Red Sea shipping turmoil hits waste paper sector

The UK government yesterday (7 January) reissued the international statement condemning Houthi attacks against commercial shipping in the Red Sea, but this looks unlikely to ease export concerns in the waste paper sector.

Waste or recovered paper businesses across the UK have told letsrecycle.com of their current concerns around the exporting of material.

Exports have been hit by a range of problems caused by the shipping line’s decision to reroute a lot of ships via the Cape of Good Hope avoiding the Red Sea. This has prompted higher shipping costs, cancellations of orders, delays to the movement of containers and ships as well as generating a huge air of uncertainty about what could happen in the coming months.

Prices

While prices were agreed as normal for waste paper exports in December, suppliers of material are reporting price renegotiations imposed by shipping lines as well as cancellations of orders. One merchant said: “This is not just for orders that are being prepared or heading to ports, but also for material that has already sailed. This means extra costs of anything from £25 onwards per tonne.”

Another exporter remarked that the shipping lines are describing the issue as a case of “force majeure” because of the Red Sea attacks, which the lines say means that they are entitled to renegotiate orders.

The exporter noted that while a rise in shipping costs of around $350 had been expected in January, increases are ranging from $500, to $1000 to $1500. “For example, say India was $700, it is now up to $1500 or even $1700 per container.”

They added: “We are also not seeing any transparency or clarity in what is going on. We are seeing loads not collected and increased rates simply being applied to orders already taken – for existing orders, I do think they should accept the agreed rates – they make traders sign agreements but there is no comeback if the shipping lines cancel a booking.”

Containers Extra costs are not the only challenge facing exporters, there is also reported to be a shortage of containers and vessels for shipping. This could be eased later in January a little because there is likely to be an annual reduction in generation which might help in terms of supply and demand balance, although it is unlikely to help with pricing.

On pricing there are a lot of expectations that there is likely to be a significant drop in domestic and export prices in January, although the picture remains confused; demand from overseas mills is said to remain steady, according to some observers.

‘Polycrisis’

Giving an industry-wide perspective, Chris Burton, managing director of IWPP Ltd – the sister company and trading business to the Recycling Association – said that the situation facing the industry is a “polycrisis”.

He explained: “Basically there are many individual problems that none of us have control of and industry is largely fishing around in the dark.

“Shipping lines will likely capitalize as they have had low rates and lower margins in 2023. We are seeing backdating going back as far as the 1st of December with the use of force majeure and various words from maritime law.”

Mr. Burton said that relationships will be all-important here in the paper recycling and mill chain, and for example, mills in the Far East will have to recognize that they need to help out.

The size of the increases in shipping costs are almost impossible for exporting businesses to take on the chin, he declared. “10 containers on the water could cost £10,000 more. Ideally, the exporter would have to absorb some of this, the supplier a part too and the mill also take some of the pain.”

As to the severity of the current situation, the IWPP managing director said: “We are definitely in a crisis – how long it will go on for I’m not sure. We would like some clarity from the shipping lines on charges – some are going through the Suez Canal and some are not and we are seeing a variety of prices based on higher insurance costs and fuel too.”

Severe

The seriousness of the situation was confirmed by one of the UK’s major exporters, Ekman Recycling UK. Its managing director, Pankaj Chowdhary, observed that “When the Ever Given ship blocked the Suez Canal this disturbed shipping in a time of peace. It is more severe now as it is a real war scenario.”

He also highlighted the disruption that the shipping changes are causing. “Ships are 12 days late and there is a gap in traffic in the ports and then a barrage of vessels arriving creating congestion. Consequently, some sailings are canceled because ships are not available.”

Where ships were taking 3-4 weeks to reach India, this could now extend to 5 or 6 weeks, Mr Chowdhary, said. “Right now you might be told that an order you were expecting to be moved this month, you might not get on a ship till February.”

In terms of meeting the extra logistics costs, he said that while all parts of the chain could be expected to take some of the burden, he did not expect overseas mills to help out straight away. This is in particular because the impact on the United States so far is not so strong, with shipping lines not yet imposing higher rates. This could be because maritime and shipping laws apply differently in the US and increases are accordingly less likely before February.

Mr Chowdhary emphasized that his advice to suppliers and the sector is that “if you can move your material without having to stock it, movement might be more important than price.”

In the coming weeks, the recovered paper sector is expected to maintain a close watch on the geopolitical situation in the Red Sea in the hope that the situation stabilizes and shipping disruption is reduced. But, as one major producer said: “It’s difficult to see an end to this yet and who knows what might happen if some sort of task force action is made against the Houthis.”