SIMULTANEOUS crises in two of the world’s major shipping canals have caused delays, raised costs and disrupted supply chains – and the effects were seen in a slowdown in Singapore’s logistics growth in December 2023.

The Singapore Logistics Growth Index (LGI) dipped by 0.9 point to 52.4 points that month, from 53.3 points the month before. The related transport capacity index fell to 51.9 in December, from 53.6 in November.

Published by the Logistics Institute of Singapore, the index is based on data compiled from surveying logistics professionals and managements in more than 1,000 companies.

The institute’s report on Monday (Jan 15) attributed the drop to slower expansion rates in the indexes of transportation and warehousing, a slower contraction in the employment index, and a faster expansion in the indexes for business volume and inventory.

Stephen Poh, director-general of the Logistics Institute of Singapore, said: “The latest LGI readings indicate rising logistics costs of the global economy. The Red Sea shipping crisis has caused sharp increases in shipping costs and delivery delays.”

Drewry’s World Container Index rose 15 per cent to US$3,072 per 40-foot container week on week to reach its highest level since October 2022. The cost is 116 per cent higher than the pre-pandemic (2019) average of US$1,420.

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BMI, the financial research arm of Fitch Solutions, said that the Asia-Europe corridor will face the most acute delays, given the scarcity of viable alternatives to the essential Suez Canal.

BMI noted that the fastest, typical Asia-Europe route through the Suez Canal takes 25 to 30 days. The alternative route, which wends round the Cape of Good Hope in South Africa, adds around 10 days.

Houthi rebels in Yemen began attacking commercial shipping in the Red Sea in mid-November 2023 in a series of pirate raids, unmanned aerial vehicle and missile attacks.

With these attacks, transit trade through the Bab el-Mandeb Strait, which links the Red Sea with the Indian Ocean, plunged 42.6 per cent from 5.2 million tonnes on Dec 1, 2023, to 2.8 million tonnes on Jan 8, 2024. This represented a “substantial re-routing of trade in just over a month”, noted BMI.

It added that the Red Sea crisis will have a “domino effect” on other shipping routes and key global manufacturing supply chains if the situation is not resolved soon – and already, Asia-US shipping costs have also begun to spike.

For Asia-US trade, the major alternative route through the Panama Canal has not been smooth sailing either.

The Panama Canal has faced drought for months as a result of a strong El Nino weather phenomenon sending water levels down, although rains could improve the situation there in January.

Poh of the Logistics Institute of Singapore said: “Global supply chains face supply disruptions and high fulfilment costs, not only brought about by the Red Sea crisis, but also by the drought conditions in the Panama Canal.”

BMI said that the Red Sea situation “compounds disruptions” at the Panama Canal, since some ocean carriers had already rerouted trade through the Suez Canal, away from the Panama Canal, since the second half of 2023.

The journey to the US East coast via the Suez Canal takes around 35 days, with the Cape of Good Hope detour adding 10 to 14 days, and the alternate route through the Panama Canal five to 15 days. Poh told The Business Times that the Red Sea crisis has “aggravated” logistics costs and that there is now an increased uncertainty on the continued growth of the global economy.

He predicted that it would take several months to resolve, pointing out that prolonged conflict would escalate inflation and the disruption to supply chains.

The US-led coalition launched Operation Prosperity Guardian, commencing with air strikes against Houthi targets in Yemen on Jan 12, 2024.