Supply Chain Action Points
Read this first — the conclusion, and the moves to make:
- Before 24 July, get round-voyage days in writing for every loop you are on, current and Suez; ships needed equals weekly frequency times round-voyage weeks, so a two-week detour on a ten-ship loop needs twelve.
- Reconcile index vintages before quoting a trend: a Wednesday story citing a figure near $4,639 and a Thursday print of $4,547 are 2.0% apart, which is flat.
- Measure ETA dispersion on your last 20 containers; if actual against booked transit varies by more than five days, budget safety stock rather than a lower rate.
- Cap contract tenor at the diversion horizon and add a routing-change clause that reprices if the Cape routing ends inside the term.
- Price transit time before switching paths: at $60,000 per FEU and 8% carrying cost, fourteen extra days is about $184 per FEU, against a $300 per FEU rate difference worth $12,000 a month on 40 FEU.
Most major container carriers continued routing vessels around the Cape of Good Hope in mid-July, with Red Sea diversions still absorbing much of the newbuilding capacity entering the market and keeping effective capacity tighter than fleet totals suggest. Drewry's WCI held near $4,547 per 40ft on July 16 as carriers managed space via blank sailings rather than aggressive cancellations.
The Analysis
Drewry printed $4,547 per 40ft on 16 July. The day before, coverage of the 15 July FAK increases was quoting the same index near $4,639. Ninety-two dollars apart, and neither print is wrong. Before anyone reads the Cape rerouting story as a rate story, that gap needs to go where it belongs, which is into the noise.
The sentence that needs more scrutiny is the other one: diversions are absorbing newbuilding capacity, so effective capacity is tighter than fleet totals suggest. True, and almost always mis-measured, because the capacity being absorbed and the capacity being delivered are not counted in the same unit. One is ships. The other is ship-weeks.
Here is the arithmetic, and the two thresholds I would actually write into a contract.
A weekly index gets quoted on the day a story runs, not the day it was printed. A Wednesday piece citing a figure near $4,639 and a Thursday print of $4,547 are two vintages, six days apart, 2.0% apart. That is a flat market plus a publishing calendar. Anyone who built a view on that $92 built it on a release schedule. The distance worth staring at in the same week is between the $7,000 Asia–Europe FAK filing and the $4,547 index print: 54%. A gap of more than fifty percent between what carriers ask and what the market prints is a far louder fact than a 2% wobble, and it says the published increases are still intentions.
Take a loop that needs ten ships to hold a weekly service. That number is not a policy choice, it is round-voyage time divided by seven: ten weeks of round voyage, ten ships, one sailing a week. Send the same loop around the Cape, add two weeks, and holding the same weekly slots takes twelve ships. The two weeks is my assumption, not the article's. The relationship is not an assumption. It is the only place the newbuildings can go: they are not adding sailings, they are filling the gap a longer voyage opened.
So the fleet total is the wrong denominator. If the fleet grows 5% while the average voyage on your trade lengthens 20%, capacity delivered per week per loop falls about 12.5%, because what moves is ships divided by voyage time, not ships. Both figures are my illustration, not the article's, but the direction is not in dispute: a fleet total can rise while the capacity available to you falls. Any carrier email that opens with fleet growth and closes with a rate increase is answering a question you did not ask.
The choice of instrument is the tell. Carriers are blanking sailings rather than cancelling loops. Blanking pulls one sailing's slots out and keeps the loop intact; cancelling a loop dumps every ship in it back into the market on the same day. When an operator reaches for the smaller tool, it is defending a rate rather than discovering one. Defended rates do not erode on their own when demand softens. They hold, then step down when one line decides it wants volume more than it wants the number, and that step is faster than erosion would have been.
Where it lands depends on how you buy. A seasonal shipper on spot does not mainly pay the rate, it pays the variance: a blanked sailing moves the cargo a week, and a week of extra transit is inventory sitting on water. A BCO with a minimum quantity commitment is protected on price and exposed on allocation, which is the worse of the two exposures in a peak quarter. A small shipper inside a forwarder's consolidation never sees the blank sailing at all; it sees a later ETA, and pays in stockouts at the other end, at a multiple of what the freight difference would have cost.
Run the inventory number, because it is smaller than people assume and that changes the decision. Assume a 40ft carrying $60,000 of goods and a carrying cost of 8% a year; both are my assumptions, not the article's. That is $13.15 per FEU per day. Fourteen extra days of Cape routing comes to about $184 per FEU, or $7,368 a month on a 40-FEU program. A $300 per FEU rate difference on the same 40 FEU is $12,000 a month. The rate move is more than sixty times the carrying cost. So do not switch routings to save inventory cost; switch only if the routing is genuinely faster, and on this trade it usually is not, because the Cape is not an alternative, it is the only lane still open. The inventory cost is then not avoidable, only financeable, and the thing to manage is the dispersion of arrival dates rather than their average.
The omission that matters is the shape of the reversal. Everyone is modelling the rate as a slope. It is not a slope. The moment the Suez routing returns, those two extra ships per loop come back in one move, with no new delivery and no change in demand, and effective capacity jumps by the same 20% it lost. That is a step, not a drift. A twelve-month fixed contract signed at today's level is a bet that the map does not change. It is not a bet on demand, which is why the usual demand-side analysis will never warn you.
Had the carriers stayed on Suez, they would burn less fuel, need fewer ships, carry less war-risk exposure, and the rate would be lower. What shippers pay now contains a routing premium that is not labelled as one. It sits inside the FAK, inside the blank sailings, and inside the allocation decisions. When the premium goes away, nobody issues a credit note. That is the whole asymmetry: you pay for the detour while it lasts, and you keep paying the contracted rate after it ends.
The line I would hold. Do not fix tenor beyond the life of the routing assumption. If the diversion is a twelve-month story, a nine-month contract with a routing-change clause is the right shape, and the clause is worth more than 3% of the rate. The rate is not high because demand is strong. It is high because the map got longer, and maps get shorter faster than demand gets weaker.
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