Attacks by Yemen's Houthi rebels on merchant ships heading to the Suez Canal through the Red Sea are causing one of the biggest disruptions to global trade since the pandemic. At least 18 shipping companies, including Swedish giant Maersk, have already rerouted their routes through South Africa to avoid transiting the strategic Gulf of Aden, an alternative change that significantly increases costs and lengthens journeys between Asia and Europe. The impact on freight prices is automatic: They have almost tripled since the intensification of attacks in mid-December, which the rebel militia says are aimed at punishing Israel for the war in Gaza. The escalation in transport costs threatens the global economy with a new inflationary setback, although experts are confident that the impact will be limited.
The increase in transport prices comes at a delicate time in the economic situation, marked by uncertainty and the reverberations of increasing inflation (and its effects) that are gradually easing. The freight booking platform Freightos.com estimates that transporting products in a 40-foot container (12 meters long, 2.3 wide and 2.4 meters high) from Asia to Northern Europe now costs $4,000 (3,650 euros), 173% more than mid-December, according to Bloomberg reports. For freight from Asia to the Mediterranean, the price rises to 5,175 euros; on routes that start in mid-January, some companies charge up to 6,000 US dollars. From Asia to the US, interest rates rise less sharply, by 55%, to $3,900.
Meanwhile, another benchmark index, the Shanghai Containerized Freight Index (SCFI), which measures transportation rates for products imported from China, has risen 161% since December 15, from $1,029 to $2,694 (2,500 euros).
All of these prices are roughly double what they were in 2019, before the pandemic hit global trade, but are still well below coronavirus peaks. At the moment of the biggest drop this year, SCFI index prices exceeded $5,000, twice the current level.
Nevertheless, the impact of the current crisis in the Middle East is significant. Shipping companies are changing their itineraries to avoid the Red Sea, a route through which between 12 and 15% of world trade circulates and which often passes the Cape of Good Hope. “A significant number of shipping companies, around 18, have already decided to reroute their ships around South Africa to reduce attacks on ships and limit the impact on seafarers,” said the Secretary-General of the International Maritime Organization (IMO). Arsenio Domínguez, in a speech to the UN Security Council. For freighters, this means that their journeys take an average of ten days longer and they have to spend more on fuel. The crisis has led to a 25% decline in commercial traffic through the Suez Canal.
Attacks on this trade route began in November, shortly after Israel's ground invasion of the Gaza Strip following the October 7 terrorist attacks by the fundamentalist organization Hamas. And they have gotten worse since December. “The original target was ships linked to Israel, but based on the information we have received about recent events, this no longer appears to be the case,” Domínguez warned. Since mid-November, 23 merchant ships have been attacked; The latest case occurred last weekend against Danish giant Maersk, although the United States has launched an operation to patrol the area.
Maersk announced this week that it would pause routes through the Suez Canal again, following in the footsteps of German shipping company Hapag-Lloyd. Meanwhile, France's CMA-CGM announced a 100 percent price increase on routes between Asia and the Mediterranean. Companies increase their rates when their freight capacity and the frequency of trips decrease, in this case because the changes in the itinerary significantly lengthen the trips.
Stock market rises
Investors expect to achieve greater profitability by increasing tariffs, even as transportation time and fuel costs increase. And this is also reflected in the stock markets. Goldman Sachs just raised its buy rating on Maersk shares, which have risen 30% in the last month. In the case of Hapag-Lloyd, shares have gained almost 50% over the same period.
Ensuring on-site security is very complicated. The Bab el-Mandeb Strait, the main entrance to the Red Sea between the Arabian Peninsula and the Horn of Africa, is only 30 kilometers long, requiring ships to pass slowly and in a line with little maneuverability. This makes them easy targets for drones from the Houthi militia, which opposes Yemen's official government and controls 30% of the territory. The aim of the rebels, of which Iran is the main sponsor, is to punish ships that trade with Israel, although based on recent attacks it appears that this goal is increasingly expanding.
To what extent can these disruptions change product supply in Europe? According to Portwatch, a platform run by the International Monetary Fund (IMF) and the University of Oxford, traffic in the Suez Canal fell by 28% in the first ten days of the year compared to the same period in 2023. This means that 3.1% of world trade is diverted from the Red Sea to other routes.
“The longer duration of the journeys, 7 to 14 additional days depending on the route, results in longer delivery times for importers and can congest ports if they handle multiple ships at the same time when the calendar changes, although at the moment we have no evidence of this. that this is happening,” explains Judah Levine, chief analyst at Freightos, on his website. The expert explains that shipping companies are adding ships to their rotations and traveling at higher speeds to compensate for the longer journey times as much as possible.
“Even if there were traffic jams or delivery bottlenecks, transport companies are now in a much better position than during the pandemic,” he adds. There were also supply difficulties between 2021 and 2022, but because demand far exceeded supply: “The industry now has a certain excess capacity,” which means there is a lot more margin.
Michelin stops
But some tensions can already be felt in the industry. Tire maker Michelin announced a week ago that it would halt production at its four plants in Spain due to a shortage of rubber, the key raw material for making tires.
Transportation costs have a major inflationary impact. According to the IMF, the shortages experienced during the pandemic led to a one percentage point increase in inflation. These costs account for 7% of the cost of long-distance imports under normal circumstances (in 2020 they increased by 25%). Rhys Davies, consultant at consultancy Flint Global, told the Guardian a few days ago that the impact of the Red Sea crisis on inflation was likely to be limited: “The impact creeps into the economy quite slowly, up to 12 months later. “ .” of the peak (in freight costs). So if the disruption is temporary, as we expect, it will be offset by other disinflationary effects.”
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