Red Sea attacks by Houthis threaten global supply chain

By Dilara Zengin

WASHINGTON (AA) - The Houthis, a political and military organization in Yemen, increased their attacks on commercial vessels passing through the Red Sea, disrupting global maritime trade and forcing the world’s leading global shipping companies to reroute.

The world's largest container company, Italian and Swiss-owned Mediterranean Shipping Company (MSC), Denmark-based shipper Maersk, German shipper Hapag-Lloyd, and France-based shipper CMA CGM were among the companies that suspended all sailings in the Red Sea after security was compromised.

The Houthi group vowed to continue its attacks on Israeli ships passing through nearby waters in the Red Sea. The group said the attacks aim to support Palestinians as they face Israel's "aggression and siege" in Gaza.

The Red Sea is one of the world's most frequently used sea routes for oil and fuel shipments.

Vessels are changing course to the Cape of Good Hope, the southernmost point of Africa, to avoid attacks, adding a total of 4,000 nautical miles to travel, analysts say.

UK-based energy company BP announced on Monday that it will temporarily halt all tanker traffic in the Red Sea due to the deteriorating security.

With these developments, crude oil prices soared by more than 2% on the day of the announcement.

Taiwanese container shipping line Evergreen Marine said on Monday that for the safety of its vessels and the crew, it has temporarily stopped accepting Israeli cargo and suspended navigation in the Red Sea until further notice.

For long-haul routes, the current average spot market price of a standard container (one TEU equals 6.1 meters) is $1,030, while imports are currently estimated to cost $80 and exports €90 ($98.49) more per TEU due to the lengthening of the route.

US Defense Secretary Lloyd Austin announced on Monday that the US is to establish a task force to escort commercial vessels in the Red Sea after three vessels were attacked by the Houthis in Yemen earlier this month.

- Rerouting can increase travel time by up to 14 days

Speaking to Anadolu, John Stawpert, senior manager for Environment and Trade at the International Chamber of Shipping, a British shipping organization, said that if commercial vessels were to go around the Cape of Good Hope, it would affect both commodity prices and trade.

He added that the rerouting can increase travel time by up to 14 days.

Stawpert pointed out that shipping companies continue to transit through the Red Sea, adding that Houthi operations are limited and the increased naval presence in the region will be enough to return transit to normal levels.

- ‘Supply chain challenges’

Adnan Mazarei, a senior fellow at the Peterson Institute for International Economics, a US-based non-profit organization, said that the Suez Canal is an important channel for global tanker trade and freighters.

Mazarei pointed out that inflation is on the decline in Europe and the US, and although it is not certain, the major central banks are expected to cut interest rates next year.

He said: "There will be some pressure if the conflict spreads, especially through Suez, if the liquefied natural gas and oil traffic stops or significantly reduces. However, right now I am not sure that these will be serious enough to really affect the perceptions and decisions of central banks."

- ‘$1M in extra fuel costs due to route change’

Peter Sand, chief analyst at the Norwegian freight market analysis firm Xeneta, said that the attacks caused a significant disruption in container transportation, cutting a major artery of global supply chains in half, with many shipping companies choosing to suspend transit and some services rerouting.

Sand noted that this was a route change that resulted in extra fuel costs of $1 million for each vessel going through the Cape of Good Hope instead of the Red Sea and the Suez Canal.

He said that prices could double from their current level on the most affected trade routes, bringing rates to $4,000 per FEU (forty-foot equivalent unit).

*Writing by Emir Yildirim