Ongoing assaults by the Iran-aligned Yemeni Houthi militant group on Red Sea ships are causing significant disruptions in maritime trade. Global freight leaders, including MSC, are diverting routes around the Cape of Good Hope to steer clear of the Suez Canal. Multiple “projectiles” were launched on Monday from Houthi-controlled territory, as confirmed by U.S. officials.
The Houthi movement attributes its series of missile and drone attacks on ships to Israel’s actions in the Gaza Strip. Despite no immediate claims of responsibility for the latest attack, major freight companies are already circumventing Africa, leading to increased costs and anticipated delays in the coming weeks. Approximately 15% of global shipping traffic relies on the Suez Canal, the shortest route between Europe and Asia.
The companies diverting vessels collectively control about half of the global container shipping market, as highlighted by ABN Amro analyst Albert Jan Swart. This strategic shift results in heightened costs due to extended travel times. Following the weekend attacks, oil giant BP has temporarily halted all Red Sea transits.
The ongoing conflict between Israel and Hamas, escalating since October 7, has triggered geopolitical reverberations, involving the United States and its allies on one side and Iran-backed paramilitary groups in the Middle East on the other. This escalation raises the specter of a broader conflict.
In response to the shipping attacks, the United States and its allies are contemplating a task force to safeguard Red Sea routes, a move vehemently opposed by Tehran. U.S. Defense Secretary Lloyd Austin is currently engaged in talks in the region.
Analyst Rico Luman from ING notes that diversions are adding at least a week to sailing times for container liners. This disruption is expected to lead to delays in late December, with cascading effects in January and possibly February. While freight rates may increase on these extended voyages, carriers are currently exploring ways to optimize excess capacity.
Zvi Schreiber, CEO of global freight platform Freightos, suggests that while freight rates might rise, a spike to pandemic-level highs is unlikely. European shipping stocks experienced a boost in morning trading on Monday, driven by speculation that the shift away from the Suez Canal could enhance rates. A.P. Moller-Maersk, for example, rose 3.5% in early Copenhagen trade.
The Suez Canal, crucial for Egypt’s foreign currency, faces economic challenges, given that approximately 90% of global trade depends on sea transport. The International Chamber of Shipping emphasizes the severity of the Houthi assault on shipping lanes, labeling it an “extremely serious threat to international trade” and urging naval intervention to halt these attacks.
