Attacks in the Red Sea: Effects of Maritime Crisis on Global Trade

Clothes, food, computers and many other products that consumers normally buy in stores are taking longer days to reach their destinations amid the security crisis in the Red Sea.

Attacks by Yemen’s Houthi rebels on merchant ships sailing from the Red Sea to the Suez Canal have forced shipping companies to take a longer and more expensive alternative shipping route through South Africa, causing delivery delays.

The attacks, since mid-December, are aimed at punishing Israel, according to the rebel group. The war in Gazahave intensified.

On Tuesday, the US and UK militaries announced that they had repelled the “biggest attack” ever by Houthi rebels after downing 18 drones, two cruise missiles and one ballistic missile.

And this Wednesday, the UN Security Council approved a resolution calling for an immediate end to attacks against merchant ships in the Red Sea, including a reference to the right of UN member states to defend those ships.

Yemeni militias argue that they are using drones and rockets to attack ships traveling to Israel, although it is not clear if all of the ships attacked are heading for Israeli territory.

S&P Global Market Intelligence has documented More than 20 confirmed events

Commencing from November 19 against commercial vessels.

Shipping companies including Maersk, Hapg-Lloyd and Mediterranean Shipping Company (MSC) have adopted alternative routes to transport their containers. The biggest maritime crisis of its kind since a ship stuck in the Suez Canal in 2021 paralyzed much of global trade.

Companies such as IKEA, Walmart or Amazon have experienced delays in the arrival of some products, Reuters reported, while the increase in freight costs is one of the main effects of the crisis.

“In recent days we have seen a dramatic increase in the cost of shipping containers on many critical trade routes,” Willy Shih, a professor at Harvard Business School, told BBC Mundo.

The cost of moving containers from East Asia to Northern Europe has increased by 199% in recent weeksAccording to data from international freight and market analysis company Freitos.

Although the Shanghai-Rotterdam sea route has been the most affected, routes connecting Shanghai to Genoa, Los Angeles and New York have also suffered the consequences of the crisis in the Red Sea.

And there is the Red Sea One of the most important roads in the world For transportation of consumer goods, oil and liquefied natural gas.

This issue is more challenging for maritime transport. “We have two crises at once” that are affecting shipping lanes, Shih points out.

One is the Red Sea Crisis and the other Lack of water in the Panama Canal.

In that regard, any major disruption could upset the delicate balance of shipping.

How significant will be the economic impact of the Red Sea Route diversion?

“The economic consequences of attacks on commercial vessels in the Red Sea depend on their duration,” Simon Heaney, senior manager of the Drury Company’s container research area, told BBC Mundo.

These types of situations “could significantly impact global supply chains and take weeks or months to recover,” Haney argues, as the crisis looms in the coming weeks. High business flow with the arrival of Chinese New Year on February 10.

And the delay in the flow of ships is likely to cause a certain level of congestion at the ports, experts say.

Something positive in the midst of all that is happening is that, so far, the impact on the energy sector “has not been good,” the expert says, arguing that “there are reasons to believe that maritime transport has more than enough capacity.” to meet the challenge.

And despite the difficulties, analysts such as Peter Sand of freight rate data company Zenetta maintain that “shipping companies are well positioned to deal with a crisis” when Ever Given blocks the canal at Suez in 2021.

Jack Kennedy, associate director and head of global country risk intelligence and analysis for the Middle East and North Africa at S&P Global Market Intelligence, argues that “Houthi attacks are likely to continue targeting international vessels regardless of public engagement with Israel.”

Despite the Houthis’ claims that the attacks on shipping are solely due to Israel’s combat operations in Gaza, Kennedy tells BBC Mundo, the Houthis are “also using their attack capabilities to exert greater geopolitical influence in the region and position themselves as an actor of global importance.”

If so, the effects of the crisis in the Red Sea could continue to increase costs, transport times and delay the delivery of products.

Even small delays have the potential to create a domino effect in manufacturing chains.

This is explained because global supply chains work in coordination, so that every element arrives on time to join the production line.

Any delay affects the remaining links in the manufacturing process of the product.

Although the problem seems limited to shipping companies, analysts warn Consumers around the world may see a slight increase in product prices in the future.

It all depends on the evolution of events in the coming days and weeks.

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