About three months have passed since cargo ships using the heavily trafficked Red Sea shipping lane started to take fire from Houthi militants. To say the continued dangers have disrupted global supply chains is an understatement, with experts warning of inflationary impacts and product availability in Europe - and beyond. One area of the "beyond" is the U.S., which also offers an alternative route for shippers and freight forwarders - thanks to a combination of intermodal and transloading.
Latest on Red Sea Crisis
What's been termed the Red Sea Crisis as it relates to freight shipping began last October when commercial ships suffered attacks at the hands of the Houthis, a Yemen-based militant group backed by Iran. Ocean freight carriers use the corridor - which connects the Indian Ocean to the Mediterranean Sea via the Suez Canal - to carry products between Europe and Asia.
About 15% of global shipping traffic takes this route, which - in addition to calmer waters - saves as much as two and a half weeks of travel time over the alternative around Africa's Cape of Good Hope. UBS says this route also has about 25% more effective capacity per ship than the long way.
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The Houthis have indicated their attacks are in protest of Israel's fight against Hamas in the Gaza Strip. Both the U.S. and U.K. militaries have launched strikes against the Houthis in response, but the attacks on shipping vessels have continued.
Companies with a variety of cargo have taken action in response to the shipping issues along this lane, with car makers like Tesla and Volvo actually pausing production in their German factories, citing delays in receiving components needed to finish the vehicles. Furniture maker Ikea has also flagged the Suez Canal situation as creating delays and availability issues for some products.
Red Sea effects on Freight Rates
Because of the dangers of the Red Sea route, carriers are diverting around South Africa - adding significant time and expense to their journeys between Asia and Europe. This has led freight rates to climb exponentially along these lanes. As of Friday, Freightos had rates from Asia to Northern Europe up 461% compared to October 2023, before the issues began.
But the Red Sea attacks are not just affecting Europe-Asia routes, as rates between Asia and the east and west coasts of the U.S. have more than doubled since then as well. And projections indicate rates are likely to rise even further, stoking fears that higher transportation costs will trigger a rebound of inflation.
Intermodal and Transloading as Alternatives in the U.S. and beyond
With the Red Sea issues occurring roughly halfway around the world from the U.S., it may seem odd to think of North America's role in potentially addressing them. First off, while the Suez Canal brings cargo from Asia to Europe, what had been an increasing number of those ships also continue across the Atlantic to American East Coast ports (a trip that's actually a bit shorter from Southeast Asia than crossing the Pacific to the West Coast).
However, shippers, carriers and freight forwarders are rethinking that strategy due to both the problems along the Red Sea corridor and concerns about labor unrest among East Coast dockworkers. That's leading to more activity crossing the Pacific to deliver from Asia to Los Angeles and other West Coast ports - with those West Coast ports also benefiting from issues on the Panama Canal preventing some ships from terminating on the East Coast.
All this means, shippers and freight forwarders trying to get their products to major cities like New York, Boston, Washington D.C., Houston, or Miami (or inland to Chicago and other locales) have to add overland options. Those options include:
- Interior point intermodal (IPI) - which takes cargo via intermodal transport to the shipper's door
- Mini land bridge (MLB) - which uses intermodal to transport a shipment from one port to another
In both scenarios, transloading is a key piece of the puzzle as well, as it's common practice to transfer loads from 40-foot ISO ocean containers to 53-foot intermodal containers to move inland. In many cases, this significantly reduces transit time, and because domestic containers have more capacity, for every four maritime containers - one essentially moves free.
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On top of moving freight across the U.S., those wishing to continue the cargo journey to ports in South America may consider a landbridge scenario from the West Coast to a Gulf or East Coast port. Why would shippers or freight forwarders consider such a route originating in Asia? The Panama Canal - even in perfect circumstances - is unable to handle the largest commercial vessels. But circumstances aren't perfect, with drought conditions restricting traffic.
So a combination of the unrest on the Suez Canal route and the limitations of the Panama Canal make the idea of the North American land bridge using intermodal more appealing than rounding Chile's Cape Horn. Taking cargo from a port like Los Angeles to another like Houston allows the load to move to another ship, then head to locations like Brazil, Colombia or Argentina. And while in any such MLB scenario ISO containers can be moved intermodally, transloading's benefits noted above remain in play.
Are you a shipper or freight forwarder in need of a creative transportation solution? We can help (and we already are helping). Join others who've filled out our Request a Quote form to see how we can assist you with land bridge or IPI (or any other) options. For more information about InTek, or logistics and supply chain issues in general, check out our Freight Guides.
