How Will Freight Be Affected By The Red Sea Crisis?

The worldwide freight system depends on a lot of factors to work. Some of this is about things being in the right place at the right time and in the right amounts, which was not fully the case when the world was opening up from pandemic lockdowns and supply chains took time to get back in order. But geopolitical situations can be a bigger concern.

While the post-pandemic system needed time and effort to resolve, a crisis like a war or terrorism is more unpredictable, as situations can change in ways that few can predict.

This is particularly true when a region is impacted by war. In the last two years, one clear example of this has been grain shipments out of Ukraine via the Black Sea, with Turkey working hard to broker a deal between the warring Ukrainian and Russian sides.

The deal expired earlier this year and the Russians have refused to renew it, although Ukrainian ships have been able to make safe passage by sailing via the territorial waters of neighbours in NATO, like Romania and Bulgaria, before reaching Turkey and the Bosporus, while its naval forces have successfully pushed back Russia’s Black Sea fleet.

However, it is another war that sparked the biggest current concern for shipping. In response to the Israel-Hamas conflict, Iranian-backed Houthi rebels based in Yemen have declared that, in sympathy with Hamas, they will attack any shipping linked to countries allied to Israel seeking to pass through the Red Sea to the Suez Canal.

Several ships have already been attacked or boarded by rebels as they pass through the narrow Bab al-Mandab straits at the southern end of the Red Sea. Assaults have included missile and drone attacks launched from on land.

This has led to major shipping firms like MSC, Maersk, CMA CGM and Haag-Lloyd ceasing passages through the Red Sea, with oil firms such as BP also halting shipments via this route.

According to Vortexa, nine million barrels a day passed through this route in the first half of 2023, so it has been little surprise to see concerns that this could lead to a fresh hike in oil prices, the last thing most advanced economies would want at a time when inflation is finally easing.

There is a solution, but it’s far from ideal; ships are returning to the historical route of passing around the Cape of Good Hope. It’s a safe passage, but a lot longer, meaning extra costs and delays.

It is not the first time this has happened, of course; in 2021 the Ever Given incident saw ships diverted after the giant ship got stuck in the Suez Canal. However, this problem only lasted a week before the vessel was freed and the canal unblocked. How long the Houthi disruption may last is anyone’s guess, not least with its link to events in Gaza.

Navies like those of the UK and US have been stepping up patrols in the Red Sea area, but it remains to be seen if they can curb the rebel threat enough to persuade major shipping firms that this vital route is safe enough for them to resume sailing through.

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