Maritime Institute of Technology instructor Captain James Staples, who has personally responded to pirates, explains the Houthi attacks on the Red Sea in “The Claman Countdown.”
Attacks by Iran-backed Houthi fighters on merchant ships in the Red Sea, a critical turning point for global trade, risk reigniting a supply chain crisis just as the global economy is recovering from high inflation, chronic shortages and bottlenecks begins.
Shipping costs are rising just eight weeks after the Yemeni rebel group first attacked ships traveling through the Red Sea and Suez Canal.
Approximately 15% of global shipping traffic, including 30% of global container trade, passes through the Suez Canal. But to avoid being attacked or having their cargo stolen, many ships instead circumnavigate the Cape of Good Hope, the long circumnavigation of the African continent.
“This has led to significant increases in costs and also significant delays to deliveries coming from the Middle East, to and from Europe and other regions in this region that rely heavily on the Suez Canal,” says Professor Robert Handfield of Operations and Supply Chain Management at North Carolina State University, FOX Business said.
US-British coalition strikes Iran-backed Houthi targets in Yemen after a series of ship attacks in the Red Sea
A cargo ship crosses the Suez Canal, one of the most important man-made waterways, on December 29, 2023 in Ismailia, Egypt. (Photo by Fareed Kotb/Anadolu via Getty Images / Getty Images)
Osama Rabie, head of the Suez Canal Authority, said shipping traffic fell about 30% in the period between Jan. 1 and Jan. 11 compared to the same time a year ago. The number of ships passing through the canal so far this year has fallen to 544 – a significant decline from the 777 during the same period in 2023.
Container shipping giant Maersk suspended use of the Red Sea and Suez Canal earlier this year after one of its ships was attacked by Houthi militants. The company said it would reroute all ships around Africa in the “foreseeable future” and warned of “significant” consequences for global growth as a result of the disruptions.
The Houthis vow to continue attacking ships in the Red Sea despite forming a US-led task force
UBS estimates that the effective capacity of an Asia-Europe voyage is reduced by about 25% when ships pass through Africa, adding about two and a half weeks to the voyage duration.
This in turn drives up shipping costs. According to data from Freightos Terminal, tariffs for transporting goods from Asia to Northern Europe have increased by 173% compared to before ships began rerouting to the region. The carriers have also announced surcharges ranging from $500 to $2,700 per container.
Drought-like conditions in the Panama Canal are adding to the pain from attacks in the Red Sea. The Panama Canal has limited the number of ships passing through it due to extremely low water levels, further straining global transportation, Handfield said.
The rise in shipping costs and potential disruptions to global trade routes are fueling fears of a rebound in inflation as price pressures in the economy finally ease. Oil prices jumped on Friday, a day after the United States and the United Kingdom responded militarily to the attacks.
The sun is seen behind a crude oil pump jack in the Permian Basin in Loving County, Texas on November 22, 2019. (Portal/Angus Mordant//File Photo / Portal Photos)
Analysts at Bank of America warned in a note this week that disruptions in the Red Sea and Suez Canal as well as the Panama Canal risk delaying the recent decline in inflation.
“The scope for further declines could be limited in part by rising shipping costs due to problems in the Red Sea and low water levels in the Panama Canal,” they wrote.
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Still, Handfield said the impact on American consumers remains minimal, although there could be “some price increases” for certain categories of goods and services – such as some locally sourced goods, including rare earths, chemicals and certain grains.
“There is no indication that it will have a major impact [on prices] “At least not in the United States,” Handfield said. “It could well have an impact on other countries in Europe etc.”