Investigations show that the price of photovoltaic (PV) modules shipped from Asia to Europe has risen by 20 per cent as a result of soaring freight costs due to the Red Sea shipping crisis. Red Sea maritime trade used to account for 12 per cent of global maritime trade.

Since mid-November last year, conflict in the Red Sea region has led a large number of merchant ships to bypass this key trade route. The Red Sea is connected to the Suez Canal, which is the shortest sea route between Asia and Europe.

Pavel Molchanov, an analyst at investment bank Raymond James, said, "The Red Sea shipping crisis has led to an increase in the cost of transporting PV modules by $0.01/W to $0.02/W. For example, the global benchmark price for PV modules is $0.1/W, and we expect the price of PV modules to rise by an additional 10 to 20 per cent."

According to data released by the International Energy Agency, the European PV market is heavily dependent on PV modules made in China due to the global dominance of PV modules made in China, with the EU importing 84 per cent of its PV modules from China over the past five years.

As a result of the Red Sea shipping crisis, a large number of merchant ships have been forced to bypass the Cape of Good Hope in Africa to reach Europe, thus increasing the voyage by 9,600 kilometres, which increases the cost of fuel for merchant ships and the time needed to transport PV modules. The additional shipping time is approximately two weeks due to the change in shipping routes.

However, downstream consumers in Europe do not seem to be concerned about the higher prices and longer delivery times for PV modules, considering that PV module prices have fallen by about 50 per cent in 2023, there is still an oversupply and inventory levels remain high.

Demand in the market has also remained strong as PV module prices are at historically low levels, driving intense competition in the market. The recent drop in PV module prices has been a boon to buyers, so slightly higher freight rates are now acceptable.

However, the Chinese PV module supplier said that declining profit margins are a concern for PV module makers, especially if customers force them to pay for full freight costs to the project site. Profit margins on PV module manufacturing have been depleted as module prices are at historically low levels.

Two weeks of additional shipping time will be built into the supply chain as the significant drop in PV module costs is offsetting the additional costs.

PV module suppliers have expressed hope that this is a short-term situation that can be resolved quickly. If not, they will have to explore the long-term viability of alternative routes and relatively higher shipping prices.

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