The Houthis, an Iranian-backed terrorist organization in Yemen, trained and supplied through Tehran’s theocratic dictatorship, have wreaked havoc on the global supply chain and sent shockwaves through foreign markets. Now the US is attacking Iranian targets in Syria and Iraq, while the UK and US are bombing Houthi targets in the Red Sea. The burden on the global economy is increasing.
Nearly 30 percent of global container shipping navigates through the Suez Canal via the Red Sea, with 15 percent of global trade passing through the Red Sea, mostly destined for Asia. This traffic includes not only strategic resources like oil and gas but also everyday goods and commodities that keep the global economic engine humming.
Starting in November 2023, the Houthis introduced indiscriminate attacks on advertising vessels passing through the Bab al-Mandab Strait, a 20-mile-wide bottleneck for shipping traffic in and out of the Red Sea in the south. These attacks have already shaken the global energy market. The Houthis justify such moves by claiming that they are targeting Israeli-linked ships in reaction to its war against Hamas in the Gaza Strip. Western governments say the Houthis are attacking indiscriminately.
Cargo insurance has seen a sharp increase in rates for trips across the Red Sea. While listings accounted for about 0. 6% of freight costs before the crisis, they now reach 2%. Insurers also added war risk premiums in most cases. the popular rate, further increasing the value of borrowing the Suez Canal route.
Shipping rates from North Asia to the East Coast of the U.S. have jumped 137% to $5,100 for a 40-foot container from early October, while rates from North Asia to the West Coast have jumped 131% to $3,700. China also faces issues stemming from Red Sea disruptions, as shipping costs to Europe have more than doubled to about $7,000 from $3,000 in December, 2023’s $3,000, posing a huge threat to its export-driven economy.
It is estimated that 12% of the world’s industry passes through the Red Sea each year, worth more than $1 trillion. Shipping giants such as Maersk and Hapag-Lloyd have begun suspending this area entirely, opting for a longer detour around the Cape of Good Hope, which could require an additional $1 million in fuel charge per trip.
These shipping giants have already incurred around $200 million in the price of additional fuel alone. The consequences of the shipping crisis affect a number of sectors. The US company BDI Furniture has announced that it will ask transport agents to avoid the Suez passage. Funnel and ship goods across the Pacific Ocean to California. German chemical giant Gechem GmbH
Egypt’s Suez Canal profits are down 40% year-to-date compared to 2023, equating to a loss of around $300 million. This has serious economic implications for Egypt, as the Suez Canal has long been a source of foreign exchange for the country. .
The impact of the crisis on inflationary pressures remains uncertain. While the New York Federal Reserve’s Global Supply Chain Pressure Index does not recommend a significant increase in December or January, the effects of shipment disruptions would likely manifest themselves with some delay. The European Central Bank has maintained its forecast that inflation in the eurozone will fall from 5. 4% in 2023 to 2. 7% this year, with a prolonged Red Sea shutdown most likely slowing the pace at which the inflation rate returns to normal.
East African countries such as Ethiopia, Somalia and Kenya are threatened by the crisis. They rely heavily on wheat imports from the EU, Russia and Ukraine, which transit through the Suez Canal. Although shipping prices are tracked through the International Grains Council’s Grains and Oilseeds System freight index remains below its pandemic peak, prolonged disruptions will force consumers in this region to bear the brunt of emerging food prices.
This crisis is the most severe supply chain disruption since the COVID-19 pandemic, jeopardizing the global economic recovery and potentially leading to inflation as transportation and oil costs rise. The total cost of this crisis is already in the billions of dollars, and it is expected that it will not only continue to rise, but will fall mainly on the least supplied emerging countries to deal with it.
Even a conservative estimate of those losses, calculated by combining lost tolls at the Suez Canal, increased external spending on foreign shipping, emerging foreign transaction costs, and unnecessary fuel and food costs, is astronomical. For Europe alone, the existing figure is approximately $1 billion. This amount increases even more if we know the knowledge that is still to come about East Asia and the Americas at the time of this article’s publication, and skyrockets even more if potential losses are included, and included. The losses will multiply as long as the crisis persists. . Only the United States and its allies, who are ensuring a swift end to the crisis, will prevent the bleeding.
Henry Tsung Tsai contributed to this report.