What happened in the Red Sea?
The Red Sea crisis has been a major concern for the global trade industry. The situation has been escalating since mid-November 2023, when Houthi rebels in Yemen started attacking commercial shipping vessels travelling through the lower Red Sea . The attacks have increased in response to Israel’s bombardment of Gaza . On some occasions, Houthis have boarded or sought to board merchant tankers; on others, they have targeted cargo ships with drones and missiles . The situation has escalated further in the past week, to the point where Maersk, Hapag, and other shipping groups have halted or rerouted traffic, while the US has announced a maritime coalition to defend shipping against attacks.
Response from Major Carriers:
Consequences on Global Freight Prices:
Here is a price comparison for some of the busiest routes from one of the most reliable carrier(Rates have been calculated from Mundra Port, Gujarat, India for reference) :
But why is Red Sea Important?
The Red Sea is one of the world’s most densely packed shipping channels, lying south of the Suez canal, the most significant waterway connecting Europe to Asia and east Africa. About 12% of global trade passes through the Red Sea, including 30% of global container traffic. Billions of dollars of traded goods and supplies pass through the Red Sea every year, meaning that delays there can affect petrol prices, the availability of electronics and other aspects of global trade .
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Here is a timeline of the events that have unfolded so far:
Mid-November 2023: Houthi rebels in Yemen started attacking commercial shipping vessels travelling through the lower Red Sea.
December 2023: BP halts all shipments of oil and gas through the region .
January 2024: The world’s largest container-shipping companies have been pausing or suspending their services in the area because of the increasing number of attacks on ships there by Iran-backed Houthi rebels operating from Yemen.
January 2024: 95% of vessels have rerouted around the Cape of Good Hope, adding 4000 to 5000 nautical miles and 15 to 20 days to journeys.
January 2024: As of latest on 16th January, A Greek vessel was hit by missile fired by Houthi rebels.
Global and Domestic Implications of the Red Sea Crisis
The Red Sea crisis has already had a significant impact on the global economy. The World Bank has warned of surging energy prices, slower growth, and higher inflation as the threat of disruption to world trade rises. The situation has led to firms pausing shipments, raising the possibility of a shock to the world economy. The situation has led to delays in shipments, adding between 10 and 15 days to transit times as ships take the safer route around southern Africa.
India, one of the oil-importing countries, is expected to be negatively impacted by the crisis. According to the World Economic Forum (WEF) president Borge Brende, a $10-20 increase in oil prices would be harmful to India’s economy. The redirection of ships is expected to cost up to $1 million in extra fuel for every round trip between Asia and Europe, while insurance costs are also rising, adding to the overall cost of shipments. Tankers transporting diesel and jet fuel from the Middle East and Asia are being diverted, while container shipments of consumer goods, commodities, clothing, and food are also likely to be delayed.
The implications of the Red Sea crisis are far-reaching, impacting freight costs, delayed deliveries, and potentially disrupting global supply chains. The situation remains tense, and the world is watching closely to see how it unfolds. We will shortly post a followup blog as well as soon as the situation develops.
We would be eager to know your views and how this crisis has impacted your business. How are you mitigating this crisis? Feel free to share your views.