The Hamilton Spectator

Freighters Could Ease Red Sea Disruption­s


After the Houthi militia started attacking container ships in the Red Sea last year, the cost of shipping goods from Asia soared by over 300 percent, prompting fears that supply chain disruption­s might again roil the global economy.

The Houthis, who are backed by Iran and control northern Yemen, continue to threaten ships, forcing many to take a much longer route around Africa’s southern tip. But there are signs that the world may avoid a drawn-out shipping crisis.

One reason for the optimism is that a large number of container ships, ordered two to three years ago, are entering service. Those vessels are expected to help shipping companies maintain service as their ships travel longer distances. The companies ordered the ships when the surge in world trade during the pandemic created enormous demand.

“There’s a lot of available capacity out there, in ports and ships and containers,” said Brian Whitlock, a senior director and analyst at Gartner, a research firm.

Shipping costs remain elevated, but some analysts expect the supply of new ships to push down rates later this year.

Before the attacks, ships from Asia would traverse the Red Sea and the Suez Canal, which typically handles about 30 percent of global container traffic, to reach European ports. Now, most go around the Cape of Good Hope, making those trips 20 to 30 percent longer, increasing costs.

The Houthis say they are attacking ships in retaliatio­n for Israel’s invasion of Gaza. Western allies have been striking back against Houthi positions.

Some analysts have worried that the longer journeys could push up costs for consumers. But shipping executives now say their operations will adapt to the disruption before the

The world may avoid a drawn-out shipping crisis.

third quarter, their busiest season.

The new ships account for over a third of the industry’s capacity before the order boom began, Mr. Whitlock said.

The quick adjustment reflects the fact that the supply chains are in better shape than they were in 2021 and 2022. Back then, the supply of goods was constraine­d while demand from stuck-at-home consumers was strong. Ports, shipping companies and others were also struggling with shortages of workers, containers and ships.

Analysts also note that not every ship is taking the long route around Africa to avoid the Red Sea and the Suez Canal. So far this year, an average of 30 cargo ships a day have gone through, compared with 48 in 2023, according to the Internatio­nal Monetary Fund and Oxford University.

Still, the spike in shipping rates is causing pain for smaller businesses that lack longterm contracts with shipping companies. They rely on what is called the spot market, where rates are well above where they were for most of last year. In 2023, shipping rates had fallen to prepandemi­c levels.

LSM Consumer & Office Products, an English company, imports office supplies from China and India. Marcel Landau, its managing director, said his cost of shipping one container had jumped to $3,000 from about $1,000 before the Red Sea attacks. He can’t easily pass on the costs to his customers, he said, because his prices are set in contracts. As a result, he expects the higher shipping costs to eat up around half his profits.

“Last year, it was wonderful,” he said. “And then it began to go wrong when the Middle East situation began to blow up.”

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