Millions of dollars in additional costs and weeks of delay. How the Red Sea crisis turned global trade upside down

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Attacks on container ships in the Red Sea have wreaked havoc on one of the world’s most important trade routes for weeks, and shipping giant Maersk warned on Thursday that the disruption could last for a year.

Houthi militants supported by Iran Has stepped up Their attacks on ships in late November were in response to Israel’s war against Hamas.

This has resulted in delays and additional costs for shipping companies Raised concerns Consumers, still suffering after a long period of rampant inflation, may be exposed to new price increases.

Richard Mead, editor-in-chief of Lloyds List, a shipping magazine, told CNN that there was “almost an exodus” of large container ships from the Red Sea and the nearby Suez Canal. These ships, which transport everything from coaches to mobile phones from manufacturers in Asia to customers in Europe, take longer routes to avoid the region.

This exodus is a big deal: The Suez Canal, which connects the Red Sea to the Mediterranean, accounts for between 10% and 15% of global trade, which includes oil exports, and 30% of global container shipping volumes.

But the overall impact on shipping costs and supply chains is much less severe than at the height of the pandemic, analysts tell CNN. However, the current crisis has left its mark, prompting Tesla (TSLA) l Stop Some of its production was due to delays in the delivery of auto parts to Germany, and Swedish furniture giant Ikea warned of a possible shortage of products.

“We are not close to a solution or a situation where we can see that the international community is able to provide safe passage,” Maersk CEO Vincent Clerc told CNN’s Julia Chatterley in an interview on Thursday. “So I think this will be with us for a few months.”

Weeks of delay

Peter Sand, senior analyst at Zeneta, a maritime and air freight data company, estimates that about 90% of the usual container ship capacity that passes through the Red Sea and Suez Canal has been rerouted around the southern tip of Africa.

He added that about a quarter of all bulk carriers, which transport large quantities of dry cargo such as grain or cement, and a quarter of tankers carrying oil or natural gas, made the same diversion around the Cape of Good Hope in South Africa. This adds up to two weeks to a typical east-west voyage for container ships, and 18 days for bulk carriers and slower tankers.

There is some evidence that shipping customers are choosing to transport their goods by air instead of exporting them by sea, due to the disruption, according to Sand.

“We’re seeing fashion companies and those who sell clothing in Europe deciding to fly some of their clothing lines, rather than by sea, and that’s when we’re really talking about escalating costs,” he said. “This is 10 to 20 times more expensive.”

Data from Zeneta shows a slight increase in the volume of air shipments from Vietnam, a clothing manufacturing hub, to northern Europe over the past three weeks.

An additional $1 million per ship

Adding a few thousand more miles to freight routes increased fuel and insurance costs, as well as rental fees and fare bills.

Sand’s Zeneta estimates that it costs carriers – companies like Maersk and Hapag-Lloyd – an additional $1 million per ship to make a round trip around the southern tip of Africa, with the vast majority of that figure due to higher fuel costs.

As a result, carriers have raised the freight rates that companies pay to transport their goods on board their ships, and have also imposed emergency surcharges.

Global shipping costs for a typical 40-foot container reached $3,786 this week, up 90% from the same time last year, according to Drury Global Container Index.

For the same sized container traveling from Shanghai in China to Rotterdam in the Netherlands, the cost jumped 158% compared to last year to $4,426.

However, the current crisis seems minor compared to the one that preceded it.

Global container shipping costs are less than half their level during the coronavirus pandemic, which peaked at $10,380 in September 2021.

At the time, consumers were still mostly stuck at home, flush with savings and with little to do but spend on goods.

“We are in a much better position than we were during the pandemic,” Simon McAdam, deputy global chief economist at Capital Economics, told CNN.

He said global demand for goods rose at an “unprecedented” speed in 2021, but has since fallen to historically normal levels, while rising interest rates have reduced consumers’ appetite for expensive goods that are usually paid for with credit.

Maersk’s Clerk also told CNN that the current shipping crisis is “not a repeat” of what happened during the pandemic. He said that the disruption this time is “much more targeted, and much more limited in scope.”

Will inflation rise again?

Many retailers are expected to pass on higher shipping costs to consumers, according to Zeneta’s Sand, especially those with lower profit margins.

However, he said container shipping is “very cost effective” as many goods can be packed into a single shipping container. For example, an additional few thousand dollars per container could be spread across hundreds of products, raising the retail price of each product by only a small percentage.

Economic Cooperation Organization on Monday If shipping costs remain high, it will lead to consumer price inflation across the 38 member states, the development said. can go up By 0.4 percentage points after about a year.

This unusually optimistic forecast is due in part to the explosive growth in the size of the global freight fleet last year, according to McAdam of Capital Economics, a trend he expects to continue through 2024. And carriers, unable to keep up with demand during the pandemic, said the company has provided “ Huge orders for new ships.

The cargo ship Galaxy Leader is escorted by Houthi boats in the Red Sea on November 20, 2023. – Houthi Military Media/Reuters

This has reduced shipping costs. “The increase in (freight) capacity offered in the market continues to put pressure on prices,” Maersk said He said Thursday.

But inflation expectations will become bleak if Israel and Hamas War spreads To other countries in the region, threatening global energy supplies, or if oil prices rise It barely budges Since the Houthis have intensified their attacks – they have begun to rise.

Record oil production in countries including the United States and Canada, in addition to weak expected global demand, kept prices under control.

Oil tankers have avoided the Red Sea and fewer container ships, which the Houthi militants closely associate with Western countries allied with Israel. But this may change.

Last week, Lloyds List’s MEED noted a 40% drop in the number of crude oil tankers passing through the Bab el-Mandeb Strait, the narrow waterway leading to the Red Sea from the south, compared to the previous week.

He said: “It is considered a risk, and there is no real confidence among the ship’s owners that it is safe, regardless of how the nationality is announced.”

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