Maersk CEO Warns of Prolonged Challenges Due to Red Sea Disruptions

Maersk highlighted significant challenges posed by the ongoing Red Sea situation, which has forced ships to divert around Africa, increasing costs and straining capacity. Despite efforts to redeploy underutilized ships, the industry faces limited additional tonnage and rising freight rates.

During a recent online event with customers, Maersk CEO Vincent Clerc has issued a cautionary statement regarding the ongoing challenges facing carriers and businesses due to the volatile situation in the Red Sea, which is expected to extend into the third quarter of 2024.

Continued attacks on ships in the Red Sea and Gulf of Aden are severely impacting logistics and supply chains, forcing Maersk vessels to reroute around Africa via the Cape of Good Hope, causing difficulties for carriers and businesses.

“We are faced with these challenges together and we need to make sure that we stay close to them as we handle the new set of circumstances that continues to unfold in front of us. These disruptions, and the impact they are having on your business, is not something that I, nor any colleagues at Maersk, take lightly. We know it is hard. We know it is difficult for you. We know it puts you under a lot of pressure,” said Clerc.

Clerc elaborated on the ‘massive impacts’ since the Red Sea situation began late last year. He noted that rerouting ships around Africa necessitates two to three additional vessels, depending on the trade. The initial scarcity of extra capacity and the industry’s limited ability to introduce additional tonnage have exacerbated the problem, even as demand for container transport remains high.

“Today, all ships that can sail and all ships that were previously not well utilized in other parts of the world have been redeployed to try to plug holes,” said Clerc. “It has alleviated part of the problem, but far from all the problem across the industry, including for Maersk. We are going to have in the coming month missing positions or ships that are sailing that are significant different size from what we normally would have on that string, which will also imply reduced ability for us to carry all the demand that there is.”

Maersk’s preparations for demand peaks around Lunar New Year helped mitigate the impacts in the first quarter of 2024, but the challenges have grown since April and May.

Increased costs and limited capacity have led to surging container prices for carriers like Maersk, which are committing to long-term elevated charter rates, resulting in temporarily higher freight rates.

Clerc stressed that Maersk would only resume sailing via the Red Sea and Gulf of Aden when the safety of seafarers, vessels, and cargo could be guaranteed. Once a resolution is found, ships could quickly return to their usual routes through the Suez Canal. However, some vessels would need to complete their journeys around the Cape of Good Hope first. Clerc warned of potential port congestion when ships on different routes converge before operations stabilize.

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