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The effects the Red Sea security crisis is having on global trade

Clothes, food, computers and many of the products that consumers usually buy in stores are taking more days to reach their destination amid the security crisis that the country is experiencing. Red Sea.

Attacks by Yemen’s Houthi rebels on merchant ships heading to the Suez Canal via the Red Sea have forced shipping companies to opt for a much longer and more expensive alternative shipping route through southern Africa, causing delays in deliveries.

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Since mid-December, attacks, the aim of which according to the rebel group is to punish Israel for the war in Gazaintensified.

On Tuesday, the US and UK militaries announced they repelled “the biggest attack” yet by Houthi rebels, after shooting down 18 drones, two cruise missiles and one ballistic missile.

And this Wednesday, the UN Security Council approved a resolution demanding an immediate end to attacks on merchant ships in the Red Sea, which includes a mention of the right of UN member countries to defend these ships from attacks.

The Yemeni militia argues that it attacks ships traveling to Israel, using drones and rockets, although it is not clear whether all of the ships attacked are heading for Israeli territory.

S&P Global Market Intelligence documented more than 20 confirmed incidents from November 19th against commercial ships.

Shipping companies, including Maersk, Hapag-Lloyd and Mediterranean Shipping Company (MSC), have opted for alternative routes to transport their containers, in the middle of the The biggest maritime emergency of its kind since a ship ran aground in the Suez Canal paralyzed much of global trade in 2021.

Companies such as Ikea, Walmart or Amazon have experienced delays in the arrival of some products, Reuters reported, while the increase in the cost of transporting goods is one of the main effects of the crisis.

Houthi attacks have forced shipping companies to change shipping routes. (GET IMAGES).

Increase in the cost of maritime transport

“In recent days, we have seen dramatic increases in the costs of shipping containers on several critical trade routes,” Willy Shih, a professor at Harvard Business School, told BBC Mundo.

The price of moving a container from East Asia to Northern Europe has increased by 199% in recent weeksaccording to data from Freightos, an international cargo and market analysis company.

Although the Shanghai-Rotterdam sea route was one of the most affected, routes connecting Shanghai to Genoa, Los Angeles and New York also suffered the consequences of the Red Sea crisis.

Alternative route to the Red Sea

Alternative route to the Red Sea

And the Red Sea is one of the most important roads in the world for the transport of consumer goods, oil and liquefied natural gas.

The issue is even more challenging for maritime transport. “We have two simultaneous crises” that are affecting maritime routes, highlights Shih.

One is the Red Sea crisis and the other is the lack of water in the Panama Canal.

In this context, any major disruption could upset the delicate balance of maritime transport.

How significant will be the economic impact of diverting the Red Sea route?

Simon Heaney, senior manager of the Container Research area at the company Drewry, tells BBC Mundo that “the economic consequences of attacks on commercial ships in the Red Sea depend on their duration”.

Houthi fighters captured the Galaxy Leader Cargo off the Red Sea coast in late November.  (GET IMAGES).

Houthi fighters captured the Galaxy Leader Cargo off the Red Sea coast in late November. (GET IMAGES).

These types of situations “can significantly affect global supply chains and take weeks or months to recover”, argues Heaney, as a time of crisis arrives in the coming weeks. high commercial flow with the arrival of Chinese New Year on February 10th.

And it is likely, says the expert, that there will be a certain level of congestion in ports due to delays in the flow of ships.

Something positive in the midst of everything that is happening is that, so far, the impact on the energy sector “has not materialized”, says the expert and argues that “there are reasons to believe that maritime transport has more than enough capacity” . to face the challenge.

And despite the difficulties, analysts such as Peter Sand of freight rate data firm Xeneta maintain that “shipping companies are in a much better position to deal with a crisis” than when the massive Ever Given blocked the Suez Canal. in 2021. .

The Houthi rebels say the attacks are aimed at opposing the Israeli incursion against Hamas in Gaza.  (GET IMAGES).

The Houthi rebels say the attacks are aimed at opposing the Israeli incursion against Hamas in Gaza. (GET IMAGES).

What can be seen on the horizon

Jack Kennedy, associate director and head of global risk intelligence and analysis for the Middle East and North Africa at S&P Global Market Intelligence, argues that “It is likely that Houthi attacks will continue to target international vessels, regardless of their public connection to Israel.”

Despite the Houthis’ claims that the attacks on the ships are due exclusively to Israel’s combat operations in Gaza, Kennedy told BBC Mundo, the Houthis “are also using their attack capabilities to exert greater geopolitical influence in the region and to present themselves as an actor of global importance.”

If so, the effects of the Red Sea crisis could continue to further increase costs, transport times and delays in product delivery.

Even small delays can cause a domino effect throughout a product’s production chains.

This is explained because global supply chains work in coordination, ensuring that each element arrives just in time to enter the production line.

Any delay affects other parts of the product manufacturing process.

While the problem may seem limited to shipping companies, analysts warn that Consumers around the world may see some product price increases in the future.

It all depends on the evolution of events in the coming days and weeks.

The effects of the Red Sea crisis could continue to increase transport costs and, eventually, the price of products.  (GET IMAGES).

The effects of the Red Sea crisis could continue to increase transport costs and, eventually, the price of products. (GET IMAGES).

Source: Elcomercio

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