The ocean container shipping market is displaying tell-tale signs of a supply chain in crisis after civil unrest in Bangladesh has brought gridlock to the nation’s most important sea port at Chittagong.
Reports on the ground at Chittagong make clear the impact of the civil unrest, with protests having effectively closed the port and large parts of hinterland logistics too. As Bangladesh is now transitioning from what once was, to what will become – maritime export and import supply chains remain disrupted but not broken.
However, it is also possible to understand the impact of sudden and severe disruption within a supply chain by analysing the data.
A tell-tale sign of supply chain trauma is found in the dramatic spread in the spot rates being paid by shippers and freight forwarders who are desperately trying export containers from the impacted region.
In the case of Chittagong, this market dynamic can be seen in the spread between the rates paid by shippers at the market mid low (25th percentile) and the market mid-high (75th percentile).
On 31 July, the market spread on the fronthaul trade from Singapore to Chittagong stood at USD 380 per FEU (40ft equivalent container) with the market mid-low and mid-high standing at USD 2470 and USD 2850 respectively.
However, on 1 August the market spread increased by 424% to USD 1990 per FEU.
Importantly, the increasing market spread was driven almost entirely by the market mid-high, which increased from USD 2850 per FEU to USD 4561 per FEU. The market mid-low increased by just USD 100 to stand at USD 2570.
The increasing market mid-high is the result of desperate shippers willing to pay higher and higher rates to make sure their containers make it on board the ship.
As local political tensions have somewhat eased over the past weeks, so has the market mid-high freight rates. Falling by almost USD 1,000 per FEU, while market mid-low freight rates went up by USD 125.
Chittagong is an extreme example of the market dynamic due to the severity of the disruption, but it is principle that can be viewed across global supply chains.
Taking the example of the Transpacific trade following the outbreak of the conflict in the Red Sea. The spread between the mid-low and mid-high increased from USD 154 per FEU on 14 January to USD 715 per FEU on 15 January.
The most dramatic example of an increasing market spread is unsurprisingly found during the pandemic period.
Staying with the Transpacific trade as the example, the mid-low mid-high market spread moved from USD 216 per FEU on 30 April 2021 to USD 4299 on 25 August 2021. This is an increase of 1890%.
The mid-low / mid-high spread demonstrates that shippers are seemingly willing to pay whatever it takes to make sure their containers are moved during a supply chain crisis. However, if lessons in supply chain resilience were not learned from pandemic, they certainly should be following the Red Sea crisis.
Build geopolitical unrest into your risk management models
The latest situation in Bangladesh is yet another example of how political unrest impacts supply chains. Earlier this month Guy Platten, Secretary General of the International Chamber of Shipping, said: “The world order has never been under such threat since before the Second World War,” as he reflected on how nationalism and broader protectionism negatively impacts global trade.
If Platten is correct, shippers should be urgently factoring the likelihood of geopolitical conflict into supply chain risk management. Once a major black swan event hits, it is often too late and shippers have no choice but to pay the spiralling freight rates.
If you are a shipper looking at setting up a manufacturing hub right now, Bangladesh would not be your first choice.
As ocean turmoil persists, join Michael Braun and I to discover what's on the horizon for shippers for the remaining months of 2024.
