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RED SEA ATTACKS CAUSE GLOBAL TRADE TO SPLUTTER

Dirk Kaufmann
03/15/2024March 15, 2024

Container ships have been forced to make long detours for months due to the
Houthi attacks on the Suez Canal route and low waters in the Panama Canal. When
will consumers feel the pinch of rising freight prices?

https://p.dw.com/p/4d3o1
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Two of the world's most important artificial waterways aren't fully navigable,
which has put a strain on international shippingImage: Sina Schuldt/dpa/picture
alliance
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On the morning of February 21, a cargo ship rammed a bridge in Guangzhou, China
— one of the world's busiest seaports — causing the structure to partially
collapse. This type of accident in a place where a significant portion of
East-West trade passes can have costly consequences for maritime trade.
Fortunately, on this occasion, the incident didn't cause any delays
for shipping.

International maritime routes are already facing plenty of obstacles as it is.
Shipping, the means of transport for more than 80% of global goods, is dealing
with piracy in Asian and African waters, and also struggling with the effects of
armed conflict and low water levels.


GLOBAL SHIPPING BOTTLENECKS

Two of the world's three most important artificial waterways are not fully
navigable at present: the Suez Canal in Egypt, due to attacks on freighters in
the Red Sea by Iran-backed Houthi rebels linked to the Israel-Hamas war, and the
Panama Canal in Central America, because of persistently low water levels.



The two canals are critical for the timely and cost-effective transporting of
goods as they allow ships to avoid much longer, often more dangerous routes
around southern Africa (Cape of Good Hope) and South America (Cape Horn).

Shipping firms have been forced to reroute their vessels as a result of the
obstructions at the Panama and Suez canals, which is driving up freight costs
and causing a rise in maritime emissions.

The UN Conference on Trade and Development (UNCTAD) warned in February that
longer travel times are disrupting many supply chains, causing containers to
arrive late, logjams at already-busy seaports and delayed deliveries for end
customers.

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SHIPOWNERS ARE STRUGGLING

Jeremy Nixon, head of the Singaporean-Japanese container shipping company Ocean
Network Express (ONE), has warned that several firms cannot make their delivery
schedules.

"Everybody is struggling with schedule integrity and therefore we're getting
berthing clashes in a number of ports," Nixon told the Financial Times in
February, referring specifically to Shanghai and Dubai, as well as various ports
around the Strait of Gibraltar.


Low water levels in the Panama Canal have also caused shipping delaysImage:
Julia März/dpa/picture alliance

The diversions around southern Africa can extend journey times on ships moving
from Asia to northern Europe by 10 to 14 days, which has a knock-on effect on
supply chains elsewhere in the world.


NOT ENOUGH CARGO SPACE

Nixon calculated the burden on his firm from the detours, saying ONE would
normally have 12 ships plying the Asia to Europe route, but would now need 16
ships to provide the same uninterrupted service, as the return journey now takes
more than 100 days.

But his company doesn't have the extra vessels and instead, his ships have been
ordered to move 10-15% faster than usual to limit the lost time. But that's not
enough.

"There are simply not enough ships available globally [...] to cover these much
longer extended transit times," Nixon told the business daily.

Global shipping fleets are growing, with an 8% increase in capacity expected in
2024. But many of these vessels won't be in service until later in the year. In
the medium term, their arrival will be a double-edged sword as too much shipping
capacity will cause freight rates to fall and lower the shipping
companies' profits.




PRICES RISING SHARPLY

UNCTAD found that spot container prices from Shanghai to Europe have risen by an
average of 256% from December 2023 to February 2024, mostly caused by the Houthi
attacks in the Red Sea, which the Suez Canal connects with the Mediterranean
Sea. Compared with the same period last year, there are 42% fewer cargo ships
passing through the canal.

The UN body foresees "far-reaching economic impacts for container
transport," leading to delivery delays, higher costs and rising inflation,
noting that consumers will feel the impact within a year.

According to UNCTAD, longer routes not only mean increasing costs. Environmental
pollution has also increased due to higher fuel consumption and faster speeds.
On the Singapore-Rotterdam route, UNCTAD calculated that greenhouse gas
emissions could rocket by 70% on a return trip.

These environmental as well as the economic costs "put additional pressure on
developing countries," the UN agency warned.

This article was originally written in German.

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