Avoiding attacks in the Red Sea has raised the cost of business for Chinese firms in East Africa, which borders the embattled waterway, and shaken the production of companies that cannot afford the more costly alternative transport options, analysts said, reports SCMP.
Red Sea crisis
Chinese traders are gingerly eyeing the use of circuitous air, land, and sea routes for safety, hiring risk-tolerant so-called feeder shipping lines or producing less until the attacks by Houthi militants stop.
“Chinese companies with a substantial presence in African markets are facing heightened uncertainties and complexities as they navigate these disruptions, prompting a re-evaluation of their shipping strategies and contingency plans to mitigate the impact on their operations,” said Gary Lau, chairman of the Hong Kong Association of Freight Forwarding and Logistics.
Houthi militants have launched attacks in the Red Sea shipping lanes around Yemen, which lies along the waterway opposite East Africa, since the Israel-Gaza war began in October, forcing some shipping firms to suspend transits through the Suez Canal.
China has particular exposure to Africa as its fifth-largest source of foreign direct investment stock in 2021, United Nations Conference on Trade and Development data showed.
Its investments in Africa reached US$1.8 billion in the first half of 2023, up by 4.4 percent year on year, the Ministry of Commerce said in October.
China is also Africa’s biggest trading partner, the state-owned news outlet said.
Chinese foreign direct investment in Africa has grown steadily from US$75 million in 2003 to US$5 billion in 2021, according to the China Africa Research Initiative at Johns Hopkins University.
Along the Red Sea, port operator China Merchants Group signed a US$350 million agreement in 2020 to modernize the strategically important Port of Djibouti.
Chinese investors have signed contracts to build two airports and a pipeline to send water from Ethiopia to Djibouti, while a Chinese-funded railway from Djibouti to Ethiopia opened in 2018.
In the neighboring coastal nation of Eritrea, the Chinese invest in gold, copper ore, and potassium-rich potash mining.
A “suspension of shipping” in the Red Sea has impacted Djibouti, Ethiopia, Eritrea, and Sudan, according to He Liehui, vice-president of the African-Chinese People’s Friendship Association.
The geographic locations in East Africa and the “distribution” of world shipping routes mean shippers have no way to detour around the Cape of Good Hope at the southern tip of Africa, He said.
They are also seen to lack the advanced road and rail systems found elsewhere in the world.
Chinese shippers face higher cargo rates, a lack of empty containers, and decisions on whether to use land routes from China to Europe, said Sunny Huang, a director at Fitch Ratings in Hong Kong.
Huang added that port operators have also felt the impact, although to a lesser degree, on their operating efficiency and costs.
But while Chinese businesses in East Africa have to pay more, they do not need to stop shipping outright because of the Red Sea problem, said Christian Roeloffs, chief executive officer of German container logistics platform Container xChange.
Shippers can still hire feeder ships in India, Pakistan, or the Persian Gulf that do not mind the risk of crossing the Red Sea into Africa, Roeloffs added.
But the transfer of cargo from Chinese ships to feeder vessels in places such as Kolkata in India or Karachi in Pakistan adds one to two weeks and US$100 to US$200 per box for every offload from one vessel or load onto another, he said.
Feeder lines, which range from three to more than 100 vessels, were popular during the coronavirus pandemic when world shipping demand surged, Roeloffs added.
Some Chinese shippers are exploring ocean routes around the Cape of Good Hope or air and rail combinations – a popular option for e-commerce transport – Lau said.
Some cargo reaches Dubai by sea from China before continuing by costly air routes to its final destinations.
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Source: SCMP
