World trade affected by Red Sea crisis: Cost of sea transportation increased by 170%. economy

The attacks by Yemeni Houthi rebels on merchant ships sailing through the Red Sea towards the Suez Canal are one of the biggest disruptions to global trade since the pandemic. At least 18 shipping companies, including Swedish giant Maersk, have already redirected their routes through South Africa to avoid passing through the strategic Gulf of Aden, an alternative change that significantly increases costs and increases length. …

The attacks by Yemeni Houthi rebels on merchant ships sailing through the Red Sea towards the Suez Canal are one of the biggest disruptions to global trade since the pandemic. At least 18 shipping companies, including Swedish giant Maersk, have already redirected their routes through South Africa to avoid passing through the strategic Gulf of Aden, an alternative change that significantly increases costs and hampers trade between Asia and Europe. Lengthens the journey between. The impact on freight prices has been automatic: They have nearly tripled since the attacks intensified in mid-December, which rebel militias claim is aimed at punishing Israel for the war in Gaza. The rise in transportation costs threatens the global economy with a new shock of inflation, although experts are confident the impact will be limited.

The increase in transport prices comes at a delicate time for the economic situation, marked by uncertainty and the hangover of inflation growth (and its effects) which was beginning to subside. Freight booking platform Freightos.com estimates that the cost of moving products in a 40-foot container (12 meters long, 2.3 wide and 2.4 high) from Asia to Northern Europe is now $4,000 (3,650 euros), as of December. That’s 173% higher than the median, Bloomberg reports. For cargo from Asia to the Mediterranean, the price has risen to 5,175 euros, and some companies are charging up to $6,000 on routes departing in mid-January. Rates from Asia to the US surged 55% to $3,900.

Meanwhile, another benchmark index, the Shanghai Containerized Freight Index (SCFI), which measures transportation rates for products imported from China, has surged 161% since December 15, from $1,029 to $2,694 (2,500 euros).

All of these prices are nearly double those of 2019, before the pandemic hit global trade, but still well below coronavirus heights. During the moments of the biggest collapse of that year, SCFI index prices exceeded $5,000, double the current level.

Nevertheless, the impact of the current crisis in the Middle East is considerable. Shipping companies are changing their itineraries to avoid the Red Sea, a route through which between 12% and 15% of world trade moves, often crossing the Cape of Good Hope. The Secretary-General of the International Maritime Organization (IMO) said, “A large number of shipping companies, about 18, have already decided to divert their vessels around South Africa to reduce attacks on ships and limit their impact on seafarers.” The decision has been taken.” Arsenio Domínguez in a speech before the United Nations Security Council. For carriers this means adding an average of 10 days to their journeys and spending more on fuel. The crisis has led to a 25% reduction in commercial traffic through the Suez Canal.

Attacks against this trade route began in November, shortly after Israel’s ground invasion of Gaza following terrorist attacks by the radical organization Hamas on October 7. And since December his condition has worsened. “The initial targets were ships associated with Israel, but based on the information we have received in recent events, this no longer appears to be the case,” Dominguez warned. Since mid-November, 23 commercial ships have been attacked; The last incident occurred last weekend against the Danish giant Maersk, despite the fact that the United States has launched a campaign to patrol the area.

Maersk announced this week that it would once again block routes transiting the Suez Canal, following in the footsteps of German shipping company Hapag-Lloyd. Meanwhile, French CMA-CGM announced a 100% fare increase on routes between Asia and the Mediterranean. Companies increase their rates when their cargo capacity and frequency of voyages decreases, in this case because voyages become significantly longer due to changing itineraries.

stock market boom

Investors believe that by raising rates they will achieve greater profitability, even if transportation time and fuel costs increase. And its effect was visible on the stock markets. Goldman Sachs just raised its recommendation to buy Maersk shares, which have risen 30% in the past month. In the case of Hapag-Lloyd, shares have increased by almost 50% over the same period.

Guaranteeing security in the region is very complex. The Bab el Mandeb Strait, which is the main route to the Red Sea, between the Arabian Peninsula and the Horn of Africa, is only 30 kilometers long, so ships have to pass slowly and in line, with plenty of room to maneuver. Has less capacity. Thus, they become easy targets for drones launched by the Houthi militia, which opposes Yemen’s official government and controls 30% of the territory. The aim of the rebels, whose main sponsor is Iran, is to punish ships trading with Israel, although the latest attacks appear to have increasingly led to this objective.

To what extent could these disruptions alter the supply of products in Europe? Traffic in the Suez Canal in the first ten days of the year has declined by 28% compared to the same period in 2023, according to data from the International Monetary Fund (IMF) and Oxford University platform Portwatch. That means 3.1% of world trade is being redirected from the Red Sea to other routes.

“The longer duration of voyages, ranging from 7 to 14 additional days depending on the route, translates into longer delivery times for importers and could lead to congestion at ports if calendar changes are made, they remain the same. move many ships over time, although at this time we have no evidence that this is happening,” Judah Levin, principal analyst at Freightos, explains on its website. Experts point out that shipping companies are adding ships to their rotations and sailing at higher speeds to compensate as much as possible for the increase in voyage duration.

“Whether there was congestion or lack of supply, transportation companies are now in a much better position than they were during the pandemic,” he added. There were also supply problems between 2021 and 2022, but because demand had far exceeded supply: “There is now a certain excess capacity in the industry,” that is, very high margins.

michelin stops

But some tension is already being felt in the industry. Tire maker Michelin announced a week ago that it would halt production at four of its plants in Spain due to a shortage of rubber, the key raw material for making tyres.

Transportation costs have a major impact on inflation. According to the IMF, disruptions recorded during the pandemic added one percentage point to inflation. These costs represent 7% of the cost of long-distance imports under normal circumstances (increasing by 25% in 2020). Rhys Davis, a consultant at consulting firm Flint Global, said a few days ago Guardian The impact of the Red Sea crisis on inflation will probably be limited: “The impact hits the economy quite slowly, up to 12 months after the peak (in freight costs), so if the disruption is limited over time, that’s as we expect.” , this will be offset by other deflationary effects.”

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