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The redirection of cargo ships away from the conflict-riddled Red Sea is causing a substantial spike in ocean freight rates, with Drewry's World Container Index (WCI) reporting a 61% increase to $2,670 per 40-foot container week over week. The surge is particularly pronounced on the Asia-to-Europe trade routes, with container prices soaring on key routes.

The Shanghai-to-Rotterdam lane witnessed a staggering 115% increase, reaching $3,577 per container, while the Shanghai-to-Genoa route saw a similar surge of 114%, hitting $4,178 per container. Shipping goods from Asia to the U.S. also became more expensive, with Shanghai-to-Los Angeles prices rising by 30% to $2,726 per container, and Shanghai-to-New York rates increasing by 26% to $3,858 per container.

Experts anticipate that rising spot rates will persist in the short term, driven by importers rushing to ship products out of China before the Chinese New Year in February. However, a slowdown in rate pressure is expected once the Chinese New Year begins.

As of Thursday, the Red Sea situation has impacted 405 vessels, with an estimated total capacity of 5.56 million 20-foot equivalent container units (TEU). Major container shipping companies like Maersk, MSC, and CMA CGM have rerouted vessels around southern Africa's Cape of Good Hope to avoid the Suez Canal due to missile attacks by Iran-backed Houthi militants based in Yemen.

While addressing concerns about the impact on the U.S. economy, National Security Council Coordinator for Strategic Communications John Kirby stated that the Biden administration has not yet seen a significant effect. However, industry leaders emphasize that the rerouting is having a tangible impact on capacity, with longer shipping times and lower capacity leading to rising freight rates.

Flexport CEO Ryan Petersen highlighted the connection between rising rates, longer shipping times, and lower capacity. According to John McCown, a non-resident senior fellow at the Center for Maritime Strategy, diversions in trade routes can have network effects, quickly driving capacity concerns in other markets.

Next, a UK-based retailer, anticipates delays of up to 2.5 weeks in stock deliveries due to ongoing difficulties with Suez Canal access. This comes after Ikea warned of product shortages and delays stemming from the rerouting. Next CEO Lord Simon Wolfson stated that while the supply chain disruption is inconvenient, it's not a crisis, and the retailer has sufficient stock in warehouses and stores. There are no expectations of significant price increases at this time.