Red Sea Crisis Put Shipping Firms In A ‘Tough Spot’

• The Houthi attacks have continued even after a U.S.-led force was assembled in the Red Sea to prevent them.
• Global shippers can send their vessels through the Red Sea if they are willing to risk attacks by the Houthi militia in Yemen.
• 389 container vessels, accounting for more than one-fifth of global container capacity, had already diverted from the Suez Canal or was in the process of doing so.

The shipping companies that move goods on one of the world’s busiest trade routes face an excruciating decision, reports the New York Times.

They can send their vessels through the Red Sea if they are willing to risk attacks by the Houthi militia in Yemen and to bear the cost of sharply higher insurance premiums. Or they can sail an extra 4,000 miles around Africa, adding 10 days in each direction and burning considerably more fuel.

Global supply chains have finally recovered

Neither option is appealing and both raise costs. In recent months, global supply chains had finally recovered after three years of disruptions caused by the pandemic and even a brief blockage of the Suez Canal, which lies at the northwestern end of the Red Sea and handles some 12 percent of global trade. Freight rates had fallen steeply, and the long delays that had bedeviled retailers in the United States and Europe had been resolved. So far, the problems in the Red Sea have not disrupted global supply chains to the same extent that the pandemic did.

The Houthi attacks have continued even after a US-led force was assembled in the Red Sea to prevent them. Already, some companies, including Ikea and Next, the British retailer, have said that avoiding the Suez Canal and taking the long route around Africa could delay the arrival of products.

How the container shipping industry handles the annual surge of exports

A crucial question will be how the container shipping industry handles the annual surge of exports that typically occurs before China’s factories are idled for weeks at Lunar New Year, which is next month.

MSC, the largest container shipping company, said in mid-December that it was avoiding the Red Sea. Maersk, the second biggest, temporarily halted transits of the Red Sea then, returned to the area in late December and pulled back again this week after one of its vessels, the Maersk Hangzhou, was attacked.

CMA CGM, the French shipping company, said in statement that some of its vessels had traveled through the Red Sea and that it was planning for a gradual increase of passages through the Suez Canal. “We are monitoring the situation constantly, and we stand ready to promptly reassess and adjust our plans as needed,” it added.

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

Some container vessels still using the Red Sea may be headed to or coming from ports there, like those in Saudi Arabia. For financial reasons, some smaller container ships are also continuing to transit the Red Sea for trips between Europe and Asia.

Vessel diversions

The quickest route to ports on the US East Coast from China is through the Panama Canal. But shipping companies that avoided that canal because of the drought must now sail for even longer as they detour around the Cape of Good Hope. The Cape journey takes 10 days longer, or some 40 percent more, than traveling through the Panama Canal, Flexport calculates.

The cost of transporting a container to an East Coast port from China has soared to around $3,900 from $2,300 before the Red Sea attacks, says Zvi Schreiber, the chief executive of Freightos, a digital shipping marketplace. When the shipping logjam was at its worst during the pandemic, the cost could be over $20,000.

Insurance costs, usually no more than 0.2 perc ent of the value of a vessel per journey, jumped to 0.7 per cent for ships planning to enter the Red Sea, said Forgione of the trade institute. Christian Roeloffs, co-chief executive of Container xChange, said in an email that the current supply chain disruptions from China appeared “relatively modest” compared with what happened when the country imposed lockdowns during the pandemic.

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Source: The New York Times

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