Daily Management Review

Attacks In The Red Sea Hamper Global Trade, And More Ships Pledge To Stay Out Of The Area


Attacks In The Red Sea Hamper Global Trade, And More Ships Pledge To Stay Out Of The Area
The latest shipping corporations to do so after attacks by Yemen's Houthi group on vessels interrupted global trade and led to the formation of a naval task force were Germany's Hapag-Lloyd and Hong Kong's OOCL on Thursday, announcing their intention to stay out of the Red Sea.
The Suez Canal, which is used by ships to carry out 12% of global trade, is currently blocked because to hostilities. Global logistics executives cautioned that sending ships on alternate routes could disrupt global supply chains, resulting in port backlogs and shortages of ships, containers, and equipment that are unexpectedly in the wrong place. The Suez Canal is particularly important for the transportation of goods between Asia and Europe.
"The situation remains fluid, things could change quickly, which is why contingency plans that include a plan A, B and C are critical to keeping supply chains moving," said Matthew Burgess, vice president of global ocean services at C.H. Robinson Worldwide.
Due to the inconvenience, Hapag-Lloyd announced that it would relocate 25 ships from the important canal by the end of the year, citing an increase in shipping stocks and freight charges. An even longer path around Africa must be taken in order to avoid the Red Sea and Suez Canal.
The Houthis, who govern a large portion of Yemen and are associated with Iran, have been assaulting ships for weeks as they travel through the Bab al-Mandab Strait at the southern end of the Red Sea, claiming it is in retaliation for Israel's conflict in Gaza.
In the meantime, traders are rushing to find alternatives, such as air travel, to deliver consumer products to stores; trips around Africa add an additional 10 to 14 days to the route duration.
"Up to this moment, we have guided OOCL-operated vessels to either divert route or suspend sailing to Red Sea," Hong Kong-headquartered container group OOCL told Reuters in a statement on Thursday, the first time it had confirmed pausing sailings.
According to Christian Sur, executive vice president of ocean freight of Unique Logistics, "a crisis at a single point in the supply chain can cause ships to bunch up, upending arrival and departure schedules at seaports and cascading delays throughout the system."
Due to the disturbances in the Red Sea, the cost of shipping a container from China to the Mediterranean increased by 44% in December alone, reaching $2,413, according to a report released earlier this week by Freightos.
The so-called "spot" pricing for non-contract cargo "could double or triple from current levels" if the situation continues or gets worse, according to Sur.
Among the shippers alerting to possible product shortages and shipment delays is multinational furniture retailer IKEA.
Kone, a Finnish lift manufacturer, predicted that there could be a two- to three-week delay in some shipments.
While food, toys, and clothing that are shipped in containers are the most vulnerable, other products are also impacted.
U.S. soybean exporters are considering whether to begin loading crops onto trains headed for the West Coast in order to access ships that head straight to China and other Asian markets. This would allow them to avoid taking much longer detours around South America or Africa. Previously, they were shifting shipments from the drought-stricken Panama Canal to the Suez Canal.
"You've got all these imperfect options available," Mike Steenhoek, executive director of the Soy Transportation Coalition.
Though many businesses have sought resilience in supply chains by purchasing from exporters in multiple countries since the COVID-19 epidemic, analysts warned that some merchants could start running low on some commodities by February.
"We are more experienced having gone thru COVID," said Sur, whose firm counts retailers among its clients.
As part of an international coalition created by the United States to guarantee safe passage through the waterway, Greece said on Thursday that it will send a naval frigate to the region to assist in protecting shipping.
By carrying capacity, Greek shipowners possess around 20% of all commercial vessels worldwide.
Saudi Arabia, which borders the Red Sea, was not included in the coalition, and a number of nations that the US had stated would join it have indicated they do not anticipate sending significant naval force to the area.
While this is going on, the leader of the Houthis has promised to intensify operations to target US Navy ships, creating the possibility of a larger war in the Bab al-Mandab strait.
A representative for Hapag-Lloyd stated that the business would make more decisions on routes by the end of the year after one of its ships, the Al Jasrah, was attacked on December 15 while travelling to Singapore.
The representative stated that the corporation was not aware of any specifics of the U.S.-led naval alliance that is meant to safeguard shipping in the Red Sea.
According to executives in ocean transportation, stabilising the major waterways is essential to guaranteeing a full resumption of shipping business.
Israel is also immediately experiencing the consequences. "Due to operational issues," OCCL announced on Saturday that it will no longer be receiving shipments to and from Israel until further notice.
According to the chief administrator of the port, Eilat, which is located in southern Israel, has seen an 85% decrease in business since the Houthi attacks intensified on Thursday.