Unrest in the Red Sea sends shockwaves across the economy
The biggest disruption to global trade in decades was triggered by two months of missile, drone and hijacking attacks on civilian shipping in the Red Sea, driving up costs for shippers as far away as Asia and North America. Outages and contagion heighten fears of a broader economic fallout.The United States and its allies have launched numerous counterattacks, and an international naval operation to patrol the waterways has not prevented attacks by Houthi fighters since the beginning of the Israel-Hamas conflict. Shipping companies are avoiding the canal, which normally handles 12 percent of global maritime trade, as sailors demand double wages and insurance prices rise.
According to Flexport, more than 500 container ships that would have sailed from the Red Sea to the Suez Canal, carrying goods from toys and clothes to car parts, will now continue their two-week journey around the southernmost point of Africa. , Cape of Good Hope. According to the digital logistics platform, it accounts for more than 25 percent of global container shipping capacity.
“This is the fastest increase in costs since the last pandemic crisis”, said Vincent Iacopella, logistics specialist at Alba Wheels Up. He says that while prices fell last year as the COVID-19 outbreak subsided, many of the underlying supply chain constraints remain. According to freight booking firm Freightos, the price of containers heading to the Mediterranean from China has more than doubled since the end of November.
According to shipping companies and oil carriers, the disruption will last several months, and ships are booked on a longer route until the summer. This means that each shipping company has more goods on the way and will demand more if there is a shortage of containers. According to the online trading platform Container xChange, manufacturers of standard metal shipping boxes are already working non-stop. Even ports as far away as Halifax, Nova Scotia, are reporting increased costs and delays in ship arrivals.
Consumers are quick to change. So Tesla Inc. while Volvo Car AB also announced that it had suspended production in its European factories, citing a lack of spare parts from Asian suppliers. Two British retailers, Tesco Plc and Marks and Spencer Group Plc, warned of the possibility of higher costs. Maersk, the second largest container ship, warned last week that problems would continue for at least several months. The longer the instability lasts, the greater the financial loss, although many companies say they are not yet feeling the effects.
Underestimated Risks
“Until now, many managers and investors have regularly underestimated the possibility of this risk materializing,” said Alexis Crow, geopolitics and long-term investment specialist at PricewaterhouseCoopers LLP. “It may be based on the false belief that the conflict between Israel and Hamas is still under control.”Central bankers are already warning people about the risks, although there is still no evidence that spending increases will raise inflation. One of the four biggest risk factors that the president of the European Central Bank, Christine Lagarde, is paying attention to is the “return of supplies. Panama Canaland’s flow has already been slowed due to low water levels.
If the conflict were to affect supplies, another inflationary risk would be a rise in oil prices.”We are lucky not to see hit an oil tanker,” said Saad Rahim, Chief Economist of Grupo Trafigura, one of the world’s largest traders. “In fact, it can be something that focuses the mind afterwards.”According to Bloomberg Economics, central banks may delay interest rate hikes due to possible additional risks related to transmission costs. If the supply shortage continues, JPMorgan Chase and Co. economists expect global commodity inflation to rise by 0.7 percentage points in the first half of this year.
According to Bloomberg Intelligence, this time the rerouting will increase the length of the trip by almost 40%. For importers, this means increased costs, delays, leakage of important parts at sea, and air transport, which offers few options. According to Oslo-based Xeneta, the amount of clothes exported by air from Vietnam to Europe increased by 62% in the week ending January 14. To transport goods to Europe, other carriers travel overland through Kazakhstan and avoid Russia.
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