Image: Maersk / FIS

Maersk CEO Vincent Clerc speaks to ‘massive impact’ of the Red Sea situation on global supply chains

DENMARK
Tuesday, July 02, 2024, 07:00 (GMT + 9)

He has said that the coming months will be challenging for carriers and businesses alike, as the Red Sea situation stretches into the third quarter of 2024.

Speaking at a recent online event with customers, Vincent Clerc talked about the challenges the continuing attacks on ships in the Red Sea / Gulf of Aden have created for logistics and supply chains. For the time being, Maersk ships are continuing to divert around the Africa via the Cape of Good Hope in South Africa. He acknowledged the situation is difficult for both carriers and businesses needing their cargo transported.

"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."

The impact on supply chains

Vincent Clerc talked about the ‘massive impacts’ of the Red Sea situation since it began in December 2023. Extending rotations to travel the longer route around Africa takes two to three ships, depending on the trade in question, he said. The availability of additional capacity was low to begin with and, across the industry, carriers’ ability to bring in extra tonnage has been limited. At the same time, demand for container transport has remained strong.

"Today, all ships that can sail and all ships that were previously not well utilised in other parts of the world have been redeployed to try to plug holes. 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."

Planning for demand peaks around Lunar New Year helped soften the impacts of the Red Sea situation in the first quarter of 2024. However, since April and May the challenges have intensified.

<-- Source: Maersk

Another major challenge for carriers has been increased costs. With cargo journeys lengthened and capacity squeezed, the price per container has risen significantly. Maersk has taken on these costs knowing that many of them will remain beyond the Red Sea situation. For example, ships cannot be chartered for a few months to fill the current gaps. Instead, carriers are having to sign up to several years at the higher charter rates. Vincent Clerc said that this is one of the reasons freight rates are temporarily higher.

"The longer that this lasts, the more our costs will get deeply ingrained. We don't know yet exactly how much of these costs we will recover and for how long. The higher rates we are seeing right now are of a temporary nature. We will see eventually that they go back to market as some of these problems get alleviated either by the new tonnage being phased gradually in or by us resuming normal sailing routes in the near future."

Vincent Clerc stressed that Maersk would only return to sailing via the Red Sea / Gulf of Aden when the safety of seafarers, vessels, and cargo was guaranteed. He said that once a resolution is found, ships could return to sailing their usual routes through the Suez Canal almost immediately. Others would need to complete their journey around the Cape of Good Hope first. Vincent Clerc warned that there would be a period during which the ships on these different routes would be arriving at ports at similar times. He expected this to cause congestion at ports, before returning to a more stable scenario.

Building resilience longer term

Maersk has asked governments internationally for a stronger presence in the Red Sea / Gulf of Aden. Vincent Clerc added that so far ‘this has been unsuccessful’. He said that businesses around the world can help by ensuring their governments understand they are being crippled by increased costs. In some regions like Europe, he said that governments need to understand the possibility that this will reignite inflation.

Source: Maersk

With no ‘crystal ball’ to say how long the situation will last, Maersk is working to alleviate the impact of the disruptions. This includes doing whatever it reasonably can to bring supply in line with businesses’ demand for capacity.

Nobody has the supply chain of their customers more at heart than Maersk. It doesn't mean that we can insulate you from problems, but I can tell you that you are in the best possible hands, even if right now it's some difficult conversations that you're having and we are truly taking into consideration the amount of trust that you're putting into us and we'll won’t stop at anything to try to do the best that we can to help you.

Source: Maersk

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