The maritime container shipping market is showing clear signs of a supply chain crisis after civil unrest in Bangladesh caused traffic to collapse at the country’s main seaport, Chittagong.
Reports from Chittagong make the impact of the unrest clear. Protests have virtually paralyzed the port and much of the hinterland logistics. As Bangladesh transforms from what once was to what it will become, the maritime export and import supply chains are still disrupted but not destroyed.
However, by analyzing the data it is also possible to understand the impact of sudden and serious disruptions within a supply chain.
A telltale sign of supply chain trauma is the dramatic jumps in spot prices paid by shippers and freight forwarders desperate to export containers from the affected region.
In the case of Chittagong, this market dynamic is reflected in the spread between the rates paid by shippers at the mid-market low (25th percentile) and the market mid-high (75th percentile).
As of July 31, the market spread in the fronthaul trade from Singapore to Chittagong was USD 380 per FEU (40-foot container equivalent), with mid-market values at USD 2,470 and median market values at USD 2,850.
However, on August 1, the market spread increased by 424% to $1,990 per FEU.
Importantly, the widening market spread was driven almost entirely by the median market value, which rose from $2850 per FEU to $4561 per FEU. The mean market value increased by only $100 to $2570.
The rise in market prices is the result of the desperation of shipping companies who are willing to pay ever higher prices to ensure that their containers get on board the ship.
As political tensions on the ground have eased somewhat in recent weeks, mid-to-high freight rates in the market have also come down, falling by almost USD 1,000 per FEU, while mid-to-low freight rates in the market have increased by USD 125.
Due to the severity of the disruptions, Chittagong is an extreme example of market dynamics, but it is a principle that can be applied to all global supply chains.
Take the example of trans-Pacific trade after the outbreak of the conflict in the Red Sea. The range between the mean low and the mean high increased from USD 154 per FEU on January 14 to USD 715 per FEU on January 15.
The most dramatic example of increasing market spread can be found – not surprisingly – during the pandemic period.
Sticking with the trans-Pacific trade as an example, the mid-low-mid-high market spread increased from $216 per FEU on April 30, 2021 to $4299 on August 25, 2021, an increase of 1890%.
The range between medium-low and medium-high shows that shippers appear willing to pay any price to ensure their containers are moved during a supply chain crisis. However, if lessons about supply chain resilience were not learned from the pandemic, they certainly should after the Red Sea crisis.
Consider geopolitical unrest in your risk management models
The recent situation in Bangladesh is another example of how political unrest is affecting supply chains. Earlier this month, Guy Platten, Secretary General of the International Chamber of Shipping, said: “The world order has never been under such a threat since before the Second World War,“, as he reflected on how nationalism and general protectionism negatively affect world trade.
If Platten is right, shippers should urgently factor the likelihood of geopolitical conflict into their supply chain risk management. When a major black swan event occurs, it is often too late and shippers are left with no choice but to pay skyrocketing freight rates.
If you are a freight forwarder thinking about setting up a manufacturing center, Bangladesh would not be your first choice.
While the turbulence in the ocean continues, discover together with Michael Braun what shippers can expect for the remaining months of 2024.
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