2024-01-06 20:30:00
With their attacks on Western cargo ships, Houthi rebels are not only endangering ship crews, an international coalition of Western countries warned this week, but also the ‘world economy’.
The shelling of container ships in the Red Sea region is ‘illegal, unacceptable and highly destabilizing’, according to the United States, Japan and the Netherlands, among others. Eighteen shipping companies and other logistics companies have now chosen to avoid the shipping route, including global players such as the Danish Maersk and the German Hapag-Lloyd.
This results in many delayed deliveries and higher freight costs. Their container ships now have to pass the Cape of Good Hope, below Africa, so that a cargo ship from Asia now takes regarding ten days longer to arrive in Europe. Will this drive up inflation once more, as disrupted freight traffic did during corona?
Oil, grain and liquid gas
It is clear that the waterway is important for world trade: no less than 15 percent of all freight traffic by sea passes through it. For container ships, that share is even 30 percent, reports research agency Oxford Economics. In addition to goods, a lot of oil, grain and liquefied gas (LNG) pass through it.
At least, until recently. The Houthis, who call their attacks a retaliation for Israeli bombing of Gaza, appear unwilling to stop their attacks any time soon. The longer the current situation continues, the greater the chance that inflation will increase once more in the rest of the world.
In most countries, the increase in consumer prices was actually decreasing somewhat. The big inflation wave of the past two years came following Russia invaded Ukraine, triggering an energy crisis. But even before that, prices in Europe and the US had been rising for some time, and even then this was partly due to disrupted freight traffic by sea.
Container prices
At the time, container transport was not stalled because of rebels, but because Chinese ports often had to go into lockdown and consumers worldwide ordered many products. Container prices skyrocketed and producers and suppliers passed on these freight costs to the price paid by consumers.
Container prices are also rising now. Compared to a month ago, this is already 90 percent, reports Oxford Economics. Buyers even pay 200 percent more to rent a container that would normally be transported via the Red Sea.
The question is whether this will directly lead to rapidly rising consumer prices. These container prices are not fixed for a long time and might fall quickly if the Houthis stop their attacks, writes Oxford Economics. Companies can probably absorb the temporarily increased freight costs themselves and do not have to pass them on immediately.
Decreased demand
Moreover, in addition to similarities, there are also differences with the disrupted freight traffic in 2021, says ING analyst Bert Colijn. While there was a lot of demand for goods, refrigerators, TVs and laptops at the time, the opposite is now the case. After all, you don’t have to replace many of those items every two years. In addition, consumers now have less to spend on average than during corona.
Due to the decreased demand for goods, container transport is less likely to come to a standstill than it was then, Colijn thinks. Especially now that shipping companies have had many new ships built to increase their capacity.
Another difference with the corona years: Western products and suppliers now have their stocks in better order. During the pandemic it became clear how important it is to have a full warehouse. So that a bicycle manufacturer might continue building bicycles for a while, even if there were problems with the delivery of a crucial part.
Uncertain forecast
Due to this combination of less demand and more stocks, Colijn now sees no ‘acute risk’ of more inflation. But, he says, everything depends on how long the situation lasts. No one knows how long that is. On
It is difficult to say how fast prices will rise in the rest of the world, let alone in a specific area such as Europe or the US. Oxford Economics does make an attempt. If the waterway remains impassable for a few more months and container prices remain at this current higher level for the same amount of time, this will push up inflation worldwide by 0.7 percentage points. But, the economists emphasize, that estimate is surrounded by a lot of uncertainty.
Also read:
Anti-Houthi coalition prepares for action
Houthis attacks on cargo ships near the Red Sea continue. A group of twelve countries, including the Netherlands and led by the United States, appears to be preparing for an attack on the battle group.
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