The Impact of Houthi Threats on Global Shipping: The Red Sea Crisis

2023-12-19 02:58:31

Major international shipping companies diverted their ships to the Cape of Good Hope route to avoid the Suez Canal due to the Houthi threat.

The London marine insurance market expanded the area of ​​the Red Sea that it deemed high-risk, raising the insurance premiums paid by ships.

The Red Sea attacks demonstrated the ability of Iranian-backed Middle Eastern paramilitaries to destabilize global trade.

Albert-Jean Swart, an analyst at ABN AMRO, told Archyde.com that the companies that diverted their ships collectively control “regarding half of the world’s container shipping market.”

He added, “Avoiding the Red Sea will lead to higher costs due to the long travel time.”

A serious threat to international trade

  • Several major shipping companies, including Mediterranean Shipping Company (MSC), have begun sailing around Africa, which, according to industry analysts, will lead to increased costs and delays that are expected to worsen over the coming weeks.
  • British oil giant BP has temporarily suspended all transits of its cargo through the Red Sea in a sign that the crisis, which has mostly affected cargo shipping so far, may expand to include energy shipments. Crude oil prices rose amid these concerns.
  • Norwegian oil and gas company Equinor said it had redirected “a few ships” carrying crude oil and liquefied petroleum gas away from the Red Sea. The company refused to disclose the number of these ships.
  • The Belgian Oil Tanker Company (Euronav) said it is avoiding the Red Sea until further notice.
  • The Houthi attacks have also forced companies to rethink their relations with Israel, with Taiwanese company Evergreen saying Monday that it has decided to temporarily stop accepting Israeli shipments.
  • French food group Danone said that most of its shipments have been diverted, which will increase the time frame for their arrival. A Danone spokesman said: “We have mitigation plans that will be activated if the situation persists in the medium to long term… This will include using alternative routes by sea or land where possible.”

Some observers point out that although the Houthi group claims that it only hits ships linked to Israel, its targets include ships not bound for or affiliated with Israel.

“The Houthis, and by extension their main military backer Iran, will likely use their strike capability in the Red Sea to exert more geopolitical influence in the region as well as influence Israel’s war in Gaza,” said Jack Kennedy of Global Market Intelligence.

Delays and higher prices

Analysts say the effects include much slower shipments and potentially higher prices for consumers.

ING analyst Rico Lohmann said ship rerouting operations add at least a week of sailing time for container ships. It usually takes regarding 27 days to ship goods from Shanghai to Rotterdam via the Suez Canal.

“This will at least lead to delays in late December with knock-on effects in January, and possibly February, where the next round will also be postponed,” Lohmann added.

Marco Forgione, director general of the Institute of Export and International Trade, said the disruptions would likely impact the supply of consumer goods ahead of the Chinese New Year in particular, with delays leaving retailers with unsaleable stock and ultimately driving up prices for consumers.

While freight rates will likely rise on these longer trips as well, carriers are currently looking for ways to use excess capacity, said Zvi Schreiber, CEO of global shipping platform Freightos.

“Prices are unlikely to rise to the levels seen during the pandemic,” Schreiber added, referring to the economic effects of Covid-19 starting in 2020.

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