Recent attacks by Houthi rebels in the Red Sea have prompted major shipping companies, including Maersk, MSC, CMA-CGM, and Hapag Lloyd, to reroute vessels, causing unprecedented disruptions. The attacks, directed at ships bound for Israeli ports in retaliation to the Israel-Hamas conflict, have forced alternative routes, adding thousands of extra miles and causing delays. Experts anticipate potential price increases, particularly for oil and gas. The severity and duration of disruptions depend on the effectiveness of the U.S. Navy’s presence in the region, with an unclear timeline for resolution, reports Miami Herald.
Unprecedented rerouting
Following the Houthi attacks, “four of the largest container shipping companies” — Maersk, MSC, CMA-CGM, and Hapag Lloyd — “have announced that they’re rerouting,” Mary Brooks, a professor emerita at the Rowe School of Business, told McClatchy News.
“This is huge,” Brooks, who studies global shipping, said.
BP — one of the world’s largest oil companies — also paused all traffic through the region “in light of the deteriorating security situation,” a company spokesperson told McClatchy News.
This kind of mass course correction is unprecedented, Phillip Wolfe, the director of pricing & procurement at American Global Logistics, told McClatchy News.
The last comparable disruption occurred in March 2021 when the cargo vessel Ever Given became stuck in the Suez Canal, which connects the Red Sea to the Mediterranean, delaying over 300 ships and supplies destined for seven American ports, Wolfe said.
Around 50 tankers pass through the Suez Canal every day, but recently “as many as 32 per day have been rerouted,” Michael Manjuris, the chair of global management studies at Toronto Metropolitan University, told McClatchy News.
Ships that elect to go around the southern tip of Africa would face even longer delays of two weeks or more, Wolfe said.
As a result, “large delays” will affect the North American market — though Europe and Asia will be impacted more quickly, Trevor Heaver, a professor emeritus at the University of British Columbia, told McClatchy News.
Effect of delays
Likely, the cost of such delays will eventually trickle down to consumers, Wolfe said.
Prices of oil and gas, which are typically very reactive to the market, are expected to hedge up, along with other general commodities, Wolfe said.
Not all experts who spoke with McClatchy News agreed on that point, however. Morrison, for instance, downplayed the size of effects on North America, saying “shipping of consumer products to the U.S. from Asia — where China is the top supplier — generally does not rely on the Suez Canal. So, the impact on U.S. consumers is not significant, at least for the time being.”
Some American markets, though, have already felt the effects of the announced reroutings, Manjuris said.
“The price of West Texas Intermediate oil is already starting to creep up. It’s crept up one or two dollars a barrel,” Manjuris said. “This is traders saying this delay may happen, so we better price it is now for future contracts.”
If oil prices continue to rise, though, it’s likely the Biden administration will tap into the Strategic Petroleum Reserve — as it did following Russia’s invasion of Ukraine in 2022 — in an attempt to offset price increases, Manjuris said.
But, for price increases to be significant and sustained, the Houthis would need to continue their attacks on ships in the Red Sea, a tactic which could soon be curtailed, Manjuris said.
Unclear timeline
Secretary of Defense Lloyd Austin announced Operation Prosperity Guardian on Dec. 18, which established a naval task force composed of nine countries, including the U.K., France, and Bahrain, to respond to the Houthis’ “reckless” attacks.
The ramped-up military presence in the region should make “these diversions disappear,” Manjuris said, though he stipulated “it’s a volatile situation and in a couple of weeks this could all change.”
Pushing back against predictions of a quick resolution, Morrison said, “The situation is not going away anytime soon.”
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Source: Miami Herald
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