What the papers say.
The attacks have forced major shipping lines, including Maersk, Cosco, and BP, to stop using the Suez Canal and Red Sea route ( South China Morning Post ). The disruptions in the Red Sea could lead to higher prices and shortages of goods ( Axios ). The tensions in the Red Sea add to fears of regional escalation of the ongoing Israel-Hamas conflict ( Business Insider UK ).
How we got here.
The attacks by Houthi rebels in the Red Sea have been ongoing since November, with the rebels using exploding drones and missiles to target commercial vessels. The Suez Canal, which accounts for 12% of global trade, has been a major shipping route affected by the disruptions (The Times).
- One of the world's busiest waterways, Egypt's Suez Canal, connects the Red Sea to the Mediterranean Sea and ships fuel, food and consumer goods from Asia and the Middle East to Europe.
- It accounts for 12% of global trade, including 30% of all container movement, according to Egypt's State Information Service.
This adds up thousands of kilometers, or seven to 20 days of their voyages, driving up the cost of shipments from Asia to Europe and raising the prospect of a renewed inflation shock for the world economy.
- As a rough benchmark, avoiding the Red Sea would add around $2 million to a ship's journey in terms of fuel and other costs, Lars Jensen, founder of Vespucci Maritime and former Maersk director said.
- This means for a full round-trip journey between Asia and Europe, each vessel could have an extra $4 million in costs, he added, which would lead to increases in freight rates.
- Some carriers have announced rates above $6,000 per 40-foot container for Mediterranean shipments starting mid-month, and surcharges of $500 to as much as $2,700 per container could make all-in prices even higher, said Judah Levine, Freightos' head of research.
Goldman Sachs on Friday raised its forecast for May euro-area core inflation to 2.3 percent, from 2.2 percent, as a result of the jump in shipping costs, and said a prolonged re-routing of cargo away from the Red Sea would likely have a bigger inflation effect.
But Goldman Sachs believed the inflation would not be as severe as in the pandemic era.
"Our equity analysts expect that the shock will be neither as bad nor as prolonged as 2020-22 due to increased ship supply, and no port congestion due to lockdowns," it said.
Twelve governments, including the U.S., Australia, Canada, Germany, Japan and the United Kingdom, issued a strongly-worded statement earlier this week, warning the Houthis against further attacks.
(With input from agencies)
(Cover: The Maersk Sentosa container ship sails southbound to exit the Suez Canal in Suez, Egypt, December 21, 2023. /CFP)
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