Attacks on shipping in the Red Sea are a blow to global trade

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Uuntil Suez Canal opened in 1869, Red Sea merchant ships carried mainly coffee, spices and slaves. The waterway changed everything. So far in 2023, about 24,000 ships have used the passage, representing about 10% of global maritime trade by volume, according to Clarksons, a shipping broker. This includes 20% of global container traffic, almost 10% of maritime oil and 8% of liquefied natural gas.

Thus, the missile and drone attacks carried out by Houthi militants in Yemen against ships passing through the narrow Bab al-Mandab Strait, which connects the Red Sea to the Gulf of Aden, apparently in support of the Palestinians in Gaza, therefore resemble in the latest blow to maritime transport. the industry – and its customers. It comes as both groups try to return to normal after the upheavals of the pandemic and, more recently, unrest such as a drought that prevented large ships from passing through the Panama Canal for several months.

A dozen Houthi attacks in recent weeks and four more on December 18 pose an unacceptable danger to navigation. Container companies account for around 95% of the capacity that usually passes through Suez, including giants like Swiss. msc and the Danish Maersk, suspended services in the area. Some energy companies, such as pb and Equinor, have also temporarily banned their ships from using the canal. As when the route was disrupted in 2021 after Never given, a giant container ship, ran aground and blocked the canal for six days, with shipping companies already diverting ships around Africa. This will extend travel by around 31 to 40 days between Asia and Northern Europe, Clarksons estimates. Unless the route can reopen safely, delays and inevitable disruption at ports due to late arrivals of ships will create chaos in the months to come.

However, this Suez crisis will not “put a damper on world trade”, believes Lars Jensen of the consultancy firm Vespucci Maritime. The reason for this cautious optimism has to do with the merciless cyclical nature of shipping. Contrary to Never given fiasco, supply chains are not currently under severe pressure. At the time, capacity reductions coupled with increased spending by housebound consumers had driven shipping rates to astronomical levels. A global index from Drewry, another consultancy, reaches more than $10,000 per standard container. On some routes, spot rates exceeded $20,000. That helped push the shipping companies' combined net profits in 2022 to $215 billion, according to the John McCown Container Report, an industry compendium, compared with a cumulative loss of $8.5 billion in 2016-19.

image: The Economist

The usual response of shipping companies to such price signals is to order new ships. These are starting to arrive. Even though demand has remained stable over the past two years, global fleet capacity will increase by 9% this year and by another 11% in 2024, according to ing, a bank. Profits in the sector may already have fallen by 80% in 2023. With capacity available, operating longer routes is unlikely to cause the disruptions seen at the height of the covid-19 crisis. By mid-December, the Drewry Index stabilized at around $1,500 (see chart). Tariffs could double due to unrest in the Red Sea, estimates Peter Sand of Xeneta, a freight data company. But they will likely remain well below their pandemic peaks, as will shipping company profits.

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