A container ship sails through the brand new section of the Suez Canal within the Egyptian port city of Ismailia, 135 kms northeast of the capital Cairo on October 10, 2019.
Khaled Desouki | AFP | Getty Images
Attacks by Iran-backed Houthi militants on ships within the Red Sea have already rocked global trade. And there could possibly be more disruptions and price increases to come back for shipments of products and fuel.
Several major shipping lines and oil transporters have suspended their services through the Red Sea as greater than a dozen vessels have come under attack because the start of the Israel-Hamas war in early October.
Help appears to be on the way in which. U.S. Defense Secretary Lloyd Austin, who’s visiting Bahrain, said American forces together with the UK, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain would create a latest force to guard ships within the region.
MSC, Maersk, Hapag Lloyd, CMA CGM, Yang Ming Marine Transport and Evergreen have all said they shall be diverting all scheduled journeys immediately to secure the security of their seafarers and vessels. Collectively, these ocean carriers represent around 60% of worldwide trade.
Evergreen also said it might temporarily stop accepting any Israel-bound cargo, suspending its shipping service to Israel. Orient Overseas Container Line (OOCL), which is a component of Chinese-owned COSCO Shipping Group, has also stopped accepting Israeli cargo, citing operational issues.
“About 30% of Israeli imports come through the Red Sea on container vessels which might be booked two to 3 months prematurely for consumer or other products, meaning that if the voyage will now be prolonged, products with a shelf lifetime of two to 3 months won’t be worthwhile importing from the Far East,” said Yoni Essakov, who sits on the manager committee of the Israeli Chamber of Shipping.
“Importers might want to increase stock because of the uncertainty and pay rather more and others will lose out on their markets as time to market is just not competitive,” Essakov added.
On Monday, oil giant BP said it might also pause shipping activity within the Red Sea because the Yemen-based Houthis proceed their attacks.
Cargo ships are seen at Israel’s Haifa industrial shipping port within the Mediterranean Sea on December 13, 2023.
Mati Milstein | Nurphoto | Getty Images
“The protection and security of our people and people working on our behalf is BP’s priority. In light of the deteriorating security situation for shipping within the Red Sea, BP has decided to temporarily pause all transits through the Red Sea,” the corporate said in an announcement to CNBC. “We’ll keep this precautionary pause under ongoing review, subject to circumstances as they evolve within the region.”
Oil tanker group Frontline also said it’s avoiding the Red Sea.
The attacks have already pushed ocean freight costs higher. For the reason that starting of the Israel-Hamas war, the Asia-U.S. East Coast prices climbed 5% to $2,497 per 40-foot container, based on the Freightos. It could get even dearer as major corporations avoid the Suez Canal, which feeds into the Red Sea, and opt as an alternative to go around Africa to get to the Indian Ocean.
Doing so adds as much as 14 days to a shipping route, incurring higher fuel costs. And since ships take an extended time to get to their destinations, the workaround leads to a perceived “vessel capability crunch.” Delays in container and commodity deliveries are inevitable.
Container shipping represents nearly a 3rd of all global shipping, with the estimated value of products transported amounting to $1 trillion, based on Michael Aldwell, executive vp of sea logistics at Kuehne+Nagel.
“Roughly 19,000 ships navigate through the Suez Canal annually,” Aldwell said. “The prolonged time spent on the water is anticipated to soak up 20% of the worldwide fleet capability, resulting in potential delays in the supply of shipping resources.
There can even be delays in returning empty containers to Asia, which is able to only add to produce chain woes, he added.
Moody’s highlighted the delays in a note to clients.
A mock drone is displayed at a square on December 07, 2023 in Sana’a, Yemen.
Mohammed Hamoud | Getty Images
“This example, if it extends beyond a couple of days, could have credit positive implications for each the container shipping industry and for tanker and dry bulk markets,” wrote Daniel Harlid, senior credit officer at Moody’s. “Nevertheless it also raises the danger of further disruption to produce chains.”
Insurers are also shifting their stance, which could lead to higher costs passed on to shippers and consumers. The Joint War Committee (JWC), which incorporates syndicate members from the Lloyd’s Market Association and representatives from the London insurance company market, said it’s widening its high-risk zone to 18 degrees north from 15 degrees north.
“The Red Sea Listed Area has been prolonged by 3 degrees north to think about missile range from Yemen, reflecting a dynamic and evolving situation where ship owners have already shown their awareness of developments with some significant re-routing announced,” Neil Roberts, head of marine and aviation at Lloyd’s Market Association, said in an email.
The Red Sea and the Gulf of Aden, to the south of Yemen, are already listed by the JWC, as each areas have required notification of voyages since 2009. The choice to expand the high-risk area influences underwriters’ considerations over insurance premiums.
The route shifts can even likely hurt Egypt’s already-struggling economy, which has already suffered a hit to tourism because of the Israel-Hamas war. Egypt owns, operates and maintains the Suez Canal. The Suez Canal Authority said it had generated a record $9.4 billion in the course of the 2022-23 fiscal yr.
–CNBC’s Rebecca Picciotto contributed to this report.