What Do Red Sea Assaults Mean for Global Trade

Red Sea Shipping Lanes
Red Sea Shipping Lanes

Nearly three months after the start of the new Israeli-Palestinian conflict on October 7, 2023, the conflict has spread beyond the Gaza area, further endangering regional security, and already having an impact on global economic .

World’s Biggest Shipping Companies Diverting Journeys away from the Red Sea.

Maersk had planned to return shipping to the Red Sea on December 24, but Houthi rebels attacked the Maersk ship with a missile in the Red Sea, and Maersk announced that it was suspended its shipping service in Red Sea.

Attacked by Houthi Rebels

Global Trade Impact

Attacks by Houthi rebels in Yemen have resulted in many firms  including Mediterranean Shipping Company and Maersk, decided to avoid one of the world’s busiest shipping lanes, and have diverted vessels away to a much longer route around Africa’s Cape of Good Hope and then up the west side of the continent.

As a result, consumer goods “will face the largest impact” due to ships being diverted away from the Red Sea, according to Chris Rogers, head of supply chain research at S&P Global Market Intelligence, though he does note the current disruption has occurred “during the off-peak shipping season”.

Shipping days increased
Shipping Routes

Delays to products reaching shops can be expected, due to the Cape of Good Hope route adding about 3,500 nautical miles. Some large retailers have warned that supplies of products could be delayed if disruption to shipping continues. The extra distance will also cost companies more. According to supply chain advisers Drewry, the price of using a 40ft container has risen by 15% in the past weeks. These extra costs could be passed on by businesses to customers.

According to this situation, US had launched an international naval operation in December 2023 to try to protect ships on the Red Sea route. This operation was joined by countries including the UK, Canada, France, Bahrain, Norway and Spain, but some shipping companies remained reluctant to start using the route again. In Jan 2024, US and UK naval forces in the Red Sea have launched air strikes against Houthi rebel targets in Yemen in response to the attacks on shipping. But Houthi rebel has remained defiant and has attacked ships several times. Based on this, all commercial vessels in Red Sea were therefore threatened, and shipping insurance cost increased sharply.

The Red Sea has been considered a high-risk area, so shipping orders through the area are subject to additional war risk insurance premiums. Since the outbreak of the new Israeli-Palestinian conflict, this premium has increased by 1000%, which is 0.15-0.2% of the ship value, compared with 0.0125 % before the conflict.

Although the shipping arteries of the Red Sea is not completely blocked, if the conflict continues to expand, global economic activities will be greatly affected.

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