Red Sea attacks leave shipping companies with difficult choices

The shipping companies that move goods on one of the world’s busiest trade routes for factories, stores, car dealerships and other businesses face an excruciating decision.

They can send their vessels through the Red Sea if they are willing to risk attacks by the Houthi militia in Yemen and to bear the cost of sharply higher insurance premiums. Or they can sail an extra 4,000 miles around Africa, adding 10 days in each direction and burning considerably more fuel.

Neither option is appealing, and both raise costs — expenses analysts said could ultimately be borne by consumers through higher prices on goods.

“We are beginning to see the weaponization of the global supply chains,” said Marco Forgione, director general of the Institute of Export and International Trade, which supports British corporate efforts to expand in overseas markets.

In recent months, global supply chains had finally recovered after three years of disruptions caused by the pandemic and even a brief blockage of the Suez Canal, which lies at the northwestern end of the Red Sea and handles some 12% of global trade. Freight rates had fallen steeply, and the long delays that had bedeviled retailers in the United States and Europe had been resolved.

So far, the problems in the Red Sea have not disrupted global supply chains to the same extent that the pandemic did. “But we are heading in that direction,” Forgione said.

The Houthi attacks have continued even after a U.S.-led force was assembled in the Red Sea to prevent them.

Already, some companies, including Ikea and Next, the British retailer, have said that avoiding the Suez Canal and taking the long route around Africa could delay the arrival of products.

A crucial question will be how the container shipping industry handles the annual surge of exports that typically occurs before China’s factories are idled for weeks at Lunar New Year, which is next month.

Difficulties vary considerably by types of vessel. Oil tankers have been little affected and are continuing to use the Red Sea, as the Houthis appear to have shown little interest in them.

By contrast, the number of specialized car-carrying ships using the Red Sea more than halved last month from December 2022, to just 42 trips, and only one has transited the sea so far this year, said Daniel Nash, head of vehicle carriers at VesselsValue, a London shipping data firm.

The first vessel attacked by Houthi gunmen in recent weeks was a car carrier, the Galaxy Leader, which was hijacked Nov. 19 while returning to Asia for another load of several thousand cars. The 25-member crew, mainly Filipinos, was also kidnapped and still does not seem to have been released.

Longer voyages around Africa for car-carrying vessels traveling to Europe from Asia are particularly disruptive right now for the global auto industry. Chinese automakers have been rapidly increasing exports to Europe, especially of electric cars. Even before the Red Sea troubles, daily charter rates for transoceanic car carriers had skyrocketed to $105,000, from $16,000 two years ago.