How the attacks on the Suez Canal could disrupt global trade

The new shipping crisis that threatens global trade

Iran-backed Houthi rebels in Yemen have continued to attack ships in the Suez Canal and Red Sea, prompting shipping and energy giants to pause or divert cargo and tankers.

The disruption has pushed up oil, natural gas and shipping prices.

The US and others are working to defend shipping traffic. Defense Secretary Lloyd Austin III announced Monday the formation of a multinational naval force to escort merchant ships and oil tankers through the vital shipping route, which accounts for about 12 percent of global trade.

The Houthi violence, Austin said, “threatens the free flow of commerce, endangers innocent sailors and violates international law.”

The intervention appeared to depress oil prices on Tuesday. But companies don’t take any risks. Maersk said Tuesday that it would reroute its ships around Africa, a detour that could extend the journey at least a week. It comes a day after BP said it had halted all tanker traffic through the region.

And the shipping companies OOCL and Evergreen Line have stopped sending container ships to Israel.

Exporters are preparing for shipping bottlenecks in much of the world. “You will see huge delays on your freight,” Lars Jensen, the CEO of Vespucci Maritime, a Copenhagen-based consultancy, told DealBook. According to Reuters, freight rates from several Chinese ports to Israel have increased pointed by more than $300 to more than $2,300 for a 40-foot container.

Jensen said it was unlikely that interest rates would rise “to the disastrous levels we saw two and a half years ago.” But he does see the potential for global disruption, with trade in the Eastern Mediterranean affected first before it potentially reaches US ports

That would increase delays related to the drought-stricken Panama Canal. Shipping companies have been forced to divert their shipments from Asia away from Panama and through the Suez Canal to ports on the U.S. East Coast. If the Suez problems continue, Jensen said, it could lead to traffic congestion in North America.

“If you try to look at this from the Houthi perspective, this seems to have been a resounding success so far,” Jensen said.

HERE’S WHAT’S HAPPENING

Tennessee is suing BlackRock over its ESG policies policy. The state’s attorney general accused the company violating consumer protection laws by not clarifying whether this prioritises environmental, social and governance issues over investment returns. BlackRock rejected the accusation but faces widespread ESG opposition from other Republican-led states.

A union could complicate Nippon Steel’s $14 billion deal for US Steel. The United Steelworkers, which represents most of the U.S. company’s workforce, urged regulators to review the deal on labor and national security grounds. The union is in favor of a deal with a domestic producer, Cleveland-Cliffs.

Trevor Milton is sentenced to four years in prison. Milton, the founder and former CEO of electric car manufacturer Nikola, was found guilty last year of defrauding investors. His trial, and that of Theranos’ Elizabeth Holmes, was seen as a test of whether startup founders could be held liable for making exaggerated claims to advance their companies’ prospects.

Migrants entering Texas are being arrested. Greg Abbott, the state’s Republican governor, signed the controversial measure into law on Monday, setting off a showdown with the Biden administration over border security. Immigrant rights groups and Latin American organizations claim the measure is unconstitutional and encourages racial profiling.

Figma’s CEO on the demise of his $20 billion deal

Of the several deals that have fallen apart recently, Adobe’s $20 billion acquisition of Figma, an upstart design software maker, is one of the most instructive.

The companies had promised it would be a way to “usher in a new era of collaborative creativity,” but regulators in three jurisdictions saw it as an unacceptable attempt by a software giant to buy a promising future rival. For Dylan Field, CEO of Figma, this contrast underscored a fundamental divide between the way companies and regulators think about competition.

“It’s frustrating and sad that we can’t complete this,” Field told DealBook’s Michael de la Merced in his first interview since the announcement.

The demise of the deal is another feather in the cap for antitrust enforcers. Both the European Commission and the British Competition and Markets Authority were preparing to formally challenge the transaction. (Just hours before the companies announced the deal was dead, the CMA said Adobe had declined to offer solutions to address the concerns.) The Department of Justice – which meeting with representatives from Adobe and Figma last week – had considered whether I would be against it too.

Supervisors’ biggest concern: Would allowing Adobe to buy Figma rule out a future competitor? To some, the deal was analogous to Facebook acquiring Instagram in 2012. Those concerns have also bolstered other enforcement efforts, including those against Microsoft’s acquisition of gaming company Activision Blizzard and Meta’s acquisition of virtual reality start-up Within. (Both deals have closed.)

Field repeatedly argued that the deal would have allowed his company to create more supply, but said Monday that there is “ultimately a gap between how regulators understand our business and how we understand our business.”

By the weekend it became clear that the deal could not succeed. In recent weeks, “we have both seen how the path has become increasingly narrow,” Field said, and halting the transaction would provide greater clarity and certainty for employees and customers.

What’s next? Regulators’ opposition to the Adobe deal means Figma likely won’t be able to find another buyer, Field acknowledged, and the company would likely remain independent. He added that Figma had continued to expand over the past fifteen months, more than doubling its workforce to 1,300 and acquiring Diagram, an AI-based start-up.

Apple Watches and a battle for innovation

Apple’s announcement Monday that it would suspend U.S. sales of its latest smartwatches, one of its most popular gadgets, threatens to put a dent in holiday sales.

The move, which stems from a patent dispute with medical technology company Masimo, further intensifies the battle between Silicon Valley giants and smaller rivals.

The backstory: Masimo, which makes health monitoring devices, accused Apple of poaching top executives and others involved in its technology for detecting users’ heart rates, and then adding a similar feature to Apple Watches. The battle was taken to the International Trade Commission, which ruled that the iPhone maker had violated Masimo’s patents.

Apple has denied the claims. Instead of seeking a licensing deal with Masimo, it has asked the Biden administration to reverse the ITC’s decision. It’s reportedly trying to do just that find a software fix or other possible solutions.

The stakes are high. Apple Watch sales account for $20 billion of the tech giant’s annual revenue. If the company cannot find a solution quickly – the presidential review period ends on Christmas Day – it could face an import ban.

It’s not Apple’s only patent battle. Last year the ITC ruled that the company infringed on ECG technology from AliveCor, another medical device manufacturer, a decision the Biden administration is unwilling to reverse.

Apple said the ruling is not yet in effect because a separate agency has ruled that AliveCor’s technology is not patentable – a decision that AliveCor is appealing.

Apple critics say the cases show how Big Tech threatens innovation. Vinod Khosla, the venture capital magnate who is an investor in AliveCor, applauded Apple’s decision to halt sales, arguing that startups are the backbone of the U.S. tech industry. “If this IP is not backed by law, there is very little incentive for venture capital firms to fund breakthrough technologies,” he told DealBook.

“If America’s innovative companies are crushed by competitors who have infinitely large cash balances and can push small businesses into oblivion with incessant lawsuits, outsized political influence and a media barrage,” Khosla added, “we will become a country governed by a few monopolies. and zero innovation.”

Another chip in Google’s wall

Google’s announcement on Monday that it will offer developers direct payment options to its Play Store users is the latest sign that the battle against Big Tech is taking its toll.

The news, revealed as part of a $700 million antitrust settlement reached with all 50 states in September, further undermines Google’s corporate defenses. The question is whether there will be more hits next year.

Google’s app store has been in legal crosshairs for some time now. Together with Apple’s platform, it is one of the two major marketplaces for mobile apps. Google charges developers between 15 and 30 percent for in-app purchases and subscriptions, a practice that smaller companies have called unfairly burdensome.

The Play Store was in the news last week after a San Francisco jury found that Google had violated antitrust laws with its tight control of the market, in a lawsuit filed by Epic Games.

What’s included in the settlement: Developers’ fees to Google will be reduced by four percentage points if they handle their own transactions. (Users won’t necessarily have to pay lower prices, though, as companies can pocket the difference.) Google will also pay $630 million to establish a consumer settlement fund and $70 million in a fund for states.

The tech giant hopes the agreement can serve as a template for other resolutions, including with Epic. A judge is expected to rule on the remedies in the case early next year; Google says it will appeal the Epic ruling.

Google faces other legal challenges. A judge will rule on the Justice Department’s antitrust case over the company’s monopoly in search, as a new case looms over the company’s dominance in advertising.

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• Goldman Sachs has hired Jennifer Zuccarelli, a former top communications executive at JPMorgan Chase and the Treasury Department, as head of media relations. (Internal memo)

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