Royal Coffee’s Inbound Traffic Specialist, Jodi Louws, shares her thoughts on the recent disruptions in the Red Sea and implications for coffee pricing and availability.
Summary: Attacks on shipping vessels in the Red Sea have caused shipping companies to reroute around the southern tip of Africa, reducing shipping capacity and increasing costs, particularly for Ethiopian coffees. Coffee buyers should have their Ethiopia positions covered through summer with spot Ethiopia coffee.
About the Red Sea
The Red Sea is one of the world’s busiest shipping channels and serves a significant role in the global economy. At its northern point, the Suez Canal enables cargo ships to take a shortened path between Asia and Europe, cutting travel time by almost half, compared to circumnavigating Africa. An estimated 12% of global trade passes through the Red Sea, which includes 30% of global container traffic.
The Red Sea also has a storied coffee coast. In the southeast, Yemen was the first region to export coffee to the world. To the southwest, Djibouti is the gateway port to Ethiopia, the birthplace of coffee. More than 94% of exports loaded from Djibouti originate in Ethiopia. The Red Sea narrows to 26 km (about 16.16 mi), wide between Yemen and Djibouti, and reopens to the Gulf of Aden. The strait here is called Bab-el-Mandeb or the “Gate of Tears,” so named, according to legend, after those who drowned when the strait formed during an earthquake, tearing apart the continents of Africa and Asia.
Disruptions in the Red Sea
Starting in October 2023, Houthi fighters located in Yemen have targeted commercial shipping vessels in the Red Sea, attacking with drones and missiles. Strikes have caused vessels to catch fire; in one action, a helicopter was used to capture a ship and 25 crew members. In early January, the US and 12 allies announced military action against the Houthi’s continuing attacks.
To keep their vessels safe from attack, shipping lines have adjusted schedules and routes to omit the Red Sea, routing vessels traveling between Asia and Europe around southern Africa instead. After a wave of route adjustments in December and January, and attacks on US-flagged vessels Maersk Detroit and Maersk Chesapeake, on January 24 Maersk announced it will no longer transit the Red Sea “for the foreseeable future”. Maersk Blue Nile and MEC1 services each called the port of Djibouti weekly. Both services are now rerouted to omit the Red Sea ports of Djibouti, Jeddah, and King Abdullah Port.
Maersk carries the greatest market share of import and export from Djibouti. MSC line boasts the second highest share in Djibouti, and the highest share of global freight. At a hearing before the US House of Representatives on January 30th, MSC representative Bud Darr stated, “The Red Sea security situation has required MSC to re-wire its entire global network.”
As of today, MSC and CMA CGM lines continue to call Djibouti. We are currently estimating port calls are reduced by half, though the situation on the water may change day by day.
In response to increased insured risks and longer transits around Africa, MSC, Maersk, CMA CGM and Hapag Lloyd lines have applied Emergency Surcharges on various routes from the Middle East, West Africa, India, Indonesia, and Vietnam to the US. To date, published surcharges range from $200 to $1600 per 20’ container.
Reduced Capacity, Higher Costs, and Delays
With export capacities from Djibouti reduced by half, it is going to be extremely difficult to get green coffee volumes out of Ethiopia this season. We expect long wait times as shippers struggle to confirm bookings on the limited schedules available. Once bookings are confirmed, there is still a chance ships will omit the port due to ongoing threats in the region. This will trigger booking cancellations, or if containers are already loaded and waiting, bookings will “roll” to a subsequent schedule, triggering other cancellations and rolls.
The costs of shipping from Djibouti immediately increased with Maersk’s exit. Maersk has been the market leader with lower rates and great container supply and service from Addis Ababa, Ethiopia. MSC, the second leading freight provider, also leads the way with the highest surcharges, applying an additional $1,500 per 20’ container. This surcharge is applied not only to trade from Djibouti, but also Mombasa and Dar es Salaam.
Diversions around southern Africa are predicted to continue for an extended period, impacting on-time performance and container availability worldwide. Delayed shipments are causing parts shortages at manufacturing plants in Europe and the US East Coast. The on-time performance of ocean carriers on the Asia-Europe trade in December 2023 fell to levels not seen since October 2022, when severe congestion choked ports at both ends of the trade lane.
These delays will not be so severe. Unlike in 2022, we are not currently expecting demand-driven congestion at US Ports. The current disruptions are supply-side challenges impacting the availability of global goods.
Reduced Capacity at the Panama Canal
Meanwhile, the Panama Canal continues to monitor the impacts of drought and limit the number and size of crossing vessels. The dry season is just beginning and expected to last through May. We expect transshipment delays in shipments crossing the canal zone throughout the prime spring coffee shipping seasons. Shipments from Brazil, Honduras and Colombia to the US West Coast are likely to be impacted by delayed routings. Shipments from Indonesia, Colombia, Nicaragua, and El Salvador to the US East Coast will be impacted.
Although supported by Brazil, Honduras, and Mexico’s Atlantic supply chains, coffee supplies to the US East Coast may be particularly delayed if Panama Canal restrictions are tightened. Supplies from Africa, Asia Pacific and Pacific ports in Central and South America either transit the Panama Canal or route around Africa. A Sumatran coffee destined for New York will have a challenging journey whether routed East or West. Overall, we face a rocky season for on-time deliveries.
Green Coffee Buying Takeaways
- We recommend buying extra SPOT Ethiopia coffee now to cover your needs through the summer.
- Speak to your trader about lining up the first new crop Ethiopia shipments.
- Any coffees with an ETA will sell extremely quickly this year and there may not be new crop spot position for a long time unless the Djibouti situation resolves quickly. Having capacity halved will most definitely impact our shipments, to what extent remains to be seen.
- Keep the lines of communication open with your trader. Email us to get in touch.