Attacks in the Red Sea add another problem to global shipping

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The war between Israel and Hamas has so far not had a major impact on the global economy. But a wave of attacks on merchant ships in the Red Sea could greatly change that.

The Houthis, an Iranian-backed armed group that controls much of northern Yemen, They have been using drones and missiles to attack ships since Hamas attacked Israel on October 7. That has forced some shipping giants and oil companies to avoid the Suez Canal, a development that could hamper global trade and raise the cost of imported goods.

Suez is a vital artery for container ships and fuel tankers. Goods and fuel from Asia and the Middle East have reached Europe and the United States through the passage since it opened in 1869. Now controlled by Egypt, Britain and other world powers have waged wars and engaged in geopolitical intrigue over the canal for more than a century.

About 50 ships pass through the Suez Canal a day and recent data suggested that, as of Monday, at least 32 had been diverted, said Chris Rogers, head of supply chain research at S&P Global Market Intelligence. He noted that almost 15 percent of European imports were transported by sea from Asia and the Persian Gulf, most of which pass through Suez.

Peter Sand, chief analyst at Xeneta, a shipping market analysis company, described the problems in the Red Sea and the channel as “a slow-burning disaster that really broke out over the weekend.” He added: “Everyone involved in global shipping, especially in the supply chains connected by the Suez Canal, is trying to figure out where their goods are and where they are going.”

US Secretary of Defense Lloyd J. Austin III on Monday Announced a new multinational force that would seek to “jointly address security challenges in the southern Red Sea and the Gulf of Aden, with the aim of guaranteeing freedom of navigation for all countries and strengthening regional security and prosperity.”

Companies that transport products such as toys and electronics from Asia on large container ships have also said they will stop sending ships to the area. A ship belonging to one of those companies, Maersk, was attacked last week.

Maersk saying on Tuesday that all of its Red Sea-bound ships would be diverted around Africa via the Cape of Good Hope “to ensure the safety of our crew, vessels and customer cargo on board.” Until the route was safer to use, the detour through Africa would be “a faster and more predictable outcome for customers and their supply chains.”

The instability near the Suez Canal comes at a time when a drought has forced operators of the Panama Canal, another critical link in global supply chains, to Drastically reduce the number of ships that can use that waterway..

About 12 percent of world trade passes through the Suez Canal and 5 percent through the Panama Canal. When shipping companies avoid canals, they often have to spend millions of dollars more on fuel to get ships to take longer routes.

Sailing from Asia to Europe via the Cape of Good Hope instead of the Suez Canal is a diversion that would lengthen the journey from Singapore to Rotterdam in the Netherlands by 3,300 miles, or almost 40 percent.

Sand said taking the Cape of Good Hope route could add about $1 million, or about a third, to the cost of a round trip from Asia to Europe. He added that some shipping rates had increased by 20 percent in recent days.

Some of that extra cost could be passed on to consumers just as inflation is slowing in the United States and Europe.

The attacks already appear to have driven up the price of oil. Brent crude, the international oil benchmark, has risen about 5 percent from its low earlier this month.

The economic impact has increased pressure on the United States and other countries to stop Houthi attacks. Shipping executives said that force was necessary.

“If the Suez Canal were to close, it would have huge ripple effects,” said Oystein Kalleklev, chief executive of Avance Gas, which transports propane from the United States to Asia. “Therefore, we will think that there will be enough warships to stabilize the situation.”

Just over two years ago, the Suez Canal was the source of another supply chain scare. One of the largest container ships ever built. I was stuck for days in the canal., preventing other ships from using the crossing. That episode occurred as supply chains were overwhelmed by huge demand for appliances, electronics and other goods during the pandemic.

By comparison, the current attacks in the Red Sea occur during a period of relatively weak demand. As a result, S&P's Rogers said in an email, its impact will be limited “if the disruption lasts days rather than weeks or months.”

Delays at the Panama Canal prompted some shipping companies that transport goods from Asia to the U.S. East Coast to send ships through the Suez Canal. But problems in the Red Sea could now force them to go around the Cape of Good Hope, lengthening those trips even further.

Unlike the Suez Canal, the Panama Canal uses locks, which raise and lower ships as they cross from one ocean to another. The lack of rain has reduced the amount of water available to fill the locks, and the Panama Canal authority has had to reduce the number of ships using the waterway. That number could decline even further because the dry season is just beginning.

“The Panama Canal situation,” Kalleklev said, “will not end soon.”



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