Shippers forced to re-route
Many suppliers and traders have warned their customers that shipments may be delayed and that freight costs are on the rise. Trouble is that Iran-backed Houthi rebels in Yemen have stepped up attacks on commercial vessels travelling through the lower Red Sea since mid-November in response to Israel’s bombardment of Gaza. Attacks have intensified in the Bab el-Mandeb strait, which is only 20 miles wide and connects the Gulf of Aden with the southern tip of the Red Sea. All major shipping lines including Maersk, Hapag-Lloyd and MSC and others have now suspended passage through the Red Sea as the risk of being attacked and insurance costs are simply too high.
Cargo ships have been redirected along the Cape of Good Hope meaning that shipments from southern China, Taiwan, the Philippines, Singapore, Vietnam and India to Europe may take around two weeks longer than they would normally take through the Red Sea and the Suez Canal. As this alternative route requires extra fuel usage substantial hikes in freight rates have been witnessed. Suppliers also emphasise that these events are out of their control and that they cannot influence vessels that are already underway.
As CNBC reports the sudden hike in prices is highly suspicious. On Thursday, for instance, ocean freight rates for a 40-foot container from Shanghai to the UK was quoted at USD 10,000, whereas prices ranged at USD 2,400 last week. Although OL USA credits that shippers need to adjust their prices to account for added costs, some freight rates have risen by 100-300%, which cannot be solely driven by supply and demand. Impacted companies are also responding in different ways to disruptions. While IKEA has clearly stated that the crisis will cause delays and impact product availability, French dairy and plant-based products company Danone has denied reports over immediate disruptions to its supply chain. Yet, the market giant has stressed that it is closely monitoring the situation.
Great global impact
Although the US has formed a coalition of countries agreeing to carry out patrols in the southern Red Sea, called Operation Prosperity Guardian, there is little chance that the crisis will soon be resolved. Rather it is expected that the impact will be felt around the global as 12% of global trade passes through the Red Sea along with 30% of container traffic. Delays here also affect petrol prices and the availability of electronics and other products crucial to global trade.
While US shippers can resort to alternative routes such as the TransPacific and even the Panama Canal and US shippers are currently reviewing ports such as Dubai and Aqaba as possible Middle East alternatives, ocean route options for European shippers are more limited as the very much depend on the Suez Canal. Many European operators are looking to air to move their products, which has driven up air freight rates as CNBC reports. The obstruction of the Red Sea comes at a bad time for the global economy, which is only just recovering from the impact of the Covid-19 pandemic and is already subject to inflation in many countries.