi rebel attacks in the Red Sea and low Panama Canal water levels (see 2312200045), Nathan Strang, a director of ocean freight at Flexport, said during a Jan. 18 company webinar.

That's a drastic change in just the past few months. Strang said that in the 48th week of 2023, 66% of cargo moved via the Suez Canal and 21% moved via the Panama Canal. In the first week of 2024, that proportion shrank to 3% through the Suez Canal and 12% through the Panama Canal.

Typically the Panama Canal could absorb more of the traffic diverted from the Suez Canal, but that's not possible now because of the canal's lower water level, Strang said.

Delays in the Red Sea have affected the estimated times of arrivals and departures, leading to vessels either "bunching" or to a cargo backlog at the port, said Connor Helm, Flexport's manager for ocean procurement.

The delays also have led to equipment backlogs across the Middle East and Asia, as equipment remains aboard delayed vessels rather than being available at the port. Based on meetings its staff has had with carriers, Flexport expects the equipment problem to continue for the next few weeks, Helm said. After that, the carriers are hoping to be back to a more consistent shipping schedule and can get "more equipment in all these markets," Helm said.

Carriers have become much more proactive, diverting equipment so it can be shipped around the Cape of Good Hope, which means more predictability for transit time of cargo, he said. "Whereas before it was kind of just applying a general, 'Hey, this is going to be 12 days,' or, 'There's going to be 15 days on top,' now we actually have data from the carriers saying this is how long it's going to take," he said.

Flexport so far has seen 549 vessels that either have been diverted or will be diverted, amounting to 7.5 million 20-foot equivalent units, or TEUs, Helm said. That number won't grow a lot going forward as carriers adjust their schedules, he added.

Water levels at the Panama Canal remain below historical levels, and are expected to remain low for at least the next two quarters, Strang said. The low water levels could potentially last for the rest of the year, he said. Heavier-than-expected rain in December led to increased transits in January. However, improved conditions are not going to last and delays for cargo through the Panama Canal will continue, Strang said.

Flexport said shippers with time-sensitive cargo heading to the East Coast should use West Coast ports and then use rail or inland trucking to move those containers to the final destination. The Panama Canal is an option for some, but cargo can be subject to surcharges and capacity is reduced, Strang said.

In addition, cold weather in the past few weeks has affected rail. When the temperatures drop below negative 20 degrees, trains have to operate "smaller links," and sometimes additional engines need to be added, Strang said. Air brakes, which are the main brakes used on trains, do not work well in cold conditions, and metal becomes brittle in the cold.

"We're seeing a lot of snow, ice, and extreme temperatures" in the Canadian West and the U.S. Pacific Northwest, "especially across the Sierra Nevada," Strang said. That's in addition to rain and storms in the U.S. South. as well as snow and cold temperatures in the U.S. Northeast, he said. As a result, getting cargo in and out of ports will be difficult, so expect delays for cargo in those locations, Strang said.