Shipping costs up 250% due to Houthi attacks in Red Sea

The cost of shipping goods through the Red Sea has surged in some cases by almost 250 per cent since Yemen’s Houthi rebels began attacking commercial vessels in November, industry analysts have said.

Continuing disruption may lead to higher inflation globally, they said.

Charges for transporting a 12-metre container from China

to Europe through the waterway have surged to about $4,000 at present, according to the Drewry World Container Index, which tracks container freight rates on eight major routes to and from the US, Europe and Asia.

That is a 248 per cent jump from $1,148 on November 21, the week the attacks by the Iran-backed Houthis began, and a 140 per cent increase from $1,667 on December 23, data from London-based Drewry showed. Some of the world’s largest shipping companies have been forced to suspend Red Sea routes and redirect their vessels.

These include Europe-based MSC, Maersk, CMA CGM and Hapag-Lloyd, and Asia-based Cosco Shipping, HMM and Evergreen Line, as well as oil and gas tanker operators.

The alternative route for East-West trade involves passage around the Cape of Good Hope, at the southern tip of Africa, increasing travel time.

“This strategic shift not only increases sailing times by 1014 days but also adds additional fuel costs,” Rahul Sharan, senior manager for bulk research at Drewry, told The National. Some of the companies have imposed surcharges to cover additional expenses.

The rise in charges is not only due to issues in the Red Sea. A “panic” in China, owing to fears of insufficient shipping capacity to transport goods before Lunar New Year

holiday, has also been pushing prices up, Mr Sharan said.

Ancillary costs such as surcharges and insurance have also increased, so “logistically, this becomes a difficult situation”, Christian Roeloffs, co-founder and chief executive of Hamburg-based Container xChange, told The National.

“The cost of war risk insurance has doubled in the past week and we do expect this to further go up,” he said.

“The higher rates could put as much as $760,000 on the cost of each voyage for a brand-new $130 million VLCC [very large crude carrier] and push the million-dollar mark for an ultra-large boxship.”

Container rates on the Asia-Europe trade have been affected the most, said Rico

Luman, senior economist of transport, logistics and automotive at Amsterdam-based ING Research.

“Particularly sailings to Mediterranean ports are significantly longer. Port-to-port container rates on the Asia-Europe trade was up 130 per cent compared to early November,” he said.

The Houthi attacks are part of the rebels’ campaign to stop Israel’s bombardment of Gaza.

The assaults have significantly increased the risk for shipping companies while also escalating concerns about the security and welfare of seafarers.

A senior US official said last week that 25 Houthi attacks had been carried out since November 18 on merchant vessels transiting the southern Red Sea and Gulf of Aden.

The US last month also formed Operation Prosperity

Guardian, a new international mission focused on countering attacks on commercial vessels in the Red Sea.

“If left unchecked, the deteriorating security situation has major implications for global supply chains, including delayed shipments, increased transit times, and higher costs on energy and non-energy trade between Europe, the Middle East and Asia,” said Pat Thaker, editorial director for the Middle East and Africa at the Economist Intelligence Unit.

The closure of the Red Sea route or any disruptions will have significant repercussions, especially for international shipping companies, said Ali Abouda, chief financial officer of Dubai Financial Market-listed Gulf Navigation.

“The Bab Al Mandeb is a key route for maritime trade, especially for oil shipments from the Middle East to Europe and the US,” Mr Abouda said. “The closure could lead to delays, increased shipping costs and potential shortages of goods.”

As shipping companies reroute their vessels around the southern tip of Africa, this could result “in congestion at alternative routes which will impact the supply chain and affect industries that rely on just-in-time delivery systems”, he added. It would also lead to heightened security risks in the region and insurance providers may increase premiums to account for the perceived higher likelihood of incidents due to the geopolitical tensions.

Alternative routes may also be associated with higher risks and, consequently, higher premiums, Mr Abouda said.

The Red Sea, one of the world’s major trade arteries, carries an estimated nine million barrels a day of oil shipments, representing about 10 per cent of global demand, while the route covers almost one-third of global container traffic and around 12 per cent of global goods trade.

On the energy front, continued attacks by the Houthis have escalated concerns about supply disruption in the oil market.

Bab Al Mandeb is a route for oil tankers and cargo ships sailing between the Arabian Gulf and Asia, as well as to Europe through the Suez Canal.

About 12 per cent of the world’s seaborne oil trade and 8 per cent of liquefied natural gas passes through the strait.

While the price of Brent, the benchmark for two thirds of the world’s oil, has been fluctuating since the attacks began due to fears of supply disruption, it remains below $80 on demand concerns.

Analysts at Fitch forecast the price of Brent to hover around $85 a barrel in 2024.

However, “should more shippers divert vessels around the Red Sea beyond our expectations, extending the costs and travel time for fuel and crude, the impacts to prices could be more significant than estimated and warrant an increase to our 2024 forecast”, they said.

The assaults have increased the risk for companies and escalated concerns about the welfare of seafarers