Houthi attacks in Red Sea upend global trade, spike shipping costs

Yemen's Houthi militants' attacks on vessels in the Red Sea have caused disturbances in global trade, with potential further disruptions, price hikes on shipping costs and delays looming on the horizon.

Major shipping lines and oil transporters, grappling with the heightened regional maritime risk, have been compelled to suspend operations through this strategic waterway.

Shipping giants Maersk, Hapag-Lloyd, MSC, and CMA CGM have all announced a temporary suspension of their services in the Red Sea.

This is particularly consequential as, according to shipping consultancy Alphaliner, as of December 10, these four companies collectively command a 53.6 percent share of global shipping capacity, with over half of it deployed on European routes.

Clarksons, the world's biggest shipping services provider, told CGTN that approximately 10 percent of global maritime trade passes through the Suez Canal.

"A complete blockade of the Red Sea route would result in a substantial loss of effective capacity on the Europe-Asia route," CCB Futures, a futures brokerage, said.

In a related development, BP, the oil giant, announced a pause in its Red Sea shipping activities due to the ongoing Houthi offensives on Monday. Frontline, a leading oil tanker group, has similarly decided to steer clear of the region. Oil posted steep gains upon the news.

The repercussions of these attacks are already evident in the rising costs of ocean freight. Since the escalation of the Israel-Hamas conflict, the price for a 40-foot container on the Asia-U.S. East Coast line has increased by 5 percent, reaching $2,497, according to Freightos. 

The situation is poised to worsen as more vessels reroute via Africa's Cape of Good Hope, causing significant delays and raising costs.

"Rerouting from the Far East to Northern Europe via the Cape of Good Hope would extend the journey by about 30 percent, an additional 6,500 nautical miles," said Clarkson.

CCB Futures, citing Alphaliner's chief analyst Jan Tiedemann, also highlighted the implications of this rerouting, forecasting an upsurge in demand for shipping capacity, prolonged transit times, and increased transportation costs.

These added expenses, including crew wages, fuel, and insurance, are likely to be transferred to consumers, China International Capital Corporation (CICC) cited analysts as saying.

This impact was evident as the container shipping rates on the Europe route hit their limit on Monday.

CICC underscores potential future risks stemming from capacity pressures from new shipping orders, geopolitical shifts, and a slowdown in global economic growth.

CCB Futures also warned a persistent potential for increased costs. While the Red Sea conflict might gradually stabilize, the timeline for resolution is uncertain. Moreover, the ongoing conflict between Israel and Palestine elevates regional risks.

Since October's escalation, shipping companies like HMM, ZIM, and Hapag-Lloyd have implemented war risk surcharges on routes to and from Israel. This trend is likely to continue unless the conflict is resolved, the brokerage said.