Red Sea Attacks Risk Supply Chain Crisis Amid Global Economic Recovery
Shipping Costs Rise as Houthi Militants Target Commercial Vessels
Attacks by Iran-backed Houthi militants on commercial shipping vessels in the Red Sea are causing concern over a potential supply chain crisis. This comes at a critical juncture point for world trade as the global economy begins to recover from high inflation, chronic shortages, and bottlenecks.
Shipping costs are already on the rise as a result of these attacks. Ships sailing through the Red Sea and the Suez Canal are being targeted, forcing many vessels to take longer routes, such as sailing around the Cape of Good Hope. This adds significant costs and delays to shipments, impacting trade between the Middle East, Europe, and other regions heavily reliant on the Suez Canal.
Impact on Global Shipping Traffic and Trade
The Suez Canal is a vital route for world shipping traffic, with around 15% of global shipping traffic and 30% of global container trade passing through it. However, due to the attacks, ship traffic through the canal has plummeted by about 30% compared to the same period last year. Container shipping giant Maersk has suspended the use of the Red Sea and Suez Canal, diverting all ships around Africa for the foreseeable future. These disruptions have significant consequences for global growth and trade.
Increasing Costs and Inflation Concerns
The rerouting of ships around Africa, which adds approximately two and a half weeks to the journey, reduces the effective capacity of Asia-Europe trips by about 25%. This has led to a surge in shipping prices, with rates for shipping goods from Asia to Northern Europe increasing by 173%. Carriers have also announced surcharges of up to $2,700 per container.
Moreover, the situation is compounded by drought-like conditions in the Panama Canal, which has restricted the number of ships passing through it due to low water levels. These factors are causing disruptions in global trade routes and stoking fears of a resurgence in inflation, just as price pressures within the economy begin to ease.
Impact on Consumers and Global Prices
While the impact on American consumers remains minimal, there could be some price increases in certain categories of goods and services. Commodities such as rare earth minerals, chemicals, and certain grains coming from the affected region may see price hikes. However, the overall impact on prices is yet to be determined.
As the attacks continue, countries in Europe and other regions heavily reliant on the affected trade routes may experience more significant consequences.