Container ships are currently taking long detours around the Cape of Good Hope because they are avoiding the route through the Red Sea because of the Houthi attacks. This has an impact on shipping companies, consumers and the energy market.
The recent attacks by the Yemeni Houthi militia on freighters in the Red Sea are increasingly having an impact on the security of international shipping in the waters there – and thus also on world trade. Important routes run there between Africa and Asia and via the Suez Canal in the north of the Red Sea to and from Europe.
More attacks on Container ships
The Iran-allied Houthis announced in November that they would prevent ships of any nationality heading to Israel from passing through the Red Sea in solidarity with Hamas, which is also supported by Iran. Several ships have been attacked since then, most recently a container freighter belonging to the German shipping company Hapag-Lloyd.
Attacks on commercial freighters were again reported at the beginning of the week: the British Maritime Office (UKMTO) reported an incident 80 nautical miles northeast of Djibouti. The country is located in the Horn of Africa – opposite Yemen on the Arabian Peninsula. Between the two states: The Bab al-Mandab Strait, which connects the Red Sea with the Gulf of Aden.
Because of the attacks, Israel’s ally the USA launched a military alliance to protect merchant shipping. Several countries are taking part in the security initiative, called “Operation Prosperity Guardian”, including the United Kingdom, Bahrain, Canada, France, Italy, the Netherlands, Norway, Seychelles and Spain. According to Defense Minister Boris Pistorius, Germany is also considering a request to participate.
Militia wants to continue attacks
Greater cooperation between naval forces is intended to improve the protection of merchant ships. However, the Houthi militia in Yemen was unimpressed. They would continue their attacks in the Red Sea, the leading Houthi representative Mohammed Abdelsalam told the television channel Al Jazeera: “As for the naval operations – they are in full swing. And perhaps not twelve hours will go by without an operation.”
The Danish shipping company Maersk is therefore sticking to its cautious course. It redirects ships to the much longer route around the Cape of Good Hope at the southern tip of Africa. The company welcomed in a statement that governments had responded “to bring about a solution that will enable an early return to transit through the Red Sea, the Gulf of Aden and the Suez Canal.”
So far, Maerk has stuck to rerouting container ships. It “ultimately leads to faster and more predictable results for our customers and their supply chains,” says Maersk. The second largest container shipping company in the world in terms of transport capacity operates twelve services in the area, meaning it normally travels through the Suez Canal an average of 24 times a week.
Ministry of Economic Affairs is worried
In addition to Maersk, more and more shipping companies are avoiding the Red Sea route. The German shipping company Hapag-Lloyd has also announced that ships will be redirected via the Cape of Good Hope “until passage through the Suez Canal and the Red Sea is safe again for ships and their crews.” Industry leader MSC also confirmed at the beginning of the week that MSC ships will not sail through the Suez Canal to the east and west until passage through the Red Sea is safe.
The oil company BP also stopped all transports through the Red Sea, as did the French container ship shipping company CMA CGM. The Taiwanese company Evergreen even announced that it would no longer accept Israeli cargo for the time being.
The Federal Ministry of Economics was concerned about the attacks. “Free and secure trade routes are of great importance for global trade. If there is a prolonged disruption on the trade route, longer delivery times would be expected due to alternative routes,” the ministry said. However, it is not yet possible to estimate what impact the current disruption of the Red Sea trade route will have on the economy.
There is a risk of a week-long detour
Around twelve percent of world trade passes through the Red Sea. The Suez Canal connects it with the Mediterranean – it is the shortest sea route between Asia and Europe. According to the Kiel Institute for the World Economy (IfW), almost ten percent of German foreign trade with all kinds of goods is carried out through the waterway.
According to the logistics group Kühne+Nagel, around 19,000 ships travel through the Suez Canal every year. Large container ships usually take 30 to 40 days on the journey from Asia to Europe. The alternative route around Africa increases travel time by a week to ten days or even more, depending on the ship, speed and weather.
“It’s about a lot of money”
“German consumers are facing small delays – for example in the area of electronics,” says IfW trade expert Vincent Stamer to the ARD financial editorial team. On the whole, he expects “no disruptions like two years ago.” In March 2021, the container ship “Ever Given” ran aground in high winds, tilted and blocked the Suez Canal for six days. Hundreds of ships were unable to pass through the waterway. However, Stamer does not expect completely empty shelves this time because of the more stable supply chains.
However, due to the longer routes, the shipping companies would have higher costs – for a container ship, depending on the number and size, in the six-figure range per day. “It’s a lot of money. But that doesn’t mean that it will necessarily reach end consumers on a large scale,” says Stamer. Because: The transport costs from Asia to Europe are generally very low, and the shipping companies’ freight rates could increase due to capacity utilization.
Suez Canal important for LNG deliveries
It is currently difficult to say how great the damage could be to the entire global economy. “From the perspective of world trade,” the attacks are an escalation of the Middle East conflict. Israel only has a small weight in trade, says Stamer. Because the Red Sea is affected, the economic consequences take on “a completely different dimension”.
The route is important for the energy market. Commerzbank commodities analyst Thu Lan Nguyen estimates that around five percent of global seaborne crude oil shipments go through the Suez Canal. “This is not irrelevant, but it is also not absolutely essential and cannot be compared with the Strait of Hormuz, where around 20 to 30 percent of global consumption passes through,” she said in an interview with the ARD financial editorial team. The impact on the oil market is therefore rather limited.
The sea route is more important for the gas market. Germany and Europe are dependent on liquefied natural gas (LNG) imports, which come from the Middle East, among others. The global supply is quite limited and alternative suppliers are not that easy to find. “Accordingly, European gas prices reacted more strongly than crude oil prices,” said Thu Lan Nguyen.
With information from Jan Plate and Till Bücker, ARD financial editorial team
Jan Plate, HR, tagesschau, December 19, 2023 7:07 p.m