As we reported last week, a growing number of attacks on commercial shipping by so-called Houthi militants operating in Yemen has causes many ocean carriers to stop using the Red Sea, which connects to the Suez Canal. It has gotten so bad that a Maersk ship actually fired back at attackers in boats, after it has been hit be a rocket. (See The Impact of Houthi Attacks on Shipping in the Red Sea.)
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| The attacks are already delaying delivery of products destined for numerous companies, as the Suez route is used by the likes of IKEA, Walmart, and Amazon, among others. |
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Yemen sits on the southern end of the Red Sea.
The diversion from the Red Sea routes means ships need to go around Africa’s Cape of Good Hope, adding about two weeks and 3000 nautical miles to the journey. About 1,500 ships passed through the Red Sea every month last year, including both container and bulk vessels.
Up to 30% of cargo that arrives at the US East Coast travels through the Suez Canal.
But that extra travel time and the general chaos is also sending rates soaring, after a year of rock bottom prices in 2023.
The cost to ship a 40-foot container from China to Europe through the Red Sea have jumped to about $4,000 this week, according to the Drewry World Container Index.
That represents an increase of almost 248% from $1,148 from November 21, the week the attacks began, and a 140% increase from $1,667 on December 23.
Rates are also way up from China to the US East and West coasts. Reuters reported last week that rates for shipments from Asia to North America's East coast climbed 55% to $3,900 per 40-foot container. West coast prices jumped 63% to more than $2,700
However, according to The National, the big jump in container rates 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.
In addition, higher ancillary costs such as surcharges and insurance have also increased.
The National Further reports that the cost of war risk insurance has doubled in the past week and is expected to rise even more.
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Huge Impact if Red Sea is Completely Shut Down for Shipping
As noted above, a number of container lines, including MSC, Maersk, CMA CGM, Hapag-Lloyd, Cosco Shipping, HMM and Evergreen Line have for now stopped using the Red Sea, but other lines and many bulk oil and gas ships continue to sail in the waterway.
But what if the attacks escalate and cause the Red Sea to be closed for shipping, despite US working to get other nations to help secure Red Sea routes?
Source: The National
American forces along with the military resources from the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain have created a new task force dedicated to protect ships in the region.
It could cause a sharp jump in inflation, as much as 0.7%, according to Scott Livermore, chief economist at Oxford Economics.
In addition, the attacks are already delaying delivery of products destined for numerous companies, as the Suez route is used by the likes of IKEA, Walmart, and Amazon, among others.
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