20-12-2023 (YEMEN) Ongoing attacks in the Red Sea, attributed to the Israel-Hamas conflict, are poised to disrupt global shipping, potentially leading to increased costs and inflation risks. Recent assaults by Iran-backed Houthi militants on commercial vessels have prompted shipping companies to reroute cargoes around Africa, avoiding the perilous Red Sea route.
Data from logistics giant Kuehne+Nagel, as of early Wednesday, reveals that 103 container vessels are choosing the longer journey around Africa instead of the traditional Suez Canal route. Companies are exploring alternative transportation modes, such as rail and air, to navigate the challenging waters.
Bloomberg Economics analysts predict that this rerouting will result in higher shipping costs and extended delivery times. The Red Sea is a critical maritime route, facilitating approximately 14% of global trade. Economies particularly impacted by trade disruptions include Greece, Jordan, Sri Lanka, and Bulgaria.
The cost of insuring vessels traversing the Red Sea has surged to about 0.5% of a ship’s hull value, a significant increase from earlier this month when costs ranged from 0.1% to 0.2%. War risk insurance, reflecting the vessel’s trading in risky areas, has increased over tenfold.
Major shipping lines like AP Moller-Maersk have announced pauses in shipments through the affected region, contributing to concerns about global inflation. Crude oil prices, affected by shipping disruptions, have risen, with Brent crude approaching $80 a barrel. The Red Sea’s significance in oil trade, especially for Russian barrels to Asia, adds to the geopolitical and economic ramifications.
While the disruptions may have a moderate economic impact, the adjustments in markets and shipping companies could help mitigate the situation. Nonetheless, ongoing disruptions or their escalation may exert downward pressure on Chinese exports, impacting global trade dynamics.
