Attacks in the Red Sea cause fragility in global trade

On the morning of February 21, a cargo ship crashed into a bridge in Guangzhou, China – one of the busiest seaports in the world – causing the structure to partially collapse. This type of accident, through which a significant part of East-West trade passes, can have costly consequences for maritime trade. Fortunately, on this occasion, the incident did not cause shipping delays.

Fortunately, international shipping routes already face many obstacles. Maritime transport, which transports more than 80% of global goods, is dealing with piracy in Asian and African waters, but also with the effects of armed conflicts and low water levels.

Global bottleneck

Two of the world’s three most important artificial waterways are not fully navigable at the moment: the Suez Canal in Egypt, due to attacks on nearby ships by Iran-backed Houthi rebels linked to the Israel-Hamas war, and the Panama Canal in Central America due to persistently low water levels.

The two canals are fundamental to the timely and economical transport of goods, as they allow ships to avoid much longer and often more dangerous routes around Southern Africa (Cape of Good Hope) and South America (Cape Horn).

Shipping companies have been forced to reroute their ships due to blockages in the Panama and Suez canals, which is increasing freight costs and causing an increase in maritime emissions.

The United Nations Conference on Trade and Development (UNCTAD) warned in February that longer travel times are disrupting many supply chains, causing delays in container arrivals, congestion at already busy seaports and delays in deliveries to end customers. .

Shipowners have to fight

Jeremy Nixon, head of Singapore-Japanese container shipping company Ocean Network Express (ONE), warned that several companies are unable to meet their delivery schedules.

“Everyone is struggling with the integrity of schedules, and so we are having berthing conflicts at a number of ports,” Nixon told Financial Times last month, specifically referring to Shanghai and Dubai, as well as several ports around the Strait of Gibraltar.

Diversions around Southern Africa could lengthen journey times for ships moving from Asia to northern Europe by 10 to 14 days, which has a knock-on effect on supply chains in other parts of the world.

Insufficient cargo space

Nixon calculated the burden on his company from the diversions, saying that ONE would normally have 12 ships operating the Asia-to-Europe route, but now needs 16 ships to provide the same uninterrupted service as the journey from return now takes more than 100 days.

But your company has no extra ships and instead your ships have been ordered to move 10-15% faster than usual to limit wasted time. But this is not enough.

“There are simply not enough ships available globally… to cover these much longer transit times,” Nixon told the business daily.

Global maritime fleets are growing, with capacity expected to increase by 8% by 2024. But many of these vessels will only be in service at the end of the year. In the medium term, its arrival will be a double-edged sword, as excessive transport capacity will cause freight rates to fall and reduce your profits.

Prices rising sharply

UNCTAD found that spot container prices from Shanghai to Europe increased by an average of 256% between December and February, mainly caused by Houthi attacks in the Red Sea, which leads to the Suez Canal. Compared to the same period last year, there are 42% fewer cargo ships passing through the canal.

The UN body predicts “far-reaching economic impacts for container shipping”, leading to delays in deliveries, higher costs and increased inflation, noting that consumers will feel the impact within a year.

According to UNCTAD, longer routes do not just mean increased costs. Environmental pollution has also increased due to greater fuel consumption and faster speeds. On the Singapore-Rotterdam route, it calculated that greenhouse gas emissions could skyrocket by 70% on a return trip.

This has “economic and environmental costs that place additional pressure on developing countries”, warned the UN agency.

This article was adapted from German.