Thread by @typesfast

Flexport currently has 2206 TEUs on container ships that were expected to transit the southern Red Sea and the Gulf of Aden sometime in the next 72 hours. Houthi rebels missile attacks on container ships at this vital maritime choke point have now put all those voyages and much else in global shipping into a state of uncertainty. 🧵

On Saturday, Houthi rebels in Yemen hit one of the MSC’s container ships the Palatium III with a missile and narrowly missed ships from Hapag and Maersk on Friday. All 3 liners and several others announced an immediate pause to ships transiting the Suez Canal /2

Thankfully nobody was hurt in these latest attacks. But remember the rebels are still holding hostage the crew of the Galaxy Leader, a car carrier they hijacked 2 weeks ago in a brazen helicopter attack. . /3

Many ships in the region have turned off transponders and others have changed their destination to “Armed Guards on Board” signaling what the pirates should expect to happen if they do attack. /4

Out of an abundance of caution for crew member safety several major container lines have (correctly I think) decided to pause voyages through the choke point for the time being while others have already begun routing around the Suez. /5

The rebels have thus far aimed most of their attacks on ships in the region at the US Navy rather than at commercial ships. And to date the Navy seems to be mostly shooting down missiles and drones in a defensive posture rather than launching counter-attacks on the rebels in Yemen. /6

However yesterday, the Pentagon announced Operation Prosperity Guardian to protect commercial shipping transiting the Red Sea. That’s a big change from the day before when National Security Advisor Jake Sullivan said it was up to the shipping companies to “weigh the risks” /7

3 USN destroyers entered the Mediterranean at Gibraltar yesterday and some are suggesting they’re on their way to the Red Sea to provide backup to the USS Carney, the destroyer already in the Red Sea doing most of the fighting so far. /8

In 1988 when Iran mined a US Navy missile frigate, President Reagan ordered a “proportional response” which resulted in the US Navy destroying 50% of Iran’s Navy in a single 8 hour workday. I enjoyed YouTuber “the Fat Electrician” telling the story of what the Navy’s definition of a proportional response looks like.



/9

The Suez Canal is simply too valuable to modern civilization to believe that a small rebel group, even well funded and fanatically committed to their mission, can disrupt it for very long. Have to believe the US, EU and China are all going to be on the same side of this issue.

Until the safety issues are resolved however, companies shipping both ocean and air freight should expect serious disruptions to transit times along with spikes in price of global logistics services.

For those who are cynical about carriers doing this re-routing to reduce capacity and thus increase prices, what would you do if someone was firing missiles at your office? /10

If all container ships take the longer journey around the cape, also means a 20% reduction in effective network capacity for the 30% of global container volumes that flow through the Suez annually, or a 6% overall decrease in the worlds ocean container shipping capacity. /11

If there’s one lesson of recent years in supply chain it’s that small changes in supply and demand for logistics assets can lead to huge swings in price. January was already going to be a peak month as customers race to get cargo out of China before the Chinese New Year holiday shut downs start on February 9th. We’re seeing large rate increases coming in, on the FEWB maybe as much as 4X the (exceptionally low rates) of just 6 weeks ago. /12

Shorter term there will be even bigger disruptions than the loss of capacity. To illustrate the scale of the issues this kind of re-routing creates, take the case of the Palatium III, which got hit by the missile.
/13

Although the Palatium III didn’t have any Flexport containers on board at the time of the strike, the ship was expected to load 3 containers for a Flexport customer when it arrived in Barcelona and another one in Valencia, all then take all 4 to unload at Casablanca, Morocco.

/14

If that ship is instead going around the cape, then presumably it would call at Casablanca before getting to Valencia and then reach Barcelona last. It’s out of order. All those containers will need to be replanned.

/15

Imagine the worst nightmare of an airline systems meltdown where passengers all get stuck for hours or even days. But those passengers are sentient beings who can solve their own problems to some extent,

/16

The containers can’t re-route themselves, someone has to do it for them. And the state of technology to do this in an automated fashion is not there.

/17

While Flexport has AI based planning systems to route containers, it relies on satellite positioning data, up to date routes and schedules from carriers, and past performance data. The carriers do not have this level of planning tech, and even if they did it may fail to deliver the flexibility required to respond to a crisis like this.

/18

That satellite positioning data and schedules data has become unreliable right when you need it reminds how hard it is to build global logistics technology. And points to what makes Flexport different from other logistics tech companies.

/19

Our approach is to present customers with data not just from satellites and integrations with carrier and port terminal systems, but also with information we gather from picking up the phone to talk with our carrier partners to see what’s really going on.

/20

It’s a fast moving environment. Ships can change directions very quickly. Routings change instantly and the the APIs and schedule databases may not reflect that for some time.

/21

A dynamic situation like this reminds us that there remains no substitute for an awesome team of people navigating complexity in real time.

Times like this are where the best companies in the industry can show their agility —the ability to maintain speed in the direction of your goals even in a chaotic, rapidly changing environment.

I’m excited to lead the @flexport team as we fight through the friction this will inevitably cause for our efforts to serve our customers.

We’re contacting every customer with a container likely to be affected by the situation (a number that grows everyday) with messaging about the uncertainty this will impose.

We’re also providing regular updates to the situation on this blog post,

For those who want to learn even more about this I highly recommend @mercoglianos excellent podcast what’s going on in shipping as he’s tracking this very closely. Here’s yesterday’s episode:

/22flexport.com/blog/global-oc…