Red Sea crisis boosts demand for rail transportation

The Houthi militia continues to attack container ships with missiles and drones in the strategically important Bab el-Mandeb Strait, which connects the Red Sea, the Gulf of Aden, and the Indian Ocean. Many shipping companies ceased their voyages through the Suez Canal in mid-December and directed ships to bypass Africa.

The cargo booking data from Freightos shows that spot rates on ocean routes from Asia to the American East Coast and Europe have risen sharply in January. According to Freightos, today it costs about $4,000 to deliver a 40-foot container from Asia to northern Europe, while delivering the same container to the Mediterranean region will cost more than $5,000.

The rise in prices for sea transportation increases the attractiveness of rail transport in the commodity exchange between China and Europe: the demand has already increased here, market participants report. In turn, this will result in an increase in rail transportation tariffs.

It is expected that spot rates for rail transportation towards Europe will increase by more than 20% in January compared to the previous month. Currently, the booking price on Xi'an Express has risen reaching over $6,000, and most seats are already sold out. The cost of transportation from Yiwu to European terminals such as Duisburg and Hamburg has rapidly risen to approximately $6,200, with only a few seats available for booking in the first ten days, reports, citing sources.

The change in the container shipping prices will increase prices for end consumers, which will accelerate inflation in Europe.