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Shipping firms reroute amid Houthi attacks, prompting food price surge

20 December 20233 min reading

Major shipping companies, including Maersk and MSC, are rerouting vessels away from the Red Sea due to escalating Houthi attacks, raising concerns about supply chain disruptions and potential food price surges. The strategic decisions to avoid the Suez Canal and prioritize safety amid geopolitical tensions are reshaping global trade dynamics and may impact shipping rates and, consequently, commodity prices.

In response to escalating attacks, major shipping firms, including Maersk, MSC, and CMA CGM, are rerouting their vessels away from the Red Sea. These decisions come in the wake of heightened security concerns, particularly after vessels were attacked while transiting the Red Sea. With safety as a priority, Maersk has already paused voyages and rerouted ships around Africa via the Cape of Good Hope, a move mirrored by other industry giants. The assaults are carried out by the Iran-backed Houthi rebels from Yemen, who target vessels they associate with Israel in protest of its military operations in Gaza.

Normally, about 30% of container volumes pass through the Suez Canal, constituting nearly half of the canal's traffic by weight. The choice to steer clear of the Suez Canal has the potential to tighten the market, creating favorable conditions for possible rate increases.

The Houthi attacks, allegedly in support of Hamas, have prompted concerns about the safety of maritime routes, especially the crucial Bab al-Mandab Strait. As a result, the affected shipping companies are taking precautionary measures to secure their crews, vessels, and supply chains. The industry-wide rerouting is not only reshaping global trade routes but is also raising questions about potential disruptions to supply chains, increased insurance costs, and the likelihood of passing additional expenses on to consumers.

The world's two largest container shipping markets, Asia-Europe and Asia-U.S. trades, are facing notable challenges. Security concerns at the Bab al-Mandab Strait directly impact the Asia-Europe market, while the Asia-U.S. trade experiences heightened disruptions. Opting for the longer route via the Cape of Good Hope adds significant transit time, making the voyage between Shanghai and New York 17% longer via the Suez Canal than the Panama Canal and 37% longer via the Cape of Good Hope than the Panama Canal. These prolonged shipping routes are anticipated to contribute to increased costs, potentially impacting commodity prices.

As the shipping companies are seeking for a safe and secure path, the market is witnessing a shift that could impact shipping rates and supply chain dynamics. The strategic decision to reroute ships may result in broader implications for global trade, affecting approximately 30% of container volumes that transit the Suez Canal. The uncertainty surrounding a safe return to traditional routes through the Red Sea and Suez Canal remains, prompting concerns about potential food price surges and the need for collaborative efforts to secure the region and ensure the stability of international maritime trade.

SHIPPING COSTS SURGE FOR GOODS TO ISRAEL

In recent days, shipping costs for goods to Israel by sea have increased due to container lines withdrawing and others introducing new surcharges, Reuters reported. This adds to the supply chain pressures for Israel amid the attacks to Gaza, according to shipping sources.

In October, Israel, whose economy heavily depends on seaborne trade, announced plans to compensate for ships damaged during the war with Gaza. However, specific details about covering additional shipping costs have not been disclosed.

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