The importance of the Red Sea shipping lane for international commerce is immense. For more than six months, Houthi militias from Yemen have been targeting vessels in the area due to their owners’ or operators’ connections to Israel. The assaults occur as Israel carries out its military campaign against the militant organization Hamas in Gaza after the massacre of Israeli citizens on October 7 of the previous year.
On June 20, for instance, the Houthis, who claim to be battling for the Palestinian cause, downed a coal vessel using a drone attack.
In reaction to the Houthi assaults, US and British military ships have consistently struck militia locations in Yemen during the last few months. Moreover, naval vessels from two global alliances are active in the area to ensure safe sea passage along the Yemeni shoreline. The German Navy, for instance, is involved in the EU naval operation Aspides.
International trade has faced significant strain since the onset of the Israeli-Hamas conflict in October. The offshoot conflict in the Red Sea has led to elevated freight prices and heightened costs for insuring commercial trade items.
Shipowners face elevated insurance costs as the likelihood of vessel loss has significantly risen, especially in the Red Sea. Additionally, attempts to bypass the Suez Canal for safety concerns and instead sail around the Cape of Good Hope, have substantially lengthened travel durations and resulted in considerably increased fuel usage.
The Drewry World Container Index, which tracks the freight market, stated that in just the third week of June, shipping costs for a 40-foot standard container surged by 7% — an astonishing 233% increase compared to the same period last year.
Looking for safer routes
Simon MacAdam, an analyst with the London-based financial consulting firm Capital Economics, states that shipping companies are compelled to be more adaptable.
“The shipowners appear to have adjusted effectively to the circumstances, given the restrictions on utilizing the Suez Canal,” he remarked to DW, noting that expenses briefly decreased this spring “following a surge in January.”
However, “they are beginning to increase once more,” indicating there is no reason to anticipate any cost relief.
“Another factor appears to be that importers are now advancing orders to guarantee they maintain sufficient inventory over the year.” “However, the rerouting of ships around the Cape of Good Hope increases the likelihood of further price spikes,” stated the Capital Economics expert.
Jan Hoffmann, a trade specialist at the United Nations Conference on Trade and Development (UNCTAD), also attributes increasing costs to extended travel durations across Africa.
“The diversion around South Africa necessitates additional vessels to sustain supply.” “The typical travel distance for a container in 2024 is 9% greater than it was in 2022,” he stated to DW.
He stated that as vessels remain at sea longer, greater shipping capacity is required. This implies that shipping companies need to lease or purchase additional ships and recruit more staff. “And because these vessels are not yet available, shipping costs will increase.”
Hoffmann highlighted another undesirable consequence of extended shipping routes: increasing greenhouse gas emissions. “Vessels have accelerated their speeds, resulting in an uptick in emissions, such as a 70% increase on the Singapore-Rotterdam route.”
Hoffmann stated that, in addition to safety issues in the Middle East, global trade is being affected by reduced water levels in the Panama Canal. This implies that the waterway cannot be completely used. Consequently, US shippers must incorporate what he refers to as a “land bridge” into their maritime routes with East Asia, indicating they need to move goods across the US via rail or road from West Coast ports to those on the East Coast.
Transporting bulk goods such as wheat or liquefied natural gas (LNG) within the US is not financially feasible, he noted, forcing shippers to resort to the lengthy and perilous detour route around Cape Horn at the southern end of South America.
However, Simon MacAdam still perceives a glimmer of hope regarding a return to regular shipping through the Panama Canal. He informed DW that water levels in the canal have “improved somewhat” in the past months, and the La Nina weather event is expected to “further alleviate the situation shortly.” MacAdam stated that a small increase in water levels in the Panama Canal has already boosted freight transportation in that area.
Red Sea remains a perilous area, worsening the global shipping crisis.
As reported by Bloomberg, approximately 70% of trade through the Red Sea continues to be redirected around Africa.
Simon MacAdam thinks that an extended crisis might inundate shipping firms and greatly elevate freight rates even more.
“Constructing ships requires several years, and 90% of new containers are manufactured in China.” “Significantly higher capacities won’t be accomplished quickly,” the Capital Economics expert informed DW, cautioning that the industry crisis may worsen further.”