Red sea crisis highlights vital role of China-Europe rail freight(2)

Troubled waters

The Red Sea is an essential part of the ocean freight passage linking Europe and Asia. About 60 percent of Chinese trade with Europe transits through the Suez Canal, which involves passing through the Red Sea, according to the Fitch Ratings report. Shipping costs have increased by more than 150 percent since December, the global credit ratings firm reported in late February.

Freight forwarders have opted to detour around the Cape of Good Hope in South Africa, which adds 10 to 14 days to transportation times compared with the direct route through the Red Sea and Suez Canal. The detour takes the total shipping time from the Far East to Europe to about 50 days.

The crisis has also raised uncertainty about the length of shipping times.

Major ocean freight carriers have paused some or all transits through the Suez Canal and begun diverting ships away from the Red Sea, according to a recent report from Xeneta, a freight rate data platform. This has triggered nearly a month of shipping uncertainty and raised ocean freight shipping rates. With logistics company A.P.Moller Maersk recently announcing the extension of its pause on transits "for the foreseeable future", this uncertainty shows no sign of slowing down, the report said.

The overall cost to the international supply chain has also been driven up by the Red Sea crisis, said Wang Yangkun, head of the Transport Technology Development Research Center at the National Development and Reform Commission's Institute of Comprehensive Transportation.

While the costs of international transportation, overseas warehousing, and supply chain management have all risen, other risks have been exacerbated by spillover effects, Wang said. "Inflation, exchange rates, insurance, settlements, and financing will also elevate the overall cost of the international supply chain," he said.

He Yun, an associate professor at Hunan University's School of Public Administration said the Red Sea crisis had led to significant disruptions in global supply chains.

"As much as 30 percent of global container trade transits through the Suez Canal, meaning the crisis is disrupting a significant portion of international commerce," she said.

"These shifts underscore the fragile nature of global supply chains and the importance of alternative routes and modes of transportation, such as the China-Europe Railway Express."