What is the Red Sea crisis, and what does it mean for global trade?

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4 Jan 2024

What is the Red Sea crisis, and what does it mean for global trade?

News Source: The Guardian - https://www.theguardian.com/world/2024/jan/03/what-is-the-red-sea-crisis-and-what-does-it-mean-for-global-trade

Attacks by Houthi rebels along the trade route have led to firms pausing shipments, raising the possibility of a shock to the world economy

The world’s largest shipping firms are continuing to pause shipments through the Red Sea after attacks by Houthi rebels along the crucial international trade route.

As container ships are diverted around the Cape of Good Hope on the southern tip of Africa, adding thousands of miles to journeys, the disruption is driving up the cost of shipments from Asia to Europe, raising the prospect of a renewed inflation shock for the world economy.

What is happening in the Red Sea?

Iran-backed Houthi rebels in Yemen have significantly stepped up a campaign of attacks against commercial vessels in the Bab-el-Mandeb strait between the Arabian peninsula and the Horn of Africa since late November.

Launched in response to Israel’s bombardment of Gaza, the attacks have escalated in the past week. Helicopters launched from US navy warships were used to repel an attack by militants on a ship owned by Maersk over the weekend, leading the Danish shipping line to continue to pause all cargo movement through the area until further notice.

Germany’s Hapag-Lloyd has also said its container ships would continue to avoid the route, which is a central artery for global trade on the passage from Asia to Europe via the Suez canal and the Mediterranean.

Reported incidents in the Red Sea and Gulf of Aden 25 Nov 2023 to 01 Jan 2024:

  • Seizure x 2 incidents

  • Boarding x 1 incidents

  • Physical damage x 7 incidents

  • Suspicious approach x 22 incidents

  • Sighting of suspicious vessel, drone or explosion x 13 incidents

19 Nov 2023 - Houthi rebels boarded the Galaxy Leader from a helicopter, seizing the ship and escorting it to Salif port.

23 Dec 2023 - Sai Baba tanker reported being hit by a one-way attack drone

31 Dec 2023 - Container ship Maersk Hangzhou fired upon by small boats. A day earlier it was struck by a missile

How significant is the Red Sea trade route?

The Suez canal handles about 12% of global trade and is accessed by vessels travelling from Asia via the 30km wide Bab-el-Mandeb strait. About half of freight shipped through the canal is made up of containerised goods. The route also provides a vital passage for shipments of oil from the Persian Gulf to Europe and North America.

Rerouting shipments around the Cape of Good Hope adds about 3,000-3,500 nautical miles (6,000km) to journeys connecting Europe with Asia, adding about 10 days to the duration of the trip, according to the Dutch bank ING.

With the prospect of lengthier shipping times, there could be a knock-on impact for turnaround times at ports in the UK and large European hubs such as Rotterdam, Antwerp and Hamburg.

Could it drive up inflation?

Redirecting ships is expected to cost up to $1m in extra fuel for every round trip between Asia and Europe, while insurance costs are also rising, adding to the overall cost of shipments.

Tankers transporting diesel and jet fuel from the Middle East and Asia are being diverted, while container shipments of consumer goods, commodities, clothing and food are also likely to be delayed.

Global oil prices rose on Wednesday as concerns over delays in the Red Sea were compounded by reports of disruption to Libya’s biggest oilfield. However, crude prices have remained relatively stable and are still significantly lower than in recent months, having fallen by almost $20 a barrel since the autumn.

See website link for more information, pictures and for the Inflation Guardian Graph.

News Source: The Guardian - https://www.theguardian.com/world/2024/jan/03/what-is-the-red-sea-crisis-and-what-does-it-mean-for-global-trade

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