By Nuran Erkul
LONDON (AA) – The Red Sea security situation has slashed container ship traffic in the region by more than half, which experts say has “completely shifted the trajectory of the container market,” while transits of liquefied natural gas (LNG) tankers are at a near standstill.
The Red Sea has been a hotbed of tensions since the end of last year, when Yemen’s Houthis started attacking vessels linked to Israel as a response to its ongoing deadly war on Gaza.
The crisis has had a cascading effect on the global shipping industry, spurring price spikes as ships were forced to divert to the much longer route around South Africa’s Cape of Good Hope.
Container ship transits in the Red Sea plummeted by 55.6% in the first quarter of this year, dropping to 3,464 from 7,804 during the same period last year, according to data from MarineTraffic, a ship tracking and maritime analysis provider.
LNG trade, meanwhile, has almost grinded to a halt with a fall of 84.3%.
Dry bulk ship transits decreased by 20.8%, wet bulk ship transits by 21.6%, LPG carriers 12%, ro-ro transits 46%, and dry break bulk ship transits by 11.8%, the data showed.
- Freight rate spikes
Citing information from the Baltic Dry Index, Niels Rasmussen, a chief shipping analyst at Baltic and International Maritime Council (BIMCO), said freight rates jumped 39% on the China-Europe line and 30% on the China-Mediterranean line in this year’s first quarter.
Rates for the China-US East Coast line, on the other hand, decreased by 1%, he said.
On average, the Baltic Exchange Dry Index has been 84% higher compared to last year’s first quarter, while the Baltic Exchange Clean Tanker Index was up 18%, he said.
The Baltic Exchange Dirty Tanker Index (BDTI), however, has been 8% lower, he added.
Rasmussen said ships of all types have increasingly avoided the area and also stopped sailing through the Suez Canal, instead opting for the longer Cape of Good Hope route.
“In January 2024, average weekly transits through the Suez Canal, measured in deadweight tons, were 38% lower than in 2023. In March 2024, the transits were 51% lower than in 2023,” he told Anadolu.
Suez Canal transits of dry bulkers were 36% lower in March, crude tanker transits dropped 39%, product tankers were 48% lower, and container ships were down 85% lower, he said.
“It (rerouting of ships) has completely shifted the trajectory of the container market,” said Rasmussen.
Prior to the Houthi attacks, he said, the supply and demand balance and freight rates were expected to weaken further in 2024.
Instead, demand has increased, leading to a tightened supply and demand balance due to the longer distance, he added.
- ‘Ships will need to start sailing much faster’
According to Rasmussen, despite pre-attack demand being relatively low, a recent surge in deliveries of new container ships has helped the industry absorb the shock.
He said freight prices have increased, though not as much as during the COVID-19 period, which will likely be reflected in consumer prices.
“Should the situation develop in a way that all ships stop using the Suez Canal, it is very likely that the global fleet of ships will need to start sailing much faster,” he added.
“That would significantly hurt shipping’s ability to reduce greenhouse gas emissions and follow the decarbonization strategy laid out by the International Maritime Organization.”
- Mounting import costs
Countries that most depend on the Suez Canal in terms of foreign trade are Sudan, Yemen, Djibouti, Saudi Arabia and the Seychelles, Jan Hoffmann, head of trade logistics at the UN Conference on Trade and Development’s (UNCTAD), told Anadolu.
These countries rely on the canal for “between one-fifth and one-third of their foreign trade volumes” and their trade costs have surged, he said.
“Egypt is also negatively affected, as it loses Suez transit income, and its transshipment ports are no longer at the crossroads of shipping lanes,” he said.
“By the same token, all countries in the Eastern Mediterranean, including Türkiye, all of a sudden find themselves at the end of a dead-end for all trade from Asia, as ships no longer reach them through the Suez Canal, but instead have to go round South Africa and the Strait of Gibraltar, adding to costs.”
While import costs have increased for now, if the situation continues, demand will adapt to changing prices in the long term and lead to shifts in trade patterns, he said.
Hoffmann said it will take time for increasing import costs to be reflected in consumer prices, while pointing out that higher freight rates during the COVID-19 pandemic eventually led to an inflation spike of 1.5 percentage points.
“This time, the situation is different. Not all trade routes are impacted, but only those that go through Suez, plus the US West Coast. The increase in freight rates is not quite as high and the increase is not as long,” he added.