The cost of shipping goods through the Red Sea has surged since Yemen’s Houthi rebels began attacking commercial vessels in late November, and this continuing disruption may lead to higher inflation globally, industry analysts have said, reports N Business.
Choppy waters
The rise in freight charges is not only due to the issues in the Red Sea.
A “panic” in China, owing to fears of insufficient shipping capacity to transport products before the Chinese New Year holiday, has also been pushing prices up, Mr Sharan said.
In addition, higher ancillary costs such as surcharges and insurance have also increased, so “logistically, this becomes a difficult situation”, Christian Roeloffs, co-founder and chief executive of Hamburg-based Container xChange, told The National.
“The cost of war risk insurance has doubled in the past week and we do expect this to go up further,” he said.
“The higher rates could put as much as $760,000 on the cost of each voyage for a brand-new $130 million VLCC [very large crude carrier] and push the million-dollar mark for an ultra-large box ship.”
Container rates on the Asia-Europe trade have been affected the most, said Rico Luman, senior economist of transport, logistics, and automotive at Amsterdam-based ING Research.
“Particularly sailings to Mediterranean ports are significantly longer. Port-to-port container rates on the Asia-Europe trade was up 130 percent compared to early November.”
The Houthi attacks are part of the rebels’ pressure campaign to stop Israel’s bombardment of Gaza.
The assaults have significantly increased the risk for shipping companies while also escalating concerns about the security and welfare of seafarers.
A senior US official said last week that 25 Houthi attacks had been carried out since November 18 on merchant vessels transiting the southern Red Sea and Gulf of Aden.
The US last month also formed Operation Prosperity Guardian, a new international mission focused on countering attacks on commercial vessels in the Red Sea.
“If left unchecked, the deteriorating security situation has major implications for global supply chains, including delayed shipments, increased transit times, and higher costs on energy and non-energy trade between Europe, the Middle East, and Asia,” said Pat Thaker, editorial director for the Middle East and Africa at the Economist Intelligence Unit.
The closure of the Red Sea route or any disruptions will have significant repercussions, especially for international shipping companies, said Ali Abouda, chief financial officer of Dubai Financial Market-listed Gulf Navigation.
“The Bab El Mandeb is a key route for maritime trade, especially for oil shipments from the Middle East to Europe and the US,” Mr Abouda said.
“The closure could lead to delays, increased shipping costs, and potential shortages of goods.”
As shipping companies reroute their vessels around the southern tip of Africa, this could result “in congestion at alternative routes which will impact the supply chain and affect industries that rely on just-in-time delivery systems”, he added.
It would also lead to heightened security risks in the region and insurance providers may increase premiums to account for the perceived higher likelihood of incidents due to the geopolitical tensions.
Alternative routes may also be associated with higher risks and, consequently, higher premiums, Mr Abouda said.
Gulf Navigation owns and operates mid-range chemical vessels and a mixed pool of offshore vessels. The fleet trades mainly in the Far East and increasingly in North America.
“Crossing the Red Sea is rare but when the vessels do cross the area, the company will put all necessary measures in place and assess the situation beforehand.”
Crucial channel
The Red Sea, one of the world’s major trade arteries, carries an estimated 9 million barrels a day of oil shipments, representing about 10 percent of global demand, while the route covers almost one-third of global container traffic and around 12 percent of global goods trade.
On the energy front, continued attacks by the Houthis have escalated concerns about supply disruption in the oil market.
Bab Al Mandeb, on the southern edge of the Red Sea, is a route for oil tankers and cargo ships sailing between the Arabian Gulf and Asia, as well as to Europe through the Suez Canal.
About 12 percent of the world’s seaborne oil trade and 8 percent of liquefied natural gas passes through the strait.
While the price of Brent, the benchmark for two-thirds of the world’s oil, has been fluctuating since the attacks began due to fears of supply disruption, it remains below $80 on demand concerns.
Analysts at Fitch forecast the price of Brent to hover around $85 a barrel in 2024.
However, “should more shippers divert vessels around the Red Sea beyond our expectations, extending the costs and travel time for fuel and crude, the impacts to prices could be more significant than estimated and warrant an increase to our 2024 forecast”, they said.
At the close of trading on Monday, Brent slid 3.3 percent to settle at $76.12 a barrel, while West Texas Intermediate, which tracks US crude, fell 4.1 percent to $70.77 a barrel.
“At a regional level, a prolonged Houthi campaign against shipping in the Red Sea would severely risk the sustainability of oil and gas exports from major regional producers, such as Iraq, Libya, and Algeria, which have more limited recourse to increasing pipeline exports compared with Saudi Arabia and the UAE, constraining revenue gains in the short term during a period of elevated hydrocarbons prices,” Ms Thaker said.
Meanwhile, Egypt, which received about $9.4 billion in Suez Canal tolls from shipping companies in the fiscal year 2022-2023 that begins in July, is “anxious to protect this crucial source of income”, she said.
About 1,500 ships passed through the Red Sea every month last year.
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Source: The National News
