Trade and Investment

Red Sea attacks: What trade experts are saying about the shipping disruptions

The Galaxy Leader cargo ship is escorted by Houthi boats in the Red Sea in this photo released November 20, 2023. Houthi Military Media/Handout via REUTERS    THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY

A cargo ship is surrounded by Houthi boats in the Red Sea in November 2023. Image: Handout via REUTERS

Spencer Feingold
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  • The Red Sea has long been a vital waterway for international trade.
  • In recent months, Houthi attacks on ships in the Red Sea have cause major disruptions to commercial shipping.
  • “The crisis has far-reaching economic implications, affecting global commerce and logistics,” an executive at Maersk said.

The Red Sea is wedged narrowly between Africa and the Middle East and connects the Indian Ocean to the Suez Canal and Mediterranean Sea. For centuries, the waterway has been vital for moving goods between Europe and Asia.

Yet since last fall, the Houthi group in Yemen has been attacking shipping vessels in the Red Sea, causing turmoil in one of the world's most important waterways. In response to the assaults, which were launched following the outbreak of war in Israel and Gaza, a coalition of Western countries has retaliated against Houthi targets and deployed naval forces to protect commercial ships.

The Red Sea attacks, however, have already caused disruptions to commercial shipping operations. In the following statements, four trade experts detail how the attacks are impacting the shipping industry and the global economy.

Zera Zheng, Global Head of Business Resilience Consulting, Maersk

“The Red Sea has become a hotspot of geopolitical tension due to Houthi militants targeting commercial vessels, with over 33 attacks reported since 19 November 2023. These disruptions threaten a key maritime route essential for a significant share of global container traffic and over $1 trillion in annual merchandise. In response, the US and EU spearheaded Operations Prosperity Guardian and Aspis to safeguard navigation and trade flows, yet challenges from the Houthis' deployment of drones and missiles and vessel tracking capabilities remain.

This situation has led to an immediate contraction in market capacity and a surge in shipping rates.

Zera Zheng, Maersk's Global Head of Business Resilience Consulting

“The Suez Canal/Red Sea, vital for around 30% of the world's container traffic, has seen disruptions leading companies to reroute around the Cape of Good Hope. This situation has led to an immediate contraction in market capacity and a surge in shipping rates, with significant impacts on global trade networks and economic stability.

“In light of these challenges, businesses are seeking greater flexibility and resilience in their supply chains. Maersk is responding to this need by adjusting its network and providing alternative solutions to support its clients during these turbulent times. These measures emphasize the need for agile and innovative supply chain strategies. In an era marked by escalating geopolitical uncertainties, the capacity for resilience is paramount in maintaining the continuity and stability of global supply chains.”

Lars Karlsson, Maersk's Global Head of Trade and Customs Consulting, and Rico van Leuken, Maersk's Global Head of Solutions and Services, contributed to this statement.

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Simon Evenett, Founder, St. Gallen Endowment for Prosperity Through Trade

“Citing Ambrey Analytics data, The Financial Times reports there have been 80 'incidents'—likely attacks on shipping—in the Red Sea and the Gulf of Aden between 19 November 2023 and 9 February 2024. US and UK naval ships began bombarding Houthi launch sites on 11 January 2024 and since 26 January 2024, few new attacks on ships have taken place.

“However, it’s too soon to declare victory. Several Western container shipping lines won’t journey through to the Suez Canal. Instead, ships are being diverted round the Cape of Good Hope, adding two weeks to journeys and unnecessary expense.

“To date, the harm to the global economy is modest. Chinese shipping lines haven’t given up on the Suez Canal route. Although shipping rates have risen, they remain well below pandemic-era peaks. The New York Fed’s index of Global Supply Chain Pressure has barely moved. Important as it is, just 11% of global trade flows through the Red Sea. On its own, this isn’t enough to disrupt the world economy.

“What’s harder to assess is whether yet more upheaval in trade routes further undermines policymakers’ and corporate trust in long-distance sourcing. A further nudge towards national and regional sourcing can be expected.”

Marion Jansen, Director, Trade and Agriculture Directorate, OECD

“Commercial shipping has historically been a hazardous and dangerous activity. After a few decades of relative peace and stability on international waters, we are back to a situation where key routes for international maritime traffic are held hostage by violent attacks. Black Sea transit has been heavily affected by Russia’s war of aggression against Ukraine for a while, and it is now the turn of Red Sea shipping to suffer from geopolitical tensions. On top of this, climate change is affecting another important maritime route with low freshwater levels in the Panama Canal responsible for a 36% reduction in transit when compared to last year.

It is now the turn of Red Sea shipping to suffer from geopolitical tensions.

Marion Jansen, Director, Trade and Agriculture Directorate, OECD

“To date, shipping cost increases – though important in size – remain significantly lower than those witnessed in the final phases of the COVID-19 crisis. Yet with Red Sea shipping responsible for 12-15% of global trade and 20% of global container shipping, repercussions are likely to become more severe as uncertainties continue. OECD estimates suggest that a doubling of global shipping costs, if persistent, would add 0.4 percentage points to consumer price inflation in OECD countries after about a year.

“Renewed international co-operation is critical to keep international waters open and to keep markets open on the foundation of a rules-based trading system.”

Houthi military helicopter flies over the Galaxy Leader cargo ship in the Red Sea in this photo released November 20, 2023. Houthi Military Media/Handout via REUTERS    THIS IMAGE HAS BEEN SUPPLIED BY A THIRD PARTY
A Houthi military helicopter flies over a cargo ship in the Red Sea in November 2023. Image: Houthi Military Media/Handout via REUTERS

Stephen Olson, Senior Adjunct Fellow, Pacific Forum International

“We are already seeing a wave of supply chain disruptions, some severe enough to force factory shutdowns, particularly in the automotive sector. Shipping costs have spiked, sometimes doubling or tripling, and needless to say, missiles being fired into a primary global trade route dramatically raises risk and uncertainty, which dampens business activity. Logistics managers are operating in crisis mode, diverting their attention from normal operations, as they try to keep multiple balls in the air. As if all of this wasn’t enough, the situation is being further exacerbated by bad luck. A primary alternative route – the Panama Canal – is being restricted due to drought conditions.

This episode provides yet another graphic illustration of how tightly intertwined trade and geopolitics have become.

Stephen Olson, Senior Adjunct Fellow, Pacific Forum International

“All of these disruptions inevitably translate into higher costs. Whether they ultimately have a significant impact on global inflation will largely be a function of the duration and intensity of the attacks. Some estimates suggest that if these disruptions continue for a year, they could produce a 2% increase in goods inflation. We’ll see.

“On the other – and somewhat more optimistic – hand, if the situation does begin to settle down and operations return to at least quasi-normalcy, these disruptions will only amount to a minor blip for the global economy and a footnote in corporate reports. And as a point of reference, the current level of supply chain disruption has not – at least for now – approached the levels we endured during the pandemic.

“In any event though, this episode provides yet another graphic illustration of how tightly intertwined trade and geopolitics have become.”

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