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March 4, 2024

Shipping Industry Pleads Congress for Help Amid Escalating Attacks in Red Sea

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Jan 30, 2024

The global shipping industry is facing major disruptions and calling for government intervention as attacks on cargo ships passing through the Red Sea intensify. Several countries and international organizations have accused Yemen’s Houthi rebels of carrying out the attacks.

Attacks Causing Rerouting, Delays, and Surging Costs

Over 30 ships have been attacked in the Red Sea over the past 3 months, according to maritime reports. Several oil tankers have been hit, and last week a containership operated by Ocean Network Express suffered an explosion.

The attacks are forcing many cargo ships to take the alternate route around the Cape of Good Hope in South Africa, adding weeks of additional transit time. Maritime consultancy Dynamar estimates over 100 tankers have already been rerouted. Oil shipments from the Middle East to Europe typically take around 22 days through the Suez Canal and Red Sea but over 40 days on the Africa route.

The chairman of A.P. Moller-Maersk, the world’s no. 1 container shipping company, told Congress this week: “Rerouting vessels is costly and disrupts schedules. We have already been compelled to reroute more than 10 vessels, adding 2-3 weeks of transit time.”

Freight rates and fuel costs are surging as vessels travel longer routes and firms pass on expenses to customers. According to Xeneta CEO Patrik Berglund: “The secure and efficient passage of vessels through conflict zones is vital for global trade… Disruption on such a strategic route is hugely impactful.”

International Pressure on Yemen Government

Several Western and Middle Eastern governments have condemned the Houthis and urged action to stop the attacks. US National Security Advisor Daleep Singh said: “These attacks are exacerbating inflation and food insecurity by blocking key trade routes.”

There is increasing pressure on Yemen’s internationally recognized government and allies, like Egypt, to curb the rebel group’s aggression. However, direct military intervention brings high risks with the Houthis threatening retaliation on foreign ships.

Jacob Kirkegaard, a senior fellow at the German Marshall Fund, said: “Short of an unlikely massive intervention by Egypt, Saudi Arabia, or the West, the attacks may continue for months.”

Impact on Supply Chains and Inflation

With rerouting and attacks persisting over several weeks, the shipping crisis threatens to disrupt numerous industries and boost inflation further. Pressured supply chains are already struggling with pandemic disruptions and high costs.

Electronics manufacturers in Asia face shortages of components shipped from Europe, with delays jeopardizing production schedules. European spirits group Diageo and major retailers like Walmart also expect delivery lags on some goods. According to Resilinc Corp, over 30% of high-tech and automotive parts come via the Suez Canal.

Morgan Stanley analysts estimate the crisis could add 1-3% to future US inflation measures. Raoul Leering, head of international trade at ING, said: “If the conflict lasts longer, factories will run out of parts and struggle to make and sell goods.”

Impact on Specific Goods Flows

Good Main Impact Mitigations
Oil & Gas Tankers rerouting around Africa, surge in shipping costs More oil released from reserves, switch some power plants to coal/nuclear
Vehicles & Machinery Shortages of imported components Use air freight, increase local parts production
Electronics Delayed deliveries of high-tech parts Draw down reserves, divert products to less impacted markets
Food & Beverages Limited direct impact but higher prices from fuel/transport Localize supply chains, limit exports from affected regions

Efforts to Secure Red Sea Shipping

With global pressure rising, the international community is scrambling to find solutions but options are limited. The US and allied navies have stepped up escorts through the Red Sea chokepoint.

Egypt, Saudi Arabia and the UAE could launch strikes on Houthi coastal launch sites but face retaliation risks against own ships and ports. Direct peace talks also seem unlikely to progress soon given rebel groups previously walked out of negotiations.

Most experts argue the only long-term resolution involves a political solution to Yemen’s civil war by forcing concessions from the Houthis. However, after 8 years of conflict prospects for peace remain dim.

For now, shippers have no choice but to take the long way round past Africa. Ultimately consumers around the world will pay the price through higher costs and shortages for months to come.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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