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Red Sea crisis hits world trade hard: shipping costs soar 170% | Economy

Yemen’s Houthi rebels are causing one of the most serious disruptions to global trade since the pandemic began with attacks on merchant ships crossing the Red Sea on their way to the Suez Canal. At least 18 shipping lines, including Swedish giant Maersk, have rerouted routes through South Africa to avoid passing through the strategic Gulf of Aden, an alternative change that would significantly increase costs and extend…

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Yemen’s Houthi rebels are causing one of the most serious disruptions to global trade since the pandemic began with attacks on merchant ships crossing the Red Sea on their way to the Suez Canal. At least 18 shipping lines, including Swedish giant Maersk, have changed routes through South Africa to avoid passing through the strategic Gulf of Aden, an alternative that would significantly increase costs and lengthen voyages between Asia and Europe. The impact on freight prices is natural: they have nearly tripled since attacks intensified in mid-December, which rebel militias claim are aimed at punishing Israel for its war in Gaza. Rising transport costs threaten the global economy with a new inflationary setback, although experts believe the impact will be limited.

The rise in transport prices comes at a delicate time in the economy, characterized by uncertainty and the lingering effects of escalating inflation (and its effects) starting to recede. According to Bloomberg, freight booking platform Freightos.com estimates that shipping products in a 40-foot container (12 meters long, 2.3 meters wide and 2.4 meters high) from Asia to Northern Europe currently costs $4,000 (3,650 euros), up from December Mid-term gains of 173% were reported. For cargo from Asia to the Mediterranean, prices rise to €5,175, with some companies charging as much as $6,000 for routes departing in mid-January. From Asia to the United States, rates rose more modestly, at 55% to $3,900.

Meanwhile, another benchmark index, the Shanghai Containerized Freight Index (SCFI), which measures shipping rates for imports from China, has risen 161% since December 15, from $1,029 to $2,694 (€2,500).

All those prices are roughly double what they were before the pandemic hit global trade in 2019, but are still well below coronavirus highs. At the height of that year’s worst crash, the SCFI index was trading above $5,000, twice its current level.

Even so, the impact of the current crisis in the Middle East is considerable. Shipping lines are changing their routes to avoid the Red Sea, through which 12% to 15% of world trade flows, usually around the Cape of Good Hope. “A large number of shipping companies (approximately 18) have decided to divert their ships in South Africa to reduce attacks on ships and limit their impact on seafarers,” said the Secretary-General of the International Maritime Organization. (IMO) Arsenio Domingue Sri Lanka delivered a speech at the United Nations Security Council. For freighters, this means an increase of 10 days in average flight time and an increase in fuel expenditure. The crisis has led to a 25% reduction in commercial traffic in the Suez Canal.

Attacks on the trade route began as early as November, following an October 7 terror attack by the fundamentalist group Hamas and shortly after Israel launched a ground invasion of Gaza. The situation has worsened since December. Dominguez warned: “The initial targeting was of ships with ties to Israel, but based on the information we have received in recent incidents, it appears that is no longer the case.” Since mid-November, 23 commercial ships have been targeted to the attacks; the last match took place last weekend against Danish giant Maersk, although the United States has launched patrols in the area.

Maersk announced this week that it would again suspend shipping through the Suez Canal, following the footsteps of German shipping company Hapag-Lloyd. At the same time, France’s CMA CGM announced a 100% increase in fares on routes from Asia to the Mediterranean. Companies increase rates when freight capacity and travel frequency are reduced, in this case significantly lengthening journeys by having to change itineraries.

stock market rises

Investors explain that by raising rates, they will gain greater profitability even as shipping times and fuel costs increase. This has been reflected in the stock market. Goldman Sachs just upgraded its recommendation to buy Maersk shares, which have risen 30% in the last month. Taking Hapag-Lloyd as an example, its share price rose by nearly 50% during the same period.

Securing the area is complex. The Bab el-Mandeb Strait is the main passage to the Red Sea between the Arabian Peninsula and the Horn of Africa. It is only 30 kilometers long. Ships must pass slowly in a single file and have little maneuverability. As a result, they are easy targets for drones launched by the Houthi militia, which opposes Yemen’s official government and controls 30% of Yemen’s territory. The rebels, whose main backer is Iran, aim to punish ships trading with Israel, although this appears to be increasingly expanding due to recent attacks.

To what extent will these disruptions change product offerings in Europe? Data from the International Monetary Fund (IMF) and Portwatch, a platform owned by Oxford University, show that traffic in the Suez Canal dropped 28% in the first 10 days of this year compared with the same period in 2023. In other words, 3.1% of world trade is diverted from the Red Sea to other routes.

“Longer journey durations, ranging from seven to 14 days depending on the route, mean longer delivery times for importers and the potential for port congestion if multiple ships are being carried at the same time when the calendar changes, Although for now we have no evidence that this is happening,” Freightos chief analyst Judah Levine explained on its website. Experts explain that shipping companies are increasing ship rotations and sailing at higher speeds to compensate as much as possible for the increase in voyage times.

“Even if there is congestion or supply shortages, transport companies are in a much better position now than they were during the pandemic,” he added. There are also supply issues during 2021 to 2022, but as demand soars far outpaces supply: “The industry is now There is a certain amount of excess capacity,” which means the profit margins are much larger.

Michelin stop

But the industry is already feeling some tension. Tire maker Michelin announced a week ago that it would halt production at four of its factories in Spain due to a shortage of rubber, a key raw material for tire manufacturing.

Shipping costs have a large impact on inflation. According to the International Monetary Fund, bottlenecks recorded during the pandemic added one percentage point to inflation. These costs normally account for 7% of long-distance import costs (a jump of 25% in 2020).Rhys Davies, a consultant at consulting firm Flint Global, said a few days ago guardian The impact of the Red Sea crisis on inflation may be limited: “The impact hits the economy quite slowly, over the 12 months after (freight costs) peak, so if over time the impact is limited, as we see Hopefully, it will be offset by other deflationary effects.”

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