More than 200 days have passed since the Houthi rebels started their attack on ships passing through the Red Sea, badly affecting the movement of ships using the Suez Canal. There is no solution in sight to revive container ship movements - the worst affected - through the Suez Canal while freight through critical Asia to Europe and the US keeps zooming.
The Houthi rebels have been targetting ships in the Bab el-Mandeb strait between Djibouti and Yemen at the southern end of the narrow strait - 20 miles wide - of the Red Sea. As a result, ships between Asia and Europe avoid the Red Sea/Suez Canal and instead take the lengthy detour via the Cape of Good Hope - adding 4,000 miles to each journey, vastly increasing transport times and freight costs.
Since the Red Sea trouble escalated, freight to Europe from India has increased by four to five times and ranges between $4,000 and $6,000 per container, said an official of a larger freight forwarding company. The situation is only going to aggravate as there is no sign of a solution, he added.
An official of a large leather company said freight has increased by five to six times, badly hurting exporters. Congestion at transhipment ports like Singapore and Port Klang adds to the woes, he said.
The Houthis have justified their attacks as sympathetic support for Hamas. Though a cease fire is being negotiated, there is no guarantee that the Houthis will stop their attacks. June was an intense month for Houthi activity as they hit several vessels, sinking one. The US carrier strike force rescued more than two dozen sailors from one vessel, said Jon Monroe, an expert on shipping based in the US.
The diversion around the Cape of Good Hope has allowed carriers to put their excess capacity to work and increase rates in the process. The Houthis have not slowed their attacks but changed their tactics and have switched from air drones to sea drones loaded with charges with which to sink ships, he said.
JP Morgan, in a report, said that with 30 per cent of global container trade transiting through the Suez Canal, the Red Sea shipping crisis is upending supply chains. It is also increasing shipping costs, causing the prices of some routes — particularly from Asia to Europe — to surge nearly fivefold.
Depending on the duration and intensity of the crisis, higher shipping costs are likely to lag behind imported goods prices.
“The lengthening of supplier delivery times acts as an adverse supply shock. The rerouting of ships around Africa’s Cape of Good Hope equates to a roughly 30 per cent increase in transit times, and this implies an approximately 9 per cent reduction in effective global container shipping capacity,” said Nora Szentivanyi, a Senior Economist at JP Morgan, said in the report.