Attacks on the Red Sea add new impetus to global shipping

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

The Houthis, an Iranian-backed armed group that controls much of northern Yemen, 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 drive up the cost of imported goods.

The Suez is a vital artery for container ships and fuel tankers. Goods and fuel from Asia and the Middle East have made their way to Europe and the United States through the passage since it opened in 1869. Britain and other world powers, now under Egypt’s control, have waged wars and engaged in geopolitical intrigue over the canal. more than a century.

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

Peter Sand, chief analyst at shipping market analytics firm Xeneta, described the problems in the Red Sea and the canal as a “slow-burning disaster that really exploded this weekend.” He added: “Everyone involved in global shipping, especially with 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 announced this 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.”

The companies that transport products such as toys and electronics from Asia in 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 said Tuesday that all its ships bound for the Red Sea would be diverted around Africa via the Cape of Good Hope “to ensure the safety of our crews, ships and customer cargo on board.” Until it is safer to use the route, the detour around Africa would “provide a faster and more predictable outcome for customers and their supply chains.”

The instability near the Suez Canal comes as a drought has forced operators of the Panama Canal, another crucial link in global supply chains, to 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 the canals, they often have to spend millions of dollars more on fuel so ships can take longer routes.

Sailing from Asia to Europe via the Cape of Good Hope instead of the Suez Canal is a diversion route that would extend the journey from Singapore to Rotterdam in the Netherlands by 5,300 miles or almost 40 percent.

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

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

It appears the attacks have already driven up oil prices. Brent crude, the international oil benchmark, is up about 5 percent from its low earlier this month.

The economic impact has increased pressure on the United States and other countries to stop the Houthis’ attacks. Shipping officials said such violence was necessary.

“If you were to close the Suez Canal, it would have huge ripple effects,” said Oystein Kalleklev, the CEO of Avance Gas, which transports propane from the United States to Asia. “So we will think there will be enough naval vessels to stabilize the situation.”

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

By comparison, the current attacks in the Red Sea are taking place 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 for days rather than weeks or months.”

The delays at the Panama Canal prompted some shipping companies that transport goods from Asia to the east coast of the United States to send ships through the Suez Canal instead. But trouble in the Red Sea could now force them to round the Cape of Good Hope, making those journeys even longer.

Unlike the Suez Canal, the Panama Canal uses locks, which lift ships up and down as they cross from one ocean to another. The lack of rain means less water is available to fill the locks, and the Panama Canal authority has had to reduce the number of ships using the waterway. That number could drop further as the dry season is just beginning.

“The situation in the Panama Canal,” Mr. Kalleklev said, will not “be over anytime soon.”