A perfect storm in maritime transport unleashes dark clouds over the economy and global security. The Houthi Shiite rebels of Yemen, in another retaliatory action against Israel and its allies, yesterday claimed responsibility for an attack (the umpteenth, there have been about 13 since last November 19) using seaplanes against other ships (one Norwegian and the other MSC) that were transiting in the Red Sea, near the Bab al Mandeb Strait, which connects with the Suez Canal. After what happened, the oil company BP reported that it has also decided to temporarily suspend the passage of its vessels through the Red Sea. Previously, Maersk, Hapag-Llyod, CMA CGM and MSC did so.
The crisis in the Middle East may escalate into the unknown. The US Secretary of Defense, Lloyd Austin, yesterday described the Houthi attacks as “reckless, dangerous and violate international law.” After meeting with his Israeli counterpart, he said that “we are taking steps to build an international coalition to address this threat. And I remind you that this is not just a US issue.”
The crisis in the Middle East may escalate into the unknown. The US Secretary of Defense, Lloyd Austin, yesterday described the Houthi attacks as “reckless, dangerous and violate international law.” Already at dawn, Austin announced the launch of Operation Guardian of Prosperity to "guarantee the safety of maritime traffic in the Red Sea", in which Spain will also participate along with nine other countries: USA, United Kingdom, Bahrain , Canada, France, Italy, the Netherlands, Norway and Seychelles, according to the Reuters agency. The coalition will participate under the umbrella of the international naval force Combined Maritime Forces (CFM), formed by 39 countries and commanded by US Navy Vice Admiral Brad Cooper, which aims to protect the flow of trade and improve maritime security in the different regions where it has a presence in the south of the Red Sea and in the Gulf of Aden, according to the Pentagon statement.
Maritime security analyst Ian Ralby told the specialized portal Lloyd's List that “the Houthis have a lot of practice in creating chaos. This is an opportunity to take it to a global stage. I think we're probably looking at erratic attacks. “Anything they can link to Israel is fair game and even if they are wrong, they just don't care.”
In the last week, from December 8 to December 15, global maritime freight rates have risen close to 10%, from just over 1,000 dollars per container and delivery to almost 1,100, according to the evolution of the SCFI Comprehensive index. Container Freight Rate Index. To give you an idea, in 2019 the average was $810 and during Covid it reached a record of $5,100, almost five times the rate.
It was already seen with the accident of the Ever Given ship that left the Suez Canal – which weighs 12% of world trade – stuck for six days in 2021: the bill for the global economy was 1 billion euros, according to the maritime insurer. Greco. Well, transportation prices are now destined to rise largely due to three factors. One is that ships have to take a 31% longer route, passing through the Cape of Good Hope in South Africa. More kilometers, more waiting, more cost.
Two (and perhaps the greatest effect) is that with the change of route and the blockade, the available ships are reduced. Because now those who sail spend more time on the water and empty containers to fill are no longer as easy to find.
Jan Hoffmann, head of trade logistics at Unctad (United Nations) believes that “more shipping capacity is now needed globally and this has an impact on prices. One of the biggest consequences is that this crisis ends up being reflected in inflation. During the pandemic, only the increase in freight rates caused an increase of 1.5 points,” this analyst recalls.
There is another added problem: shipping companies have not invested in new ships for years due to uncertainty about the energy transition and the type of fuel they will have to deal with in the coming years. In addition, its construction can take between three or four years. Moral: there is no room to increase the current fleet. Shipping companies are not interested either, because that way they can maximize profits. In fact, after the first accidents in the Red Sea, the shares of the Danish Maersk have risen 18%.
And three: not only do shipping companies have to take a longer route, but fuel will also become more expensive. Brent has risen 8% since last Wednesday, after several consecutive downward sessions this month despite the OPEC cartel's production cut.
Manufactured products from China to Europe, as well as food products and raw materials pass through the Suez Canal, many of them destined for emerging economies (especially after the blockade of wheat from Ukraine). Egypt may be another of the affected countries (it earns almost 10 billion each year in transit fees through the canal). “When the war started in Ukraine, we saw the impact of greater distances on food prices. Approximately half of the increase was due to increased transport costs,” recalls Hoffmann.
Regarding the accessibility of the products, the Christmas campaign is assured. The stores already have enough stock. But the effects could be noticed in the coming months (during the Covid stoppage the shortage manifested itself between six months and a year after confinement), in spring or summer.
And by the way: the Panama Canal is not going through its best moments either, victim of the drought with water problems. The veins of world trade are clogged. And the planet's economy may become ill again. Again.
