Red Sea attacks cause global trade to splutter
March 15, 2024
On the morning of February 21, a cargo ship rammed a bridge in Guangzhou, China — one of the world's busiest seaports — causing the structure to partially collapse. This type of accident in a place where a significant portion of East-West trade passes can have costly consequences for maritime trade. Fortunately, on this occasion, the incident didn't cause any delays for shipping.
International maritime routes are already facing plenty of obstacles as it is. Shipping, the means of transport for more than 80% of global goods, is dealing with piracy in Asian and African waters, and also struggling with the effects of armed conflict and low water levels.
Global shipping bottlenecks
Two of the world's three most important artificial waterways are not fully navigable at present: the Suez Canal in Egypt, due to attacks on freighters in the Red Sea by Iran-backed Houthi rebels linked to the Israel-Hamas war, and the Panama Canal in Central America, because of persistently low water levels.
The two canals are critical for the timely and cost-effective transporting of goods as they allow ships to avoid much longer, often more dangerous routes around southern Africa (Cape of Good Hope) and South America (Cape Horn).
Shipping firms have been forced to reroute their vessels as a result of the obstructions at the Panama and Suez canals, which is driving up freight costs and causing a rise in maritime emissions.
The UN Conference on Trade and Development (UNCTAD) warned in February that longer travel times are disrupting many supply chains, causing containers to arrive late, logjams at already-busy seaports and delayed deliveries for end customers.
Shipowners are struggling
Jeremy Nixon, head of the Singaporean-Japanese container shipping company Ocean Network Express (ONE), has warned that several firms cannot make their delivery schedules.
"Everybody is struggling with schedule integrity and therefore we're getting berthing clashes in a number of ports," Nixon told the Financial Times in February, referring specifically to Shanghai and Dubai, as well as various ports around the Strait of Gibraltar.
The diversions around southern Africa can extend journey times on ships moving from Asia to northern Europe by 10 to 14 days, which has a knock-on effect on supply chains elsewhere in the world.
Not enough cargo space
Nixon calculated the burden on his firm from the detours, saying ONE would normally have 12 ships plying the Asia to Europe route, but would now need 16 ships to provide the same uninterrupted service, as the return journey now takes more than 100 days.
But his company doesn't have the extra vessels and instead, his ships have been ordered to move 10-15% faster than usual to limit the lost time. But that's not enough.
"There are simply not enough ships available globally [...] to cover these much longer extended transit times," Nixon told the business daily.
Global shipping fleets are growing, with an 8% increase in capacity expected in 2024. But many of these vessels won't be in service until later in the year. In the medium term, their arrival will be a double-edged sword as too much shipping capacity will cause freight rates to fall and lower the shipping companies' profits.
Prices rising sharply
UNCTAD found that spot container prices from Shanghai to Europe have risen by an average of 256% from December 2023 to February 2024, mostly caused by the Houthi attacks in the Red Sea, which the Suez Canal connects with the Mediterranean Sea. Compared with the same period last year, there are 42% fewer cargo ships passing through the canal.
The UN body foresees "far-reaching economic impacts for container transport," leading to delivery delays, higher costs and rising inflation, noting that consumers will feel the impact within a year.
According to UNCTAD, longer routes not only mean increasing costs. Environmental pollution has also increased due to higher fuel consumption and faster speeds. On the Singapore-Rotterdam route, UNCTAD calculated that greenhouse gas emissions could rocket by 70% on a return trip.
These environmental as well as the economic costs "put additional pressure on developing countries," the UN agency warned.
This article was originally written in German.