Red Sea attacks have left shipping companies with tough choices

Red Sea attacks have left shipping companies with tough choices

Shipping companies carrying goods to factories, stores, car dealerships and other businesses on one of the world’s busiest trade routes face a difficult decision.

If they are willing to risk attacks by the Houthi militia in Yemen and bear the cost of extremely high insurance premiums they can send their ships through the Red Sea. Or they could travel an additional 4,000 miles around Africa, adding 10 days in each direction and burning significantly more fuel.

Neither option is attractive and both increase costs – analysts say the expense could ultimately be borne by consumers through higher prices on the goods they buy.

“We are starting to see the weaponization of global supply chains,” said Marco Forgione, director general of the Institute of Export and International Trade, which supports British corporate efforts to expand into overseas markets.

In recent months, global supply chains have finally recovered after three years of disruption caused by the pandemic and even a brief blockage of the Suez Canal, which sits at the northwestern end of the Red Sea and is a vital hub for global trade. Handles about 12 percent. Freight rates were drastically reduced, and the long delays that had plagued retailers in the United States and Europe were resolved.

So far, the Red Sea problems have not disrupted global supply chains to the extent that the pandemic did. “But we are moving in that direction,” Mr. Forgione said.

Houthi attacks have continued despite the gathering of US-led forces in the Red Sea to stop them.

Already, some companies, including British retailers Ikea and Next, have called for avoiding the Suez Canal. Taking the long route around Africa may cause delays in the arrival of products.

A key question will be how the container shipping industry handles the annual surge of exports that typically occurs before China’s factories idle for weeks over Lunar New Year next month.

Difficulties vary greatly depending on the type of ship. Oil tankers have had little impact and are continuing to use the Red Sea, as the Houthis appear to have shown little interest in them.

By contrast, the number of specialized car-carrier ships using the Red Sea more than halved last month to just 42 trips through December 2022, and only one has crossed the sea so far this year, the head of a vehicle carrier said. said Daniel Nash of VesselsValue, a London shipping data firm.

The first ship attacked by Houthi gunmen in recent weeks was a car carrier, the Galaxy Leader, which was hijacked on November 19 while returning to Asia with several thousand cars. The 25-member crew, mainly Filipinos, were also abducted and have still not been released.

The long voyages around Africa for car-carrying ships bound from Asia to Europe are particularly disruptive to the global auto industry. Chinese automakers are rapidly increasing exports to Europe, especially electric cars. Even before the Red Sea troubles, daily charter rates for transoceanic car carriers had risen to $105,000 from $16,000 two years earlier.

The disruption in the Red Sea comes in the form of the Panama Canal, which has seen water levels drop due to drought, reducing the number of ships passing through. This had forced many ships to choose a longer route to the United States via the Suez Canal.

websites he track shipping Hundreds of ships are still visible in the Red Sea, which connects the Suez Canal and the Mediterranean Sea to the Arabian Sea and the Indian Ocean. But the largest companies have reduced their presence substantially or completely.

MSC, the largest container shipping company, said in mid december That he was escaping from the Red Sea. Maersk, the second-largest, which then temporarily halted Red Sea transit, returned to the area in late December and withdrew again this week after one of its ships, the Maersk Hangzhou, was attacked.

French shipping company CMA CGM said in the statement that some of his ships passed through the Red Sea and that he was planning to gradually extend the route through the Suez Canal. “We are continuing to monitor the situation and are prepared to quickly reassess and adjust our plans as necessary,” it added.

Chinese giant Cosco did not respond to a request for comment. A spokesman for Hapag-Lloyd, which has a fleet of more than 250 container ships and is based in Hamburg, Germany, said the company planned to sail around Africa until January 9 and then assess the situation.

An analysis provided by logistics technology company Flexport showed that as of Thursday, 389 container ships, accounting for a fifth of global container capacity, had already transited the Suez Canal or were in the process of doing so.

“It’s about risk assessment and the safety of life and property and cargo,” said Nathan Strang, director of ocean freight at Flexport. “If you can avoid a situation that threatens your survival, avoid it.”

Blockages in Suez Canal transit are unusual. But after the 1967 Arab–Israeli war the canal was closed to international shipping for eight years. Anwar al-Sadat, Egypt’s president at the time, said its reopening was “the happiest day of my life.”

Some container ships using the Red Sea are still heading to or from ports there, like Saudi Arabia. For financial reasons, some small container ships also continue to transit the Red Sea for trips between Europe and Asia.

Ships carrying large numbers of containers can afford the extra cost of going around Africa, but, Mr. Strang said, the longer route could destroy the economics of ships carrying 5,000 or fewer containers.

The fastest route from China to ports on the US East Coast is through the Panama Canal. But shipping companies that had avoided that canal because of the drought now have to travel even longer as they go around the Cape of Good Hope. Flexport estimates that the Cape trip takes 10 days longer, or about 40 percent longer, than traveling through the Panama Canal.

Zvi Schreiber, chief executive of digital shipping marketplace Freightos, says the cost of moving a container from China to an East Coast port has risen to about $3,900 from $2,300 before the Red Sea strikes. When shipping gridlock was at its worst during the pandemic, the cost could exceed $20,000.

Mr. Forgione of the trade institute said insurance costs, usually no more than 0.2 percent of the ship’s value per voyage, rose to 0.7 percent for ships planning to enter the Red Sea. “This is a very significant increase,” he said.

Mr. Schreiber said he expected shipping companies to be able to handle the current disruption because, after buying more ships in recent years, they had enough spare capacity to deal with longer voyage times.

“Although the blow is big and the end result will probably be even bigger,” he said, “the network is coping.”

And Christian Roelofs, co-chief executive of Container xChange, an online container logistics platform, said in an email that the current supply chain disruption from China appears “relatively minor” compared to when the country imposed lockdowns during the pandemic.

Siyi Zhao Contributed to research.

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