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Red Sea Attacks Disrupt Global Trade: Shipping Companies Alter Routes Amidst Chokehold on Suez Canal

Red Sea Attacks Disrupt Global Trade: Shipping Companies Alter Routes Amidst Chokehold on Suez Canal

Red Sea Attacks Disrupt Global Trade: Shipping Companies Alter Routes Amidst Chokehold on Suez Canal

In recent weeks, attacks by Yemen’s Houthi group on vessels in the Red Sea have sent shockwaves through the global shipping industry, prompting major players such as Germany’s Hapag-Lloyd and Hong Kong’s OOCL to announce their decision to avoid the Red Sea. This follows a series of disruptions that have impacted worldwide trade and led to the establishment of a naval task force in the region.

The hostilities have significantly affected ship passages through the Suez Canal, a critical waterway responsible for handling approximately 12% of global trade. While the Suez Canal plays a pivotal role in facilitating the movement of goods between Asia and Europe, the attacks have compelled shipping companies to consider alternative routes. Global logistics executives caution that such route changes could potentially disrupt global supply chains, leading to port backups and shortages of vessels, containers, and equipment in unexpected locations.

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Matthew Burgess, Vice President of Global Ocean Services at C.H. Robinson Worldwide, emphasizes the fluidity of the situation, highlighting the need for contingency plans. He states, “The situation remains fluid, things could change quickly, which is why contingency plans that include a plan A, B and C are critical to keeping supply chains moving.”

Hapag-Lloyd, responding to the disruptions, announces plans to reroute 25 ships away from the Red Sea by the end of the year. The increased freight rates and soaring shipping stocks resulting from the turmoil are driving companies to explore longer routes around Africa to avoid the Red Sea and Suez Canal.

The Houthi group, aligned with Iran and controlling a significant portion of Yemen, has been targeting ships passing through the Bab al-Mandab Strait at the southern end of the Red Sea. They claim these attacks are a response to Israel’s actions in Gaza.

Traders are scrambling to find alternatives, including air freight, to ensure the timely delivery of consumer goods. However, circumnavigating Africa adds an additional 10-14 days to voyage times, creating a logistical challenge for the industry.

The disruptions are causing a ripple effect throughout the supply chain, with potential delays in cargo arrivals and departures at seaports. Christian Sur, Executive Vice President of Ocean Freight at Unique Logistics, highlights the domino effect of a crisis in a single point of the supply chain, leading to delays and uncertainties.

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The cost to ship a container from China to the Mediterranean has surged by 44% in December alone, reaching $2,413, due to the Red Sea disruptions, according to Freightos. If the conflict persists or escalates, spot prices for cargo not under contract could double or triple from current levels, further impacting global trade.

Major retailers like IKEA are warning of potential cargo delays and shortages. Finnish elevator maker Kone estimates that some shipments could face delays of two to three weeks. U.S. soybean exporters, already redirecting shipments from the Panama Canal to the Suez Canal, are considering alternative options such as using trains to access ships bound directly for China and other Asian markets.

Mike Steenhoek, Executive Director of the Soy Transportation Coalition, notes the imperfect options available, reflecting the complexities companies face in adapting to the changing shipping landscape.

Analysts warn that some retailers may experience shortages by February, but lessons from the COVID-19 pandemic have prompted companies to seek resilience by diversifying their sources.

To address the escalating crisis, Greece announces its intention to send a naval frigate to the area as part of a multinational coalition proposed by the United States. The coalition aims to ensure safe passage through the waterway, given its significance to global trade. However, some countries mentioned in the coalition have signaled reluctance to commit significant naval power, and notably, Saudi Arabia, bordering the Red Sea, is not listed as a participant.

The Houthi leader’s threat to escalate attacks to include U.S. naval ships raises concerns about a broader conflict around the Bab al-Mandab Strait. A spokesperson for Hapag-Lloyd confirms an attack on one of its ships, the Al Jasrah, near Yemen on December 15. The company is evaluating additional route decisions by the end of the year but has not received detailed information about the U.S.-led naval coalition aimed at protecting Red Sea shipping.

Stabilizing the critical waterways becomes imperative to ensure the full resumption of shipping traffic, according to ocean transportation executives. The fallout from the disruptions is also felt directly in Israel, with OCCL announcing a suspension of cargo acceptance to and from Israel due to operational issues. The southern port of Eilat in Israel has experienced an 85% drop in activity since the intensification of Houthi attacks.

In conclusion, the ongoing conflicts in the Red Sea are reshaping global trade routes and posing significant challenges to the shipping industry. As shipping companies adjust their routes and global supply chains face disruptions, the need for adaptable contingency plans becomes crucial to maintaining the flow of goods and mitigating potential economic impacts. The establishment of a multinational coalition adds a layer of geopolitical complexity, and the situation remains dynamic, requiring constant monitoring and strategic planning from industry stakeholders.

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