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The global supply chain is again stressed due to the crisis in the Red Sea and US-China trade tensions

The global supply chain is again stressed due to the crisis in the Red Sea and US-China trade tensions

Steel NewsDate: 09-07-2024 by: Ngoc Cam

Recently, the international shipping situation has encountered many major fluctuations due to crises in the Red Sea and trade tensions between the US and China. 

These attacks have severely impacted international shipping, particularly in key routes connecting the Indian Ocean to the Suez Canal and the Mediterranean Sea. Additionally, China's accelerated export efforts to the US ahead of new tariffs have exacerbated the demand for empty containers, further driving up global shipping costs.

Global shipping is under siege as crises in the Red Sea and trade tensions between the US and China send costs soaring
Global shipping is under siege as crises in the Red Sea and trade tensions between the US and China send costs soaring

Impact of rising container shipping costs due to red sea instability

Since mid-November 2023, the Houthi group's have attacked on commercial vessels in the Red Sea, especially those they believed were linked to Israel. However, the reality is that they attack without distinction any ships passing through the area. Major shipping lines, such as Maersk, have had to reroute their ships via the Cape of Good Hope, significantly increasing travel time and fuel costs. For instance, the journey from Singapore to Rotterdam now takes approximately 36 days via South Africa, compared to 26 days through the Suez Canal.

This diversion adds about 10-15 days to each trip and causes fuel costs to increase significantly. Shipping companies have had to increase freight rates to cover costs, resulting in freight rates from China to Europe rising to $7,000 per 40-foot container, five times higher than pre-COVID-19 levels. Freight rates from Asia to Northern Europe increased to more than 4,000 USD/40-foot container and 5,175 USD to the Mediterranean. For routes from Asia to the US, with rates reaching up to 3,900 USD/container to the East Coast and more than 2,700 USD/container to the West Coast.

Houthi attacks in the Red Sea force shipping reroutes, skyrocketing freight rates to unprecedented levels
Houthi attacks in the Red Sea force shipping reroutes, skyrocketing freight rates to unprecedented levels

These disruptions not only affect the shipping industry but also risk causing global inflation as businesses adjust their prices to account for higher transportation costs. The attacks have also increased insurance costs for ships passing through the Red Sea by 10 times compared to before, adding further financial strain on shipping companies and consumers.

Impact on Vietnamese steel exports

The attacks have reduced the flow of steel and aluminum to Europe via the Suez Canal by about 775,000 tons per month, impacting the global steel supply chain and increasing transportation costs. Rerouting through the Cape of Good Hope adds 10-15 days to shipping times and transportation costs from Vietnam to European ports have nearly tripled, from under $2,000 per 40-foot container in December 2023 to over $5,000 in January 2024.

Houthi attacks choke steel flow to Europe, tripling Vietnam-to-Europe shipping costs
Houthi attacks choke steel flow to Europe, tripling Vietnam-to-Europe shipping costs

Vietnamese advantage in steel exports amid rising shipping costs

Faced with escalating tensions, many countries such as the US and EU countries have deployed military operations to protect commercial ships and maintain maritime security in this area. However, this deployment cannot completely prevent attacks and experts say the situation could continue for a long time without a lasting political solution in Yemen.

Despite these challenges, Vietnam's steel exports maintain a competitive edge due to several factors. Firstly, Vietnam's strategic location in Southeast Asia provides proximity to major international shipping routes, reducing shipping time and costs to major markets like Asia, Europe, and the Americas.

Amid escalating tensions, Vietnamese strategic location keeps steel exports competitive despite global shipping disruptions
Amid escalating tensions, Vietnamese strategic location keeps steel exports competitive despite global shipping disruptions

Secondly, Vietnam boasts a well-developed logistics system, featuring major ports such as Hai Phong, Cat Lai, and Da Nang, offering diverse transportation services including container and bulk shipping. Additionally, the abundance of empty containers in Vietnam helps minimize waiting times and rental costs, optimizing export-import processes. These factors enable customers importing steel from Vietnam to benefit from lower shipping costs and more efficient services compared to other countries with limited container availability.

The shipping crisis in the Red Sea and trade tensions between the US and China have increased shipping costs and disrupted global supply chains. However, customers importing Vietnamese still have advantages thanks to its favorable geographical location, developed logistics system and abundant empty containers. These strengths help reduce costs and shipping times, enhancing the competitiveness of Vietnamese steel in the global market, especially during these volatile times. Follow MRS Steel to get the latest updates on the Vietnamese and global steel industry!