Red Sea crisis: no cause for concern for the global economy yet

2024-01-12 14:18:18

Shipping is switching to longer routes and accepting higher costs

Vienna (OTS) – Houthi attacks on merchant ships in the Red Sea have led to significant disruptions in shipping. The air strikes by the USA and its allies against the Houthis have made the situation even more tense. Shipping companies are forced to choose the more expensive and time-consuming route around Africa. The leading Austrian credit insurance company Acredia has analyzed the economic effects together with Allianz Trade. “The Red Sea is an important route, a third of global container traffic and 40 percent of trade between Asia and Europe pass through this route,” says Gudrun Meierschitz, CEO of Acredia. “The impact on the economy is currently limited. If the conflict lasts longer, the situation in the supply chains could worsen.”

Impacts on shipping are already noticeable

12 percent of oil transported by sea and 8 percent of liquid natural gas (LNG) pass through the Suez Canal. The Houthi attacks are already having a noticeable impact on shipping. In the ten days to January 7, shipping volumes in the strait fell -15 percent compared to the previous year. On the Bab-el-Mandeb Strait, which leads to the Red Sea, the decline was as much as -53 percent. The number of transport ships passing through the Suez Canal decreased by -30 percent for cargo and -19 percent for tankers. During the same period, shipping volume around the Cape of Good Hope almost doubled. 66 percent more cargo ships and 65 percent more tankers chose this route.

Although shipping prices, and particularly container freight prices, have risen significantly since November 2023 (+240 percent as of early January), prices are still only a quarter of the 2021 peak. This is partly due to weaker demand, which is good filled warehouses for most consumer goods and free capacity in the shipping sector. However, if this crisis drags on beyond the first quarter, the impact on global supply chains could worsen.

Higher logistics costs for a short period of time, assuming the conflict is resolved quickly

“The increased shipping costs will be felt most strongly in Europe and the USA,” said Meierschitz. “A doubling of shipping costs increases inflation in these countries by +0.7 percentage points, in China by only +0.3 percentage points.” For global inflation, the increase in costs could increase by +0.5 percentage points to 5.1 percent this year mean. GDP growth, in turn, could decline by -0.9 percentage points in Europe and -0.6 percentage points in the USA. Globally, rising shipping costs would translate into a loss of -0.4 percentage points to global GDP growth to 2 percent.

The good news is: delivery times have normalized and are now below the pre-pandemic average. However, if this crisis drags on for several months, global trade volume growth could decline by -1.1 percentage points to +1.9 percent, increasing the risk of a slower recovery from the 2023 recession.

European energy prices remain highly volatile

Energy prices are having a major impact on the ongoing global economic crisis, particularly in Europe. After the first attacks by Houthi rebels were reported, the price of Brent, the European oil benchmark, rose nearly 2 percent between November 17 and November 22. Meanwhile, the US WTI price remained largely unchanged. In the five-day window around this date, natural gas prices in Europe also rose by +3.6 percent. When additional attacks were reported in late December, similar strains occurred. However, oil prices continue to decline. This is due to several factors: supply is higher than oil traders expected, global demand is unstable, and tankers continue to sail through the Red Sea.

“We do not expect any major short-term impact on European natural gas prices,” says Meierschitz. “The reserves are high and the heating season is coming to an end.”

About the Acredia Group

Acredia is Austria’s leading credit insurance and protects outstanding claims at home and abroad with a total value of almost 33 billion euros. Acredia is a subsidiary of Oesterreichische Steuerbank AG and Allianz Trade, the world market leader in credit insurance. In 2022, the Acredia Group’s sales totaled 97.6 million euros. As part of the United Nations Global Compact, Acredia has voluntarily committed to align strategy and operations with universal principles on human rights, labor, the environment and anti-corruption and to take action to advance societal goals. www.acredia.at