Major Shipping Companies Halt Red Sea Routes, Global Trade Faces Increased Disruption Threats

Recent attacks on vessels in the Red Sea by Houthi rebels, supported by Iran, have shaken global trade. The shipping of goods and fuel may face more disruptions and price hikes.

Since the beginning of October, with the conflict between Israel and Hamas, over a dozen ships have been at

tacked, leading several major shipping and oil transport companies to suspend Red Sea routes.

Rescue seems to be on the way. During a visit to Bahrain, U.S. Secretary of Defense Austin announced that the U.S. military would join forces with the United Kingdom, Bahrain, Canada, France, Italy, the Netherlands, Norway, Seychelles, and Spain to establish a new force to protect vessels in the region.

MSC, Maersk, Hapag-Lloyd, CMA CGM, Yang Ming Marine, and Evergreen have all stated that they will immediately alter all planned routes to ensure the safety of their crews and vessels. These shipping companies collectively represent around 60% of global trade.

Evergreen also mentioned that it would temporarily stop accepting any shipments bound for Israel, suspending shipping services to Israel. OOCL, a subsidiary of China COSCO Shipping Corporation, has also halted the acceptance of Israeli goods, citing operational issues.

Yoni Essakov, a member of the Israel Shipping Chamber Executive Committee, stated, 'About 30% of Israel's imported goods come through Red Sea container ships, which book consumer goods or other products two to three months in advance. This means that if the current voyages are extended, products with a shelf life of two to three months will no longer be worth importing from the Far East.'

On Monday, the oil giant BP announced the suspension of its shipping activities in the Red Sea, citing continued attacks by Houthi rebels based in Yemen.

Frontline, a tanker group, also mentioned that it is avoiding the Red Sea.

The attack incidents have driven up shipping costs. Since the start of the Israel-Hamas war, tensions between Asia and the U.S. have been high. According to data from Freightos, prices on the East Coast have risen by 5%, reaching $2,497 per 40-foot container. As major companies avoid the Suez Canal route to the Red Sea and opt for a detour around Africa into the Indian Ocean, costs may rise further.

This alternative route adds 14 days to the shipping route, leading to increased fuel costs. The longer transit times result in what is perceived as 'shipping capacity tightening,' with inevitable delays in container and commodity deliveries.

Michael Aldwell, Executive Vice President of Ocean Logistics at Kuehne+Nagel, noted that container shipping accounts for nearly one-third of global transport volume, with the estimated value of transported goods reaching $1 trillion.

'Around 19,000 ships pass through the Suez Canal each year,' Aldwell said. 'The expected extension of time spent on water will absorb 20% of the global fleet's shipping capacity, leading to potential delays in the availability of shipping resources.'

He added that the return of empty containers to Asia would also experience delays, exacerbating the challenges in the supply chain.

A report from Moody's emphasized these delays, with Daniel Harlid, Senior Credit Officer at Moody's, stating, 'If this situation persists for more than a few days, it will have a positive credit impact on the container shipping industry, tankers, and dry bulk markets. But it also increases the risk of further supply chain disruptions.'

Insurance companies are also adjusting their positions, potentially leading to increased costs passed on to shippers and consumers. The Joint War Committee (JWC), composed of members from the Lloyd’s Market Association's Syndicate and representatives from the London insurance market, stated that it is expanding its high-risk area from north latitude 15 degrees to north latitude 18 degrees.

Neil Roberts, Director of Maritime and Aviation at Lloyd’s Market Association, said, 'The listed area in the Red Sea has extended northward by 3 degrees, taking into account the missile range from Yemen. This reflects a dynamic and evolving situation, and shipowners have become aware of the developments, announcing some significant rerouting.'

The Red Sea and the southern part of the Arabian Sea have been on the list of the Joint War Committee for notifications of navigation since 2009. The decision to expand the high-risk area affects the consideration of insurance premiums.

Changes in shipping routes could also harm Egypt's struggling economy, as the tourism industry in Egypt has already been impacted by the war between Israel and Hamas. Egypt owns, operates, and maintains the Suez Canal. The Suez Canal Authority stated that it generated a record $9.4 billion in revenue in the 2022-23 fiscal year.

In summary, the suspension of Red Sea routes by major shipping companies is causing disruptions in global trade. The attacks in the region have not only led to increased shipping costs but also raised concerns about the reliability of supply chains. As companies adjust their routes and increase shipping times, the potential domino effect on trade, delays, and rising prices may have significant repercussions for the global economy.

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